---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 20-F

(Mark One)

[   ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended **December 31, 2009**

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[   ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from 
**_______________________**to ______________________

Commission file number 000-52699

YUKON-NEVADA GOLD CORP.(Exact name of Registrant as specified in its charter)

N/A(Translation of Registrants name into
English)

British Columbia, Canada(Jurisdiction of
incorporation or organization)

688 West Hastings Street, Suite 490, Vancouver, British
Columbia V6B 1P1(Address of principal executive offices)

Robert F. Baldock (604) 688-9427,rbaldock@yngc.ca688 West Hastings Street, Suite
490, Vancouver, British Columbia V6B 1P1(Name, Telephone, E-mail
and/or Facsimile number and Address of Company Contact Person)

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2

Securities registered or to be registered pursuant to Section
12(b) of the Act.

|Title of each class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|None                | N/A                                      

Securities registered or to be registered pursuant to Section
12(g) of the Act.

Common shares, no par value(Title of Class)

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.

None(Title of Class)

Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close of the period
covered by the annual report.

516,346,887 Common Shares

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.

[   ] Yes    [X] No

If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.

[   ] Yes    [X]  No

Note  Checking the box above will not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

[X] Yes    [   ] No

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2
of the Exchange Act. (Check One):

Large accelerated filer [  
]        Accelerated filer [  
]        Non-accelerated filer [X]

Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:

|U.S. GAAP [   ] | International Financial
      Reporting Standards as issued     | Other [X]
|--------------- | --------------------------------------------------------------- | ---------
|                | By the
      International Accounting Standards Board [  
    ] |          

If Other has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant
has elected to follow.

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3

[X]   Item 17     [   ]
Item 18

If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).

[   ] Yes    [X]  No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.

[   ] Yes    [   ] No

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4

TABLE OF CONTENTS

|PART
      I                                                          | 6  
|--------------------------------------------------------------------- | ---
|Introduction                                                          | 6  
|Forward-Looking
      Information                                     | 6  
|Cautionary
      Note to U.S. Investors Concerning Resource Estimates | 6  
|Item
      1. Identity of Directors, Senior Management and Advisers   | 8  
|Item
      2. Offer Statistics and Expected Timetable                 | 8  
|Item
      3. Key Information                                         | 8  
|A.Selected financial data.                                            | 8  
|B.Capitalization and indebtedness.                                    | 10 
|C.Reasons for the offer and use of proceeds.                          | 10 
|D.Risk factors.                                                       | 10 
|Item
      4. Information on the Company.                             | 12 
|A.History and Development of the Company.                             | 12 
|B.Business overview.                                                  | 14 
|C.Organizational Structure.                                           | 15 
|D.Property, plants and equipment.                                     | 15 
|Item
      4A. Unresolved Staff Comments.                             | 84 
|Item
      5. Operating and Financial Review and Prospects.           | 84 
|Introduction.                                                         | 84 
|Overall
      Performance.                                            | 84 
|Annual
      Highlights                                               | 84 
|Selected
      Annual Financial Information.                          | 87 
|Results
      of Operations.                                          | 88 
|Summary
      of Quarterly Results.                                   | 91 
|Liquidity
      and Capital Resources.                                | 93 
|Capital
      Resources                                               | 95 
|Commitments                                                           | 96 
|Outlook                                                               | 96 
|Off-Balance
      Sheet Arrangements                                  | 97 
|Subsequent
      Events                                               | 97 
|Related
      Party Transactions                                      | 98 
|Critical
      Accounting Estimates                                   | 98 
|Impact
      of Adoption of New Accounting Policies                   | 100
|Recent
      Accounting Pronouncements                                | 100
|Financial
      Instruments                                           | 103
|Risk
      Assessment                                                 | 103
|Item
      6. Directors, Senior Management and Employees.             | 107
|A.Directors and senior management.                                    | 107
|B.Compensation.                                                       | 109
|C.Board practices.                                                    | 112
|D.Employee.                                                           | 113
|E.Share Ownership.                                                    | 113
|Item
      7. Major Shareholders and Related Party Transactions       | 114
|A.Major shareholders.                                                 | 114
|B.Related party transactions.                                         | 114
|C.Interests of experts and counsel.                                   | 115
|Item
      8. Financial Information                                   | 115
|Item
      9 The Offer and Listing                                    | 115
|A.
      Offer and listing details.                                   | 115
|B.
      Plan of distribution.                                        | 116
|C.Markets.                                                            | 116
|D.Selling shareholders.                                               | 116
|E.Dilution.                                                           | 116
|F.Expenses of the issue.                                              | 116

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5

|Item
      10. Additional Information                                                             | 116
|------------------------------------------------------------------------------------------------- | ---
|A.Share capital.                                                                                  | 116
|B.Memorandum and articles of association.                                                         | 116
|C.Material contracts.                                                                             | 117
|D.
      Exchange controls.                                                                       | 117
|E.Taxation.                                                                                       | 118
|F.Dividends and paying agents.                                                                    | 123
|G.Statement by experts.                                                                           | 123
|H.Documents on display.                                                                           | 123
|I.Subsidiary Information.                                                                         | 123
|Item
      11. Quantitative and Qualitative Disclosures About Market Risk                         | 123
|Item
      12. Description of Securities Other than Equity Securities                             | 125
|PART
      II                                                                                     | 125
|Item
      13. Defaults, Dividend Arrearages and Delinquencies                                    | 125
|Item
      14. Material Modifications to the Rights of Security Holders and Use of
      Proceeds | 125
|Item
      15. Controls and Procedures.                                                           | 125
|Item
      15T. Controls and Procedures.                                                          | 127
|Item
      16. [Reserved]                                                                         | 127
|Item
      16A. Audit Committee Financial Expert.                                                 | 127
|Item
      16B. Code of Ethics.                                                                   | 127
|Item
      16C. Principal Accountant Fees and Services.                                           | 128
|Item
      16D. Exemptions from the Listing Standards for Audit Committees.                       | 128
|Item
      16E. Purchases of Equity Securities by the Issuer and Affiliated
      Purchasers.     | 128
|Item
      16F. Change in Registrants Certifying Accountant.                                     | 128
|Item
      16G. Corporate Governance.                                                             | 128
|PART
      III                                                                                    | 128
|Item
      17. Financial Statements.                                                              | 128
|Item
      18. Financial Statements.                                                              | 128
|Item
      19. Exhibits.                                                                          | 129
|EXHIBIT
      INDEX                                                                               | 131

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6

PART I

Introduction

Yukon-Nevada Gold Corp. is a corporation incorporated under the
laws of Canada and is referred to in this document, together with its
subsidiaries, as us, we or our.

Our consolidated financial statements are prepared in
accordance with accounting principles generally accepted in Canada ("Canadian
GAAP") and are presented in US dollars unless otherwise indicated. All
references in this Form 20-F to financial information concerning us refer to
such information in accordance with Canadian GAAP and all dollar amounts in this
Form 20-F are in US dollars unless otherwise indicated. A reconciliation to US
GAAP is included in Note 22 to the consolidated financial statements.

In this document, cross-references relevant to the information
being requested may be provided. These cross-references are provided for ease of
reference only and are not meant to be exclusionary to other relevant
information in this document that may relate to the disclosure in question.

Forward-Looking Information

This report contains forward-looking statements, including
all statements that are not historical facts, and forward looking information
within the meaning of the United States Private Securities Litigation Reform Act
of 1995 and applicable Canadian Securities legislation. Forward-looking
statements include, but are not limited to, statements with respect to the
future price of gold, the realization of mineral reserve estimates, the timing
and amount of estimated future production, costs of production, capital
expenditures, costs and timing of the development of deposits, success of
exploration activities, permitting time lines, currency exchange rate
fluctuations, requirements for additional capital, government regulation of
mining operations, environmental risks, unanticipated reclamation expenses,
title disputes or claims and limitations on insurance coverage. Generally, these
forward-looking statements can be identified by the use of forward-looking
terminology such as plans, expects or does not expect, is expected,
budget, scheduled, estimates, forecasts, intends, anticipates or
does not anticipate, or believes, or variations of such words and phrases or
state that certain actions, events or results may, could, would, might
or will be taken, occur or be achieved.

With respect to forward-looking statements and the information
included in this document, we have made numerous assumptions, including, among
other things, assumptions about the price of gold, anticipated costs and
expenditures and our ability to achieve our goals, even though our management
believes that the assumptions made and the expectations represented by such
statements or information will prove to be accurate. By their nature,
forward-looking statements and information are based on assumptions and involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements, or industry results, to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking information. Such risks, uncertainties and
other factors include among other things the following: gold price volatility;
discrepancies between actual and estimated production and mineral reserves and
resources; the speculative nature of gold exploration; mining operational and
development risk; and regulatory risks. See our Annual Information Form for
additional information on risks, uncertainties and other factors related.

Although the Company has attempted to identify important
factors that could cause actual results to differ materially from those
contained in forward-looking statements, there may be other factors that cause
results not to be as anticipated, estimated or intended. There can be no
assurance that such statements will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on forward-looking
statements. The Company does not undertake to update any forward-looking
statements that are incorporated by reference herein, except in accordance with
applicable securities laws.

Cautionary Note to U.S. Investors Concerning Resource
Estimates

Resource estimates reported herein are made in accordance with
definitions adopted by the Canadian Institute of Mining, Metallurgy and
Petroleum and incorporated into National Instrument 43-101 (NI 43-101).
Estimates of mineral resources were prepared by or under the supervision of
qualified persons who are identified in this document and other public filings.
Yukon-Nevada reports its reserves and resources in accordance with NI 43-101, as
required by Canadian securities regulatory

---

7

authorities. For U.S. reporting purposes, Industry Guide 7
under the Securities Exchange Act of 1934, as amended (as interpreted by Staff
of the U.S. Securities and Exchange Commission (the SEC)), applies different
standards in order to classify mineralization as a reserve. Accordingly, for
U.S. reporting purposes all mineral resources must be considered as mineralized
material. Mineral resources are not mineral reserves and do not have
demonstrated economic viability, but do have reasonable prospects for economic
extraction. Measured and indicated mineral resources are sufficiently well
defined to allow geological and grade continuity to be reasonably assumed and
permit the application of technical and economic parameters in assessing the
economic viability of the resources. Inferred resources are estimated on limited
information not sufficient to verify geological and grade continuity or to allow
technical and economic parameters to be applied. Inferred resources are too
speculative geologically to have economic considerations applied to enable them
to be categorized as mineral reserves. There is no certainty that mineral
resources will be upgraded to mineral reserves through continued exploration.

---

8

Item 1. Identity of Directors, Senior Management and
Advisers.

Not applicable.

Item 2. Offer Statistics and Expected Timetable.

Not applicable.

Item 3. Key Information.

A.Selected financial data.

The following table summarizes certain of our selected
financial information (stated in thousands of U.S. dollars) prepared in
accordance with Canadian GAAP. The information in the table was derived from the
more detailed financial statements for the period ended December 31, 2005
through the fiscal year ended December 31, 2009, inclusive, and the related
notes, and should be read in conjunction with the financial statements and with
the information appearing under the headings "Item 5  Operating and
Financial Review and Prospects" and "Item 17  Financial Statements".
Historical results are not necessarily indicative of results to be expected for
any future period. No dividends have been paid in any of the fiscal years ended
December 31, 2005 throughout the fiscal year ended December 31, 2009.

(In thousands of U.S. dollars, except where
      noted)
      
      December 31, 2009
      
      
      December 31, 2008
      
      
      December 31, 2007
      
      
      December 31, 2006
      
      
      December 31, 2005Gold sales
      
      9,913
      
      
      48,981
      
      
      64,460
      
      
      -
      
      
      n/aCost of sales
      
      26,049
      
      
      58,742,
      
      
      48,218
      
      
      -
      
      
      n/aGross Margin
      
      (16,136
      )
      
      (9,761
      )
      
      16,242,
      
      
      -
      
      
      n/aTemporary shutdown costs
      
      10,550
      
      
      13,115
      
      
      -
      
      
      -
      
      
      n/aDepletion, depreciation and amortization
      
      6,271
      
      
      9,279
      
      
      5,731
      
      
      16
      
      
      n/aAccretion
      
      2,890
      
      
      2,117
      
      
      1,082
      
      
      145
      
      
      n/aEarning (loss) from mining activities
      
      (35,847
      )
      
      (34,272
      )
      
      9,429
      
      
      (161
      )
      
      n/aNet loss
      
      (42,660
      )
      
      (105,360
      )
      
      (1,899
      )
      
      (1,189
      )
      
      n/aBasic and diluted net loss per share
      
      (0.13
      )
      
      (0.57
      )
      
      (0.02
      )
      
      (0.02
      )
      
      n/aTotal assets
      
      195,441
      
      
      199,636
      
      
      296,167
      
      
      31,912
      
      
      n/aShare capital, warrants and contributed surplus
      
      255,301
      
      
      234,579
      
      
      213,415
      
      
      33,867
      
      
      21,587Accumulated deficit and accumulated other
      comprehensive loss
      
      (155,591
      )
      
      (112,931
      )
      
      (7,571
      )
      
      (8,271
      )
      
      (6,756
      )Net assets
      
      99,710
      
      
      121,648
      
      
      205,844
      
      
      25,596
      
      
      n/aOutstanding shares, in thousands
      
      590,846
      
      
      272,655
      
      
      175,133
      
      
      58,950
      
      
      46,643


Prior to July 1, 2007, the Companys operations were measured
in Canadian dollars and the consolidated financial statements were expressed in
Canadian dollars. As a result of the significant operations (sales, assets) that
are located in the United States arising from the acquisition of Queenstake
Resources Ltd. (Queenstake) on June 20, 2007, it was determined that the
Companys functional currency had changed to the US dollar. Comparable numbers
in U.S. dollars are not available for 2005 as the Company reported in Canadian
currency for that year.

The following table summarizes certain of our selected
financial information (stated in thousands of U.S. dollars) prepared in
accordance with U.S GAAP:

(In thousands of U.S. dollars, except
      where noted)
    
    December 31,
      2009
    
    
    December 31,
      2008
    
    
    December 31,
      2007
    
    
    December 31,
      2006
    
    
    December 31,
      2005Gold sales
    
    9,913
    
    
    48,981
    
    
    64,460
    
    
    -
    
    
    n/aCost of sales
    
    26,049
    
    
    58,742,
    
    
    48,218
    
    
    -
    
    
    n/aGross Margin
    
    (16,136
    )
    
    (9,761
    )
    
    16,242,
    
    
    -
    
    
    n/a


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9

(In thousands of U.S. dollars, except where noted)
    
    December
    
    
    December
    
    
    December
    
    
    December
    
    
    December31, 2009
    
    
    31, 2008
    
    
    31, 2007
    
    
    31, 2006
    
    
    31, 2005Temporary shutdown costs
    
    10,550
    
    
    13,115
    
    
    -
    
    
    -
    
    
    n/aDepletion, depreciation and amortization
    
    6,617
    
    
    9,665
    
    
    5,731
    
    
    16
    
    
    n/aAccretion
    
    2,890
    
    
    2,117
    
    
    1,082
    
    
    145
    
    
    n/aEarning (loss) from mining activities
    
    (36,193
    )
    
    (34,658
    )
    
    9,429
    
    
    (161
    )
    
    n/aExploration expense
    
    12,940
    
    
    19,479
    
    
    23,629
    
    
    6,862Net loss
    
    (82,203
    )
    
    (111,139
    )
    
    (21,631
    )
    
    (7,029
    )
    
    n/aBasic and diluted net loss per share
    
    (0.24
    )
    
    (0.60
    )
    
    (0.18
    )
    
    (0.13
    )
    
    n/aTotal assets
    
    140,638
    
    
    158,119
    
    
    260,801
    
    
    31,192
    
    
    n/aShare capital, warrants, accumulated paid
      in capital and contributed surplus
    
    280,608
    
    
    231,408
    
    
    214,202
    
    
    33,867
    
    
    n/aAccumulated deficit and accumulated other comprehensive
      loss
    
    (231,360
    )
    
    (149,157
    )
    
    (38,018
    )
    
    (8,271
    )
    
    n/aNet assets
    
    49,248
    
    
    82,251
    
    
    176,184
    
    
    25,596
    
    
    n/aOutstanding shares, in thousands
    
    590,846
    
    
    272,655
    
    
    175,133
    
    
    58,950
    
    
    46,643


Prior to July 1, 2007, the Companys operations were measured
in Canadian dollars and the consolidated financial statements were expressed in
Canadian dollars. As a result of the significant operations (sales, assets) that
are located in the United States arising from the acquisition of Queenstake
Resources Ltd. (Queenstake) on June 20, 2007, it was determined that the
Companys functional currency had changed to the US dollar. Comparable numbers
in U.S. dollars are not available for 2005 as the Company reported in Canadian
currency for that year.

The Company acquired the Jerritt Canyon mine on June 20, 2007
with the acquisition of Queenstake. Jerritt Canyon consists of a milling
facility as well as two underground mines, the Smith and the SSX. Jerritt Canyon
operated continuously from the date of acquisition on June 20, 2007 until
February 22, 2008 when it shut down to address infrastructure and safety
concerns. In May 2008, Jerritt Canyon recommenced commercial production at
reduced levels. On August 8, 2008 mining at Jerritt Canyon ceased again as a
result of increasing costs and dilution resulting from the mine plan as well as
the ongoing required development and infrastructure expenditures resulting from
years of neglect. Subsequent to the closure of the mines, as a result of a dirty
air fan that was damaged in the following week, the milling operation was also
shut-down. Mining and milling operations did not resume for the remainder of
2008 while management pursued additional financing and continued work on
addressing environmental concerns raised by the Nevada Division of Environmental
Protection (the NDEP) in their stop order issued in March of 2008. Milling
operations resumed March 25, 2009 when approvals were received from NDEP on the
progress and plans developed by the Company.

On May 30, 2009, Jerritt Canyon shutdown roaster operations due
to a delay in the fabrication of certain fiberglass ductwork required in the
construction of the new mercury emission control system, resulting in the
failure to meet the deadline for this equipment to be installed as set by the
NDEP in their March restart order. The Company was able to complete the
installation of a calomel emission system and the system instrumentation on July
20, 2009.

After coming to an agreement with the NDEP in the form of a
Consent Decree, the Company resumed operations on October 20, 2009. The Consent
Decree resolves all of the compliance concerns of the NDEP in relation to the
mill and surrounding land holdings of the Company, as well as related
environmental concerns and gives the Company the right to operate the milling
facility from the effective date.

Currency and Exchange Rates

The following table sets out the exchange rates for currencies
expressed in terms of one U.S. dollar in effect at the end of the following
periods, and the average exchange rates (based on the average of the exchange
rates on the last day of each month in such periods):

---

10

In Canadian $
      Year Ended December 312009
      2008
      2007
      2006
      2005End of period
      1.051
      1.224
      0.988
      1.165
      1.166Average for the period
      1.142
      1.066
      1.074
      1.134
      1.212


In Canadian $
    July 2009
    August 2009
    September
      2009
    October
      2009
    November
      2009
    December
      2009High for the month
    1.1625
    1.1655
    1.1079
    1.0845
    1.0743
    1.0713Low for the month
    1.0827
    1.079
    1.0686
    1.0292
    1.046
    1.0405


Exchange rates are based upon the noon buying rate from Bank of
Canada. The noon rate of exchange on March 31, 2010 as reported by the Bank of
Canada was C$1.0156 = US$1.00.

B.Capitalization and
indebtedness.

This Form 20-F is being filed as an annual report under the
Exchange Act, and, as such, there is no requirement to provide any information
under this item.

C.Reasons for the offer and use of
proceeds.

This Form 20-F is being filed as an annual report under the
Exchange Act, and, as such, there is no requirement to provide any information
under this item.

D.Risk factors.

We operate in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. Shareholders should carefully
consider the risks described below before purchasing our common shares. The
occurrence of any of the following events could harm us. If these events occur,
the trading price of our common shares could decline, and shareholders may lose
part or even all of their investment.

Precious Metal Price Fluctuations

Our profitability from proposed operations will be dependent in
part on:

|• | the market price of precious metals;                                                                                                                
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                     
|• | the price of metals or interests related thereto has
      fluctuated widely and is affected by numerous factors beyond our control
      including:
|  |                                                                                                                                                     
|  | •                                                                                                                                                   
|  | •                                                                                                                                                   
|  | •                                                                                                                                                   
|  | •                                                                                                                                                   
|  | •                                                                                                                                                   
|  | •                                                                                                                                                   
|  | •                                                                                                                                                   
|  | •                                                                                                                                                   
|  | •                                                                                                                                                   
|  | •                                                                                                                                                   

Although we cannot predict the exact effect of these factors,
the combination of these factors may result in not receiving an adequate return
on invested capital or an investment retaining its value.

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11

Operating Hazards and Risks

Mining operations involve a high degree of risk, such as
unusual or unexpected formations and other conditions, which even a combination
of experience, knowledge and careful evaluation may not be able to overcome.
Operations in which we have a direct or indirect interest are subject to all the
hazards and risks normally incidental to exploration, development and production
of precious metals, any of which could result in work stoppages, damage to or
destruction of mines and other producing facilities, damage to life and
property, environmental damage and possible legal liability for any or all
damage. We presently carry a limited amount of liability insurance, and may
become subject to liability for pollution, cave-ins or other hazards, and the
payment of such liabilities could have a material adverse effect on its
financial position.

Exploration and Development

Mineral exploration and development involves a high degree of
risk as few properties which are explored are developed into producing mines. We
cannot provide assurance that our continuing mineral exploration and development
activities will result in any discoveries of bodies of commercial ore. The
long-term profitability of the operations will be in part directly related to
the cost and success of its exploration and development programs, which may be
adversely affected by a number of factors.

We will require funding for the substantial expenditures which
are required to establish reserves through drilling, to evaluate metallurgical
processes to extract metal from ore and to develop the mining and processing
facilities and infrastructure at any site chosen for mining. Although
substantial benefits may be derived from the discovery of a major mineralized
deposit, no assurance can be given that minerals will be discovered in
sufficient quantities to justify commercial operations or that the funds
required for development can be obtained on a timely basis.

Numerous factors will affect the marketability of any minerals
acquired or discovered which are beyond our control and cannot be accurately
predicted, including market fluctuations, the proximity and capacity of milling
facilities, mineral markets and processing equipment, and such other factors as
government regulations, including regulations relating to royalties, allowable
production, importing and exporting minerals and environmental protection.

Calculation of Reserves, Resources and Metal Recoveries

There is a degree of uncertainty attributable to the
calculation of reserves and resources and corresponding grades being mined or
dedicated to future production. Until reserves or resources are actually mined
and processed, the quantity of mineralization and grades must be considered as
estimates only. In addition, the quantity of reserves and resources may vary
depending on metal prices. Any material change in quantity of reserves,
resources, grade, stripping ratio, or metallurgical recoveries may affect the
economic viability of our properties. In addition, we cannot provide assurance
that metallurgical recoveries in small scale laboratory tests will be duplicated
in larger scale tests under on-site conditions or during production.

Title to Mining Properties

Although we have taken steps to verify title to our mineral
properties in a manner consistent with industry practice for the current stage
of its evaluation of our properties, there is no guarantee that its title to the
properties will not be challenged or impugned. We have not conducted surveys of
some of the claims in which we hold a direct or indirect interest, therefore the
precise area and location of the claims may be in doubt. There could be prior
unregistered agreements or transfers or native land claims and our title may be
affected by undetected defects.

Issuance of Debt

We may enter into transactions to acquire assets or the shares
of other corporations which may be financed partially or wholly with debt, which
may increase our debt levels above industry standards. Our articles do not limit
the amount of indebtedness that we can incur. The level of our indebtedness
could impair our ability to obtain additional financing in the future to take
advantage of business opportunities that may arise.

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12

Dilution

In order to finance its working capital requirements and to
raise equity for the development of its projects we may enter into commitments
which would require the issuance of additional shares, options, warrants and
convertible debt. These commitments will comply with securities laws and could
require the approval of the securities regulatory bodies, and in some cases, our
shareholders.

Regulatory and environmental matters

The following discussion is necessarily brief and must not be
taken to constitute a complete discussion of the various statutes, rules and
governmental orders to which our operations may be subject. Our existing
properties are located in Canada and the United States, and are subject to
extensive federal, provincial and local governmental regulations in these
countries. These regulations may be revised or expanded at any time. A broad
number of matters are subject to regulation. Generally, compliance with these
regulations requires us to obtain permits issued by federal, provincial and
local regulatory agencies. Certain permits require periodic renewal or review of
their conditions. It is impossible to predict whether it will be possible to
obtain or renew such permits or whether material changes in permit conditions
will be imposed. The inability to obtain or renew permits or the imposition of
additional conditions could have a material adverse effect on our ability to
develop and operate its properties.

Environmental laws and regulations to which we are subject as
we progresses from the development stage to the production stage give rise to
additional concerns and requirements. Failure to comply with applicable laws,
regulations and permits can result in injunctive actions, suits for damages, and
civil and criminal penalties. The laws and regulations applicable to our
activities change frequently and it is not possible to predict the potential
impact to us from any such future changes.

Passive Foreign Investment Company (PFIC)

We have not determined whether we meet the definition of PFIC,
within the meaning of Sections 1291 through 1298 of the U.S. Internal Revenue
Code of 1986, as amended, for the current tax year and any prior tax years. We
may or may not qualify as a PFIC in subsequent years due to changes in its
assets and business operations. A U.S. shareholder who holds stock in a foreign
corporation during any year in which such corporation qualifies as a PFIC is
subject to numerous special U.S. federal income taxation rules and may elect to
be taxed under two alternative tax regimes. A U.S. shareholder should consult
their own U.S. tax advisor with respect to an investment in our shares and to
ascertain which of the alternative tax regimes, if any, might be beneficial to
the U.S. shareholders own facts and circumstances.

Enforcement of Civil Liabilities

We are incorporated under the laws of British Columbia, Canada.
Some of our assets are located outside the United States and our directors and
officers are residents of countries other than the United States. It could be
difficult for our investors to effect service of process within the United
States upon us and our directors and officers, or to realize in the United
States upon judgments of courts of the United States predicated upon civil
liability of us and our directors and officers under United States federal
securities laws.

Item 4. Information on the Company.

A.History and Development of the
Company.

The full corporate name of the company is Yukon-Nevada Gold
Corp. We were incorporated under the laws of the Province of British Columbia,
Canada under the name YGC Resources Ltd. on May 30, 1988. On January 25, 2002,
we were struck from the Register of Companies for British Columbia and
dissolved. We were restored to the Register on August 1, 2003. By Combination
Agreement dated March 16, 2007 with Queenstake, we entered into an Arrangement
with Queenstake, providing for, among other things, our acquisition of all of
the issued and outstanding shares of Queenstake. The Arrangement closed on June
20, 2007, at which time we changed our name to our current name.

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13

|Our head office address is:           | #490, 688 West Hastings Street 
|------------------------------------- | -------------------------------
|                                      | Vancouver, BC, V6B 1P1         
|                                      | Telephone: 6074-688-9427       
|                                      |                                
|And our registered office address is: | #1040, 999 West Hastings Street
|                                      | Vancouver, B.C. V6C 2W2        
|                                      | Telephone: 604-683-1102        

We do not have a registered agent in the United States.

We acquired the Jerritt Canyon gold mine upon completion of the
plan of arrangement with Queenstake on June 20, 2007. On May 30, 2003,
Queenstake entered into a definitive asset purchase and sale agreement with
subsidiaries of AngloGold Limited and Meridian Gold Inc. (collectively, the
Sellers) pursuant to which Queenstake agreed to acquire the Sellers
respective 70% and 30% interests in the assets comprising the operating Jerritt
Canyon gold mine. The acquisition closed on June 30, 2003. The Jerritt Canyon
mine is a large-scale underground gold mining operation with significant
exploration potential.

The table below shows our principal capital expenditures for
the past three years: (in thousands of US dollars):

|Fiscal Year | Property, plant and
      equipment | Mineral properties
|----------- | ----------------------------------- | ------------------
|Fiscal 2007 | $6,266                              | $26,588           
|Fiscal 2008 | $25,703                             | $29,104           
|Fiscal 2009 | $2,629                              | $12,835           

For the past three fiscal years, we have financed our
operations through the financings listed in the table shown below (in Canadian
dollars).

|Date of Offering      | Nature of Issuance          | Number of Shares | Capital Raised
|--------------------- | --------------------------- | ---------------- | --------------
|June 2007             | Private Placement (1)       | 65,326,521       | $76,233,355   
|October 5, 2007       | Private Placement
      (2) | 5,000,000        | $10,000,000   
|May 12, 2008          | Private Placement (3)       | 10,050,000       | $20,100,000   
|July 17, 2008         | Promissory Note (4)         | -                | $4,500,000    
|December 18, 2008     | Private Placement (5)       | 79,800,000       | $3,990,000    
|February 24, 2009     | Private Placement
      (6) | 10,000,000       | $500,000      
|February 25, 2009     | Private Placement (7)       | 17,333,333       | $1,040,000    
|April 24, 2009        | Private Placement
      (8) | 12,000,000       | $720,000      
|August 6 and 28, 2009 | Private Placement (9)       | 41,050,000       | $4,105,000    
|December 1, 2009      | Private Placement (10)      | 10,000,000       | $1,000,000    

|(1) | 42,351,864 Subscription Receipts (the Subscription
      Receipts) were sold at a price of C$1.80 per Subscription Receipt. Each
      Subscription Receipt is exercisable into one unit. Each Unit consists of
      one common share and 1⁄2 of one transferable common share purchase warrant
      (a Warrant). Each whole Warrant entitles the holder to purchase one
      additional share (a Warrant Share) at the price of C$3.00 per Warrant
      Share for a period of five years. A commission of 1,798,725 agents
      options (the Agents Options) were issued to the Agents. Each Agents
      Option entitled the Agents to purchase for a period of two years from the
      closing of the Plan of Arrangement, an agents share (an Agents Option
      Share) at a price of C$2.10 per Agents Option Share.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | 5,000,000 Flow-Through Shares were issued at a price of
      C$2.00 per FT Share. No commission was paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(3) | 10,500,000 Flow-Through Shares were issued at a price of
      C$2.00 per FT Share. No commission was paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(4) | 250,000 Warrants were issued exercisable at a price of
      C$3.00 per share on or before June 20, 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(5) | 79,800,000 Units were sold at a price of C$0.05 per unit,
      each unit comprising one common share (a Share), one series A share
      purchase warrant (the A Warrant), each A Warrant entitling the
      holder to purchase one additional share at a price of C$0.07 for a period
      of 12 months from the closing and one series B share purchase warrant
      (the B Warrant), each B Warrant entitling the holder to purchase one
      additional share at a price of C$0.09 for a period of 18 months from the
      closing. A commission of 7,400,000 Units were issued.                                                                                                                                                                                                                                   
|(6) | 10,000,000 Units were sold at a price of C$0.05 per unit,
      each unit comprising one common share (a Share), one series A share
      purchase warrant (the A Warrant), each A Warrant entitling the
      holder to purchase one additional share at a price of C$0.07 for a period
      of 12 months from the closing and one series B share purchase warrant
      (the B Warrant), each B Warrant entitling
the                                                                                                                                                                                                                                                                                                                                                                                                     

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14

|     | holder to purchase one additional share at a price of
      C$0.09 for a period of 18 months from the closing. A commission of
      1,0000,00 Shares and 1,000,000 Series A Warrants were issued.                                                                                                                                                              
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7)  | 17,333,333 Units were sold at a price of C$0.06 per unit,
      each unit comprising one common share (a Share) and one share purchase
      warrant (the Warrant), each Warrant entitling the holder to purchase one
      additional share at a price of C$0.08 for a period of 24 months from the
      closing. A commission of 400,000 Units were issued.
|(8)  | 12,000,000 Units were sold at a price of C$0.06 per unit,
      each unit comprising one common share (a Share) and one share purchase
      warrant (the Warrant), each Warrant entitling the holder to purchase one
      additional share at a price of C$0.08 for a period of 24 months from the
      closing. A commission of 400,000 Units were issued.
|(9)  | 41,050,000 Units were sold at a price of C$0.10 per unit,
      each unit comprising one common share (a Share) and one share purchase
      warrant (the Warrant), each Warrant entitling the holder to purchase one
      additional share at a price of C$0.125 for a period of 30 months from the
      closing. No commission was paid.                  
|(10) | 10,000,000 Units were sold at a price of C$0.10 per unit,
      each unit comprising one common share (a Share) and one share purchase
      warrant (the Warrant), each Warrant entitling the holder to purchase one
      additional share at a price of C$0.125 for a period of 18 months from the
      closing. No commission was paid.                  

The information contained in this Annual Report is current as
at December 31, 2009, other than where a different date is specified.

B.Business overview.

The principal businesses of the Company are the mining of the
Jerritt Canyon gold mine in Nevada and toll milling with the existing facility,
as well as the acquisition, exploration and development of economically viable
natural resource properties with a particular focus on the Ketza River Property
in the Yukon Territory.

Jerritt Canyon Property, Nevada, USA

We acquired the Jerritt Canyon gold mine upon completion of its
plan of arrangement with Queenstake on June 20, 2007. On May 30, 2003,
Queenstake entered into a definitive asset purchase and sale agreement with
subsidiaries of AngloGold Limited and Meridian Gold Inc. (collectively, the
Sellers) pursuant to which Queenstake agreed to acquire the Sellers
respective 70% and 30% interests in the assets comprising the operating Jerritt
Canyon gold mine. The acquisition closed on June 30, 2003.

Jerritt Canyon is a gold property with two underground mines,
ore stockpiles and a 1.5 million ton per year capacity processing plant. In
addition, the approximately 119 square miles that comprise the Jerritt Canyon
property offer a significant number of advanced, early stage and district-scale
exploration targets and potential to expand the currently defined mineral
reserves and resources proximal to the producing mines.

Ketza River Property, Yukon, Canada

We have owned the Ketza River Gold Property in the Yukon, since
1994. This former producing mine was shut down in November, 1990, due to the
depletion of known oxide ore reserves identified at that time. The Ketza River
Gold Property includes 565 mineral claims and leases, a gold mill and all
associated chattels, tools, equipment and licences. Our Chief Operating Officer,
Mr. Dickson, who is also a chemist and a professional mining consultant,
identified areas which were under-explored and which could be mined and
processed by different methods than those employed in the past. In particular,
he identified the possibility of discovering significant quantities of sulphide
ore. We have completed diamond drilling that resulted in the discovery of the
Chimney and Fork zones and geologic mapping, prospecting, sampling and diamond
drilling on the Shamrock zone. We are also carrying out an aggressive diamond
drill program in an effort to increase mineral resources, to prepare a
feasibility study and, if the results of the feasibility study are positive, to
return the Property to commercial production as a mine.

Principal Markets

Product fabrication and bullion investment are the two
principal uses of gold. Within the fabrication category there are a wide variety
of end uses, the largest of which is the manufacture of jewelry. Other
fabrication purposes include official coins, electronics, miscellaneous
industrial and decorative uses, dentistry, medals and medallions.

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15

Revenues

100% of our gold sales are to customers outside of the
consolidated entity and are from our Jerritt Canyon property in Nevada, U.S.

C.Organizational Structure.

Set forth below are the names of our subsidiaries:



D.Property, plants and equipment.

(a)          
Jerritt Canyon Property, Nevada, USA

On June 30, 2003, one of our subsidiaries, Queenstake, acquired
the Jerritt Canyon mine in Nevada. Jerritt Canyon mine is an operating gold
property with one producing underground mine (Smith), one underground mine to be
reactivated by early 2011 (SSX-Steer Mine Complex), ore stock piles, one
potential new mine (Starvation Canyon) currently in the permitting stage, and a
1.5 million ton per year capacity processing plant.

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Figure 1: General Location Map of the Jerritt Canyon Mine



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17

Figure 2: General Land Map of the Jerritt Canyon District



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18

Accessibility, Climate, Local Resources,
Infrastructure and Physiography

The Jerritt Canyon Mine is located in Elko County, Nevada,
approximately 50 miles north of Elko. Access to the property is by State Road
225 to the mine access road. The roads are paved and in excellent condition all
the way through the main gate where the administrative offices, process plant,
warehouse, and tailings impoundment are located. The mines are accessed by haul
roads on Queenstake controlled land.

The climate is temperate with winter temperatures between 0oF
and 40oF and summer temperatures between 35oF and 90oF. Average annual
precipitation at the tailings impoundment is estimated at 14 inches per year
with an estimated annual average evaporation of 43 inches. A significant amount
of the total precipitation falls as snow and increases with elevation to the
mining areas. Mine operations are only rarely halted by weather conditions,
although ore haulage from the mines may be slowed. The mill, warehouse, shop,
and administrative facilities are at a lower elevation and therefore are less
exposed to weather extremes.

The vegetation is typical of the Basin and Range province with
sagebrush vegetation dominant at the lower elevations. Small stands of aspen and
isolated fir trees grow in canyons and drainages.

Jerritt Canyon mine is located in the Independence Mountain
Range in the Basin and Range province of northern Nevada. The topography ranges
from about 6,400 feet at the administrative facilities and mill site to about
8,000 feet at the highest point of the haul road to the mines.

Elko, Nevada with a population of about 36,000 is the closest
city to the mine. The city is on Interstate 80 and is serviced by daily
commercial flights to Salt Lake City, Utah. Elko is a center for the mining
operations in northern Nevada and services necessary for the mine are readily
available there.

History

The Jerritt Canyon mine is wholly owned by Queenstake after the
purchase by that company from the joint venture of Anglo Gold and Meridian Gold
in June 2003. The joint venture was formed in 1976 between Freeport Minerals
Company, later Freeport McMoran Inc., and FMC, later Meridian Gold. In 1990,
Freeport sold its interest in Jerritt Canyon to Minorco and their wholly owned
subsidiary, Independence Mining Company, which became the new joint venture
partner and operator of the mine. In 1998, Minorcos North American gold assets,
including a 70% interest in Jerritt Canyon were sold to Anglo Gold.

Prospectors explored for antimony in the 1910s. Thirty to
forty tons of stibnite as antimony ore were reportedly mined and shipped from
the Burns Basin mine in the Jerritt Canyon district between 1918 and 1945. In
the early 1970s there was a renewed interest in antimony exploration when its
price reached historic highs of $40 per pound. Around 1971, FMC began exploring
for antimony in the Independence Mountains. In 1972, FMC, later known as
Meridian, discovered a disseminated gold deposit in the Jerritt Canyon area. In
1976, a joint venture was formed with Freeport Minerals Company to explore and
develop the area, and mining commenced at Jerritt in 1981.

Open pit mining was conducted at the site from startup in 1981
until 1999. The first underground operation at Jerritt Canyon started up in 1993
at West Generator. The mine during 2006 consisted of three underground mining
operations feeding ore to a process plant consisting of a roaster followed by
carbon-in-leach processing. The mines are mechanized operations using backfill
for ground control and to increase ore recovery. In the early years, the ores
mined at the operation were less refractory and were processed through a wet
mill. This wet mill continued to operate until 1997 and is still located on
site. With ores becoming more carbonaceous and refractory, as well as with the
introduction of higher-grade ore from underground operations, a dry mill with an
ore roasting circuit was added in 1989 and is currently in operation.

Since the first gold pour on July 4, 1981, the Jerritt Canyon
Mine has produced approximately 8 million ounces of gold. Annual production has
historically averaged between 125,000 and 350,000 ounces of gold. Queenstake
reports the 2009 mill production at 9,770 ounces of gold, from a total of
197,503 tons of ore, significantly less than the past due to the shutdown which
transpired for most of the year.

Surface exploration drilling and underground core drilling
which is also used as an exploration tool, decreased from 2001 to 2002, when the
former owner, Anglo Gold shifted focus from exploration to reserve development.
In 2000, about 445,000 feet of exploration and development were completed, of
which 165,000 feet consisted of surface Reverse Circulation (RC) drilling

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19

and the remainder was underground (UG) core and RC drilling. In
2001, a total of about 500,450 feet were drilled, 65,450 of which were surface
RC holes. In 2002, 435,000 feet were drilled, all of which were from
underground. After the acquisition of Jerritt Canyon at mid-2003, Queenstake
started more aggressive exploration and mine development programs and those
programs have continued throughout 2006. These programs were continued into 2007
and 2008 after the merger of Queenstake Resources and YGC Resources in 2007 but
ceased for 2009 due to the shutdown of the mill while plans for environmental
compliance were reviewed by the NDEP.

The measured and indicated mineral resources, including
reserves, at Jerritt Canyon during Queenstakes ownership, as documented in NI
43-101 filings are given in Table 1.

Table 1: Historic Measured and Indicated Mineral Resources
during Queenstakes Ownership

|Year | Tons      | Grade | Ounces   
|---- | --------- | ----- | ---------
|2003 | 9,496,930 | 0.242 | 2,295,303
|2004 | 9,987,840 | 0.241 | 2,409,624
|2005 | 8,812,000 | 0.236 | 2,079,100
|2006 | 8,203,000 | 0.232 | 1,907,200
|2007 | 8,196,900 | 0.239 | 1,961,100
|2008 | ND        | ND    | ND       
|2009 | ND        | ND    | ND       

Notes: ND = not determined; all resources included in this
table are calculated as of December 31 of the noted year.

The proven and probable reserves at Jerritt Canyon during
Queenstakes ownership, as documented in NI 43-101 filings are given in Table 2.

Table 2: Historic Proven and Probable Mineral Reserves
during Queenstakes Ownership

|Year | Tons      | Grade | Ounces 
|---- | --------- | ----- | -------
|2003 | 3,065,000 | 0.268 | 820,000
|2004 | 3,510,584 | 0.249 | 875,000
|2005 | 3,723,000 | 0.236 | 878,000
|2006 | 1,985,000 | 0.245 | 486,000
|2007 | 3,155,000 | 0.227 | 717,000
|2008 | ND        | ND    | ND     
|2009 | ND        | ND    | ND     

Notes: ND = not determined; all resources included in this
table are calculated as of December 31 of the noted year.

Geological Setting

The Jerritt Canyon mining district is located in the
Independence Mountain Range in northern Nevada. The range is part of the Basin
and Range province of Nevada and is a horst block consisting primarily of
Paleozoic sedimentary rocks with lesser Tertiary volcanics and intrusive dikes.
A district geologic map is shown in Figure 3 and a stratigraphic column is shown
in Figure 4.

There are four distinct assemblages in the district,
characterized by their position relative to the Roberts Mountains thrust, a
Devonian to Mississippian structure formed during the Antler orogeny:

- The western facies, or upper plate of the thrust, consists of the Cambrian
  to Ordovician Valmy Group and forms about 70% of the exposed rock in the area.
  In the Jerritt Canyon district, the Valmy Group consists of the Snow Canyon
  formation, a chert, argillite, greenstone, and carbonaceous siltstone
  sequence, and the McAfee Quartzite, a sequence of massive quartzite and shale;
- The eastern facies, or lower plate of the thrust, consists of a sequence of
  Ordovician to Devonian shallow water sedimentary rocks that are exposed in
  tectonic and erosional windows through the upper plate. The gold
  mineralization in the district is contained with the eastern facies rocks. The
  Pogonip Group rock is exposed in the west-central part of the district and is
  composed of fossiliferous limestone with calcareous shale and dolomite

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20

- The Schoonover sequence occurs north of the district and consists of basaltic
    and andesitic greenstone, chert, tuff, volcaniclastics, and siliciclastic
    and limestone turbidites of Devonian to Permian age; and
- The Antler overlap sequence is restricted to the north end of the range
    and consists of conglomerates, argillite, siltstone and limestone.

There are four sets of dikes: Pennsylvanian basalt dikes,
Eocene basalt and quartz monzonite dikes and a Miocene basalt dike. The
Pennsylvanian and Eocene basaltic dikes are altered and mineralized in most of
the mines.

The regional structural setting of the Jerritt Canyon district
is complex, with several regional deformation events being evident. The Devonian
to Mississippian Antler orogeny, resulting from west to east compression, is
represented in the upper plate Snow Canyon Formation with north-south folds in
both the hanging wall and footwall of the thrust. The Permian to Triassic Sonoma
orogeny emplaced the Golconda allochthon over parts of the Roberts Mountains
allochthon to the north of the district. The northwest to southeast compression
associated with this deformation is rarely seen in the district. The Jurassic to
Cretaceous Nevadan orogeny resulted in east-west folds that are often associated
with mineralization.

Within the Jerritt Canyon area, gold can locally occur within
all sedimentary formations, but is preferentially hosted by the Roberts
Mountains and Hansen Creek Formations of the eastern facies in the lower plate
of the Roberts Mountains thrust . The Roberts Mountains Formation consists of
calcareous to dolomitic siltstones and silty limestones. The Hansen Creek
Formation is divided into five members, numbered I through V from the top of the
formation to the bottom. Hansen Creek I is a thinly bedded sequence of gray,
medium-grained limestones and continuous blocky chert beds; it is typically
brecciated. Hansen Creek II is a dark to light gray, irregularly bedded to
massive, vuggy, dolomitic limestone. Hansen Creek III consists of intercalated
carbonaceous micrites and laminated argillaceous limestones. Hansen Creek IV is
a thickly bedded, medium to coarse-grained, carbonaceous limestone with
discontinuous black chert nodules. Hansen Creek V consists of laminated,
carbonaceous siltstone with chert lenses.

