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Consolidated Financial Statements

(Expressed in United States Dollars)



YUKON-NEVADA GOLD CORP.

Years ended December 31, 2011 and 2010





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MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying consolidated financial statements of
Yukon-Nevada Gold Corp. (the Company) have been prepared by management in
accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board, and within the framework of the
summary of significant accounting policies disclosed in the notes to these
consolidated financial statements.

A system of internal accounting control is maintained in order
to provide reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance with managements
authorization. This system includes established policies and procedures, the
selection and training of qualified personnel and an organization providing for
appropriate delegation of authority and segregation of responsibilities.

The Audit Committee of the Board of Directors meets
periodically with management and the Companys independent auditors to review
the scope and results of their annual audit and to review financial statements
and related financial reporting matters prior to submitting the condensed
consolidated interim financial statements to the Board of Directors for
approval. The Audit Committee is appointed by the Board of Directors and all of
its members are independent directors. The Audit Committee is responsible for
engaging or re-appointing the external auditors.

The consolidated financial statements have been audited by
external auditors, Deloitte & Touche LLP. Their report outlines the scope of
their examination and opinion on the consolidated financial statements.

|Robert Baldock        | Shaun Heinrichs      
|----------------------- | -----------------------
|                        |                        
|Robert Baldock          | Shaun Heinrichs        
|President and           | Chief Financial Officer
|Chief Executive Officer |                        

March 29, 2012

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|                                  | Deloitte & Touche LLP
|--------------------------------- | ---------------------
|2800  1055 Dunsmuir
      Street
|4 Bentall Centre                 
|P.O. Box 49279                   
|Vancouver BC V7X 1P4             
|Canada                           
|                                 
|Tel: 604-669-4466                
|Fax: 604-685-0395                
|                                  | www.deloitte.ca      

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of Yukon-Nevada Gold
Corp.

We have audited the accompanying consolidated financial
statements of Yukon-Nevada Gold Corp. and subsidiaries (the Company), which
comprise the consolidated statements of financial position as of December 31,
2011, December 31, 2010 and January 1, 2010, and the consolidated statements of
operations and comprehensive income/(loss), changes in shareholders equity
(deficit), and cash flows for the years ended December 31, 2011 and December 31,
2010, 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 audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement. An audit involves
performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on 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. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated
financial statements.

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

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Yukon-Nevada Gold
Corp. and subsidiaries as of December 31, 2011, December 31, 2010 and January 1,
2010, and their financial performance and cash flows for the years ended
December 31, 2011 and December 31, 2010 in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 1 in
the consolidated financial statements which indicates that the Company has
incurred net losses over the past several years and has a working capital
deficit in the amount of $52.7 million and has an accumulated deficit of $358.9
million. These conditions, along with other matters as set forth in Note 1,
indicate the existence of material uncertainties that may cast substantial doubt
about the Companys ability to continue as a going concern.

---

Other Matter

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the Company's
internal control over financial reporting as of December 31, 2011, based on the
criteria established in Internal ControlIntegrated Frameworkissued by
the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 29, 2012 expressed an unqualified opinion on the Companys
internal control over financial reporting.

/s/Deloitte & Touche LLP

Independent Registered Chartered Accountants Vancouver,
Canada March 29, 2012

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Report of Independent Registered Chartered
Accountants

To the Board of Directors and Shareholders of Yukon-Nevada Gold
Corp.

We have audited the internal control over financial reporting
of Yukon-Nevada Gold Corp. and subsidiaries (the Company) as of December 31,
2011, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in Managements Report on
Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company's internal control over financial reporting based on our
audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a
process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar
functions, and effected by the company's board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.

Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud
may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2011, based on the criteria established in Internal Control  Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.

We have also audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2011 of the Company and our report dated March
29, 2012 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

Independent Registered Chartered Accountants Vancouver,
Canada March 29, 2012

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YUKON-NEVADA GOLD CORP.Consolidated Statements of
Financial Position (In thousands of US dollars)

|                                                              |      |   | December 31, |   |   | December 31, |   |   | January
      1, |  
|------------------------------------------------------------- | ---- | - | ------------ | - | - | ------------ | - | - | ---------------- | -
|                                                              |      |   | 2011         |   |   | 2010         |   |   | 2010             |  
|                                                              | note |   |              |   |   | note 27      |   |   | note 27          |  
|Assets                                                        |      |   |              |   |   |              |   |   |                  |  
|Current assets:                                               |      |   |              |   |   |              |   |   |                  |  
|Cash and cash
      equivalents                               |      | $ | 2,261        |   | $ | -            |   | $ | 96               |  
|Accounts receivable and other                                 |      |   | 8,542        |   |   | 4,504        |   |   | 3,639            |  
|Inventories                                                   | 8    |   | 14,476       |   |   | 21,280       |   |   | 9,930            |  
|                                                              |      |   | 25,279       |   |   | 25,784       |   |   | 13,665           |  
|Restricted funds                                              | 9    |   | 65,810       |   |   | 32,248       |   |   | 29,175           |  
|Property, plant and equipment                                 | 10   |   | 231,040      |   |   | 157,936      |   |   | 147,589          |  
|Investment in joint venture                                   | 22   |   | -            |   |   | 2,445        |   |   | 1,353            |  
|Deferred tax asset                                            | 19   |   | -            |   |   | -            |   |   | 895              |  
|Deferred transaction costs                                    | 16   |   | 4,781        |   |   | -            |   |   | -                |  
|Other assets                                                  | 11   |   | 736          |   |   | 828          |   |   | 911              |  
|Total Assets                                                  |      | $ | 327,646      |   | $ | 219,241      |   | $ | 193,588          |  
|                                                              |      |   |              |   |   |              |   |   |                  |  
|Liabilities and Shareholders Equity
      (Deficiency)       |      |   |              |   |   |              |   |   |                  |  
|Current liabilities:                                          |      |   |              |   |   |              |   |   |                  |  
|Accounts payable
      and accrued liabilities                |      | $ | 40,534       |   | $ | 48,981       |   | $ | 39,560           |  
|Deferred revenue                                              | 16   |   | 21,614       |   |   | -            |   |   | 4,838            |  
|Short term
      borrowings                                   | 15   |   | -            |   |   | 8,926        |   |   | -                |  
|Forward contracts                                             | 13   |   | 15,003       |   |   | 8,901        |   |   | -                |  
|Warrants                                                      | 14   |   | 850          |   |   | 10,642       |   |   | 3,179            |  
|                                                              |      |   | 78,001       |   |   | 77,450       |   |   | 47,577           |  
|Warrants                                                      | 14   |   | 1,785        |   |   | 139,943      |   |   | 6,678            |  
|Long term borrowings                                          | 15   |   | -            |   |   | 15,030       |   |   | -                |  
|Deferred revenue                                              | 16   |   | 95,625       |   |   | -            |   |   | -                |  
|Deferred tax liabilities                                      | 19   |   | 17,537       |   |   | 16,546       |   |   | 14,849           |  
|Decommisioning and rehabilitation provision                   | 17   |   | 47,548       |   |   | 41,071       |   |   | 38,987           |  
|Other long-term
      liabilities                             | 18   |   | -            |   |   | 18           |   |   | 50               |  
|                                                              |      |   | 240,496      |   |   | 290,058      |   |   | 108,141          |  
|Shareholders' equity (deficiency) and reserves                |      |   |              |   |   |              |   |   |                  |  
|Share capital                                                 | 20   |   | 413,357      |   |   | 281,855      |   |   | 254,453          |  
|Share based payments reserve                                  | 20   |   | 33,652       |   |   | 30,483       |   |   | 25,930           |  
|Accumulated
      other comprehensive income (loss)           |      |   | (917         | ) |   | 2,169        |   |   | -                |  
|Deficit                                                       |      |   | (358,942     | ) |   | (385,324     | ) |   | (194,936         | )
|Total Shareholders' Equity (Deficiency)                       |      |   | 87,150       |   |   | (70,817      | ) |   | 85,447           |  
|Total Liabilities
      and Shareholders' Equity (Deficiency) |      | $ | 327,646      |   | $ | 219,241      |   | $ | 193,588          |  
|Nature of operations and going concern 
      Note 1         |      |   |              |   |   |              |   |   |                  |  
|                                                              |      |   |              |   |   |              |   |   |                  |  
|Commitments and contingencies  Note 26                       |      |   |              |   |   |              |   |   |                  |  

See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:

|Robert
      Baldock | Director | Graham Dickson | Director
|---------------------- | -------- | ---------------- | --------

March 29, 2012

1

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YUKON-NEVADA GOLD CORP.Consolidated Statements of
Operations and Comprehensive Income (Loss) (In thousands of US dollars,
except for share and per share amounts)

Years ended December 31, 2011 and 2010

|                                                              |  | note |  |   | 2011        |   |   | 2010        |  
|------------------------------------------------------------- |  | ---- |  | - | ----------- | - | - | ----------- | -
|                                                              |  |      |  |   |             |   |   | note 27     |  
|Revenue                                                       |  |      |  | $ | 105,116     |   | $ | 71,370      |  
|Cost of sales                                                 |  |      |  |   | 130,975     |   |   | 82,943      |  
|Gross loss                                                    |  |      |  |   | (25,859     | ) |   | (11,573     | )
|Depreciation,
      depletion, and amortization               |  |      |  |   | 6,676       |   |   | 5,428       |  
|Loss from mine operations                                     |  |      |  |   | (32,535     | ) |   | (17,001     | )
|Impairment of mineral properties and equipment                |  |      |  |   | -           |   |   | 745         |  
|Exploration costs                                             |  |      |  |   | 781         |   |   | 963         |  
|General and
      administrative expenses                     |  |      |  |   | 8,158       |   |   | 6,447       |  
|Loss from operations                                          |  |      |  |   | (41,474     | ) |   | (25,156     | )
|Other income (loss) :                                         |  |      |  |   |             |   |   |             |  
|Loss from joint
      venture                                 |  | 22   |  |   | (370        | ) |   | (188        | )
|Finance and transactions costs                                |  | 7    |  |   | (11,608     | ) |   | (51,524     | )
|Interest and
      other income (expense)                     |  | 6    |  |   | 77,873      |   |   | (114,953    | )
|Foreign exchange gain (loss)                                  |  |      |  |   | 1,769       |   |   | (197        | )
|                                                              |  |      |  |   | 67,664      |   |   | (166,862    | )
|Income (loss) before income taxes                             |  |      |  |   | 26,190      |   |   | (192,018    | )
|Income tax recovery (expense)                                 |  | 19   |  |   | 192         |   |   | 1,630       |  
|                                                              |  |      |  |   | 26,382      |   |   | (190,388    | )
|                                                              |  |      |  |   |             |   |   |             |  
|Net Income (Loss)
      for the period                        |  |      |  |   | 26,382      |   |   | (190,388    | )
|                                                              |  |      |  |   |             |   |   |             |  
|Other Comprehensive (Loss) Income :                           |  |      |  |   |             |   |   |             |  
|Foreign currency translation
      adjustments                |  |      |  |   | (3,086      | ) |   | 2,169       |  
|Total
      Comprehensive Income (Loss) for the year          |  |      |  | $ | 23,296      |   | $ | (188,219    | )
|Income (loss) per share  basic                               |  |      |  |   | 0.03        |   |   | (0.29       | )
|Weighted average number of shares outstanding - basic         |  |      |  |   | 800,430,950 |   |   | 646,540,724 |  
|Income (loss) per share  diluted                             |  |      |  |   | 0.03        |   |   | (0.29       | )
|Weighted average
      number of shares outstanding - diluted |  |      |  |   | 824,305,885 |   |   | 646,540,724 |  

See accompanying notes to consolidated financial statements.

2

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YUKON-NEVADA GOLD CORP.Consolidated Statements of
Changes in Shareholders Equity (Deficit) (In thousands of US dollars,
except number of common shares)

Years ended December 31, 2011 and 2010

|                               |             |  |                |  |   |          |   |   |               |   |   | Accumulated   |   |   |          |   |   |          |  
|------------------------------ | ----------- |  | -------------- |  | - | -------- | - | - | ------------- | - | - | ------------- | - | - | -------- | - | - | -------- | -
|                               |             |  |                |  |   |          |   |   | Share based   |   |   | other         |   |   |          |   |   |          |  
|                               |             |  | Common shares  |  |   | payments |   |   | comprehensive |   |   |               |   |   |          |  
|                               | Note        |  | Shares (000's) |  |   | Amount   |   |   | reserve       |   |   | income (loss) |   |   | Deficit  |   |   | Total    |  
|Balance at January 1, 2010     |             |  | 590,846        |  | $ | 254,453  |   | $ | 25,930        |   | $ | -             |   | $ | (194,936 | ) | $ | 85,447   |  
|Flow through share issue       | 20 (b)(iii) |  | 34,559         |  |   | 8,071    |   |   | -             |   |   | -             |   |   | -        |   |   | 8,071    |  
|Issued on private placement    | 20 (b)(iv)  |  | 22,727         |  |   | 4,807    |   |   | -             |   |   | -             |   |   | -        |   |   | 4,807    |  
|Share issue costs              | 20 (b)(iii) |  | -              |  |   | (739     | ) |   | -             |   |   | -             |   |   | -        |   |   | (739     | )
|Exercise of warrants           | 14          |  | 30,627         |  |   | 12,277   |   |   | -             |   |   | -             |   |   | -        |   |   | 12,277   |  
|Exercise of options            | 20 (c)      |  | 2,398          |  |   | 776      |   |   | (286          | ) |   | -             |   |   | -        |   |   | 490      |  
|Shares issued for services     |             |  | 4,505          |  |   | 1,207    |   |   | -             |   |   | -             |   |   | -        |   |   | 1,207    |  
|Forfeiture of unvested options |             |  | -              |  |   | -        |   |   | (83           | ) |   | -             |   |   | -        |   |   | (83      | )
|Share based payment expense    | 20 (c)      |  | -              |  |   | -        |   |   | 4,922         |   |   | -             |   |   | -        |   |   | 4,922    |  
|Loss for the year              |             |  | -              |  |   | -        |   |   | -             |   |   | -             |   |   | (190,388 | ) |   | (190,388 | )
|Foreign currency translation   |             |  | -              |  |   | -        |   |   | -             |   |   | 2,169         |   |   | -        |   |   | 2,169    |  
|Other                          | 6 (iv)      |  | 2,005          |  |   | 1,003    |   |   | -             |   |   | -             |   |   | -        |   |   | 1,003    |  
|Balance at December 31, 2010   |             |  | 687,667        |  | $ | 281,855  |   | $ | 30,483        |   | $ | 2,169         |   | $ | (385,324 | ) | $ | (70,817  | )
|                               |             |  |                |  |   |          |   |   |               |   |   |               |   |   |          |   |   |          |  
|Flow through share issue       | 20 (b)(ii)  |  | 8,335          |  |   | 6,677    |   |   | -             |   |   | -             |   |   | -        |   |   | 6,677    |  
|Issued on private placement    | 20 (b)(i)   |  | 33,488         |  |   | 8,118    |   |   | -             |   |   | -             |   |   | -        |   |   | 8,118    |  
|Exercise of warrants           | 14          |  | 200,914        |  |   | 116,603  |   |   | -             |   |   | -             |   |   | -        |   |   | 116,603  |  
|Exercise of options            | 20 (c)      |  | 182            |  |   | 62       |   |   | (26           | ) |   | -             |   |   | -        |   |   | 36       |  
|Shares issued for services     |             |  | 58             |  |   | 42       |   |   | -             |   |   | -             |   |   | -        |   |   | 42       |  
|Share based payment expense    | 20 (c)      |  | -              |  |   | -        |   |   | 3,195         |   |   | -             |   |   | -        |   |   | 3,195    |  
|Income for the year            |             |  | -              |  |   | -        |   |   | -             |   |   | -             |   |   | 26,382   |   |   | 26,382   |  
|Foreign currency translation   |             |  | -              |  |   | -        |   |   | -             |   |   | (3,086        | ) |   | -        |   |   | (3,086   | )
|Balance at December 31, 2011   |             |  | 930,644        |  | $ | 413,357  |   | $ | 33,652        |   | $ | (917          | ) | $ | (358,942 | ) | $ | 87,150   |  

See accompanying notes to consolidated financial statements.

