---









Consolidated Financial Statements
(Expressed in Thousands of United States Dollars)

TAHOE RESOURCES INC.

Years Ended December 31, 2012 and
2011









March 7, 2013

---

Deloitte LLP2800 - 1055 Dunsmuir
Street4 Bentall CentreP.O. Box 49279Vancouver BC V7X
1P4Canada

Tel: 604-669-4466Fax:
778-374-0496www.deloitte.ca





Report of Independent Registered Chartered
Accountants

To the Board of Directors and Shareholders of Tahoe
Resources Inc.

We have audited the accompanying consolidated financial
statements of Tahoe Resources Inc. and subsidiaries (the Company), which
comprise the consolidated balance sheet as at December 31, 2012, and the
consolidated statements of operations and comprehensive loss, statement of cash
flows, and statement of changes in equity for the year ended December 31, 2012,
and a summary of significant accounting policies and other explanatory
information.

Managements Responsibility for the Consolidated Financial
Statements

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

Auditors Responsibility

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

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
entitys internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the
consolidated financial statements.

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

---

2

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Tahoe Resources Inc.
and subsidiaries as at December 31, 2012 and their financial performance and
cash flows for the year ended December 31, 2012 in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board.

Other Matter

The consolidated balance sheet as at December 31, 2011 and the
consolidated statement of operations and comprehensive loss, statement of cash
flows and statement of changes in equity for the year ended December 31, 2011
were audited by another auditor who issued an unqualified opinion on March 8,
2012.

/s/ Deloitte LLP

Independent Registered Chartered AccountantsMarch 7,
2013
  Vancouver, Canada

---

KPMG LLP
    Telephone
    (604) 691-3000Chartered Accountants
    Fax
    (604) 691-3031PO Box 10426 777 Dunsmuir Street
    Internet
    www.kpmg.caVancouver BC V7Y 1K3Canada


INDEPENDENT AUDITORS REPORT OF REGISTERED
PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Tahoe Resources
Inc.

We have audited the accompanying consolidated financial
statements of Tahoe Resources Inc., which comprise the consolidated balance
sheet as at December 31, 2011, the consolidated statements of operations and
comprehensive loss, changes in equity and cash flows for the year ended December
31, 2011, and notes, comprising a summary of significant accounting policies and
other explanatory information.

Management's Responsibility for the Consolidated Financial
Statements

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

Auditors Responsibility

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

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

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

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

---

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of Tahoe
Resources Inc. as at December 31, 2011, and its results of operations and its
consolidated cash flows for the year ended December 31, 2011 in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board.

Chartered Accountants

Vancouver, Canada

March 8, 2012

---

| | Consolidated Balance Sheets 
      (Expressed in Thousands of United States Dollars)
| | ------------------------------------------------------------------------------------

|                                                 |       |   | Year
      Ended |   |   | Year
      Ended |  
|------------------------------------------------ | ----- | - | ---------------- | - | - | ---------------- | -
|                                                 |       |   | December 31,     |   |   | December 31,     |  
|                                                 | Notes |   | 2012             |   |   | 2011             |  
|Assets                                           |       |   |                  |   |   |                  |  
|Current assets:                                  |       |   |                  |   |   |                  |  
|Cash and cash
      equivalents                  | (14 ) | $ | 164,561          |   | $ | 349,837          |  
|Inventories                                      |       |   | 842              |   |   | -                |  
|Other current assets                             |       |   | 867              |   |   | 276              |  
|                                                 |       |   | 166,270          |   |   | 350,113          |  
|Non-current assets:                              |       |   |                  |   |   |                  |  
|Mineral property, land, plant                    | (4 )  |   | 679,326          |   |   | 563,216          |  
|and equipment                                    |       |   |                  |   |   |                  |  
|Deposits                                         |       |   | 7,347            |   |   | 8,676            |  
|                                                 |       |   | 686,673          |   |   | 571,892          |  
|                                                 |       |   |                  |   |   |                  |  
|Total Assets                                     |       | $ | 852,943          |   | $ | 922,005          |  
|                                                 |       |   |                  |   |   |                  |  
|Liabilities and Shareholders' Equity             |       |   |                  |   |   |                  |  
|Current liabilities:                             |       |   |                  |   |   |                  |  
|Accounts
      payable and accrued liabilities   | (7 )  | $ | 16,925           |   | $ | 9,209            |  
|Income tax payable                               | (16 ) |   | -                |   |   | 602              |  
|                                                 |       |   | 16,925           |   |   | 9,811            |  
|                                                 |       |   |                  |   |   |                  |  
|Non-current liabilities:                         |       |   |                  |   |   |                  |  
|Share appreciation rights liability              | (6 )  |   | 481              |   |   | 540              |  
|Other non-current
      liabilities              |       |   | 549              |   |   | -                |  
|Reclamation provision                            | (5 )  |   | 3,691            |   |   | -                |  
|Total Liabilities                                |       |   | 21,646           |   |   | 10,351           |  
|                                                 |       |   |                  |   |   |                  |  
|Shareholders equity:                            |       |   |                  |   |   |                  |  
|Share capital                                    | (6 )  |   | 988,081          |   |   | 972,569          |  
|Reserve                                          | (6 )  |   | 13,845           |   |   | 16,261           |  
|Deficit                                          |       |   | (170,629         | ) |   | (77,176          | )
|Total Shareholders' Equity                       |       |   | 831,297          |   |   | 911,654          |  
|Total Liabilities
      and Shareholders' Equity |       | $ | 852,943          |   | $ | 922,005          |  

See accompanying notes to consolidated financial
statements.

APPROVED BY THE DIRECTORS

|Dan Rovig | Kevin McArthur                    
|----------- | ------------------------------------
|Dan Rovig   | Kevin McArthur                      
|Director    | Director and Chief Executive Officer

|March 7, 2013 | 
|------------- | 

---

Consolidated Statements of Operations
        
        and Comprehensive Loss 
        (Expressed in Thousands of United States Dollars, Except Share and per
        Share Information)


|                                                                            |            |   | Year
      Ended |   |   | Year
      Ended |  
|--------------------------------------------------------------------------- | ---------- | - | ---------------- | - | - | ---------------- | -
|                                                                            |            |   | December 31,     |   |   | December 31,     |  
|                                                                            | Notes      |   | 2012             |   |   | 2011             |  
|Operating expenses:                                                         |            |   |                  |   |   |                  |  
|Escobal project expenses                                                    | (8 )       | $ | 70,945           |   | $ | 39,564           |  
|Exploration                                                                 | (9
      ) |   | 10,613           |   |   | 10,039           |  
|General and
      administrative expenses                                   | (10 )      |   | 19,021           |   |   | 19,092           |  
|Operating loss                                                              |            |   | (100,579         | ) |   | (68,695          | )
|Other Income and expenses:                                                  |            |   |                  |   |   |                  |  
|Gain (loss) on foreign exchange                                             |            |   | 5,423            |   |   | (4,000           | )
|Interest income and other income                                            |            |   | 1,407            |   |   | 3,963            |  
|Loss on dispososition of mineral property,
      land, plant, and equipment |            |   | (15              | ) |   | (3               | )
|Other expenses                                                              |            |   | 1                |   |   | (25              | )
|Loss before income tax                                                      |            |   | (93,763          | ) |   | (68,760          | )
|Income tax benefit
      (expense)                                          | (15 )      |   | 310              |   |   | (406             | )
|Loss for the year                                                           |            |   | (93,453          | ) |   | (69,166          | )
|Other
      comprehensive loss                                              |            |   | -                |   |   | -                |  
|Total comprehensive loss                                                    |            | $ | (93,453          | ) | $ | (69,166          | )
|                                                                            |            |   |                  |   |   |                  |  
|Loss per share:                                                             |            |   |                  |   |   |                  |  
|Basic and diluted loss per share                                            |            | $ | (0.65            | ) | $ | (0.48            | )
|Weighted average number of shares outstanding - basic and
      diluted     |            |   | 144,634,768      |   |   | 142,798,309      |  