The contact between the Roberts Mountains Formation and the
overlying Snow Canyon Formation is a regional thrust fault which transported the
Snow Canyon eastward over the Roberts Mountains Formation. The contact between
the Roberts Mountain Formation and the underlying Hansen Creek Formation is a
discontinuity locally known as the Saval discontinuity. The discontinuity may be
an angular unconformity of local extent or a thrust fault. The base of the
Hansen Creek is gradational into the Eureka Quartzite. Locally, the
stratigraphic section has been repeated by thrust faulting as seen in the
cross-section through the SSX mine in Figure 5.

Alteration in the Jerritt Canyon district includes
silicification, dolomitization, remobilization, and reconstitution of organic
carbon, decalcification, and argillization. The rocks also exhibit hypogene and
supergene oxidation and bleaching. The most importation alteration types
relative to gold deposition are silicification, remobilization and redeposition
of organic carbon and decalcification.

---

21

Figure 3: General Geology Map of the Jerritt Canyon District



---

22

Figure 4: Stratigraphic Column of the Jerritt Canyon
District



---

23

Figure 5: Typical Cross-Section through the Jerritt Canyon
District



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24

Exploration

The Jerritt Canyon district was explored by prospectors looking
for antimony in the early 1900s. FMC Corporation, exploring for antimony in the
1970s, discovered gold occurrences similar to those in the nearby Carlin trend.
In 1976, FMC, then known as Meridian Mining, formed a joint venture with
Freeport Minerals to explore and develop the deposits. Mining commenced in 1981
with the North Generator open pit.

Since then, the operators of Jerritt Canyon have conducted
exploration programs for the identification and development of new mineralized
areas. Several open pit deposits were discovered, developed, and mined during
the 1980s and 1990s, including North Generator, Alchem, Marlboro Canyon,
Burns, Steer, Saval and Dash. Underground targets were also identified, and the
first to be exploited was the West Generator underground deposit in 1993. The
Murray deposit, originally discovered by condemnation drilling, has produced
over 1 million ounces. The SSX deposit was discovered in the early 1990s by
geologists following the structural trends between Burns Basin and California
Mountain open pits. The SSX mine has also produced over 1 million ounces. The
MCE, Smith, and Steer extension of SSX are more recent discoveries.

The Jerritt Canyon operation has had a history of exploration
and discovery since the 1970s. In the last few years until Queenstakes
acquisition of the property, most of the exploration efforts have been
concentrated at and around the existing underground mines. Exploration efforts
in the southern part of the property were directed to areas such as Water Pipe,
Pie Creek, and Starvation Canyon. Queenstake has increased the exploration
effort near the mine areas and also in the south. As a result, the known
mineralization at Starvation Canyon has increased in size and quality.
Additional drilling at Starvation Canyon from 2006 to 2008 was targeted toward
further definition and expansion of the resource.

Queenstake has carried out an aggressive program of exploration
since its acquisition, with the following footages drilled in the past six years
of its ownership of the property:

- 2003:          280,151 feet
    of underground and surface RC and Core Drilling;
- 2004:          710,896 feet
    of underground and surface RC and Core Drilling;
- 2005:          450,694 feet
    of underground and surface RC and Core Drilling;
- 2006:          396,063 feet
    of underground and surface RC and Core Drilling,
- 2007:          467,242 feet
    of underground and surface RC and Core Drilling; and
- 2008:          237,517 feet
    of underground and surface RC and Core Drilling.

No exploration activity was conducted in 2009 due to the
temporary shutdown of the mill operations. Queenstake continues to evaluate its
landholdings with the objective of focusing future exploration and drilling the
most promising areas both near and away from the existing mines.

Mineralization

SSX-Steer Mine Complex

The SSX (South Saval Extension) deposit was discovered in late
1992 following the northeast structural trends between the Burns Basin and
California Mountain deposits and the west-northwest mineralized dike trends from
the Saval open-pit deposit. The main SSX portal was established in 1996 and
mining started in 1997.

A portal was established in the Steer open pit in 2004 and
drifting within this underground mine connected with the SSX underground mine in
the latter half of 2005. The two mines have since been operated as a single
underground mine referred to as the SSX-Steer mine complex. In 2007 a drift out
to the Saval III portal was completed allowing access to the resource extending
from the existing pit wall.

Mineralization at the SSX Steer Mine Complex occurs mostly in
the micritic unit III of the Hansen Creek Formation. A smaller portion of the
mineralization occurs in calcareous siltstone at the base of the Roberts
Mountains Formation or in the upper two cherty and dolomitic members of the
Hansen Creek Formation. Mineralized zones are localized in and near
west-northwest trending steeply dipping dikes (e.g. South Boundary Dike);
however, dike material is a minor component of the ore at the SSX Steer Mine
Complex. Mineralization is also localized along cross-cutting northeast trending
faults (the Purple Fault in Zones 4 and 6, and the Crestline Fault in Zone 1).
Folding of the mineralized horizons is apparent along axes parallel to the
west-northwest dike trend and, more prominently, parallel to the northeast fault
set. Gold occurs in decarbonitized rock,

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25

commonly in association with variable amounts of orpiment and
realgar. Silicification with stibnite can also be associated with gold in
portions of the upper cherty member of the Hansen Creek Formation. The
intersection of the northeast and west-northwest structural trends remain a
primary target for resource expansion. The westward extension of the South
Boundary Dike and the West Mahala resource to the east represent exploration
opportunities.

Gold mineralization in the Steer portion of the SSX mine
complex has been identified in an area stretching approximately 3,000 feet east
from the old Steer pit to halfway along the connection drift to SSX Zone 5. Most
gold mineralization at Steer is associated with gently dipping structures
cutting through the Hansen Creek III unit. These structures strike northeast and
dip southeast, offsetting individual strata. Typical ore zones follow the
structures and tend to be broad and relatively thin. The mineralized zones are
usually at the contact between the Hansen Creek units III and IV and
occasionally follow the structures up through the Hansen III. Both within the
Steer portion and the western side of SSX several low-angle features have been
observed. These features are at least partly responsible for the gold
mineralization at the contact of the Hansen Creek Units III and IV.

In the eastern portion of the Steer area, high-grade
mineralization is associated with the Husky fault, a major northeast trending
normal fault with at least 300 feet of normal dip-slip displacement to the
southeast. Major northwest trending dikes appear to have locally
compartmentalized high-grade mineralization. The intersection of these dikes
with the Hansen III unit and the Husky fault and its related structures offers
excellent exploration potential. One of these dikes is interpreted to be the
western extension of the South Boundary dike, which is an important
ore-controlling structure at the SSX mine to the east.

At Steer and SSX the structural intersections are the primary
targets for resource expansion, as well as the westward extension of the South
Boundary dike. The West Mahala mineral resource located just east of the SSX
Steer Complex remains an excellent near-mine exploration opportunity.

Smith Mine

The Smith underground mine, is accessed from the main portal,
located in the bottom and in the northwestern part of the Dash open pit that was
established in 1999 as the pit was being mined out. A second portal established
in 2006 is also located in the DASH pit that accesses mineralization in the East
DASH (Zone 9) area in the east highwall of the pit. Since the opening of this
mine, near-mine exploration has been successful and focused on drilling and
defining the following adjacent deposit areas: Mahala (including Mahala Dike
Trend in Zone 4, and Mahala Extension in Zone 8), West Coulee and Coulee Dike
Trend in Zone 2, West Dash and Dash Ridge in Zone 7, and B-pit in Zone 5.

Gold mineralization in the main Smith, Mahala, and West Dash
deposits is associated with the northeast trending Coulee Fault and
west-northwest trending faults and dikes. In Zone 1, high-grade gold
mineralization is hosted in the upper and middle portions of the Hansen Creek
Formation unit III within a northwest trending horst block between the South
Graben fault and the 170 fault. Mineralization in Zones 2 and 3 is directly
associated with west-northwest trending dikes. High-grade mineralization occurs
within the Hansen Creek units II and III along the steeply dipping dikes. Lesser
amounts of mineralization exist at higher levels where the dikes intersect
favorable beds in the Roberts Mountains Formation. An exception to the tight
elevation controls on mineralization is at the intersection of the
west-northwest trending dikes and Coulee fault. Here, high-grade mineralization
blows out into the Hansen Creek unit III along the west plunging intersection of
the dikes and the fault for a down-dip depth of 600 ft.

Gold mineralization in the Mahala area is spatially associated
with the west-northwest trending Mahala fault and associated dikes and favorable
ore-host stratigraphy including units II and III of the Hansen Creek Formation
and lower beds of the Roberts Mountains Formation. Mineralization at East Mahala
occurs primarily in broad, SE-dipping lenses in Roberts Mountains Formation in
the hanging wall of the Coulee Fault

The B-Pit deposit occurs as gently dipping, thin lenses of
mineralized material north of the main Smith deposit. Three of the four lenses
occur are stratigraphically bound within the Roberts Mountains Formation. The
fourth lens occurs at the top of the Hansen unit III in the wall of a
NW-trending horst block just to the south of the other three zones.

The West and East Dash deposits occur at the extreme ends of
the west-northwest trending Dash Fault system which formed the mineralization
mined in the Dash pit. The West Dash deposit occurs at the intersection of the
Coulee fault and the west-northwest trending Dash fault. Most gold
mineralization at West Dash occurs in fault-bounded slices of Hansen Creek unit
III

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26

with minor amounts in the overlying Hansen Creek unit II and
Roberts Mountains Formation. West Dash is accessed through the Smith Portal. The
East Dash deposit lies to the east of the Dash pit. A portion of this deposit
has been accessed by a small portal in the pit. At East Dash, most gold occurs
in two lenses parallel to the Dash Fault and dipping to the northeast. The
largest lens is about 1,100 feet and is 15 feet to 25 feet thick. The north edge
of the lens seems to be bounded by a steep east-west trending fault that is
locally mineralized with high-grade material. The second lens is smaller at
about 350 feet across, but much thicker, up to 120 feet.

In 2007, surface and underground drilling along the western
extension of the Coulee and Mahala Dike Trends, revealed additional
mineralization which was brought into the resource category. The 2008 drilling
results are expected to extend the mineralization further to the northwest and
add to the existing resource. This potential resource addition for this area
will be addressed and updated in the next NI-43-101 resource update.

Murray Mine

The Murray Mine occurs within the Roberts Mountains Formation
and the top three units of the Hansen Creek Formation. A minor amount of
mineralization also occurs within the silicified unit IV of the Hansen Creek
Formation. It was originally discovered in 1989 by condemnation drilling for a
waste dump for one of the early open pits. Mineralization in the main Murray
deposit occurs along the New Deep Fault which is a wrench fault striking west
-northwest and dipping 50o to 60o to the northeast. Mineralization in Zone 7
located about 750 feet north of the New Deep Fault occurred within calcareous
siltstone beds of the Roberts Mountains Formation. Zone 7 and the main Murray
have been largely mined out, with remnant pockets of mineralization
remaining.

Zone 9 mineralization is located immediately west of the main
Murray deposit and is associated with a westward projection of the New Deep
Fault and several northeast trending faults. It was the focus of drilling
campaigns in 2002-2005. Although there was no additional drilling in this
resource it was removed from reserves in 2006 because of economics and possible
water issues. It consists of two separate areas, a relatively flat-lying zone at
the base of the Roberts Mountains Formation and a main zone which is associated
with the New Deep fault. Mineralization is hosted by the Hansen Creek III which
is locally overlain by the Snow Canyon Formation

Starvation Canyon

The original drill holes for the Starvation Canyon deposit were
first completed by Freeport Exploration Company in the early 1980s that
targeted soil and surface rock-chip anomalies. Only low-grade gold was
encountered in this early drilling. Additional drilling by Freeport in 1986
encountered higher grade mineralization. Since this deposit was not open-pitable
at the time, not much additional work was conducted at Starvation until
Queenstake re-examined the geological and deep underground potential in 2004.
High-grade drill intersections were encountered in this deposit by Queenstake in
January 2004. Mineralization at the Starvation Canyon project occurs at the
Hansen II-III contact and is localized along a west-northwest fault zone at
northeast structural intersections. The majority of the mineralization is within
the interbedded micrite and argillaceous limestone of the Hansen Creek III,
starting at or just beneath the contact. There are instances where
mineralization has formed within the massive limestone of the basal Hansen Creek
II, but these are rare. Drilling in 2007 and 2008 has further defined the
resource at Starvation, along its outer edges as well as the internal grade
distributions and higher angled structures.

Additional exploration potential exists to increase the
resource of the presently known mineralized zones. The southern margin and the
western extensions of the western zone have expansion potential along
approximately 600 feet of strike length. The northwest structure that appears to
be the primary control for the Starvation Canyon resource has potential for
additional clusters of mineralization both to the northwest and southeast.

Saval

Gold mineralization in the Saval Basin area to the west of the
SSX mine is primarily hosted in Hansen Creek Formation unit III where it has
been structurally prepared by faulting and has locally been compartmentalized by
northwest-trending dike systems. In this area, a series of west-northwest
trending structures have been cut by northeast-trending faults. Notable
structural features include the west-northwest trending Saval horst and the
northeast-trending Husky fault, which cuts across the older Saval horst and
down-drops it to the southeast. Ore zones were mostly formed in Hansen III host
in the vicinity of structural intersections, often forming relatively steep,
narrow, plunging orebodies. Dikes, such as the Saval 3 pit dike can be

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27

traced for thousands of feet. High-grade gold mineralization
has been concentrated along the Saval 3 pit dike in several locations, most
prominently in the Saval 3 pit and in the north part of zone 5 at SSX. Except at
the Saval 4 deposit, most economic zones in the Saval basin area have been mined
out leaving relatively small mineralized zones in difficult-to-access pit walls
and bottoms. During 2006 access to a small resource in the highwall of the Saval
2 pit was completed with a small amount of production. A small reserve is being
carried in the highwall of the Saval 2 pit in 2009.

At Saval 4, a significant gold zone has been identified that
can be mined from underground with hillside access. A small pit was excavated
during 2006 to allow for a portal. This excavation occurred in mineralized
Roberts Mountains formation with 2,050 ounces stockpiled. In this zone,
relatively steep, confined, and vertically extensive high-grade ore-bodies have
formed within the Saval horst beneath a splay fault of the large Sheep Tank
fault. It is interpreted that the intersection of the west-northwest trending
faults that bound the horst interact with northeast trending faults, forming
structurally prepared ore hosts along their intersections. Additional
mineralized zones form on the flanks of the horst where it intersects the
NE-trending structures. Most notable is a high-grade zone directly in the Sheep
Tank fault just to the north of the main pod. Thinner mineralization occurs near
the top of the horst along its south bounding fault. Excellent opportunity
exists for local resource expansion of the main pod and in the flanking
fault-hosted zones with close-in underground drilling after mining has begun.

Other Reserve/Resource Areas

Wright Window Pit

The Wright Window is a small open pit reserve and resource area
located on the west side of the Independence Mountains to the west of the Murray
mine. The deposit is hosted by the lower Roberts Mountains and Upper Hansen
Creek Formations along the Saval Discontinuity. Mineralization occurs on two
zones; the west zone mineralization outcrops at the surface and is about 50 feet
thick. The higher-grade east area is about 200 by 300 feet wide and 45 feet
thick.

Pie Creek Resource

Potentially economic gold mineralization occurs in a series of
near-surface zones in the head of the Pie Creek drainage on the east flank of
Wheeler Mountain. Indicated and Inferred resources have been modeled and are
shallow enough, at a depth of 200 feet, for consideration of open-pit mining.
The main pod is about 800 feet long, dips moderately to the southeast at about
300, and is 20 feet to 45 feet in cross-sectional thickness.
Mineralization is hosted in the top of unit III of the Hansen Creek Formation
and is probably controlled by northeast trending faults. Three other smaller
pods near the main pod are similarly in the top of the Hansen III, but strike
northwest, dip moderately to the north, and are probably controlled by local
faults of similar orientation. The main pod mineralization occurs between two of
the mineralized northwesterly cross structures.

Drilling

Numerous drill campaigns have been executed at Jerritt Canyon
since its discovery in the 1970s. Exploration drilling programs typically
consist of RC drilling at about 200 foot centers, the spacing is then reduced to
about 140 feet and finally, to 100 foot centers or less. Surface core drilling
typically makes up about 5% to 10% of the total drilling. At the underground
mines, definition drilling consists of core drilling on 50 foot centers from
underground stations, using NQ sized core which is 1.875 inches in diameter.
Underground RC drilling (Cubex) is used for resource confirmation and is drilled
on 20 to 40- foot centers. RC holes are generally less than 150 feet in length,
but can be as long as 300 feet. Underground production sample drilling consists
of Cubex and rotary percussion drilling (Solo and Secoma). Holes are generally
short, less than 60 feet, and are drilled on center as close as 10 to 20 feet.
The vast majority of drill holes, except the production holes, are measured for
downhole deviation.

Tens of thousands of holes have been drilled on the property
over the years. The Murray mine has over 22,000 holes with more than 2 million
feet drilled; the Smith mine has over 5,500 holes with more than 1.40 million
feet; the SSX mine has nearly 18,500 holes with 2.6 million feet of drilling.

Drilling at Jerritt Canyon for the last eight years is shown in
Table 3. Drilling in 2000 through 2002 was conducted by the former owner, and
drilling from 2003 to present was conducted by Queenstake.

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Table 3: Jerritt Canyon Drilling (2001 through 2008)*

|Year | Surface
      RC | Surface
      Core | UG
      Core | UG
      RC | Production
|---- | ---------------- | ------------------ | ------------- | ----------- | ----------
|     | No.              | Footage            | No.           | Footage     | No.       
|2001 | 59               | 65,450             | 0             | 0           | 268       
|2002 | 27               | 18,905             | 0             | 0           | 186       
|2003 | 108              | 47,277             | 0             | 0           | 119       
|2004 | 377              | 300,226            | 34            | 21,212      | 297       
|2005 | 126              | 101,413            | 4             | 1,403       | 179       
|2006 | 155              | 135,940            | 0             | 0           | 125       
|2007 | 220              | 216,592            | 15            | 12,495      | 44        
|2008 | 101              | 104,182            | 7             | 8,939       | 94        

* In 2009 no drilling activity was carried out due to the
temporary shutdown of the milling operations.

Sampling and Analysis

Surface Drilling - Reverse Circulation Drilling

Surface exploration drilling programs at Jerritt Canyon consist
predominantly of reverse circulation (RC) holes, with some surface core
drilling. The drilling is conducted by a contract company and downhole surveys
are taken by a contractor using a gyroscopic instrument. Collar locations are
surveyed by a contracted survey company and/or in-house surveyors.

The surface RC holes are 5.5 inches in diameter and are sampled
on 5 foot intervals, according to a protocol established by Queenstake.

Surface diamond drill core is HQ-sized (2.5 inches), unless it
is necessary to reduce to NQ for completion of the hole. Surface core is logged
for lithologic information and for geotechnical data according to the Jerritt
Canyon logging manual at the logging facility. Surface core is split or cut with
a diamond saw or hydraulic splitter and half of the sample is sent to the lab
for analysis.

Underground Drilling

Drill hole spacing is targeted at 30 to 50 foot centers
throughout the deposit. The attitude of the drill hole can be at any inclination
to the mineralized unit although it is preferred to be as close to normal to the
ore-controlling structures as possible. Collars of all drill holes are surveyed
and the orientation of the holes is determined. All of the holes are surveyed by
using a down-hole survey instrument (tropari or Flexit) or by a contract survey
crew to measure the hole deviation. All of the collar and downhole surveys must
pass quality assurance scrutiny by the site geologist prior to loading the data
into the database. Only the actual data taken from the drill hole survey is
used. Any projections of the survey beyond the length of the hole when surveyed
are discarded. On rare occasions the collars are lost prior to collar or down
hole surveys being completed; in this case the planned coordinates and hole
orientation are used. However, when geological interpretation is done this
factor is heavily considered in determining the validity of using the data from
these holes.

Production Samples

- Percussive drills (Solo, Airtrack, Secoma and others) are the dominant type
  used for collection of sludge samples over one rod length or six feet for
  final definition of the ore zones. It utilizes a rotary percussion drill with
  3 inch diameter bits. Cuttings exit the hole via the annulus and are collected
  in a tray placed beneath the collar of the hole. These holes are drilled no
  longer than 60 feet in length due to hole deviation and downhole sample
  contamination issues. The hole and tray are cleaned prior to continuing the
  drill hole an additional six feet. Collar locations are surveyed but a
  downhole survey is not generally done. Some twinned data collected in 2001
  suggests that there is a greater potential for these holes to have down-hole
  contamination beyond 36 feet depending largely on the orientation of the hole.
  For this reason the length of these holes has been decreased in the past few
  years. These drills are used for definition drilling at Murray and to a much
  lesser extent at SSX and Smith Mines;
- Jumbo drill holes and jackleg holes are drilled for ore control only. This
  data, when collected, is used to help determine ore waste determinations but
  is not loaded into the database;

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29

- Selective rib and/or face samples are also used to help determine the ore
  boundaries and for grade control. They can be used to support the constrained
  ore boundary and in some cases at SSX are used to help estimate the block
  model grades; and
- Cubex drills are sometime used for production drilling.

Truck Samples

At all the underground mines each haul truck is sampled for
grade control purposes. The samples consist of grab samples taken over the
entire load by the truck driver. Samples are placed in bags with pre-attached
bar code numbered tags and transported to the Jerritt Canyon lab. Truck sample
assays are cut by 8% which is a factor that has been determined through mine to
mill reconciliation. The grades are used to state mine production.

Sample Preparation, Analyses and
Security

Jerritt Canyon Laboratory Procedures

The mine utilizes the Jerritt Canyon laboratory for analytical
work on the underground samples with check samples sent to ALS Chemex for
comparisons. The samples for most of the surface drilling in the West Dash
resource area in 2006 were also analyzed at the Jerritt Canyon facility. The
assay lab is located in a separate building close to the ore processing plant.
The laboratory has all the normal sample preparation equipment and facilities.
The laboratory operates continually with a crew of 16 and performs about 500
fire assays per day with a 24-hour turn around from receipt of sample to
reporting of assays.

Sample Preparation

All of the underground samples received at the Jerritt Canyon
assay laboratory arrive with bar coded labels. The labels match drill logs
maintained by samplers and drillers in the Jerritt Canyon Underground
Department. Sample bar codes are scanned into the LIMS and assay lots are
auto-created. The surface drill hole samples are labeled on the sample bag which
are then logged into the LIMS system by the lab technicians. All logged samples
dry for four to six hours at 325°F prior to prepping.

A rotary (automatic) 1:4 split (50 rotary cuts minimum) follows
first stage crushing. Core samples first stage crush to 99% -1 inch prior to
split; all other types are typically 1/2 inch prior to first stage split.
Second stage crushing (99% - 3/8 inch) automatically passes through a rotary
splitter (50 cut minimum). The assay split is then pulverized in a plate mill to
95%-150 mesh (Tyler) and blends for five minutes on a rotary blending wheel. The
samples are placed in bar coded sample cups and transferred to fire assay.

Jerritt Canyon Lab Fire Assay Procedures:

A tray of 24 thirty-gram charge crucibles is prepared with a
standard litharge flux. Each sample is weighed at one assay ton. Of 24 samples
on each tray, one is a repeat sample, one is a standard, one is a blank, and one
is a blind standard inserted into the sample stream by the geology department.
The samples are fired by the method of fusion/cupellation, with a gravimetric
finish. The balance used for the final weighing is a Cahn C-30 microbalance that
is serviced and calibrated on a semi-annual basis by Microlab Services.

The laboratory in-house QA/QC procedure for checking the
accuracy of the Jerritt Canyon lab consists of submitting saved duplicate
samples of the mill feed and tail daily samples to outside labs for comparison.
These samples are submitted on a weekly basis to either Rocky Mountain
Geochemical or Chemex Laboratories. The data is compiled from the Jerritt Canyon
daily assay sheet and compared with the results from the two outside labs. The
results of the comparison are entered into a statistical program and a running
check is maintained on the data.

Commercial Laboratories

Surface RC and diamond drilling are sent to ALS Chemex and
American Assay. Samples above 0.100 opt gold are routinely fire assayed with a
gravimetric finish. Blanks, standards, and pulps are routinely inserted into the
sample stream for QA/QC, and check assays

The Geology Department at Jerritt Canyon has established
laboratory quality assurance/quality control procedures as follows:

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30

Jerritt Canyon Laboratory

- One standard sample per 20 samples;
- One blank sample, consisting of silica sand, per drill hole;
- One pulp of a previously assayed interval is inserted into the sample
  stream at the geologists discretion; and
- Check assays consist of coarse rejects and pulps (one sample for every
  twenty over 0.01 opt and one in ten over 0.07 opt) sent to a commercial
  laboratory, generally ALS Chemex.

Commercial Laboratory

- One standard sample in each batch of samples. A batch contains 40 samples
  in most commercial labs;
- One blank sample of silica sand per hole, inserted at the beginning or end
  of hole, or after a mineralized zone;
- A duplicate sample consisting of a pulp of a previously assayed interval
  may be used as a substitute for the regular standards; and
- 10% of the samples that have a value greater than 0.07 opt gold, and 5% of
  samples between 0.01 opt and 0.07 opt gold are submitted to a second lab for
  check analysis.

The standards have been prepared from Jerritt Canyon
mineralized rock and have several different gold values. Samples that were used
throughout the year include High with a value of 0.268 ounces per ton (opt),
JCQ01 with a value of 0.117 opt, JCQ02 at 0.256 opt, JCQ03 at 0.051 opt, JCQ04
at 0.120 opt and JCQ05 at 0.150 opt. Results from the standards or duplicates
are reviewed by geologists. If there is significant deviation (generally
allowance are between 10% and 20%) from the expected value then the batch of
samples is re-fired. If the lab is unable to match the original results within
reasonable limits then the sample is re-fired again until assays are matched.
The results from these analytical determinations are available in the QA/QC
section below.

SRK for the year ended 2007 NI 43-101 reviewed the Jerritt
Canyon assay QA/QC data during 2007 and found the results within industry
standards.

Data Verification

The Jerritt Canyon mine has tens of thousands of drill holes
throughout the land package in the active mines, mined out areas, and
exploration targets. Over the years the property has been the subject of many
audits in which data verification procedures were carried out.

The geology department has largely completed the task of
storing drill hole logging information and assay data into the AcQuire database
package. Assay data is directly downloaded from the lab (both commercial and
Jerritt Canyons) and goes through automatic and visual validations before being
recorded, thus eliminating data entry errors.

It is SRKs opinion that Jerritt Canyon is conducting
exploration and development sampling and analysis programs using standard
practices and that the data can be effectively used in the estimation of
resources and reserves.

Mineral Processing and Metallurgical Testing

The mineral processing operation at Jerritt Canyon is one of
only three processing plants in Nevada that uses roasting in its treatment of
refractory ores. Initially, Jerritt Canyon was designed to process oxide and
mildly refractory gold ores by conventional cyanidation using chlorine gas for
pre-oxidation of the refractory ores. In 1989, the roasting circuit was added to
the process for the treatment of highly refractory ores which are now being
mined and processed at Jerritt Canyon.

The unit operations at the Jerritt Canyon processing plant are
comprised of the following circuits:

- Primary crushing;
- Secondary crushing;
- Fine ore drying;
- Tertiary crushing;
- Dry grinding;

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- Roasting;
- Carbon-in-leach (CIL) with cyanidation and carbon adsorption;
- Carbon stripping;
- Carbon reactivation;
- Merrill-Crowe process using zinc cementation of gold and silver;
- Precipitate refining;
- Oxygen plant; and
- Tailing impoundment.

Table 4 contains historic production and cost data for the
Jerritt Canyon processing plant. The Jerritt Canyon process plant operated at
only 80.5% of its budgeted ore production rate in 2007 due to pinion and
bullgear problems with the grinding mill and air permit limitations. The pinion
was replaced in first quarter 2006. Queenstake replaced the bullgear in June
2007. The production numbers in the 2008 reflect the shutdown periods extending
from February 22, 2008 to April 30, 2008 and again on August 15, 2008 to the end
of 2008. The production numbers in the 2009 also reflect the shutdown periods
extending from the beginning of the year to March 25, 2009 and again from June
1, 2009 to October 15, 2009. Note that periods where the mill has been shutdown
are followed by a 3 week preheat phase wherein minimal production is
experienced.

Table 4: Jerritt Canyon Historic and Budgeted Process Production
  and Cost Data (in US Dollars)(1)

|Operating Data            | Units              | Actual 2005 | Actual 2006 | Actual 2007 | Actual 2008 | Actual 2009
|------------------------- | ------------------ | ----------- | ----------- | ----------- | ----------- | -----------
|Production Data           |                    |             |             |             |             |            
|Tons Processed:           |                    |             |             |             |             |            
|Annual                    | 000s
      tons   | 1,107       | 974         | 968         | 338         | 197        
|Daily Average             | Tons               | 3,033       | 2,667       | 2,652       | 926         | 541        
|Ore
      Grade           | oz
      Au/ton    | 0.215       | 0.211       | 0.181       | 0.16        | 0.11       
|Recovery                  | %                  | 86.5        | 86.2        | 88.1        | 87.3        | 86.9       
|Gold
      Production (1) | 000s
      oz     | 203         | 170         | 176         | 49          | 19         
|Cost Data                 |                    |             |             |             |             |            
|Annual Total Cost         | $000s             | 26,539      | 29,602      | 35,271      | 17,508      | 15,710     
|Unit Processing Costs:    |                    |             |             |             |             |            
|Ore                       | $/ton
      Milled | 23.97       | 30.41       | 36.43       | 51.75       | 79.75      
|Gold                      | $/oz Au            | 130.79      | 157.25      | 200.81      | 359.9       | 826.8      

(1)Includes purchased ores for actual 2007 and
2008. 2009 experienced a loss in production which is the difference between what
was produced as above and what was ultimately shipped for sale.

In July 2007, a revised Ore Purchase agreement was reached
between Queenstake and Newmont Canada Limited (Newmont) whereby 1,000,000 tons
of ore per year from Newmont operations will be purchased by Queenstake and
processed through the Jerritt Canyon processing plant. This agreement was
terminated in September of 2008 and a revised purchase agreement is in
discussions. These additional tons historically bring the processing plant
closer to full capacity and reduce the process operating costs per ton of ore
which is reflected in Table 4 due to the high proportion of fixed costs in
operating the facility. The terms of the revised agreement were met and settled
in 2009.

Mineral Resource and Mineral Reserve Estimates

At Jerritt Canyon, most gold mineralization occurs within
lenticular bodies with relatively sharp hang-wall and foot-wall boundaries. In
order to better model this type of mineralization, detailed wireframe solids
based on geologic and grade continuity (roughly 0.15 opt Au and above) are
created with Minesight software for individual zones. The wireframes are built
using assays of similar value that also show geologic continuity along known ore
controls. More accurate targeting of economic material for excavation with
reduced dilution has been the result. This method is employed at all of the
development projects and most new areas of the active underground mines. Mature,
mostly-depleted portions of the active mines do not use wireframes, but rely on
outlines drawn by the geologist in plan view to define a grade shell with
geologic constraints.

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32

The drill hole database is divided into the separate resource
areas and composited separately. The underground areas are composited into the
predominant sample length, generally 5 foot downhole composites starting at the
top of the drill hole. The areas that are more amenable to open pit mining are
composited into 20 foot lengths starting at the top of the drill hole.

The tonnage factor used for all Jerritt Canyon ore is 12.6
cubic feet per ton. The factor is based on testing done in 2000 at the
University of Nevada, Reno and Chemex lab on a total of 67 samples. The weighted
tonnage factor returned on the samples was 12.616. Since then 50 samples from
Smith Zone 4 (Mahala) and 5 from Steer were analyzed by Zonge Engineering and
Research of Tucson, Arizona. The average for Smith Zone 4 was 12.45 cubic feet
per ton, which is slightly less than the average used for all the mines and the
average for Steer was 13.0 cubic feet per ton, which is slightly more than the
average used for all of the mines. Additional tests were done in 2005 on 22 ore
grade samples and 24 waste samples from Starvation Canyon. The results were 11.8
cubic feet per ton for the ore grade samples and 12.2 for the waste samples,
both of which are less than the 12.6 average used at the mines.

Three methods of resource estimation, including Probability
Assigned Constrained Kriging (PACK), Inverse-Distance Weighting (IDW), and
Block-Polygonal, are employed at Jerritt Canyon. Each resource area is initially
interpreted and grade estimated using Mintec Minesight software and subsequently
exported to Maptek Vulcan software for engineering design and reserve
tabulation.

Most of the areas with active underground mining utilize the
PACK method. Development projects and some zones near current mining with
wider-spaced drilling are modeled with the Inverse-Distance-Weighting method. A
few projects with limited drilling use the Block-Polygon method.

- Probability Assigned Constrained Kriging (PACK) is a geostatistical method
  applied to most reserve areas at Jerritt Canyon. Detailed indicator and gold
  grade variography is developed for each zone or structural domain interpolated
  with the PACK method. In areas modeled by PACK, blocks within constraining
  wireframe solids and interpreted geologic plan-oriented strings are modeled
  separately from exterior blocks, using composites within the wireframes.
  Exterior blocks are interpolated in a separate pass using exterior samples.
  The percentage of model cells that reside within the wireframes is recorded
  and used for resource tabulation;
- Inverse-Distance Weighting (IDW): This method is used in several resource
  and reserve areas where drilling is too widely spaced to derive variography
  necessary for interpolation with the PACK method. In areas where lenticular
  mineralized bodies have been identified, a wireframe is constructed based on
  geologic and grade continuity. Similar to the PACK method described above,
  model cells interior and exterior to the wireframes are interpolated
  separately using only interior or exterior drill hole samples respectively.
  The percentage of model cells that reside within the wireframes is used for
  resource tabulation; and
- Block-Polygon: A method utilized in some of the resource areas where drill
  hole spacing is insufficient to conduct mine planning and reserve estimation.
  It employs a nearest neighbor two-dimensional search without constraining
  interpretive envelopes.

The PACK method consists of dividing the deposit into low-grade
and high-grade probability zones and then estimating the gold grade within each
of the zones separately. The methodology is summarized below:

|1. | The deposit is divided into geological or structural
      zones within which the geostatistical parameters are expected to be the
      same.                                                                                                                                                                                                                                                                                                                             
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2. | Low-grade and high-grade thresholds are chosen based on
      the cumulative frequency plots of the sample data. The typical low grade
      threshold is 0.03 opt and the high-grade threshold is typically 0.15
      opt.                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3. | For each threshold, composites are assigned indicator
      values and indicator variograms are calculated from the composite
      indicators. The block indicator values are estimated by kriging. The block
      is designated as being within a low-grade envelope if the low-grade
      indicator is greater than 50% and the high-grade indicator is less than
      50%. The block is considered high-grade if the high-grade indicator is
      greater than 50%.

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33

|4. | The composites are back-coded from the model as being
      low-grade or high-grade, and variograms are calculated for both
      classes.                                                                                                       
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                  
|5. | Gold grades are estimated for the high-grade blocks using
      only composites within the high-grade envelope, and likewise, gold grades
      are estimated for the low-grade blocks using only composites within the
      low-grade envelope.

Refer to the Table 5 below for a listing of resource estimation
methods by project.

Table 5: Jerritt Canyon Resource Estimation Methods by
Project

|Deposit/Area                     | Interpolation Method                 
|-------------------------------- | -------------------------------------
|Mine Areas                       | PACK                                 
|Murray                           | PACK                                 
|Murray Zone 9                    | PACK  IDW                           
|SSX                              | PACK  IDW in inferred shapes (Steer)
|Smith                            | PACK  IDW                           
|Smith East                       | IDW  PACK                           
|Saval                            | IDW  PACK                           
|Starvation                       | IDW                                  
|Wright Window                    | PACK  IDW                           
|Resource Areas                   |                                      
|Burns Basin Pit                  | IDW                                  
|California Mtn. Pit
      (Next) | POLYGONAL                            
|Coyote Zone 10 Pit               | IDW                                  
|Pie Creek Pit                    | IDW                                  
|Road Canyon Pit                  | IDW                                  
|Mill Creek                       | IDW                                  
|Burns Basin                      | IDW                                  
|California Mtn.                  | POLYGONAL                            
|Coyote Zone 10                   | IDW                                  
|MCE                              | PACK                                 
|Waterpipe II                     | POLYGONAL                            
|West Mahala                      | IDW                                  
|Winters Creek                    | IDW                                  

Most of the reserve and resource areas are built with 15 x 15 x
15 foot blocks, with the exception of the Murray mine where 5 x 5 x 15 foot
blocks are used. Starting in 2005, production models using a block size of 5 x 5
x 5 feet were utilized at the Steer mine and portions of the SSX and Smith mines
in order to better delineate ore boundaries, and thus reduce dilution. Although
these smaller blocks are used, the geologic/grade shapes are drawn to at least
the smallest practical mining units (SMU), usually at least 15 x 15 x 15 foot in
size. For resource reporting conformity at the resolution of the 15 x 15 x 15
foot SMU, the production models are re-blocked to the 15 foot matrix prior to
reporting. As expected, the result of the re-blocking of the 5 foot blocks into
15 foot blocks shows similar contained ounces for zones at lower grades while
there is increase in tonnage and decrease in grade at higher mining-grade
cutoffs.

Variography

There was no new variography run in 2007 for the most recent
SRK NI 43-101 resource and reserve estimate. All of the geostatistics used in
this resource calculation were compiled from geostatistical analysis in previous
years. Because of the mature nature of the resource in the areas that
geostatical methods are used it is viewed that the new data would not have a
significant impact on the variography. Therefore there was no change.

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34

Definition of Resource Categories

For resource classification, blocks must lie within interpreted
wireframes or grade shells and have demonstrated continuity of ore-tenor
material (>0.15 opt Au) over multiple drill hole intercepts to be considered
as Measured or Indicated resources. Measured classification requires a minimum
of three drill holes, the nearest composite within 20 feet, and mining history
in the immediate area. Indicated classification requires that the nearest
composite be within 2/3 of the variogram range. Blocks with a distance between
drill holes greater than 2/3 of the variogram range are classified as Inferred.
All blocks outside interpreted wireframe shapes or plan strings are considered
to be Inferred resources.

SRK finds that the resource and reserve models developed by
Jerritt Canyon conform to the definitions set forth in National Instrument NI
43-101 in Sections 1.3 and 1.4 which classify the resource into measured,
indicated, and inferred categories. The standards applied by Jerritt Canyon
conform to the definitions adopted by the Canadian Institute of Mining,
Metallurgy and Petroleum  Definitions Adopted by CIM Council August 20, 2000.

Mineral Resource Checks

SRK imported the Jerritt Canyon block models into Vulcan
software and conducted a series of checks to reconcile the stated resource tons
and grade with the actual block model grades and wireframes and grade shells.
SRK also visually compared the block model grades against drill hole assay
data.

SRK considers that the Jerritt Canyon block models have been
constructed in compliance with accepted engineering practice and can be
considered reasonable global predictors of resources within the modeled areas.

Mineral Resource Statement

The Jerritt Canyon mine resources, including reserves, as of
December 2007 are listed in Table 6 and are from the most recent SRK NI 43-101
Technical Report. The resources are contained within areas where mining is
currently taking place or where mining is reasonably expected to take place in
the future. The metal ounces are on a contained basis without adjustment for
process recoveries.

---

35

Table 6: JerrittCanyonMineralResources,IncludingReserves-December31, 2007 (based on NI 43-101TehcnicalReport dated April 16, 2008)

|                    | Measured | Indicated | Measured
      + Indicated | Inferred
|------------------- | -------- | --------- | -------------------------- | --------
|Deposit/Area        | Tons     | oz/st     | Cont'd
      oz            | Tons    
|                    |          |           |                            |         
|MURRAY              | 155.8    | 0.310     | 48.3                       | 26.6    
|MURRAY ZONE 9       | 0.0      | -         | 0.0                        | 210.9   
|SSX                 | 1,815.3  | 0.255     | 462.5                      | 746.1   
|SMITH               | 587.7    | 0.303     | 178.0                      | 649.1   
|SMITH EAST          | 19.0     | 0.441     | 8.4                        | 1,043.5 
|SAVAL               | 12.3     | 0.227     | 2.8                        | 367.5   
|STARVATION          | 0.0      | -         | 0.0                        | 697.3   
|WRIGHT WINDOW       | 0.0      | -         | 0.0                        | 97.8    
|                    |          |           |                            |         
|Subtotal            | 2,590.2  | 0.270     | 699.9                      | 3,838.8 
|Stockpiles          | 35.9     | 0.173     | 6.2                        | 818.3   
|                    |          |           |                            |         
|Pit Resources       |          |           |                            |         
|Burns Basin Pit     | -        | -         | -                          | 29.7    
|California Mtn. Pit |          |           |                            |         
|(NEXT)              | -        | -         | -                          | 8.0     
|Coyote Zone 10 Pit  | -        | -         | -                          | 0.0     
|Pie Creek Pit       | -        | -         | -                          | 190.2   
|Road Canyon Pit     | -        | -         | -                          | 148.6   
|Mill Creek          |          |           |                            | 78.4    
|                    |          |           |                            |         
|U/G Resources       |          |           |                            |         
|Burns Basin         | -        | -         | -                          | 30.7    
|California Mtn.     | -        | -         | -                          | 32.1    
|Coyote Zone 10      | -        | -         | -                          | 45.2    
|MCE                 | -        | -         | -                          | 4.4     
|Waterpipe II        | -        | -         | -                          | 0.0     
|West Mahala         | -        | -         | -                          | 197.5   
|Winters Creek       | -        | -         | -                          | 148.9   
|                    |          |           |                            |         
|Total               | 2,626.0  | 0.269     | 706.1                      | 5,570.9 

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36

SRK is not aware of any possible adverse or unusual
restrictions on mining resulting from legal or title issues, taxation,
socioeconomic, or other issues that would affect the Jerritt Canyon operation.
The mine has the permits necessary for operation.

Mineral Reserve Estimate

Essentially all of the current reserves at Jerritt Canyon are
contained in deposits being developed and mined by underground methods. The
exceptions include Wright Window which is planned as an open pit operation,
Starvation Canyon which is a new underground reserve area, and the ore
stockpiles located near the mine portals or remaining from earlier open pit
extraction.

The previous sections describe the approach in evaluating
mineralized boundaries and estimating gold grades within the overall resource
envelope. In order to determine the portion of the Measured and Indicated
resources that would qualify for Proven and Probable reserve status, it is
necessary to configure the Measured and Indicated resources into mineable shapes
for the selected mining method, and then apply economic tests for establishing
validity that the reserve blocks will, indeed, show positive economics.

The economic exercise is normally accomplished by calculating a
breakeven cutoff grade, stated in ounces of gold per ton (oz Au/ton), which
equates the total operating costs at the property with gold recovery from the
process plant, and the expected return from gold sales. Total costs include
mining, processing, assessed charges, and site administrative costs. Process
recovery has been relatively constant over several years of operations, and this
value is projected at 89.0% going forward. Revenues reflect an average gold
price experienced during the previous three years, after subtraction of refining
charges and royalties.

The objective of this analysis is to derive a minimum gold
grade in the ground that will just recoup the costs of production. Material not
meeting this hurdle remains a resource, while blocks exceeding the minimum will
be in the mining plan and will be extracted over time. It can be appreciated
that the average grade of material mined and processed will be in excess of the
minimum grade; thus these blocks will cover all variable production costs and
will contribute toward fixed charges and profitability.

Incremental cutoff grades are sometimes employed where certain
costs have already been expended (sunk costs), and the block now must cover only
the remaining down-stream charges. An example is mineralized material which has
been taken from underground and placed in stockpiles at a mine portal for
assaying. Now that the drilling, blasting, loading and underground haulage have
been expended, it may be possible that the rock contains sufficient gold to pay
for surface hauling to the process plant, and the process costs as well, rather
than being carried to a waste dump for disposal. An incremental cutoff grade
calculation at this point will be lower than a breakeven grade, but this
material should provide a marginal contribution to the operation as a whole.

The accepted formula for calculating a breakeven cutoff grade
is given below:

Breakeven Cutoff grade
    =
    Total Costs of Production(Gold Price  Deducts) x
      Process Recovery


Breakeven cutoff grades were calculated for each mine or
material source and compared to those determined by Jerritt Canyon personnel.
The costs figures are averages obtained for the entire year of 2007 (due to the
shutdown during 2008 and 2009, these figures will continue to be used), with a
modification for expected processing costs in the coming years. Process charges
in the future assume full throughput for the plant using two roasters, and the
processing of outside material stemming from an agreement between Queenstake and
Newmont for the purchase of up to 1,000,000 tons of mineralized material per
year (although in 2009 this agreement has been completed full utilization is
still assumed in this calculation). Because management will be working both
roasters (thereby reducing plant operating costs/ton), the benefits of this
approach have been imputed in cutoff grade calculations.

The following parameters, shown in Table 7, have been used in
determining the various cutoff grades. Excluded from costs are the district-wide
exploration expenses and capitalized development charges.