3

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YUKON-NEVADA GOLD CORP.Consolidated Statements of
Cash Flows (In thousands of US dollars)

Years ended December 31, 2011 and 2010

|                                                              |  | Note |  |   | 2011    |   |   | 2010     |  
|------------------------------------------------------------- |  | ---- |  | - | ------- | - | - | -------- | -
|                                                              |  |      |  |   |         |   |   |          |  
|Cash flows from operating activities                          |  |      |  |   |         |   |   |          |  
|                                                              |  |      |  |   |         |   |   |          |  
|Net income
      (loss) for the year                          |  |      |  | $ | 26,382  |   | $ | (190,388 | )
|Items not affecting cash:                                     |  |      |  |   |         |   |   |          |  
|Depreciation, depletion, and amortization                     |  |      |  |   | 6,676   |   |   | 5,428    |  
|Recognition of
      deferred revenue                         |  |      |  |   | (2,761  | ) |   | -        |  
|Net finance income (costs)                                    |  |      |  |   | (71,159 | ) |   | 163,135  |  
|Impairment of
      mineral properties and equipment          |  |      |  |   | -       |   |   | 745      |  
|Gain on disposal of assets                                    |  |      |  |   | (8      | ) |   | -        |  
|Share based
      payments                                    |  |      |  |   | 3,195   |   |   | 4,846    |  
|Tax expense (recovery)                                        |  |      |  |   | (192    | ) |   | (1,630   | )
|Loss from joint
      venture                                 |  |      |  |   | 371     |   |   | 189      |  
|Unrealized foreign exchange (gain) loss                       |  |      |  |   | (1,807  | ) |   | 201      |  
|Change in non cash
      working capital                      |  | 21   |  |   | (13,015 | ) |   | (1,515   | )
|Cash used in operating activities before
      the undernoted |  |      |  |   | (52,318 | ) |   | (18,989  | )
|Deferred revenue
      proceeds net of transaction costs      |  |      |  |   | 114,000 |   |   | -        |  
|Interest paid                                                 |  |      |  |   | (97     | ) |   | -        |  
|Cash generated by (used) in operating activities              |  |      |  |   | 61,585  |   |   | (18,989  | )
|Cash flows from investing activities                          |  |      |  |   |         |   |   |          |  
|Property, plant and equipment
      expenditures              |  |      |  |   | (50,347 | ) |   | (5,204   | )
|Restricted funds                                              |  |      |  |   | (33,709 | ) |   | (2,812   | )
|Mineral property expenditures                                 |  |      |  |   | (16,565 | ) |   | (8,276   | )
|Cash
      distribution from joint venture                    |  |      |  |   | 2,134   |   |   |          |  
|Proceeds from sales of property,
      plant and equipment    |  |      |  |   | 18      |   |   | -        |  
|Purchase of derivative financial
      asset                  |  |      |  |   | (15     | ) |   | -        |  
|Cash used in investing activities                             |  |      |  |   | (98,484 | ) |   | (16,292  | )
|Cash flows from financing activities                          |  |      |  |   |         |   |   |          |  
|Notes payable and finance leases                              |  |      |  |   | -       |   |   | (32      | )
|Proceeds from
      derivative gold forward contract          |  |      |  |   | 5,000   |   |   | 7,006    |  
|Settlement of gold forward
      contract                     |  |      |  |   | (5,366  | ) |   | (9,560   | )
|Flow through
      shares issued for cash                     |  |      |  |   | 7,184   |   |   | -        |  
|Common shares issued for cash                                 |  |      |  |   | 14,738  |   |   | 14,055   |  
|Share issue
      costs                                       |  |      |  |   | -       |   |   | (611     | )
|Proceeds from issuance of
      long-term debt                |  |      |  |   | -       |   |   | 24,800   |  
|Repayment of
      long term debt                             |  |      |  |   | (41,638 | ) |   | (4,034   | )
|Common shares issued upon
      exercise of shareholder       |  |      |  |   |         |   |   |          |  
|warrants                                                      |  |      |  |   | 59,237  |   |   | 3,071    |  
|Common shares issued upon exercise of stock options           |  |      |  |   | 36      |   |   | 490      |  
|Cash generated by financing activities                        |  |      |  |   | 39,191  |   |   | 35,185   |  
|                                                              |  |      |  |   |         |   |   |          |  
|Effect of exchange rate changes on cash                       |  |      |  |   | (31     | ) |   | -        |  
|Increase (decrease) in cash and cash equivalents              |  |      |  |   | 2,261   |   |   | (96      | )
|                                                              |  |      |  |   |         |   |   |          |  
|Cash and cash
      equivalents, beginning of period          |  |      |  |   | -       |   |   | 96       |  
|Cash and cash equivalents, end of period                      |  |      |  | $ | 2,261   |   | $ | -        |  

See accompanying notes to consolidated financial statements.

4

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|1. | Nature of operations and going concern:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Yukon-Nevada Gold Corp. (the Company) is a gold metal
      producer engaged in the mining, exploration and development of mineral
      properties located in Canada and the United States. The Company is
      incorporated under the laws of the Province of British Columbia, Canada
      and its shares are listed on the Toronto Stock Exchange and the Frankfurt
      Exchange.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Companys registered address is 999 West Hastings
      Street, Suite 1040, Vancouver, British Columbia, Canada V6C 2W2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The consolidated financial statements of the Company as
      at and for years ended December 31, 2011, and 2010 comprise the Company
      and its wholly owned subsidiaries (note 3a), and the Companys interest in
      a jointly controlled entity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | For properties other than the producing mine at Jerritt
      Canyon, Nevada, the Company is in the process of mineral exploration and
      has yet to determine whether these properties contain reserves that are
      economically recoverable. The recoverability of the amount shown for these
      mineral properties is dependent upon the existence of economically
      recoverable reserves, confirmation of the Company's ownership interest in
      the mining claims, the ability of the Company to obtain necessary
      financing to complete the development, and upon future profitable
      production or proceeds from the disposition of the mineral
    properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company incurred a $32.5 million loss from mine operations
        for the year ended December 31, 2011 (2010  $17.0 million), and
        a $61.6 million inflow of cash from operations for the same period (2010
        - $19.0 million outflow). At December 31, 2011 the Company had a working
        capital deficiency of $52.7 million (2010  $51.7 million) and an
        accumulated deficit of $358.9 million (2010  $385.3 million)
      These consolidated financial statements are prepared on
        the basis that the Company will continue as a going concern. The Companys
        ability to continue as a going concern and recover its investment in property,
        plant, and equipment and mineral properties is dependent on its ability
        to generate positive cash flows and obtain additional financing in order
        to meet its planned business objectives. However, there can be no assurance
        that the Company will be able to obtain additional financial resources,
        or achieve profitability or positive cash flows. If the Company is unable
        to generate positive cash flows or obtain adequate financing, the Company
        will need to further curtail operations and exploration activities. These
        conditions and matters indicate the existence of material uncertainties
        that may cast substantial doubt about the Companys ability to continue
        as a going concern. Failure to continue as a going concern would require
        that the Company's assets and liabilities be restated on a liquidation
        basis which would differ significantly from the going concern basis.

5

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|2. | Basis of Preparation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Statement of compliance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | These consolidated financial statements are prepared in
      accordance with International Financial Reporting Standards (IFRS), as
      issued by the International Accounting Standards Board (IASB). As these
      financial statements represent the Companys initial presentation of
      results and financial position under IFRS, they are prepared in accordance
      with IFRS 1, First-time Adoption of International Financial Reporting
      Standards. The date of transition to IFRS was January 1, 2010. In
      preparing its first consolidated financial statements, the Company has
      applied the same accounting policies throughout all periods presented
      using IFRS standards effective as at December 31, 2011. The Company has
      applied the policies on a retrospective basis subject to certain optional
      exemptions and certain mandatory exceptions applicable to first time
      adopters.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Companys consolidated financial statements were
      previously prepared in accordance with accounting principles accepted in
      Canada (Canadian GAAP). Canadian GAAP differs in certain areas from
      IFRS. Note 27 contains reconciliations and explanations of the effect of
      the transition from Canadian GAAP to IFRS on equity as at December 31,
      2010, and January 1, 2010, and the statement of operations and
      comprehensive income (loss) for the year ended December 31,
2010.                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The preparation of financial statements in accordance
      with IFRS requires the use of certain critical accounting estimates and
      judgments when applying the Companys accounting policies. The areas
      involving a higher degree of judgment or complexity, or areas where
      assumptions and estimates are significant to the financial statements are
      disclosed in note 4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|3. | Significant accounting policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | Ketza
      River Holdings Ltd. (Yukon)              | 100% 
| | ---------------------------------------------------- | -----
| | YGC Resources Arizona Inc. (Arizona)                 | 100% 
| | Queenstake Resources Ltd. (British
      Columbia)   | 100% 
| | Queenstake Resources U.S.A. Inc. (Delaware)          | 100% 
| | Castle Exploration Inc. (Colorado)                   | 100% 
| | YS Mining Company
      Ltd. - Joint Venture (Yukon) | 41.7%

6

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | (b) | Cash and cash equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Cash and cash equivalents include cash and short-term
      investments that are readily convertible to cash and have a maturity date
      within 90 days of the purchase date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (c) | Derivative financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | When the Company enters into forward metal sale option
      contracts (Puts) it is for the purposes of reducing exposure to the
      fluctuation of future metal prices. These Puts are derivative financial
      instruments that are initially recorded at fair value on the date they are
      entered into, and are subsequently re-measured at fair value at each
      financial reporting date. Any gains or losses that results from subsequent
      fair value measurement is recognized in the statement of
  operations.                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (d) | Inventories:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Stockpiles represent ore that has been mined or purchased
      and is available for future processing. Stockpiles are measured by
      estimating the number of tons added and removed from the stockpile, the
      number of contained ounces (based on assay data) and the estimated
      metallurgical recovery rates (based on expected processing method).
      Stockpile ore tonnages are verified by periodic surveys. Costs are
      allocated to stockpiles based on relative values of material stockpiled
      and processed using current mining costs incurred up to the point of
      stockpiling the ore. These costs include direct labor, mine-site overhead
      expenses, and depreciation and depletion on Jerritt Canyon mine equipment
      and mineral properties. Purchased ore is recorded at cost based on the
      contracted purchase price, net of an allowance for the Companys
      processing charged to a third party.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Work-in-process inventories are valued at the lower of
      average production cost and net realizable value. Production costs include
      the cost of raw materials, direct labour, mine-site overhead expenses and
      depreciation and depletion of property, plant and equipment and mineral
      properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Finished goods inventories are valued at the lower of
      average production cost and net realizable value. Net realizable value is
      the estimated selling price in the ordinary course of business, less
      estimated selling expenses. Materials and supplies inventories are valued
      at the lower of average cost and net realizable value, net of a provision
      for obsolescence with respect to identified inventory items.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | When inventories have been written down to net realizable
      value, an assessment of net realizable value is made in each subsequent
      period. If the circumstances which resulted in the impairment no longer
      exist, the remaining amount of the write down is reversed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (d) | Investment in joint ventures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Joint Ventures are entities over which the Company has
        joint control with one or more unaffiliated entities. The Company conducts
        a portion of its exploration business through the joint venture YSMC.
        The joint venture is bound by a contractual agreement which establishes
        the joint control for each of the venturers.
      Joint ventures are accounted for using the equity method
        of accounting. Under the equity method, the investment in joint venture
        is recognized in the statement of financial position on the date of acquisition
        at the fair value of the purchase consideration. The carrying value is
        subsequently adjusted by the groups share of the post-acquisition
        comprehensive income (loss).                                                                                                                                                                  

7

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | (e) | Property, plant and equipment:                                                                                                                                                                                                                                                                                                                                                                          
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Property, plant and equipment is recorded at cost less
      accumulated depreciation. Depreciation is recorded on a straight-line
      basis to residual values over the estimated useful lives of the assets.
      Residual values and useful lives are reviewed at least annually. Property,
      plant and equipment used in exploration is depreciated and included in
      mineral properties.

| | Depreciation rates are as follows: |                                         
| | ---------------------------------- | ----------------------------------------
| | Buildings                          | 20 years                                
| | Computer hardware and software     | 3 years                                 
| | Equipment and facilities           | 5 - 20 years                            
| | Furniture and fixtures             | 7 years                                 
| | Vehicles                           | 3 - 7 years                             
| | Leases and leasehold improvements  | over the shorter of lease term
      and
| |                                    | expected useful life of the asset       

| | (f) | Mineral properties:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Exploration and evaluation expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Exploration and evaluation expenditure relates to the
      initial costs incurred on the search for, and evaluation of, potential
      mineral reserves and resources. Exploration includes such costs as
      exploratory drilling, sampling, mapping and other costs involved in
      searching for ore. Evaluation includes costs incurred to establish the
      technical and commercial viability of developing mineral properties
      acquired or identified through exploration. Exploration and evaluation
      expenditures, net of any option payments or income tax credits received,
      are deferred until the property is placed into production, sold or
      abandoned or determined to be impaired. These deferred expenditures are
      amortized on a units-of-production (UOP) basis over the estimated useful
      life of the property based on proven and probable reserves following
      commencement of production.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Mine development expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Once it has been determined that the development of a
      mineral property is commercially and technically viable, as a result of
      establishing proven and probable reserves, the costs incurred to develop a
      property are capitalized. These costs include engineering and
      metallurgical studies; drilling and other related costs to delineate an
      ore body; the costs of removing overburden to initially expose the ore
      body prior to the start of mining operations; and, the building of access
      ways, shafts, drifts, ramps and other infrastructure at underground mines.
      These capitalized expenditures are amortized on a UOP basis over the
      estimated useful life of the property based on proven and probable
      reserves following commencement of production.                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Underground mine development costs incurred during
      production                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | During the production phase the Company incurs
      underground development costs for major underground excavation done to
      establish new access ways. These costs include building new shafts,
      drifts, ramps, lateral access ways, and other infrastructure to access
      specific ore blocks which provide probable future economic benefits to the
      Company. Costs directly attributable to this underground development are
      capitalized and amortized on a UOP basis over the estimated useful life of
      the property.                                                                                                                                                                                                                                                                                                                                                                                                      

8

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | (g) | Impairment of long lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | At each reporting date, the Company reviews the carrying
      amounts of its long-lived assets to determine whether there is any
      indication that those assets are impaired. If such impairment exists, the
      recoverable amount of the asset is estimated in order to determine the
      extent, if any, of the impairment. Where the asset does not generate cash
      flows that are independent from other assets, the Company estimates the
      recoverable amount of the cash generating unit (CGU) to which the asset
      belongs.                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Recoverable amount is the higher of fair value less costs
      to sell and value in use. In assessing value in use, the estimated future
      cash flows are discounted to their present value using a pre-tax discount
      rate that reflects current market assessments of the time value of money
      and the risks specific to the asset for which estimates of future cash
      flows have not been adjusted.                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | If the recoverable amount of an asset (or CGU) is
      estimated to be less than its carrying amount, the carrying amount of the
      asset is reduced to its recoverable amount. An impairment is recognized
      immediately as an expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | All capitalized exploration and evaluation expenditures
      are monitored for indications of impairment. Where a potential impairment
      is indicated, assessments are performed for each area of
  interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Where an impairment subsequently reverses, the carrying
      amount of the asset (or CGU) is increased to the revised estimate of its
      recoverable value, but so that the increased carrying amount does not
      exceed the carrying amount that would have been determined had no
      impairment been recognized for the asset (or CGU) in prior years. A
      reversal of an impairment is recognized as income immediately.                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (h) | Decommissioning and rehabilitation provisions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The Company recognizes liabilities for statutory,
      contractual, constructive or legal obligations for environmental
      rehabilitation in the period in which it is incurred. The net present
      value of future rehabilitation cost estimates arising from the
      decommissioning of plant and other site preparation work is capitalized to
      the mining assets along with a corresponding increase in the
      rehabilitation provision. Discount rates using a pre- tax value rate that
      reflect the time value of money and risks specific to the obligation are
      used to calculate the net present value. The Companys estimates are
      reviewed annually for changes in regulatory requirements, discount rates,
      effects of inflation and changes in estimates.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Accretion expense is charged to the statement of
      operations, while adjustments related to changes in estimated cashflows
      are recorded as increases or decreases in the carrying value of the asset.
      The capitalized cost is amortized over the useful life of the related
      asset. Upon settlement of the liability, a gain or loss is recorded if the
      actual costs incurred are different from the liability
  recorded.                                                                                                                                                                                                                                                                                                                                                       