See accompanying notes to consolidated financial statements.

|March 7, 2013 | 
|------------- | 

---

| | Consolidated Statements of Cash
      Flows 
      (Expressed in Thousands of United States Dollars)
| | ----------------------------------------------------------------------------------------------------

|                                                                                                                            |       |   | Year
      Ended |   |   | Year
      Ended |  
|--------------------------------------------------------------------------------------------------------------------------- | ----- | - | ---------------- | - | - | ---------------- | -
|                                                                                                                            |       |   | December 31,     |   |   | December 31,     |  
|                                                                                                                            | Notes |   | 2012             |   |   | 2011             |  
|Cash provided by (used in):                                                                                                 |       |   |                  |   |   |                  |  
|Operations:                                                                                                                 |       |   |                  |   |   |                  |  
|Loss for the year                                                                                                           |       | $ | (93,453          | ) | $ | (69,166          | )
|Items not involving cash:                                                                                                   |       |   |                  |   |   |                  |  
|Depreciation                                                                                                                |       |   | 6,869            |   |   | 1,200            |  
|Loss on disposition of mineral property, land,
      plant and equipment                                                    |       |   | 15               |   |   | 3                |  
|Share based payments                                                                                                        | (6 )  |   | 8,829            |   |   | 12,039           |  
|Foreign exchange (gain) loss                                                                                                |       |   | (5,423           | ) |   | 4,000            |  
|Interest income                                                                                                             |       |   | (1,407           | ) |   | (3,963           | )
|Other, net                                                                                                                  |       |   | 22               |   |   | 184              |  
|Changes in non-cash working
      capital and other:                                                                        |       |   |                  |   |   |                  |  
|Other current assets                                                                                                        |       |   | (591             | ) |   | (75              | )
|Inventory                                                                                                                   |       |   | (842             | ) |   | -                |  
|Accounts payable and
      accrued liabilities                                                                              |       |   | (1,190           | ) |   | 5,888            |  
|Income tax payable                                                                                                          |       |   | (602             | ) |   | 406              |  
|                                                                                                                            |       |   | (87,773          | ) |   | (49,484          | )
|Investing:                                                                                                                  |       |   |                  |   |   |                  |  
|Interest received                                                                                                           |       |   | 1,407            |   |   | 3,963            |  
|Land acquisitions                                                                                                           |       |   | (320             | ) |   | (6,651           | )
|Plant and equipment additions                                                                                               |       |   | (110,365         | ) |   | (36,715          | )
|Proceeds on disposition of
      mineral property, land, plant and equipment                                                |       |   | -                |   |   | 10               |  
|Decrease (Increase) in deposits                                                                                             |       |   | 1,330            |   |   | (8,466           | )
|Purchase of short-term
      investments                                                                                    |       |   | -                |   |   | (161,902         | )
|Redemption of short-term investments                                                                                        |       |   | -                |   |   | 161,902          |  
|                                                                                                                            |       |   | (107,948         | ) |   | (47,859          | )
|Financing:                                                                                                                  |       |   |                  |   |   |                  |  
|Proceeds from issuance of
      common shares on exercise of
                 
      underwriter warrants and stock options |       |   | 5,022            |   |   | 15,311           |  
|Underwritten offering, net of issuance costs                                                                                |       |   | -                |   |   | (593             | )
|                                                                                                                            |       |   | 5,022            |   |   | 14,718           |  
|Effect of exchange rates on cash and cash
      equivalents                                                                 |       |   | 5,423            |   |   | (4,000           | )
|                                                                                                                            |       |   |                  |   |   |                  |  
|Decrease in cash and cash equivalents                                                                                       |       |   | (185,276         | ) |   | (86,625          | )
|Cash and cash equivalents, beginning of the year                                                                            |       |   | 349,837          |   |   | 436,462          |  
|Cash and cash
      equivalents, end of the year                                                                            | (14 ) | $ | 164,561          |   | $ | 349,837          |  

See accompanying notes to consolidated financial statements.

|March 7, 2013 | 
|------------- | 

---

| | Consolidated Statement of Changes
      in Equity 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                |       |  | Number          |  |   | Share   |   |   |          |   |   |          |   |   |         |  
|----------------------------------------------------------------------------------------------- | ----- |  | --------------- |  | - | ------- | - | - | -------- | - | - | -------- | - | - | ------- | -
|                                                                                                | Notes |  | of
      Shares |  |   | Capital |   |   | Reserves |   |   | Deficit  |   |   | Total   |  
|Balance December 31, 2010                                                                       |       |  | 140,874,637     |  | $ | 951,135 |   | $ | 11,934   |   | $ | (8,010   | ) | $ | 955,059 |  
|Shares issued for cash:                                                                         |       |  |                 |  |   |         |   |   |          |   |   |          |   |   |         |  
|Underwriters
      Warrants exercised
      at           CAN$6.00
      per share               |       |  | 2,185,420       |  |   | 17,808  |   |   | (4,417   | ) |   | -        |   |   | 13,391  |  
|Exercise of stock options                                                                       |       |  | 290,000         |  |   | 2,668   |   |   | (746     | ) |   | -        |   |   | 1,922   |  
|Underwritten
      offering at
      CAN$           14.10
      per share net of issuance costs |       |  | -               |  |   | (25     | ) |   | -        |   |   | -        |   |   | (25     | )
|Shares issued under Restricted Share    Award
      (RSAs) compensation plan                    |       |  | 35,000          |  |   | 728     |   |   | -        |   |   | -        |   |   | 728     |  
|Shares issued under Deferred Share
         Award (DSAs) compensation plan                      |       |  | 42,000          |  |   | 255     |   |   | (255     | ) |   | -        |   |   | -       |  
|Share based payments                                                                            |       |  | -               |  |   | -       |   |   | 9,745    |   |   | -        |   |   | 9,745   |  
|Total comprehensive loss for the year                                                           |       |  | -               |  |   | -       |   |   | -        |   |   | (69,166  | ) |   | (69,166 | )
|Balance December 31, 2011                                                                       |       |  | 143,427,057     |  |   | 972,569 |   |   | 16,261   |   |   | (77,176  | ) |   | 911,654 |  
|Shares issued for cash:                                                                         |       |  |                 |  |   |         |   |   |          |   |   |          |   |   |         |  
|Underwriters Warrants
      exercised
      at           CAN$6.00
      per share               | (6 )  |  | 561,440         |  |   | 4,391   |   |   | (1,133   | ) |   | -        |   |   | 3,258   |  
|Exercise of stock
      options                                                                 | (6 )  |  | 267,707         |  |   | 2,497   |   |   | (733     | ) |   | -        |   |   | 1,764   |  
|Shares issued under RSA compensation plan                                                       | (6 )  |  | 35,000          |  |   | 635     |   |   | -        |   |   | -        |   |   | 635     |  
|Shares issued under DSA compensation plan                                                       | (6 )  |  | 1,274,000       |  |   | 7,989   |   |   | (7,989   | ) |   | -        |   |   | -       |  
|Share based payments                                                                            |       |  | -               |  |   | -       |   |   | 7,439    |   |   | -        |   |   | 7,439   |  
|Total comprehensive loss for the year                                                           |       |  | -               |  |   | -       |   |   | -        |   |   | (93,453  | ) |   | (93,453 | )
|Balance December
      31, 2012                                                                 |       |  | 145,565,204     |  | $ | 988,081 |   | $ | 13,845   |   | $ | (170,629 | ) | $ | 831,297 |  