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37

Table 7: Jerritt Canyon Cutoff Grades Parameters

|Gold Price                                          | $580/oz 
|--------------------------------------------------- | --------
|Plant Recovery                                      | 89%     
|Refining Charges                                    | $0.78/oz
|Total Production Costs, Including Processing, $/ton |         
|SSX                                                 | $112.21 
|Starvation                                          | $108.44 
|Smith                                               | $103.59 
|Saval 2                                             | $112.21 
|Saval 4                                             | $112.21 
|Wright Window                                       | $47.68  
|Stockpiles                                          | $34.39  
|East
      DASH                                     | $111.59 

Equating these parameters by the formula shown above, cutoff
grades for the various sources of material can be calculated. These are
presented in Table 8 below:

Table 8: Jerritt Canyon Cutoff Grades

|Material Source          | SRK Breakeven Cutoff, opt Au
|------------------------ | ----------------------------
|Stockpile Direct         | 0.06                        
|Stockpile
      Screened | 0.07                        
|Wright Window            | 0.09                        
|Starvation
      Canyon  | 0.21                        
|Smith                    | 0.20                        
|Saval 2                  | 0.22                        
|Saval 4                  | 0.22                        
|SSX Complex              | 0.22                        
|East DASH                | 0.22                        

Production from the low-grade stockpiles can be either upgraded
by screening and collection of the fines, or may be delivered to the processing
plant in bulk. Because the mill will be operating at full capacity with the
combination of Jerritt Canyon ore and purchased material, the stockpiles most
likely will continue to be upgraded by screening.

In addition to the economic justification for the resource,
factors for mining dilution and recovery need to be considered before the final
mineral reserve statement is issued. At the Jerritt Canyon mines, where the ore
is present as irregular pods, and the mining methods are typically sublevel or
drift-and-fill stoping, any mining dilution occurs at the fringes of the ore
pods or lenses. Within the pods, slices or drifts are extracted and then
backfilled with cemented waste material. When the backfill has consolidated, the
ore between the primary stopes or drifts is then extracted. In the primary cuts,
the interior stope boundaries are surrounded by ore, so little dilution results.
Within the secondary cuts, the walls and/or back are cemented backfill, which is
stronger than the ore or enclosing rocks, and thus little dilution takes place.
It is primarily on the fringes of the individual ore bodies that dilution
occurs, with the amount also being dependent upon the mining method. Jerritt
Canyon engineers have developed a matrix for the different dilution factors
based on experience with the various mining methods, and these are applied in
calculating mineral reserves. All dilution material is applied at zero ounces
per ton.

Table 9 presents historical and projected dilution factors for
the underground operations. Wright Window will be a surface mine, and dilution
should be minimal because of the ability to selectively mine based on blast hole
analyses. Backfilled stopes can stand over substantial vertical heights. This
situation allows the operation to recover nearly all the identified ore-grade
material.

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38

Table 9: Jerritt Canyon Dilution Factors

|                  | Mining Method 
|----------------- | --------------
|                  | Rock          
|Mine*             | Drift-and-Fill
|SSX
      Complex | 10            
|Murray            | 10            
|Smith             | 10            
|Saval (projected) | 10            

* No dilution has been calculated for Starvation Canyon, but it
is expected to be similar to SSX at the present time.

Mineral reserves are listed in Table 10, using the respective
cutoff grades for each individual mine. It should be noted that the gold price
of $580 per ounce is an approximate average of prices published during the past
three-year period; i.e., from 2005 through 2007. During this time the price was
on an upward trend and certainly the cutoff grades shown in Table 15 are high
(conservative) as compared to those that would be calculated using more recent
values. For example, the December 2007 price, was $220 per/ounce higher than the
three-year average, and thus operational decisions based on short-term prices
will allow more material to be recovered and sold at a profit than indicated in
the reserve table.

Table 10: Jerritt Canyon Reserves  (based on December 31,
2007 NI 43-101)

|Mine          | Proven | Probable         | Total
|------------- | ------ | ---------------- | -----
|ktons         | oz/st  | Cont'd
      koz | ktons
|              |        |                  |      
|Smith         | 92.5   | 0.304            | 28.1 
|SSX           | 513.7  | 0.221            | 113.4
|Saval         | 11.4   | 0.200            | 2.3  
|Starvation    | 0.0    | -                | 0.0  
|Wright Window | 0.0    | -                | 0.0  
|Sub Total     | 617.6  | 0.233            | 143.7
|Stockpiles    | 35.9   | 0.173            | 6.2  
|Total         | 653.4  | 0.229            | 149.9

Mining Operations

Jerritt Canyon is an operating property with over 25 years of
production experience, during which approximately 8 million ounces of gold have
been produced. The Jerritt Canyon mine complex consists of one operating
underground mine (Smith), one underground mine to be reactivated by early 2011
(SSX-Steer Mine Complex), and one potential new mine (Starvation Canyon) in the
permitting stage. All of these Jerritt mines are located several miles west or
southwest of the processing plant and administration facilities which are 50
miles north of Elko, Nevada.

All mines feed the same processing plant, with output from the
underground operations and stockpiles totaling nearly 0.619 million tons during
2007 and an additional 0.272 million in 2008 (reduced due to the shutdown during
most of the year). The producing properties, and their annual production rates,
are given in Table 11 based on 2007 results:

Table 11: Jerritt Canyon 2007 Production

|Property               | Annual Production (tons)
|---------------------- | ------------------------
|SSX Steer Mine Complex | 312,208                 
|Smith Mine             | 117,394                 
|Stockpiles and Cleanup | 190,331                 
|Total                  | 619,933                 

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39

The full processing plant has the capability of treating
approximately 4,200 tons/day. This rate was quite attainable when the feed
derived mainly from open pit operations, but has been a significant surplus when
accepting material from underground mines simply because the total mine output
cannot attain this daily rate. In early 2006 Queenstake entered into an
agreement with Newmont to purchase material delivered to Jerritt Canyon by
Newmont, which would supplement mined ores feeding the roasters and thereby
reduce certain unit operating costs. During 2007, Queenstake processed 348,197
tons of Newmont material and negotiated an amended agreement to increase the
total tons processed. In 2008 the agreement was terminated and revised agreement
was executed and subsequently completed in 2009.

The plant processed an average of 2,700 tons per day, or just
under 0.97 million tons for the year. Plant capacity is limited to some extent
by the fuel content of the ore (principally contained pyrite) which tends to
enhance temperatures in the roaster and so must be regulated carefully when this
type of rock serves as feedstock. Blending of various mined products is
practiced constantly to reduce deleterious impacts from rock types with high
fuel content, high arsenic content, and so forth. Gold produced in 2007 was
175,646 ounces from 968,130 tons of processed ore and purchased material at a
metallurgical recovery that averaged 88%. In 2008 this reduced to 48,648 ounces
from 338,350 tons of processed ore and purchased material at a metallurgical
recovery that averaged 87% as a result of the shutdown during the year. In 2009,
the mill produced 19,215 ounces from a total of 197,503 tons of processed ore.
Note that the Company was only able to recover approximately 12,000 of those
ounces due to operational issues with Golden Eagle International Inc. who had
operated the mill subsequent to the March restart up to the May 30 shutdown.

The mines reported production of 429,602 tons of ore, along
with 229,370 waste tons in 2007 and 135,909 tons of ore and 136,070 tons of
waste in 2008. The daily ore production rate calculates at almost 1,176 tons in
2007 and 745 tons in 2008 for the complex at an average grade of 0.294 and 0.20
opt, respectively. No mining activity occurred in 2009 while the Company sought
additional financing to fund the restart of mining operations.

The mines were operated by trackless equipment. Electric drill
jumbos are used in preparation for blasting, and front loaders excavate the
broken material into diesel-driven Wagner or Tamrock underground mine trucks for
hauling to a pad area outside the portals. Segregation of mined material is
effected near the portals by placing the rock into several windrows; after
dumping in a windrow the mine-truck operator collects a sample from his load for
analysis. Assays from the laboratory then dictate whether that material is
high-grade, low-grade, or waste; the latter is excavated and placed in a waste
dump, whereas the two ore types may or may not be blended depending on
analytical results, and taken to the process facility. Because of the distances
from the several mine portals to the processing plant, large (150 ton) off-road
haulers are used for surface ore transport. These haul roads appear to be well
maintained, they are of adequate width for two-way traffic, and special effort
is expended during the winter months to keep the roadways open from drifting
snow.

Access to the underground mines is through portals, with
internal ramps maintained at grades of 12% to 15%. Typical openings measure 15 x
15 feet in cross section, although consideration is now being given to reducing
some drifts to 10 x 12 feet in size to allow more selective mining and to reduce
development costs. Ventilation is accomplished through the portal openings
(intake air) and through a number of raise bores (exhaust air) six feet to eight
feet in diameter that connect the underground workings to the surface. Certain
of these raise bores also serve as emergency escapeways and are equipped with
personnel capsules and hoisting equipment located on the surface.

Major mine openings are supported with bolts and mesh which
seem to hold the back and ribs well. Ore is generally developed by drifting
adjacent to the zone in more stable rock and then cross-cutting through the
deposit at specified intervals. Drift-and-fill mining is practiced, with
secondary openings either alongside a backfilled stope or underneath a
previously-filled excavation. In the latter situation, cost savings are
accomplished since the cemented fill does not require artificial support.
Extraction of ore-grade material is near 100%, and mining dilution for the most
part is confined to the stope fringes.

Each mine has its own batch plant located outside the mine
portal. The backfill plants receive screened rock which is stored in bins
adjacent to the fly-ash and cement tanks. These products are blended according
to the backfill mix design, water is added, and the mixture placed into the
underground ore haulage trucks for transport back into the mine stopes.

In addition to the backfill plant, the mines surface
structures generally include a large, well-equipped maintenance shop, mine dry,
and mine office building. The most recent additions were the administration and
shop buildings located at the Steer portal which were constructed in April,
2005.

---

40

On February 22, 2008 Queenstake initiated a voluntary shutdown
of operations in the mill and underground mines in order to undertake
maintenance, repairs, and capital improvements at the site. Although the mine
operations recommenced at the end of April, they were suspended again on August
8, 2008 due to the high cost of mining activity. In 2009 the Company was able to
restart on March 25, 2009 with the approval of the NDEP however was forced to
shutdown again on May 30, 2009 as the required mercury emissions control system
had not been completed as required in the restart order. This was completed in
July of 2009 and the Company received approval, from a Consent Decree order, to
restart on October 15, 2009.

Gold recovery in 2009 remained reasonably constant during the
period of normal operations and averaged 86.9% of contained metal delivered to
the process plant (weighted by tonnage).

The average for 2009 is typical of process recovery attained in
prior years, and is expected to continue and improve as a result of the
extensive infrastructure work performed during the shutdown period.

Gold markets are mature, global markets with reputable smelters
and refiners located throughout the world. Demand is presently high with prices
for gold showing a remarkable increase during the past year--London pm fix price
averaged just over $972 /ounce for 2009.

Markets for doré are readily available. Jerritt Canyon ships
its doré to the Johnson Matthey refinery in Salt Lake City, Utah.

Environmental Issues

Environmental management systems are in place and there is a
qualified environmental staff on site. Various mitigation programs are in effect
as required under the several plans of operations that have been filed and
approved for the project. No unusual costs associated with any of these programs
were identified.

Environmental liabilities at the Mine include:

- High sulfate and Total Dissolved Solids (TDS) in runoff from waste rock in
  the Marlboro Canyon rock disposal area (RDA). Three other RDAs are exhibiting
  high levels of sulfate;
- Ongoing control and management of seepage from the tailings impoundment;
  and
- Air emissions from the processing circuit.

Waste Rock Runoff

Mitigation for this issue has been ongoing for a number of
years and has been well-defined by Jerritt Canyon staff. Staff has worked with
the Nevada Division of Environmental Protection  Bureau of Mining Regulation
and Reclamation (NDEP-BMRR) to develop mitigation and monitoring plans.

The Mine has been working with the NDEP-BMRR to address runoff
with high concentrations of sulfate and TDS from the RDAs. The Mine installed a
sulfate reduction trench in Marlboro Canyon to reduce the sulfate and TDS
concentrations. The trench showed reductions in the concentrations but not to an
acceptable level. Monitoring continued through 2007. This information is
routinely reported to NDEP. Meetings/discussions with NDEP-BMRR have resulted in
the need for Queenstake to look into other possibilities for sulfate reduction.
The data from the Marlboro SRT and from the DASH RDA instrumentation project
will be the basis for any new proposal. The discharge ultimately flows into
Jerritt Creek which flows into Independence Valley through several ranch
properties and infiltrates into the sub-surface. However, it should be noted
that simple analyses downstream from the SRT show acceptable sulfate and TDS
levels

Three other RDAs are also exhibiting elevated concentrations
of sulfate besides Marlboro Canyon. These are: Gracie; Snow Canyon; and, DASH.
Under a schedule of compliance item within the Water Pollution Control Permit
(WCPC), the Mine drilled three holes in the lower lift of the DASH RDA and one
on the middle lift to assess the water flux and sulfate profile of the RDA. The
lower lift of the DASH RDA is an unvegetated the angle of repose slope.
NDEP-BMRR felt this angle of repose face was a significant contributor to the
sulfate generation within the RDA. Preliminarily, this has not been borne out by
the data. In compliance with the Consent Decree, the Company has constructed a
pipeline to divert fluids in the DASH RDA to the tailings facility and added
additional evaporators as an interim measure to contain sulfate levels.

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41

Tailings Impoundment Seepage Control

During 2006 NDEP modified the water pollution control permit to
include an evaporation pond for disposing of excess water from the existing
tailings impoundment and to assist in the ultimate closure and reclamation of
the facility. Due to the footprint of the evaporation pond, Queenstake had to
plug and abandon some of the wells that make up the seepage remediation system
(SRS), as well as a production well, and had to redrill/reinstall these wells at
different locations, as approved by the NDEP-BMRR. All of these wells are now in
place and are operational. The evaporation pond was completed in June of 2008
and has been fully operational since that time.

Air Emissions Violations

On February 15, 2007, the Nevada Division of Environmental
Protection  Bureau of Air Pollution Control (BAPC) issued a Compliance
Order to Queenstake. The requirements of the original Order have been
fulfilled. A final order was issued in December of 2007, which requires
submittal of two additional reports to NDEP-BAPC addressing continuous opacity
monitors and measures required to address additional sources of leaks in the ore
processing system. Queenstake has succeeded in correcting numerous items related
to process fugitive emissions from the ore grinding circuit of its mill,
required under the original order.

On March 10, 2008, Queenstake received two Orders from the
Nevada Division of Environmental Protection-Bureau of Air Pollution Control
(NDEP-BAPC). The first Order was a Stop order for the roasters and all support
systems, which required us to shut down the roasters within 7 days, or by March
17, 2008. Queenstake had already, on its own accord, shut down operations at the
site in order to address housekeeping and maintenance issues, some two weeks
prior to the issuance of the Stop Order.

The second order was related to on-going concerns that
NDEP-BAPC has had with regard to control and monitoring of air emissions related
to the processing operations. This order has numerous requirements for the
restart of the roasters, principally related to air emissions control,
monitoring, and reporting. Additionally, the Order required Queenstake to
conduct mercury speciation testing of scrubber discharges within 15 days of
start-up after the instrumentation has been installed. Queenstake is planning to
install a calomel-based scrubber system on the roasters to reduce mercury
emissions in the future.

Queenstake received permission to restart in April of 2008 with
the requirement to put in place a calomel-based scrubber system on the roasters
to reduce mercury emissions by the end of 2008. With the shutdown in August of
2008, the NDEP issued another stop order due to the uncertainty around the
Companys ability to finance this system. This shutdown continued while the
Company developed detailed plans for this system and presented them to the NDEP
in January of 2009. After a lengthy review the plans were approved in March and
the restart order issued on March 25, 2009. Under this restart order the Company
operated for two months and began construction of the mercury emissions system,
due for completion on May 30, 2009. During this period the facility experienced
significant operational issues under the company performing the operations and
was forced to shutdown again at the end of May as it became clear the required
system would not be in place. The Company took over operations in June 2009 and
completed the mercury emissions system in July of 2009.

As a result of the failure to meet the restart requirements,
the NDEP pursued civil action against the Company, seeking to secure penalties
and a required work program for completing all required environmental compliance
issues. The terms of the Consent Decree were agreed to and issued as a court
order in October of 2009, allowing the Company to restart operations on October
19, 2009.

We are in the process of completing the required work programs
under the Consent Decree, failure to meet any of the required deadlines may
result in penalties to the Company if extensions have not previously been
provided. In May of 2010 a scheduled shutdown will take place during which the
Company will make significant progress on many of the Consent Decree items.

Reclamation Bond Cost

Approved reclamation and closure plans are in place and the
Mine is concurrently reclaiming disturbance when possible. Reclamation,
consisting of earthworks and reseeding, and closure of mine components,
consisting of characterization and chemical stabilization, are among the most
expensive activities that take place, especially as the operating income begins
to

---

42

wane. Mine staff and the USFS/NDEP update the reclamation bond
on an annual basis. As of March 2009, the reclamation bond was estimated to be
about $42 million.

The updated 2009 bond was performed using the measurements
taken during the shutdown and planning for an acceleration in the timing of
costs. Bond increases are a result of more surface disturbance, and increased
unit costs (labor, equipment, and fuel costs). Queenstake has already funded the
estimated reclamation and closure costs by placing $25.6 million in a
commutation account with American Insurance Group (AIG) in prior years, with an
additional $2.2 million in 2008. Queenstake has a policy with the American
Insurance Group (AIG), now known as Chartis Insurance Group (Chartis), for a
closure cost and cap insurance policy that has been accepted by the regulatory
agencies to serve both to fund the physical reclamation and post-closure site
management, and meet agency requirements for bonding.

The evaporation pond is expected to favorably affect the
reclamation bond by reducing the post-operational water management from six
years to two years. NDEP will review the potential bond reduction after
Queenstake operates the evaporation pond for a year to verify performance. The
projected reduction is expected to be on the order of $1.1 million per year.

Operating permits for the mine are in place and are presented
in Table 12. Environmental management systems are in place and are managed by an
experienced and qualified onsite environmental staff. Operating and maintenance
staffs are informed of their responsibilities during annual MSHA refresher
classes. In addition to MSHA classes, the Mine holds leadership classes for the
supervisory staff. During these classes, supervisors are informed of their
environmental responsibilities.

Table 12: Operating Permits

|Permit/Approval                       |  | Granting Agency                                                                           |  | Comments                                                                                                                                                                                                                                                      
|------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Plan of Operations                    |  | USFS                                                                                      |  |                                                                                                                                                                                                                                                               
|Work Plans                            |  | USFS                                                                                      |  | Annual work plan submitted to USFS
      and NDEP                                                                                                                                                                                                             
|Clean Water Act Section 404 Permit    |  | U.S. Army Corps of Engineers                                                              |  | Will be updating the existing 404
      fieldwork and permit in the near future. There are no triggers requiring
      the update.                                                                                                                            
|EPA ID Number                         |  | U.S. Environmental Protection Agency                                                      |  | The Mine, a large-quantity generator,
      has the typical hazardous wastes found at a mine such as cupels and
      crucibles. Seven to eight barrels of waste paint/solvents, a
      characteristic waste due to the flammability, are generated annually.
|Air Quality Permit                    |  | Nevada Division of Environmental Protection (NDEP)/
      Bureau of Air Pollution Control |  | The Mine has a current Title V air
      permit received in March 2004. A Compliance Orderwas received in
      2007.                                                                                                                                         
|Reclamation Permit                    |  | USFS and NDEP/ Bureau of Mining Regulation and
      Reclamation (BMRR)                   |  | The bond estimate is updated annually
      with the USFS & NDEP. As of December 2008, the reclamation bond was
      estimated to be about $40.0 million. The mine is currently in the process
      of updating the bond for the USFS & NDEP                
|Water Pollution Control Permit        |  | NDEP-BMRR                                                                                 |  | One water pollution control permit
      covers the entire mine area. Two issues exist: the tailings
      seepage/chloride plume; and the high sulfate/total dissolved solids
      emanating from four rock disposal areas.                                 
|Underground Injection Control         |  | NDEP/ Bureau of Water Pollution Control                                                   |  | Addresses dewatering water from the
      Murray and Smith underground mines.                                                                                                                                                                                 
|Solid Waste Class III Landfill Waiver |  | NDEP/ Bureau of Solid Waste                                                               |  | The Mine has three authorized
      landfills at the lower mill area, Burns Basin, and Alchem. Employees are
      instructed during annual MSHA refreshers with regard to what is acceptable
      to dispose of in the landfill.                            

---

43

|Permit/Approval                               |  | Granting Agency                                             |  | Comments                                                                                                                                                                                            
|--------------------------------------------- |  | ----------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|General Stormwater Discharge Permit NVR300000 |  | NDEP/Bureau of Water Pollution Control                      |  | An updated general permit was submitted to NDEP in
      Dec 2007 due to new permit requirements. No concerns were noted.                                                                           
|Permit to Appropriate Waters                  |  | NV Division of Water Resources                              |  | No concerns were identified. The Mine has
      sufficient appropriations to cover processing and dewatering needs.                                                                                 
|Permit to Construct Impoundments/Dam Safety   |  | NV Division of Water Resources                              |  | No concerns identified                                                                                                                                                                              
|Industrial Artificial Pond Permits            |  | Nevada Department of Wildlife                               |  | No concerns identified                                                                                                                                                                              
|Liquefied Petroleum Gas License               |  | NV Board of the Regulation of Liquefied Petroleum
      Gas |  | No concerns identified                                                                                                                                                                              
|Potable Water System                          |  | Nevada State Health Division                                |  | Potable water systems are located at the Murray,
      SSX, and millsite. No concerns identified                                                                                                    
|Septic System Permit                          |  | Nevada State Health Division                                |  | The Mine has general permits for five systems: SSX;
      Steer; Murray; USA; and Smith. The mill site has a package plant that
      discharges to the tailings impoundment. No concerns identified

The current closure cost estimate for Jerritt Canyon is
approximately $42 million, assuming the work is accomplished by an in-house work
force. The reclamation cost for the agency bond is somewhat higher at $55
million as calculated under the U.S. Forest Service bonding guidelines; this
figure includes agency oversight and administration. Queenstake has a policy
with Chartis for a closure cost and cap insurance policy that has been accepted
by the regulatory agencies to serve both to fund the physical reclamation and
post-closure site management, and meet agency requirements for bonding.

Closure and reclamation will consist of the following actions:

- Open pits will be reclaimed by partially backfilling the pits with mine
  waste rock produced in the underground mining operations. Level areas in the
  pit bottom will be covered with fine-grained waste rock or growth medium and
  revegetated.
- Portals for the underground mines will be sealed by blasting, backfilling
  or bulk-heading. Raises extending to the surface will be backfilled. Regional
  groundwater levels are below the elevation of the mine portals or raises,
  therefore seepage from the mines is not expected.
- Waste rock disposal area will be left in a condition meeting slope
  stability requirements. Portions of the older rock disposal areas will be left
  with angle of repose side slopes that are covered with durable non-acid
  generating rock. Other rock disposal areas will have final slopes of 2.5H to
  1V. Tops of the rock disposal areas will be graded to route surface water
  runoff away from rock disposal area slopes. Level surfaces of the rock
  disposal areas and the 2.5H to 1V side slopes will be covered with growth
  media and revegetated.
- Haul roads and access roads not included in the final site access
  requirements will be regraded to conform to the original ground contours and
  revegetated. It is understood discussion are currently in progress with the
  USFS to identify roads that will remain. Haul roads that may be left open will
  likely require some level of reclamation to reduce overall road width.
- Sediment control structures will be reclaimed by breaching ponds and basins
  after sediment and erosion control issues are controlled through reclamation
  of the areas draining to the structures.
- The tailings impoundment will be reclaimed by first removing free water
  from the pond through evaporation. The tailings surface will be allowed to dry
  to a consistency to allow operation of earth moving equipment and covered with
  2 to 2.5 feet of material to grade the surface to drain and an additional 1.5
  to 2 feet of growth medium placed for revegetation. Operation of the seepage
  recovery and pumpback system will need to continue for a period of time after

---

44

- Spent heap leach materials from a leach pad adjacent to the tailings impoundment
    will be excavated and placed as fill for grading the tailings impoundment.
- Solution ponds associated with the heap leach pad and the processing plant
    will be reclaimed by removing solution from the pond, and disposal of all
    contained sludge in the tailings impoundment. Pond liners will be folded into
    the ponds and backfilled. Growth medium will be placed over the backfilled
    ponds and revegetated.
- Buildings and structures will be dismantled to the level of foundations
    and either salvaged or disposed of in an approved landfill. Process piping
    will be rinsed and neutralized. Disposition of underground piping is not specifically
    addressed, however SRK would assume it will be necessary to remove all piping.

As the mine progresses closer to closure, the overall detail of
the closure plan may require refinement. The overall closure plan is considered
by SRK to follow proven and accepted industry practices.

Taxes

Queenstake controls more than 119 square miles of ground
encompassing the mine area proper and surrounding acreage. The bulk of this is
in the form of contiguous unpatented mining claims which are held in force by
production from the mining activities. No production royalties are paid for gold
deriving from these claims.

Some property is leased from landowners in the region, and a
royalty is paid on production from these lands. In the future this amount will
average approximately $1.91/recovered ounce.

Nevada does not apply a corporate income tax. Income tax is
levied on the federal level. There is a modest sliding scale tax rate generally
applicable to smaller operations, but given the size of the Jerritt Canyon
activities, the rate is 34.5% of net income after all deductions have been
taken. Queenstake has, in total, suffered a loss since acquiring Jerritt Canyon
in mid-2003, and so no federal income taxes have been assessed.

Property taxes are assessed annually by Elko County on real
estate and personal property controlled by Queenstake.

A sales tax rate of 6.5% is applied to all purchases within
Elko County, and the state levies a 0.63% tax on gross incomes paid, less
credits for certain health benefits for the workers.

Capital and Operating Cost Estimates

Jerritt Canyon is forecasting an expenditure of $56.2 million
over the coming two-year period for mine-related capital items. These include
the categories of: equipment, underground development, and mine facilities. The
largest expenditure outlays will be for the construction of a tailings seepage
facility for $14.6 million in compliance with the Consent Decree order.
Sustaining capital costs for the ore processing plant is budgeted at $19.7
million for upgrades to existing facilities. Sustaining capital costs for
surface services and G&A is budgeted at $1.6 million. G&A sustaining
capital at Jerritt Canyon is typically for the replacement of light vehicles and
office equipment. A breakdown by property is given in Table 13.

Table 13: Jerritt Canyon Capital Expenditures for LoM
($000s)

Cost Center
      Murray
      SSX Complex
      Saval 4
      Smith
      Starvation Canyon
      Wright Window
      TotalEquipment
    0.0
    4,000
    0.0
    0.0
    4,800
    0.0
    8,800Mine Development
    0.0
    3,492
    1,238
    14,478
    3,243
    0.0
    22,451Exploration
    0.0
    6,321
    0.0
    1,770
    2,224
    0.0
    10,315Process
    
    
    
    
    
    
    21,200Surface Serv; Admn
    
    
    
    
    
    
    1,670


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45

Cost Center
      Murray
      SSX Complex
      Saval 4
      Smith
      Starvation Canyon
      Wright Window
      TotalEnvironmental Compliance
        
      
      
      
      
    19,169Total
    $ 0.0
    $13,813
    $1,238
    $16,248
    $10,267
    $0.0
    $83,605


The operating costs per ton of ore for processing have steadily
increased over the last 9 years from $15.67 in 2001 to $3.09 in 2009, primarily
as a function of the reduced production throughput and higher energy costs. Of
this total, approximately 75% is for operations and 25% is for maintenance.

The budgeted processing costs for 2010 will be about $27.0/ton
of ore, down from the actual 2009 cost. The 2009 cost represents a reduced
throughput due to the shutdown and subsequent lengthy restart periods as well as
the higher than normal maintenance costs as the Company performed both Consent
Decree related work as well as regular maintenance.

The Company is not in a position to determine the operating
cost for the organization as whole until it completes the development of its
revised mining plan and resources its requirements based on this plan.

The expected life of the Jerritt Canyon operation is five
years, based on the current processing rate and reported proven and probable
reserves as of December 31, 2007. We control a large land position in the
immediate area and it is expected that future exploration will continue to
convert certain resources to a reserve category over time.

Exploration and Development

Queenstake has been conducting aggressive resource and reserve
development programs throughout its ownership of Jerritt Canyon.

SRK has the following recommendations:

- Continue exploration drilling with the target of locating new areas of
  resource and reserve;
- Try to maximize stockpile haulage to the mill during the non-winter
  seasons;
- Continue to work on the mine to mill reconciliation in respect to tons and
  grade; and
- Continue to develop ways to minimize the amount of moisture in the ore
  that enters the plant. The moisture typically comes from internal mine water,
  and seasonally from water that enters the stockpiles at the mines and mill.

(b)           Ketza
River Project, Yukon Territory

Our interest in the Ketza River Property is the subject of a
National Instrument 43-101 compliant Technical Report prepared by (the SRK
Report), which is dated April 14, 2008, prepared by SRK Consulting (US), Inc.
(SRK), of #3000, 7175 West Jefferson Avenue, Lakewood, Colorado, USA 80235.

The following description of the Ketza River Property has been
summarized primarily from the SRK Report.

Project Description and Location

The Property is located on the headwaters of Cache Creek, a
tributary of the Ketza River, in the Watson Lake Mining District of the Yukon
Territory, and is centered at 61o 32' N and 132o 13' W on
NTS map sheet 105 F/9 (Figure 7).

The Property, including Ketza River and Silver Valley, consists
of 620 Yukon quartz claims and fractions of claims as shown in Figure 7. Another
66 quartz claims have been converted to quartz leases covering 853.9ha. All
claims are controlled 100% by Yukon-Nevada Gold Corp.

Included in this total are six leased quartz leases and 114
quartz claims covering a silver-lead-gold vein known as the Silver Valley
Property. Silver Valley lies approximately 6km east of the Ketza River project
(Figure 7). The Silver Valley Property is not included in the current resource.

---

46

The validity of the claims was not reviewed by SRK.

An annual royalty is due to the Yukon government on every
producing mine according to the Yukon Quartz Mining Act (Canada) however the
details of this royalty are currently under review. The royalty is on any
profits that exceed the sum of $10,000 during any calendar year. The royalty is
as follows:

- On annual profits in excess of $10,000 and up to $1 million, 3%;
- On the excess above $1 million up to $5 million, 5%;
- On the excess above $5 million up to $10 million, 6%; and
- On the excess above $10 million a proportional increase of 1% for each
  additional $5 million.

Environmental permits are in place for exploration and related
activities, as well as the maintenance of the Ketza River camp. We have an
environmental staff based at the Ketza River camp to routinely monitor
environmental parameters, and also maintains an environmental office in the
provincial capital of Whitehorse. Relevant permits are presented in Table 14.
All permits except the Water License are issued by the Department of Energy,
Mines and Resources or the Department of Environment. The Water License is
issued by the Yukon Water Board.

Table 14: Permits for the Ketza River Project

|Permit/Approval                                              |  | Issuing Agency                                                   |  | Comments                                                                                                                                                                              
|------------------------------------------------------------ |  | ---------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Quartz
      Mining Land Use Permit LQ00156                  |  | Mining Land Use, Department of Energy, Mines and
      Resources |  | Covers all exploration through June 14, 2014.                                                                                                                                         
|Government of Yukon Lease                                    |  | Lands Branch, Department of Energy, Mines and Resources          |  | For the occupation of land for the purpose of commercial
      mine, mill, campsite, tailings pond and other facilities.                                                              
|Class A
      Land Permit                                    |  | Lands Branch, Department of Energy, Mines and Resources          |  | Permit to proceed with the land use operations for road
      maintenance.                                                                                                            
|Quarry
      Permit                                          |  | Lands Branch, Department of Energy, Mines and Resources          |  | For the removal of 500m3of gravel and
      500m3 of limestone rip rap from specified sites.                                                                                          
|Water
      License QZ04-063                                 |  | Yukon Water Board                                                |  | For the storage of water in, and the discharge of water
      from, an existing tailings impoundment.                                                                                 
|Environmental Health Approvals                               |  | Department of Environment                                        |  | Public Health and Safety Act approvals needed for
      drinking water, food safety and private sewage disposal.                                                                      
|Storage
      Tank Registration                              |  | Department of Environment                                        |  | For registered ASTs: one 45,000L, one 500L, one 10,000L,
      and four 90,000L_tanks.                                                                                               
|Air
      Emissions Permit No. 4201-60-025                   |  | Department of Environment                                        |  | Permit to operate a solid waste incinerator capable of
      burning >5kg/day.                                                                                                        
|Solid
      Waste Permit (Commercial Dump Permit No. 81-013) |  | Department of Environment                                        |  | Permit to operate a dump for commercial purposes and for
      incineration of solid waste generated by commercial activities.                                                        
|Special
      Waste Permit No. YG41-190                      |  | Department of Environment                                        |  | Allows for storage and handling of waste, oil, waste
      batteries, waste lead nitrate, unspecified substances classified as
      Corrosive Solids, NOS, Class 8, Packing Group 1.

The Quartz Mining Land Use Permit requires a lease-security
payment to be made each year for a limited time. Under the previous permit,
payments of C$26,500 were due April 1 of each year. The recently revised permit
will also require payments to be made but at the time of writing the Department
of Energy, Mines and Resources has not determined the amount. In addition, the
Government of Yukon Lease requires a payment in the amount of C$7,000 to be made
on January 1 of each year. A total of C$3,087,600 has been paid of the Water
License. No further payments are due under the present permit. We have notified
SRK that we hold all permits required for exploration and maintenance of the
camp. Additional permits will be required for mine operations. We have notified
SRK that there are no environmental liabilities on our Ketza River property.

---

47

Figure 6  Location Map



---

48

Figure 7: Ketza River Project Land Position (Silver
Valley block included on the right)



Accessibility, Climate, Land Resources, Infrastructure
  and Physiography

The Property is located in the Pelly Mountains in south central
Yukon. Terrain is mountainous with elevations ranging from 1,300m above mean sea
level (amsl) to 2,100m amsl. Land use in the area is limited to mining,
trapping, hunting and recreation.

Average daytime temperatures range from highs of
+25oC in summer to lows of -40oC in winter. Average annual
precipitation in Faro, the nearest location for which weather statistics are
available, is 31.6cm and includes annual averages of 21.4cm of rainfall and
111.6cm of snowfall (http://climate.weatheroffice.ec.gc.ca/climate_normals).

Daylight extends to nearly 24hr/day in the summer months,
particularly June. There are only short periods of daylight during the winter.
Exploration can be conducted year-round but heavy winter snow may limit access
to some areas. Mining can be conducted year-round.

Vegetation consists of dwarf birch, spruce, alder and balsam
trees up to the tree line at approximately 1,600m amsl.

The Property is accessible by a 40km all-weather road from Km
323 on the Robert Campbell Highway. The Property is approximately 80km by road
from Ross River and 460km from Whitehorse (Figures 6 and 8). The 40km access
road is kept open year-round and is passable for tractor-trailer-size supply
trucks.

---

49

The surface is owned by the Crown and leased to us under the
Government of Yukon Lease. Total annual lease payment for the occupation of land
for the purpose of a commercial mine, mill, campsite, tailings pond and other
mine-related facilities is C$7,000.

The community of Ross River is 90km from the Project and
supplies food, fuel and basic medical service. First aid-trained personnel are
on site at the Ketza River camp at all times and a fully stocked Industrial
Ambulance is available. There is an airstrip in Ross River and contractors for
electrical, plumbing, mechanical and vehicle maintenance are available in Ross
River or Whitehorse.

Power to the camp and facilities is provided by 160kV and a
210kV diesel generators. One generator remains off while the other generator
provides power. The two are used alternately to allow for maintenance. A smaller
60kV generator is available as backup. Power for any future mining activities
will be provided by additional generators.

Water for the camp and facilities is available from three
established wells. The primary well is located upstream from the camp, near
Cache Creek. Pumps that are in place can individually produce up to 30gal/min.
An emergency source for water is Cache Creek itself. Power and a pump are in
place so that water can be used from the creek if needed. Water for future
mining operations will be provided by water wells to be drilled on the
property.

The buildings for the camp, kitchen and offices are Atco
trailer units. There are 48 rooms available for lodging. There is a kitchen unit
with dining area and an office complex for technical staff. Shop areas in the
old mill building are functional and are used for maintenance of camp vehicles
and equipment.

The old mill building is in good condition and its use for
future milling activities will be investigated in feasibility studies. West of
camp there is a core logging and core splitting building. All facilities have
available power and water. Core is stored outdoors on-site.

The camp site is permitted for 50 personnel. Technical staff
typically work four weeks on and two weeks off with schedules dependent on the
needs of the camp. A larger camp will be required for future mining operations.
A suitable tailings storage site is present on the property.

Waste generated in camp and from activities associated with the
Project are burned in a trash incinerator or hauled to the Ross River land fill.
Trash awaiting incineration is stored in bear-proof metal storage containers.
There is a chemical treatment facility for sewage located down gradient from the
camp.

Suitable mine waste dump sites are present on the property.

Geologists, engineers, surveyors and other technical people are
hired on a contract basis or employed through us. There is a Memorandum of
Understanding signed with the Dena Band of the Kaska Nation stating that First
Nations people will be preferentially hired if they qualify for available jobs.

---

50

Figure 8: Ketza River Project Access



History

The Ketza River Property has a history of exploration and
production dating back to the 1940s. The property consists of several discrete
zones of mineralization as shown on Figure 9. The exploration camp, and core
shed are shown on the map along with the historic tailings pond and mill site.

Lead-silver veins were discovered in the Ketza River area by
prospectors of the Hudson Bay Mining and Smelting Company Limited in 1947. Later
explorers carried out trenching, road building and diamond drilling. Exploration
adits were subsequently developed on the lead-silver veins but little economic
production was achieved.

Gold mineralization on the property was first discovered in
1954 by Conwest Exploration Company Limited (Conwest). Between 1955 and 1960,
Conwest explored several mineralized occurrences with trenching and 75 AX
diamond drill and packsack drill holes. A non-NI 43-101-compliant historic
geological reserve of 68kt grading 12g/t-Au was reported for the Peel 3 and
Peel 3C deposits (now known as the Peel and Ridge zones). The claims were
surveyed and taken to lease during this time.

---

51

Figure 9: Mineralized Zones and Facilities



In 1983, Pacific Trans Ocean Resources Ltd. optioned the
property from Conwest and carried out limited geochemical and geological surveys
before entering into a joint venture with Canamax Resources Inc. (Canamax) in
1984.

In February 1987, a feasibility study was completed by Canamax
and reviewed by Wright Engineers Ltd (Canamax Resources Inc, 1987). The study
recommended construction of a 320t/d mill and mine complex producing
approximately 50koz-Au/year from a mineable ore reserve base of 460kt averaging
15.3g/t -Au. The reserve estimate preceded Ni 43-101 requirements and is not
compliant with CIM guidelines. Mine life was to be five years and the average
cost per ounce of gold produced was to be in the range of $220 to $250. The
estimated cost to build the mine and mill was estimated at $21M. A production
decision was made in March 1987, and financing was obtained in October 1987. The
mill achieved commercial production in July 1988.

After several months of operation, the oxide ore reserves were
significantly reduced from the Wright feasibility study estimates due to an
error in estimation of the bulk density of the oxide ore. The grade of feed to
the mill was also lower than expected, due to a number of factors including
over-weighting of high-grade samples in the data and dilution from the lower
than expected grade from the footwall mineralization (Strathcona Mineral
Services Limited, 1988). Canamax purchased Pacific Trans-Ocean's interest in the
Project in January 1989.

From July 1988 to November 1990, production from the property
was 100,033 oz-Au from 342,395t at an average millhead grade of 11.6g/t -Au.
Average mill throughput over the life of the mine was 364t/d with an average
gold recovery of 88.65% . A summary of total production by zone is presented in
Table 4.4.1 (Hodgson, 1991). It should be noted that mine production figures
were not reconciled with total mill production of 100,033 oz-Au. Based on the
numbers presented in Table 15, the Mine production should have been 131,046 oz
as opposed to actual production of 100,033 oz.

---

52

Table 15: Summary of Total Gold Production July 1988 
November 1990

|Zone                 | Tonnes  | g/t-Au
|-------------------- | ------- | ------
|Ridge                | 95,790  | 13    
|Peel                 | 148,844 | 13    
|Break-Nu             | 54,700  | 10    
|Tarn                 | 18,169  | 8     
|QB                   | 1,987   | 13    
|Knoll                | 2,936   | 6     
|Gully                | 8,136   | 10    
|1430 East            | 600     | 5     
|Peel/Ridge Mine Dump | 11,233  | 6     
|Total                | 342,395 | 11.6  

With the oxide zones nearing depletion, attention was given to
the economic viability of the sulfide mineralization and in November 1990 the
mine and mill ceased treating oxide material. Metallurgical studies were
conducted on sulfide mineralization from several of the deposits. Gold recovery
of 78.3% from the sulfides was forecast with limited capital additions required
to the existing mill. The mill was permitted to treat oxide ore only and
additional permits were required for the treatment of sulfide ore. In June 1991
an amended water license was received but Canamax did not pursue the application
due to corporate conditions, low gold prices and adverse market conditions.

Wheaton River Minerals Ltd. (Wheaton) acquired the property
from Canamax in 1992 and in 1994 transferred it to YGC Resources Inc. (YGC) in
exchange for a controlling interest in YGC, later divested. The claims outside
the mine area were optioned to Hemlo Gold Mines Inc. (Hemlo) from 1993 to 1995.

Hemlo carried out soil sampling, magnetic surveys, bulldozer
trenching and completed three diamond drill holes totaling 499m in the Shamrock
zone area. YGC also conducted diamond drilling in 1994 and 1995 that consisted
of 72 HQ-diameter diamond drill holes totaling 5,622m. The program resulted in
the discovery of the Chimney and Fork zones.

In 1996, YGC completed 14 HQ-diameter holes totaling 1,954m in
the mine area and 21 HQ-diameter holes totaling 3,613m in the Shamrock zone. The
1996 program also consisted of geologic mapping, prospecting and sampling a
number of other anomalous zones. During 1997, 11 holes, totaling 1,217m, were
drilled along the Fork  Nu-zone trend.

From 1955 through 1997, a total of 914 diamond, RC and
percussion drill holes totaling 53,134m of drilling have been completed on the
property. A summary of this is presented in Table 19.

University graduate students completed studies on the property
(Cathro, 1990 and Stavely, 1992). The studies investigated the geology and
mineral deposits of the Ketza district or the mineralogy and geochemistry of the
Ketza Mine deposits. A postgraduate investigation was completed on the
structural geology, stratigraphy, alteration systems, and possible age
relationships of mineralization and postulated intrusive activity (Fonseca,
1997).

Table 16: Summary of Drilling from 1955 to 1997

Year
      
      Operator
      No.
        Holes
      
      Type of Drilling
      Length Drilled (m)1955-60
    
      Conwest Exploration Co.
      75
    
    Diamond
    Unknown1984
    
      Canamax Resources Inc.
      59
    
    Diamond
    2,4241985
    
      Canamax Resources Inc.
      60
    
    Diamond
    6,1581986
    
      Canamax Resources Inc.
      158
    
    Diamond
    8,6091987
    
      Canamax Resources Inc.
      61
    
    Diamond
    4,9901987
    
      Canamax Resources Inc.
      95
    
    RC
    5,0291988
    
      Canamax Resources Inc.
      70
    
    Diamond
    5,5491989
    
      Canamax Resources Inc.
      127
    
    Diamond
    5,5901989
    
      Canamax Resources Inc.
      79
    
    Percussion
    1,2151990
    
      Canamax Resources Inc.
      9
    
    Diamond
    1,1011994
    
      Hemlo Gold Mines Inc./YGC Resources
        Ltd.
      25
    
    Diamond
    2,1801995
    
      Hemlo Gold Mines Inc./YGC Resources Ltd.
      50
    
    Diamond
    3,630


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53

Year
      
      Operator
      No. Holes
      
      Type of Drilling
      Length Drilled (m)1996
    
    YGC Resources Ltd.
    35
    
    Diamond
    5,4421997
    
    YGC
      Resources Ltd.
    11
    
    Diamond
    1,217Total
    
    
    914
    
    
    53,134


Canamax Resources Inc, the previous operator of the mine,
expended $11.6 million on exploration and feasibility studies beginning in 1984.
Exploration summary reports were prepared annually by Canamax describing
geophysical ground and airborne surveys, geochemical soil sampling, prospecting,
trenching, percussion drilling, RC drilling, diamond drilling and underground
developments.

After YGC acquired the property in 1994, it spent $0.52M in
1994, $0.76M in 1995 and $0.90M in 1996 on exploration. Some 11,090m of
exploration diamond drilling in 110 HQ holes were carried out on the extensions
of mineralized trends, on the peripheries of developed zones and in other
unexplored anomalous areas. The exploration was successful, leading to the
discovery of new gold-bearing oxide and sulfide mineralization on the property.
A summary report on the 1994 and 1995 drilling programs was prepared at the end
of the 1995 season.

Historic Mineral Resource and Reserve Estimates

Pre-production Resource Estimates

Canamax calculated reserve estimates prior to production
using cross sectional methods in which blocks were drawn halfway to the nearest
adjacent drill hole and halfway to the adjacent cross-section except where
geology dictated a reduction in block size due to structural discontinuity.
These estimates used a variety of cut-offs and included or excluded different
satellite deposits, so it is difficult to make meaningful comparisons between
the estimates from year to year. These estimates were done before the NI 43-101
standards were required, and the similarity to todays definitions regarding
measured, indicated and inferred resources are uncertain. Specific Gravity (SG)
values applied to sulfide and oxide are not mentioned in the 1984 resource, but
in 1985 2.8 was used for oxide, and 3.3 was used for sulfide. In 1986 oxide used
3.1 for SG, and sulfide is not mentioned. These pre-production estimates are
summarized in Table 17, and Figure 10.