9

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | (i) | Share based payments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The Company has established a share based payment plan as
      described in note 20. The Company measures share based payments at fair
      value and recognizes the expense over the vesting period. The Company uses
      the Black-Scholes option pricing model to determine the fair value of each
      stock option on the date of the grant. The value of the stock options
      issued to directors, employees and service providers is expensed or
      capitalized to mineral properties as share based payment and is credited
      to the share based payments reserve. The value of the stock options issued
      to agents in exchange for brokerage services is netted against share
      capital as share issuance costs and credited to the share based payments
      reserve.                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | At the end of each reporting period, the Company
      re-assesses its estimates of the number of awards that are expected to
      vest and recognizes the impact of the revisions in the statement of
      operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (k) | Revenue recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Revenue is measured at the fair value of the
      consideration received. A sale is recognized when the significant risks
      and rewards of ownership have passed. This is when title and insurance
      risk has passed to the customer, the amount of revenue can be measured
      reliably and it is probable that the economic benefits associated with the
      transaction will flow to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (l) | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The income tax expense for the period comprises current
      and deferred taxation. Taxation is recognized in the statement of
      operations and comprehensive income, except to the extent that it relates
      to items recognized directly in equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Current tax is the expected tax payable on the taxable
      income for the period, using tax rates enacted or substantively enacted at
      the reporting date in countries where the Companys subsidiaries operate
      and generate taxable income. Management periodically evaluates positions
      taken in tax returns with respect to situations in which applicable tax
      regulation is subject to interpretation. It establishes provisions, where
      appropriate, on the basis of amounts expected to be paid to tax
      authorities.                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Deferred taxation is recognized using the liability
      method, on unused tax losses, unused tax credits, and temporary
      differences between the carrying amounts of assets and liabilities for
      financial reporting purposes and the amounts used for taxation purposes.
      However, the deferred taxation is not recognized if it arises from initial
      recognition of an asset or liability in a transaction other than a
      business combination, that at the time of the transaction affects neither
      accounting nor taxable profit or loss. Deferred taxation is determined
      using tax rates and laws that have been enacted or substantively enacted
      by the reporting date and are expected to apply when the related deferred
      taxation asset is realized or the deferred taxation liability is
      settled.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Deferred tax assets and liabilities are offset if there
      is a legally enforceable right to offset current tax liabilities and
      assets, and they relate to income taxes levied by the same tax authority
      on the same taxable entity; or on different tax entities, but they intend
      to settle current tax liabilities and assets on a net basis; or, their tax
      assets and liabilities will be realized simultaneously.                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | A deferred tax asset is recognized to the extent that it
      is probable that future taxable profits will be available against which
      unused tax losses, unused tax credits, and the temporary difference can be
      utilized. Deferred tax assets are reviewed at each reporting date and are
      reduced to the extent that it is no longer probable that the related tax
      benefit will be realized.                                                                                                                                                                                                                                                                                                                                                                                                                                           

10

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| |     | Additional income taxes that arise from the distribution
      of dividends are recognized at the same time that the liability to pay the
      related dividend is recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (l) | Flow-through shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The Company has financed a portion of its exploration
      expenditures through the issuance of flow-through shares. Under the terms
      of these share issues, the tax attributes of the related expenditures are
      renounced to subscribers. The premium paid for the flow-through shares in
      excess of market value is credited to liabilities and included in income
      when the related tax benefits are renounced by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (m) | Warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | When the Company issues units that are comprised of a
      combination of common shares and warrants, the value is assigned to common
      shares and warrants based on their relative fair values. The fair value of
      the common shares is determined by the closing price on the date of the
      transaction and the fair value of the warrants is determined based on a
      Black-Scholes option pricing model.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Those warrants which are denominated in a currency other
      than the Companys functional currency are recognized on the consolidated
      statement of financial position as derivative instruments
  (note14).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (n) | Earnings per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Basic earnings per share is computed by dividing the
      amount of income / loss for the period by the weighted average number of
      common shares outstanding during the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Diluted earnings per share is calculated using the
      treasury stock method. Under the treasury stock method, the weighted
      average number of shares outstanding used in the calculation of diluted
      earnings / loss per share assumes that the deemed proceeds received from
      the exercise of stock options, agents' options and share purchase warrants
      that are "in the money" would be used to repurchase common shares of the
      Company at the average market price during the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (o) | Financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Financial assets and financial liabilities, including
      derivatives, are measured at fair value on initial recognition and
      recorded on the balance sheet. Measurement in subsequent periods depends
      on whether the financial instrument has been classified as fair value
      through profit or loss, available-for-sale, held-to-maturity, loans and
      receivables or other financial liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Financial assets and liabilities classified as held-for-trading
        are measured at fair value with changes in those fair values recognized
        in the statement of operations. Financial assets and financial liabilities
        considered held-to-maturity, loans and receivables, and other financial
        liabilities are measured at amortized cost using the effective interest
        method of amortization. Available-for-sale financial assets are measured
        at fair value with unrealized gains and losses recognized in accumulated
        other comprehensive income until realized, or until a loss in value is
        determined to be significant or prolonged. Investments in equity instruments
        classified as available-for-sale that do not have a quoted market price
        in an active market are measured at cost.
      Derivative instruments, including embedded derivatives,
        are recorded on the balance sheet at fair value. Changes in the fair values
        of derivative instruments are recognized in the statement of operations
        with the exception of derivatives designated as effective cash flow hedges.
        The Company has no such designated hedges.

11

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| |     | Financial assets and financial liabilities are initially
      measured at fair value. Transaction costs that are directly attributable
      to the acquisition or issue of financial assets and financial liabilities
      (other than financial assets and financial liabilities at fair value
      through profit or loss) are added to or deducted from the fair value of
      the financial assets or financial liabilities, as appropriate, on initial
      recognition. Transaction costs directly attributable to the acquisition of
      financial assets or financial liabilities at fair value through profit or
      loss are recognized immediately in profit or loss.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (p) | Foreign currency translation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | The consolidated financial statements are presented in US
      dollars, which is the Companys presentation currency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Items included in the financial statements of each of the
      Companys subsidiaries are measured using the currency of the primary
      economic environment in which the entity operates (the functional
      currency). Foreign currency transactions are translated into the
      functional currency using the exchange rates at the date of transactions.
      Foreign exchange gains and losses resulting from the settlement of such
      transactions and from the translation of monetary assets and liabilities
      denominated in a currency other than the functional currency are
      recognized in the consolidated statement of operations.                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Assets and liabilities of entities with non-US dollar
      denominated functional currencies are translated at the period end rates
      of exchange and the results of their operations translated at the average
      rate for the period. The resulting translation adjustments are included in
      other comprehensive income. Additionally, foreign exchange gains and
      losses related to certain intercompany loans that are permanent in nature
      are included in other comprehensive income
(loss).                                                                                                                                                                 

|4. | Critical accounting judgments and
  estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The preparation of financial statements in conformity
      with International Financial Reporting Standards as issued by the
      International Accounting Standards Board requires management to make
      estimates and judgments that affect the amounts reported in the financial
      statements. By their nature, these estimates and judgments are subject to
      measurement uncertainty and the effect on the financial statements of
      changes in such estimates in future periods could be
significant.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Areas of judgment that have the most significant effect
      on the amounts recognized in the financial statements
  include:                                                                                                                                                                                                                                                                                                                                                                                              

| |  | Recognition of deferred tax on
      mineral rights                                                     
| | - | --------------------------------------------------------------------------------------------------------
| |  | Capitalization and impairment of
      exploration, evaluation and development expenditures             
| |  | Determination of functional
      currencies                                                            
| |  | Determination that the sale of
      future gold deliveries to Deutsche Bank represents deferred revenue
| |  | Applicability of the going
      concern assumption                                                     
| |  | Determination of commencement of
      commercial production                                            

12

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

Critical accounting estimates include:

| |  | Determination of ore reserves                     
| | - | --------------------------------------------------
| |  | Impairment of property, plant and equipment       
| |  | Decommissioning and rehabilitation provisions     
| |  | Contingent liabilities                            
| |  | Share based compensation and valuation of warrants
| |  | Income taxes                                      
| |  | Useful lives of assets                            
| |  | Asset depreciation rates                          

|5. | Changes in accounting standards:                       
|-- | -------------------------------------------------------
|   |                                                        
|   | Accounting standards effective January
        1, 2012:
|   |                                                        
|   | i)                                                     
|   |                                                        
|   |                                                        
|   |                                                        
|   | ii)                                                    
|   |                                                        
|   |                                                        
|   |                                                        
|   | Accounting standards effective January
        1, 2013:
|   |                                                        
|   | i)                                                     
|   |                                                        
|   |                                                        
|   |                                                        
|   | ii)                                                    
|   |                                                        
|   |                                                        

13

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | iii) | IFRS 12 - Disclosure of Interests in Other Entities(IFRS 12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | IFRS 12 requires enhanced disclosure of the Companys
      interests in both consolidated and non-consolidated entities to enable
      readers of the financial statements to evaluate the nature of and risks
      associated with these interests. This standard is effective for annual
      periods beginning on or after January 1, 2013, with early application
      permitted. The Company is currently evaluating the impact the final
      standard is expected to have on its consolidated financial
    statements.                                                                                                                                                                                                                                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | iv)  | IFRS 13 - Fair Value Measurement(IFRS
  13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | Issued in May 2011, IFRS 13 sets out a single framework
      for measurement and disclosure of information regarding fair value
      measurement. This standard applies when another IFRS requires, or permits,
      fair value measurements and/or disclosures about fair value measurements.
      IFRS 13 is effective for annual periods beginning on or after January 1,
      2013, with early adoption permitted. The Company is currently evaluating
      the impact the final standard is expected to have on its consolidated
      financial statements.                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | v)   | Amendments to IAS 1 - Presentation of Financial
      Statements(IAS 1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | This amendment, issued in June 2011, requires an entity
      to group items presented in the Statement of Comprehensive Income on the
      basis of whether they may be reclassified to earnings subsequent to
      initial recognition. For those items presented before taxes, the
      amendments to IAS 1 also require that the taxes related to the two
      separate groups be presented separately. The amendments are effective for
      annual periods beginning on or after July 1, 2012, with earlier adoption
      permitted. The Company does not anticipate the application of the IAS 1
      amendments to have a significant impact on its consolidated financial
      statements.                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | vi)  | Amendment to IAS 19  Employee Benefits(IAS
      19)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | This amendment, issued in June 2011, introduced changes
      to the accounting for defined benefit plans and other employee benefits.
      The amendments include elimination of the option to defer, or recognize in
      full in earnings, actuarial gains and losses, and instead mandates the
      immediate recognition of all actuarial gains and losses in other
      comprehensive income, and requires use of the same discount rate for both
      defined benefit obligation and expected asset return when calculating
      interest costs. Other amendments include modification of the accounting
      for termination benefits and classification of other employees. The
      Company does not anticipate application of IAS 19 amendments to have a
      significant impact on its consolidated financial statements.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | vii) | IFRIC 20  Stripping Costs in the Production Phase of
      A Surface Mine (IFRIC 20)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | In October 2011, the IASB issued IFRIC 20 which clarifies
      the requirements for accounting for the costs of stripping activity in the
      production phase when two benefits accrue: (i) usable ore that can be used
      to produce inventory; and (ii) improved access to further quantities of
      material that will be mined in future periods. IFRIC 20 is effective for
      annual periods beginning on or after January 1, 2013, with earlier
      application permitted, and includes guidance on transition for
      pre-existing stripping assets. The Company is currently evaluating the
      impact the new guidance is expected to have on its consolidated financial
      statements.                                                                                                                          

14

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

Accounting standards effective
January 1, 2015:

| | i) | IFRS 9 - Financial Instruments(IFRS
9)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | This new standard for financial instruments is intended
      to replace IAS 39 - Financial instruments: Recognition and measurement(IAS 39), in entirety, in three main phases. IFRS 9 is intended to
      be principles-based, and less complex than IAS 39. The first phase of IFRS
      9 was issued and amended in November 2009 and October 2010, respectively,
      and 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 contractual cash flow characteristics, and the Companys
      business model for managing, financial assets. Financial liabilities are
      classified and subsequently measured at amortized cost, except for
      financial liabilities classified as at fair value through profit or loss
      (FVTPL), financial guarantees, and other certain exceptions.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | In response to delays to the completion of the remaining
      two phases of the project, on December 16, 2011, the IASB issued
      amendments to IFRS 9 which deferred the mandatory effective date of IFRS 9
      from January 1, 2013 to annual periods beginning on or after January 1,
      2015. The amendments also provided relief from the requirement to restate
      comparative financial statements for the effects of applying IFRS
  9.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | The Company is currently evaluating the impact the final
      standard is expected to have on its consolidated financial
    statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|6. | Interest and other income (expense)                     
|-- | --------------------------------------------------------
|   |                                                         
|   | Interest and other income (expense) is comprised
    of:

| |                                                      |   | 2011    |   |   | 2010     |  
| | ---------------------------------------------------- | - | ------- | - | - | -------- | -
| | Gain (loss) on warrants (i)                          | $ | 97,203  |   | $ | (100,412 | )
| | Loss on derivatives (ii)/(iii)                       |   | (19,524 | ) |   | (7,163   | )
| | Provisions for and settlement of lawsuits
      (iv) |   | -       |   |   | (4,612   | )
| | Cash settlement of deferred revenue (v)              |   | -       |   |   | (3,071   | )
| | Interest income                                      |   | 57      |   |   | 54       |  
| | Other                                                |   | 137     |   |   | 251      |  
| |                                                      | $ | 77,873  |   | $ | (114,953 | )

| | (i)  | The warrants denominated in Canadian dollars are revalued
      at each reporting period and the change in fair value recorded in net
      income (note 14). For year ended December 31, 2011 a gain of $97.2 million
      was recognized (2010  $100.4 million loss).                                                                                                                                                                                                                                                                                  
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (ii) | As part of the $25.0 million debt issued in the third
      quarter of 2010, $6.8 million of the proceeds were allocated to a gold
      embedded derivative arising from the loan repayments being indexed to the
      gold spot price (note 13). This debt was settled on August 12, 2011 (note
      15). Immediately prior to settlement the derivative was revalued resulting
      in a loss of $11.9 million during the year (revaluation of this derivative
      at December 31, 2010 resulted in a loss of $5.3 million being
      recognized).