See accompanying notes to consolidated financial statements.

|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1. | Operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Tahoe Resources Inc. was incorporated under the Business
      Corporations Act (British Columbia) on November 10, 2009. These
      consolidated financial statements include the accounts of Tahoe Resource
      Inc. and its subsidiaries (together referred to as the Company). Its
      principal business activity is the acquisition, exploration and
      development of mineral properties in the Americas for the mining of
      precious metals.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Companys registered office is at 1500 Royal Centre,
      1055 West Georgia Street, P.O. Box 11117, Vancouver, BC V6E 4N7,
      Canada.                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2. | Significant accounting policies:                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

| | c) | Foreign currency:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Transactions in currencies other than the functional
      currency are recorded at the rates of exchange prevailing on the dates of
      the transactions. At the end of each reporting period, monetary assets and
      liabilities that are denominated in foreign currencies are translated at
      the rates prevailing at that date. Non-monetary items that are measured in
      terms of historical cost in the foreign currency are not
    re-translated.                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | d) | Non-derivative financial assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The Company has only one classification of non-derivative
      financial assets being loans and receivables.                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The Company Initially recognizes loans and receivables
      and deposits on the date that they originated.                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The Company no longer recognizes the financial assets
      when the contractual rights to the cash flows from the asset expire, or it
      transfers the rights to receive the contractual cash flows on the
      financial asset in a transaction in which substantially all the risks and
      rewards of ownership of the financial asset are transferred. Any interest
      in transferred financial assets that is created or retained by the Company
      is recognized as a separate asset or liability.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Financial assets with fixed or determinable payments in
      an active market are classified as loans and receivables. Such assets are
      recognized initially at fair value plus any directly attributable
      transaction costs. Subsequent to initial recognition loans and receivables
      are measured at amortized cost using the effective interest method, less
      any impairment losses.                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Loans and receivables comprise other receivables and cash
      and cash equivalents. Cash and cash equivalents comprise cash balances and
      deposits with maturities of 90 days or less and Guarantee Investment
      Certificates (GICs) callable on demand.                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | e) | Share capital:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Common shares are classified as equity. Incremental costs
      directly attributable to the issue of common shares are recognized as a
      deduction from equity, net of any tax effects.                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | f) | Share based payments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Share based compensation arrangements in which the
      Company receives goods or services as consideration for its own equity
      instruments are accounted for as equity settled share based payment
      transactions. If the fair value of the goods or services received cannot
      be estimated reliably, the share based payment transaction is measured at
      the fair value of the equity instruments granted at the date the Company
      receives the goods or the services.                    



|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

| |    | The fair value of share options on the date of the grant
      to key management personnel, senior employees, and consultants is
      recognized as an expense, with a corresponding increase in equity, over
      the period that the optionee becomes unconditionally entitled to the
      options. The amount recognized as an expense is adjusted to reflect the
      actual number of share options for which the related service and vesting
      conditions are met. 
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The amount payable in respect of share appreciation
      rights (SARs), which are settled in cash, is recognized as an expense with
      a corresponding increase in liabilities over the period that the rights
      are exercisable. The liability is measured at each reporting date and at
      settlement date using the Black-Scholes option pricing model. Any changes
      in the fair value of the liability are recognized in profit or loss for
      the period.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | g) | Exploration and evaluation assets:                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The cost of exploration and evaluation assets acquired
      through a business combination or an asset acquisition are capitalized, as
      are expenditures incurred for the acquisition of land and surface rights.
      All other exploration and evaluation expenditures are expensed as
      incurred, including those incurred before the Company has obtained the
      legal rights to explore an area of interest.                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Capitalized exploration and evaluation costs are
      classified as mineral property within mineral property, land, plant and
      equipment.                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | General and administrative costs are expensed as
      incurred.                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | h) | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Inventories are valued at the lower of average cost and
      net realizable value.                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | i) | Mineral property, land, plant and equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Development expenditures directly attributable to a
      mineral property for which technical feasibility and commercial viability
      of the extraction of mineral resources has been demonstrated are
      capitalized as incurred. Currently underground development costs are
      expensed until the exploitation permit is awarded, as there is no
      assurance that these costs will have future benefits.                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Mineral property, land, plant and equipment values are
      carried at cost, less accumulated depreciation and accumulated impairment
      losses.                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Cost consists of the purchase price, any costs directly
      attributable to bringing the asset to the location and condition necessary
      for its intended use and an initial estimate of the costs of dismantling
      and removing the item and restoring the site on which it is
  located.                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Capitalized mineral property costs will be depleted using
      the unit of production (UOP) method commencing with commercial
      production.                                                                                                                                                                                                                                                                                                                                 



|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

For all other assets depreciation is
recognized in profit or loss on a straight line basis over the estimated useful
lives of each part of an item (component), since this most closely reflects the
expected pattern of consumption of economic benefits embodied in the asset. The
estimated useful lives for assets and components that are depreciated on a
straight line basis range from 2 to 12 years.

Depreciated Items
    Useful LifeComputer equipment & software
    2 yearsVehicles
    3-5 yearsMining equipment
    2-12 yearsMineral property,
      land and plant
    UOP


| |    | Assets under construction are capitalized as
      construction-in-progress. The cost of construction-in-progress comprises
      its purchase price and any costs directly attributable to bringing it into
      working condition for its intended use. Construction in-progress is not
      depreciated. Depreciation commences once the asset is complete and
      available for use.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | If it is determined that the deferred costs related to a
      property are not recoverable over its productive life, those costs will be
      written down to the higher of the value in use or fair value less costs to
      sell. Impairment write downs are charged to profit or loss in the period
      such a determination is made.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Equipment is written-off upon disposal or when no future
      economic benefits are expected to arise from the continued use of the
      asset. Any gain or loss arising on disposal of the asset, determined as
      the difference between the net disposal proceeds and the carrying amount
      of the asset, is recognized in profit or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | j) | Impairment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | At the end of each reporting period the Company reviews
      whether there is any indication that the assets are impaired. If any such
      indication exists, the recoverable amount of the asset is estimated in
      order to determine the extent of the impairment, if any. The recoverable
      amount is the higher of fair value less costs to sell and value in use.
      Fair value is determined as the amount that would be obtained from the
      sale of the asset in an arms length transaction between knowledgeable and
      willing parties. In assessing value in use, the estimated future cash
      flows are discounted to their present value using a discount rate that
      reflects current market assessments of the time value of money and the
      risks specific to the asset. If the recoverable amount of an asset is
      estimated to be less than its carrying amount, the carrying amount of the
      asset is reduced to its recoverable amount and the impairment loss is
      recognized in the profit or loss for the period. For an asset that does
      not generate largely independent cash inflows, the recoverable amount is
      determined for the cash generating unit to which the asset
  belongs.