Table 17: Historic Resource Estimates

|     |                    |                    | Oxide   | Sulfide          
|---- | ------------------ | ------------------ | ------- | -----------------
|Year | Description        | Cut-off            | Tonnes  | Grade
      (g/t)
|1984 | Peel Pit & UG +    | 4g/2.5m (Peel)     | 473,397 | 8.52             
|     | Tarn Pit           | 2g/2.5m (Tarn)     |         |                  
|1985 | Peel Oxide + Misc. | 4g over
      2.5m | 439,077 | 14.62            
|     | Sulfides           |                    |         |                  
|1986 | PP&P Oxide,        | 4g/t               | 535,000 | 15.02            
|     | Possible Sulfide   |                    |         |                  
|1987 | Same as above +    | 4g/t               | 651,188 | 14.46            
|     | new zones (Gully,  |                    |         |                  
|     | QB, Break & Knoll) |                    |         |                  

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54

Figure 10: Preproduction Resource Estimates



Post-production Resource Estimates

In 2004 and 2005 resource estimates were prepared for YGC by
Gary Giroux (Tables 26 and 27). The 2004 resource was divided into two parts:
manto-style mineralized zones south of the Peel Fault and disseminated and
quartz stockwork mineralization zone north of the Peel fault. This estimate
included all of the drill holes drilled by Canamax in the 1980s and 1990s, as
well as the holes drilled by YGC in the 1990s in the Peel and Shamrock areas.
The 2005 resource added 37 new drill holes completed in the summer of 2005 along
with an additional 121 historic holes in the Bluff, Hoodoo and Lab Zones to the
west of the area estimated in 2004. Shamrock was not updated in 2005.

The bulk density for oxide material was 2.3t/m 3.
Sulfide material was set at a conservative 3.1t/m 3based on
measurements made by Canamax during the feasibility study.

Table 18: YGC Measured and Indicated Resources, 2004-2005

Measured
        & IndicatedSulfide
        + Oxide ResourcesYear
      Area
      Tonnes
      g/t
      oz2004
      Peel
      4,250,000
      2.81
      385,500Shamrock
      2,590,000
      2.19
      182,0002005
      Peel + Peng-Lab + Tarn
      5,950,000
      3.00
      574,600


Table 19: YGC Inferred Resources, 2004-2005

InferredSulfide
        + Oxide ResourcesYear
      Area
      Tonnes
      g/t
      oz2004
      Peel
      6,270,000
      1.76
      354,800Shamrock
      4,030,000
      1.92
      249,2002005
      Peel + Peng-Lab + Tarn
      10,550,000
      2.37
      805,200


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55

Geological Setting

The Property is located in the Pelly Mountains of central
Yukon. The mountains are made up of a shallow marine miogeoclinal sequence of
rocks forming a carbonate platform bounded by the Omenica Tectonic Belt to the
southwest and a faulted lobe of the Yukon Tanana Terrain to the northeast across
the Tintina Fault. This carbonate platform is known as the Cassiar Terrain or
Pelly-Cassiar Platform (Pelly-Cassiar).

The Pelly-Cassiar is a displaced continental margin of the
ancient North American continent. Rocks of the Pelly-Cassiar consist of a
continental margin sedimentary sequence of the Rocky Mountain Assemblage
composed of interbedded carbonate and clastic units of Paleozoic age. Several
major deformation events have affected the region including a Mesozoic-age
arc-continent collision, doming and uplift during the intrusion of
mid-Cretaceous stocks and an estimated 450km of dextral strike-slip displacement
on the Tintina Fault from the Cretaceous to Tertiary periods.

Four significant thrust faults, the McConnell,
Porcupine-Seagull, Cloutier, and St. Cyr thrusts, parallel the Tintina Fault and
dip generally southwest (Abbott, 1986). Thrusting is believed to have occurred
during the Late Jurassic and Early Cretaceous.

Rocks in the Watson Lake District belong to the Cloutier Thrust
Sheet, which is exposed within an erosional window in the overlying
Porcupine-Seagull Thrust Sheet. The window, known as the Ketza-Seagull arch,
forms an elongated northwest-trending structure probably related to buried
Cretaceous intrusions. The intrusions are apparently centered in two areas known
as the Ketza Uplift and the Seagull Uplift. Structures in the window are
characterized by steeply dipping normal faults.

The Ketza Uplift is thought to be caused by a buried intrusion
(Parry and others, 1984 and Parry and others, 1985). The following supporting
evidence has been cited for the presence of a buried intrusive:

- The presence of a magnetic anomaly;
- Development of hornfels in sedimentary rocks; and
- Hydrothermal alteration immediately north of the Ketza River gold mantos.

The hornfels has been dated by whole rock K-Ar at 101+/-4Ma, in
the Mid-Cretaceous (Cathro, 1988). The uplift exposes the oldest rocks of the
Clouthier Thrust Sheet, which are Lower Cambrian carbonates and older clastic
rocks. The rocks surrounding the uplift are Upper Cambrian and younger clastic
and carbonate rocks.

Geology of the Ketza River Property

The Property is underlain by Lower Cambrian carbonate and
clastic sedimentary rock units. The Lower Cambrian units (Map Units 1a, 1b, 1c,
1d, and 1e) form a conformable series (Figure 11) which is unconformably
overlain by Late Cambrian black shale (Fonseca, 1998). The lithostratigraphic
succession described below was adopted by previous workers (Read 1980). The
general surface geology is outlined in Figure 12.

Local Lithology

The oldest rocks are Unit 1a which is composed of interbedded
brown to rusty weathering argillite, phyllite, variably bedded impure siltstone,
sandstone, quartzite, limestone and calcareous units. The unit outcrops in the
center of the Ketza Uplift north of the Peel fault that encompasses the Shamrock
target.

Unit 1b is a narrow bed (25 to 60m) of fossiliferous,
well-laminated silty limestone that appears to be transitional from the
underlying argillite to the overlying phyllitic limestone. The unit does not
crop out on the property but has been intersected in drill holes.

Unit 1c is a recessive weathering unit of 75 to 105m thickness
composed of brown to gray-green phyllitic limestone, calcareous mudstone and
argillaceous limestone. The upper contact of the unit is gradational with the
overlying massive to thick bedded blue gray limestone. This unit crops out in
exposures along Cache Creek above the mill site.

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56

Unit 1d is host to all replacement-type manto mineralization on
the property. The lower contact is gradational and arbitrarily defined when the
well-bedded limestone becomes the major component. The unit is from 120 to 180m
thick. The limestone is a gray, uniformly bedded, clean limestone with
distinctive Archeocyathid fossils (FSLT) occurring near the top of the unit. An
internal stratigraphy has been recognized in the mine site area. The internal
beds are separated on the basis of textures. Beds of massive fine-grained
light-gray limestone (MSLT), blue fine-grained crystalline limestone (BXLT),
thin and wispy silt banded limestone (WBN), and silty black limestone (BSLT) are
recognizable in drill core and outcrop. The unit is locally dolomitized (DOLT),
recrystallized and orange weathering near in the vicinity of mineralization. The
limestone is resistant and forms prominent cliffs and ridges throughout the
region.

Unit 1e is composed of a thin (0 to 50m) green mudstone bed
which forms a distinctive marker horizon. The unit is locally to pervasively
clay- or talc-altered in the vicinity of mineralization. The mudstone is
generally recessive, poorly exposed and often required additional ground support
in the underground workings where it formed the hanging wall of the Peel zone.

Unit 2a is composed of carbonaceous to graphitic black shale
with a well-developed slaty cleavage. The thickness of the unit is unknown as
the top of the unit is not exposed on the property. The unit crops out in the
fault-bounded panels at the Peel Oxide zone and in the Sue Creek area north of
Cache Creek. A discontinuous unit of dull orange-weathering dolomite, Unit 2b,
outcrops in the western portion of the property. This is a regional unit mapped
by Read (1980) that was not recognized on the property by Canamax.

Alteration

Dolomitization or iron carbonate replacement (FECO) alteration
envelopes the manto mineralization and is especially well developed in areas
lateral to the mantos where the host limestones are brecciated. The carbonate
replacement deposits result in the migration and precipitation of calcite in the
rocks surrounding the mineralization. Sheeted white calcite veins are exposed in
the footwall rocks in the Break open pit and amorphous white calcite banding
occurs in the BXLT unit in proximity to the Peel/Ridge zones and in the upper
plate rocks in the Hoodoo area. The calcite-rich limestone beds are referred to
as zebra rock.

Silicification, sulfidization, and bleaching are closely
associated with quartz-sulfide veins in sedimentary rocks in the
argillite-hosted targets. Skarn mineralization at the Project is rare, and
usually does not yield significant gold values. Epidote, biotite and diopside
hornfels are wide-spread in Unit 1a, with quartz-sericite enclosing a core of
quartz and silicification.

Structure

The Property lies on the southern flank of a westward plunging
anticline which is cored by the Unit 1a argillite exposed along Peel Creek. The
strata are strongly folded with limbs ranging from steep to flat-lying. A later
deformation has overprinted these structures with broad, open folds and drag
folds that occur adjacent to thrust faults.

A synclinal closure has been mapped in the Peel Ridge area
where mineralized bodies occur on both limbs of the fold. A major synclinal fold
with parasitic anticlinal folds has been mapped northwest of the mine site area
in the upper plate rocks overlying the Peel thrust fault. Limestone beds of Unit
1d host gold-bearing oxides and sulfides at the Hoodoo and Comet zones in the
core and on the western limb of a tight anticline.

In the region, the thrust faults are northeast-directed with
displacements of up to 450m. The Peel fault is thought to be a reactivated
thrust fault that pre-dates the block faulting. It is cross cut and offset in
the Peel - Ridge fault by northwest-trending faults. The Peel fault intersects
the Ridge zone ore deposit and juxtaposes Lower Cambrian argillite Unit 1a over
the Lower Cambrian limestone Unit 1d. The fault has two different orientations
changing from steeply dipping east of the Ridge zone to shallow dipping over the
Ridge zone and to the west. The fault has been traced westward to the area of
the Lab deposit.

The stratigraphy, thrust faults and folds have been disrupted
by numerous reverse, normal and strike-slip faults. High angle block faults
related to uplift and doming are prominent. Detailed mapping in the underground
workings indicates that the Peel and Ridge oxide deposits occur within a 200m
wide zone of structural deformation bounded by two northwest trending block
faults.

---

57

The Ketza Uplift is composed of uplifted and altered Lower
Cambrian Unit 1a strata. Structures within the uplift include thrust faults,
upright folds, and high-angle normal faults all of which have strong spatial
association with plutonic related type deposits. An apophysis of a
mid-Cretaceous stock is postulated to lie beneath the core of the uplift and the
Peel Creek anticline. Possible hornfels in the Unit 1a argillite along Peel
Creek and a coincident aeromagnetic anomaly are cited as supporting this
hypothesis. Block faulting predates, or was contemporaneous with, the
mineralizing event and the faults acted as conduits for the metal-bearing
solutions.

Figure 11: Stratigraphic Column



---

58

Figure 12: Generalized Geology Map



Exploration

In May of 2005, YGC commenced drilling at the Ketza River
Project, and has been drilling continuously since then, with the exception of
holiday shutdowns. In 2006, the main Project area was flown for new
one-meter-contour topographic map coverage. In the spring of 2007 the Ketza
claim block was expanded on the south and west. A limited amount of
reconnaissance work was conducted in 2006, followed by a major effort in 2007,
yielding several new target areas. Ground magnetic and gravity surveys were
carried out over known mineralization. A soil sampling program was completed in
the area of Peel Ridge north to the top of Shamrock Mountain. A petrographic
study was completed for manto-style mineralization. Work in 2009 consisted of
logging, sampling, and assaying of the remaining diamond drill holes completed
in 2008, reconnaissance mapping and surface rock-chip sampling on outlying
targets, geophysics, drill targeting and diamond drilling, historical drill hole
data verification, and geological modeling to support a new resource estimation.

Samples from three 1996 drill holes were analyzed for
multi-element geochemistry in an attempt to determine the presence of a zonation
pattern that might point to the location of a postulated buried intrusive as
postulated by Fonseca (1998). The holes were located at the QB Zone, the 3M Zone
and one in between. The ratios of gold-arsenic and gold-bismuth indicated that
the QB Zone hole was closest to the intrusive (Stroshein, 2006).

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59

Rock Sampling

Tarn Pit

The wall of the Tarn Pit was channel sampled in the fall of
2006. A total of 40 samples were collected, each one 5.0 m in length. The
samples averaged 2g/t-Au, with a high of 9.7g/t -Au.

Creek Zone

Outcrops just above the pad for holes KR-06-920 through 922
contain massive pyrite with black coatings on the crystal surfaces. The black
coating is assumed to be chalcocite since the samples ran approximately 0.2% Cu.
Other dark grains in the rock were identified as tetrahedrite. All four samples
contained gold values.

Gully Pit

The Gully Zone is part of the Shamrock target, and was mined by
Canamax in the late 1980s, yielding approximately 8,000 t of oxide grading
10.0g/t -Au (Hodgson, 1991). Mining stopped when sulfide mineralization was
encountered, leaving a prominent massive sulfide rib protruding from the pit
floor, and a highly oxidized shear zone along its side.

In mid-August of 2006, a series of chip and channel samples
were collected across the massive sulfide rib and the adjacent shear zone. The
assays of the samples contained significant amounts of gold.

Soil Samplin

Aurora Geosciences was contracted to conduct a soil sampling
program large portions of Peel Ridge and Shamrock Mountain in 2007. The sampling
was done on a 50m grid, and targeted areas where 200m spaced soil lines had
identified anomalous gold. Results are being analyzed at the time of this
report.

Topographic Surveys

On August 29, 2006 Aero Geometrics of Vancouver flew the
Project, including the existing claim block in 100km2 of new
coverage. Two sets of digital topographic maps, with 10m and 1m contour
intervals were produced.

In early September 2007, Aero Geometrics of Vancouver flew
portions of the Project in which mining claims had been staked since the survey
the previous year. The mapping is in progress, and will have a 5m contour
interval.

Mineralization

Mineralization on the property is generally of two types: manto
and chimney, carbonate-hosted replacement deposits that occur south of the Peel
fault, and quartz-sulfide fissure veins and quartz-breccia zones in
siliciclastic rocks that occur north of the Peel fault. Over 30 targets and
prospects have been identified on the property. For purposes of resource
estimation the area has been divided into four model areas with most of the
targets falling into one of the following areas (Figure 13):

- Tarn
  Area:                           
  Tarn
- Penguin-Lab
  Area:              Penguin,
  Flint, Lab and Hoodoo;
- Peel
  Area:                             Ridge,
  Peel, Nu-Break
- Shamrock
  Area:                  
  Gully, QB, 3M.

All areas except Shamrock occur south of the Peel fault and
contain manto and chimney, carbonate-hosted replacement deposits while Shamrock
occurs north of the Peel fault and contains quartz-sulfide fissure vein and
quartz breccia zones in siliciclastic rocks. The Knoll and Freds Vein deposits
were not modeled for the year-ended December 31, 2007 resource.

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60

Mineralized Zones

Peel, Penguin-Lab and Tarn areas are generally of the gold-rich
carbonate-hosted chimney- and manto-style sulfide mineralization and its
oxidized equivalent. The lone exception to this is Freds Vein East, which is a
quartz-sulfide vein hosted by siliciclastic rocks immediately north of the Peel
fault. While Freds Vein East is geologically similar to the mineralization in
the Shamrock area, it falls within the Peel area because of its location on Peel
Ridge.

The mantos and steeply-plunging chimneys are preferentially
hosted by three limestone facies of Unit 1d: BXLT, MSLT and WBN, which are
confined to the south side of the Peel fault. The location of mineralization is
controlled by high-angle planar and listric normal faults, fold hinges and by
the location of the three favorable carbonate facies. In general, the mantos
have an elongate geometry.

Principal sulfide mineralogy consists of pyrrhotite, pyrite,
arsenopyrite, marcasite and minor chalcopyrite. Galena and sphalerite are rare.
Oxidized mineralogy primarily consists of hematite and goethite. Scorodite,
after arsenopyrite, is common. A distinctive lustrous hydrous iron silicate
mineral named hisingerite is present, and is often associated with high-grade
gold values.

Sulfide mantos include Peel Sulfides, Peal East Sulfides,
Penguin, Tarn, Lab and Flint. Oxide mantos include Peel Oxides, Break-Nu, Ridge
and Hoodoo.

Tarn Zone

The Tarn zone is located approximately 2km west of the Ketza
River Camp in the headwaters of Cache Creek. Mineralization consists of two
mixed oxide-sulfide bodies ranging from 85m to 115m in length, 35m to 60m in
width and 5m to 8m in thickness. Mineralization is exposed in the Tarn pit and
extends to 75m in depth and is approximately horizontal. Strike is about
015o.

Approximately 18kt of oxidized Manto-style mineralization was
mined from the Tarn zone in the late 1980s. Current exploration focuses mainly
on the sulfide Manto beneath the oxide.

Penguin Zone

The Penguin zone is manto-style sulfide mineralization located
approximately 1.25km west of the Ketza River Camp, also in the Cache Creek
drainage. Two mineralized bodies occur within a presently defined area of
approximately 425m in length, 100m in width and 15m in thickness. The first
zone, formerly known as the Flint zone, is sub-vertical with a plunge of
25o to the southwest. It is approximately 150m in length, 60m in
height and 10m in width. This zone occurs 90m below the surface with an azimuth
of 050o.

The second zone is more flat-lying with approximate dimensions
of 150m in length, 115m in width and 4m in thickness. It occurs approximately
120m below the surface with a plunge of 4o to the southwest and an
azimuth of 020o.

Lab Zone

The Lab Zone is manto-style sulfide mineralization located
approximately 1.25km northwest of the Ketza River Camp on the southern slope of
Peel Ridge. The Lab zone consists of four distinct zones that occur over an area
measuring 320m x 400m and average 5m in thickness. The four bodies occur in two
pairs at right angles to one another with the arms striking northeast and
southeast. The former Calcite zone is now included in this zone.

Hoodoo Zone

The Hoodoo zone is manto-style oxide/sulfide mineralization
located approximately 1.5km northeast of the Ketza River Camp on the southern
slope of Peel Ridge. Early drilling stopped once sulfide mineralization was
reached but recent drilling has been targeting the sulfide mineralization
underlying the oxide mineralization exposed at surface. Recent exploration has
also been successful in extending the oxide mineralization. Geometrically the
Hoodoo zone is a flattened cylinder with a presently defined diameter of 70m and
a thickness of 15m.

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61

Peel Model Area Occurrences

Peel Zone

The Peel zone is located about 0.75km north of the Ketza River
Camp on the south flank of Peel Ridge. Mineralization consists of irregular
interconnected lenses and pods in area approximately 400m long x 400m wide zone.
The Peel zone consists of the Peel West, Ridge, Main Peel, or Peel oxide, zones.
The Nu-Break and Freds Vein East zones are also on Peel Ridge but are somewhat
to the east of the main grouping of mineralized bodies that comprise the Peel
zone.

Peel West Zone

The Peel West zone consists of four mineralized bodies with a
generally circular footprint. The four bodies occur over an area measuring 320m
x 260m and range in thickness from one to 10m. The mineralized bodies are
exposed at the surface and extend to a depth of 60m. The overall azimuth of the
zones is 325o.

Ridge Oxide Zone

The Ridge oxide manto zone as presently defined consists of
three separate mineralized bodies occurring over an area approximately 500m in
length, 85m in width and 50m in thickness. Individual mantos vary from 5 to 10m
in thickness. The zone is exposed at the surface and extends to a depth of 120m.
Mantos dip from fairly flat-lying to 55o to the north. Azimuths range
from 070o to 350o.

Production from the oxide mineralization in the Peel and Ridge
deposits was approximately 148,844t at an average grade of 13g/t-Au. Oxide
mineralization is cut off by the bounding northwest-trending East Side
fault.

Nu-Break Zone

The Nu-Break zone consists of oxide/manto mineralization
located approximately 1.0km north-northeast of the Ketza River Camp on the nose
of Peel Ridge. The overall dimensions of the mineralized body as presently
defined are approximately 175m in length, 75m in width and 30m in thickness. The
zone is exposed at the surface and extends to a depth of 95 m below the surface.
The azimuth of the zone is approximately 300o with a dip of
75o to the south.

Freds Vein East

Freds Vein East is a quartz-sulfide vein-like occurrence in
siliciclastic rocks on the north side of the Peel fault. The vein is located on
the north side of Peel Ridge in the Peel Creek drainage approximately 1.0km
north of the Ketza River Camp. The exposed strike of the structure is
approximately 100m. The width is difficult to characterize and the down dip
extension has not yet been defined. The zone is exposed at the surface. The
strike varies from 065o to 080o and dip varies from
80o to 85o south.

Shamrock Model Area Occurrences

All of the mineralization in the Shamrock area occurs in
siliciclastic rocks north of the Peel Fault. Mineralization occurs as fissure
veins, breccia zones and disseminations rather than chimneys and replacement
mantos.

Gully Zone

The Gully Vein is a quartz-sulfide vein occurring in
siliciclastic rocks north of the Peel fault. The vein is located approximately
1.75km north of the Ketza River Camp on the south flank of Shamrock Mountain in
the Peel Creek drainage. Samples from drilling range up to 37.6g/t -Au. The
overall dimensions of the mineralized body as presently defined are
approximately 300m in length, 100m in depth and 4m in thickness. The zone
extends from the surface to 125m with an azimuth of 165o, a dip of
45o west and a plunge of 9o.

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62

QB Zone

The QB zone consists of multiple irregular lenses of
quartz-breccia occurring in siliciclastic rocks north of the Peel fault. The
vein is located approximately 1.75km northeast of the Ketza River Camp on the
south flank of Shamrock Mountain in the Peel Creek drainage. The overall
dimensions of the mineralized body as presently defined are approximately 525m
in length, 220m in width and 2m to 70m in thickness. The zone extends from the
surface to a depth of 270m with an azimuth of 140o and a plunge of
040o to the south.

3M Zone

The 3M zone is located about 2.5km northeast of the Ketza River
Camp on the ridge between Peel and Misery Creeks. Mineralization consists of
quartz breccia and disseminations in siliciclastic rocks. The mineralized body
is approximately 525m in length, ranges from 2m to 12m in width and extends to
230m in depth. The upper part contact of mineralization ranges from 40m to 90m
below the surface. The azimuth of the mineralized body is 150o and
the dip is 010o to the west.

Knoll Zone

The Knoll zone is located about 3.0km northeast of the Ketza
River Camp on the north slope of Shamrock Mountain. It is just outside of the
Northwest edge of the Shamrock model area. It is comprised of a body of oxide
mineralization measuring 45m x 35m with a thickness ranging from 4m to 10m. It
is exposed at the surface and has been mined on a limited scale in the past.

Figure 13: Drill hole Locations and Modeled Areas with
Deposit Names



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63

Drilling

From May of 2005 through August of 2008, we drilled a total of
897 holes for a total of 118,396m (Table 20). The principal objective of the
drilling programs was the continued definition of known mineralized areas and
the testing of newly discovered areas. All diamond drill holes completed in the
resource area since 2005 are shown in Figure 13.

Table 20: Summary of Diamond Drilling 2005 Through 2009

Year
      Operator
      No. of Holes
      Type drilling
      No. of m Drilled2005
    YGC Resources Ltd.*
    99
    Diamond
    12,7342006
    YGC Resources Ltd.*
    270
    Diamond
    33,8742007
    YGC Resources Ltd.*
    305
    Diamond
    41,5872008
    Yukon-Nevada Gold Corp.
    223
    Diamond
    30,1512009
    Yukon-Nevada Gold Corp.
    8
    Diamond
    1,834Total
    
    905
    
    120,180


* On June 20, 2007, we changed our name from YGC Resources Ltd.
to Yukon-Nevada Gold Corp.

All of the drilling from 2005 through 2009 was diamond
drilling. Holes were started with NQ-sized core (47.6mm in diameter) or HQ-sized
core (63.5mm in diameter) and reduced to NQ-sized core as required. Holes
drilled for metallurgical purposes are HQ-sized (63.5mm) .

Collar location is obtained by using a combination of a Leica
total station and a Trimble R8 differential GPS. Downhole surveys are done using
Reflex Maxibor II downhole survey tool. Prior to 2007 acid tests were used to
measure dip changes down hole.

Drill core is currently stored on site. Drill logs are entered
directly into a laptop in the core shack using DrillKing software. Recovery and
Rock Quality Designation (RQD) are recorded for each hole. Drilling Targets and
results:

Drilling has been successful in extending and/or defining
limits of mineralization on the Peel, Tarn, Gully, QB and Lab zones. Parts of
these mineralized zones remain open. Drilling on the Penguin and Calcite zones
was successful in defining mineralization at the location of magnetic highs.

A lack of significant mineralization was found by the drilling
of the Peg-Fury (south of QB zone), Creek, Megawatt (south of Peel area), Nose
and Bluff zones, as well as the previously untested ground between Lab and Peel.
The Thrust vein, near Tarn was found to be cut off by a low angle fault at
shallow depth.

The results were inconclusive at the Crest, Freds Vein East,
and Break Zones, and more drilling will be required to either define or disprove
significant mineralization at these zones. Significant mineralization was
drilled at Hoodoo, but definition of the nature and orientation of the
mineralization will require more drilling.

Sampling Method and Approach

The sampling procedures associated with the drilling programs
utilized by YGC after acquiring the Ketza River property are described in this
section. Little is known of the sampling methods employed by earlier operators.
Sampling procedures, collection and security for us were completed in 2005 to
April 2008 under the direction of Qualified Person Ed Gates and Erika Shephard
from May 2008 to December 2008.

During the diamond drilling programs, geological personnel
attended the drill at regular intervals as well as during drilling of
mineralized intersections of predicted zone drill holes. Geologic personnel are
on hand to determine the completion depth of each hole and to shut down the
drill hole. The core is delivered to the core shack at the end of each working
shift or when the drill hole is completed.

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64

The core is laid out in sequence at the core shack. The core is
logged directly into laptop computers by geologists and sample intervals are
marked on the core and recorded on the drill logs. The core is then stored
within the core shack and samples are split in sequence. Personnel conducting
the sampling are supervised by the geologist who logs the core.

All drill core is logged and photographed before sampling. The
descriptions are entered onto prepared log forms on laptop computers using coded
entries for lithology, texture, structure and mineralogy.

Oxide and sulfide mineralization are sampled on the basis of
geologic features. Maximum sample interval for HQ core is 1.5m and 3.05m for NQ
core. The minimum sample interval is 0.2m. Once samples are identified and
marked, sample tickets are stapled into the sample locations. Sample intervals
and geology are then logged into Drill King software.

Core is then taken into the splitting room where sampled
intervals are split or cut (massive sulfide intervals are cut with a diamond
saw. Core from oxide zones often occurs as iron oxide rubble. In these
instances, the rubble is sampled with a spoon rather that split or cut.

Half of the sample is placed in the sample bag and half is
retained in the core box for future reference. The detachable half of the sample
ticket is remove from the core box and placed inside the sample bag. The
remaining half of the sample ticket remains in the core box with the
corresponding sample number. Core boxes are then remove to a designated core
storage yard where they are placed on core racks.

Sealed sample bags are then place in large white rice bags, the
rice bags are labeled with the hole number, the contained sample numbers and the
rice bag are numbered for transport (i.e. Bag 1 of 6). Rice bags are then placed
in an outside storage bin where they await shipping.

Samples are transported by company personnel at least once per
week to Canadian Freightways or Byers Transportation in Whitehorse, Yukon. A
sample shipment form is filled out and kept on file, indicating the date, truck
being driven, person transporting the samples, hole numbers and number of bags.
Upon arrival in Whitehorse, samples are directly loaded upon palletsand shipped
to ALS Chemex for analysis (EcoTech Labs in 2005).

As a rule, core recovery is very good in limestone and sulfide
mantos, very good in the Gully vein and the argillite wallrock, moderate in the
QB zone stockwork and fault intersections and moderate to poor in the oxide
mantos.

Sample Preparation, Analysis and Security of Samples

In the 1980s Canamax used Northern Analytical Laboratory in
Whitehorse, YT and Rossbacher Labs in Burnaby, BC. For sample preparation and
analysis. In 2005, YGC used Eco-Tech labs in Kamloops, BC. In 2006-2008 most
sample preparation was done by ALS Chemex in their Terrace, British Columbia
sample preparation facilities. Thirty diamond drill holes were drilled in early
2008 for metallurgical test work and were shipped to the Jerritt Canyon Mine lab
of Queenstake Resources USA for sample preparation and initial gold analysis.
All of the pulps made at the Jerritt Canyon mine lab were shipped to ALS Chemex
in Vancouver for analysis and included commercial standards and non-commercial
blanks. None of the Jerritt Canyon gold assays were entered into the Ketza River
drill hole database. The Jerritt Lab assay was only used to help identify which
drill hole core intervals to ship to PRA for metallurgy test work. No sample
preparation was done at the Ketza River project site.

ALS-Chemex (2006-2008):

Samples are dried at 110-120° C and then crushed with either an
oscillating jaw crusher or a roll crusher. The ALS Chemex QC specification for
crushed material is that >70% of the sample must pass a 2mm (10 mesh) screen.
A whole or split portion derived from the crushing process is pulverized using a
ring mill. The ALS Chemex QC specification for final pulverizing is that >85%
of the sample be less than 75 microns (200 mesh). A 30g split is fire assayed
and the resultant bead is parted and digested with aqua regia, and the final
result is measured using Atomic Absorption. Assays above 1.0ppm were re-assayed
using a gravimetric finish.

Eco-Tech Labs followed essentially the same process.

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65

Quality Controls and Quality Assurance

2005-2008 (YGC-YNGC)

The YGC-YNG laboratory Quality Assurance/Quality Control
(QA/QC) program consists of inserting a blank sample into the sample stream at
the top of every hole and then inserting either a standard sample or blank
sample at every 15th sample. If a hole has less than 15 samples, a
standard and blank are inserted at the end of the hole.

The blanks are non-commercial material, composed of locally
derived barren limestone, and have not been certified to be of zero grade.

Prior to mid-year 2006, a non-commercial moderate grade
pseudo-standard was used, which had been collected from a mineralized outcrop
in the Ridge pit and blended by hand. When this first standard was depleted, a
second supply of higher grade material was collected and blended from a local
high grade stockpile. These standards were inserted simply to ensure that the
lab would catch high grade assays, and not necessarily to assess the precision
of the lab. The shortfalls of these noncommercial standards was realized, and
commercial standards from CDN Resource Laboratories Ltd were used starting in
2006.

After mid-year 2006, for manto-styled mineralization Gold Ore
Reference Standards CDN-GS-10A (9.78+/ - 0.53g/t) or CDN-GS-10B (8.6 +/-
0.49g/t) were used. For stockwork-style mineralization the following Gold Ore
Reference Standards were used: CDN-GS-2B (2.03 +/- 0.12g/t), CDN-GS-2C (2.06 +/-
0.15g/t) or CDN-GS-1C (0.99 +/- 0.08g/t) .

Due to communication issues, the standard insertion protocol
was not strictly adhered to once a particular standard supply was depleted.
There were minor labeling issues where blanks and standards had labels swapped,
or the wrong standard label was recorded. These issues were identified and
corrected as confirmed by comparing the geochemistry of the multi-element assay
results to those of the standards. The problems reflected an issue with check
sample handling and not with lab results.

Occasionally, higher-grade gravimetric assays were re-assayed
as a check; all of these refires were within acceptable ranges of the original.

Interpretation

Graphs were plotted for each set of standards, and blanks.
These are shown in Figures 14 to 17. With the exception of a few anomalies which
may represent mislabeled samples, most of the commercial standards behave as
well can be expected. Only a few assays are outside of the 2 standard deviations
range, and most are within one standard deviation. The non-commercial standards
assayed in 2005 and 2006 with a much wider variation, but consistently showed
elevated grades as would be expected, although not at precise grades as one
would expect from the commercial standards. The blank samples show several
anomalous results which may be due to mislabeled samples, sample preparation
contamination, or anomalous gold present within the blank.

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66

Figure 14: Laboratory QA/QC Blank Samples



Figure 15: Laboratory QA/QC 1-2g Commercial Standards



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67

Figure 16: Laboratory QA/QC 10g Commercial Standards



Figure 17: Laboratory QA/QC,Non-Commercial
Standards



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68

Mineral Processing and Metallurgical Results

Two programs of metallurgical test work have been recorded for
Ketza River as follows:

- Lakefield Research in 1986-87; and
- PRA in 2003-04.

The results of these test programs are summarized below.

YNG is currently conducting a metallurgical test program at PRA
(Inspectorate) in Richmond, British Columbia, Canada to determine and optimize
the metallurgical characteristics and process flow sheets of the ore types that
comprise the current resource. At this time, no preferred processing flow sheet
has been defined for Ketza River awaiting results from the current program being
done at PRAwhich requires additional funding to complete.

Lakefield Research 1986-1987 Test Work

A series of standard cyanide leach tests were run under various
conditions of grind, pre-aeration and leach time, with and without CIL
(carbon-in-leach). The precise conditions of the individual tests are reported,
along with the results, in Lakefield Research (1986a, 1986b, 1987).

The initial results reported by Lakefield (Lakefield Research
(1986a, 1986b) indicated that excellent gold recoveries (over 94%) could be
achieved at a relatively coarse grind (69% minus 200 mesh) and 48hr retention
time, without pre-aeration. Residues contained significantly less than 1g/t-Au.
These tests were carried out on a single composite sample.

A series of nine additional samples from the oxide zone was
subjected to confirmatory tests (Lakefield Research, 1987). The recoveries on
these tests were significantly lower, with only two samples yielding residues
below 1g/t-Au. Average recoveries were 87%. Further tests at finer grinds (80%
minus 200 mesh) were carried out on these nine samples, and although recoveries
fell short of those anticipated from Lakefield Research (1986a and 1986b), they
were consistently over 90%.

YNG is currently conducting a sampling and testing program to
determine metallurgical characteristics of the ore types that comprise the
current resource.

PRA 2003-2004 Test Work

The most recent metallurgical test work for Ketza River was
conducted at PRA in Vancouver, Canada between November 2003 and October 2004.
This test work was bench-scale and included:

- Flotation (batch) for the production of rougher and scavenger
  concentrates;
- Direct cyanide leaching with and without pre-aeration;
- Bulk density determination; and
- Specific gravity determination.

None of the tested samples were identified as to
representativeness of a specific ore type, and only the bulk density
determinations identified the sample source. Others were identified only as a
composite.

The results of these tests are summarized below in Table 21.

Table 21: Summary of PRA Metallurgical Test Results
2003-2004

Date
      Test/Description
      Sample
      Units
      ResultsNov-03
    Flotation; P8074μm;
    Composite 1; head grade of
    %
    Au recovery = 82.2Rougher-Scavenger Concs (1)
    9.15
      g/t Au; 0.8 g/t Ag
    %
    Ag
      recovery = 66.2Nov-03
    Cyanide Leach #1; pH 10.5; 72 hrs;
    Composite 1; head grade of
    %
    Au recovery = 77.340%
      solids; P8074μm; 1 g/L NaCN
    9.15
      g/t Au; 0.8 g/t Ag
    %
    Ag
      recovery = 19.1


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69

Date
      Test/Description
      Sample
      Units
      ResultsMar-04
    Cyanide Leach #2; pre-areate 16 hrs;
    Composite 1; head grade of
    %
    Au recovery = 65.9pH 10.5; 72 hrs; 40% solids,
    9.15 g/t Au; 0.8 g/t Ag
    %
    Ag recovery = 70.3P8085μm; 1g/L NaCNMar-04
    Cyanide Leach #3; pre-areate 16 hrs;
    Composite 1; head grade of
    %
    Au recovery = 91.3pH 10.5; 72 hrs; 40% solids,
    9.15 g/t Au; 0.8 g/t Ag
    %
    Ag recovery = 60.6P8085μm; 1g/L NaCNMar-04
    Cyanide Leach #4; pre-areate 16 hrs;
    Composite 1; head grade of
    %
    Au recovery = 82.0pH 10.5; 72 hrs; 40% solids,
    9.15 g/t Au; 0.8 g/t Ag
    %
    Ag recovery = 74.6P8054μm; 1g/L NaCNMar-04
    Cyanide Leach #5; pre-areate 16 hrs;
    Composite 1; head grade of
    %
    Au recovery = 78.0pH 10.5; 72 hrs; 40% solids,
    9.15 g/t Au; 0.8 g/t Ag
    %
    Ag recovery = 66.6P8054μm ; 1g/L NaCNSep-04
    Specific Gravity
    Composite 1 (average 2 tests)
    g/cm3
    4.265Oct-04
    Bulk Density - Waxed
    KR-96-575 57.95m 5.93g/t Au
    g/cm3
    2.58Oct-04
    Bulk Density - Waxed
    KR-96-575 57.95m 5.93g/t Au
    g/cm3
    2.57Oct-04
    Bulk Density - Waxed
    KR-96-575 52.4m 0.86g/t Ag
    g/cm3
    3.66Oct-04
    Bulk Density - Pulverized
    KR-96-575 57.95m 5.93g/t Au
    g/cm3
    2.71Oct-04
    Bulk
      Density - Pulverized
    KR-96-575 52.4m 0.86g/t Ag
    g/cm3
    3.66


(1)Recovery represents total recovery for rougher
and scavenger concentrates.

The test results indicate the following:

- Good gold and silver recoveries of 82.2% and 66.2%, respectively, were
  obtained by flotation into rougher and scavenger concentrates at a fine grind
  of P8074μm using standard flotation conditions and reagents;
- Good gold and silver recoveries averaging 72% and 68%, respectively, were
  obtained by direct cyanidation with a 16 hour pre-aeration using standard
  leaching conditions and a 72 hour leach time at fine grinds of P8054μm and 74μm;
- Less favorable recoveries were achieved without pre-aeration at the same
  leaching conditions;
- Bulk density determinations averaged 2.62 and 3.66g/cm3for the
  two samples using waxed and pulverized methods; and

Specific gravity determinations averaged 4.265g/cm 3
as an average of two tests on the same sample.

.Mineral Resource and Mineral Reserve Estimates

A series of standard cyanide leach tests was run under various
conditions of grind, pre-aeration and leach time, with and without CIL
(carbon-in-leach). The precise conditions of the individual tests are reported,
along with the results, in Lakefield Research (1986a, 1986b, 1987).

The initial results reported by Lakefield (Lakefield Research
(1986a, 1986b) indicated that excellent gold recoveries (over 94%) could be
achieved at a relatively course grind (69% minus 200 mesh) and 48hr retention
time, without pre-aeration. Residues contained significantly less than 1g/t-Au.
These tests were carried out on a single composite sample.

A series of nine additional samples from the oxide zone was
subjected to confirmatory tests (Lakefield Research, 1987). The recoveries on
these tests were significantly lower, with only two samples yielding residues
below 1g/t-Au. Average recoveries were 87%. Further tests at finer grinds (80%
minus 200 mesh) were carried out on these nine samples, and although recoveries
fell short of those anticipated from Lakefield Research (1986a and 1986b), they
were consistently over 90%.

We are currently conducting a sampling and testing program to
determine metallurgical characteristics of the ore types that comprise the
current resource.

In 2007, we undertook a complete update of the Ketza River
resource estimate. Compared to previous estimates, the 2007 update included 637
additional drill holes in the resource database and reflected a significantly
enhanced understanding of

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70

geologic controls on mineralization in both the manto and
Shamrock zones. The 2007 resource estimate was also undertaken with a view to
transition the Project from an exploration project to a feasibility/development
project.

Accordingly, the focus of the 2007 resource estimate was to
identify measured and indicated resource shapes with grades and continuity that
could serve as the starting points for definition of mineable shapes and
reserves as part of the ongoing pre-feasibility study that we have commenced on
the property. Unlike previous resource estimates, a hard geologic boundary was
used to tightly constrain resource shapes in three dimensions. During 2008
further definition drilling has been performed to determine the extent of the
mineralization, the results of which will be realized with the completion of the
next NI 43-101.

The resource estimation was done by Russ White (SRK) with
assistance in wireframe modeling and input from Larry Snider (Senior Resource
Geologist for Queenstake Resources USA). Larry Snider also performed the pit
optimizations used for distinguishing Open Pit from Underground resources.

The drill hole database is currently maintained at the Ketza
River Project site in AcQuire software, and was transferred from a Drill King
database in late 2007. As of year-end 2008 the drill hole database contains
information for 1,585 drill holes, including 897 core holes from the 2005 to
2008 programs, 593 core holes from pre-2005 programs (1984-1996), and 95 RC
holes from 1987. A total of 1,360 drill holes were in the project database in
order to estimate the Year-end 2007 resources for the most recently published
NI-43-101 Technical Report by SRK Consultants.

Data was extracted from AcQuire and imported to Vulcan in 4
separate tables.

- Collar Location Surveys Hole ID, Northing, Easting, Elevation and
  Hole Depth;
- Downhole Orientation Surveys - Downhole depth, Azimuth and plunge of hole
  at various downhole depths;
- Geologic Logs  Table 25 lists the fields recorded in drill holes from
  2005 to 2007. Only the LCODE field was entered in the database for previously
  drilled holes. Table 26 lists the common lithologies logged at Ketza River;
  and
- Assays -From, to, and gold assay

Table 22 Geology Database Fields

|Field       | Description            | Entry         
|----------- | ---------------------- | --------------
|LCODE       | Lithology Code         | Alpha Code    
|STR1        | Structure 1            | Alpha Code    
|STR2        | Structure 2            | Alpha Code    
|TXTR1       | Texture 1              | Alpha Code    
|TXTR2       | Texture 2              | Alpha Code    
|PO          | Pyrrhotite             | Percentage    
|PY          | Pyrite                 | Percentage    
|APY         | Arsenopyrite           | Percentage    
|CPY         | Chalcopyrite           | Percentage    
|OXMIN       | Primary Oxide Mineral  | Alpha Code    
|OXINT       | Intensity of oxidation | Alpha Code    
|Description | Geologic Description   | Freeform Alpha

Table 23 Most Common Lithology Codes

|LCODE | Description               | LCODE | Description                  
|----- | ------------------------- | ----- | -----------------------------
|MSLT  | Massive-oolitic limestone | BSLT  | Black siltstone              
|WBN   | Wispy banded limestone    | SQA   | Siltstone/Quartzite/Argillite
|ARG   | Argillite                 | VEIN  | Vein                         
|LST   | Limestone                 | CAS   | Casing                       
|FSLT  | Fossiliferous limestone   | QTE   | Quartzite                    

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71

|LCODE | Description                   | LCODE | Description                  
|----- | ----------------------------- | ----- | -----------------------------
|ARS   | Argillite/Siltstone           | FZ    | Fault zone                   
|OXIDE | Oxide Mineralization          | QAS   | Quartzite/Argillite/Siltstone
|SULF  | Massive sulfide(>50%)         | BA    | Black argillite              
|QSA   | Quartzite/Siltstone/Argillite | OVB   | Overburden                   
|MUD   | Mudstone                      | HFLS  | Hornfels                     
|SAQ   | SLT/ARG/QTE                   | AQS   | Argillite/Quartzite/Siltstone
|BXLT  | Blue crystalline limestone    | PHIL  | Phyllite                     
|SLT   | Siltstone                     | QTZ   | Quartz                       
|ASQ   | Argillite/Siltstone/Quartzite | GO    | Gouge                        

The gold value was recorded in the database using the following
priority: average of fire assays, if available, single fire assay if available,
or AA assay. Unsampled intervals are omitted from the database and treated as
zero values in the compositing routine, and lost-core intervals recorded as -9.
Previous databases had recorded below-detection-limit (BDL) assays as values
ranging from 0.015 to 0.000 depending on the detection limit and the person
doing data entry. The lowest detection limit from any program was 0.005g/t, so a
standard BDL value of 0.001g/t was chosen as a flag that the sample was actually
assayed, but had negligible gold. Raw assays were capped at 100g/t for all
deposits, which affected 8 assays out of 29,650 assays. Further reduction of
risk due to anomalous assays was accomplished with high-grade distance
restrictions during estimation.

For the year-end 2007, NI 43-101 compliant resource estimate of
the 1,360 drill holes in the Ketza database at that time, 82 drill holes were
rejected from the database due primarily to irreconcilable location issues. A
few were rejected due to the hole orientation which drilled directly down the
vein making any given intercept biased or unable to be extrapolated accurately
to any given volume. Three RC holes were also rejected due to likely downhole
contamination. Figure 18 is a drill hole location map showing the drilling that
was used for resource estimation. Another 34 non-resource holes contained no
significant mineralization and were drilled outside of any deposit of interest.
Although they were not specifically excluded they had no influence on this
resource estimate. Another 35 were drilled in the Knoll Zone which is
essentially mined out and therefore was not estimated. Table 24 is a summary of
drill holes used and rejected by model area.

Table 24: Summary of Drill holes used and Rejected by Model
Area

|      | Used
      for Resource | Rejected | Non-Resource | Total         
|----- | ----------------------- | -------- | ------------ | --------------
|Model | Number                  | Length   | Length       | Number        
|Area  | of
      Holes          | Drilled  | Sampled      | of
      Holes
|PEEL  | 583                     | 51,502   | 14,111       | 38            
|PENG  | 335                     | 38,575   | 12,312       | 20            
|SHAM  | 216                     | 27,133   | 18,702       | 10            
|TARN  | 75                      | 6,452    | 1,901        | 12            
|KNOLL |                         |          |              | 2             
|Total | 1209                    | 123,662  | 47,028       | 82            

Mineralized envelopes were defined based upon lithology codes
and gold assays, and modeled as wireframes in either Minesite or Vulcan
software. In most areas these represent limestone hosted manto and chimney
zones. In the Shamrock model area, these are siliciclastic hosted veins and
stockworks. Fifty-two separate wireframes were created, 23 in the Peel Area, 13
in the Penguin-Lab area, 12 in the Shamrock area, and 4 in the Tarn area. The
locations of these shapes are shown in Figure 19. Cross-sections are shown in
figures 19 through 21.