15

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | (iii) | Two gold forward contracts were entered into in November
      2010 and January 2011 which are accounted for as derivatives. The January
      2011 forward contract was settled in June 2011 resulting in a loss $1.4
      million during the year (note 13). The fair value of the November 2010
      forward contract as at December 31, 2011 was $15 million (note 13)
      resulting in a loss of $6.1 million being recognized in 2011 (As at
      December 31, 2010 the fair value of the forward contact was $8.9 million,
      revaluation resulting in 2010 losses of $1.9 million being
    recognized).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (iv)  | In the third quarter of 2010, the Company settled the
      dispute between its wholly owned subsidiary, Queenstake Resources U.S.A.
      Inc. ("Queenstake") and Golden Eagle International Inc. ("Golden Eagle"),
      arising out of Queenstake's termination in 2009 of Golden Eagle's
      arrangement to restart operations at the Jerritt Canyon mine. In full
      settlement, Queenstake paid Golden Eagle a total of $3.5 million and
      delivered 2 million shares (valued at $1.0 million) to Golden Eagle during
      the fourth quarter of 2010. The parties agreed to terms of settlement and
      filed a stipulation to dismiss the case, without any admission of
      liability by any party. The dismissal included the dismissal with
      prejudice of counterclaims and third party complaints filed by Golden
      Eagle against Queenstake, the Company, and François Marland, who currently
      serves as a Director of the Company. The parties agreed to each bear their
      own attorney fees and costs. Of the $4.5 million settlement, $1.1 million
      relating to operating costs was accrued in periods prior to 2010, and $3.4
      million was expensed in 2010.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |       | The Company also accrued $1.2 million in 2010 related to
      the settlement of the class action initiated by certain employees who were
      laid off in August 2008 (note 26).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (v)   | In 2009, the Company received advance payment of $4.8
      million for three contracts for 6,508 ounces of gold at an average price
      of $743 per ounce to be delivered at a series of future dates. It had been
      the Companys intention to deliver gold ounces to settle the contracts,
      however, pursuant to the terms of debt issued in 2010 (note 13), the
      commitment was settled in cash in August 2010. The price of the settlement
      was $1,215 per ounce resulting in a loss to the Company of $3.1
      million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

16

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|7. | Finance and transactions
costs
|-- | ------------------------------

| |                                                                            |   | 2011   |  |   | 2010   | 
| | -------------------------------------------------------------------------- | - | ------ |  | - | ------ | 
| |                                                                            |   |        |  |   |        | 
| | Inducement warrants expense (i)                                            | $ | -      |  | $ | 43,631 | 
| | Interest on long term borrowings (note 15)                                 |   | 5,784  |  |   | 3,681  | 
| | Accretion of decommissioning and
      rehabilitation provisions (note 17) |   | 1,704  |  |   | 1,794  | 
| | Environmental rehabilitation expense                                       |   | 2,165  |  |   | -      | 
| | Transaction costs (note 16)                                                |   | 1,604  |  |   | -      | 
| | Interest and other
      expense                                           |   | 351    |  |   | 2,418  | 
| |                                                                            | $ | 11,608 |  | $ | 51,524 | 

| | (i) | The Company recorded a financing expense that resulted
      from the non-cash fair valuation of 190.7 million inducement warrants that
      were issued in 2010.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | Inventories
|-- | -----------

| |                        |   | December 31, |  |   | December 31, |  |   | January 1, | 
| | ---------------------- | - | ------------ |  | - | ------------ |  | - | ---------- | 
| |                        |   | 2011         |  |   | 2010         |  |   | 2010       | 
| |                        |   |              |  |   |              |  |   |            | 
| | Finished goods         | $ | 897          |  | $ | 1,597        |  | $ | 1,316      | 
| | Stockpiled ore         |   | 2,542        |  |   | 6,839        |  |   | -          | 
| | Purchased ore          |   | 435          |  |   | 1,682        |  |   | 5,340      | 
| | Work in progress       |   | 7,179        |  |   | 8,122        |  |   | 558        | 
| | Materials and supplies |   | 3,423        |  |   | 3,040        |  |   | 2,716      | 
| |                        | $ | 14,476       |  | $ | 21,280       |  | $ | 9,930      | 

All of the Companys inventories on
hand are located at the Jerritt Canyon mine in Nevada, USA. Included in cost of
sales and depreciation, depletion and amortization expense on the statement of
operations are inventory related costs of $49.6 million (December 31, 2010 -
$6.3 million) and $nil (December 31, 2010  $0.5 million), respectively. As at
December 31, 2011, there is a net realizable value provision recorded against
inventory of $0.5 million (December 31, 2010 - $0.5 million).

17

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|9. | Restricted funds
|-- | ----------------

| |                                                            |   | December 31, |  |   | December 31, |  |   | January, 1 | 
| | ---------------------------------------------------------- | - | ------------ |  | - | ------------ |  | - | ---------- | 
| |                                                            |   | 2011         |  |   | 2010         |  |   | 2010       | 
| | Chartis commutation account (a)                            | $ | 25,730       |  | $ | 25,665       |  | $ | 25,580     | 
| | Chartis money market account (a)                           |   | 19,791       |  |   | 2,623        |  |   | -          | 
| | Gold forward sale performance reserve
      account (e)    |   | 10,000       |  |   | -            |  |   | -          | 
| | Cash restricted to class action settlement (c)             |   | 1,761        |  |   | -            |  |   | -          | 
| | Cash restricted for future exploration in
      Canada (b) |   | 4,984        |  |   | -            |  |   | -          | 
| | Water use license letter of credit (d)                     |   | 3,036        |  |   | 3,104        |  |   | 2,940      | 
| | Workmens' compensation self-insurance                      |   | -            |  |   | 431          |  |   | 431        | 
| | Cash pledged as
      security for letters of credit       |   | 508          |  |   | 425          |  |   | 224        | 
| |                                                            | $ | 65,810       |  | $ | 32,248       |  | $ | 29,175     | 

| | (a) | The Company purchased from American Insurance Group
      (AIG), now known as Chartis, an environmental risk transfer program (the
      ERTP). As part of the ERTP, $25.7 million was deposited in an
      interest-bearing account with AIG (the Commutation Account). The
      Commutation Account principal plus interest earned on the principal is
      used to fund Jerritt Canyon mines ongoing reclamation and mine closure
      obligations (note 17).                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | During 2010 the Company was required to provide further
      surety to the Nevada Division of Environmental Protection (NDEP) and the
      US Forestry Service to fund the ongoing reclamation and mine closure
      obligations. To meet this additional surety requirement, the Company
      deposited $2.7 million into two money market accounts with Chartis and
      provided cash security for two new surety instruments issued to these two
      agencies. In July and October of 2011 the Company posted an additional
      $7.2 million, and $9.8 million respectively, to the money market account
      to satisfy increases in the bonding requirements related to increased
      coverage requirements and also the construction of a second tailings
      facility and water storage reservoir currently taking place at Jerritt
      Canyon.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | During the year ended December 31, 2011, the Company
      earned $0.1 million in interest from the commutation and money market
      accounts (2010 - $0.1 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (b) | During 2010 and 2011, the Company raised funds by way of
      a private placement of flow-through shares (FTS). Under the conditions
      of this private placement, the funds must be spent in 2011 and 2012 on
      Canadian Exploration Expenditures (CEE) on properties located in Canada.
      As at December 31, 2011 a total of $5.0 million is required to fund future
      exploration, no later than December 31, 2012, under the terms of the FTS
      subscription agreements issued in 2011.                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (c) | During the second quarter of 2011 the Company placed in a
      segregated account, under the terms of the April 2011 settlement
      agreement, funds required to settle a class action claim brought upon the
      Company (note 26).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (d) | The Yukon Territorial Government has letters of credit
      with the Company which were put in place to secure payment of potential
      reclamation work relating to the Ketza River project.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (e) | As part of the August, 2011 forward gold purchase
      agreement, the Company was required to deposit $10 million in an escrow
      account held in the Companys name. These funds will be made available
      when defined production targets have been met (note
16).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

18

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|10. | Property, plant and equipment:         
|--- | ---------------------------------------
|    |                                        
|    | Property, plant and equipment
comprise:

Mobile
        plantMineral
      
      
      Land and
      
      
      and
      
      
      ConstructionProperties
      
      
      Buildings
      
      
      equipment
      
      
      **in Progress**
      
      
      Other
      
      
      TotalCostJanuary 1, 2010
    
    58,341
    
    
    48,667
    
    
    56,533
    
    
    1,360
    
    
    982
    
    
    165,883additions
    
    8,403
    
    
    -
    
    
    4,211
    
    
    995
    
    
    255
    
    
    13,864disposals
    
    -
    
    
    -
    
    
    (64
    )
    
    -
    
    
    (20
    )
    
    (84
    )impairment
    
    (591
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (591
    )foreign exchange
    
    3,154
    
    
    -
    
    
    60
    
    
    -
    
    
    3
    
    
    3,217December 31, 2010
    
    69,307
    
    
    48,667
    
    
    60,740
    
    
    2,355
    
    
    1,220
    
    
    182,289additions
    
    22,202
    
    
    1,682
    
    
    17,381
    
    
    39,594
    
    
    427
    
    
    81,286disposals
    
    (10
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (10
    )foreign exchange
    
    (1,419
    )
    
    -
    
    
    (67
    )
    
    -
    
    
    (6
    )
    
    (1,492
    )December 31, 2011
    
    90,080
    
    
    50,349
    
    
    78,054
    
    
    41,949
    
    
    1,641
    
    
    262,073Accumulated depreciationJanuary 1, 2010
    
    -
    
    
    5,822
    
    
    11,912
    
    
    -
    
    
    560
    
    
    18,294depreciation chargefor the year
    
    -
    
    
    2,867
    
    
    2,979
    
    
    -
    
    
    254
    
    
    6,100disposals
    
    -
    
    
    -
    
    
    (64
    )
    
    -
    
    
    (20
    )
    
    (84
    )foreign exchange
    
    -
    
    
    -
    
    
    42
    
    
    -
    
    
    1
    
    
    43December 31, 2010
    
    -
    
    
    8,689
    
    
    14,869
    
    
    -
    
    
    795
    
    
    24,353depreciation chargefor the year
    
    -
    
    
    1,751
    
    
    4,745
    
    
    -
    
    
    211
    
    
    6,707disposals
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -foreign exchange
    
    -
    
    
    -
    
    
    (25
    )
    
    -
    
    
    (2
    )
    
    (27
    )December 31, 2011
    
    -
    
    
    10,440
    
    
    19,589
    
    
    -
    
    
    1,004
    
    
    31,033Carrying amountJanuary 1, 2010
    
    58,341
    
    
    42,845
    
    
    44,621
    
    
    1,360
    
    
    422
    
    
    147,589December 31, 2010
    
    69,307
    
    
    39,978
    
    
    45,871
    
    
    2,355
    
    
    425
    
    
    157,936December 31, 2011
    
    90,080
    
    
    39,909
    
    
    58,465
    
    
    41,949
    
    
    637
    
    
    231,040


At December 31, 2010, a mineral
property with a carrying value of $591 thousand was impaired due to abandonment
of the project. There was no impairment expense recognized in year ended
December 31, 2011. Other tangible fixed assets include office equipment and
fixtures held at the corporate office.

19

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| |                       |   | Jerritt
      Canyon Ketza River (a)(i) |   |   | Silver Valley (a)(ii) |   |   | Other (b) |   |   | Total |  
| | --------------------- | - | --------------------------------------- | - | - | --------------------- | - | - | --------- | - | - | ----- | -
| | Carrying amount       |   |                                         |   |   |                       |   |   |           |   |   |       |  
| | January 1,
      2010 | $ | 88,654                                  |   | $ | 56,729                |   | $ | 1,526     |   | $ | 680   |  
| | Additions             |   | 5,225                                   |   |   | 8,308                 |   |   | 189       |   |   | 142   |  
| | Impairment            |   | -                                       |   |   | -                     |   |   | -         |   |   | (591  | )
| | Depreciation charge   |   | (5,788                                  | ) |   | (270                  | ) |   | -         |   |   | (42   | )
| | Foreign exchange      |   | -                                       |   |   | 3,079                 |   |   | 95        |   |   | -     |  
| | December 31, 2010     |   | 88,091                                  |   |   | 67,846                |   |   | 1,810     |   |   | 189   |  
| | Additions             |   | 73,727                                  |   |   | 7,448                 |   |   | 46        |   |   | 65    |  
| | Disposals             |   | -                                       |   |   | (10                   | ) |   | -         |   |   | -     |  
| | Depreciation charge   |   | (6,436                                  | ) |   | (213                  | ) |   | -         |   |   | (58   | )
| | Foreign exchange      |   | -                                       |   |   | (1,423                | ) |   | (42       | ) |   | -     |  
| | December 31, 2011     |   | 155,382                                 |   |   | 73,648                |   |   | 1,814     |   |   | 196   |  

| | (a) | Yukon properties:                  
| | --- | -----------------------------------
| |     |                                    
| |     | (i)                                
| |     |                                    
| |     |                                    
| |     |                                    
| |     | (ii)                               
| |     |                                    
| |     |                                    
| |     |                                    
| | (b) | Other Yukon Base Metals properties:
| |     |                                    
| |     | (i)                                
| |     |                                    
| |     |                                    
| |     |                                    
| |     | (ii)                               
| |     |                                    
| |     |                                    

20

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | (ii) | Bay property:                                                                                                                                                                                                                                                   
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                 
| |      | The Company staked 36 claims near Watson Lake, Yukon
      Territory during 2006. These claims are adjacent to claims held by an
      unrelated third party. The focus of this property, based on preliminary
      historical geological work, will be silver.

These properties have nominal carrying
values.

|11. | Other assets                                                                                    
|--- | ------------------------------------------------------------------------------------------------
|    |                                                                                                 
|    | Other assets consist of insurance policies associated
      with the Companys ERTP (note 9(a)):
|    |                                                                                                 
|    | (a)                                                                                             
|    |                                                                                                 
|    |                                                                                                 
|    |                                                                                                 
|    | (b)                                                                                             
|    |                                                                                                 
|    |                                                                                                 
|    |                                                                                                 
|    | (c)                                                                                             

|12. | Related party transactions:
|--- | ---------------------------
|    |                            
|    | a)                         
|    |                            
|    | b)                         

21

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | c) | In July, 2011 the Company entered into a royalty
      agreement with a company owned by a director of the Company. The royalty
      agreement arose in connection with the use of proprietary mercury
      emissions technology, owned by the related party, at Jerritt Canyon.
      During the year ended December 31, 2011 a total of $0.2 million was
      charged to the Company under this agreement.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The amounts outstanding are unsecured
and will be settled in cash. No expense has been recognized for bad or doubtful
debts in respect of the amounts owed by related parties.

| | d) | Compensation of key management
  personnel:
| | -- | -------------------------------------------

The remuneration of directors and other
members of key management personnel during the periods was as follows:

2011
    
    
    2010Salaries and directors fees
    $
    1,573
    
    $
    849Short-term benefits
    
    32
    
    
    53Share-based payments
    
    789
    
    
    2,713$
    2,394
    
    $
    3,615


|    | The remuneration of directors and key executives is
      determined by the compensation committee and is dependent upon the
      performance of individuals, the performance of the Company, and external
      market trends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|13. | Forward Contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On January 28, 2011, the Company entered into a forward
      gold sales contract with a related party (note 12) for which the Company
      received advance proceeds of $5.0 million. The agreement specified that
      4,465 troy ounces of refined gold was to be sold to the counterparty by
      June 30, 2011. In June of 2011 the contract was settled through (i) a cash
      payment of $5.4 million generated though the sale of 3,465 ounces of
      refined gold to a third party; and, (ii) the delivery of 1,000 ounces of
      refined gold with a fair value of $1.5 million at the time of delivery.
      During the year a net loss on derivative of $1.5 million was recognized
      which was comprised of a $1.9 million loss recognized for the increase in
      fair value of the liability from inception to settlement date, offset by a
      $0.4 million gain recognized on the gross margin for the 1,000 ounces
      delivered on settlement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On November 25, 2010, the Company entered into a gold sales
        contract which specifies that 6,255 troy ounces of refined gold would
        be sold to the counterparty by May 30, 2011. In return, the Company received
        an upfront payment of $7.0 million cash. In November 2011 the Company
        and the counterparty agreed that the gold delivery required to settle
        the contract would occur in December 2012, and that approximately 2,674
        additional ounces would be delivered at that time. The additional ounces
        to be delivered is based on a 2.25% monthly increase in the ounces of
        gold to be delivered for each month the contracted gold delivery is outstanding
        from May 30, 2011.
      The terms of the agreement specify that 2,085 oz must be
        deposited into an escrow account on January 31, 2011, March 31, 2011 and
        May 30, 2011. However, at the option of the counterparty, the Company
        may be requested to settle the liability through a cash payment of USD
        $8,500,000 rather than through physical delivery of the gold. The forward
        contract has been assessed to be a derivative liability and is recorded
        at fair value at each reporting date. This derivative liability had a
        fair value of $15 million as at December 31, 2011, resulting in losses
        of $6.1 million being recorded for the year ended December 31, 2011. As
        at December 31, 2010 the fair value of the forward contact was $8.9 million,
        revaluation resulting in 2010 losses of $1.9 million being recognized.