|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

| |    | Where an impairment loss subsequently reverses, the
      carrying amount of the asset (or cash generating unit) is increased to the
      revised estimate of its recoverable amount, but to an amount that does not
      exceed the carrying amount that would have been determined had no
      impairment loss been recognized for the asset (or cash-generating unit) in
      prior years. A reversal of an impairment loss is recognized immediately in
      profit or loss.                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | k) | Provision for site reclamation and asset
      decommissioning:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The Company recognizes a liability for site closure and
      reclamation costs in the period in which it is incurred if a reasonable
      estimate of costs can be made. The Company records the present value of
      estimated future cash flows associated with site closure and reclamation
      as a liability when the liability is incurred and increases the carrying
      value of the related assets for that amount. Subsequently, these
      capitalized costs are amortized over the life of the related assets. At
      the end of each reporting period, the liability is increased to reflect
      the passage of time (accretion expense) and changes in the estimated
      future cash flows underlying any initial estimates (additional reclamation
      provision).
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | l) | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Income tax on the profit or loss for the period presented
      comprises current and deferred tax. Income tax is recognized in profit or
      loss in the statements of operations except to the extent that it relates
      to items recognized directly in equity, in which case it is recognized in
      equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Current tax expense is the expected tax payable on the
      taxable income for the period, using tax rates enacted or substantively
      enacted at period end, adjusted for amendments to tax payable with regards
      to previous years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Deferred tax is provided using the balance sheet
      liability method, providing for temporary differences between the carrying
      amounts of assets and liabilities for financial reporting purposes and the
      amounts used for taxation purposes. Deferred tax is not recognized for
      temporary differences which arise on the initial recognition of assets or
      liabilities in a transaction that is not a business combination and that
      affects neither accounting, nor taxable profit or loss. The amount of
      deferred tax provided is based on the expected manner of realization or
      settlement of the carrying amount of assets and liabilities, using tax
      rates enacted or substantively enacted at the balance sheet reporting
      date.     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | A deferred tax asset is recognized only to the extent
      that it is probable that future taxable profits will be available against
      which the asset can be utilized. Deferred tax assets are reviewed at each
      reporting date and are reduced to the extent it is no longer probable that
      the related tax benefit will be realized.                                                                                                                                                                                                                                                                                                                                                                                                                                            



|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------
|   |                                               
|   | m)                                            
|   |                                               
|   |                                               
|   |                                               
|   | n)                                            
|   |                                               
|   |                                               
|   |                                               
|   |                                               
|   |                                               
|   | o)                                            
|   |                                               
|   |                                               
|   |                                               
|   |                                               
|   |                                               
|   |                                               

Note 4  Mineral property, land, plant
and equipment; Note 5  Reclamation provision;Note 6  Share based
payments; and
  Note 16  Income tax.

| | p) | New standards and interpretations not yet
  adopted:                                                                                                                                                                                                                                                                                                                                   
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                        
| |    | A number of new IFRS standards, and amendments to
      standards and interpretations, are not yet effective for the period ended
      December 31, 2012, and have not been applied in preparing these
      consolidated financial statements. None of these standards are expected to
      have a significant effect on the consolidated financial statements of the
      Company.



|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

Accounting standards effective
January 1, 2012

Financial instruments
disclosure

In October 2010, the IASB issued
amendments to IFRS 7 - Financial Instruments: Disclosures that improve the
disclosure requirements in relation to transferred financial assets. The
amendments are effective for annual periods beginning on or after July 1, 2011,
with earlier application permitted. The Company has adopted this amendment
without any impact on its consolidated financial statements.

Income taxes

In December 2010, the IASB issued an
amendment to IAS 12 - Income Taxes which provides a practical solution to
determining the recovery of investment properties as it relates to the
accounting for deferred income taxes. This amendment is effective for annual
periods beginning on or after July 1, 2011, with earlier application permitted.
The Company has adopted this amendment without any impact on its consolidated
financial statements.

Accounting standards effective
January 1, 2013

Consolidation

In May 2011, the IASB issued IFRS 10 -
Consolidated Financial Statements (IFRS 10), which supersedes SIC 12 -
Consolidation - special purpose entities and the requirements relating to
consolidated financial statements in IAS 27-Consolidated and Separate Financial
Statements. IFRS 10 is effective for annual periods beginning on or after
January 1, 2013, with earlier application permitted. IFRS 10 establishes control
as the basis for an investor to consolidate its investees and defines control as
an investors power over an investee with exposure, or rights, to variable
returns from the investee and the ability to affect the investors returns
through its power over the investee.

In addition, the IASB issued IFRS 12
  - Disclosure of Interests in Other Entities (IFRS 12) which combines
  and enhances the disclosure requirements for the Companys subsidiaries,
  joint arrangements, associates and unconsolidated structured entities. The requirements
  of IFRS 12 include enhanced reporting of the nature of risks associated with
  the Companys interests in other entities, and the effects of those interests
  on the Companys consolidated financial statements. The Company does not
  anticipate the application of IFRS 10 and IFRS 12 to have a significant impact
  on its consolidated financial statements.

|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

Joint arrangements

In May 2011, the IASB issued IFRS 11 -
Joint Arrangements (IFRS 11), which supersedes IAS 31 - Interests in Joint
Ventures and SIC 13 - Jointly Controlled Entities - Non-Monetary Contributions
by Venturers. IFRS 11 is effective for annual periods beginning on or after
January 1, 2013, with earlier application permitted. Under IFRS 11, joint
arrangements are classified as joint operations or joint ventures based on the
rights and obligations of the parties to the joint arrangements. A joint
operation is a joint arrangement whereby the parties that have joint control of
the arrangement (joint operators) have rights to the assets, and obligations
for the liabilities, relating to the arrangement. A joint venture is a joint
arrangement whereby the parties that have joint control of the arrangement
(joint venturers) have rights to the net assets of the arrangement. IFRS 11
requires that a joint operator recognize its portion of assets, liabilities,
revenues and expenses of a joint arrangement, while a joint venture recognizes
its investment in a joint arrangement using the equity method. The Company has
adopted this amendment as of January 1, 2013, without any impact on its
consolidated financial statements.

Fair value measurement

In May 2011, as a result of the
convergence project undertaken by the IASB with the US Financial Accounting
Standards Board to develop common requirements for measuring fair value and for
disclosing information about fair value measurements, the IASB issued IFRS 13 -
Fair Value Measurement (IFRS 13). IFRS 13 is effective for annual periods
beginning on or after January 1, 2013, with earlier application permitted. IFRS
13 defines fair value and sets out a single framework for measuring fair value
which is applicable to all IFRSs that require or permit fair value measurements
or disclosures about fair value measurements. IFRS 13 requires that when using a
valuation technique to measure fair value, the use of relevant observable inputs
should be maximized while unobservable inputs should be minimized. The Company
does not anticipate the application of IFRS 13 to have a significant impact on
its consolidated financial statements.

Financial statement
presentation

In June 2011, the IASB issued amendments
  to IAS 1 - Presentation of Financial Statements (IAS 1) that require
  an entity to group items presented in the statement of other comprehensive income
  on the basis of whether they may be reclassified to profit or loss subsequent
  to initial recognition. For those items presented before tax, the amendments
  to IAS 1 also require that the tax related to the two separate groups be presented
  separately. The amendments to IAS 1 are effective for annual periods beginning
  on or after July 1, 2012, with earlier application permitted. The Company has
  adopted this amendment as of January 2013, without any impact on its consolidated
  financial statements.



|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

Employee benefits

In June 2011, the IASB issued
amendments to IAS 19 - Employee Benefits (IAS 19) that introduced significant
changes to the accounting for defined benefit plans and other employee benefits.
The amendments include elimination of the options to defer or recognize in full
in profit or loss actuarial gains and losses and instead mandates the immediate
recognition of all actuarial gains and losses in other comprehensive income. The
amended IAS 19 also requires calculation of net interest on the net defined
benefit liability or asset using the discount rate used to measure the defined
benefit obligation.

In addition, other changes
incorporated into the amended standard include changes made to the date of
recognition of liabilities for termination benefits and changes to the
definitions of short-term employee benefits and other long-term employee
benefits which may impact on the classification of liabilities associated with
those benefits.