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72

Figure 18: Drill Hole Locations and Modeled Areas with
Deposit Names



Figure 19: Cross-Section, Peel Deposit



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73

Figure 20: Cross-Section, Gulley Deposit



Figure 21: Cross-Section, Lab Deposit



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74

For the year-end 2007, resource estimate the geologic database
was used to determine the intensity of mineralization, and the oxidation state
of the mineralization. A temporary field called TotSu was derived by
adding the percentages of all of the logged sulfides (PO+PY+APY+CPY).

An oxidation code was calculated based upon the geologic logs,
with influence from the LCODE, the total sulfides and the OXINT fields:

The resulting codes (valued 1 through 5) can be described as
follows:

| | 1. | Massive Oxide.            
| | -- | --------------------------
| | 2. | Moderate Oxide.           
| | 3. | Moderate or Unmineralized.
| | 4. | Moderate Sulfide.         
| | 5. | Massive Sulfide.          

The highly variable specific gravity of the ore mineralization
has been a significant issue at Ketza in the past. The oxide mineralization is
very light, and the sulfide material is extremely heavy. Estimates made prior to
mining did not adequately account for this. Very high-grade oxide material was
extrapolated into sulfide areas and ounces were over-estimated. Due to this
issue, exhaustive studies were undertaken by Canamax in the late 1980s to get a
more accurate density factor for the oxide material which was their primary mill
feed.

In 2006 numerous density measurements were made on sulfide ore,
yielding an average density of 4.2 for sulfide ore in the Flint, Gulley, Freds
Vein and Tarn areas.

In late 2007, specific gravity measurements were collected for
101 samples from across the entire resource area. Another 69 samples from
throughout the resource areas were collected in 2008 for specific gravity
analysis. The 2007 and 2008 specific gravity sample analyses were analyzed by
ALS Chemex using method number OA-GRA08a. Due to the relatively few samples
measured and the apparent irrelevance of area on the measurements, samples were
analyzed primarily by lithology/ore type. Only a few samples of pure oxide and
sulfide material were collected for this program because exhaustive studies had
been made of these previously by Canamax in the late 1980s and YGC in
2005-2006. The samples taken in 2007 confirmed these previous studies and that
the average SG of the unmineralized material is 2.75. Based upon the results
form all of the studies, the following scheme was used for assigning specific
gravity values to each drill hole composite:

- Default: SG = 2.75;
- High-grade default, Au greater than 5.0g/t: SG = 3.1;
- Oxide: SG = 2.2;
- Moderate oxide: SG = 2.5;
- Moderate Sulfide: SG = 3.7; and
- Sulfide: SG = 4.2.

Table 25 lists the average and minimum and maximum SG values
(analyzed in 2007) for the various rock types at each of the areas.

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75

Table 25:Statisticsfor SG Data

|Material-> | ASQ
      + Min (Qtz Vn) | Dilution | Host Rock | LS + Min | Oxide | Sulf
|---------- | ------------------------ | -------- | --------- | -------- | ----- | ----
|Area       | #                        | Avg      | Min       | Max      | #     | Avg 
|Flint      |                          |          |           |          | 2     | 2.84
|FV         | 3                        | 2.76     | 2.68      | 2.84     | 2     | 2.77
|Gully      | 5                        | 2.83     | 2.7       | 3.24     | 3     | 2.76
|HD         |                          |          |           |          | 3     | 2.51
|Lab        |                          |          |           |          | 2     | 2.77
|Peel       |                          |          |           |          | 5     | 2.90
|Peng.      |                          |          |           |          | 2     | 3.04
|QB         | 9                        | 2.76     | 2.6       | 3.06     | 9     | 2.92
|Tarn       |                          |          |           |          | 3     | 2.73
|Total      | 17                       | 2.78     | 2.6       | 3.24     | 31    | 2.83

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76

After the specific gravity value was assigned, another database
field (SGAU) was calculated by multiplying SG by the Gold Assay.
This was used in the compositing process to weight the composites by SG.

Drill hole assay data was composited at downhole lengths of
1.5m, broken at mineralized envelope boundaries. Unsampled intervals were
carried at a zero grade. A very few intervals of lost core, usually resulting
from highly oxidized mineralized zones, were omitted from the composites. The
majority LCODE field was recorded in composites, while SGAU, REDOX, and SG were
length-weight averaged as numeric values. After the composites were created, the
gold value was back calculated with the formula: AU = SGAU / SG.

Variograms were generated from 1.5m composites for each main
group of ore zones (Figures 22 and 23). Each group had at least one orientation
which yielded a recognizable variogram structure, but rarely more than one. This
is not uncommon for such discontinuous zones with limited spatial extent and
moderate drill spacing. The relative similarity of the recognizable variogram
ranges, influenced the choice of Major and Semi-Major axis of the search radius
in the grade estimation. Variogram model attributes used for the year-ended 2007
resource estimate are listed in Table 26.

Table 26: Variogram Model Parameters

|Deposit Area | Nugget | Sill_Dif | Range
|------------ | ------ | -------- | -----
|Peel         | 1.20   | 2.2      | 54   
|Ridge        | 0.28   | 1.6      | 51   
|Fork/Break   | 1.50   | 1.1      | 50   
|Lab          | 1.00   | 2.7      | 51   
|Hoodoo       | 1.00   | 4.6      | 60   
|Peng/Tarn    | 1.00   | 1.6      | 45   
|Gully        | 1.00   | 0.7      | 50   
|QB           | 2.00   | 2.0      | 60   
|3M           | 0.50   | 1.7      | 47   

Univariate statistics were used to determine high-grade
restriction levels for each individual area. The Gully deposit was treated
separately from the rest of Shamrock, as it has more consistent high-grade than
the QB and 3m zones. Probability plots and grade histograms were reviewed and
are summarized below in Table 30. Inside the mineralized envelopes, the Peel
area has the most consistent high-grade material, while Shamrock has the least.
The high-grade outside of the mineralized envelopes is relatively insignificant,
and in some cases high-grade restrictions were not required.

Table 27: Composite Summary Statistics by Model Area

|Model Area      | Count
      #Assays | g/t-Au
      Average |       | Quartile
      g/t-Au |        | HG
      Limit
|--------------- | ------------------- | -------------------- | ----- | --------------------- | ------ | --------------
|Min             | Q1                  | Q2                   | Q3    | Max                   | g/t-Au
|Peel Inside     | 2,366               | 5.07                 | 0.00  | 0.14                  | 1.59   | 5.48          
|Penguin Inside  | 1,038               | 2.74                 | 0.00  | 0.02                  | 0.77   | 2.81          
|Shamrock Inside | 830                 | 1.83                 | 0.00  | 0.10                  | 0.57   | 1.91          
|Tarn Inside     | 228                 | 4.14                 | 0.00  | 0.50                  | 1.48   | 4.18          
|Gully Inside    | 246                 | 3.29                 | 0.00  | 1.21                  | 2.03   | 3.64          
|Peel Outside    | 8,739               | 0.157                | 0.001 | 0.003                 | 0.010  | 0.045         
|Penguin Outside | 7,401               | 0.102                | 0.001 | 0.001                 | 0.006  | 0.028         
|Sham. Outside   | 7,779               | 0.147                | 0.001 | 0.005                 | 0.025  | 0.094         
|Tarn Outside    | 997                 | 0.066                | 0.001 | 0.001                 | 0.004  | 0.023         
|Gully Outside   | 4,107               | 0.068                | 0.001 | 0.001                 | 0.006  | 0.021         

Four block models were defined for the model areas as shown in
Figure 18. Each block model consists of a framework with 5m cube blocks.
Wireframes of the 52 mineralized envelopes were used to assign a percentage
inside the envelope, and estimations were made separately for the inside and
outside block fractions. Any block which had more than 0.5% inside a mineralized
envelope was assigned a code corresponding to the wireframe.

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77

Grade estimations were made using the inverse distance squared
estimation method. A minimum of 3 samples were required with a maximum of 12
composites used for each block. Based on the relative similarity of the
recognizable variograms, a standardized search radius of 50m x 50m was used. The
minor axis was generally kept down to between 7 and 12m depending on the zones
thickness and geometry. Zones which did not conform to a plane required wider
minor searches to ensure continuous estimation of blocks.

Estimation of block grades for the blocks and fractions outside
the mineralized envelope used a consistently narrow search to avoid smearing
grades over a spherical region. The orientation of the search radii for the
outside blocks varied from region to region depending upon the apparent
alignment of ore grades.

AUSG and SG values were estimated in the block models. This was
done as a means of weighting the estimation by the specific gravity of the
samples. Other variables include number of composites, distance to the closest
composite and average distance to composites used in the estimation. Gold values
were back calculated with the following formulas by dividing AUSG by SG.

An extra gold variable was estimated simply as a means of
applying the high-grade gold restriction. This restriction prevents a composite
above a specific threshold from influencing any block beyond a distance which is
shorter than the search radius. In this case the restricted search radii used
for samples above the threshold was 35m x 35m x 5m inside the mineralized
envelopes, and 20m x 20m x 5m for samples outside the mineralized envelopes.

Resources for the year-ended 2007 were classified by distance
to nearest sample within most ore shapes. Any block which was within 35m of the
nearest sample was designated as indicated, except in a few ore shapes which
were forced to the designation of inferred. In a few shallow, well-drilled
mineral envelopes, measured resources were allowed where the distance to the
nearest composite was less than 15m, and at least 12 composites were used to
estimate the block. This was allowed in 2 shapes in Peel, 2 in Lab and in the
Gully zone in Shamrock. Blocks which were more than 35m from the nearest sample
were designated as inferred in all ore shapes. Since these alignments used for
outside blocks are approximate and subject to revision, all outside block
grades are considered inferred.

This year-end 2007 mineral inventory of all estimated (unmined)
material above a 1.0g cut-off is supplied for comparison to previous resources
which were listed in this fashion (Table 31). This is only considered an
inventory, as much of the material will likely never be recoverable with an open
pit, and should therefore be listed at a higher cut-off.

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78

Figure 22: Peel Model Variograms



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79

Figure 23: Penguin-Lab Shamrock Variograms



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80

Table 28: Year-End Mineral Inventory at a 1.0g/t Cutoff
Grade

Measured
        + Indicated
      InferredArea
      kt
      koz
      g/t-Au
      kt
      koz
      g/t-AuPeel
      2,444
      409
      5.21
      600
      45
      2.31Penguin-Lab
      965
      138
      4.44
      640
      41
      2.01Shamrock
      1,630
      149
      2.85
      1,292
      101
      2.44Tarn
      86
      10
      3.50
      61
      4
      2.07Total
      5,125
      706
      4.29
      2,593
      191
      2.29


Resource Definition

In order to distinguish between potential Open Pit Resources
and Underground Resources for the year-end 2007 estimation, pit optimizations
were performed using Minesights Lerchs-Grossmann implementation. The parameters
used for these optimizations were fairly liberal, as this exercise was done
simply to determine which blocks could reasonably be expected to be mined at
open pit cut-offs. A 1.0g/t resource cut-off was applied to any block that could
optimistically be mined by an open pit, and a 3.0g/t cut-off was applied to
blocks outside of the optimistic pit, to account for higher underground mining
costs for those blocks. This was not done as definition of reserves, simply as a
way of eliminating the portion of the Mineral Inventory which could not
reasonably be expected to be recovered economically.

Pit Optimization Net Value Calculation

For the year-end 2007 resource estimate, a net value (in US$)
was calculated for every block in the model. The net value considers mining
cost, ore (process) cost, and recoverable gold value as outlined below. The
block model tracks the fractions of blocks within mineralized envelope
wireframes separately from the portion outside of the wireframes. The portion
inside the wireframe typically is higher-grade and represents the potential ore
portion of the block. Ore costs and recoverable values can be applied to the
inside and outside block fractions separately. Calculation of the values
outlined below results in the net value for each block.

- Mining Cost:The calculation for mining cost is fairly simple and
  involves multiplying the volume of the block by a tonnage factor to come up
  with a block tonnage. If blocks intersect topography, the block tonnage is
  reduced by the percent portion of the block above topo. A $2.82/t value is
  multiplied by the block tonnage to come up with a per block mining cost. For
  the purposes of the cost to mine a block of material, a blanket tonnage factor
  of 2.75t/m3was applied on the premise that changes in density will
  not markedly change the cost to blast, mine, and haul a given volume of rock
  as factors such as haul distance and equipment size are usually more
  important;
- Ore Cost:The total process cost and any additional ore tonnage
  costs are calculated for the potential ore fraction of each block. The per
  tonnage costs are multiplied only by the tonnage of the potential ore fraction
  of each block;
- Recoverable Value:Likewise, the recoverable value is calculated
  only for the potential ore fraction of each block. The gold grade is
  multiplied by price per gram, ore tonnage and the metallurgical recovery;
- Ore Revenue:Ore costs per block are then subtracted from the
  recoverable value, and if the result is positive, this is the ore revenue for
  the block. If the ore costs exceed the recoverable value, then it is not worth
  processing the block, and the ore revenue is set to zero; and
- Net Value:The net value of the block is simply the ore revenue
  minus the mining cost. Analysis of net values within the blocks can be used to
  determine waste, sub-ore, and ore based on mine-cut-off versus mill-cut-off. A
  waste block will have a negative net value equal to the cost to mine the
  block. An ore block will have a net value of more than zero, and is worth
  mining by itself. A sub-ore block will have a negative net value greater
  than the mining cost, and is worth processing, but only if it needs to be
  mined in order to get to an ore block.

| | Optimization Parameters |                                       
| | ----------------------- | --------------------------------------
| |                         |                                       
| | Gold Price:             | $1,000 $/troy oz                      
| | Metallurgical recovery  | 85%                                   
| | Specific Gravity        | SG variable as modeled per
      block

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81

(for gold content and process costs)Specific Gravity
      2.75(for mining costs)Mining cost/t
      $2.82Process cost/t-ore
      $12.00


These parameters are based on a cost profile assuming an
operation of 1,500t-ore/d and an overall 8:1 stripping.

Lerchs-Grossmann Pit Optimization

Once the net values have been calculated, the Lerchs-Grossmann
process operates solely on these, using the specified pit slope. In the pit
optimization analysis, blocks must contain enough revenue in the VAL fields to
not only pay for their own mining, but also help pay for waste blocks above
them. Very low-grade blocks (with only minor revenue after process to partially
offset their own mining) can have their mining paid for by higher-grade blocks
below them, thus they can be treated as a form of incremental ore. Note that the
cut-off grade for each block will differ slightly as there are a variety of
modeled SGs which influence the net value in conjunction with the gold grade.
The output of the process is a surface file, which can be used in tabulating
resources from the block model. The mineral resource for Ketza River is
presented in Table 29. Figure 25 is a map showing the extent of the pits
resulting from this exercise.

Year-End 2007 Resource Statement

Table 29: Ketza River Resource Statement

|                       | Open
      Pit Resource | Underground
      Resource | Combined
      (OP+UG)
|---------------------- | ----------------------- | -------------------------- | ----------------------
|Area                   | kt                      | g/t-Au                     | koz                   
|Measured               |                         |                            |                       
|Peel                   | 303.2                   | 7.17                       | 69.8                  
|Penguin-Lab            | 205.2                   | 7.70                       | 50.8                  
|Shamrock               | 182.5                   | 3.65                       | 21.4                  
|Tarn                   | 0.0                     |                            | 0.00                  
|Total Measured         | 690.9                   | 6.39                       | 142.0                 
|                       |                         |                            |                       
|Indicated              |                         |                            |                       
|Peel                   | 1,878.6                 | 5.14                       | 310.6                 
|Penguin-Lab            | 567.7                   | 3.56                       | 65.0                  
|Shamrock               | 519.6                   | 3.58                       | 59.8                  
|Tarn                   | 54.6                    | 4.26                       | 7.5                   
|Total Indicated        | 3,020.5                 | 4.56                       | 442.9                 
|                       |                         |                            |                       
|Measured and Indicated |                         |                            |                       
|Peel                   | 2,181.80                | 5.42                       | 380.4                 
|Penguin-Lab            | 772.9                   | 4.66                       | 115.8                 
|Shamrock               | 702.1                   | 3.60                       | 81.2                  
|Tarn                   | 54.6                    | 4.26                       | 7.5                   
|Total M&I              | 3,711.4                 | 4.90                       | 584.9                 
|                       |                         |                            |                       
|Inferred               |                         |                            |                       
|Peel                   | 298.1                   | 2.79                       | 26.7                  
|Penguin-Lab            | 188.1                   | 2.33                       | 14.1                  
|Shamrock               | 229.7                   | 2.83                       | 20.9                  
|Tarn                   | 46.3                    | 2.20                       | 3.3                   
|Total Inferred         | 762.2                   | 2.65                       | 65.0                  

Grade tonnage curves were calculated at 0.5g/t cutoff
intervals. Figure 26 shows grade tonnage curves for the entire mineral envelope
and the grade tonnage curve only within the $1000 gold optimized pit shapes.

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82

Figure 25: Optimized Pits, $1,000 Gold



---

83

Figure 26: Grade Tonnage Curves



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84

(c)         
   Other Properties

Silver Valley Property, Yukon  We were granted an
option to acquire a 100% interest in six (6) claims located in the Yukon
Territory. The primary focus of exploration for this property will be silver,
with a secondary focus on gold, lead and zinc. We have also staked 124 claims
around the six claims.

Bay Property, Yukon  We have staked 36 claims near
Watson Lake, Yukon. The primary focus of exploration for this property will be
silver.

Silver Bar, Arizona We have a 100% interest in 55
claims in Pinal County, Arizona. The focus of exploration of this property will
be gold and copper.

Item 4A. Unresolved Staff Comments.

None.

Item 5. Operating and Financial Review and Prospects.

Management Discussion and Analysis

(in 000s of US Dollars except for per ounce numbers, per
share numbers and number of shares, unless otherwise stated)

INTRODUCTION

The following managements discussion and analysis
(MD&A) relates to the financial condition and results of operations of
Yukon-Nevada Gold Corp. (the Company or Yukon-Nevada) together with its
wholly owned subsidiaries as of December 31, 2009, and is intended to supplement
and complement the Companys audited consolidated financial statements for the
year ended December 31, 2009. The MD&A has been approved by the Companys
Audit Committee and Board of Directors prior to release. Readers are cautioned
that the MD&A contains forward-looking statements and that actual events may
vary from managements expectations. The consolidated financial statements and
MD&A are presented in United States dollars and have been prepared in
accordance with Canadian generally accepted accounting principles (Canadian
GAAP).

The Companys shares are listed on the TSX (trading symbol 
YNG) and the Frankfurt Stock Exchange (trading symbol NG6) and at March 31,
2010 the Company had 624,751,195 shares outstanding.

OVERALL PERFORMANCE

Yukon-Nevada Gold is engaged in gold mining and related
activities, including exploration and acquisition of gold-bearing properties,
extraction, processing and reclamation. The Companys gold production and
exploration activities are carried out in Canada and the United States. Gold is
produced in the form of dore, which is shipped to refineries for final
processing. The profitability and operating cash flow of Yukon-Nevada Gold is
affected by various factors, including the amount of gold produced, the market
price of gold, operating costs, interest rates, regulatory and environmental
compliance, the level of exploration and capital expenditures, general and
administrative costs, and other discretionary costs. Yukon-Nevada is also
exposed to fluctuations in foreign currency exchange rates and varying levels of
taxation that can impact profitability and cash flow. The Company seeks to
manage the risks associated with its business operations; however, many of the
factors affecting these risks are beyond the Companys control.

The Company receives its revenues through the sale of gold in
U.S. dollars, while costs are incurred in both U.S. and Canadian currencies.
Therefore, movements in the exchange rate between the Canadian and the U.S.
dollars have an impact on profitability. The Canadian dollar strengthened
against the U.S. dollar in 2009, resulting in foreign exchange losses on
translation due to the net Canadian dollar monetary liability position of the
Canadian operations.

ANNUAL HIGHLIGHTS

- During 2009 the Jerritt Canyon process mill operated for 130 of 365 days
  as a result of stop orders in place from the

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85

- In a significant move to address these environmental concerns, the Company
    completed the installation of a calomel emission system which is used to control
    mercury emissions as wells as related measurement instrumentation on July
    20, 2009. The calomel system is state of the art technology and has passed
    the targets set by the NDEP by a significant margin in independent tests taken
    since the October startup. The Company has also carried out significant overhauls
    and upgrades of many key components of the roaster, leach circuit, thickener
    and other sections of the mill.
- The Company had a loss of $42.7 million in 2009, compared to a loss of $105.4
    million in 2008. In the second quarter of 2009, the Company dismissed Golden
    Eagle International Inc (Golden Eagle) who was acting as the operator
    of the facility from the site. The Company has subsequently uncovered numerous
    discrepancies in the records that were provided, including a significant shortfall
    in the stockpiles of approximately 90,000 tons that were reported as processed
    as well as the ounces that were reported to be in circuit at the time of the
    June 2009 shutdown, contributing to the significant loss in 2009. Included
    in 2008 loss was a write-down of mineral properties and property, plant and
    equipment and an increase the asset retirement obligation of $71.9 million
    and a restructuring charge of $4.5 million, both the result of the shut down
    in mining operations in August 2008 due to higher costs.
- During the year, the Company issued 90.4 million units for total proceeds
    of $6.5 million. An additional 225,883 million shares were issued on the exercise
    of warrants for proceeds of $18.7 million.

Jerritt Canyon

Jerritt Canyon, consisting of a milling facility and two
underground mines, the Smith and the SSX, was purchased by the Company on June
20, 2007 with the acquisition of Queenstake Resource Limited (Queenstake).

Jerritt Canyon Operating Highlights

Q1 2009
    
    
    Q2 2009
    
    
    Q3 2009
    
    
    Q4 2009
    
    
    2009Gold (troy ounces)Produced
    
    
    
    
    5,180
    
    
    
    
    
    4,590
    
    
    9,770Sold
    
    
    
    
    5,180
    
    
    
    
    
    4,590
    
    
    9,770Gold sales
    $
    
    
    $
    4,788
    
    $
    
    
    $
    5,125
    
    $
    9,913Cost of gold sold
    
    68
    
    
    6,089
    
    
    1,347
    
    
    17,679
    
    
    25,183Mine and mill shutdown costs
    
    2,452
    
    
    2,460
    
    
    5,176
    
    
    462
    
    
    10,550Average gold price per ounce
    
    
    
    
    924
    
    
    
    
    
    1,117
    
    
    1,015Q1 2008
    
    
    Q2 2008
    
    
    Q3 2008
    
    
    Q4 2008
    
    
    2008Gold  produced from mined
      ore (troy ounces)
    
    8,056
    
    
    9,187
    
    
    14,888
    
    
    -
    
    
    32,131Gold  produced from purchased ore (troy ounces)
    
    5,414
    
    
    2,899
    
    
    4,288
    
    
    -
    
    
    12,601Gold  produced - total (troy ounces)
    
    13,470
    
    
    12,086
    
    
    19,176
    
    
    -
    
    
    44,732Gold  sold from mined ore
      (troy ounces)
    
    14,890
    
    
    6,405
    
    
    14,644
    
    
    550
    
    
    36,489Gold  sold from purchased ore (troy ounces)
    
    10,700
    
    
    2,300
    
    
    5,500
    
    
    1,371
    
    
    19,871Gold  sold - total (troy ounces)
    
    25,590
    
    
    8,705
    
    
    20,144
    
    
    1,921
    
    
    56,360Gold sales
    $
    21,789
    
    $
    7,773
    
    $
    17,162
    
    $
    2,257
    
    $
    48,981Cost of gold sold
    
    22,408
    
    
    12,463
    
    
    20,606
    
    
    3,265
    
    
    58,742Mine and mill shutdown costs
    
    4,360
    
    
    3,497
    
    
    
    
    
    5,258
    
    
    13,115Average gold price per ounce
    
    851
    
    
    892
    
    
    852
    
    
    888
    
    
    869


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86

|                                                   |   | Q3 2007 |  |   | Q4 2007 |  |   | 2007   | 
|-------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------ | 
|Gold - produced from mined ore (troy ounces)       |   | 34,636  |  |   | 24,464  |  |   | 59,100 | 
|Gold  produced from purchased ore (troy ounces)   |   | 13,693  |  |   | 24,405  |  |   | 38,098 | 
|Gold  produced -
      total (troy ounces)        |   | 48,329  |  |   | 48,869  |  |   | 97,198 | 
|Gold  sold from mined ore (troy ounces)           |   | 26,474  |  |   | 31,040  |  |   | 57,514 | 
|Gold  sold from
      purchased ore (troy ounces) |   | 12,502  |  |   | 20,100  |  |   | 32,602 | 
|Gold  sold - total (troy ounces)                  |   | 38,976  |  |   | 51,140  |  |   | 90,116 | 
|Gold sales                                         | $ | 26,236  |  | $ | 38,224  |  | $ | 64,460 | 
|Cost of gold sold                                  |   | 18,757  |  |   | 28,535  |  |   | 48,218 | 

During 2008 the Jerritt Canyon milling operations were shutdown
for the majority of the year. Early in 2008 the shutdown was undertaken to
enhance the safety and performance of the mill and mines. Subsequent to this
voluntary shutdown, on March 19, 2008, the Company received a stop order from
the NDEP due to issues involving the installation and maintenance of
instrumentation necessary to monitor key operating parameters in the emissions
control systems. Management worked diligently with the NDEP to comply with the
stop order and subsequently received approval to recommence milling operations
subject to meeting specific requirements within the order. In late April 2008,
upon completion of the work program undertaken to make infrastructure and safety
improvements to the mill and mine sites, the two producing gold mines at Jerritt
Canyon (the Smith mine and the SSX mine) and the process mill resumed commercial
operations.

On August 8, 2008 the Company made the decision to shutdown
mining operations due to the increasing costs associated with the current mining
plan and the required infrastructure expenditures remaining to be completed. The
plan to continue toll milling after the shutdown of the mines was halted to
complete repair work on a key component damaged at the process mill. As a
result, the workforce at Jerritt Canyon was reduced to maintenance levels.

During the third and fourth quarters of 2008, the Company
reviewed the property and based on the uncertainty with respect to their ability
to move forward with the development plan, took a full charge of $69.4 million
against the value of the Jerritt Canyon mineral property and an additional $2.2
million against related property, plant and equipment.

In the first quarter of 2009, the Company submitted new design
plans for mercury emission control equipment and installed required continuous
emissions monitoring instrumentation. On March 25, 2009, after receiving
approval on the submitted plans Jerritt Canyon received the restart order from
the NDEP allowing restart of milling operations. The years first gold was
poured in the second quarter on April 16, 2009.

On May 30, 2009, Jerritt Canyon shutdown roaster operations due
to a delay in the fabrication of certain fiberglass ductwork required in the
construction of the new mercury emission control system. This resulted in the
Company being unable to meet the deadline for this equipment to be installed as
set by the NDEP as a condition of restarting in March and a stop order was once
again issued to the Company.

The failure to meet this deadline, along with significant
operating issues noted during the short period in which the mill was operated,
resulted in the dismissal of the operator, Golden Eagle from the site.
Subsequent to their dismissal, the Company has uncovered numerous discrepancies
in the records that were provided, including a significant shortfall in the
stockpiles that were reported as well as the ounces that were in circuit at the
time of the shutdown. These shortfalls have resulted in a significant loss in
2009 which the Company is in the process of attempting to recover through claims
against Golden Eagle.

With the dismissal of Golden Eagle, the Company took over the
construction of the calomel system and rehired employees to support this effort.
The installation of the calomel emission system to control mercury emissions and
the calibration of the system instrumentation was completed by July 20, 2009.
The Company also carried out a significant overhaul and upgrade of many key
components of the roaster, leach circuit, thickener and other sections of the
mill. The calomel system put in place is from a design proprietary to the Chief
Operating Officer of the Company and has surpassed the requirements put in place
by the NDEP in subsequent stack tests conducted by an independent engineering
company.

The Company resumed operations on October 20, 2009 after coming
to an agreement with the NDEP in the form of a Consent Decree issued by the
Attorney General of the State of Nevada, representing the NDEP. The Consent
Decree resolves all of the compliance concerns of the NDEP in relation to the
mill and surrounding land holdings of the Company, as well as related

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87

environmental concerns and gives the Company the right to
operate the milling facility from the effective date. The Consent Decree records
and agrees both parties to the terms of an environmental work program and
includes penalties for not completing these work programs. It significantly
reduces the likelihood of further stop orders being issued to the Company as it
provides a future mechanism for resolving any disputes.

Ketza River

The Company reactivated the Ketza River project camp in May
2009. Since that time exploration work performed included logging, sampling, and
assaying of the remaining diamond drill holes completed in 2008, reconnaissance
mapping and surface rock-chip sampling on outlying targets, geophysics, drill
targeting and diamond drilling, historical drill hole data verification, and
geological modeling to support a new resource estimation.

Results were received from the Gold Flow, 3-M and QB zones in
the Shamrock area and from the Hoodoo, Tarn and Break Zones in the Manto area.
Most of the drill holes were targeted to expand the margins of known mineralized
zones and to explore new targets. Five of the reported drill holes were drilled
within the known resource areas, using similar drill hole assay quality
assurance and quality control procedures as the other exploratory drill holes,
to acquire mineralized rock for metallurgical test work. Once sufficient
financing is in place, management will continue further exploration and
definition of the ore body through drilling and geophysical surveys, focus on
completing the Pre-feasibility Study and commence development at the site.

Silver Valley

Minimal exploration work was carried out on the Silver Valley
property in 2009. For 2010 the Company needs to complete the road access to this
property and perform gravity survey work. This work will commence when
additional funding becomes available.

Yukon-Shaanxi Mining Company

During 2009, the Company, in conjunction with the joint venture
partner, Northwest Mining and Geology Group Co., Ltd. for Nonferrous Minerals
(NWME) performed geological and geophysical work at the Skukum property owned
by Tagish Lake Gold (Tagish) (see Related Party Transaction section) as part
of the ongoing due diligence for a possible merger. In September, it was decided
to not extend the Amalgamation Agreement and rather pursue a more secured
position on the property. Ongoing negotiations with MacQuarie Bank Limited
resulted in the assignment of their credit agreement with Tagish for total
payment of C$1.5 million. This was funded through an additional equity
contribution from NWME of $1 million and cash from treasury. The Company did not
participate in this equity contribution and as a result diluted its economic
interest from 50% to 37.5% at December 31, 2009. The Company continues to have
the option to purchase further shares in Yukon- Shaanxi to regain its 50%
interest. The credit agreement is secured by Tagishs interest in the property.

In June of 2009 the option to continue work at Mt. Nansen was
not renewed as the Company focused on the Skukum property held by Tagish. Costs
of $0.1 million that were capitalized to this property in 2008 were written off
in the second quarter of 2009.

Yukon-Shaanxi is continuing to review other mining interests in
the Yukon for further investment. The Company proportionately consolidates its
37.5% share of the accounts of this joint- venture as each joint venture partner
maintains equal representation on the Board of Directors. As at December 31,
2009, Yukon-Shaanxi has spent $0.3 million on exploration activities in the
Yukon territories.

SELECTED ANNUAL FINANCIAL INFORMATION

|                                         |   | 2009    |   |   | 2008   |   |   | 2007   | 
|---------------------------------------- | - | ------- | - | - | ------ | - | - | ------ | 
|Gold sales                               | $ | 9,913   |   | $ | 48,981 |   | $ | 64,460 | 
|Cost of sales                            |   | 26,049  |   |   | 58,742 |   |   | 48,218 | 
|Gross Margin                             |   | (16,136 | ) |   | (9,761 | ) |   | 16,242 | 
|Temporary shutdown costs                 |   | 10,550  |   |   | 13,115 |   |   |       | 
|Depletion, depreciation and amortization |   | 6,271   |   |   | 9,279  |   |   | 5,731  | 

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88

|                                                    |  | 2009    |   |  | 2008     |   |  | 2007    |  
|--------------------------------------------------- |  | ------- | - |  | -------- | - |  | ------- | -
|Accretion                                           |  | 2,890   |   |  | 2,117    |   |  | 1,082   |  
|Earnings from mining operations                     |  | (35,847 | ) |  | (34,272  | ) |  | 9,429   |  
|Net loss                                            |  | (42,660 | ) |  | (105,360 | ) |  | (1,899  | )
|Loss per share - basic                              |  | (0.13   | ) |  | (0.57    | ) |  | (0.02   | )
|Weighted average # of shares outstanding (millions) |  | 339.0   |   |  | 185.1    |   |  | 121.4   |  
|                                                    |  |         |   |  |          |   |  |         |  
|Total assets                                        |  | 195,441 |   |  | 199,636  |   |  | 296,167 |  

The Company acquired the Jerritt Canyon mine on June 20, 2007
with the acquisition of Queenstake Resource Limited (Queenstake). Jerritt
Canyon consists of a milling facility as well as two underground mines, the
Smith and the SSX. Jerritt Canyon operated continuously from the date of
acquisition on June 20, 2007 until February 22, 2008 when it shut down to
address infrastructure and safety concerns. In May 2008, Jerritt Canyon
recommenced commercial production at reduced levels. On August 8, 2008 mining at
Jerritt Canyon ceased again as a result of increasing costs and dilution
resulting from the mine plan as well as the ongoing required development and
infrastructure expenditures resulting from years of neglect. Subsequent to the
closure of the mines, as a result of a dirty air fan that was damaged in the
following week, the milling operation was also shut-down. Mining and milling
operations did not resume for the remainder of 2008 while management pursued
additional financing and continued work on addressing environmental concerns
raised by the NDEP in their stop order issued in March of 2008. Milling
operations resumed March 25, 2009 when approvals were received from NDEP on the
progress and plans developed by the Company.

On May 30, 2009 Jerritt Canyon shutdown roaster operations due
to a delay in the fabrication of certain fiberglass ductwork required in the
construction of the new mercury emission control system, resulting in the
failure to meet the deadline for this equipment to be installed as set by the
NDEP in their March restart order. The Company was able to complete the
installation of a calomel emission system and the system instrumentation on July
20, 2009.

After coming to an agreement with the NDEP in the form of a
Consent Decree, the Company resumed operations on October 20, 2009. The Consent
Decree resolves all of the compliance concerns of the NDEP in relation to the
mill and surrounding land holdings of the Company, as well as related
environmental concerns and gives the Company the right to operate the milling
facility from the effective date.

The Company incurred a pre-tax loss of $42.8 million during the
year ended December 31, 2009, compared with a pre-tax loss of $117.4 million in
the year-ended December 31, 2008. The decrease in loss from 2008 to 2009 reflect
the absence of the write-downs of $76.4 million recorded in 2008. However, 2009
continued to be hampered by poor operational results of $16.1 million loss on
mining operations and temporary shutdown costs of $10.6 million. The decrease in
results from 2007, which were a loss of $0.9 million, to 2008 is primarily a
result of the shutdown of mining operations in August 2008 and the subsequent
impairment charges related to the Jerritt Canyon mineral property and related
assets totaling $76.4 million, a $26.0 million reduction in results from mining
operations, shutdown related costs of $13.1 million incurred during the closure
of Jerritt Canyon as well as restructuring costs relating to the workforce
reduction at Jerritt Canyon of $4.5 million.

The Company incurred a net loss of $42.7 million after income
taxes during year ended December 31, 2009, reflecting minimal taxes as the
Company has not recorded the tax benefit relating to the current year loss. The
Company incurred a net loss of $105.4 million after income taxes during year
ended December 31, 2008. The income tax recovery of $12.1 million recorded in
2008 reflects the increase in tax losses recorded as future income tax assets
available to offset against future taxable income, net of the valuation
allowance that provides for uncertainty of the use of some of the loss carry
forwards. Future income taxes are a non-cash item, and due to the availability
of these loss carry forwards there will likely be no requirement to pay income
taxes in the foreseeable future.

RESULTS OF OPERATIONS

Gold sales:

For the year ended December 31, 2009, the Company realized gold
sales of $9.9 million on sales of 9,770 ounces of gold compared with realized
gold sales of $49.0 million on sales of 56,360 ounces of gold in 2008 and $64.5
million in sales of

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89

90,116 ounces in 2007. The decrease in 2009 from 2008 reflects
production start up issues resulting from several stop and start cycles
throughout 2009, the lower grade processed in 2009 from existing stockpiles and
operating issues.

Operating issues noted by the Company during the short period
in which the mill operated in the second quarter of 2009 resulted in the
dismissal of Golden Eagle from the site. Subsequent to their dismissal, the
Company uncovered numerous discrepancies in the records, including a significant
shortfall in the stockpiles that were reported as well as the ounces that were
in circuit at the time of the shutdown. These shortfalls have resulted in a
significant loss in 2009 which the Company is in the process of attempting to
recover.

The lower number of ounces sold in 2008 compared with 2007 is
largely due to the significantly reduced duration of operations during the year.
This was partially offset by the higher average price realized of $869 per ounce
in 2008 compared with $715 per ounce in 2007.

Gross margin  mining operations:

Gross margin from mining operations was a loss of $16.1 million
for the year ended December 31, 2009, compared to a loss of $9.8 million for the
year ended December 31, 2008 and operating earnings of $16.2 million in the year
ended December 31, 2007. The Company produced 9,770 ounces of gold during the
year ended December 31, 2009 compared to 56,360 ounces in 2008 and 97,198 ounces
in 2007. In 2009, the stockpile shortfall, lower production and operational
issues, discussed above (see Gold sale discussion), negatively impacted the cost
of gold sold. The negative gross margin in 2008 was a result of the higher than
normal operating costs for mining operations, due to the extent of development
and infrastructure work required in the two operating mines at Jerritt Canyon
that was being performed concurrently with mining activities. The mining
operations shut down on August 8, 2008 as the Company began work on a new mine
plan and financing to recommence operations.

Temporary shutdown costs:

As previously noted the Jerritt Canyon mine has operated
intermittently in 2009 and 2008 while safety, operational and environmental
issues were resolved. The mine operated for 130 days in the year ended December
31, 2009 compared to 159 days in 2008. During the temporary shutdowns the
Company incurred significant expenditures, some of which benefit the operations
beyond the upcoming year and have been capitalized to plant and equipment
accordingly. Expenditures that did not have a future economic benefit to the
Company were included in the Statement of Operations as temporary shutdown
costs.

Temporary shutdown costs were $10.6 million in 2009 compared to
$13.1 million in 2008 reflecting a reduced labour force and operations to
contain costs in 2009. The Company has been reluctant to reduce staff levels in
2009 due to the start and stop nature of the operations and maintaining staffing
levels is crucial to startup success and creating a trusting environment with
the employees.

Depreciation, depletion and amortization:

The Company had $6.3 million in depreciation, depletion and
amortization for the year ended December 31, 2009 compared with $9.3 million and
$5.7 million for the years ended December 31, 2008 and 2007, respectively.

Depreciation expense was lower in 2009 over 2008 due to the
reduced asset base arising from the sale of assets in 2008 and 2009, impairment
charges taken in 2008 as well as a review in late 2008 which extended the lives
of some of the high value mill assets. Depreciation expense was significantly
higher in 2008 over 2007 as a result of the increase in the property, plant and
equipment balances at Jerritt Canyon and ownership of those assets for the full
year in 2008 compared to six months in 2007. Depreciation is a period cost and
is not impacted by mine closures.

Depletion was nil in 2009 reflecting write-off of Jerritt
Canyon property cost in the third quarter of 2008. Depletion in 2008 was $0.5
million, $1.6 million lower than the comparable 2007 year as depletion is driven
by the number of ounces mined from the Jerritt Canyon mines and there was a 46%
reduction in ounces mined compared to 2007 due to reasons previously discussed.

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90

Accretion

Accretion expense was $2.9 million in 2009 compared to $2.1
million in 2008 and $1.1 million in 2007 due primarily to the fact that the
Jerritt Canyon mine was owned for the full year in 2009 and 2008 compared to six
months in 2007. The asset retirement obligation was increased in the fourth
quarter of 2008 based on revised reclamation estimates based on the life of the
facility and surrounding mine sites which resulted in further increases to the
accretion expense commencing in 2009.

Impairment of Mineral Properties and Equipment

In 2009 there was an impairment charge of $0.7 million related
to certain projects which the Company elected not to continue with.

During the third quarter of 2008 management determined that the
current mining plan was resulting in unprofitable operations due to high
operating costs, low production rates and dilution resulting from years of
neglect. To lower the cost of mining and increase efficiency, management has
determined that additional backfill and development work was required which
cannot be performed while continuing to mine concurrently. On August 8, 2008 a
decision was made to cease all mining activities until a profitable mine plan
could be developed and appropriate financing could be obtained to finance the
required infrastructure work. Once management has established a profitable mine
plan and funding resources are available, the Company intends to recommence
mining.

As a result of the uncertainty regarding the Companys ability
to obtain financing and develop a profitable mine plan, an indicator of
impairment arises under existing accounting rules. The Company has reviewed the
mineral property and related property, plant and equipment and, based on the
uncertainty with respect to their ability to move forward with the development
plan, has taken a full charge against the value of the property and certain
equipment as noted in the table below.

|                                        |   | December 31, 2008 |  
|--------------------------------------- | - | ----------------- | -
|Fair Value assigned on the Acquisition  | $ | 44,306            |  
|Development spending                    |   | 13,995            |  
|Value beyond proven and probable        |   | 13,713            |  
|Depletion of producing properties       |   | (2,607            | )
|Property, plant and equipment           |   | 2,243             |  
|Increase in asset retirement obligation |   | 4,713             |  
|Net Impairment                          | $ | 76,363            |  

See the section on Critical Accounting Estimates for
discussion on impairment testing of long-lived assets.

General and administrative expenses:

The Company incurred $3.1 million in general and administrative
expense for the year ended December 31, 2009, compared with $4.1 million and
$3.6 million in the comparable 2008 and 2007 periods. In 2009, a decrease of
$1.0 million reflects cost cutting measures implemented as a result of poor cash
flow experienced by the Company, offset by $0.3 million in taxes relating to
expenditures for flow-through shares (CEE) as the majority of costs were
incurred in the third and fourth quarter and the tax charge accumulates on the
monthly outstanding balance. In 2009, the Company incurred all of the remaining
flow-through spending and as at December 31, 2009, it has no further obligation
to incur CEE on properties in Canada to flow through to investors. In 2008 the
costs were higher as the operations of the Company were more complex compared
with the first half of 2007 (Queenstake was acquired late in the second quarter
of 2007). Increased costs associated with administering a business in two
countries, the addition of numerous employees, an increase in financial and
taxation compliance and an increase in legal and corporate governance costs have
all been major factors in the increased general and administrative expense of
the Company.

Restructuring charges:

As a result of the suspension of both mining and milling
activities in Jerritt Canyon the Company undertook a significant work force
reduction of 394 employees. The Company is required to provide former employees
with severance equivalent to 60 days of wages and is also required to pay out
any accumulated vacation amounts. The total of these costs were recorded as a
$4.5 million restructuring charge in the third quarter of 2008. As of December
31, 2009, the Company had paid $2.5 million of this obligation.

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91

Interest and other income:

The Company had minimal interest and other income in 2009
compared to income of $4.6 million in 2008 and $2.5 million in 2007 due to lower
cash balances and offsetting interest charges from lien balances payable. During
the third quarter of 2008, the Company sold underground equipment for proceeds
of $4.0 million at a gain of $2.5 million. Interest earned on the commutation
fund (restricted cash) was $1.0 million in 2008, $0.3 million higher than 2007
due to full year ownership of the fund compared to six months in 2007.

Income taxes:

The Company has recorded a nominal income tax expense related
to the Canadian operations, as the US operations incurred a loss for tax
purposes. In 2008 the Company recorded an income tax recovery of $12.1 million,
primarily relating to the recognition of additional loss carry forwards
available to offset taxable income.

The Company offset the total future income tax assets with a
valuation allowance of $39.3 million until there is sufficient evidence that, it
is more likely than not that the Company will be able to utilize these losses to
offset income.