22

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|14. | Warrants                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Due to the Companys functional currency being the US
      dollar, the issued and outstanding warrants that have an exercise price
      that is denominated in Canadian dollars are classified as derivative
      instruments. The warrants have been recognized as a liability in the
      statement of financial position with the movement in fair value recorded
      in net income (loss) at each reporting date.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | As at December 31, 2011 the following warrants were
      outstanding:                                                                                                                                                                                                                                                                                                                                                     

| |                   |           |  |            |  |  | In thousands | 
| | ----------------- | --------- |  | ---------- |  |  | ------------ | 
| |                   |           |  |            |  |  |              | 
| |                   |           |  |            |  |  |              | 
| |                   |           |  | Exercise   |  |  | December     | 
| | Expiry date       | Note 20   |  | price (C$) |  |  | 31, 2010     | 
| | June 20 ,2012     |           |  | 3.00       |  |  | 21,426       | 
| | February 25, 2011 | (b)(viii) |  | 0.08       |  |  | 400          | 
| | April 24, 2011    | (b)(vii)  |  | 0.08       |  |  | 3,733        | 
| | February 7, 2012  | (b)(vi)   |  | 0.13       |  |  | 7,550        | 
| | February 28, 2012 |           |  | 0.13       |  |  | 1,050        | 
| | June 1, 2011      | (b)(v)    |  | 0.13       |  |  | 10,000       | 
| | January 12, 2012  |           |  | 0.32       |  |  | 167,800      | 
| | January 12, 2012  | (b)(vi)   |  | 0.13       |  |  | 10,000       | 
| | January 12, 2012  |           |  | 0.26       |  |  | 10,250       | 
| | May 12, 2012      | (b)(iii)  |  | 0.28       |  |  | 640          | 
| | August 13, 2013   | note 13   |  | 0.40       |  |  | 25,000       | 
| | May 24, 2013      | (b)(i)    |  | 0.55       |  |  | -            | 
| |                   |           |  |            |  |  | 257,849      | 

The fair value of the warrants was $2.6
million as at December 31, 2011 (December 31. 2010 - $150.6 million; January 1,
2010  9.9 million) of which $0.9 million is recognized as a short-term
liability. During the year ended December 31, 2011, a gain of $97.2 million was
recognized in the consolidated statement of operations and comprehensive income
(loss) as a result of changes in the fair value of the warrants (2010 - $100.4
loss), and $57.4 million was recognized in share capital as a result of the fair
value of warrants exercised during the year (2010 - $8.2 million).

The warrants were fair valued using an
option pricing model with the following assumptions: no dividends are paid,
weighted average volatilities of the Companys share price of 79%, weighted
average expected lives of the warrants of 1.0 years, and weighted average annual
risk-free rates of 1.01% .

23

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|15. | Borrowings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | In August 2010 the Company issued $25 million in Senior
      Secured Notes (the "Notes") and 25,000,000 common share purchase warrants
      (the "Warrants"), raising net proceeds (after transaction costs of $0.2
      million) of $24.8 million. Each Warrant entitles the holder thereof to
      purchase one common share of the Company at a price of C$0.40 per share
      for a period of three years following closing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Notes had a maturity date of December 31, 2012 and
      were secured by a charge over all the assets of the Company's wholly owned
      subsidiaries, Queenstake Resources Ltd. ("QRL") and Queenstake Resources
      U.S.A. Inc. ("Queenstake US") as well as a share pledge over all shares in
      QRL and Queenstake US. The Notes were to be repaid through monthly cash
      installments based on a notional amount of approximately 284,114 shares of
      SPDR GLD Gold Shares (an exchange listed fund trading on the NYSE and
      other global exchanges). The Company guaranteed a minimum rate of return
      of 5% per annum on the aggregate principal amount over the term of the
      Notes. In connection with the closing, a finder's fee in the amount of 4%
      of the gross proceeds raised was payable in shares of the
  Company.                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Of the total proceeds of $24.8 million, $5.7 million was
      allocated on initial recognition to the warrants which are classified as a
      derivative. The fair value of the 25 million warrants was calculated using
      the Black-Scholes model assuming a risk-free interest rate of 1.91% per
      annum, an expected life term of 3 years, expected volatility of
      approximately 86% and no dividends. A further $6.8 million was allocated
      to the gold embedded derivative arising from the loan repayments being
      indexed to the gold spot price. This resulted in an initial liability
      being recorded of $12.3 million representing the Companys residual debt.
      The carrying amount of the liability is accreted to the face value of the
      notes over the term of the notes. Accretion included in finance and
      transactions costs totaled $5.8 million for the year ended December 31,
      2011 (2010 - $3.7 million), based on an effective interest rate of
    78%.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On August 12, 2011 the Notes were settled in entirety.
      Immediately prior to the settlement the fair value of the derivative
      liability was determined to be $19.1 million. The Company has included the
      resulting change in the fair value in the consolidated statement of
      operations and comprehensive loss (note
6(ii)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

At inception:Loan proceeds net of transaction costs
    $
    24,800Less value
      attributable to warrants
    
    (5,759
    )Carrying value of loan at August 13, 2010
    
    19,041Interest accretion
    
    3,681Movement on fair value of embedded gold derivative
    
    5,268Less payments made
    
    (4,034
    )Carrying value of
      loan at December 31, 2010
    $
    23,956Interest accretion
    
    5,784Movement on fair value of embedded gold
      derivative
    
    11,898Less payments made
    
    (41,638
    )Carrying value of loan at December 31, 2011
    $
    -


24

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|16. | Deferred revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | On August 12, 2011, the Company entered into a Forward
      Gold Purchase Agreement (the Agreement) with Deutsche Bank, AG, London
      Branch (Deutsche Bank), which holds more than 10% of the Companys
      issued and outstanding common shares. Under the Agreement the Company
      received a gross prepayment of $120 million (the Prepayment), of which
      net cash proceeds of $73.5 million were received on August 12, 2011. The
      net cash proceeds represent the $120 million Prepayment net of: (i) $10
      million deposited into an escrow account in the Companys name to be made
      available upon the Company achieving defined production targets (Note
      9(e)); (ii) the $29.9 million settlement of the outstanding Notes (note
      15); and, (iii) $6.6 million in transaction and legal costs. The Agreement
      is guaranteed by the Company and involves the registration of various
      charges against certain assets of the Company in favour of Deutsche
      Bank.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Under the terms of the Agreement, the Company has sold to
      Deutsche Bank, a Contract Quantity of Gold in the amount of 173,880 ounces
      to be delivered to Deutsche Bank over a forty-eight month term commencing
      September 2011. The scheduled future gold deliveries to Deutsche Bank are:
      (i) 1,000 ounces per month during the first six months of the term; (ii)
      2,000 ounces per month for the following six months of the term; and,
      (iii) 4,330 ounces per month for the final thirty-six months of the term
      (the Future Gold Deliveries).                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | In addition to the Prepayment, Deutsche Bank will make
      additional payments to the Company for the Future Gold Deliveries, the
      amounts being determined by the number of ounces delivered multiplied by
      the market price of gold, less a minimum price of US$850 per ounce, and up
      to a maximum price of US$1,950 per ounce. Any shortfall in the number of
      gold ounces delivered compared to that scheduled under the terms of the
      Agreement will result in the Company being obligated to pay a US dollar
      amount equal to the market price of gold per ounce on the scheduled
      delivery date, multiplied by the shortfall number of gold ounces (the
      Shortfall).                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Interest will be charged on the Shortfall at the LIBOR
      rate plus 2% per annum (based on 360 days/year) and would be due on
      demand. However, under the Agreement the Company may deliver a monthly
      Shortfall in gold, plus interest, if it can do so within fourteen days of
      the scheduled monthly delivery date. The Company is only allowed to
      exercise this late delivery right no more frequently than four times in
      total during the term of the Agreement, and no more frequently than during
      two consecutive calendar months.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | As of December 31, 2011, the Company has delivered 4,000
      ounces under the terms of the Agreement and has an obligation to deliver a
      further 169,880 ounces in the scheduled future periods described above.
      The current portion of deferred revenue represents the revenue expected to
      be recognized in the following twelve months in respect of the gold to be
      delivered pursuant to the Agreement. As at December 31, 2011 $21.6 million
      and $95.6 million represent the current and long-term deferred revenue,
      respectively, for the remaining ounces to be delivered under the
      Agreement.                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company incurred $7.6 million of fees to parties
      involved in the Agreement, of which $1.6 million was expensed as
      transaction costs and the balance of $6.0 million paid to Deutsche Bank
      deferred based on the direct relationship the fees have with the revenue
      expected to be recognized in future periods. As such the deferred fees are
      being amortized based on the ounces to be delivered under the terms of the
      Agreement. As of December 31, 2011 the net book value of this deferred fee
      was $5.9 million, $1.1 million of which is current and included in
      Accounts receivable and other.                                                                                                                                                                                                                                                                                                                                                                            

25

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|17. | Decommissioning and rehabilitation
    provisions:
|--- | --------------------------------------------------

| |                                                                        |   | December 31, |   |   | December 31, |  
| | ---------------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                                                        |   | 2011         |   |   | 2010         |  
| |                                                                        |   |              |   |   |              |  
| | Balance, beginning of year                                             | $ | 41,071       |   | $ | 38,987       |  
| | Accretion expense                                                      |   | 1,704        |   |   | 1,794        |  
| | Foreign exchange                                                       |   | (77          | ) |   | 180          |  
| | Reclamation spending                                                   |   | (64          | ) |   | (44          | )
| | Revisions in estimates of liabilities and additional
      obligations |   | 4,914        |   |   | 154          |  
| |                                                                        | $ | 47,548       |   | $ | 41,071       |  

|    | As at December 31, 2011 and 2010 all of the asset
      retirement obligations were long-term in nature.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Companys asset retirement obligations consist of
      reclamation and closure costs for both active mines and exploration
      activities. The present value of obligations relating to active mines is
      currently estimated at $44.1 million (2010 - $37.6 million) reflecting
      payments for approximately the next 24 years. The present value of
      obligations relating to exploration activity in the Yukon is currently
      estimated at $3.5 million (2010 - $3.4 million) reflecting payments for
      approximately the next 13 years. Significant reclamation and closure
      activities include land and water rehabilitation, demolition of buildings
      and mine facilities, ongoing care and maintenance, and other
  costs.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The undiscounted value of this liability is $60.7 million
      (2010 - $61.3 million). Inflation rate assumptions of 1.7% and discount
      rates of 2.6  3.6% have been used to determine the fair value of the
      obligation. The 2011 revision in estimates of liabilities and additional
      obligations is primarily due a decrease in the risk free rate used to
      determine the present value of the active mines from 4.2% used for 2010,
      to 2.6% used for 2011. An accretion expense component of $1.7 million
      (2010 - $1.8 million) has been charged to finance and transaction costs
      note 7).                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|18. | Other long-term
liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| |                                         |   | December 31, |   |   | December 31, |   |   | January 1, |  
| | --------------------------------------- | - | ------------ | - | - | ------------ | - | - | ---------- | -
| |                                         |   | 2011         |   |   | 2010         |   |   | 2010       |  
| |                                         |   |              |   |   |              |   |   |            |  
| | Finance leases                          | $ | 19           |   | $ | 50           |   | $ | 80         |  
| | Current portion of
      capital leases |   | (19          | ) |   | (32          | ) |   | (30        | )
| |                                         | $ | -            |   | $ | 18           |   | $ | 50         |  

The Company has two finance lease
obligations with respect to mine equipment in use at Jerritt Canyon. The lease
obligations bear interest at rates between 8 and 9 percent. The current portion
is included in accounts payable and accrued liabilities.

26

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|19. | Income taxes
|--- | ------------

| |                                             |   | 2011 |   |   | 2010   |  
| | ------------------------------------------- | - | ---- | - | - | ------ | -
| | Current tax recovery                        | $ | -    |   | $ | -      |  
| | Adjustments in
      respect of prior years |   | (676 | ) |   | (1,555 | )
| | Total current tax recovery                  | $ | (676 | ) | $ | (1,555 | )
| | Deferred tax expense (recovery)             | $ | 484  |   | $ | (75    | )
| | Adjustments in respect of prior years       |   | -    |   |   | -      |  
| | Total deferred tax
      expense (recovery) | $ | 484  |   | $ | (75    | )
| | Income tax expense (recovery)               | $ | (192 | ) | $ | (1,630 | )

Income tax expense reported differs
from the amount computed by applying the combined Canadian federal and
provincial income tax rates, applicable to Yukon-Nevada Gold Corp., to the
income (loss) before the tax provision due to the following:

| |                                                                                    |   | 2011    |   |   | 2010     |  
| | ---------------------------------------------------------------------------------- | - | ------- | - | - | -------- | -
| | Income (loss) before income taxes                                                  | $ | 26,190  |   | $ | (192,018 | )
| | Canadian federal
      and provincial income taxe rates                            |   | 26.5%   |   |   | 28.5%    |  
| | Income tax expense based on Canadian
      federal and provincial income tax rates |   | 6,940   |   |   | (54,725  | )
| | Increase (decrease) attributable to:                                               |   |         |   |   |          |  
| | Non-deductible (taxable)
      expenditures                                        |   | (21,951 | ) |   | 16,212   |  
| | Non-deductible share based payments                                                |   | 478     |   |   | 1,172    |  
| | Changes in unrecognized
      deferred tax assets                                  |   | 16,706  |   |   | 26,364   |  
| | Effects of different statutory tax rates on
      earnings of subsidiaries         |   | (3,957  | ) |   | (1,870   | )
| | Effercy of foreign currency
      exchange rate change                             |   | 566     |   |   | (1,453   | )
| | Other                                                                              |   | 1,026   |   |   | 12,670   |  
| |                                                                                    | $ | (192    | ) | $ | (1,630   | )

The significant components of the
Companys deferred tax assets and liabilities are as follows:

| |                                                                        |   | December 31, |   |   | December 31, |   |   | January
      1, |  
| | ---------------------------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ---------------- | -
| |                                                                        |   | 2011         |   |   | 2010         |   |   | 2010             |  
| | Deferred tax assets:                                                   |   |              |   |   |              |   |   |                  |  
| | Decommisioning and
      rehabilitation provision                      | $ | 943          |   | $ | 1,532        |   | $ | 1,411            |  
| | Non-capital and net operating loss carry
      forwards                |   | 8,139        |   |   | 1,754        |   |   | 323              |  
| | Unrealized foreign exchange                                            |   | -            |   |   | 117          |   |   | 2                |  
| | Excess tax value of property plant and
      equipment over book value |   | 344          |   |   | 168          |   |   | 210              |  
| | Other                                                                  |   | -            |   |   | -            |   |   | 914              |  
| |                                                                        | $ | 9,426        |   | $ | 3,571        |   | $ | 2,860            |  
| |                                                                        |   |              |   |   |              |   |   |                  |  
| | Deferred tax liabilities:                                              |   |              |   |   |              |   |   |                  |  
| | Mineral properties                                                     | $ | (25,100      | ) | $ | (18,105      | ) | $ | (16,814          | )
| | Flow-through share premium                                             |   | (918         | ) |   | (1,158       | ) |   | -                |  
| | Other                                                                  |   | (945         | ) |   | (854         | ) |   | -                |  
| |                                                                        | $ | (26,963      | ) | $ | (20,117      | ) | $ | (16,814          | )
| |                                                                        | $ | (17,537      | ) | $ | (16,546      | ) | $ | (13,954          | )

27

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

The following is the amounts of
deferred tax assets (liabilities) presented in the consolidated statements of
financial position:

| |                                |   | December 31, |   |   | December 31, |   |   | January
      1, |  
| | ------------------------------ | - | ------------ | - | - | ------------ | - | - | ---------------- | -
| |                                |   | 2011         |   |   | 2010         |   |   | 2010             |  
| | Deferred tax asset             | $ | -            |   | $ | -            |   | $ | 895              |  
| | Deferred tax
      liabilities |   | (17,537      | ) |   | (16,546      | ) |   | (14,849          | )
| | Net deferred tax liabilty      | $ | (17,537      | ) | $ | (16,546      | ) | $ | (13,954          | )

During 2011, the Company recorded a
premium on flow-through shares issued of $0.5 million (2010 - $1.2 million),
which has been included as part of the deferred tax liabilities.