The amendments to IAS 19 are effective
for annual periods beginning on or after January 1, 2013, with earlier
application permitted. The Company does not anticipate the amendments to IAS 19
to have a significant impact on its consolidated financial statements.

Accounting standards effective
January 1, 2015

Financial instruments

The IASB intends to replace IAS 39 -
Financial Instruments: Recognition and Measurement (IAS 39) in its entirety
with IFRS 9 - Financial Instruments (IFRS 9) in three main phases. IFRS 9 will
be the new standard for the financial reporting of financial instruments that is
principles-based and less complex than IAS 39. In November 2009 and October
2010, phase 1 of IFRS 9 was issued and amended, respectively, which addressed
the classification and measurement of financial assets and financial
liabilities. IFRS 9 requires that all financial assets be classified as
subsequently measured at amortized cost or at fair value based on the Companys
business model for managing financial assets and the contractual cash flow
characteristics of the financial assets. Financial liabilities are classified as
subsequently measured at amortized cost except for financial liabilities
classified as at FVTPL, financial guarantees and certain other exceptions. IFRS
9 is effective for annual periods beginning on or after January 1, 2015.

The Company is currently evaluating
the impact the final standard is expected to have on its consolidated financial
statements.

|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Capital management:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Companys policy is to maintain a strong capital base
      so as to maintain investor, creditor and market confidence and to sustain
      future development of the business. The Company seeks to maintain a
      balance between the higher returns that might be possible with higher
      levels of borrowings 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | There were no changes in the Companys approach to
      capital management during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company is not subject to any externally imposed
      capital requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4. | Mineral property, land, plant and
  equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Plant
      and
    
    
    Mineral
    
    
    
    
    
    Constructionequipment
    
    
    Property
    
    
    Land
    
    
    in
      Progress
    
    
    TotalCostBalance December 31, 2010
    $
    917
    
    $
    500,194
    
    $
    20,340
    
    $
    -
    
    
    521,451$Additions
    
    16,221
    
    
    -
    
    
    6,651
    
    
    20,124
    
    
    42,996Disposal
    
    (15
    )
    
    -
    
    
    -
    
    
    -
    
    
    (15
    )Balance December 31, 2011
    
    17,123
    
    
    500,194
    
    
    26,991
    
    
    20,124
    
    
    564,432Additions
    
    23,183
    
    
    3,668
    
    
    320
    
    
    95,823
    
    
    122,994Disposals
    
    (20
    )
    
    -
    
    
    -
    
    
    -
    
    
    (20
    )Balance December 31, 2012
    $
    40,286
    
    $
    503,862
    
    $
    27,311
    
    $
    115,947
    
    
    687,406$Accumulated
      DepreciationBalance December 31, 2010
    $
    (19
    )
    $
    -
    
    $
    -
    
    $
    -
    
    $
    (19
    )Additions
    
    (1,200
    )
    
    -
    
    
    -
    
    
    -
    
    
    (1,200
    )Disposals
    
    3
    
    
    -
    
    
    -
    
    
    -
    
    
    3Balance December 31, 2011
    
    (1,216
    )
    
    -
    
    
    -
    
    
    -
    
    
    (1,216
    )Additions
    
    (6,869
    )
    
    -
    
    
    -
    
    
    -
    
    
    (6,869
    )Disposals
    
    5
    
    
    -
    
    
    -
    
    
    -
    
    
    5Balance December 31, 2012
    $
    (8,080
    )
    $
    -
    
    $
    -
    
    $
    -
    
    $
    (8,080
    )Carrying AmountsDecember 31, 2011
    $
    15,907
    
    $
    500,194
    
    $
    26,991
    
    $
    20,124
    
    
    563,216$December 31, 2012
    $
    32,206
    
    $
    503,862
    
    $
    27,311
    
    $
    115,947
    
    
    679,326$




|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | Reclamation provision:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Companys environmental permit requires that it
      reclaim any land it disturbs during mine development, construction and
      operations. Although the timing and the amount of the actual expenditures
      are uncertain, the Company has estimated, with third-party assistance, the
      present value of the future reclamation obligation arising from its
      activities to December 31, 2012 to be $3,691. The present value of the
      future reclamation obligation assumes a discount rate of 2.30%, an
      inflation rate of 2.87%, an undiscounted amount to settle the obligation
      of $5,689, and the commencement of reclamation activities in 18
    years.

Year
      Ended
    
    
    Year
      EndedDecember 31,
    
    
    December 31,2012
    
    
    2011Balance, beginning of the
      year
    $
    -
    
    $
    -Liabilities incurred in the year
    
    3,668
    
    
    -Accretion expense
    
    23
    
    
    -Balance, end of the year
    $
    3,691
    
    $
    -


|6. | Share-based payments:                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Description of the share-based compensation
      arrangements                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Companys equity compensation plans are designed to
      attract and retain individuals and to reward them for current and expected
      future performance. As at December 31, 2012 and 2011, the Company has the
      following share-based payment arrangements:                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Share Plan Options (equity settled
      options)                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company has established a Share Plan program that
      entitles key management personnel, senior employees, and consultants to
      purchase shares in the Company. Under the terms of this program, options
      are exercisable at the market close price of the shares on the day prior
      to the date of grant. The options vest based on service-related vesting
      terms set by the Compensation Committee of the Board of
  Directors.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The number and weighted average exercise price of share
      options as at December 31, 2012 and 2011 is as
follows:                                                                                                                                                                                                                                                                                                                                     

|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Weighted
      average
    
    
    Numberexercise price CAN$
    
    
    of
      optionsOutstanding at December 31,
      2010
    
    6.93
    
    
    2,547,500Granted
    
    18.00
    
    
    432,000Exercised
    
    6.69
    
    
    (290,000
    )Expired
    
    -
    
    
    -Forfeited
    
    -
    
    
    -Outstanding at December 31, 2011
    
    8.84
    
    
    2,689,500Granted
    
    20.34
    
    
    135,000Exercised
    
    6.85
    
    
    (267,707
    )Expired
    
    -
    
    
    -Forfeited
    
    14.65
    
    
    (22,000
    )Outstanding at December 31, 2012
    
    9.61
    
    
    2,534,793Exercisable at December 31,
      2011
    
    7.09
    
    
    1,505,000Exercisable at December 31, 2012
    
    7.44
    
    
    1,990,793


The following table summarizes
information about share options outstanding and exercisable at December 31,
2012.

Weighted
    Weighted
    
    Weighted
    WeightedOutstanding
    Av erage
    Average
    Exercisable
    Average
    Averageat Dec 31,
    Exercise Price
    Remaining
    at Dec 31,
    Exercise Price
    RemainingGrant Date
    Expiry date
    2012
    CAN$
    Life
    2012
    CAN$
    LifeJun-10
    Jun-15
    1,727,793
    6.4
    2.44
    1,727,793
    6.4
    2.44Nov-10
    Nov-15
    202,000
    11.15
    2.86
    122,000
    11.15
    2.86Dec-10
    Dec-15
    50,000
    14.8
    2.94
    30,000
    14.8
    2.94Mar-11
    Mar-16
    333,000
    17.56
    3.18
    111,000
    17.56
    3.18May-11
    May-16
    87,000
    19.74
    3.34
    -
    -
    -Jan-12
    Jan-17
    12,000
    18.77
    4.03
    -
    -
    -Mar-12
    Mar-17
    69,000
    21.68
    4.19
    -
    -
    -May-12
    May-17
    12,000
    17.04
    4.41
    -
    -
    -Nov-12
    Nov-17
    30,000
    20.10
    4.87
    -
    -
    -Nov-12
    Nov-17
    12,000
    18.14
    4.89
    -
    -
    -2,534,793
    9.61
    2.72
    1,990,793
    7.44
    2.52