SUMMARY OF QUARTERLY RESULTS

Q1 2009
    
    
    Q2 2009
    
    
    Q3 2009
    
    
    Q4 2009
    
    
    TotalIncome StatementGold Sales
    $
    -
    
    $
    4,788
    
    $
    -
    
    $
    5,125
    
    $
    9,913Cost of gold sold
    
    68
    
    
    6,089
    
    
    1,347
    
    
    18,545
    
    
    26,049Gross margin - mining operations
    
    (68
    )
    
    (1,301
    )
    
    (1,347
    )
    
    (13,420
    )
    
    (16,136
    )Loss from mine operations
    
    (4,733
    )
    
    (6,030
    )
    
    (8,776
    )
    
    (16,308
    )
    
    (35,847
    )Loss before taxes
    
    (5,136
    )
    
    (7,687
    )
    
    (11,672
    )
    
    (18,309
    )
    
    (42,804
    )Net loss
    
    (5,223
    )
    
    (7,687
    )
    
    (11,677
    )
    
    (18,073
    )
    
    (42,660
    )Net loss per share
    
    (0.02
    )
    
    (0.02
    )
    
    (0.03
    )
    
    (0.02
    )
    
    (0.13
    )Weighted average # of shares
      outstanding(000's)
    
    283,191
    
    
    311,964
    
    
    355,249
    
    
    407,379
    
    
    338,967Balance SheetCash and cash equivalents
    
    827
    
    
    1,931
    
    
    952
    
    
    185
    
    
    185Total assets
    $
    197,190
    
    $
    197,394
    
    $
    196,567
    
    $
    195,441
    
    $
    195,441


Q1 2008
    
    
    Q2 2008
    
    
    Q3 2008
    
    
    Q4 2008
    
    
    TotalIncome StatementGold Sales
    $
    21,789
    
    $
    7,773
    
    $
    17,162
    
    $
    2,257
    
    $
    48,981Cost
      of gold sold
    
    22,408
    
    
    12,463
    
    
    20,606
    
    
    3,265
    
    
    58,742Gross margin - mining
      operations
    
    (619
    )
    
    (4,690
    )
    
    (3,444
    )
    
    (1,008
    )
    
    (9,761
    )Loss from mine operations
    
    (8,872
    )
    
    (10,352
    )
    
    (6,866
    )
    
    (8,182
    )
    
    (34,272
    )Loss before taxes
    
    (13,201
    )
    
    (12,777
    )
    
    (77,453
    )
    
    (14,004
    )
    
    (117,435
    )Net loss
    
    (8,884
    )
    
    (5,700
    )
    
    (77,201
    )
    
    (13,575
    )
    
    (105,360
    )Net loss per share
    
    (0.05
    )
    
    (0.03
    )
    
    (0.42
    )
    
    (0.07
    )
    
    (0.57
    )Weighted average # of shares outstanding
    
    175,205,957
    
    
    181,886,630
    
    
    185,450,430
    
    
    197,774,832
    
    
    185,124,008Balance SheetCash and cash equivalents
    
    17,620
    
    
    4,260
    
    
    2,301
    
    
    1,106
    
    
    1,106Total assets
    $
    280,500
    
    $
    306,968
    
    $
    207,824
    
    $
    199,636
    
    $
    199,636


Q1 2007
    
    
    Q2 2007
    
    
    Q3 2007
    
    
    Q4 007
    
    
    TotalIncome statementGold Sales
    $
    -
    
    $
    -
    
    $
    26,236
    
    $
    38,224
    
    $
    64,460Cost
      of gold sold
    
    -
    
    
    926
    
    
    18,757
    
    
    28,535
    
    
    48,218Gross margin - mining
      operations
    
    -
    
    
    -
    
    
    7,479
    
    
    9,689
    
    
    17,168Income (loss) from mine operations
    
    -
    
    
    (926
    )
    
    3,248
    
    
    7,107
    
    
    9,429Earnings (loss) before taxes
    
    (2,360
    )
    
    (2,490
    )
    
    547
    
    
    3,373
    
    
    (930
    )Net earnings (loss)
    
    (2,360
    )
    
    (2,490
    )
    
    547
    
    
    2,404
    
    
    (1,899
    )Net earnings (loss) per share
    
    (0.04
    )
    
    (0.03
    )
    
    -
    
    
    0.01
    
    
    (0.02
    )Weighted average # of shares outstanding
    
    60,590,466
    
    
    78,893,333
    
    
    169,622,435
    
    
    174,845,767
    
    
    121,434,273Balance SheetCash and cash equivalents
    
    8,120
    
    
    67,122
    
    
    48,759
    
    
    41,104
    
    
    41,104Total assets
    $
    36,029
    
    $
    268,198
    
    $
    268,279
    
    $
    296,167
    
    $
    296,167


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92

The Company incurred a loss of $18.5 million during the quarter
ended December 31, 2009, compared to $13.6 million in the quarter ended December
31, 2008. The $4.9 million increase in net loss reflects lower gross margins
from mining operations as a result of inventory adjustments and higher labour
costs, offset by lower temporary mine shut down costs and additional impairment
charges taken in the fourth quarter of 2008.

Gold sales:

During the fourth quarter of 2009, the Company realized gold
sales of $5.1 million on sales of 4,590 ounces of gold, compared with $2.3
million on 1,921 ounces, an increase of $2.8 million due to the cessation of
milling operations at Jerritt Canyon on August 15, 2008. Sales in the fourth
quarter of 2008 related to ounces that were in-circuit or in process at the end
of the third quarter. The average price realized during the fourth quarter of
2009 on gold produced was $1,116 per ounce compared with $888 in 2008.

Gross margin  mining operations:

Gross margin from mining operations decreased from a loss $1.0
million in the fourth quarter of 2008 to a loss of $13.4 million in the fourth
quarter of 2009. The $12.4 million decrease is primarily a result of maintaining
higher labour costs during the period to prepare for restart and also
adjustments that were made to inventory due to discrepancies in records
maintained by the previous operator, Golden Eagle. Subsequent to their dismissal
due to operational concerns in the second quarter, the Company uncovered
numerous discrepancies in the records that were provided and has correspondingly
discovered a significant shortfall in the stockpiles that were reported as well
as the ounces in process at the time of the shutdown. These shortfalls have
resulted in a significant loss in 2009, primarily reflected in the fourth
quarter, which the Company is in the process of attempting to recover. These
issues did not impact cost until the fourth quarter when operations resumed and
it was determined the ounces previously reported as in circuit were not present
and complete stockpile surveys could be taken.

Depreciation, depletion and amortization:

The Company had $1.7 million in depreciation, depletion and
amortization in fourth quarter of 2009 compared to $1.4 million in 2008 due to
significant assets put into service in the fourth quarter of 2009 such as the
calomel system and related instrumentation.

Temporary shut down costs

Temporary shut down costs were $5.3 million in the fourth
quarter of 2008 compared to $0.5 million in the comparable period in 2009 as the
mine was shut down for the entire quarter in 2008 compared to 20 days in
2009.

Impairment of Mineral Properties and Equipment

As noted in the Result of Operations section, at the end of
the third quarter of 2008, management recognized an impairment charge against
the value of the property. In the fourth quarter of 2008 a further $2.2 million
impairment charge was taken related to associated property, plant and equipment
and a charge of $4.7 million related to an increase in the provision for asset
retirement obligations.

General and administrative expenses:

For the three months ended December 31, 2009, the Company
incurred general and administrative expenses of $1.1 million compared with $0.6
million in the comparable 2008 period primarily due to increased personnel,
higher agents fees, and tax charges incurred on unspent flow-through
expenditures. As most of the expenditures were made in the third and fourth
quarter of 2009, the Company continued to incur the monthly charge on balances
remaining until all CEE was incurred by the end of December.

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93

LIQUIDITY AND CAPITAL RESOURCES

During 2009, cash and cash equivalents decreased from
approximately $1.1 million to $0.2 million as the Company continued to struggle
to maintain cash resources. At December 31, 2009 the Company had a working
capital deficiency of $28.8 million, compared to working capital of $7.8 million
at December 31, 2008 as a result of the following activities:

Operations

In 2009 the Company had a loss of $42.7 million, which,
adjusted for non-cash items, resulted in cash outflows of $29.7 million before
changes in working capital. This is comprised primarily of a negative gross
margin of $16.1 million, temporary shut down costs of $10.6 million and general
and administrative costs of $3.1 million. In 2008 the Company recorded a loss of
$105.4 million, which, adjusted for non-cash items, resulted in cash outflows of
$33.3 million before changes in working capital. This is comprised primarily of
a negative gross margin of $9.8 million, temporary shut down costs of $13.1
million, general and administrative costs of $4.1 million and restructuring
costs of $4.5 million. In 2007 the Company recorded a loss of $1.9 million,
which, adjusted for non-cash items, resulted in cash inflows of $11.7 million
before changes in working capital. This was primarily the result of a gross
margin of $16.2 million, offset by general and administrative costs of $3.6
million.

Changes in non-cash working capital were inflows of $10.4
million in 2009 compared to $14.9 million in 2008. In 2009 changes to non-cash
working capital were inflows of $10.4 million due primarily to a draw down of
inventories of $13.9 million and an increase in accounts payable and deferred
revenue of $2.2 million and $4.8 million, respectively, offset by an $8.3
million decrease in payables on to Newmont for ore purchases to Newmont. The
inflows in 2008 were primarily due to a reduction in inventory levels by $12.8
million, increase in accounts payable by $7.4 million, offset by the payment of
payables on ore purchases of $10.6 million. The increase in accounts payable in
2008 is primarily related to the Jerritt Canyon operation and relates to costs
incurred in the third quarter of 2008 prior to closure of the site. Management
has continued to work with many of the suppliers to ensure that long term
relationships are maintained while the Company focuses on returning to
operations. In 2007 changes to non-cash working capital were outflows of $23.5
million due primarily to a buildup of inventories of $15.1 million and a
decrease in accounts payable of $8.0 million, offset by a $2.3 million increase
in payables on ore purchases.

In 2009 the loss from operations, after adjustments for
non-cash items, combined with the change in non-cash working capital, resulted
in cash outflows from operating activities of $19.8 million compared to $18.4
million in 2008 and $11.8 million in 2007.

Investing

Jerritt Canyon

Mine capital and exploration expenditures at Jerritt Canyon
were nil in the year ended December 31, 2009 compared to $9.6 million in the
comparable period in 2008 as management focuses on milling available stockpiles,
completing a new mine plan for the remaining SSX/Steer mines and Starvation
Canyon and pursues sources of funding for ongoing mining activities. The mill at
Jerritt Canyon operated between March 25 and May 30, 2009, and October 20 to the
end of the year, with expenditures during the year ended December 31, 2009 of
$2.6 million, compared with $25.5 million in 2008. In 2009 the expenditures were
focused on completing the calomel system and related instrumentation ($0.9
million), mill instrumentation for the continuous emissions monitoring system
($0.4 million), environmental expenditures for fluid management at the mines and
the mill ($0.4 million), large vehicle purchases ($0.2 million) and mill control
and administrative software ($0.2 million).

During the first three quarters of 2008, the Company continued
to incur higher than anticipated expenditures on investing activities at Jerritt
Canyon as a result of the extensive infrastructure work required at the mine
sites and the process mill improvements. Due to the increasing cost of
continuing to operate the two mine locations, the Company discontinued all
mining activities at Jerritt Canyon on August 8, 2008. A number of vendors filed
liens on Jerritt Canyon assets due to overdue payments for goods and services
for which a stipulated agreement was reached in 2009. However, in the event of a
default (such as from non-payment) under the stipulated agreement the lien
holders could force a sale of assets in order to settle the remaining lien
balances owing. At March 31, 2010, one payment remained under the stipulated
agreement.

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94

In the year ended December 31, 2008, the Company received $4.9
million in refunded reclamation costs from the commutation account, of which
$4.8 million related to a payment for the construction of the evaporation pond
at Jerritt Canyon. In 2008 the Company also contributed an additional $3.2
million including the $1.0 million of interest earned in the year to the
commutation account.

The Company sold underground mining equipment in 2008 for
proceeds of $4.5 million after management determined that mining would not
recommence in the short term.

Ketza River

Exploration expenditures at the Ketza River project in 2009
were $12.7 million, of which $9.2 million remains in accounts payable at the end
of 2009 and therefore had no impact on cash. During 2008 exploration
expenditures at Ketza River were $13.0 million, of which $5.5 million was funded
by cash restricted for future exploration and therefore, had no impact on
unrestricted cash.

2009
    
    
    
    
    
    
    
    
    2008Property,
    
    
    
    
    
    
    
    
    Property,plant and
    
    
    Mineral
    
    
    
    
    
    plant and
    
    
    Mineralequipment
      
      
      properties
      
      
      Total
      
      
      equipment
      
      
      properties
      
      
      TotalMine capital expenditures - Jerritt Canyon
      mine
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    9,626
    
    $
    9,626Mill and equipment capital
      expenditures - JerrittCanyon mine
    
    2,569
    
    
    -
    
    
    2,569
    
    
    25,522
    
    
    -
    
    
    25,522Exploration expenditures -
      Jerritt Canyon mine
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    6,483
    
    
    6,483Exploration expenditures - Ketza River
      project
    
    -
    
    
    3,215
    
    
    3,215
    
    
    110
    
    
    12,826
    
    
    12,936Exploration expenditures -
      Yukon-Shaanxi
    
    15
    
    
    259
    
    
    274
    
    
    19
    
    
    169
    
    
    188Other
    
    45
    
    
    3
    
    
    48
    
    
    52
    
    
    
    
    
    52$
    2,629
    
    $
    3,477
    
    $
    6,106
    
    $
    25,703
    
    $
    29,104
    
    $
    54,807


Financing

In 2009, 225.9 million warrants were exercised and issued for
proceeds of $18.3 million. During November 2009, the Company received funds from
the exercise of warrants from the December 2008 private placement as well as the
August 2008 private placement as part of a warrant inducement offering. Holders
of warrants from these private placements were offered a new warrant (inducement
warrant) for the early exercise of their existing warrants. In total, 200.9
million warrants were exercised netting the Company C$17.4 million. The
inducement warrants were issued in January 2010 after approval for their
issuance was received at the shareholder meeting.

On December 1, 2009, the Company closed a non-brokered private
placement for a total of 10.0 million units at a price of C$0.10 per unit for
proceeds of $0.9 million. Each unit consists consisted of one common share and
one share purchase warrant exercisable to purchase one additional common share
at a price of C$0.125 per share within 30 months of closing of the private
placement.

In August 2009 the Company closed two a non-brokered private
placements for a total of 41.1 million units at a price of C$0.10 per unit. The
first tranche closed on August 7, 2009 for proceeds of $1.7 million for which
the Company issued 18.8 million units. The final tranche closed on August 28,
2009 for proceeds of $2.0 million for which the Company issued 22.2 million
units. Each Unit consists consisted of one common share and one share purchase
warrant exercisable to purchase one additional common share at a price of
C$0.125 per share within 30 months of closing of the private placement.

On April 24, 2009, the Company closed a non-brokered private
placement for a total of 12.0 million units at a price of C$0.06 per unit for
proceeds of $0.6 million. In addition, a finder's fee of 0.4 million units was
paid on the private placement. Each unit consists of one common share and one
share purchase warrant exercisable to purchase one additional common share at a
price of C$0.08 per share within 24 months of closing of the private placement.

On February 27, 2009 the Company closed a non-brokered private
placement for 17.3 million units at a price of C$0.06 for proceeds of $0.8
million. In addition, 0.4 million units were issued as a finder's fee in
connection with the private placement.

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95

Each unit consists consisted of one common share and one common
share purchase warrant exercisable to purchase one additional common share at a
price of C$0.08 within 24 months of closing of the private placement.

On February 24, 2009 the Company closed a non-brokered private
placement for 10.0 million units ("Unit 1") were issued at a price of C$0.05 per
Unit 1 for proceeds of $0.4 million. Each Unit 1 consists of one common share
and two series of common share purchase warrants. The first warrant (the "Series
A Warrant") can be exercised to purchase one additional common share at a price
of C$0.07 per share within 12 months of closing of the private placement and the
second warrant (the "Series B Warrant") can be exercised to purchase one
additional common share at a price of C$0.09 per share within 18 months of
closing of the private placement. In addition, 1.0 million units were issued as
a finder's fee in connection with the private placement which consists of one
common share and one Series A warrant.

In May 2008 the Company issued 10.1 million flow-through shares
at a price of C$2.00 for proceeds of $19.9 million. Share issue costs paid in
cash were $1.0 million.

In December 2008 a further 79.8 million common share units
(consisting of one common share and two series of share purchase warrants) were
issued at a price of C$0.05 per unit for proceeds of $3.3 million. The first
warrant (the "Series "A" Warrant") can be exercised to purchase one additional
Share (the ""A" Warrant Share") at a price of C$0.07 per share within 12 months
of closing of the private placement and the second warrant (the "Series "B"
Warrant") can be exercised to purchase one additional Share (the ""B" Warrant
Share") at a price of C$0.09 per share within 18 months of closing of the
private placement.

During 2009, the Company made minimal lease payments compared
to $1.3 million in capital lease payments and retired three of the capital
leases related to underground equipment. At the end of 2008 asset held for sale
comprised an asset under capital lease for $0.8 million which was sold
subsequent to year-end.

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 hand to meet expected operating expenses for 60 days. The
shutdown of the Jerritt Canyon operations and current market conditions have
increased the difficulty in generating funds to meet the ongoing expenses of
operating two mine sites, and management has thus far financed operations
through a series of private placements and forward sales in order to meet
ongoing operational costs. Management believes that the ability to fund
operations through cash generated from toll milling, a return to mining, and
additional financing, preferably debt, should be sufficient to meet the ongoing
capital and operating requirements and to settle the outstanding payable of the
Company.

The following are the contractual maturities of the
undiscounted cash flows of financial liabilities at December 31, 2009:

Contractual obligations
    Less than 3 months
    4 to 12 months
    1 to 2 years
    Greater than 2 yearsAccounts payable and accrued liabilities
    $39,564
    
    
    Capital lease obligations
    9
    20
    51
    


**CAPITAL RESOURCES**

The Company had a cash balance of $0.2 million as of December
31, 2009 and a working capital deficiency of $28.8 million. The cash on hand at
March 31, 2010 is not sufficient to maintain the ongoing operations of the
Company without continuing funds from operations. On March 26, 2010 the Company
closed a C$5,000,000 non-brokered private placement for a total of 22,727,272
common shares at a price of $0.22 per Share. Management also believes that
further financing can be obtained in order to ensure the Company will continue
as a going concern and return to full mining operations. Should a return to full
mining operations be determined to be unprofitable, further curtailment of
operations would be undertaken to reduce costs. On March 2, 2010, the Company
signed an Engagement Letter (the "Engagement") with BNP Paribas - New York to
facilitate the further development of the property at Jerritt Canyon. Under the
terms of the Engagement, BNP Paribas will provide the Company advice and
financial services in connection with arranging, structuring, syndicating and
distributing a debt facility of up to $40 million to finance the plant
improvement and environmental compliance work required at Jerritt Canyon, and
the reopening of the SSX and Steer mines. The Engagement does not constitute a
commitment on the part of BNP Paribas to lend

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96

or commit to lend moneys, or to provide any other facilities in
connection with Jerritt Canyon or the Company. The establishment of the
contemplated debt facilities remains subject to due diligence, financial
modeling, market conditions and various other factors. The Company has recently
re-opened the Smith Mine using the services of a contract mining company, Small
Mine Developers. At the same time the Company will seek permitting for
Starvation Canyon, also located at Jerritt Canyon and anticipated to be brought
into production in 2011.

COMMITMENTS

The Company received advance payments of $4.8 million for gold
to be delivered at a series of future dates. Once the revenue recognition
criteria have been met this deferred revenue will be recognized as gold sales.
In conjunction with the receipt of advance payment on gold sales the Company
committed to the delivery of 6,508 ounces as follows:

|Ounces Sold | Deliver Date     | Contract price (per
      Ounce)
|----------- | ---------------- | --------------------------------
|1,000       | April 30, 2009   | $850                            
|2,650       | August 31, 2009  | $750                            
|2,858       | October 30, 2009 | $700                            
|6,508       |                  | $743                            

Each contract has a specific penalty payment required for late
delivery. For the first contract, this penalty amounts to $0.03 million per
month, whereas the latter two contracts contain penalties of $0.08 million per
month. As of December 31, 2009 the Company has not delivered the ounces required
under the first two contracts and has made penalty payments of $0.7 million to
the counterparty.

OUTLOOK

By milling a combination of available stock piles and
recommencing mining activity, the Company is targeting a total production of
150,000 ounces of gold in the first full year of production at a cash cost of
$465 per ounce after re-start of operations and after the mill establishes
steady state operation. It is estimated that the commencement of operations and
generation of positive cash flow will allow the Company to commence repayment of
all creditors and former employees. The Company has proven and probable reserves
at Jerritt Canyon, not accounting for 2008 mining and depletion, of 717,300
ounces of gold. In addition, there are ounces already mined and stockpiled on
the run-of-mine ("ROM") pad. These ROM pad resources, along with ore purchased
from third parties, will allow the Company to achieve the presently budgeted
throughput of 3,300 tons per day. The mill facility is currently licensed to
treat 4,320 tons per day with an overall potential capacity of 6,000 tons per
day with the appropriate permitting.

With the Consent Decree in place in the fourth quarter, the
Company has now agreed to the terms of an environmental work program with the
NDEP that includes the construction of a new tailings facility, clean up at
various mine sites on the property, and the continued testing of the existing
mercury emissions system for the term of the Consent Decree (2 years). This
agreement will reduce and the likelihood of further stop orders is significantly
reduced in the future as there is now a dispute resolution process in place to
deal with non-compliance. The Consent Decree resolves all of the compliance
concerns of the NDEP in relation to the mill and surrounding land holdings of
the Company, as well as related environmental concerns and gives the Company the
right to operate the milling facility from the effective date. Much of the work
program has already been completed however additional expenditures will be
required in 2010 and 2011 to continue to meet the objectives of the Consent
Decree, which is expected to be in place for two years.

In early 2010, the Company completed part of the stack testing
program to test emissions from the calomel system and confirm its performance in
controlling emissions. The audited results have surpassed the requirements set
forth in the Consent Decree and have set new targets for other companies to
meet. The calomel technology is state of the art technology that has
substantially reduced emissions and thereby set the Company apart from its
previous discharge emissions. The Company plans to release a summary of these
results once they are complete to demonstrate publicly the effectiveness of its
mercury control emission system.

The Company is also focusing on the completion of a long term
mine plan and obtaining financing, preferably debt, to fund the required
development and backfill work to support future mining activities. To ensure
ongoing operations once the ROM

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97

stockpile is processed, in the second quarter of 2009, the
Company hired an experienced mine manager, Adam Knight, P.Eng., who brings
extensive experience working at Jerritt Canyon during the period that the
property was operated by AngloGold and Independence Mining Company. He and
additional staff are presently planning the re-commencement of underground
mining operations at the SSX/Steer mines to supplement the restarted operations
at Smith. The Company's mined ore would be supplemented by toll milling for
other mining companies who either have no mill or have insufficient capacity at
their own facilities.

In the Yukon, the Company will be completing the YESSA
application using existing drill results and will continue exploration activity
at the Ketza River and Silver Valley properties with a plan to commence
development toward the end of 2010. These expenditures will be funded through
cash flows from Jerritt Canyon as well as external sources of financing. Sources
of external financing may include bank borrowings and future equity offerings.
There can be no assurance that financing will be available on acceptable terms,
or at all. The failure to obtain financing could have a material adverse effect
on the Companys growth strategy and financial condition should cash flows from
operations be insufficient. There can be no assurance that the Company will be
able to secure the financing necessary to retain its rights to, or to begin or
sustain production at any of its mineral properties.

The consolidated financial statements are prepared on the basis
that the Company will continue as a going concern. The conditions described in
the preceding paragraphs raise substantial doubt about the Companys ability to
continue as a going concern. The Companys ability to continue as a going
concern and recover its investment in property, plant, and equipment and
mineral properties is dependent on its ability to obtain additional financing in
order to meet its planned business objectives and generate positive cash flows.
However, there can be no assurance that the Company will be able to obtain
additional financial resources or achieve profitability or positive cash flows.
Failure to continue as a going concern would require that the Company's assets
and liabilities be restated on a liquidation basis, which values could differ
significantly from the going concern basis.

On March 31, 2010, the Company had $3.9 million of cash and
cash equivalents.

Gold Prices

Despite recent volatility, the Company believes that gold
prices will continue to benefit from the economic uncertainty, near term
weakness in the US dollar, as well as a reduction in hedging of future
production by major producers and an increase in physical demand from foreign
countries. It is not possible to accurately forecast the trend of gold prices
and their impact on future results from operations; nor is the Company able to
forecast the precise timing for the return to commercial production at Jerritt
Canyon as well as the commencement of commercial production of the Ketza River
Mine.

In 2009 the price of gold (per London pm fix) ranged from $810
to $1,213 per ounce compared to a low of $713 to a high of $1,011 per ounce in
2008. The average price of gold based on the London pm fix in the past 12
quarters is as follows:

US$/ounce
    Q1
    Q2
    Q3
    Q4
    Annual2009
    $908
    $922
    $969
    $1099
    $9722008
    $925
    $896
    $872
    $795
    $8722007
    $650
    $667
    $680
    $786
    $695


OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements as of
December 31, 2009.

SUBSEQUENT EVENTS

On January 12, 2010, the Companys shareholders approved:

- the issuance of up to 87,200,000 inducement warrants for the early
  exercise of existing warrants that expired on December 17, 2009;
- the issuance of up to 85,200,000 inducement warrants for the early
  exercise of existing warrants expiring on June 17, 2010;

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98

- the issuance of 10,000,000 inducement warrants for the early exercise of
  existing warrants expiring on February 6, 2012 and February 28, 2012; and
- the issuance of one-half of an inducement warrant for the exercise of
  10,250,000 existing warrants expiring on February 28, 2012.
- On March 2, 2010, the Company announced the signing of an Engagement
  Letter (the "Engagement") with BNP Paribas -- New York to facilitate the
  further development of the property at Jerritt Canyon.

Under the terms of the Engagement, BNP Paribas will provide the
Company with advice and financial services in connection with arranging,
structuring, syndicating and distributing a debt facility of up to US$40 million
to finance the plant improvement and environmental compliance work required at
Jerritt Canyon, and the reopening of the SSX and Steer mines. The Company has
recently re-opened the Smith Mine. At the same time the Company will seek
permitting for Starvation Canyon, also located at Jerritt Canyon and anticipated
to be brought into production in 2011.

The Engagement does not constitute a commitment on the part of
BNP Paribas to lend or commit to lend moneys, or to provide any other facilities
in connection with Jerritt Canyon or to the Company. The establishment of the
contemplated debt facilities remains subject to due diligence, financial
modelling, market conditions and various other factors.

On March 26, 2010 the Company closed a C$5,000,000 non-brokered
private placement for a total of 22,727,272 common shares at a price of $0.22
per Share. There was no finder's or commission fee payable on the private
placement. In accordance with securities legislation currently in effect, the
Shares will be subject to "hold period" of four months plus one day expiring on
expiring on July 27, 2010.

RELATED PARTY TRANSACTIONS

During the year, the Company was charged a total of $0.2
million (2008 - $0.2 million, 2007 - $0.3 million) in legal fees by a law firm
in which the corporate secretary of the Company is a partner. The amount owing
at December 31, 2009 is $0.2 million (2008  $0.1 million). A portion of these
fees are included in share issue costs with the remainder included under general
and administrative expenses. In 2007, a portion of these costs were also
included in the transaction costs associated with a business combination.

During 2007, the Company was charged $0.1 million in management
fees by a company owned by a director of the Company.

In 2009, the Company engaged in several transactions with
Tagish Lake Gold Corp (Tagish Lake). The Chief Operating Officer is currently
the President of Tagish Lake and one of the Directors of the Company is also a
director of Tagish Lake. During 2009, the Company advanced funds of $0.4 million
and purchased a loan receivable from a creditor of Tagish Lake creditor for $0.5
million that is secured by the Skukum property, owned by Tagish Lake.

In 2009, the Company was charged a total C1.8 million by a
company owned by a director of the Company, for the management of the Yukon
properties. As well, we were charged C$2.4 million (2008  nil, 2007  nil) for
metallurgical and geological services provided by one of our directors.

CRITICAL ACCOUNTING ESTIMATES

The Company prepares its financial statements in accordance
with Canadian GAAP. Certain estimates and assumptions must be made by management
that affects the reported amounts of assets, liabilities and shareholders
equity for the period. Critical accounting estimates include estimates that are
uncertain and changes in such estimates could materially impact the Companys
financial statements. Management reviews its estimates and assumptions on an
ongoing basis based on the most current information available. The following
estimates are critical:

Depletion of mineral properties

Depletion of producing mineral properties is impacted by the
estimation of proven and probable reserves, in accordance with National
Instrument 43-101. There are many uncertainties associated with having a reserve
estimate completed. The proven and probable reserve estimate is completed
periodically on the Jerritt Canyon property and this estimate is the basis of

---

99

depletion for the upcoming years. Consequently, the depletion
calculation for each period is directly affected by the reserve estimate at
year-end.

Capitalization of long-term mine development costs

The Company capitalizes mining and drilling expenditures that
are deemed to have economic value beyond a one-year period. The magnitude of
this capitalization involves a certain amount of judgment and estimation by the
mine engineers. The magnitude of this capitalization makes this a critical
accounting estimate.

Impairment testing of long-lived assets

The Company reviews its mineral properties and property, plant
& equipment (for each reporting unit) at least once a year, or when there
are impairment indicators, to determine whether the recorded value of the asset
in the accounts will be recoverable in the future. This process involves
comparing the carrying value of the assets in a reporting unit to the
recoverable value based on undiscounted cash flow. If the carrying value exceeds
the recoverable amount then the carrying value is compared to the fair value. In
the event the carrying value of the assets in the accounts exceeds the fair
value, the excess amount is charged to operations in the period when this
determination has been made.

A National Instrument 43-101 compliant estimate of proven and
probable reserves and measured, indicated & inferred resources for each
mineral property is a critical estimate in evaluating long-lived assets for
impairment. In addition, estimates such as the future price of gold and certain
capital and operating cost estimates are critical estimates in the evaluation of
potential impairment of long-lived assets.

Purchase price allocations on business combination

The purchase price allocation of the Queenstake assets and
liabilities acquired in the business combination was finalized in the second
quarter of 2008. In determining the fair value used in the purchased price, the
Company engaged independent professionals to assist in the valuation of (a) the
mineral property (b) the processing plant and equipment (c) income tax assets
and liabilities and (d) the asset retirement obligation.

Management has used the information provided by the independent
professionals to determine the fair value of the aforementioned assets and
liabilities. All valuation work has a certain amount of assumptions in
determining fair value. Management has reviewed major assumptions to ensure they
are supportable in the context of todays operating environment.

Asset retirement obligation

Reclamation costs are estimated at their fair value based on
the estimated timing of reclamation activities and managements interpretation
of the current regulatory requirements in the jurisdiction in which the Company
operates. Changes in regulatory requirements and new information may result in
revisions to these estimates. The estimated asset retirement obligations on both
the Jerritt Canyon property and the Ketza River property are fully funded at
this date.

Income taxes

The Company uses the asset and liability method of accounting
for income taxes. Under this method, incomes taxes are recognized for the
estimated income taxes payable for the current year. Future income tax assets
and liabilities are recognized based on temporary differences between accounting
and tax bases of assets and liabilities as well as the benefit of losses
available to be carried forward to future years for tax purposes. Future income
tax assets and liabilities are measured using enacted or substantively enacted
tax rates and laws that will be in effect when differences are expected to
reverse. Future tax assets are recognized only to the extent it is more likely
than not that the benefit will be realized. Such determination involves
estimates with respect to future taxable income and timing of reversal of
temporary differences.

Stock-based compensation and valuation of warrants

The fair value of stock options granted, measured using the
Black-Scholes option pricing model, is used to measure stock-based compensation
expense. The Black-Scholes option pricing model requires the usage of certain
estimates, which includes

---

100

the estimated outstanding life of stock options granted.
Management currently uses the entire life of the stock option granted as the
estimated outstanding life and will continue using this until enough history
relating to prior grants has been established to modify this assumption.

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.

IMPACT OF ADOPTION OF NEW ACCOUNTING POLICIES

Goodwill and Intangible Assets

On January 1, 2009, the Company adopted a new accounting
standard Section 3064, Goodwill and Intangible Assets, replacing accounting
standard Section 3062, Goodwill and Intangible Assets, and accounting standard
Section 3450, Research and Development Costs. Various changes have been made to
other sections of the CICA Handbook for consistency purposes. Section 3064
establishes standards for the recognition, measurement, presentation and
disclosure of goodwill subsequent to its initial recognition and of intangible
assets by profit-oriented enterprises. There was no impact on the Companys
consolidated financial statements on adoption.

Credit Risk and the Fair Value of Financial Assets and
Financial Liabilities

In January 2009, the CICA issued Emerging Issues Committee
(EIC) Abstract 173 - Credit Risk and the Fair Value of Financial Assets and
Financial Liabilities (EIC-173). EIC-173 provides guidance on how to take into
account credit risk of an entity and counterparty when determining the fair
value of financial assets and financial liabilities, including derivative
instruments. EIC-173 is applicable for the Company for its fiscal year ended
December 31, 2009, with retrospective application. The adoption of EIC-173 did
not result in a material impact on the Companys consolidated financial
statements.

Mining Exploration Costs

In March 2009, the CICA issued EIC Abstract 174 - Mining
Exploration Costs (EIC-174) which supersedes EIC Abstract 126 - Accounting by
Mining Enterprises for Exploration Costs (EIC-126), to provide additional
guidance for mining exploration enterprises on the accounting for capitalization
of exploration costs and when an impairment test of these costs is required.
EIC-174 is applicable for the Company for its fiscal year ended December 31,
2009, with retrospective application. The adoption of EIC-174 did not result in
a material impact on the Companys consolidated financial statements.

Change in Accounting Policy with Respect to Warrants

In the first quarter of 2009, the Company retrospectively
changed the accounting policy used for valuation of warrants issued. Previously
units issued by the Company consisting of a combination of common shares and
warrants were valued by assigning the proceeds received to the common share and
deducting the value of the warrants as determined by a Black Scholes model. The
new policy assigns the proceeds to common shares and warrants based on the
relative fair value of the common shares and warrants. 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 model.
As a result of this change, opening share capital was increased by $4.3 million,
with an offsetting decrease in the warrants. The policy was adopted by the
Company as the Company believes this policy better reflects the value of each
instrument on the balance sheet.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements issued which may impact us in
the future are as follows:

International Financial Reporting Standards

In February 2008, the AcSB announced that 2011 is the
transition date for publicly listed companies to use International Financial
Reporting Standards (IFRS), which will replace existing Canadian GAAP. The
effective date is for interim and

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101

annual financial statements relating to fiscal years beginning
on or after January 1, 2011. The transition date of January 1, 2011 will require
the restatement for comparative purposes of amounts reported by the Company for
the year ended December 31, 2010. As a result, the Company has developed a plan
to convert its consolidated financial statements to IFRS. The plan addresses the
impact of IFRS on Accounting policies and implementation decisions,
infrastructure, business activities and control activities. A summary status of
the key elements of the changeover plan is as follows:

Accounting policies and implementation decisions:

- Identification of differences in Canadian GAAP and IFRS accounting
  policies;
- Selection of the Corporations ongoing IFRS policies;
- Selection of the Corporations IFRS 1 First-time Adoption of International
  Financial Reporting Standards (IFRS 1) choices;
- Development of financial statement format; and
- Quantification of effects of change in initial IFRS 1 disclosures and 2010
  financial statements.

Status:

- The Company has identified differences between accounting policies under
  Canadian GAAP and accounting policy choices under IFRS, both on an ongoing
  basis and with respect to certain choices available on conversion, made in
  accordance with IFRS 1; and
- The Company will progress towards the quantification of the identified
  differences and choices throughout 2010.

The conversion to IFRS is not expected to have a significant
effect on the Companys infrastructure, business and control activities.

IFRS uses a conceptual framework similar to Canadian GAAP, but
there are significant differences in recognition, measurement and disclosures.
The Company has identified key areas that may be impacted by the transition to
IFRS and the major areas where significant complexities or key decisions are
required by management prior to implementation. The analysis of IFRS and
comparison with currently applied accounting principles has identified a number
of differences. Although the Company has not yet determined the full effects of
adopting IFRS, key areas where changes in accounting policies are expected are
as follows:

Property, plant and equipment

Consistent with Canadian GAAP, under IFRS, separable components
of property, plant and equipment (PP&E) are recognized initially at cost.
Under International Accounting Standards (IAS) 16, Property, Plant and
Equipment, an entity is required to choose, for each class of PP&E, to use
either the cost model (consistent with Canadian GAAP) or the revaluation model.
Under the revaluation model, an item of PP&E is carried at its revalued
amount, being its fair value at the date of the revaluation less any accumulated
amortization and accumulated impairment losses. Increases in fair value are
recorded in a revaluation surplus account in equity while decreases in fair
value serve to reduce the revaluation surplus account, related to the asset,
with any excess recognized in income.

IFRS requires that major inspections and overhauls be accounted
as a separate component of PP&E. This treatment is only intended for use for
major expenditures that occur at regular intervals over the life of the asset as
costs of routine repairs and maintenance will continue to be expensed as
incurred. The major maintenance required on the Companys plant and equipment
would likely be required to be treated under this standard and would allow for
additional amounts to be capitalized and amortized.

Impairments

Under Canadian GAAP for assets other than financial assets, a
write-down to estimated fair value is recognized if the estimated undiscounted
future cash flows from an asset or group of assets are less than their carrying
value. Under IAS 36, Impairment of Assets, a write-down is recognized if the
recoverable amount, determined as the higher of the estimated fair value less
costs to sell or value in use (which is typically based on discounted cash flow)
is less than the carrying value. Consistent with Canadian GAAP, impairments are
measured at the amount by which carried value exceeds fair value less costs to
sell.

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102

Currently Canadian GAAP requires a two-step impairment test in
which the Company must first compare undiscounted cash flows to the carrying
value of the assets, and only if the cash flows are below the carrying value
does management need to discount the cash flows to calculate impairment. Under
IFRS the impairment calculation is a one-step process in which discounted cash
flows are compared to the carrying value of assets. This may lead to additional
write-downs where carrying values of assets were previously supported under
Canadian GAAP on an undiscounted cash flow basis, but cannot be supported on a
discounted cash flow basis.

IFRS also requires the reversal of any previous impairment
losses where circumstances have changed such that the impairments have reduced.
Canadian GAAP prohibits reversal of impairment losses. This could result in
greater variability in earnings, carrying values of PP&E, and balances in
shareholders equity.

Asset retirement obligations

Under Canadian GAAP the Company would only record an asset
retirement obligation (ARO) if there was a legal requirement to incur
restoration costs. Under IFRS the threshold for recognizing a liability is a
legal or constructive obligation. The difference in standards may require the
Company to review business plans to determine if there are any actions planned
by management that would create a constructive obligation to record an ARO upon
adoption of IFRS. Under Canadian GAAP the discount rate is established as the
Credit adjusted risk free rate (CARF) and is set at the time the obligation is
established. Under IFRS the discount rate reflects the risk specific to the
provision and is updated if conditions change that would require a change in the
rate. As well, under Canadian GAAP the costs built into the model reflect third
party costs whereas IFRS allows for the assumption that work can be performed
internally, likely reducing the liability.

Provisions

IAS 37, Provisions, Contingent Liabilities and Contingent
Assets, requires a provision to be recognized when there is a present obligation
as a result of a past transaction or event and it is probable that an outflow of
resources will be required to settle the obligation, and a reliable estimate can
be made of the obligation. Probability is based on a more likely than not
threshold. Under Canadian GAAP, the criterion for recognition in the financial
statements is likely, which is a higher threshold. It is possible that there
may be some legal, bad debt or contingent provisions which would meet the
recognition criteria under IFRS that were not previously recognized under
Canadian GAAP.

First-time adoption of IFRS

Adoption of IFRS requires the application of First-time
Adoption of International Financial Reporting Standards (IFRS 1) which
provides guidance for an entitys initial adoption of IFRS. IFRS 1 lists
specific exemptions the Company may use when first adopting IFRS. The most
significant exemptions to the Company are as follows:

Business combinations

For business combinations that occurred before the transition
date, the Company has the choice to restate all of these business combinations
to IFRS standards, restate all business combinations after a particular date, or
not to restate any of the business combinations. Assets and liabilities acquired
in an un-restated business combination that were recognized under Canadian GAAP
and do not qualify for recognition under IFRS are then de-recognized or vice
versa. The Company expects to use this exemption and not restate any business
combinations prior to December 31, 2009.

Fair-value or revaluation as deemed cost

IFRS requires PP&E to be measured at a cost in accordance
with IFRS (breaking down material items into components and amortizing each one
separately). However, upon transition IFRS permits an asset to be recorded at
its fair value at date of transition, or an event-driven valuation (i.e., when
an entity was acquired). This exemption may be applied to individual items of
PP&E. Any write-up of the asset to a fair value above cost will be recorded
in retained earnings as a revaluation reserve. The Company is assessing the
impact of these alternatives.

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103

Cumulative translation adjustment

IAS 21, The Effects of Changes in Foreign Exchange Rates,
requires a company to determine the translation differences in accordance with
IFRS from the date on which a subsidiary was formed or acquired. IFRS allows
cumulative translation differences for all foreign operations to be deemed zero
at the date of transition with reclassification of the previous amount made to
retained earnings.

Asset retirement obligation

Similar to Canadian GAAP, IFRIC 1 Changes in Existing
Decommissioning, Restoration and Similar Liabilities requires specified changes
in a decommissioning, restoration or similar liability to be added to or
deducted from the cost of the asset to which it relates; the adjusted
depreciable amount of the asset is then depreciated prospectively over its
remaining useful life. There are however differences in the measurement of the
liability as discussed above. A first-time adopter need not comply with these
requirements for changes in such liabilities that occurred before the date of
transition to IFRSs. If a first-time adopter uses this exemption, it:

- measures the liability as at the date of transition to IFRSs in accordance
  with IAS 37;
- to the extent that the liability is within the scope of IFRIC 1, estimates
  the amount that would have been included in the cost of the related asset when
  the liability first arose, by discounting the liability to that date using its
  best estimate of the historical risk-adjusted discount rate(s) that would have
  applied for that liability over the intervening period; and

calculates the accumulated depreciation on that amount, as at
the date of transition to IFRSs, on the basis of the current estimate of the
useful life of the asset, using the depreciation policy adopted by the entity in
accordance with IFRSs.

FINANCIAL INSTRUMENTS

The Companys financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
other long term liabilities. The carrying amounts of financial instruments,
except for as noted below, approximate their fair values.

Previously, the Company engaged in the forward sale of gold
produced from ore purchased from third parties to ensure the Company achieves an
acceptable profit margin on this activity and to protect against a decline in
the price of gold. The Company discontinued this practice in August of 2008 and
settled all remaining contracts outstanding at that time, resulting in a
realized gain on settlement of $0.3 million. The existing forward contracts are
recorded as deferred revenue as they require physical delivery of the underlying
ounces and do not provide for settlement in cash or offsetting.

RISK ASSESSMENT

There are numerous risks involved with gold mining and
exploration companies and the Company is subject to these risks. The Companys
major risks (in no particular order) and the strategy for managing these risks
are as follows:

Gold price volatility

The price of gold has been historically volatile and this
volatility will likely continue both near-term and long-term. Managements
strategy in dealing with this volatility is to expose gold produced by Jerritt
Canyon to this volatility (i.e. sell gold at market rates as produced), thus
participating in upward movements in price of gold, while being exposed to
downward movements in the price of gold. Third party ore purchases are based on
market price of gold at date the Company takes possession of the ore. Management
sells gold that is projected to be produced from this ore using forward
contracts in an effort to insulate the Company from downward pressure in the
price of gold, subsequent to the date of purchase.

Estimates of reserves and resources

Resource estimates involve a certain level of interpretation
and professional judgment. The Company has opted to utilize the services of SRK
Consulting in its 43-101 work for both the Jerritt Canyon mine and the Ketza
River project in the past. This

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104

ensures a consistent methodology is utilized from property to
property. SRK Consulting has done reserve and resource estimate work for
numerous years on the Jerritt Canyon mine and is quite familiar with the
property. The Company is currently in the process of completing an updated
43-101 for both the Ketza River and Jerritt Canyon property.

Environmental risk

Environmental factors must be taken into account at all stages
of project development and during mining operations. The Company understands
that it is critical to long-term success to operate in an environmentally
conscious manner.

Safety risk

The mining business can present some significant safety risks
during all phases of project/mine life. The Company has undertaken several
safety related capital improvements to the Jerritt Canyon facilities during 2008
and 2009 to mitigate the impact of these risks.

Ability to raise capital

The availability of capital is dependent on both macroeconomic
factors and the Companys track record in utilizing capital. The current
tightening of credit and decline in liquidity have presented new challenges to
companies attempting to obtain financing. As well, the significant reduction in
the Companys market capitalization has made it difficult to obtain substantial
funding through equity issues without significant dilution of the existing
shareholders. Management attempts to use capital resources as efficiently as
possible, while being aware of the need to invest money in the finding and
developing future gold-bearing ore bodies.

Exploration for future gold resources and reserves

Exploration can be a very capital intensive undertaking for the
Company. Management understands this risk and attempts to spend as efficiently
as possible. The Company determines an appropriate level of exploration
expenditures during the budgeting process and the results of these programs are
assessed to determine future level of exploration activity.

Notes to the Reconciliation between Canadian and US GAAP

The financial statements of the Company have been prepared by
management in accordance with Canadian generally accepted accounting principles.
See note 22 to the consolidated financial statements for a reconciliation of
Canadian GAAP to U.S. GAAP. The following differences are applicable to the
Company.

(i)        Mineral properties

Under Canadian GAAP, resource property acquisition costs and
exploration costs may be deferred and amortized to the extent they meet certain
criteria. Capitalized costs under Canadian GAAP are amortized on a
unit-of-production basis based on proven, probable and possible reserves.

Under US GAAP, exploration costs must be expensed as incurred
unless the resource properties have proven and probable reserves at which time
costs incurred to bring the mine into production are capitalized as development
costs. Drilling and related costs in delineating an ore body and converting
mineral resources to mineral reserves are expensed as exploration costs under US
GAAP. Capitalized costs are then amortized on a unit-of-production basis based
on proven and probable reserves rather than over the proven and probable
reserves of the mine and the applicable portion of resources expected to
ultimately be mined. This additional depletion and exploration expense is
recognized in the statement of operations under US GAAP. For the purposes of the
consolidated statements of cash flows, the exploration costs are classified as
cash used in investing activities under Canadian GAAP and cash used in operating
activities under US GAAP.