During 2011, the Company renounced
C$6.1 million (2010 - $nil) of Canadian Exploration Expenditures to flow-through
shareholders. The result of this renunciation was that the "Cumulative Canadian
Exploration Expenditures" pool of the Company was reduced and a $1.8 million
(2010 - $nil) deferred tax liability was recorded on the date of filing the
renunciation and a deferred tax expense recognized. In addition, during 2011 the
Company released $0.8 million (2010 - $nil) of the flow-through share premium
discussed above that offset the deferred tax liability and related expense
recorded on renunciation.

Unrecognized deductible temporary
differences, unused tax, and unused tax credits losses are attributable to the
following:

| |                                                                   |   | 2011    |  |   | 2010    | 
| | ----------------------------------------------------------------- | - | ------- |  | - | ------- | 
| | Decommisioning and rehabilitation provision                       | $ | 43,341  |  | $ | 36,162  | 
| | Non-capital and net operating loss carry forwards (i)             |   | 178,621 |  |   | 143,253 | 
| | Share issuance costs                                              |   | 1,573   |  |   | 3,225   | 
| | Unrealized foreign exchange losses                                |   | 3,364   |  |   | 2,023   | 
| | Tax value of property plant and equipment
      in excess of book |   | 13,561  |  |   | 4,554   | 
| | Other temporary
      differences                                 |   | 26,138  |  |   | 31,623  | 
| |                                                                   | $ | 266,598 |  | $ | 220,840 | 

(i)      The
unrecognized tax losses will expire between 2012 and 2031.

The Company has income tax loss
carry-forwards of approximately $201.6 million (2010 - $136.1 million) for both
Canadian and U.S. tax purposes. Through a change of control provision under U.S.
tax law (IRC Section 382), a limitation over the application of U.S. tax loss
carry-forwards is triggered. As a result of the 2008 private placement, the
Company will have an annual limitation of $0.3 million applicable to the
pre-2009 U.S. tax losses available to offset future U.S. taxable income. In
addition, the 2010 private placement combined with market trading transactions
trigger an annual limitation of $5.9 million applicable to the post-2008 (but
pre-2011) U.S. tax losses available to offset future U.S. taxable income.

28

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

The loss carry-forwards if unused
expire as follows for both the Canadian and U.S. tax jurisdictions:

| |           |   | Canadian Tax  |  |   | U.S.
      Tax |  |   |         | 
| | --------- | - | ------------- |  | - | -------------- |  | - | ------- | 
| |           |   | Jurisdictions |  |   | Jurisdictions  |  |   | TOTAL   | 
| | 2010-2020 | $ | 1,795         |  | $ | 3,129          |  | $ | 4,924   | 
| | 2021      |   | -             |  |   | 278            |  |   | 278     | 
| | 2022      |   | -             |  |   | 165            |  |   | 165     | 
| | 2023      |   | -             |  |   | 1,217          |  |   | 1,217   | 
| | 2024      |   | -             |  |   | 2,213          |  |   | 2,213   | 
| | 2025      |   | -             |  |   | 3,361          |  |   | 3,361   | 
| | 2026      |   | 1,627         |  |   | 2,353          |  |   | 3,980   | 
| | 2027      |   | 3,128         |  |   | -              |  |   | 3,128   | 
| | 2028      |   | 2,746         |  |   | 43,834         |  |   | 46,580  | 
| | 2029      |   | 1,358         |  |   | 38,620         |  |   | 39,978  | 
| | 2030      |   | 1,060         |  |   | 32,245         |  |   | 33,305  | 
| | 2031      |   | 3,625         |  |   | 58,822         |  |   | 62,447  | 
| |           | $ | 15,339        |  | $ | 186,237        |  | $ | 201,576 | 

|20. | Share capital and share based payments:
|--- | ---------------------------------------
|    |                                        
|    | (a)                                    
|    |                                        
|    | (b)                                    
|    |                                        
|    |                                        
|    |                                        
|    |                                        
|    |                                        
|    |                                        
|    |                                        
|    |                                        

29

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | (c) | Stock options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The Company has a stock option plan (the Plan) in place
      under which the Board of Directors may grant options to acquire common
      shares of the Company to directors, employees and service providers. Under
      the terms of the Plan, the number of securities issuable to insiders, at
      any time under old security based agreements, cannot exceed 10% of the
      issued and outstanding securities. The options vest over a variable period
      of time up to three years dependent upon the individuals role and any
      specified performance criteria.

Under the fair value method, the total
fair value of the stock based compensation recognized during the year ended
December 31, 2011 was $3.2 million (2010 - $4.9 million). Of this $1.4 million
is included in cost of sales (2010 - $0.7 million), and $1.8 million is included
in general and administrative expense for the year ended December 31, 2011 (2010
 $4.1 million). The weighted average fair value of the options at the date of
grant has been estimated using the Black-Scholes option pricing model using the
following assumptions:

| | Date of grant                    | Nov. 2006 - Dec. 2011                                                   
| | -------------------------------- | ------------------------------------------------------------------------
| | Number of options (in thousands) | 60,212                                                                  
| | Exercise price                   | $0.15 - $2.77                                                           
| | Contractual life                 | 5 years                                                                 
| | Risk free rate                   | 1.5% - 3.4%                                                             
| | Expected volatility              | 98% - 139%                                                              
| | Dividend yield                   | N/A                                                                     
| | Employee turnover                | 0%                                                                      
| | Early exercise                   | at rates dependent upon seniority and potential gain from
      exercise

Continuity of stock options outstanding
is as follows:

Options
    
    
    Weightedoutstanding
    
    
    average exercise(000's)
    
    
    price (C$/option)At January 1, 2010
    
    26,037
    
    
    0.40Granted
    
    37,615
    
    
    0.33Exercised
    
    (2,398
    )
    
    0.21Expired
    
    (700
    )
    
    0.60Forfeited
    
    (7,117
    )
    
    0.33At December 31, 2010
    
    53,437
    
    
    0.37Granted
    
    7,920
    
    
    0.46Exercised
    
    (182
    )
    
    0.19Expired
    
    (588
    )
    
    0.92Forfeited
    
    (375
    )
    
    0.15At
      December 31, 2011
    
    60,212
    
    
    0.38


30

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

The following information pertains to the options outstanding at December 31,
  2011:

Outstanding
      
      
      VestedWeighted
      
      
      Weighted
      
      
      
      
      
      Weighted
      
      
      Weightedaverage
      
      
      average
      
      
      
      
      
      average
      
      
      averageOptions
      
      
      exercise
      
      
      remaining
      
      
      Options
      
      
      exercise
      
      
      remainingExercise Price
      
      outstanding
      
      
      price
      
      
      contractual
      
      
      outstanding
      
      
      price
      
      
      contractual(C$)
      
      (000's)
      
      
      (C$/option)
      
      
      life (years)
      
      
      (000's)
      
      
      (C$/option)
      
      
      life (years)0.15-0.31
      
      21,540
      
      
      0.19
      
      
      2.83
      
      
      20,040
      
      
      0.18
      
      
      2.810.32-0.82
      
      36,016
      
      
      0.37
      
      
      3.60
      
      
      24,264
      
      
      0.38
      
      
      3.670.83-1.60
      
      200
      
      
      1.60
      
      
      1.24
      
      
      200
      
      
      1.60
      
      
      1.241.61-1.75
      
      1,706
      
      
      1.73
      
      
      0.61
      
      
      1,706
      
      
      1.73
      
      
      0.611.76-2.77
      
      750
      
      
      2.77
      
      
      0.01
      
      
      750
      
      
      2.77
      
      
      0.0160,212
      
      
      0.38
      
      
      3.19
      
      
      46,960
      
      
      0.39
      
      
      3.12


|21. | Net change in non-cash operating working
      capital:
|--- | -------------------------------------------------------

| |                                          |   | 2011    |   |   | 2010    |  
| | ---------------------------------------- | - | ------- | - | - | ------- | -
| |                                          |   |         |   |   |         |  
| | Accounts receivable and prepaid expenses | $ | (2,988  | ) | $ | (777    | )
| | Inventories                              |   | 6,697   |   |   | (10,862 | )
| | Accounts payable and accrued liabilities |   | (16,724 | ) |   | 10,124  |  
| |                                          | $ | (13,015 | ) | $ | (1,515  | )

31

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|22. | Investment in joint venture:                                                                                                                                  
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                               
|    | The following amounts relate to the Companys interest in
      YS Mining Inc. (YSM),a joint venture that
      has been recognized as an equity investment:

| |                                    |   | December 31, |   |   | December 31, |  
| | ---------------------------------- | - | ------------ | - | - | ------------ | -
| |                                    |   | 2011         |   |   | 2010         |  
| |                                    |   |              |   |   |              |  
| | Ownership percentage               |   | 41.7%        |   |   | 41.7%        |  
| |                                    |   |              |   |   |              |  
| | Opening                            | $ | 2,445        |   |   | 1,353        |  
| | Company's share of earnings/(loss) |   | (370         | ) |   | (188         | )
| | Additions                          |   | -            |   |   | 1,000        |  
| | Capital distribution (i)           |   | (2,134       | ) |   | -            |  
| | Adjustment on currency translation |   | 59           |   | $ | 280          |  
| | Closing                            | $ | -            |   | $ | 2,445        |  

| | (j) | During the fourth quarter of 2011 the
      joint venture shareholders of YSM agreed to dissolve YSM. This was done by
      way of a Corporate Dissolution Agreement (the Agreement); and, the
      shareholders of YSM executing a consent resolution authorizing the
      dissolution of YSM (the Resolution).                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Resolution and the Agreement were
      both dated and executed on October 18, 2011. The agreed upon process of
      dissolving YSM being as follows: (i) YSM settling all outstanding
      liabilities; (ii) YSM distributing the remaining assets, consisting of
      cash, to each shareholder pro-rata based on each shareholders percentage
      ownership (the Capital distribution); and, (iii) YSM filing an
      application of dissolution, and proceeding with other legal requirements
      necessary to dissolve YSM, with each YSM shareholder being responsible to
      pay all remaining liabilities arising from dissolving YSM pro-rata based
      on shareholder ownership.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Having settled all liabilities, YSM
      made the capital distribution whereby the Company received a C$2.2 million
      distribution on October 25, 2011. As at December 31, 2011 an application
      of dissolution had yet to be filed and YSM had yet to be
      dissolved.                                                                                                                                                                                                                                                                                                                                                                                                                          

32

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|23. | Segmented information                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Companys operations are primarily related to the
      acquisition, exploration and production of gold in North America. As of
      December 31, 2011, the Company had one producing gold mine located in
      Nevada, USA and exploration properties in Canada (Yukon) and the USA. For
      the year ended December 30, 2011 and 2010, 100% of the Companys gold
      production was sold through a single broker.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Companys operating segments reflect the Companys
      geographical operations and are reported in a manner consistent with the
      internal reporting provided to the chief operating decision maker, the
      Chief Operating Officer.                                                                                                                                                                             

| |                               |   | As at
      December 31, 2011 |  |   | As at
      December 31, 2010 | 
| | ----------------------------- | - | ----------------------------- |  | - | ----------------------------- | 
| |                               |   | USA                           |  |   | Canada                        | 
| |                               |   |                               |  |   |                               | 
| | Current Assets                | $ | 23,189                        |  | $ | 2,090                         | 
| |                               |   |                               |  |   |                               | 
| | Restricted cash               |   | 57,282                        |  |   | 8,528                         | 
| | Property, plant and equipment |   | 155,383                       |  |   | 75,657                        | 
| | Deferred transactions costs   |   | 4,781                         |  |   | -                             | 
| | Other assets                  |   | 736                           |  |   | -                             | 
| | Investment in Joint Venture   |   | -                             |  |   | -                             | 
| | Total Assets                  | $ | 241,371                       |  | $ | 86,275                        | 
| |                               |   |                               |  |   |                               | 
| | Liabilities                   |   | 206,974                       |  |   | 30,887                        | 
| | Warrants                      |   |                               |  |   |                               | 
| | Total Liabilities             |   |                               |  |   |                               | 

| |                                       |   | Year ended        |   |   | Year ended        |  
| | ------------------------------------- | - | ----------------- | - | - | ----------------- | -
| |                                       |   | December 31, 2011 |   |   | December 31, 2010 |  
| |                                       |   | USA               |   |   | Canada            |  
| | Capital Expenditure                   | $ | 73,727            |   | $ | 7,559             |  
| |                                       |   |                   |   |   |                   |  
| | Revenue                               | $ | 105,116           |   | $ | -                 |  
| | Cost of sales                         |   | 130,975           |   |   | -                 |  
| | Gross profit                          |   | (25,859           | ) |   | -                 |  
| |                                       |   |                   |   |   |                   |  
| | Depletion and depreciation            |   | 6,618             |   |   | 58                |  
| | Impairment expense                    |   | -                 |   |   | -                 |  
| | Exploration expenditure               |   | 781               |   |   | -                 |  
| | Share based payment                   |   | -                 |   |   | 1,803             |  
| | Foreign exchange gain/(loss)          |   | -                 |   |   | 1,769             |  
| | Recovery/(provision) for income taxes |   | -                 |   |   | 192               |  
| | Income/(loss) from Joint Venture      |   | -                 |   |   | (370              | )
| | General and administrative            |   | -                 |   |   | -                 |  
| | Investment and other income           |   | -                 |   |   | -                 |  
| | Finance and transactions costs        |   | -                 |   |   | -                 |  
| | Net Income/(loss)                     | $ | (33,258           | ) | $ | (270              | )

33

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|24. | Management of Capital                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                    
|    | The Company manages its common shares, stock options,
      warrants and debt, net of cash and cash equivalents as capital. At
      December 31, 2011 the Company held the following as
  capital:

| |                                      |   | 2011   |  |   | 2010    |  
| | ------------------------------------ | - | ------ |  | - | ------- | -
| | Equity (Deficiency)                  | $ | 87,150 |  | $ | (70,817 | )
| | Debt                                 |   | -      |  |   | 23,956  |  
| |                                      |   | 87,150 |  |   | (46,861 | )
| | Less
      cash and cash equivalents |   | 2,261  |  |   | -       |  
| |                                      | $ | 84,889 |  | $ | (46,861 | )

The Companys objectives in managing
capital are to safeguard its ability to continue as a going concern to provide
returns for shareholders and benefits for other stakeholders. To meet this
objective the Company will attempt to ensure it has sufficient cash resources to
pursue the exploration and development of its mineral properties and fund
potential acquisitions and maintain necessary personnel, supplies and equipment
at its Jerritt Canyon operations.

To support these objectives the Company
manages its capital structure and makes adjustments to it in light of changes in
economic conditions and risk characteristics of underlying assets. To maintain
or adjust its capital structure, the Company may attempt to issue new shares,
issue new debt, acquire or dispose of assets or adjust the amount of cash and
cash equivalents. In order to maximize the exploration and development efforts,
the Company does not pay out dividends.

The Companys investment policy is to
invest its cash in highly liquid short-term interest-bearing investments with
maturities of 90 days or less from the original date of acquisition, selected
with regards to the expected timing of expenditures from continuing operations.
During 2011, the Company obtained additional funds by: (i) receiving $120
million through a forward gold sale agreement (Note 16); (ii) raising $14.7
million by closing a private placement of units consisting of common shares and
share purchase warrants (Note 20(b)(i)); and, by raising $7.2 million from the
issuance of flow-through shares (Note 20(b)(ii)).

At December 31, 2011, there was no
externally imposed capital requirement to which the Company is subject, which
the Company has not complied with.