The following table outlines share options
  granted to key management personnel, senior employees, and consultants, during
  the years ended December 31, 2012 and 2011. These share options vest in three
  equal tranches with the first tranche vesting on the first anniversary, the
  second on the second anniversary, and the third on the third anniversary. These
  options expire five years after the grant date.



|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Share-based payments
(continued):
|-- | ---------------------------------

Grant Date
    Shares Granted
    CAN$
    First Vest Date
    Expiry DateMarch 3, 2011
    345,000
    $17.56
    3-Mar-12
    3-Mar-16May 3, 2011
    87,000
    $19.74
    3-May-12
    3-May-16January 9, 2012
    12,000
    $18.77
    9-Jan-13
    9-Jan-17March 8, 2012
    69,000
    $21.68
    8-Mar-13
    8-Mar-17May 28, 2012
    12,000
    $17.04
    28-May-13
    28-May-17November 12, 2012
    30,000
    $20.10
    12-Nov-13
    12-Nov-17November 19, 2012
    12,000
    $18.14
    19-Nov-13
    19-Nov-17


During the year ended December 31,
2011, 290,000 share options were exercised and the cash proceed was $1,922.

During the year ended December 31,
2012, 267,707 share options were exercised and the cash proceeds received was
$1,764. During the same period 22,000 share options were forfeited and $106 was
charged to share based payments.

For the years ended December 31, 2012
and 2011, the Company has recorded $2,455 and $4,597, respectively, of
compensation expense relating to the Share Plan Options.

Share Plan Awards
(equity-settled awards)

The Share Plan permits Deferred Share
Awards (DSAs and Restricted Share Awards (RSAs) to be issued to key management
personnel and senior employees. Under the Share Plan, key management personnel
and senior employees are issued shares in the Company at no exercise price. The
DSAs vest based on service-related vesting terms set by the Compensation
Committee of the Board of Directors. Under the Share Plan, DSAs entitle the
holder upon vesting to a common share at no exercise price. Compensation cost
for DSAs and RSAs is measured based on the closing price of the stock one day
prior to the grant date.

The DSAs vesting conditions are in
three equal tranches beginning on the first anniversary year of the grant date.
The RSAs vest immediately on the grant date.

The number of share awards as at
December 31, 2012 and 2011 is as follows:

Number ofshare awardsOutstanding at December 31, 2010
    1,306,000Granted
    191,000Shares issued
    (77,000)Outstanding at December 31, 2011
    1,420,000Granted
    259,000Shares issued
    (1,309,000)Outstanding at December 31, 2012
    370,000


|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Share-based payments (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The following table outlines DSAs and RSAs granted to key
      management personnel, senior employees, and consultants, during the years
      ended December 31, 2012 and 2011. The DSAs vest in three equal tranches
      with the first tranche vesting on the first anniversary, the second on the
      second anniversary, and the third on the third anniversary. The RSAs
      vested immediately on the grant date and the respective shares were issued
      on the same date.

Grant Date
    Shares Granted
    DSAs/RSAs
    CAN$
    First Vest DateMarch 3, 2011
    156,000
    DSAs
    $17.56
    3-Mar-12May 3, 2011
    35,000
    RSAs
    $19.74
    3-May-11March 8, 2012
    224,000
    DSAs
    $21.68
    8-Mar-13May 8, 2012
    35,000
    RSAs
    $18.16
    8-May-12


On March 3, 2012, 52,000 DSAs vested
and the shares were issued to the recipients under the provisions of the Share
Plan and $937 was transferred to share capital from share based payments
reserve.

On June 8, 2012, 1,180,000 DSAs vested
and the shares were issued to the recipients under the provisions of the Share
Plan and $6,797 was transferred to share capital from share based payments
reserve.

On June 10, 2012, 42,000 DSAs vested
and the shares were issued to the recipients under the provisions of the Share
Plan and $255 was transferred to share capital from share based payments
reserve.

For the years ended December 31, 2012
and 2011, the Company has recorded $5,619 and $5,877, respectively, of
compensation expense relating to DSAs and RSAs.

SARs
(cash-settled)

The Company grants SARs to employees
that entitle the employees to a cash payment. The amount of the cash payment is
determined based on the difference between the strike price and the share price
of the Company at the closing price on the exercise date.

During the years ended December 31,
2012 and 2011, the Company awarded 60,000 and 72,500 SARs, respectively, to
employees. The SARs have a term of five years from the award date and vest in
five equal tranches with the first tranche vesting immediately, the second on
the first anniversary, the third on the second anniversary, the fourth on the
third anniversary, and the fifth on the fourth anniversary of the grant date.
Prior to settlement, unvested and vested SARs are valued using the Black-Scholes
Model.

|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Share-based payments
(continued):
|-- | ---------------------------------

Number of SARsOutstanding at December 31, 2010
    
    255,000Issued
    
    72,500Exercised
    
    (10,300
    )Cancelled
    
    (16,000
    )Outstanding at December 31, 2011
    
    301,200Issued
    
    60,000Exercised
    
    (19,275
    )Cancelled
    
    (15,000
    )Outstanding at December 31, 2012
    
    326,925Exercisable on
      December 31, 2011
    
    102,200Exercisable on December 31, 2012
    
    147,425


During the years ended December 31,
2012 and 2011, vested SARs had a weighted average intrinsic value of $8.84 and
$9.53 per share, respectively.

During the years ended December 31,
2012 and 2011, the Company recognized SARs short-term liability of $2,322 and
$1,691, which is shown in accounts payable and accrued liabilities on the
balance sheet, and long-term liability of $481 and $540, respectively.

During the years ended December 31,
2012 and 2011, the Company has recorded $786 and $1,565, respectively, in
compensation expenses relating to SARs.

The following table shows SARs grant
date and outstanding at December 31, 2012.

Number /
    
    
    ExercisedGrant Date
    
    issued
    
    
    cancelled
    
    
    Remaining
    
    
    Vested
    
    
    ExercisableJuly 1, 2010
    
    152,000
    
    
    (33,000
    )
    
    119,000
    
    
    69,000
    
    
    69,000September 1, 2010
    
    20,000
    
    
    -
    
    
    20,000
    
    
    12,000
    
    
    12,000September 20, 2010
    
    10,000
    
    
    -
    
    
    10,000
    
    
    6,000
    
    
    6,000November 1, 2010
    
    55,000
    
    
    (575
    )
    
    54,425
    
    
    32,425
    
    
    32,425November 10, 2010
    
    20,000
    
    
    (14,000
    )
    
    6,000
    
    
    2,000
    
    
    2,000January 17, 2011
    
    15,000
    
    
    (15,000
    )
    
    -
    
    
    -
    
    
    -February 1, 2011
    
    20,000
    
    
    -
    
    
    20,000
    
    
    8,000
    
    
    8,000July 1, 2011
    
    27,500
    
    
    -
    
    
    27,500
    
    
    11,000
    
    
    11,000October 3, 2011
    
    10,000
    
    
    -
    
    
    10,000
    
    
    4,000
    
    
    4,000January 19, 2012
    
    20,000
    
    
    -
    
    
    20,000
    
    
    4,000
    
    
    -April 5, 2012
    
    10,000
    
    
    -
    
    
    10,000
    
    
    2,000
    
    
    -May 21, 2012
    
    10,000
    
    
    -
    
    
    10,000
    
    
    2,000
    
    
    2,000July 16, 2012
    
    5,000
    
    
    -
    
    
    5,000
    
    
    1,000
    
    
    1,000October 16, 2012
    
    10,000
    
    
    -
    
    
    10,000
    
    
    2,000
    
    
    -November 12, 2012
    
    5,000
    
    
    -
    
    
    5,000
    
    
    1,000
    
    
    -December 31, 2012
    
    389,500
    
    
    (62,575
    )
    
    326,925
    
    
    156,425
    
    
    147,425


|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Share-based payments (continued):
|-- | ---------------------------------

Underwriter warrants
(equity-settled)

As part of the Underwriters
compensation for assistance in the Initial Public Offering (IPO) of the
Company, the Underwriters received warrants equivalent to 5.5% of the common
shares issued as part of the IPO including common shares issued on exercise of
the over-allotment option. The warrants had an exercise period of 24 months from
the date of the IPO and the date of exercise of the over-allotment option. On
June 8, and June 17, 2010, the Company granted Underwriter warrants to purchase
common shares in the amount of 3,190,000 and 319,000, respectively.