The impact of this difference under Canadian GAAP and US GAAP
affected depreciation as a portion of property, plant and equipment is
depreciated and capitalized to mineral property for Canadian GAAP which is
expensed for US GAAP and equity loss as the incorporated joint venture also
capitalizes mineral property costs for Canadian GAAP.

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(ii)       Flow-through
shares

Under Canadian income tax legislation, the Company is permitted
to issue shares whereby the Company agrees to incur Canadian exploration
expenditures (as defined in the Income Tax Act, Canada) and renounce the related
income tax deductions to investors. Under Canadian GAAP, the full amount of
funds received from flow-through share issuances are initially recorded as share
capital. Upon renouncing the expenditures, the amount of deferred tax on the
expenditures is deducted from share capital. Under US GAAP, 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.

(iii)      Income taxes

Under Canadian GAAP, future tax assets and liabilities are
recorded at substantially enacted tax rates. Under US GAAP, deferred tax assets
and liabilities are recorded at enacted tax rates. In 2008, there was no
difference between enacted and substantially enacted rates. As a result, the
application of US GAAP in accounting for income taxes does not result in any
material measurement differences from Canadian GAAP for future tax assets or
liabilities.

Due to the treatment of exploration costs under US GAAP
described in note 22 (ii) above, there would be a larger tax benefit arising
under US GAAP when compared to Canadian GAAP. With respect to the Canadian
operations, any future tax assets arising are fully offset by a valuation
allowance as it is not more likely than not that the future tax assets would be
realized. For the US operations, a valuation allowance has been taken against
all future income tax assets in excess of liabilities, therefore the asset
arising under US GAAP will not be recognized in 2009 and 2008 and the balance
from 2007 has been adjusted accordingly.

(iv)       Accounting for
uncertainty in income taxes

The Company adopted Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48)
effective January 1, 2007. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48 requires
that the Company recognize on adoption only those tax positions that are
more-likely-than-not (50% or greater) of being sustained on audit, based on
the technical merits of the position. Additionally, this standard provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. With the adoption of this
standard, the Company has performed a comprehensive review of all material tax
positions in accordance with recognition and measurement standards established
by FIN 48.

Based on this review, the provisions of FIN 48 did not have a
material impact on the Companys annual consolidated financial statements. The
Company has elected to apply the provisions of FIN 48 in assessing their
uncertain tax positions under Canadian GAAP as well, removing any differences
that would arise with US GAAP.

(v)        Reclassification
  of warrants

In June 2008, FASB released guidance on the accounting
treatment for certain equity instruments with elements of foreign currency risk.
Warrants with an exercise price that is different from the entitys functional
currency cannot be classified as equity. This is applicable for years beginning
after December 15, 2008 and will be treated as a change in accounting principle
through prospective application. As the Companys functional currency is the US
dollar, upon adoption of this abstract the issued and outstanding warrants that
have an exercise price that is denominated in Canadian dollars will be treated
as derivative instruments and recorded as liabilities under US GAAP instead of
equity and changes in fair value will be calculated at each reporting period.
Any gain or loss arising from this revaluation will be recorded in the statement
of operations. Accordingly, for US GAAP purposes, the Company assessed the fair
value of these warrants as of January 1, 2009, and recorded a reduction in share
purchase warrants of $19.1 million, an increase in opening accumulated paid in
capital of $16.3 million and a $2.8 million increase in liabilities. During
2009, 225,883,333 warrants were exercised and 1,000,000 expired. Upon exercise
the fair value of the warrants of $31.8 million was reclassified to common
shares, which resulted in a reduction in the liabilities of $6.2 million and a
loss of $25.6 million recognized in income in the period. For the year ended
December 31, 2009, the Company has assessed the fair value of the warrants and
recorded increased the liability by $5.8 million with an offsetting adjustment
to the mark-to-market for the year.

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106

(vi)      Adoption of New Accounting
  Standards

In December 2007, the FASB released guidance on Business
Combinations. This guidance applies prospectively for the Company to business
combinations for which the acquisition date is on or after January 1, 2009. The
objective of this Statement is to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
The Company did not have any Business Combinations in 2009 and therefore there
was no impact on the Companys financial position.

In March 2008, FASB issued guidance on disclosures about
derivative instruments and hedging activities. This guidance requires enhanced
disclosures about an entitys derivative and hedging activities. This Statement
was effective for the Company on January 1, 2009. The Company did not have any
hedging activities in 2009 and therefore there was no impact on the Companys
financial position.

In August 2009, the FASB issued guidance on measuring
liabilities at fair value, which is effective for the Company for the year ended
December 31, 2009. This guidance provides clarification that in circumstances in
which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one of the
valuation techniques that uses (a) the quoted price of the identical liability
when traded as asset; (b) quoted prices for similar liabilities when traded as
assets; or another valuation technique that is consistent with the principles of
Topic 820 Fair Value Measurements and Disclosures. Therefore, the fair value
of the liability should reflect non-performance risk, including but not limited
to a reporting entitys own credit risk. This guidance also clarifies that when
estimating the fair value of a liability, a reporting entity is not required to
include a separate input or adjustment to other inputs relating to the existence
of a restriction that prevents the transfer of liability. The Company adopted
this guidance in the fourth quarter of 2009 which did not have an impact on the
financial statements.

In May 2009, FASB issued guidance on subsequent events. This
guidance established general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. In particular, this guidance set
forth: 1) The period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements. 2) The
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and 3) The
disclosures that an entity should make about events or transactions that occur
after the balance sheet date. Adoption of this standard did not have a material
impact on the financial statements.

(vii)     New Accounting Pronouncements

In June 2009, FASB issued Statement No. 168, The FASB
Accounting Standards Codification (Codification) and the Hierarchy of
Generally Accepted Accounting Principles a replacement of FASB Statement 162.
The Codification is the source of authoritative U.S. generally accepted
accounting principles (US GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also
sources of authoritative US GAAP for SEC registrants. The Codification
superseded all then-existing non-SEC accounting and reporting standards. All
other non-grandfathered non-SEC accounting literature not included in the
Codification will become non-authoritative. This Statement is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.

In June 2009, FASB issued further guidance on accounting of
transfers of financial assets. This guidance improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferors continuing involvement, if any,
in transferred financial assets. The Board undertook this project to address (1)
practices that have developed since the issuance of FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, that are not consistent with the original intent and key
requirements of that Statement and (2) concerns of financial statement users
that many of the financial assets (and related obligations) that have been
derecognized should continue to be reported in the financial statements of
transferors. This guidance must be applied for the Company on January 1, 2010.
Adoption will not have an impact.

In June 2009, FASB issued guidance which improves financial
reporting by enterprises involved with variable interest entities. The Board
undertook this project to address (1) the effects on certain provisions of as a
result of the elimination of the qualifying special-purpose entity concept in
FASB Statement No. 166, Accounting for Transfers of Financial Assets, and (2)

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constituent concerns about the application of certain key
provisions, including those in which the accounting and disclosures under the
Interpretation do not always provide timely and useful information about an
enterprises involvement in a variable interest entity. This guidance is
effective for the Company on January 1, 2010. The Company is assessing the
impact of the new standard.

(viii)       Incorporated joint
  venture

Under Canadian GAAP incorporated joint ventures are
proportionately consolidated. Under US GAAP the investment of a joint venture is
equity accounted for where there incorporated joint venture is not controlled by
the Company or consolidated where control exists. The Company owns 37.5% of the
Yukon-Shaanxi Mining Corp. an incorporated joint venture and accordingly should
equity account for this investment for US GAAP. The impact is to reclassify the
earnings of the joint venture to the Equity loss in the income statements and
include the net investment as an equity investment on the balance sheet. As the
Company files a Form 20-F, they are exempt from difference in accounting
principles and has therefore elected not to adopt it. See note 17(b) for the
details of the joint venture.

(ix)        Stock based compensation

Under Canadian GAAP stock based compensation is included on the
Statements of Operations in aggregate under income (loss) from operations. Under
US GAAP you are required to segregate between individual line items. For US GAAP
the Company allocates as the amount between general and administration of $0.8
million (2008 - $1.1 million, 2007  5.1 million) and cost of goods sold of $0.2
million (2008  nil, 2007 - $0.5 million).

Item 6. Directors, Senior Management and Employees.

A.Directors and senior management.

The following table lists as of December 31, 2009 the names of
our directors and senior management. Each of the directors and senior officers
has served in his respective capacity since his election and/or appointment and
will serve until the next annual general meeting of shareholders or until a
successor is duly elected, unless the office is vacated in accordance with our
Articles.

Our Directors and Senior Management

|Name                           | Position
      with YNG     | Date of First
      Appointment | Age
|------------------------------ | --------------------------- | ------------------------------- | ---
|Robert E. Chafee(1)(3) (4) (5) | Director                    | May 2005                        | 74 
|Graham C. Dickson(4)           | Director and COO            | April 1997                      | 62 
|John R.W. Fox(2)(3)(5)         | Director                    | March 2005                      | 62 
|Terry Eisenman                 | Director                    | August 1, 2009                  | 66 
|Simon Solomonidis(1)(3)(5)     | Director                    | August 1, 2009                  | 59 
|Jean-Edgar de Trentinian(1)(2) | Director                    | August 1, 2009                  | 65 
|Robert Baldock                 | Director, President and CEO | May 21, 2009                    | 69 
|Shaun Heinrichs                | CFO                         | November 2008                   | 36 
|Graham H. Scott                | Corporate Secretary         | May
      2005                  | 63 

|(1) | Member of the Audit Committee               
|--- | --------------------------------------------
|(2) | Member of the Corporate Governance Committee
|(3) | Member of the Compensation Committee        
|(4) | Member of the Acquisition Committee         
|(5) | Member of the Disclosure
Committee          

The following is a brief description of the principal business
activities ofour directors and senior management:

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Robert F. Baldock, President, CEO and Director

Mr. Baldock is an experienced mining executive as well as being
a qualified and experienced accountant with over 30 years of hands-on management
of public and private corporations across a wide range of industries, focused on
the mining industry. Mr. Baldock is the former co-founder and Managing Director
and subsequently Executive Chairman of Golconda Minerals N.L. Group of Mining
Companies listed on the ASX, NASDAQ and Stuttgart Stock Exchanges. He was also
President of a controlled subsidiary, Nevada Gold Fields Corporation, listed on
the TSX, Toronto, NASDAQ, USA and Stuttgart Stock Exchanges. Mr. Baldock's role
with the Golconda Group also included the role of Managing Director of Duketon
Exploration Limited, listed on the ASX. During Mr. Baldock's period of tenure he
had the overall responsibility of raising the initial capital and using the
raised capital and cash flow from the newly established gold operations to
oversee the design, construction, commission and operation of six mineral
processing plants and gold producing projects.

Graham Dickson, Chief Operating Officer and Director

Mr. Dickson has been working in the Mining Industry in North
America for the last 25 years. He has acted as general manager of a turnkey
construction company for gold milling facilities in remote locations, including
the Snip Mill for Cominco Ltd., Golden Patricia Mill for Bond Gold and Seabee
Mill for Claude Resources. Before joining us, Mr. Dickson served in various
capacities with BYG Natural Resources Ltd., which had an operating gold mine in
the Yukon Territory. As General Manager of the General Contractor, Mr. Dickson
completed the surface facilities for Bema Gold's Julietta mine in Far East
Russia, ahead of schedule and under budget.

Robert Chafee, Director

Mr. Chafee has been involved in the mining industry since 1957,
originally in Elliot Lake, Manitouwadge and Sudbury as well as in Northwestern
Quebec, Manitoba, British Columbia and the Yukon. Mr. Chafee is currently
Chairman and director of several trucking and contracting companies, Igeacare
Systems Inc. - in the health care communications and emergency response field,
Etobicoke Ironworks Inc., - in structural steel and scaffolding design and
manufacture, Tonolli Canada - in the secondary lead smelting business. In
addition he is a director of Hardrock Mining Inc., Tagish Lake Gold Corp. and
Andamios Atlas in Mexico. He was formerly CEO and Chairman of Skyway Canada,
Matthews Equipment Ltd. and Antamex International Inc.

Jean-Edgar de Trentinian, Director

Mr. de Trentinian has administered and owned, either partially
or fully, a large number of companies over the years. Amongst his mandates or
ownership include a division of Générale de Fonderie, Atlas Air France,
Editoriale Domus of France, VSD Magazine, Lalique, the Brigitte Bardot
Foundation, Perfumes Charles Jourdan. He was also a diplomat, Head of Mission in
Geneva Switzerland, a partner and director of Studio 4 x 5. a shareholder and
director of EDIPOP s.a., a shareholder and director of HAP AX holdings
(industry). He was also a publisher and director of the top magazine for French
residents (Switzerland) "Le Journal Français", a member of the foundation Jean
Monnet for Europe. Director of CARREFOUR s.a. (Publishing Fribourg), a Director
of HENMAR s.a. (Real Estate) and a Director of the institute for 'Trusts
Protectors' (Fribourg). He is currently shareholder, President and C.E.O. of
ORIFER. First and Secondary education in France, French Master. University in
Switzerland. Arts & Métiers. His military service, B.A.I04 and B.A.117 was
at the Headquarters of the French Air-Force.

Terry Eisenman, Director

Mr. Eisenman graduated with Honors in Finance, University of
Wisconsin and has over 35 years of experience in banking and finance through
establishing and operating Mortgage Banking businesses. He has financed an
Arizona pilot plant on gold claims which was later purchased by the Company. He
has helped raise venture capital for the relisting and our start-up. Mr.
Eisenman has supervised Ketza River Holdings', one of our wholly owned
subsidiaries, Yukon Exploration and Drilling camp from 2004 through 2008. Mr.
Eisenman is currently managing our Yukon operations, and is a director of YS
Mining Company Inc.

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109

John R.W. Fox, Director

Mr. Fox has more than 35 years experience in the design,
start-up and operation of mine metallurgical process plants. Mr. Fox has held
positions with RTZ, Rustenburg Platinum Mines, Rossing Uranium, Wright
Engineers, and as Principal Engineer with both Cominco Engineering Services Ltd.
and H.A. Simons Ltd. He has worked on more that 100 mining projects in more than
20 countries from the Ketza River mine in the Yukon , Julietta mine in Russia,
Buenaventura's Uchucchachua in Peru, Teck projects in Ontario and Panama and
gold plants in China, Africa, Philippines , Indonesia and the Americas. Mr. Fox
is the President of Laurion Consulting Inc.

Simon Solomonidis, Director

Mr. Solomonidis is a seasoned senior executive, with strong
general management, sales and marketing experience, coupled with exceptional
financial skills, gained through a rich, high exposure international career path
with Hewlett-Packard Europe. Throughout his 30 year career at HP, he has been
exposed to both mature as well as high growth, cost constrained environments and
has been in charge of multi-million dollar business programs, including major
restructuring ones, developing and managing international business teams in
multi-country, multi- culture operations. He has demonstrated relentless focus
on business results, having exceeded revenue and profit goals in all his
assignments and has acquired excellent strategic and leadership skills. He is
particularly strong in managing business program execution/implementation, as
well as in negotiating complex deals at senior executive level. Mr. Solomonidis
holds a M.Sc. in Systems Engineering and a B.Sc in Electronic Engineering from
the Universities of London and Birmingham in the UK, as well as an MBA in
Economics from the Open University, UK. Mr. Solomonidis is currently working as
an independent sales and management consultant.

Shaun Heinrichs, CFO

Mr. Heinrichs has 12 years of financial accounting experience,
beginning with 7 years of public practice experience with Ernst & Young in
Vancouver. His primary role at Ernst & Young was as a lead assurance or
advisory manager on several large US and Canadian public companies within the BC
region. He has also held management roles over the last 4 years in two large US
public companies and most recently held a senior management role at a large BC
utility prior to joining us as the Corporate Controller in February of 2008. Mr.
Heinrichs holds a BBA from Simon Fraser University and is both a Chartered
Accountant in Canada and a Certified Public Accountant in the state of Illinois,
United States.

Graham H. Scott, Secretary

Mr. Scott combines over 25 years as a resource and corporate
finance lawyer with eight years of practical experience as an exploration
geologist to give clients expert, balanced advice on all resource-related
matters. He represents many Canadian public companies which are listed on the
TSX and TSX Venture Exchanges, in addition to clients in the corporate finance
business. Mr. Scott also represents a diverse group of clients in the mining
industry, ranging from individual prospectors to multinational mining companies.
In such work, Mr. Scott has negotiated and prepared participation and joint
venture agreements for properties throughout the world. He has presented papers
on securities law and mining law matters and has chaired many legal and industry
conferences. Mr. Scott is listed in The Lexpert/American Lawyer Guide to the
Leading 500 Lawyers in Canada, is one of the 230 lawyers world-wide listed in
the International Who's Who of Mining Lawyers and is listed in the The Best
Lawyers in Canada.

B.Compensation.

Compensation for our executive officers for the financial year
ended December 2009 is as follows:

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110

Name and Principal Position
      Year
      Salary
        ($)
      Share Based
        Awards ($)
      Option Based
        Awards $
      Non-Equity Incentive Plan Compensation 
        $
      Penson Value ($)
      All other conmpens ation ($)
      Total Compen- sation ($)Annual
        Incentive Plans
      Long-
        Term Incentive PlansRobert Baldock 
        President and 
        CEO (1)
      2009
      $184,110
      Nil
      199,844
      Nil
      Nil
      Nil
      $42,959
      426,913Graham 
        Dickson, COO(2)
      2009
      $280,000
      Nil
      199,844
      Nil
      Nil
      Nil
      Nil
      479,844Shaun Heinrichs, 
        CFO
      2009
      $182,603
      Nil
      99,922
      Nil
      Nil
      Nil
      Nil
      282,525


|(1) | President and Chief Executive Officer commencing May
        21, 2009.                                               
|--- | ---------------------------------------------------------------------------------------------------------------------
|(2) | President and Chief Executive Officer until May 21,
        2009 and Chief Operating Officer commencing May 21, 2009.

Outstanding Share-based Awards and Option-based Awards

The following table sets out all share-based awards and
option-based awards outstanding as at December 31, 2009, for Executive
Officers:

Option-based Awards
      Share-based AwardsName
      Number of securities underlying unexercised options (#)
      Option exercise
        price1 ($)
      Option expiration
        date
      Value of unexercised
        in-the-money options2 ($)
      Number of shares or units
        of shares that have not vested (#)
      Market or payout value of
        share-based awards that have not vested
        ($)Robert Baldock
      4,000,000
      $0.15
      July 26, 2014
      455,000
      3,000,000
      256,942Graham Dickson
      4,000,000 
        1,000,000 
        600,000
      $0.15 
        $1.74 
        $2.77
      July 26, 2014 
        August 10, 2012 
        January 5, 2012
      455,000 
        N/A 
        N/A
      3,000,000
      256,942Shaun Heinrichs
      2,000,000 
        200,000
      $0.15 
        $1.60
      July 26, 2014 
        March 28, 2013
      227,500 
        N/A
      1,500,000
      128,471


|1 | The fair value of the options as determined by the
      Black-Scholes pricing model was $1,141,968 (December 31, 2008 -$nil) of
      which the amount that had vested was expensed. The weighted average fair
      value of the options was $0.1142 (December 31, 2008 - $nil) per
    option.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                  
|2 | In-the-money means the excess of the market value of
      the common shares of the Company on December 31, 2009 ($0.215) over the
      base price of the options.                                                                                                                            

Incentive Plan Awards  Value Vested or Earned During the
Year

The following table sets out all incentive plans (value vested
or earned) during the year ended December 31, 2009, for each Executive
Officer:

Name
    Option-based awards 
      Value vested during the year(1)
      ($)
    Share-based awards 
      Value vested during the year ($)
    Non-equity incentive
      plan compensation  Value earned during the year
      ($)Robert Baldock
    $199,844
    Nil
    NilGraham Dickson
    $199,844
    Nil
    NilShaun Heinrichs
    $99,922
    Nil
    Nil


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111

Director Compensation Table

Each of our Directors is paid an annual retainer of C$12,000,
to be paid quarterly and receive C$750 for each meeting of directors attended,
with the Chairman of a meeting receiving C$1,000 per meeting.

The compensation provided to our directors, for our most recently
  completed financial year of December 31, 2009 is:

Name
    Fees earned
      ($)1
    Share- based
      Awards ($)
    Option- based
      awards ($) 2
    Non-equity
      incentive plan compensation ($)
    Pension
      value ($)
    All other
      compen- sation3 ($)
    Total
      ($)Terry Eisenman
    $2,250
    Nil
    199,844
    Nil
    Nil
    Nil
    $202,094Jean-Edgar de Trentinian
    $5,250
    Nil
    57,098
    Nil
    Nil
    Nil
    $62,348John Fox
    $4,500
    Nil
    57,098
    Nil
    Nil
    Nil
    $61,598Robert Chafee
    $8,250
    Nil
    57,098
    Nil
    Nil
    Nil
    $65,348Simon Solomonidis
    $6,750
    Nil
    57,098
    Nil
    Nil
    Nil
    $63,848


|1 | Includes all fees awarded, earned, paid or payable in
      cash for services as a director, including annual retainer fees,
      committee, chair and meeting fees.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 | The amount represents the fair value, on the date of
      grant, of awards made under the Companys Stock Option Plan.                                              
|3 | Includes all compensation paid, payable, awarded,
      granted, given or otherwise provided, directly or
  indirectly.                                              

The following table sets out all share-based awards and option-based
  awards outstanding as at December 31, 2009, for each director of the Company:

**Option-based Awards**
      **Share-based Awards**Name
      Number of securities
        underlying unexercised options (#)
      Option exercise
        price1 ($)
      Option expiration date
      Value of unexercised
        in-the- money options ($)
      Number of shares
        or units of shares that have not vested (#)
      Market or payout value of share-based awards that have not vested
        ($)Robert Baldock
      4,000,000
      $0.15
      July 26, 2014
      Nil
      Nil
      NilGraham Dickson
      4,000,000 
        1,000,000 
        600,000
      $0.15 
        $1.74 
        $2.77
      July 26, 2014 
        August 10, 2012 
        January 5, 2012
      Nil
      Nil
      NilTerry Eisenman
      4,000,000 
        100,000 
        30,000 
        100,000
      $0.15 
        $1.63 
        $1.61 
        $0.82
      July 26, 2014 
        June 25, 2012 
        April 2, 2012 
        January 26, 2011
      Nil
      Nil
      NilJE de Trentinian
      1,000,000
      $0.15
      July 26, 2014
      Nil
      Nil
      NilJohn Fox
      500,000 
        200,000 
        50,000 
        250,000
      $0.15 
        $1.74 
        $2.77 
        $0.60
      July 26, 2014 
        August 10, 2012 
        January 5, 2012 
        April 14, 2010
      Nil
      Nil
      NilRobert Chafee
      500,000 
        200,000 
        50,000 
        250,000
      $0.15 
        $1.74 
        $2.77 
        $0.60
      July 26, 2014 
        August 10, 2012 
        January 5, 2012 
        October 1, 2010
      Nil
      Nil
      NilSimon Solomonidis
      500,000
      $0.15
      July 26, 2014
      Nil
      Nil
      Nil


|1 | The fair value of the options issued as determined by the
      Black-Scholes pricing model was $1,084,869 of which the vested amount was
      expensed. The weighted average fair value of the options was $0.571 per
      option.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table sets out all incentive plan (value vested
or earned) during the year ended December 31, 2009, for each director of the
Company:

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112

Name
    Option-based awards 
      Value vested during the year ($)
    Share-based awards 
      Value vested during the year ($)
    Non-equity incentive
      plan compensation  Value earned during the year
      ($)Robert Baldock
    199,842
    N/A
    NilGraham Dickson
    199,842
    N/A
    NilTerry Eisenman
    199,842
    N/A
    NilJean-Edgar de Trentinian
    65,000
    N/A
    NilJohn Fox
    32,500
    N/A
    NilRobert Chafee
    32,500
    N/A
    NilSimon Solomonidis
    32,500
    N/A
    Nil


We do not have any long-term incentive, retirement, pension
plan or other arrangement for non-cash compensation to our Directors, except
incentive stock options.

Stock Option Plan

The only equity compensation plan which we have in place is an
Evergreen Incentive Stock Option Plan (the Plan) which was approved by our
shareholders on May 18, 2007. The Plan has been established to provide
incentives to qualified parties to increase their proprietary interest in us and
thereby encourage their continuing association with us. The Plan is administered
by our directors and provides that options will be issued to our directors,
officers, employees and consultants. The Plan provides that the number of common
shares issuable under the Plan, together with all of our other previously
established or proposed share compensation arrangements, may not exceed 10% of
our total number of issued and outstanding Common Shares.

The following table sets out equity compensation plan
information as at the end of the financial year ended December 31, 2009.

Plan Category
    Number of securities
      to be issued upon exercise of outstanding
      options, warrants and rights
    Weighted-average
      exercise price of outstanding options,
      warrants and rights
    Number of securities
      remaining available for future issuance under equity
      compensation plans (excluding securities reflected in
      column (a))Equity compensation plans approved by
      securityholders
    25,400,000
    $0.40
    26,059,689Equity compensation plans not
      approved by securityholders
    Nil
    N/A
    NilTotal
    25,400,000
    $0.40
    26,059,689


C.Board practices.

Each director is currently serving a one (1) year term,
renewable at the annual shareholder meeting.

None of our directors have any service contracts for serving as
directors.

We have an Audit Committee, which recommends to the full Board
of Directors the engagement of the independent auditors and reviews with the
independent auditors the scope and results of our audits, our internal
accounting controls, and the professional services furnished by the independent
auditors to us. The Audit Committee meets as required to review the annual and
quarterly financial statements, matters relating to the securities commissions,
investments and transactions that could adversely affect our well-being and
management's recommendations regarding share issues. The Audit Committee also
establishes and monitors procedures to reduce conflicts of interest and for
reviewing audit and financial matters. Through meetings with external auditors
and senior management, the Audit Committee discusses, among other things, the
effectiveness of the internal control procedures established for us. At all
times, at least one (1) audit committee member possesses accounting or related
financial expertise, while the remaining members are, at minimum, possessed of
significant experience in analyzing the financial condition of corporations. The
Board of Directors has adopted a charter for the audit committee which

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113

sets out the responsibilities of the committee and provides
guidance to committee members as to their duties which charter is posted on the
Corporations website at www.yukon-nevadagold.com under Corporate
Info/Governance Policy. Our Audit Committee currently consists of three (3)
members: Robert Chafee, Simon Solomonidis and Jean-Edgar de Trentinian.

In addition, we have a compensation committee. The Compensation
Committee reviews compensation practices and management succession and approves
the remuneration of our senior executives, including the Chief Executive
Officer. The Compensation Committee reviews matters such as compensation
philosophy and remuneration policy, Board retainer fees, performance objectives,
evaluation of the performance of the Chief Executive Officer, proposed stock
option or share purchase plans, bonuses. The Compensation Committee also
monitors the integrity of management through periodic meetings with the Chief
Executive Officer. The members of the Compensation Committee are John Fox,
Robert Chafee (Chair) and Simon Solominidis.

D.Employees.

As of December 31, 2009, we had 139 full time employees, 129
located in Nevada, 3 in the Yukon and 7 in British Columbia.

E.Share ownership.

The following table outlines the common shareholdings of the
Directors and Senior Management, as at December 31, 2009.

Name of Beneficial Owner
    Amount and Nature of
      Beneficial Ownership(1)
    Percent of ClassRobert Baldock
    0
    0%Robert E. Chafee
    9,426,143
    1.8%Jean-Edgar de Trentinian
    0
    0%Graham C. Dickson
    2,496,000
    0.4%Terry Eisenman
    1,808,000
    0.3%John R.W. Fox
    259,800
    0.1%Shaun Heinrichs
    390,000
    0.1%Simon Solomonidis
    0
    0%


(1)          
These amounts do not reflect the Common Shares which can be acquired pursuant to
the exercise of stock options or warrants.

The following table sets forth our outstanding stock options in
Canadian dollars to Directors and Senior Management as at December 31, 2009.

Name of Optionee
    Position of Optionee
      (Director/Officer)
    Date of Grant
    No. of Shares
    Exercise Price
    Expiry DateGraham Dickson
    Director
    April 14, 2005
    500,000
    $0.60
    Apr. 14, 2010John Fox
    Director
    April 14, 2005
    250,000
    $0.60
    Apr. 14, 2010Graham Scott
    Officer
    April 14, 2005
    250,000
    $0.60
    Apr. 14, 2010Robert Chafee
    Director
    October 1, 2005
    250,000
    $0.60
    Oct. 1, 2010Terry Eisenman
    Director
    January 26, 2006
    100,000
    $0.82
    January 26, 2011Graham Dickson
    Director
    January 5, 2007
    600,000
    $2.77
    Jan. 5, 2012John Fox
    Director
    January 5, 2007
    50,000
    $2.77
    Jan. 5, 2012Robert Chafee
    Director
    January 5, 2007
    50,000
    $2.77
    Jan. 5, 2012Graham Scott
    Officer
    January 5, 2007
    50,000
    $2.77
    Jan. 5, 2012Terry Eisenman
    Director
    April 2, 2007
    30,000
    $1.61
    April 2, 2012Terry Eisenman
    Director
    June 25, 2008
    100,000
    $1.63
    June 25, 2012Graham Dickson
    Director
    August 10, 2007
    1,000,000
    $1.74
    Aug. 10, 2012Robert Chafee
    Director
    August 10, 2007
    200,000
    $1.74
    Aug. 10, 2012John Fox
    Director
    August 10, 2007
    200,000
    $1.74
    Aug. 10, 2012Graham Scott
    Officer
    August 10, 2007
    200,000
    $1.74
    Aug. 10, 2012Shaun Heinrichs
    Officer
    March 28, 2008
    200,000
    $1.60
    March 28, 2013JE de Trentinian
    Director
    July 26/2009
    1,000,000
    $0.15
    July 26, 2014Robert Baldock
    Director
    July 26/2009
    4,000,000
    $0.15
    July 26, 2014


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114

Name of Optionee
    Position of Optionee
      (Director/Officer)
    Date of Grant
    No. of Shares
    Exercise Price
    Expiry DateGraham Dickson
    Director
    July 26/2009
    4,000,000
    $0.15
    July 26, 2014Terry Eisenman
    Director
    July 26/2009
    4,000,000
    $0.15
    July 26, 2014John Fox
    Director
    July 26/2009
    500,000
    $0.15
    July 26, 2014Robert Chafee
    Director
    July 26/2009
    500,000
    $0.15
    July 26, 2014Simon Solomonidis
    Director
    July 26/2009
    500,000
    $0.15
    July 26, 2014Shaun Heinrichs
    Officer
    July 26/2009
    2,000,000
    $0.15
    July 26, 2014Graham Scott
    Officer
    July 26/2009
    500,000
    $0.15
    July 26, 2014


The following table sets forth our outstanding stock options in
Canadian dollars issued to employees as a group, pursuant to the stock option
plan described in Item 6.B, Stock Option Plan, as at December 31, 2009.

Date of Grant
    No. of Shares
    Exercise Price
    Expiry DateJanuary 26, 2006
    50,000
    $0.82
    January 26, 2011December 12, 2006
    25,000
    $2.25
    December 12, 2011June 25, 2007
    77,000
    $1.63
    June 25,2012November 13, 2007
    40,000
    $1.70
    November 13, 2012July 26, 2009
    2,880,000
    $0.15
    July 26, 2014September 29, 2009
    1,535,000
    $0.15
    September 29,2014October 1, 2009
    75,000
    $0.15
    October 1, 2014


Item 7. Major Shareholders and Related Party
Transactions.

A.Major shareholders.

At December 31, 2009, we had 516,346,887 Shares outstanding. As
at that date, we believe that the following entities beneficially owned more
than 5% of our outstanding Shares.

Name
    No. of
      Shares
    Percentage of Issued
      and OutstandingOrifer S A.
    151,804,000
    29.40%Sprott Asset Management as a Portfolio
      Manager
    79,722,062
    15.44%


Neither Sprott Asset Management, as Portfolio Manager
(Sprott) nor Orifer is a party to a voting trust agreement and does not have
any different voting rights. With the exception of Sprott and Orifer, there has
not been any significant change in the percentage ownership of Shares held by
any major shareholder during the past three years.

At December 31, 2009, we had 53 Canadian holders of record,
holding 341,853,000 common shares, which represented 66.21% of our outstanding
Shares. At such date, there were no arrangements, the operation of which could
result in a change of control. All shareholders have the same voting rights with
respect to the Shares.

B.Related party transactions.

During the year, the Company was charged a total of $0.2
million (2008 - $0.2 million, 2007 - $0.3 million) in legal fees by a law firm
in which the corporate secretary of the Company is a partner. The amount owing
at December 31, 2009 is $0.2 million (2008  $0.1 million). A portion of these
fees are included in share issue costs with the remainder included under general
and administrative expenses. In 2007, a portion of these costs were also
included in the transaction costs associated with a business combination.

During 2007, the Company was charged $0.1 million in management
fees by a company owned by a director of the Company.

In 2009, the Company engaged in several transactions with
Tagish Lake Gold Corp (Tagish Lake). The Chief Operating Officer is currently
the President of Tagish Lake and one of the Directors of the Company is also a
director of Tagish Lake.

---

115

During 2009, the Company advanced funds of $0.4 million and
purchased a loan receivable from Tagish Lake for $0.5 million that is secured by
the Skukum property.

In 2009, the Company was charged a total C1.8 million by a
Company owned by a director of the Company, for the management of the Yukon
properties. As well, the Company was charged C$2.4 million (2008  nil, 2007 
nil) for metallurgical and geological services provided by a director of the
Company.

C.Interests of experts and counsel.

Not applicable.

Item 8. Financial Information.

See Item 17.

Item 9. The Offer and Listing.

A.Offer and listing details.

Our Shares are currently listed for trading on the Toronto
Stock Exchange under the trading symbol "YNG" and on Frankfurt Stock Exchange
under the trading symbol NG6.F. The following tables contain information on
the trading history of our Shares:

High and Low Price for the Four Most Recent Fiscal Years on
the TSX (C$s)

|Fiscal Year Ended | High  | Low  
|----------------- | ----- | -----
|December 2009     | $0.41 | $0.03
|December 2008     | $1.80 | $0.02
|December 2007     | $2.89 | $1.18
|December 2006     | $2.73 | $0.76

High and Low Prices for each Quarterly Period for the Past
Two Fiscal Years on the TSX (C$s)

|Period Ended       | High  | Low  
|------------------ | ----- | -----
|December 31, 2009  | $0.41 | $0.13
|September 30, 2009 | $0.17 | $0.07
|June 30, 2009      | $0.21 | $0.12
|March 31, 2009     | $0.18 | $0.03
|December 31, 2008  | $0.12 | $0.02
|September 30, 2008 | $1.20 | $0.13
|June 30, 2008      | $1.78 | $1.09
|March 31, 2008     | $1.80 | $1.45

High and Low Prices for each Month for the Past Six Months
on the TSX (C$s)

|Month Ended    | High  | Low  
|-------------- | ----- | -----
|February 2010  | $0.27 | $0.22
|January 2010   | $0.30 | $0.22
|December 2009  | $0.26 | $0.18
|November 2009  | $0.35 | $0.22
|October 2009   | $0.41 | $0.13
|September 2009 | $0.15 | $0.10

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116

B. Plan of distribution.

Not applicable.

C.Markets.

Our common shares are listed on the TSX under the symbol
"YNG.TO", the Pink Sheets under the symbol YNGFF.PK, the FSX under the symbol
"NG6.F", [the SSX under the symbol NG6.SG, the MSX under the NG6.MU and the
BSX under the symbol NG6.BE].

D.Selling shareholders.

Not applicable.

E.Dilution.

Not applicable.

F.Expenses of the issue.

Not applicable.

Item 10. Additional Information.

A.Share capital.

Not applicable.

B.Memorandum and articles of association.

We were incorporated under the laws of the Province of British
Columbia under the name YGC Resources Ltd. (YGC) on May 30, 1988 under
Certificate of Incorporation Number 346183. On January 25, 2002, we were struck
from the Register of Companies for British Columbia and dissolved and on August
1, 2003 we were restored to the Register. On January 5, 2004 we consolidated our
share capital on a five (5) old for one (1) new basis and increased our
authorized share capital from 4,000,000 shares without par value to 100,000,000
shares without par value. On June 23, 2005, we increased our authorized share
capital from 100,000,000 Common Shares without par value to an unlimited number
of Common Shares without par value. We do not have any stated objects or
purposes as such are not required by the corporate laws of the Province of
British Columbia. Rather, we are, by such corporate laws, entitled to carry on
any activities whatsoever, which are not specifically precluded by other
statutory provisions of the Province of British Columbia.

The powers and functions of the directors are set out in our
Articles which were adopted on May 19 2005. They provide:

- a director is obligated to disclose his potential interest in a proposal,
  arrangement or contract being considered by us, and may not vote on any
  proposal, arrangement or contract proposed, but such director shall be counted
  in the quorum at the meeting of the directors at which the proposal,
  arrangement or contract is approved;
- the directors may, in the absence of an independent quorum, vote
  compensation to themselves;
- there are no limitations on the exercise by the directors of our borrowing
  powers;
- there are no provisions for the retirement or non-retirement of directors
  under an age limit; and
- there is no requirement for a director to hold any of our shares.

As all of our authorized and issued shares are of one class
there are no special rights or restrictions of any nature or kind attached to
any of the shares. All authorized and issued shares rank equally in respect to
the declaration and receipt of dividends, the rights to share in any profits or
surplus on our liquidation, dissolution or winding. Each share has attached to
it one non-cumulative vote.

---

117

To alter the rights of holders of our issued shares such
alteration must be approved by the majority vote of 2/3% of our issued shares
attending and voting at a meeting of our shareholders.

Annual general meetings are called and scheduled upon decision
by the Board of Directors. The directors may convene an extraordinary general
meeting of the shareholders. The holders of not less than 5% of our issued
shares may requisition an extraordinary meeting of the shareholders. All
meetings of the shareholders may be attended by registered shareholders or
persons who hold powers of attorney or proxies given to them by registered
shareholders.

Our Articles do not contain limitations prohibiting shares
being held by non-residents, foreigners or any other group.

There are no provisions in our Articles that would have an
effect of delaying, deferring or preventing a change in our control, or that
would operate with respect to any proposed merger, acquisition or corporate
restructuring.

There are no provisions in our Articles requiring share
ownership to be disclosed. The securities laws of the Province of British
Columbia require disclosure of shareholdings by:

(a)           persons
who are our directors or senior officers; and

(b)           a
person who has direct or indirect beneficial ownership of, control or direction
over, or a combination of direct or indirect beneficial ownership of and control
or direction over our securities carrying more than 10% of the voting rights
attached to all of our outstanding voting securities.

C.Material contracts.

Other than contracts entered into in the ordinary course of
business, we have not entered into any material contract to which we or any
member of the group is a party, for the two years immediately preceding
publication of the document.

D.Exchange controls.

There are no laws, governmental decrees or regulations in
Canada that restrict the export or import of capital or which affect the
remittance of dividends, interest or other payments to non-resident holders of
our shares, other than withholding tax requirements. Reference is made to
Item 10E. Taxation.

There are no limitations under the laws of Canada or the
Province of British Columbia, or in our constituting documents, with respect to
the right of non-resident or foreign owners to hold or vote Shares other than
those imposed by the Investment Canada Act.

The Investment Canada Act is a federal Canadian statute
which regulates the acquisition of control of existing Canadian businesses and
the establishment of new Canadian businesses by an individual, a government or
entity that is a "non-Canadian" as that term is defined in the Investment
Canada Act.

Our management believes that it is not currently a
"non-Canadian" for purposes of the Investment Canada Act. If we were to
become a "non-Canadian" in the future, acquisitions of control of Canadian
businesses by us would become subject to the Investment Canada Act.
Generally, the direct acquisition by a "non-Canadian" of an existing Canadian
business with gross assets of $5,000,000 or more is reviewable under the
Investment Canada Act, with thresholds of $223 million and $237 million
for transactions closing in 2003 and 2004, respectively, for "WTO investors" as
defined under the Investment Canada Act. If we were to become a
"non-Canadian" in the future, Management believes we would likely become a
"non-Canadian" which is a "WTO investor." Generally, indirect acquisitions of
existing Canadian businesses (with gross assets over certain threshold levels)
are reviewable under the Investment Canada Act, except in situations
involving "WTO investors" where indirect acquisitions are generally not
reviewable. In transactions involving Canadian businesses engaged in the
production of uranium, providing financial services, providing transportation
services or which are cultural businesses, the benefit of the higher "WTO
investor" thresholds do not apply.

Acquisitions of businesses related to Canada's cultural
heritage or national identity (regardless of the value of assets involved) may
also be reviewable under the Investment Canada Act. In addition,
investments to establish new, unrelated businesses are

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118

not generally reviewable. An investment to establish a new
business that is related to the non-Canadian's existing business in Canada is
not notifiable under the Investment Canada Act unless such investment relates to
Canada's cultural heritage or national identity.

Investments which are reviewable under the Investment Canada
Act are reviewed by the Minister, designated as being responsible for the
administration of the Investment Canada Act. Reviewable investments,
generally, may not be implemented prior to the Ministers determining that the
investment is likely to be of "net benefit to Canada" based on the criteria set
out in the Investment Canada Act. Generally investments by non-Canadians
consisting of the acquisition of control of Canadian businesses which
acquisitions are otherwise non-reviewable or the establishment of new Canadian
businesses require that a notice be given under the Investment Canada Act
in the prescribed form and manner.

Any proposed take-over of us by a "non-Canadian" would likely
be subject only to the simple "notification" requirements of the Investment
Canada Act as in all likelihood that non-Canadian would be a "WTO investor"
for purposes of the Investment Canada Act. Generally, a "WTO investor" is
an individual, other than a Canadian, who is a national of a country that is a
member of the World Trade Organization. In the case of a person that is not an
individual; a WTO investor is a person that generally, is ultimately controlled
by individuals, other than Canadians, who are nationals of a WTO member.
Currently there are 134 countries that are members of the WTO, including
virtually all countries of the Western world.

E.Taxation.

Certain Canadian Federal Income Tax Consequences 
General

The following is a brief summary of the principal Canadian
federal income tax consequences generally applicable to a person who holds our
common shares and who, at all relevant times for the purposes of the Income Tax
Act (Canada) (the "Canadian Tax Act") and the Canada - United States Tax
Convention, 1980, as amended (the "US Treaty"),

- is or is deemed to be a resident solely of the United States,
- holds the common shares as capital property and as beneficial owner,
- does not and is not deemed to use or hold the common shares in or in the
  course of a business carried on in Canada, and
- does not carry on an insurance business in Canada and elsewhere,
- (a "US Holder")

This summary is based on the facts set forth in this Form 20-F,
the current provisions of the US Treaty, the Canadian Tax Act and regulations
thereunder, and our understanding of the current published administrative and
assessing policies and practices of the Canada Revenue Agency (the "CRA"), and
takes into account all specific proposals to amend the Canadian Tax Act (the
"Proposed Amendments") publicly announced by or on behalf of the Minister of
Finance (Canada) prior to the date hereof. It is assumed that all such
amendments will be enacted as currently proposed, and that there will be no
other change to any relevant law or administrative or assessing policy or
practice, although no assurances can be given in this respect. Except as
otherwise expressly set out herein, this summary also does not take into account
any provincial, territorial or non-Canadian income tax law, the implications of
which may differ from the Canadian federal income tax considerations.

On September 21, 2007, the Minister of Finance (Canada) and the
United States Secretary of the Treasury signed the fifth protocol to the US
Treaty (the "Protocol") which includes amendments to many of the provision of
the US Treaty, including significant amendments to the limitation on benefits
provision. The Protocol will enter into force once it is ratified by both the
Canadian and United States governments (or on January 1, 2008, if it is ratified
in 2007) and will have effect in respect of withholding taxes, after the first
day of the second month that begins after the date on which the Protocol enters
into force. US Holders are urged to consult their own tax advisors to determine
the impact of the Protocol and their entitlement to relief under the US Treaty
based on their particular circumstances.

The following discussion is not intended to be, nor should it
be construed to be, legal or tax advice to any holder or prospective holder of
the Company's shares and no opinion or representation with respect to the
Canadian federal income tax consequences to any such holder or prospective
holder is made. Accordingly, holders and prospective holders of the Company's
shares should consult with their own tax advisors about the federal, provincial,
local and non-Canadian tax consequences of purchasing, owning and disposing of
the Company's shares.

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119

Dividends

Dividends paid or credited or deemed to be paid or credited to
a US Holder by the Company will be subject to Canadian withholding tax at the
rate of 15% of the gross amount of the dividend (or 5% in the case of a US
Holder that is a corporation beneficially owning at least 10% of the Company's
"voting stock" within the meaning of the US Treaty). Dividends may be exempt
from withholding tax in the case of some US Holders such as qualifying tax
exempt entities.

Disposition of Common Shares

A US Holder who realizes a capital gain on the actual or deemed
disposition of a common share will not be subject to Canadian federal income tax
under the Canadian Tax Act in respect of the capital gain unless such common
share constitutes "taxable Canadian property" to the US Holder for purposes of
the Canadian Tax Act and the US Holder is not exempt from Canadian federal
income tax on such gain pursuant to the terms of the US Treaty.