34

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|25. | Financial Instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Companys financial instruments consist of cash
        and cash equivalents, receivables, restricted funds, accounts payable,
        accrued liabilities, borrowings, and derivative assets and liabilities.
        The Companys derivative liabilities include forward contracts, the
        embedded gold derivative component of borrowings, and warrants. Derivative
        assets are forward metal put option contracts the Company owns, and are
        outstanding, at the reporting date.
      a) Financial assets and liabilities classified as Fair
        Value Through Profit or Loss (FVTPL):
      The Companys financial assets and liabilities classified
        as FVTPL are all Held for trading and therefore are carried at fair value
        with changes in fair value recorded in income. Interest income and expense
        are both recorded in income. The Companys Held for trading financial
        assets and liabilities include cash and cash equivalents, restricted funds,
        and derivative assets and liabilities.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Companys Held for trading derivative financial
      assets and liabilities are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                                        |   | December 31, |  |   | December 31, |  |   | January
      1, | 
| | ------------------------------------------------------ | - | ------------ |  | - | ------------ |  | - | ---------------- | 
| |                                                        |   | 2011         |  |   | 2010         |  |   | 2010             | 
| | Current derivative assets                              |   |              |  |   |              |  |   |                  | 
| | Forward metal sale options (i)                         | $ | 3            |  | $ | -            |  | $ | -                | 
| | Current derivative liabilities                         |   |              |  |   |              |  |   |                  | 
| | Gold derivative embedded in borrowings (note
      15) | $ | -            |  | $ | 5,110        |  | $ | -                | 
| | Derivative forward contracts
      (note 13)           |   | 15,003       |  |   | 8,901        |  |   | -                | 
| | Warrants (note 14)                                     |   | 850          |  |   | 10,642       |  |   | 3,179            | 
| |                                                        | $ | 15,853       |  | $ | 24,653       |  | $ | 3,179            | 
| | Non-current derivative liabilities                     |   |              |  |   |              |  |   |                  | 
| | Gold derivative embedded in
      borrowings (note 15) | $ | -            |  | $ | 5,885        |  | $ | -                | 
| | Warrants (note 14)                                     |   | 1,785        |  |   | 139,943      |  |   | 6,678            | 
| |                                                        | $ | 1,785        |  | $ | 145,828      |  | $ | 6,678            | 

| | (i) | During the fourth quarter of 2011 the Company began
        employing forward metal sale options (Puts) to manage exposure
        to fluctuations in metal prices. The Puts are presented on the consolidated
        statement of financial position as a component of Accounts receivable
        and other. These derivative assets are recorded at fair value with changes
        in fair value being recognized in net income (loss). During 2011 a total
        expense of $82 thousand was recorded relating these Puts; $12 thousand
        of which is an unrecognized loss on a single Put outstanding at December
        31, 2011 with a fair-value of $3 thousand.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

b)      Other
categories of financial instruments:

Accounts receivables are classified as
loans and receivables. Accounts payable and accrued liabilities, as well as the
debt component of borrowings are classified as other liabilities and are
measured at amortized cost, using the effective interest method of amortization.
The fair values of accounts receivables, accounts payable and accrued
liabilities approximate the carrying value because of the short term nature of
these instruments.

The fair value of borrowings was
determined using discounted cash flows at prevailing market rates and the fair
value is approximately equal to the carrying value of the debt.

35

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

c)        Fair value
measurements of financial assets and liabilities

The categories of fair value hierarchy
that reflect the significance of inputs used in making fair value measurements
are as follows:

| |  | Level 1  quoted prices in active markets for identical
      assets or liabilities;                                                                                                                      
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 2  inputs other than quoted prices included in
      Level 1 that are observable for the asset or liability, either directly
      (i.e., as prices) or indirectly (i.e., derived from prices); and
| |  | Level 3  inputs for the asset or liability that are not
      based on observable market data.                                                                                                           

An assessment of the companys
financial instruments carried at fair value is set out below:

| | December 31, 2011                        |   | Level 1 |  |   | Level 2 |  |   | Level 3 |  |   | Total   | 
| | ---------------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- | 
| | Financial Assets                         |   |         |  |   |         |  |   |         |  |   |         | 
| | Cash and cash
      equivalents          | $ | 2,261   |  | $ | -       |  | $ | -       |  | $ | 2,261   | 
| | Restricted funds                         |   | 65,810  |  |   | -       |  |   | -       |  |   | 65,810  | 
| | Accounts receivable                      |   | 2,135   |  |   | -       |  |   | -       |  |   | 2,135   | 
| | Derivative asset                         |   | -       |  |   | 3       |  |   | -       |  |   | 3       | 
| |                                          | $ | 70,206  |  | $ | 3       |  | $ | -       |  | $ | 70,209  | 
| | Financial Liabilities                    |   |         |  |   |         |  |   |         |  |   |         | 
| | Current and non-current
      warrants   |   | -       |  |   | 2,635   |  |   | -       |  |   | 2,635   | 
| | Derivative forward contracts             |   | -       |  |   | 15,003  |  |   | -       |  |   | 15,003  | 
| |                                          | $ | -       |  | $ | 17,638  |  | $ | -       |  | $ | 17,638  | 
| |                                          |   |         |  |   |         |  |   |         |  |   |         | 
| | December 31, 2010                        |   |         |  |   |         |  |   |         |  |   |         | 
| | Financial Assets                         |   |         |  |   |         |  |   |         |  |   |         | 
| | Restricted funds                         |   | 32,248  |  |   | -       |  |   | -       |  |   | 32,248  | 
| | Accounts receivable                      |   | 1,043   |  |   | -       |  |   | -       |  |   | 1,043   | 
| |                                          | $ | 33,291  |  | $ | -       |  | $ | -       |  | $ | 33,291  | 
| | Financial Liabilities                    |   |         |  |   |         |  |   |         |  |   |         | 
| | Current and non-current
      borrowings |   |         |  |   |         |  |   |         |  |   |         | 
| | (note 13)                                | $ | -       |  | $ | -       |  | $ | 23,956  |  | $ | 23,956  | 
| | Current and non-current
      warrants   |   | -       |  |   | 150,585 |  |   | -       |  |   | 150,585 | 
| | Derivative forward contracts             |   | -       |  |   | 8,901   |  |   | -       |  |   | 8,901   | 
| |                                          | $ | -       |  | $ | 159,486 |  | $ | 23,956  |  | $ | 183,442 | 

| | (i) | The fair value measurement methodologies used for the
      level 3 input was as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The fair valuation of the embedded gold derivative
      component of the Notes (note 15) was determined using a present value
      technique based on a combination of forward gold curve prices as at
      December 31, 2010 and August 12, 2011 (when the Notes were settled), and
      unobservable inputs. The effective interest rate applied to the underlying
      debt host was 78% based on repayments indexed to the gold price and a
      guaranteed return to the holder of 5% per annum on the principal
    amount

36

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | (ii) | The fair value measurement methodologies used for the
      level 2 inputs were as follows:
| | ---- | -------------------------------------------------------------------------------------------
| |      |                                                                                            
| |      | a.                                                                                         
| |      |                                                                                            
| |      | b.                                                                                         
| |      |                                                                                            
| |      |                                                                                            

d)     
Financial Risk Management

The Company is exposed to the certain
risks through its use of financial instruments, including market risk (currency
risk, interest rate risk and commodity price risk), credit risk, and liquidity
risk.

The Company manages its exposure to
risk through the identification and analysis of risks faced by the Company,
setting appropriate risk limits and controls, and monitoring those risks and
adherence to the limits and controls that are established. Risk management is
carried out by senior management under the approval of the Board of Directors.
Risk management practices are reviewed regularly by senior management and the
Audit Committee to reflect changes in market conditions and the Companys
activities.

Market risk:

Market risk is the risk or uncertainty
arising from possible market price movements and their impact on the future
performance of the business. The market price movements that could adversely
affect the value of the Companys financial assets, liabilities and expected
future cash flows include foreign currency risk, interest rate risk and
commodity price risk.

| | (i) | Currency risk:                                                                                                                                                                                                                                                 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                
| |     | The Company is exposed to foreign currency risk due to
      fluctuations in the value of the Canadian dollar. Foreign currency risk
      arises from purchase transactions as well as financial assets and
      liabilities denominated in Canadian dollars.
| |     |                                                                                                                                                                                                                                                                
| |     | The Company manages this risk by maintaining funds in
      Canadian dollars to support the cash requirements of those operations. The
      Company does not use any foreign exchange contracts to hedge these
      currency risks.                          

37

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

The Company is exposed to currency
risk through its cash and cash equivalents, accounts receivable, restricted
funds, and accounts payable and accrued liabilities denominated in Canadian
dollars as follows, based on notional amounts:

In thousands of CAD
    
    December 31, 2011Cash and cash equivalents
    $
    259Accounts receivable
    
    1,791Restricted funds
    
    3,607Accounts payable
      and accrued liabilities
    
    11,785


| |       | Based on the above net exposures as at December 31, 2011,
      a 10% appreciation or depreciation in the Canadian dollar against the US
      dollar, assuming all other variables remain constant, would result in a
      $0.5 million increase or decrease, respectively, in operating results and
      shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (ii)  | Interest rate risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |       | Interest rate risk is the risk that the future cash flows
      of a financial instrument will fluctuate because of changes in market
      interest rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |       | The Companys cash and cash equivalents contain highly
      liquid investments that earn interest at market rates. The Company manages
      its interest rate risk by maximizing the interest earned on excess funds
      while maintaining the liquidity necessary to fund daily operations.
      Fluctuations in market interest rates do not have a significant impact on
      the Companys results from operations due to the short term to maturity of
      the investments held.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (iii) | Commodity price risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |       | The profitability of the Company is directly related to
      the market price of gold because revenues are derived primarily from gold
      mining. Gold prices are affected by numerous factors beyond the Companys
      control, including central bank sales, producer hedging activities, the
      relative exchange rate of the US dollar with other major currencies,
      global and regional demand and political and economic conditions.
      Worldwide gold production levels also affect gold prices, and the price of
      gold is occasionally subject to rapid short-term changes due to
      speculative activities. The Company has entered into forward metal sale
      option contracts (Puts) to reduce exposure to the fluctuation of future
      gold prices. The Companys outstanding derivative liability forward
      contract (note 13), as well as a non-financial deferred revenue
      liability(Note 16), which are to be settled with the future delivery of
      gold are referenced to the gold spot price. Increases in the price of gold
      will increase the costs of settlement of these
items.

38

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

Credit risk:

Credit risk is the risk of financial
loss to the Company if a customer or counterparty to a financial instrument
fails to meet its contractual obligations.

| | (i)   | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                     
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                               
| |       | The Company manages its credit risk on cash and cash
      equivalent balances by maintaining balances with Tier 1 Canadian banks
      with a Standard & Poors rating of AA. As at December 31, 2011 $nil of
      cash and cash equivalents were held as short-term deposits.                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                               
| | (ii)  | Restricted funds                                                                                                                                                                                                                                                                                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                               
| |       | The Company has funds of $45.5 million included in
      restricted funds (note 9 (a)) with a third party insurer with a Standard
      & Poors rating of A+ to fund future reclamation costs at Jerritt
      Canyon. The Company maintains title to these funds should the third party
      be in default of their obligations or enters into bankruptcy
      protection.
| |       |                                                                                                                                                                                                                                                                                                                                                                               
| |       | Also included in restricted funds is $10.0 million in an
      escrow account held in the Companys name at a European bank with a
      Standard & Poors rating of A+ (note 9(e)). These funds relate to the
      forward gold purchase agreement (note 16), and will be made available to
      the Company when defined production targets are achieved.                 
| |       |                                                                                                                                                                                                                                                                                                                                                                               
| |       | Funds raised through the issuance of FTS, of which $5.0
      million are restricted for future exploration in Canada (Note 9(b)), are
      on deposit with a Tier 1 Canadian bank with a Standard & Poors rating
      of AA-. As at December 31, 2011 $nil of this restricted funds were held as
      short-term deposits.                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                               
| |       | The Company also has $1.8 million of restricted funds
      held on deposit with a U.S. Bank with a Standard and Poors rating of A+ ,
      these funds are restricted for the settlement of a class action suit
      (notes 9(c), and 26(a)). As at December 31, 2011 $nil of this restricted
      funds were held as short-term deposits.                                
| |       |                                                                                                                                                                                                                                                                                                                                                                               
| |       | The remaining $3.5 million in restricted funds at
      December 31, 2011, which relate to a water use license letter of credit
      and cash pledged as security for letters of credit (note 9), are held as
      short term deposits with a Tier 1 Canadian bank with a Standard &
      Poors rating of AA-.                                                            
| |       |                                                                                                                                                                                                                                                                                                                                                                               
| | (iii) | Accounts receivable and prepaid expenses                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                               
| |       | Significant deposits and receivables are either held by
      or due from government agencies and principally relate to goods and
      services input tax credits.                                                                                                                                                                                                           
| |       |                                                                                                                                                                                                                                                                                                                                                                               
| |       | The Company minimizes credit risk by reviewing the credit
      risk of the counterparty to the arrangement and has determined that there
      were no receivables which were considered impaired or otherwise
      uncollectible.                                                                                                                                          
| |       |                                                                                                                                                                                                                                                                                                                                                                               
| |       | The ageing of receivables at the reporting date was as
      follows:                                                                                                                                                                                                                                                                                                         

| |                     |   | Less
      than 3 |  |  | 4 to 12 |  |  | 1 to 2
      years |  |  | Greater
      than | 
| | ------------------- | - | ----------------- |  |  | ------- |  |  | ------------------ |  |  | ------------------ | 
| |                     |   | months            |  |  | months  |  |  |                    |  |  | 2
      years      | 
| | Accounts receivable | $ | 384               |  |  | 1,257   |  |  | 297                |  |  | 197                | 

39

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

Liquidity risk:

Liquidity risk is the risk that the
Company will not be able to meet its financial obligations as they fall due. The
Company manages liquidity risk through forecasting its cash flows from
operations and anticipating investing and financing activities. Senior
management is actively involved in the review and approval of planned
expenditures and typically ensures that it has sufficient cash on demand to meet
expected operating expenses for 60 days.

At December 31, 2011 the cash balance
of the Company was $2.3 million.

The following are the contractual
maturities of the undiscounted cash flows of financial liabilities at December
31, 2011:

| |                                                     |   | Less
      than 3 |  |   | 4 to 12 |  |   | 1 to 2
      years |  |   | Greater
      than | 
| | --------------------------------------------------- | - | ----------------- |  | - | ------- |  | - | ------------------ |  | - | ------------------ | 
| |                                                     |   | months            |  |   | months  |  |   |                    |  |   | 2
      years      | 
| | Account payable and accrued liabilities             | $ | 40,515            |  |   | −       |  |   | −                  |  |   | −                  | 
| | Finance lease obligations                           |   | 8                 |  |   | 11      |  |   | -                  |  |   | -                  | 
| | Operating lease obligations                         |   | 55                |  |   | 166     |  |   | 221                |  |   | 367                | 
| | Decommissioning
      and rehabilitation provisions |   | -                 |  |   | -       |  |   | -                  |  |   | 60,736             | 
| |                                                     | $ | 40,578            |  | $ | 177     |  | $ | 221                |  | $ | 61,103             | 

|26. | Commitments and contingencies:
|--- | ------------------------------
|    |                               
|    | a)                            
|    |                               
|    | b)                            

40

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | c) | Lease Commitments:                                                                                     
| | -- | -------------------------------------------------------------------------------------------------------
| |    |                                                                                                        
| |    | The Company is committed under various operating leases
      to the following annual minimum payments:

| | 2012 | $ | 221 | 
| | ---- | - | --- | 
| | 2013 |   | 221 | 
| | 2014 |   | 210 | 
| | 2015 |   | 157 | 
| |      | $ | 809 | 

|27. | Reconciliation between Canadian Generally Accepted
      Accounting Principles and IFRS:                                                                                                                                                                                                                                                                                                                 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                          
|    | These consolidated financial statements represent the
      first annual financial statements of the Company and its subsidiaries
      prepared in accordance with IFRS, as issued by the IASB. The Company
      adopted IFRS in accordance with IFRS 1, First-time Adoption of
      International Financial Reporting Standards(IFRS 1). The date of
      transition to IFRS is January 1, 2010.
|    |                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Set forth below is the only applicable mandatory
      exception in IFRS 1 required to be applied at date of
  transition:                                                                                                                                                                                                                                                                               

| |  | Estimates: IFRS 1 requires that estimates under IFRS are
      determined on a consistent basis to the Canadian GAAP estimates at the
      same date adjusting only for separately disclosed correction of errors or
      any policy differences. The Company has applied this requirement.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Set forth below are the optional
exemptions which the Company has adopted upon transition:

| |  | Business combinations:The Company has elected not
      to retrospectively restate any business combinations that occurred prior
      to the transition date and IFRS 3 Business Combinations(IFRS
      3) will be applied prospectively from January 1, 2010.                                                                                                                                                                                                                                                           
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Fair-value or revaluation as deemed cost:IFRS 1
      provides an exemption whereby an asset may be recorded at its fair value
      at date of transition, or an event-driven valuation under prior GAAP. The
      Company has elected to apply this exemption to its US mineral properties
      which were impaired to $nil carrying value in 2008. The impairment expense
      recorded in 2008 was $69.4 million.                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Cumulative translation differences: IFRS 1 allows a
      first-time adopter to exempt themselves from the retrospective application
      of IAS 21 The Effects of Changes in Foreign Exchange Rates(IAS
      21) for cumulative translation differences that existed at the date of
      transition to IFRS. The Company has elected to apply this exemption and
      has eliminated cumulative translation differences of $2.2 million and
      adjusted retained earnings by the same amount at date of transition.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Borrowing costs: The Company has elected to prospectively
      apply IAS 23 Borrowing Costs(IAS 23) from the date of
      transition.                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Asset retirement obligation: IFRS 1 provides relief from
      full retrospective application of IFRIC 1 Changes in
      decommissioning liabilities(IFRIC 1) for changes in liabilities
      that occurred before the date of transition to IFRS. The Company has
      applied this exemption to its opening statement of financial position.                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Share-based payments: The Company has elected to apply
      the exemption provided under IFRS 1 and applied IFRS 2 Share Based
      Payments(IFRS 2) to only those equity instruments which had not
      yet vested at January 1, 2010.                                                                                                                                                                                                                                                                                 