The warrants outstanding at December
31, 2011, have a weighted average exercise price of CAN$6.00 per share and a
weighted average contractual life of two years from the grant date.

During the years ended December 31,
2012 and 2011, warrants to purchase 561,440 and 2,185,420 common shares were
exercised, resulting in cash proceeds of $3,258 and $13,391, respectively. As at
December 31, 2012, the Company does not have any warrants outstanding.

As at December 31, 2012 and 2011, the
  outstanding balance of warrants to purchase common shares was respectively,
  as follows:

Warrants
    
    
    
    
    
    Warrants
    
    
    
    
    
    WarrantsOutstanding
    
    
    
    
    
    Outstanding
    
    
    
    
    
    OutstandingIssue
    
    Price
    
    
    Expiry
    
    
    at Dec. 31,
    
    
    
    
    
    at Dec. 31,
    
    
    
    
    
    at Dec. 31,Date
    
    CAN$
    
    
    Date
    
    
    2010
    
    
    Exercised
    
    
    2011
    
    
    Exercised
    
    
    201206/08/10
    
    $6.00
    
    
    06/08/12
    
    
    2,478,900
    
    
    (1,968,500
    )
    
    510,400
    
    
    (510,400
    )
    
    -06/17/10
    
    $6.00
    
    
    06/17/12
    
    
    267,960
    
    
    (216,920
    )
    
    51,040
    
    
    (51,040
    )
    
    -2,746,860
    
    
    (2,185,420
    )
    
    561,440
    
    
    (561,440
    )
    
    -


Inputs for measurement of
grant date fair values

The grant date fair values of share
options were measured based on the Black-Scholes Model. Due to the lack of
historic information, the expected volatility was estimated by considering the
historic average share price volatility from another company with similar
assets.

The fair value of SARs (cash settled)
has been re-measured at December 31, 2012. Expected volatility, interest rate
and share price have been updated; changes in the fair value are recognized in
profit or loss during the period.

The fair value of the Underwriter warrants
  were measured based on the Black-Scholes Model.

|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Share-based payments (continued):                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                        
|   | The inputs used in the measurement of the fair values
      (CAN) at grant date of the share- based payment plan are the
    following:

Fair value of share
        options
      Share
        Option Program
      SARs
        (cash-settled)and assumptions
      (equity-settled)(Weighted Average)
      2012
      2011
      2012
      2011Share price at grant date
      $20.50
      $17.76
      $18.56
      $15.94Exercise price
      $20.34
      $18.69
      $18.88
      $10.00Expected volatility
      54%
      60%
      54%
      55%Expected life of options
      5
      5
      5
      5Expected dividend yield
      -
      -
      -
      -Risk-free interest rate
      1.44%
      1.39%
      1.39%
      1.27%Fair value at grant date
      $9.83
      $9.57
      $8.74
      $8.26


|7. | Accounts payable and accrued
  liabilities:
|-- | -------------------------------------------

December
      31,
    
    
    December
      31,2012
    
    
    2011Accounts payable and accrued
      liabilities
    $
    12,734
    
    $
    5,413Accrued payroll and related benefits
    
    1,869
    
    
    2,105Share appreciation rights, current portion
    
    2,322
    
    
    1,691$
    16,925
    
    $
    9,209


|8. | Escobal project
expenses:
|-- | -------------------------

Year
      Ended
    
    
    Year
      EndedDecember 31,
    
    
    December 31,2012
    
    
    2011Salaries, wages and benefits
    $
    8,449
    
    $
    3,199Share based payments
    
    849
    
    
    1,299General site infrastructure
    
    6,304
    
    
    10,062Mine infrastructure
    
    25,664
    
    
    14,468Engineering and design
    
    2,351
    
    
    2,007Mine administration
    
    19,135
    
    
    5,423Environmental expenses
    
    785
    
    
    590Sustainable development
    
    539
    
    
    1,316Depreciation
    
    6,869
    
    
    1,200$
    70,945
    
    $
    39,564


|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | Exploration:
|-- | ------------

Year
      Ended
    
    
    Year
      EndedDecember 31,
    
    
    December 31,2012
    
    
    2011Salaries, wages and benefits
    $
    1,260
    
    $
    1,428Drilling
    
    6,648
    
    
    6,952Assays
    
    569
    
    
    513Other field supplies
    
    2,136
    
    
    1,146$
    10,613
    
    $
    10,039


|10. | General and administration
  expenses:
|--- | --------------------------------------

Year
      Ended
    
    
    Year
      EndedDecember 31,
    
    
    December 31,2012
    
    
    2011Salaries, wages and benefits
    $
    6,104
    
    $
    5,196Share based payments
    
    8,011
    
    
    10,740Other general
      & administrative expenses
    
    4,906
    
    
    3,156$
    19,021
    
    $
    19,092


|11. | Subsidiaries
|--- | ------------

Incorporated
      Place of
    Ownership
      PrincipalName of Subsidiary
    /Acquired
      Incorporation
    Percentage
      ActivityTahoe Resources USA Inc.
    2-Feb-10
    Nevada, USA
    100%
    ServicesTahoe Swiss AG
    20-May-10
    Switzerland
    100%
    ServicesEscobal Resources Holding Limited
    8-Jun-10
    Barbados
    100%
    ServicesMinera San Rafael,
      S.A.
    8-Jun-10
    Guatemala
    100%
    Operations


|12. | Segment information                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Company conducts its business as a single operating
      segment, being the principal business activity the acquisition,
      exploration and development of mineral properties in the Americas for the
      mining of precious metals. All mineral properties, land, plant and
      equipment are situated in Guatemala. Substantially all of the cash and
      cash equivalents are situated in Canada.

|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. | Related parties                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                            
|    | Related party transactions, in addition to related party
      transactions described elsewhere in these financial statements, include
      the following:
|    |                                                                                                                                                            
|    | (a)                                                                                                                                                        
|    |                                                                                                                                                            
|    |                                                                                                                                                            
|    |                                                                                                                                                            
|    |                                                                                                                                                            

Year
      Ended
    
    
    Year
      EndedDecember 31,
    
    
    December2012
    
    
    31,2011Short-term employee benefits
    $
    5,300
    
    $
    2,469Share-based payments
    
    7,637
    
    
    9,603$
    12,937
    
    $
    12,072


| | (b) | Transactions with entity with significant influence over
      the Company:                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                     
| |     | Goldcorp holds a 40% interest in the Companys publicly
      traded shares on a fully-diluted basis. There were no related-party
      transactions in 2012 and 2011 with Goldcorp.

|14. | Financial risk management                                                                   
|--- | --------------------------------------------------------------------------------------------
|    |                                                                                             
|    | Overview                                                                                    
|    |                                                                                             
|    | The Company has exposure to the following risks from its
      use of financial instruments:
|    |                                                                                             
|    | •                                                                                           
|    | •                                                                                           
|    | •                                                                                           

This note presents information about
the Companys exposure to each of the above risks, the Companys objectives,
policies and processes for measuring and managing risk, and the Companys
management of capital. Further quantitative disclosures are included throughout
these consolidated financial statements.