41

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

Reconciliations of Canadian GAAP to IFRS:

IFRS 1 requires an entity to reconcile equity, total
comprehensive income and cash flows for certain specified prior periods. The
only transition adjustment to impact the consolidated statement of cash flows
was as a result of the accounting policy choice to consolidate the YS Mining
Company joint venture using the equity method. The Company has excluded the
Companys share of cash held by the joint venture and cash movements from the
consolidated statement of cash flows and recorded the impact of net income/loss
recorded in the consolidated cash flow from operations.

|                                           |                     |   | As at January 1, 2010 |  
|------------------------------------------ | ------------------- | - | --------------------- | -
|                                           |                     |   |                       |  
|                                           |                     |   |                       |  
|                                           | note                |   | GAAP                  |  
|                                           |                     |   |                       |  
|Current assets                             |                     |   |                       |  
|Cash and cash equivalents                  | (a)                 | $ | 185                   |  
|Accounts receivable and other              | (a)                 |   | 4,549                 |  
|Inventories                                |                     |   | 9,930                 |  
|Deferred tax assets                        | (b)                 |   | 895                   |  
|Total current assets                       |                     |   | 15,559                |  
|                                           |                     |   |                       |  
|Restricted funds                           |                     |   | 29,175                |  
|Property plant and equipment               | (a)/(c)             |   | 89,270                |  
|Mineral properties                         | (c)/(a)/(d)/(e)/(j) |   | 60,526                |  
|Investment in joint venture                | (a)                 |   | -                     |  
|Deferred tax assets                        | (b)                 |   | -                     |  
|Other assets                               |                     |   | 911                   |  
|Total assets                               |                     |   | 195,441               |  
|                                           |                     |   |                       |  
|Current liabilities                        |                     |   |                       |  
|Accounts payable and accrued liabilities   | (a)                 |   | 39,564                |  
|Deferred revenue                           |                     |   | 4,838                 |  
|Warrants                                   | (h)                 |   | -                     |  
|Total current liabilities                  |                     |   | 44,402                |  
|                                           |                     |   |                       |  
|Warrants                                   | (h)                 |   | -                     |  
|Decommissioning and rehabilitation         |                     |   |                       |  
|provision                                  | (d)                 |   | 35,907                |  
|Deferred tax liabilities                   | (d)/(f)/(g)         |   | 15,372                |  
|Other long-term liabilities                |                     |   | 50                    |  
|Total liabilities                          |                     |   | 95,731                |  
|                                           |                     |   |                       |  
|Shareholders' equity                       |                     |   |                       |  
|Share capital                              | (f)/(h)             |   | 227,075               |  
|Warrants                                   | (h)                 |   | 17,737                |  
|Contributed surplus                        | (e)/(h)             |   | 10,489                |  
|Accumulated other comprehensive            |                     |   |                       |  
|income (loss)                              | (i)                 |   | 2,273                 |  
|                                           | (c)/(d)/(e)/        |   |                       |  
|Deficit                                    | (f)/(g)/(h)         |   | (157,864              | )
|Total shareholders' equity                 |                     |   | 99,710                |  
|Total liabilities and shareholders' equity |                     | $ | 195,441               |  

42

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|                                           |                     |   | As at December 31, 2010 |  
|------------------------------------------ | ------------------- | - | ----------------------- | -
|                                           |                     |   |                         |  
|                                           |                     |   |                         |  
|                                           | note                |   | GAAP                    |  
|                                           |                     |   |                         |  
|Current assets                             |                     |   |                         |  
|Cash and cash equivalents                  | (a)                 | $ | 2,400                   |  
|Accounts receivable and other              | (a)                 |   | 4,505                   |  
|Inventories                                |                     |   | 21,280                  |  
|Total current assets                       |                     |   | 28,185                  |  
|                                           |                     |   |                         |  
|Restricted funds                           |                     |   | 32,248                  |  
|Property plant and equipment               | (a)/(c)             |   | 88,625                  |  
|Mineral properties                         | (c)/(a)/(d)/(e)/(j) |   | 67,926                  |  
|Investment in joint venture                | (a)                 |   | -                       |  
|Other assets                               |                     |   | 828                     |  
|Total assets                               |                     |   | 217,812                 |  
|                                           |                     |   |                         |  
|Current liabilities                        |                     |   |                         |  
|Accounts payable and accrued liabilities   | (a)                 |   | 48,949                  |  
|Short term borrowings                      |                     |   | 8,926                   |  
|Forward contracts                          |                     |   | 8,901                   |  
|Warrants                                   | (h)                 |   | -                       |  
|Total current liabilities                  |                     |   | 66,776                  |  
|                                           |                     |   |                         |  
|Warrants                                   | (h)                 |   | -                       |  
|Long term borrowings                       |                     |   | 15,030                  |  
|Deferred tax liabilities                   | (d)/(f)/(g)         |   | 15,977                  |  
|Decommissioning and rehabilitation         |                     |   |                         |  
|provision                                  | (d)                 |   | 39,550                  |  
|Other long-term liabilities                |                     |   | 18                      |  
|Total liabilities                          |                     |   | 137,351                 |  
|                                           |                     |   |                         |  
|Shareholders' equity                       |                     |   |                         |  
|Share capital                              | (f)/(h)             |   | 247,470                 |  
|Warrants                                   | (h)                 |   | 65,063                  |  
|Contributed surplus                        | (e)/(h)             |   | 16,614                  |  
|Accumulated other comprehensive            |                     |   |                         |  
|income (loss)                              | (i)                 |   | 2,273                   |  
|                                           | (c)/(d)/(e)/(f)/    |   |                         |  
|Deficit                                    | (g)/(h)             |   | (250,959                | )
|Total shareholders' equity                 |                     |   | 80,461                  |  
|Total liabilities and shareholders' equity |                     | $ | 217,812                 |  

43

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|                                               |         |   | Year
      ended December 31, 2010 |  
|---------------------------------------------- | ------- | - | ---------------------------------- | -
|                                               |         |   |                                    |  
|                                               |         |   |                                    |  
|                                               | notes   |   | GAAP                               |  
|                                               |         |   |                                    |  
|Revenue                                        |         | $ | 71,370                             |  
|Cost of sales                                  | (e)     |   | 83,378                             |  
|Gross profit                                   |         |   | (12,008                            | )
|Depreciation, depletion, and amortization      |         |   | 5,428                              |  
|Accretion of asset retirement obligation       | (d)/(j) |   | 2,879                              |  
|                                               |         |   |                                    |  
|Loss (income) from mine operations             |         |   | (20,315                            | )
|Impairment of mineral properties and equipment |         |   | 1,625                              |  
|General and administration                     |         |   | 2,563                              |  
|Exploration expenditure                        | (e)/(j) |   | 963                                |  
|Share based payment                            | (j)     |   | 4,112                              |  
|Income (loss) from operations                  |         |   | (29,578                            | )
|Other (loss) income:                           |         |   |                                    |  
|Income/loss from joint venture                 | (a)     |   | -                                  |  
|Interest and other
      income (loss)         | (h)     |   | (14,122                            | )
|Foreign exchange gain (loss)                   | (c)     |   | (1,210                             | )
|Finance costs                                  | (d)/(j) |   | (49,730                            | )
|                                               |         |   | (65,062                            | )
|Loss before income taxes                       |         |   | (94,640                            | )
|Income tax (expense) recovery                  |         |   | 1,545                              |  
|                                               |         |   | (93,095                            | )
|Other comprehensive income/(loss)              |         |   |                                    |  
|Foreign currency
      translation adjustments | (i)     |   |                                    |  
|                                               |         |   |                                    |  
|Total Ccomprehensive loss for the year         |         |   | (93,095                            | )

44

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

As a result of the change in accounting
policies, the Company recorded a reduction in equity of $14.3 million as at
January 1, 2010. The table below details the adjustments to equity due to
application of IFRS as at January 1, 2010, and December 31, 2010.

January
      1,
    
    
    December 31,2010
    
    
    2010Equity under Canadian GAAP
    
    99,710
    
    
    80,461Effect of transtion to IFRS:Change in
      functional currency
    
    (100
    )
    
    3,070Decommissioning and
      rehabilitation provision
    
    (4,252
    )
    
    (2,693
    )foreign exchange
      impact on deferred tax
    
    2
    
    
    106share based payment
    
    (56
    )
    
    -warrants
      reclassified as derivatives
    
    (9,857
    )
    
    (150,584
    )Issuance of flow through shares
    
    -
    
    
    (1,177
    )Equity under IFRS
    
    85,447
    
    
    (70,817
    )


Explanation of reconciling items
between Canadian GAAP and IFRS:

| | a) | IAS 31 Interests in Joint Ventures(IAS 31)
      provides a policy option to proportionately consolidate or use the equity
      method of accounting approach (as defined in IAS 28 Investments in
      Associates) to account for any interests held in Joint Ventures. In
      light of anticipated changes to IAS 31, the Company has opted to account
      for its interest in the YSMC Joint Venture using the equity
  method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | b) | IAS 12 disclosure requirements specify that all deferred
      taxes must be classified as non-current in nature. The current deferred
      tax asset as presented under Canadian GAAP has been reclassified for
      presentation purposes to non-current assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | c) | IAS 21 must be applied retrospectively for those entities
      whose functional currency has been deemed to be different to that under
      Canadian GAAP. On transition, the Company performed an assessment of the
      functional currencies for all entities within the consolidated group based
      on the IFRS requirements. Based on that assessment, all group entities
      retained the same functional currency that was used under Canadian GAAP
      (namely the US dollar) except for Ketza River Holdings Ltd. and, YS Mining
      Company Ltd. where it was deemed that the local currency (CAD dollar)
      should be the functional currency. The change in historical functional
      currency required the retroactive restatement of these subsidiaries into
      their local currencies using the methodology prescribed under IAS 21, with
      the cumulative impact of the historical translation of these entities from
      their local currency into the US dollar presentation currency recorded in
      the cumulative translation adjustment account. However, in accordance with
      IFRS 1, the Company has elected to reset the cumulative translation
      adjustment account, which would otherwise include the historical gains and
      losses arising from the translation of these foreign operations.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | d) | IFRS requires all standards to be applied on a full
      retrospective basis including IFRIC 1 Changes in Decommissioning
      Obligations. However IFRS 1 provides partial relief by allowing
      measurement of the ARO in line with IAS 37 Provisions, Contingent
      Liabilities and Contingent Assets(IAS 37) as at Jan 1, 2010 and
      then application of an estimated historical discount rate to calculate the
      asset which would have been capitalised at the date the obligation first
      arose. In addition, IFRS requires that the discount rate used in
      determining the asset retirement obligation reflects current market
      assessments of the time value of money adjusted for specific risks, not
      already reflected in the underlying cash flows, associated with the
      liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

45

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

| | e) | IFRS 2 must be applied to all unvested options at date of
      transition. The Company has recognized an expense for certain performance
      related stock options under Canadian GAAP. IFRS requirements stipulate
      that only the expense for those options likely to vest should be
      recognised at each period end. As it is not likely that any of the options
      will vest, the expense recognized on those stock options has been
      reversed.                                                                                                                                                                                                                                                                                
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | f) | The Company has financed a portion of its exploration
      expenditures through the issuance of flow-through shares. Under the terms
      of these share issues, the tax attributes of the related expenditures are
      renounced to subscribers. Canadian GAAP requires that a deferred tax
      liability is recognized with an offset to share capital for flow-through
      shares once the Company renounces the exploration expenditures to the
      shareholders. Following the adoption of IFRS, the Company is accounting
      for these shares by crediting the premium paid in excess of the market
      value to liabilities and including the amount in income when the related
      tax benefits are renounced by the Company.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | g) | Canadian GAAP does not allow the recognition of deferred
      tax on the temporary difference arising from the difference between the
      historic and current exchange rates used to translate non-monetary assets
      and liabilities of foreign operations. IAS 12 Income Taxes requires
      recognition of this temporary difference. For those entities which prepare
      tax returns in a currency which differs from their functional currency, a
      deferred tax adjustment has been made.                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | h) | The recognition criteria of IAS 39 Financial
      Instruments Recognition and Measurement(IAS 39) has determined
      that the issued and outstanding Canadian dollar denominated warrants do
      not meet the definition of equity and are accounted for as a derivative
      liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | i) | Upon adoption of IFRS 1, the company has elected to
      reclassify the cumulative translation differences to retained earnings at
      January 1, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | j) | Certain additional items have been reclassified for
      presentation purposes to comply with the requirements of IAS 1
      Presentation of Financial Statements. The following account balances
      have been reclassified:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |  | Accretion expense has been derecognised as an operating
      expense and is now recognised within finance costs.                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Share based payments are no longer disclosed separately
      and are held within general and administrative expense or cost of sales
      dependent upon the role of the individual to whom the options have been
      awarded.
| |  | Mineral properties have been reclassified into property,
      plant and equipment.                                                                                                                                               

46

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2011 and 2010                                   
|                                                                         

|28. | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | On February 7, 2012, the Company entered into an
      extension of the Forward Gold Purchase Agreement with Deutsche Bank (note
      16). Under the extension Agreement, Queenstake received a gross prepayment
      of US$20 million in exchange for the future delivery of 650 ounces of gold
      per month, over a forty-three month term commencing March 31, 2012,
      representing total future delivery of 27,950 ounces of gold (the Future
      Deliveries).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Deutsche Bank will make additional payments to Queenstake
      for the Future Gold Deliveries, the amounts of which will be determined by
      the market price of gold less a minimum price of US$850 per ounce, up to a
      maximum price of US$1,750 per ounce. Under the terms of the Agreement, in
      the event that the actual monthly quantity of gold delivered by the
      Company is less than the scheduled monthly amount, the shortfall can be
      made up, at the option of Deutsche Bank, by the issuance of common shares
      of the Company (the "Shares"). The conversion price per Share will be the
      five day volume weighted average price ("VWAP") of the Company's shares as
      traded on the Toronto Stock Exchange ("TSX") immediately prior to the
      monthly delivery date for the scheduled delivery month in which such gold
      shortfall payment obligation arises, less the discount as permitted by the
      TSX. The Agreement is guaranteed by the Company and involves the
      registration of various charges against certain assets of the Company in
      favour of Deutsche Bank.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | In connection with the transaction, the Company has
      issued to Deutsche Bank one share purchase warrant (the "Warrant"), which
      can be exercised to purchase 40,000,000 common shares (each "Warrant
      Share") at a price of $0.44 per share on or before February 8,
  2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Total prepayment funds of $18.9million were received by
      Queenstake on February 8, 2012, which were net of $1.1 million in
      transactions costs, $1.0 million of which were paid to Deutsche bank. The
      net funds received will be used for working capital and and to further
      invest in the expansion of the SSX-Steer mine.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

47

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