Risk Management Framework

The Board of Directors has overall
responsibility for the establishment and oversight of the Companys risk
management framework. The Companys Audit Committee oversees how management
monitors compliance with the Companys risk management policies and procedures,
and reviews the adequacy of the risk management framework in relation to the
risks faced by the Company.

|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. | Financial risk management (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Companys risk management policies are established to
      identify and analyze the risks faced by the Company, to set appropriate
      risk limits and controls, and to monitor risks and adherence to limits.
      Risk management policies and systems are reviewed regularly to reflect
      changes in market conditions and the Companys activities. The Company,
      through its training and management standards and procedures, aims to
      develop a disciplined and constructive control environment in which all
      employees understand their roles and obligations.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | 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, as far as 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.                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Financial Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Companys financial liabilities at December 31, 2012
      and 2011 includes accounts payable and accrued liabilities all of which
      are due within 6 months or less. The long-term liability consists of the
      SARS long-term portion, severance and reclamation
  provision.                                                                                                                                                                                                                                                                                                        

Over
    
    
    December
      31,
    
    
    December
      31,1 year
    
    
    2-5
      years
    
    
    5
      years
    
    
    2012
    
    
    2011Accounts payable and accrued liabilities
    $
    16,925
    
    $
    -
    
    $
    -
    
    $
    16,925
    
    $
    9,811Lease agreements for rental of office facilities
    
    576
    
    
    315
    
    
    -
    
    
    891
    
    
    1,348Commitment to purchase equipment, services,
      materials and supplies
    
    65,366
    
    
    -
    
    
    -
    
    
    65,366
    
    
    58,403Other long-term liabilities
    
    -
    
    
    1,030
    
    
    -
    
    
    1,030
    
    
    540Reclamation and closure cost obligations
    
    -
    
    
    -
    
    
    3,691
    
    
    3,691
    
    
    -Total
    $
    82,867
    
    $
    1,345
    
    $
    3,691
    
    $
    87,903
    
    $
    70,102


As at December 31, 2012, the Company
has outstanding commitments to purchase equipment, services, materials and
supplies as follows:

December
      31,2012Plant construction and equipment
    $
    50,779Underground and surface equipment
    
    6,028Mine development consumables
    
    7,448Services and others
    
    1,077Business system implementation
    
    34Total commitments
    $
    65,366




|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. | Financial risk management (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Permitting Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | In the ordinary course of business, mining companies are
      required to seek approvals and permits, Escobal is the Companys sole
      project, and failure to obtain the exploitation permit in time for mill
      commissioning would have a material adverse effect on the Companys
      business, and could create liquidity challenges. There can be no assurance
      as to when or if the necessary exploitation permit will be
  granted.                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Credit Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Credit risk is the risk of financial loss to the Company
      if a counter-party to a financial instrument fails to meet its contractual
      obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company holds the majority of its cash and cash
      equivalents in CAN and USD with large reputable financial institutions in
      Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Market risk is the risk that changes in market prices,
      such as foreign exchange and interest rates will affect the value of the
      Companys holdings of financial instruments. The objective of market risk
      management is to manage and control market risk exposures within
      acceptable parameters, while optimizing return.                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Foreign Exchange Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company is exposed to currency risk on cash and cash
      equivalents and accounts payable that are denominated in a currency other
      than the respective functional currency of Company entities which is the
      US$. To minimize risk, the Companys funds are kept in highly liquid
      instruments such as commercial paper and time deposits. The Company also
      contracts for goods and services mainly in US$ currency. At December 31,
      2012, the Company has converted substantially all of CAN$ to US$ to
      minimize exchange rate risk during the construction
  period.

December
      31,
    
    
    December
      31,2012
    
    
    2011Cash and cash equivalents in
      US$
    $
    163,518
    
    $
    49,799Cash in CAN$
    
    458
    
    
    299,255Cash in other currencies
    
    585
    
    
    783Total Cash and Cash Equivalents
    $
    164,561
    
    $
    349,837




|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. | Financial risk management (continued):                                                                                                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                              
|    | Cash and cash equivalents comprise cash balances and
      deposits with maturities of 90 days or less and Guarantee Investment
      Certificates (GICs) callable on demand.

December
      31,
    
    
    December
      31,Cash
      and Cash Equivalents
    
    2012
    
    
    2011Cash in US$
    $
    146,585
    
    $
    138,315Cash
      equivalents
    
    17,975
    
    
    211,522Total Cash and Cash Equivalents
    $
    164,561
    
    $
    349,837


|    | Interest Rate Risk                                                                                                                
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                   
|    | At the reporting date, the Companys interest-bearing
      financial instruments are related to cash and cash equivalents
  only.
|    |                                                                                                                                   
|15. | Income Tax                                                                                                                        
|    |                                                                                                                                   
|    | Income Tax Expense                                                                                                                

Year
      Ended
    
    
    Year
      EndedDecember 31,
    
    
    December 31,Income tax expense (benefit)
    
    2012
    
    
    2011Current period
    $
    -
    
    $
    601Adjustment for prior periods
    
    (310
    )
    
    (195
    )Total income tax expense (benefit)
    $
    (310
    )
    $
    406


The reconciliation of income taxes at
statutory rates with the reported taxes is as follows:

Year
      Ended
    
    
    Year
      EndedDecember 31,
    
    
    December 31,2012
    
    
    2011Loss before income taxes
    $
    (93,763
    )
    $
    (68,760
    )Statutory tax rate
    
    25.0%
    
    
    26.5%Income tax expense (benefit)
    
    (23,441
    )
    
    (18,221
    )Reconciling items:Difference between statutory
      and foreign tax rates
    
    14,628
    
    
    9,260Deductible share based payments
    
    (880
    )
    
    (282
    )Non-taxable portion of
      capital loss (gain)
    
    (609
    )
    
    1,235Non-deductible expenses
    
    10,314
    
    
    1,031Change in unrecognized
      deferred tax assets
    
    173
    
    
    2,933Other
    
    (495
    )
    
    4,450Income tax expense (benefit)
    $
    (310
    )
    $
    406




|March 7, 2013 | 
|------------- | 

---

| | Notes to Consolidated Financial
      Statements 
      (Expressed in Thousands of United States Dollars, Except per Share Information)
      
      Years Ended December 31, 2012 and 2011
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15. | Income Tax (continued): Deferred Tax Assets and
      Liabilities                      
|--- | ---------------------------------------------------------------------------------------
|    |                                                                                        
|    | Deductible temporary differences for which no deferred
      tax assets are recognized:

December
      31,
    
    
    December
      31,2012
    
    
    2011Tax losses and tax credits
    $
    27,382
    
    $
    19,808Deductible temporary differences:Ending cumulative
      eligible capital
    
    1,209
    
    
    878Financing costs
    
    13,641
    
    
    20,404Total
    $
    42,232
    
    $
    41,090


Effective January 1, 2012, the Canadian
Federal corporate tax rate decreased from 16.5% to 15% and the British Columbia
provincial tax rate remained at 10%.

Tax losses and tax credits

As at December 31, 2012, the Company
had $27,382 of tax losses (2011: $19,808) for which none (2011: $nil) have been
recognized as deferred tax assets. The Company recognizes the benefit of tax
losses only to the extent of anticipated future taxable income in relevant
jurisdictions. The gross amount of tax losses carried forward will begin to
expire in 2030.

|March 7, 2013 | 
|------------- | 

---