Generally, a common share owned by a US Holder will not be
taxable Canadian property of the US Holder at a particular time provided that,
at that time,

- our the common shares are listed on the TSX,
- neither the US Holder nor persons with whom the US Holder does not deal at
  arm's length alone or in any combination has owned 25% or more of the shares
  of any class or series of shares in the capital of the Company at any time in
  the previous five years, and
- the common share was not acquired in a transaction, a result of which it
  was deemed to be taxable Canadian property of the US Holder.

A US Holder that realizes a capital gain on the disposition of
common shares that do qualify as taxable Canadian property will, nevertheless,
generally be exempt from Canadian federal income tax thereon by virtue of the US
Treaty unless:

- more than 50% of the value of the common shares is derived from real
  property (within the meaning of the US Treaty) that is located in Canada,
- the US Holder (i) was a resident of Canada at any time during the 10 years
  immediately preceding the disposition and for a total of 20 months during any
  period of 20 consecutive years preceding the disposition, and (ii) owned the
  common share when the US Holder ceased to be a resident of Canada.

A US Holder who is subject to Canadian federal income tax in
respect of a disposition of a common share will realize a capital gain (or
capital loss) equal to the amount by which the US Holder's proceeds of
disposition, less reasonable costs of disposition, exceed (or are exceeded by)
the adjusted cost base of the common share to the US Holder. In these
circumstances, a US Holder who realizes a capital gain or capital loss in a
taxation year will be required to include one half of the capital gain ( the
taxable capital gain) in income for Canadian federal income tax purposes, and
may deduct one half of the capital loss (the allowable capital loss) against
taxable capital gains incurred in respect of dispositions of taxable Canadian
property, subject to and accordance with the provisions of the Canadian Tax Act
and the US Treaty.

United States Taxation

The following is a general summary of certain United States
federal income tax consequences, under current law, generally applicable to a
U.S. Holder (as defined below). This summary does not address all potentially
relevant U.S. federal income tax matters and it does not address consequences to
persons subject to special provisions of U.S. federal income tax law, such as
those described below as excluded from the definition of a U.S. Holder. United
States alternative minimum tax considerations are not addressed in this summary.
In addition, this summary does not cover any state, local or foreign tax
consequences, nor any U.S. federal gift, estate or generation-skipping transfer
tax consequences. (Certain, but not all, foreign tax consequences are described
above under "Taxation - Certain Canadian Federal Income Tax Consequences -
General.")

The following summary is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS,
and court decisions that are currently applicable, any of which could be
materially and adversely changed, possibly on a retroactive basis, at any time
including, without limitation, United States rates of taxation. This summary
does not consider the potential effects, both

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120

adverse and beneficial, of any recently proposed legislation
which, if enacted, could be applied, possibly on a retroactive basis, at any
time. No rulings have been or will be sought from the IRS with respect to any of
the U.S. federal income tax issues discussed in this summary, and no assurance
can be given that the IRS will not successfully challenge any tax positions
described herein.

This summary is for general information only and it is not
intended to be, nor should it be construed to be, legal or tax advice to any
holder or prospective holder of common shares and no opinion or representation
with respect to the United States federal income tax consequences to any such
holder or prospective holder is made. Accordingly, holders and prospective
holders of common shares should consult their own tax advisors about the federal
(income and non-income), state, local, and foreign tax consequences of
purchasing, owning and disposing of common shares of the Company.

U.S. Holders

As used herein, a "U.S. Holder" means a Holder of our shares
who is: (1) a citizen or individual resident (as defined under United States tax
laws) of the United States; (2) a corporation created or organized in or under
the laws of the United States or of any political subdivision thereof; (3) an
estate the income of which is taxable in the United States irrespective of
source; or (4) a trust if (a) a court within the United States is able to
exercise primary supervision over the trusts administration and one or more
United States persons have the authority to control all of its substantial
decisions or (b) the trust was in existence on August 20, 1996 and has properly
elected to continue to be treated as a United States person.

This summary does not address the United States tax
consequences to, and the term "U.S. Holder" does not include, persons subject to
special provisions of United States federal income tax law, including, but not
limited to, tax-exempt organizations, qualified retirement plans, individual
retirement accounts and other tax-deferred accounts, financial institutions,
insurance companies, real estate investment trusts, regulated investment
companies, broker-dealers, non-resident alien individuals, U.S. tax expatriates,
persons or entities that have a "functional currency" other than the U.S.
dollar, persons who common our shares as part of a straddle, hedging or a
conversion transaction, and persons who acquire their common shares as
compensation for services. This summary is limited to U.S. Holders who own
common shares as capital assets and who hold common shares directly (e.g., not
through an intermediary entity such as a corporation, partnership, limited
liability company, or trust).

Distributions on our Shares

Subject to the discussion below regarding passive foreign
investment companies ("PFICs") and controlled foreign corporations ("CFCs"),
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to the common shares are required to include in gross income for
United States federal income tax purposes the gross amount of such distributions
to the extent that the Company has current or accumulated earnings and profits,
as defined under U.S. federal tax law, without reduction for any Canadian income
tax withheld from such distributions. Such Canadian tax withheld may be
credited, subject to certain limitations, against the U.S. Holders United
States federal income tax liability or, alternatively, may be deducted in
computing the U.S. Holders United States federal taxable income by those who
itemize deductions. (See more detailed discussion at "Foreign Tax Credit"
below). To the extent that distributions exceed the Companys current or
accumulated earnings and profits, they will be treated first as a return of
capital up to the U.S. Holder's adjusted basis in the shares and thereafter as
gain from the sale or exchange of the shares. Preferential tax rates for
"long-term" net capital gains (e.g. gains realized on capital assets owned more
than one year)are applicable under current law to a U.S. Holder that is an
individual, estate or trust. There are currently no preferential tax rates for
long-term capital gains for a U.S. Holder that is a corporation.

With effect from January 1, 2003 through December 31, 2010, the
United States reduced the maximum tax rate on certain qualifying dividend
distributions to 15%. In order for dividends paid by foreign corporations to
qualify for the reduced rates, (1) the foreign corporation must meet certain
requirements, including that it not be classified as a PFIC for United States
federal income tax purposes in either the taxable year of the distribution or
the preceding taxable year, and (2) the U.S. Holder must meet the required
holding period. In order to meet the required holding period, the U.S. Holder
must hold the common shares for more than 60 days during the 121-day period
beginning 60 days before the ex-dividend date.

Dividends paid on the common shares will generally not be
eligible for the dividends received deduction provided to corporations receiving
dividends from certain United States corporations.

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121

In the case of a dividend paid in a foreign currency that is
not converted by the recipient into U.S. dollars on the date of receipt, a U.S.
Holder will have a tax basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Generally, any gain or loss recognized upon a
subsequent sale or other disposition of the foreign currency, including the
exchange for U.S. dollars, will be ordinary income or loss.

Disposition of Common Shares

Subject to the PFIC and CFC discussions below, a U.S. Holder
will recognize a gain or loss upon the sale of the common shares equal to the
difference, if any, between (i) the amount of cash plus the fair market value of
any property received, and (ii) the U.S. Holders adjusted tax basis in the
common shares. This gain or loss will be a capital gain or loss if the common
shares are a capital asset in the hands of the U.S. Holder, and will be a
short-term or long-term capital gain or loss depending upon the holding period
of the U.S. Holder. Preferential tax rates for long-term capital gains are
applicable to a U.S. Holder which is an individual, estate or trust, under
current law. There are currently no preferential tax rates for long-term capital
gains for a U.S. Holder which is a corporation.

Gains and losses are netted and combined according to special
rules in arriving at the overall capital gain or loss for a particular tax year.
Deductions for net capital losses are subject to significant limitations.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the ownership or disposition of the common
shares may be entitled, at the option of the U.S. Holder, to either a deduction
or a tax credit for such foreign tax paid or withheld. Generally, it will be
more advantageous to claim a credit because a credit reduces United States
federal income taxes on a dollar-for-dollar basis, while a deduction merely
reduces the taxpayers income subject to tax. This election is made on a
year-by-year basis and applies to all foreign taxes paid by (or withheld from)
the U.S. Holder during that year. There are significant and complex limitations
that apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holders United States federal
income tax liability that the U.S. Holder's foreign source income bears to his
or its worldwide taxable income. In the determination of the application of this
limitation, the various items of income and deduction must be classified into
foreign and domestic sources. Complex rules govern this classification process.
In addition, this limitation is calculated separately with respect to specific
"baskets" of income. Foreign taxes assigned to a particular basket generally
cannot offset United States tax on income assigned to another basket. Unused
foreign tax credits can generally be carried back one year and carried forward
ten years. The availability of the foreign tax credit and the application of
the limitations on the credit are fact specific and U.S. Holders should consult
their own U.S. tax advisors regarding their ability to utilize foreign tax
credits in light of their individual circumstances.

Other Considerations

In the following circumstances, the above sections of this
discussion may not describe the United States federal income tax consequences
resulting from the holding and disposition of the Companys shares:

Passive Foreign Investment Company

As a foreign corporation with U.S. Holders, the Company could
potentially be treated as a PFIC if 75% or more of its gross income in a taxable
year is passive income, or the average percentage of its assets (by value)
during the taxable year which produce passive income or which are held for the
production of passive income is at least 50%. Passive income is generally
defined to include gross income in the nature of dividends, interest, royalties,
rents and annuities; excess of gains over losses from certain transactions in
any commodities not arising inter alia from a PFIC whose business is
actively, with respect to certain distributions on, or dispositions of, shares
of a PFIC, involved in such commodities; certain foreign currency gains; and
other similar types of income with respect to certain distributions or, of
dispositions of shares, of a PFIC. U.S. Holders are subject to an increased
United States federal income tax liability and to an interest charge based on
the value of the tax deferral for the period during which the shares of the PFIC
are owned.

The PFIC rules are very complex. The Company offers
no opinion or representations as to its status as a PFIC for the current year or
any prior or future tax years. Each U.S. Holder should consult a U.S. tax
advisor with respect to the PFIC rules and their applicability to his or its
particular tax situation.

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122

Shareholder Election

The adverse tax consequences associated with a PFIC may be
avoided if the U.S. Holder has elected to treat the PFIC as a QEF with respect
to that U.S. Holder (a "QEF Election") effective for each of the PFIC's taxable
years beginning on or after January 1, 1987, which include any portion of the
U.S. Holders holding period. In general, U.S. Holders of a QEF are taxable
currently on their pro rata share of the QEFs ordinary income and net capital
gain regardless of whether such income or gain is actually distributed. Certain
reporting obligations to the IRS must also be met by the U.S. Holder if there is
a QEF Election in place.

The procedure a U.S. Holder must comply with in making an
effective QEF Election will depend on whether the year of election is the first
year in the U.S. Holder's holding period in which the Company is classified as a
PFIC. If the U.S. Holder makes a QEF Election in such first year (i.e., a timely
QEF Election), then the U.S. Holder may make the QEF Election by simply filing
the appropriate documents at the time the U.S. Holder files his tax return for
such first year. If, however, the Company was classified as a PFIC in a prior
year, then additional considerations apply. U.S. Holders should consult their
own U.S. tax advisors regarding making a QEF Election.

Mark to Market Election

As an alternative to making a QEF Election, U.S. Holders who
hold, actually or constructively, marketable stock of a foreign corporation that
is a PFIC may elect to mark such stock to the market (a "Mark-to-Market
Election"). If such an election is made, such U.S. Holder will not be subject to
the special PFIC taxation rules described above for the taxable years for which
the Mark-to-Market Election is made and subsequent taxable years if not revoked.
Instead, a U.S. Holder who makes such an election will include in income for
each taxable year an amount equal to the excess, if any, of the fair market
value of the common shares as of the close of such tax year over such U.S.
Holder's adjusted tax basis in such shares. In addition, the U.S. Holder is
allowed a deduction for the lesser of (i) the excess, if any, of such U.S.
Holder's adjusted tax basis in the common shares over the fair market value of
such shares as of the close of the tax year, or (ii) the excess, if any of (A)
the mark-to-market gains for the common shares included by such U.S. Holder for
prior tax years, over (B) the mark-to-market losses for shares that were allowed
as deductions for prior tax years. Amounts included in income or deducted under
the Mark-to-Market Election, and gain or loss on a disposition of shares, are
classified as ordinary income or loss. A U.S. Holder's adjusted tax basis in the
common shares will be increased or decreased to reflect the amount included or
deducted as a result of the Mark-to-Market Election. A Mark-to-Market Election
will apply to the tax year for which the election is made and to all later tax
years, unless the PFIC stock ceases to be marketable or the IRS consents to the
revocation of the election. Various IRS reporting requirements may also apply to
a U.S. Holder who makes a Mark-to-Market Election.

The PFIC, QEF Election, and Mark-to-Market Election rules
are complex. U.S. Holders should consult their own tax advisors regarding the
availability of, procedure for, and consequences of, making an Election.

Controlled Foreign Corporation

If more than 50% of the voting power of all classes of stock or
the total value of the Companys stock is owned, directly or indirectly, by
citizens or residents of the United States, United States domestic partnerships,
corporations or estates or trusts (other than foreign estates or trusts), each
of whom own 10% or more of the total combined voting power of all classes of
stock ("United States Shareholders"), the Company could be treated as a CFC
under Subpart F of the Code. This classification would cause many complex
results, including the required inclusion by such United States Shareholders in
income of their pro rata share of "Subpart F income" (as specially defined by
the Code). If we are both a PFIC and CFC, we will generally not be treated as a
PFIC with respect to United States Shareholders of the CFC that acquired the
common shares on or after January 1, 1998. With respect to United States
Shareholders that acquired the common shares prior to January 1, 1998 and other
U.S. Holders (that are not United States Shareholders), the Company would
generally remain a PFIC unless certain elections, if available, were made. In
addition, under Section 1248 of the Code, certain gains from the sale or
exchange of shares by a U.S. Holder who is or was a United States Shareholder at
any time during the five year period ending with the sale or exchange is
generally treated as ordinary dividend income to the extent of the Companys
earnings and profits attributable to the stock sold or exchanged. Because of the
complexity of Subpart F, and because it is not clear that Subpart F would apply
to the U.S. Holders of the common shares, a more detailed review of these rules
is outside of the scope of this discussion. The CFC rules are complex. The
Company offers no opinion or representations as to its status as a CFC for the
current year or any prior or future tax years. U.S. Holders should
consult their own U.S. tax advisors regarding the CFC rules and their
applicability to such U.S. Holders particular tax situation.

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F.Dividends and paying agents.

Not applicable.

G.Statement by experts.

Not applicable.

H.Documents on display.

Public documents are available for inspection at our head
offices located at 490  688 West Hastings Street, Vancouver, British Columbia
V6B 1P1, and, for certain documents, on the Internet at
www.yukon-nevadagold.com, by accessing the Canadian System for Electronic Data
Analysis and Retrieval (SEDAR) website at www.sedar.com and by the Electronic Data Gathering,
Analysis and Retrieval (EDGAR) system at www.sec.gov.

Statements made in this annual report on Form 20-F about the
contents of contracts or other documents are not necessarily complete and
shareholders are referred to the copy of such contracts or other documents filed
as exhibits to this annual report.

Our SEC filings, and the exhibits thereto, are available for
inspection and copying at the public reference facilities maintained by the SEC
in Judiciary Plaza, Room 1580, 100 F Street N.W., Washington, D.C., 20549.
Copies of these filings may be obtained from these offices after the payment of
prescribed fees. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. These filings are also available on the SECs
website at www.sec.gov.

We will also provide our shareholders with proxy statements
prepared according to Canadian law. As a Canadian company, we are exempt from
the Exchange Act rules regarding the furnishing and content of proxy statements
to shareholders and are also exempt from the short-swing profit recovery and
disclosure regime of Section 16 of the Exchange Act.

I. Subsidiary Information.

Not applicable.

Item 11. Quantitative and Qualitative Disclosures About
Market Risk.

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s
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 has integrated operations in Canada and 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.

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124

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

In thousands of C$
    2009
    2008Cash and cash equivalents
    $           398
    $           1,295Accounts receivable and prepaid expenses
    1,901
    1,482Restricted funds
    3,324
    3,341Accounts payable and accrued liabilities
    13,022
    4,413


Based on the above net exposures as at December 31, 2009, a 10%
appreciation or depreciation in the Canadian dollar against the US dollar,
assuming all other variables remain constant, would result in a $0.7 million
increase or decrease, respectively, in operating results and shareholder
equity.

(ii)         Interest
rate risk:

This 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 not hedged any
of its own gold production. Previously, forward sales contracts were entered
into for gold produced under its current tolling arrangements with third
parties. These forward contracts were recorded at fair value as they were not
designated as hedging instruments, with gains and losses recorded in income.
However, all forward contracts were settled during 2008.

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 and marketable securities

The Company manages its credit risk on cash and cash equivalent
balances and marketable securities by maintaining balances with Tier 1 Canadian
banks with a Standard & Poors rating of AA. Short-term investments
(included in cash and cash equivalents as well as marketable securities) are
composed of financial instruments issued by Canadian banks and companies with
high investment-grade ratings. These investments mature at various dates over
the current operating period.

(ii)          Accounts
receivables and prepaid expenses

Substantially all of the Companys trade receivables are based
in the US and are with a single counterparty. The Company has transacted with
this counterparty for several years and there is no history of loss arising from
receivable amounts.

The Company also maintains funds of $25.6 million, included in
restricted funds (note 8), 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.

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125

Other significant deposits and receivables are either held by
or due from government agencies and relate to the funding of future closure
costs at Jerritt Canyon or goods and services input tax credits.

The Company does not have any receivables or deposits that
would be considered impaired or otherwise uncollectible, therefore no allowance
for doubtful accounts is required.

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.

The following are the contractual maturities of the
undiscounted cash flows of financial liabilities (in thousands of US dollars) at
December 31, 2009:

Less than 3 months
    4 to 12 months
    1 to 2 years
    Greater than 2 yearsAccount payable and accrued liabilities
    $ 39,564
    -
    -
    -Capital lease obligations
    9
    20
    29
    22


Item 12. Description of Securities Other than Equity
Securities.

Not applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

Not applicable.

Item 14. Material Modifications to the Rights of Security
Holders and Use of Proceeds.

Not applicable.

Item 15. Controls and Procedures.

Managements Report on Internal Control over Financial
Reporting

Management is responsible for establishing and maintaining
adequate internal control over financial reporting. A companys internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.

A companys internal control over financial reporting includes
those policies and procedures that:

- pertain to the maintenance of records that, in reasonable detail,
  accurately and fairly reflect the transactions and dispositions of the assets
  of the company;
- 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

---

126

- 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.

It should be noted that a control system, no matter how well
conceived or operated, can only provide reasonable assurance, not absolute
assurance, that the objectives of the control system are met. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with policies and procedures may deteriorate.

Management, including our Chief Executive Officer and Chief
Financial Officer, assessed the effectiveness of our internal control over
financial reporting as of December 31, 2009. In making this assessment,
management used the criteria set forth in the Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on its assessment, management has concluded that, as of
December 31, 2009, the Company did not maintain effective internal control over
financial reporting due to the material weaknesses described below.

A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the companys annual or
interim financial statements will not be prevented or detected on a timely
basis.

1.           Control
  Environment

A Companys control environment influences the control
consciousness of its people, and is the foundation of all other components of
internal control over financial reporting. The Companys control environment did
not sufficiently promote effective internal control over financial reporting
throughout the organization. Specifically, the Company did not conduct a
comprehensive fraud risk assessment during the year with all of the structural
changes to the Board of Directors which occurred during the third quarter of
2009. As well, during the year the Audit Committee Chair and another member of
the Audit Committee, the only two independent members with financial reporting
expertise, resigned from the board. They were replaced with two new members who
lack financial reporting expertise resulting in a material weakness in corporate
governance as it relates to financial oversight. These control deficiencies by
themselves do not directly result in a material misstatement to the financial
statements; however, deficiencies in the control environment are pervasive in
nature.

2.           Management
  review

The Company had limited accounting personnel to support the
Chief Financial Officer during the annual financial close process. Specifically,
the Company did not have personnel other than the Chief Financial Officer with
expertise in complex accounting matters to enable effective review in complex
accounting areas. As a result, material errors were identified and corrected
prior to the issuance of the financial statements for the following accounts:
inventory, deferred revenue, accrued liabilities and income taxes. This
deficiency creates a reasonable possibility that a material misstatement would
not be prevented or detected on a timely basis.

3.          
  Inventory

The Companys controls over inventory were not designed
effectively. Specifically, the Company was not able to reconcile the stockpile
movement during the year based on production records. This is largely a result
of not being able to actively monitor production during the period the mill was
being operated by Golden Eagle. This resulted in large adjustments to stockpile
inventory at year end based on the results of the annual survey.

Remediation Plans

Management is undertaking the following initiatives for 2010:

1.          
  Control Environment

Management is currently updating the procedures for the Board
of Directors and believes a formal fraud risk review program and will be
implemented during the second quarter of 2010. As well, the Company is actively
seeking additional resources for the Board of Directors and Audit Committee with
financial expertise.

---

127

2.           Resource
  Constraints

Management is actively evaluating the need for additional
accounting resources to support the segregation of duties within the
organization. During the fourth quarter of 2009, one additional resource was
identified at the operational level that will enhance management review
procedures in 2010.

3.           Inventory

Management has been effectively tracking stockpile movement
since the recommencement of operations in October of 2009 through the use of
daily reporting and monthly reconciliations.

This annual report does not include an attestation report of
the Companys registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
Managements report in this annual report.

Changes in internal control over financial reporting

There have not been any changes during the year to internal
control over financial reporting.

Evaluation of Disclosure Controls and Procedures

The Companys management, with the participation of our Chief
Executive Officer and Chief Financial Officer, as of the end of the period
covered in this report, evaluated the design and operating effectiveness of our
disclosure controls and procedure and determined that, as a result of the
material weakness in internal control over financial reporting described above,
as of December 31, 2009 our disclosure controls and procedures are not effective
to ensure that information required to be disclosed by us is recorded,
processed, summarized and reported within the time periods specified.

Item 15T. Controls and Procedures.

Not Applicable.

Item 16. [Reserved]

Item 16A. Audit Committee Financial Expert.

We have determined that our all members of the audit committee
are independent and are financially literate, meaning that he must be able to
read and understand financial statements. The committee does not currently have
a financial expert, however in the interim until one can be found the President
and CEO, Robert Baldock, serves as the financial expert. The members of the
Audit Committee are Messrs. Solomonidis, de Trentinian and Chafee.

Item 16B. Code of Ethics.

We have adopted a written code of ethics for all our directors
and officers entitled Code of Conduct and Conflict of Interest Guidelines for
Directors and Officers (the Code). The Code includes, among other things,
written standards for our principal executive officer, principal financial
officer and principal accounting officer or controller, or persons performing
similar functions that are required by the Commission for a code of ethics
applicable to such officers. A copy of the Code is posted on the Corporations
website at www.yukon-nevadagold.com under
Corporate Info/Governance Policy.

No amendments to the Code were adopted during the year ended
December 31, 2009. No waiver or implicit waiver, as such terms are defined
in Form 20-F, were granted relating to any provision of the Code during the year
ended December 31, 2009.

---

128

Item 16C. Principal Accountant Fees and Services.

The following chart summarizes the aggregate fees in Canadian
dollars billed by our external auditors for professional services rendered
during the fiscal years ended December 31, 2009 and 2008 for audit and non-audit
related services:

Type of Work
    Year Ended
      December 31, 2009
    Year Ended
      December 31, 2008Audit fees(1)
    $275,000
    $444,000Audit-related
      fees(2)
    nil
    $50,000Tax fees
    nil
    $35,000All other fees
    Nil
    nilTotal
    $275,000
    $529,000


|1. | Aggregate fees billed for our annual financial statements
      and services normally provided by the auditor in connection with the
      Companys statutory and regulatory filings.                                                                                                                                                                                                                           
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                  
|2. | Aggregate fees billed for assurance and related services
      that are reasonably related to the performance of the audit or review of
      our financial statements and are not reported as "Audit fees", including:
      assistance with aspects of tax accounting, attest services not required by
      state or regulation and consultation regarding financial accounting and
      reporting standards.

Item 16D. Exemptions from the Listing Standards for Audit
Committees.

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and
Affiliated Purchasers.

Not applicable.

Item 16F. Change in Registrants Certifying Accountant.

Not applicable.

Item 16G. Corporate Governance.

Not Applicable.

PART III

Item 17. Financial Statements.

See the attached financial statements.

A.Consolidated Statements and Other Financial
Information.

See attached financial statements.

B.Significant Changes.

Not applicable.

Item 18. Financial Statements.

Not applicable.

---

129

Item 19. Exhibits.

The list of exhibits is included following the signature page
hereto.

---

130

SIGNATURES

The Registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.

| | YUKON-NEVADA GOLD CORP.              
| | -------------------------------------
| |                                      
| |                                      
| | Per:/s/ Robert F. Baldock            
| |                                      
| | Robert F. Baldock                    
| | President and Chief Executive Officer
| |                                      
| | Date: March 31, 2010                 

---

131

ANNUAL REPORT ON FORM 20-Ffor the year
endedDecember 31, 2009

EXHIBIT INDEX

|Exhibit  |                                                                                                     
|-------- | ----------------------------------------------------------------------------------------------------
|No. Item | Description of Exhibit                                                                              
|         |                                                                                                     
|1.1      | Articles                                                                                            
|         |                                                                                                     
|4.1      | 2007 Stock Option Plan                                                                              
|         |                                                                                                     
|12.1     | Section 302 Certification
      by Robert F. Baldock, Chief Executive Officer, dated March 31, 2010.
|         |                                                                                                     
|12.2     | Section 302 Certification
      by Shaun Heinrichs, Chief Financial Officer, dated March 31, 2010.  
|         |                                                                                                     
|13.1     | Section 906 Certification
      by Robert F. Baldock, Chief Executive Officer, dated March 31, 2010.
|         |                                                                                                     
|13.2     | Section 906 Certification
      by Shaun Heinrichs, Chief Financial Officer, dated March 31, 2010.  

---

132

Financial Statements

---









Consolidated Financial Statements
(Expressed in United States dollars)



YUKON-NEVADA GOLD
CORP.

Years ended December 31, 2009,
2008 and 2007

---

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 accounting principles generally accepted in Canada, 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 the consolidated
financial statements and related financial reporting matters prior to submitting
the consolidated 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, KPMG 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 26, 2010          |                        

---

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


REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of
Yukon-Nevada Gold Corp. (the "Company") as of December 31, 2009 and 2008 and the
related consolidated statements of operations, comprehensive income (loss) ,
shareholders equity and cash flows for each of the years in the three-year
period ended December 31, 2009. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits 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 the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2009 and 2008 and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
2009 in conformity with Canadian generally accepted accounting principles.

The accompanying consolidated financial statements are prepared
assuming the Company will continue as a going concern. As discussed in note 1,
continuing losses and negative working capital as at December 31, 2009 raise
substantial doubt about the Companys ability to continue as a going concern.
Managements plans in regard to these matters are also described in the notes to
the consolidated financial statements. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

Canadian generally accepted accounting principles vary in
certain significant respects from US generally accepted accounting principles.
Information relating to the nature and effect of such differences is presented
in note 22 to the consolidated financial statements.

Chartered Accountants

Vancouver, Canada March 26, 2010

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

---

|YUKON-NEVADA GOLD CORP.               
|--------------------------------------
|Consolidated Balance Sheets           
|(In thousands of US dollars)          
|As at December 31,
      2009 and 2008

|                                               |   | 2009     |   |   | 2008               |  
|---------------------------------------------- | - | -------- | - | - | ------------------ | -
|                                               |   |          |   |   | (revised - note 3) |  
|                                               |   |          |   |   |                    |  
|Assets                                         |   |          |   |   |                    |  
|Current assets:                                |   |          |   |   |                    |  
|Cash and cash equivalents                      | $ | 185      |   | $ | 1,106              |  
|Accounts receivable and prepaid
      expenses |   | 4,549    |   |   | 2,171              |  
|Inventories (note 7)                           |   | 9,930    |   |   | 24,019             |  
|Future income taxes (note 15)                  |   | 895      |   |   | 895                |  
|Asset held for resale                          |   | -        |   |   | 841                |  
|                                               |   | 15,559   |   |   | 29,032             |  
|Restricted funds (note 8)                      |   | 29,175   |   |   | 28,484             |  
|Property, plant and equipment (note 9)         |   | 89,270   |   |   | 93,850             |  
|Mineral properties (note 10)                   |   | 60,526   |   |   | 47,347             |  
|Other assets (note
      11)                   |   | 911      |   |   | 923                |  
|                                               |   |          |   |   |                    |  
|                                               | $ | 195,441  |   | $ | 199,636            |  
|                                               |   |          |   |   |                    |  
|Liabilities and Shareholders Equity           |   |          |   |   |                    |  
|Current liabilities:                           |   |          |   |   |                    |  
|Accounts payable and accrued
      liabilities | $ | 39,564   |   |   | 28,599             |  
|Deferred revenue (note 21(a))                  |   | 4,838    |   |   | -                  |  
|Payable on purchased ore                       |   | -        |   |   | 8,257              |  
|                                               |   | 44,402   |   |   | 36,856             |  
|Other long-term liabilities (note 13)          |   | 50       |   |   | 25                 |  
|Asset retirement obligations (note 14)         |   | 35,907   |   |   | 32,688             |  
|Future income
      taxes (note 15)            |   | 15,372   |   |   | 8,419              |  
|                                               |   | 95,731   |   |   | 77,988             |  
|Shareholders' equity (note 16)                 |   |          |   |   |                    |  
|Share capital                                  |   | 227,075  |   |   | 206,778            |  
|Warrants                                       |   | 17,737   |   |   | 19,107             |  
|Contributed surplus                            |   | 10,489   |   |   | 8,694              |  
|Accumulated other comprehensive
      income   |   | 2,273    |   |   | 2,273              |  
|Deficit                                        |   | (157,864 | ) |   | (115,204           | )
|                                               |   | 99,710   |   |   | 121,648            |  
|                                               |   |          |   |   |                    |  
|Going concern (note 1)                         |   |          |   |   |                    |  
|Commitments and contingencies (note 21)        |   |          |   |   |                    |  
|Subsequent event
      (note 23)               |   |          |   |   |                    |  
|                                               |   |          |   |   |                    |  
|                                               | $ | 195,441  |   | $ | 199,636            |  

See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:

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

1

---

|YUKON-NEVADA GOLD CORP.                                                   
|--------------------------------------------------------------------------
|Consolidated Statements of Operations and Comprehensive
      Loss        
|(In thousands of US dollars, except for share and per
      share amounts)
|Years ended
      December 31, 2009, 2008 and 2007                        

|                                                                        |   | 2009        |   |   | 2008        |   |   | 2007        |  
|----------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                                        |   |             |   |   |             |   |   |             |  
|Gold sales                                                              | $ | 9,913       |   | $ | 48,981      |   | $ | 64,460      |  
|Cost of gold sold                                                       |   | 26,049      |   |   | 58,742      |   |   | 48,218      |  
|Gross margin  mining operations                                        |   | (16,136     | ) |   | (9,761      | ) |   | 16,242      |  
|Temporary shutdown costs (note 6)                                       |   | 10,550      |   |   | 13,115      |   |   | -           |  
|Depreciation, depletion, and amortization                               |   | 6,271       |   |   | 9,279       |   |   | 5,731       |  
|Accretion of asset
      retirement obligation (note 14)                |   | 2,890       |   |   | 2,117       |   |   | 1,082       |  
|Income (loss) from mine operations                                      |   | (35,847     | ) |   | (34,272     | ) |   | 9,429       |  
|Impairment of mineral properties and equipment (note 6)                 |   | 653         |   |   | 76,363      |   |   | -           |  
|General and administration                                              |   | 3,136       |   |   | 4,090       |   |   | 3,550       |  
|Stockbased
      compensation (note 16(d))                             |   | 788         |   |   | 1,056       |   |   | 5,563       |  
|Income (loss) from operations                                           |   | (40,424     | ) |   | (115,781    | ) |   | 316         |  
|Other (loss) income:                                                    |   |             |   |   |             |   |   |             |  
|Interest and
      other income (loss)                                  |   | (7          | ) |   | 4,635       |   |   | 2,503       |  
|Loss on forward sales
      arrangements                                |   | -           |   |   | (1,904      | ) |   | (4,324      | )
|Restructuring
      charges (note 6)                                    |   | -           |   |   | (4,532      | ) |   | -           |  
|Foreign exchange gain (loss)                                            |   | (2,125      | ) |   | 814         |   |   | 793         |  
|Interest expense                                                        |   | (248        | ) |   | (667        | ) |   | (218        | )
|                                                                        |   | (2,380      | ) |   | (1,654      | ) |   | (1,246      | )
|Loss before income taxes                                                |   | (42,804     | ) |   | (117,435    | ) |   | (930        | )
|Income tax (expense) recovery (note 15)                                 |   |             |   |   |             |   |   |             |  
|Current                                                                 |   | -           |   |   | -           |   |   | (33         | )
|Future                                                                  |   | 144         |   |   | 12,075      |   |   | (936        | )
|                                                                        |   | 144         |   |   | 12,075      |   |   | (969        | )
|                                                                        |   |             |   |   |             |   |   |             |  
|Loss for the year                                                       |   | (42,660     | ) |   | (105,360    | ) |   | (1,899      | )
|                                                                        |   |             |   |   |             |   |   |             |  
|Foreign currency translation adjustment                                 |   | -           |   |   | -           |   |   | 2,599       |  
|Comprehensive
      income (loss) for the year                          | $ | (42,660     | ) | $ | (105,360    | ) | $ | 700         |  
|                                                                        |   |             |   |   |             |   |   |             |  
|Loss per share  basic and diluted                                      | $ | (0.13       | ) | $ | (0.57       | ) | $ | (0.02       | )
|Weighted average number of shares outstanding (basic and
      diluted) |   | 338,967,089 |   |   | 185,124,008 |   |   | 121,434,273 |  

See accompanying notes to consolidated financial statements.

2

---

|YUKON-NEVADA GOLD CORP.                                           
|------------------------------------------------------------------
|Consolidated Statements of Shareholders Equity                   
|(In thousands of US dollars, except number of common
      shares)
|Years ended
      December 31, 2009, 2008 and 2007                

|                                                                             |  | Common
      shares |  |   |               |   |   |               |   |   |             |   |   |               |     |   |          |  
|---------------------------------------------------------------------------- |  | ------------------- |  | - | ------------- | - | - | ------------- | - | - | ----------- | - | - | ------------- | --- | - | -------- | -
|                                                                             |  |                     |  |   |               |   |   |               |   |   |             |   |   | Accumulated   |     |   |          |  
|                                                                             |  |                     |  |   | Amount        |   |   | Warrants      |   |   |             |   |   | other         |     |   |          |  
|                                                                             |  | Shares              |  |   | (revised      |   |   | (revised      |   |   | Contributed |   |   | comprehensive |     |   |          |  
|                                                                             |  | (000's)             |  |   | note
      3) |   |   | note
      3) |   |   | surplus     |   |   | income (loss) |     |   | Deficit  |  
|Balance at January 1, 2007                                                   |  | 58,950              |  | $ | 32,025        |   | $ | 687           |   | $ | 1,155       |   | $ | (326          | ) $ |   | (7,945   | )
|Issued on private placement (note 16(b)(vii))                                |  | 42,352              |  |   | 56,580        |   |   | 15,129        |   |   |            |   |   |              |     |   |         |  
|Issued on private placement, flow through 
          shares (note 16(b)(ix)) |  | 5,000               |  |   | 10,192        |   |   |              |   |   |            |   |   |              |     |   |         |  
|Exercise of options                                                          |  | 993                 |  |   | 530           |   |   |              |   |   | (340        | ) |   |              |     |   |         |  
|Exercise of warrants                                                         |  | 8,579               |  |   | 8,340         |   |   | (687          | ) |   |            |   |   |              |     |   |         |  
|Exercise of agents options and warrants                                      |  | 812                 |  |   | 1,084         |   |   |              |   |   |            |   |   |              |     |   |         |  
|Issued on acquisition of mineral properties 
          (note 16(b)(viii))    |  | 58,437              |  |   | 89,049        |   |   |              |   |   |            |   |   |              |     |   |         |  
|Share issue costs                                                            |  |                    |  |   | (5,532        | ) |   |              |   |   | 1,127       |   |   |              |     |   |         |  
|Flow through share renunciation                                              |  |                    |  |   | (3,902        | ) |   |              |   |   |            |   |   |              |     |   |         |  
|Warrants issued to Queenstake shareholders      (note
      16(c)(i))        |  |                    |  |   |              |   |   | 1,828         |   |   |            |   |   |              |     |   |         |  
|Fair value of options issued to Queenstake
           options holders        |  |                    |  |   |              |   |   |              |   |   | 116         |   |   |              |     |   |         |  
|Stockbased compensation (note 16(d))                                         |  |                    |  |   |              |   |   |              |   |   | 6,034       |   |   |              |     |   |         |  
|Foreign exchange translation adjustment                                      |  |                    |  |   |              |   |   |              |   |   |            |   |   | 2,599         |     |   |         |  
|Loss for the year                                                            |  |                    |  |   |              |   |   |              |   |   |            |   |   |              |     |   | (1,899   | )
|Other                                                                        |  | 10                  |  |   |              |   |   |              |   |   |            |   |   |              |     |   |         |  
|Balance at December 31, 2007                                                 |  | 175,133             |  |   | 188,366       |   |   | 16,957        |   |   | 8,092       |   |   | 2,273         |     |   | (9,844   | )
|Issued on private placement (note 16(b)(v))                                  |  | 79,800              |  |   | 1,470         |   |   | 1,829         |   |   |            |   |   |              |     |   |         |  
|Issued on private placement, flow through      shares
      (note 16(b)(vi)) |  | 10,050              |  |   | 19,901        |   |   |              |   |   |            |   |   |              |     |   |         |  
|Exercise of options                                                          |  | 267                 |  |   | 356           |   |   |              |   |   | (147        | ) |   |              |     |   |         |  
|Share issue costs (note 16(b)(v))                                            |  | 7,400               |  |   | (606          | ) |   | 169           |   |   | (307        | ) |   |              |     |   |         |  
|Flow through share renunciation                                              |  |                    |  |   | (2,709        | ) |   |              |   |   |            |   |   |              |     |   |         |  
|Stockbased compensation (note 16(d))                                         |  |                    |  |   |              |   |   |              |   |   | 1,056       |   |   |              |     |   |         |  
|Loss for the year                                                            |  |                    |  |   |              |   |   |              |   |   |            |   |   |              |     |   | (105,360 | )
|Other                                                                        |  | 5                   |  |   |              |   |   | 152           |   |   |            |   |   |              |     |   |         |  
|Balance at December 31, 2008                                                 |  | 272,655             |  |   | 206,778       |   |   | 19,107        |   |   | 8,694       |   |   | 2,273         |     |   | (115,204 | )
|Issued on private placement (note 16(b)     (i)-
      (iv))                 |  | 90,383              |  |   | 3,686         |   |   | 2,854         |   |   |            |   |   |              |     |   |         |  
|Share issue costs (note 16(b)(iii)(iv))                                      |  | 1,805               |  |   | 111           |   |   | 34            |   |   | (80         | ) |   |              |     |   |         |  
|Exercise of warrants                                                         |  | 225,883             |  |   | 21,881        |   |   | (3,603        | ) |   |            |   |   |              |     |   |         |  
|Expiry of warrants                                                           |  |                    |  |   |              |   |   | (655          | ) |   | 655         |   |   |              |     |   |         |  
|Exercise of options                                                          |  | 120                 |  |   | 30            |   |   |              |   |   | (13         | ) |   |              |     |   |         |  
|Flow through share renunciation                                              |  |                    |  |   | (5,411        | ) |   |              |   |   |            |   |   |              |     |   |         |  
|Stockbased compensation (note 16(d))                                         |  |                    |  |   |              |   |   |              |   |   | 1,233       |   |   |              |     |   |         |  
|Loss for the year                                                            |  |                    |  |   |              |   |   |              |   |   |            |   |   |              |     |   | (42,660  | )
|Balance at December 31, 2009                                                 |  | 590,846             |  | $ | 227,075       |   | $ | 17,737        |   | $ | 10,489      |   | $ | 2,273         |     | $ | (157,864 | )

See accompanying notes to consolidated financial statements.

3

---

|YUKON-NEVADA GOLD CORP.                           
|--------------------------------------------------
|Consolidated Statements of Cash Flows             
|(In thousands of US dollars)                      
|Years ended
      December 31, 2009, 2008 and 2007

|                                                                         |   | 2009    |   |   | 2008     |   |   | 2007    |  
|------------------------------------------------------------------------ | - | ------- | - | - | -------- | - | - | ------- | -
|Cash provided by (used in):                                              |   |         |   |   |          |   |   |         |  
|                                                                         |   |         |   |   |          |   |   |         |  
|Operations                                                               |   |         |   |   |          |   |   |         |  
|Net loss for the year                                                    | $ | (42,660 | ) | $ | (105,360 | ) | $ | (1,899  | )
|Items not
      affecting cash:                                          |   |         |   |   |          |   |   |         |  
|Depreciation, depletion, and amortization                                |   | 6,271   |   |   | 9,279    |   |   | 5,731   |  
|Accretion of asset retirement obligation                                 |   | 2,890   |   |   | 2,117    |   |   | 1,082   |  
|Impairment of mineral properties and equipment                           |   | 653     |   |   | 76,363   |   |   | -       |  
|Stock-based compensation                                                 |   | 1,027   |   |   | 1,056    |   |   | 5,563   |  
|Dilution loss on joint venture                                           |   | 45      |   |   | -        |   |   | -       |  
|Loss (gain) on disposal of asset                                         |   | 199     |   |   | (2,450   | ) |   | (123    | )
|Reclamation payments                                                     |   | -       |   |   | 195      |   |   | 187     |  
|Unrealized (gain) loss on forward sales                                  |   | -       |   |   | (952     | ) |   | 993     |  
|Future income tax (recovery) expense                                     |   | (144    | ) |   | (12,075  | ) |   | 936     |  
|Unrealized foreign exchange (gain)loss                                   |   | 1,978   |   |   | (1,668   | ) |   | (763    | )
|Warrants issues for debt financing                                       |   | -       |   |   | 152      |   |   | -       |  
|Change in non cash working capital (note 17(a)(iii))                     |   | 10,352  |   |   | 14,931   |   |   | (23,475 | )
|Cash used by operating activities                                        |   | (19,389 | ) |   | (18,412  | ) |   | (11,768 | )
|Investing                                                                |   |         |   |   |          |   |   |         |  
|Acquistion of
      Queenstake, net of cash acquired of $2,450           |   | -       |   |   | -        |   |   | (233    | )
|Restricted funds                                                         |   | (328    | ) |   | 7,476    |   |   | (1,092  | )
|Short-term investments                                                   |   | -       |   |   | 173      |   |   | 936     |  
|Mineral property
      expenditures                                      |   | (3,477  | ) |   | (29,104  | ) |   | (26,588 | )
|Deferred acquistion costs                                                |   | -       |   |   | -        |   |   | (111    | )
|Property, plant
      and equipment expenditures                         |   | (2,629  | ) |   | (25,703  | ) |   | (6,266  | )
|Proceeds from sale of assets                                             |   | 112     |   |   | 4,480    |   |   | 123     |  
|Cash used by investing activities                                        |   | (6,322  | ) |   | (42,678  | ) |   | (33,231 | )
|Financing                                                                |   |         |   |   |          |   |   |         |  
|Due to related
      parties                                             |   | -       |   |   | -        |   |   | (12     | )
|Notes payable and capital leases                                         |   | (45     | ) |   | (1,323   | ) |   | (8,382  | )
|Common shares
      issued for cash                                      |   | 6,540   |   |   | 23,201   |   |   | 80,346  |  
|Share issue costs                                                        |   | -       |   |   | (995     | ) |   | (4,407  | )
|Common shares
      issued upon exercise of shareholder warrants         |   | 18,278  |   |   | -        |   |   | 7,654   |  
|Common shares
      issued upon exercise of agents options and warrants |   | -       |   |   | -        |   |   | 744     |  
|Common shares issued upon
      exercise of stock options                |   | 17      |   |   | 209      |   |   | 530     |  
|Cash provided by financing activities                                    |   | 24,790  |   |   | 21,092   |   |   | 76,473  |  
|                                                                         |   |         |   |   |          |   |   |         |  
|Effect of exchange
      rate changes on cash                            |   | -       |   |   | -        |   |   | 5,288   |  
|Increase (decrease) in cash and cash
      equivalents                   |   | (921    | ) |   | (39,998  | ) |   | 36,762  |  
|                                                                         |   |         |   |   |          |   |   |         |  
|Cash and cash equivalents, beginning of year                             |   | 1,106   |   |   | 41,104   |   |   | 4,342   |  
|Cash and cash
      equivalents, end of year                             | $ | 185     |   | $ | 1,106    |   | $ | 41,104  |  
|                                                                         |   |         |   |   |          |   |   |         |  
|Supplemental cash flow information (note 17)                             |   |         |   |   |          |   |   |         |  

See accompanying notes to consolidated financial statements.

4

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

|1. | Going Concern:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Yukon-Nevada Gold Corp.s (the Company) business is gold
      mining and related activities, including exploration, development,
      extraction, processing and reclamation. Gold has been produced in Nevada,
      USA (Jerritt Canyon) and gold exploration activities are being carried out
      in Nevada, USA (Jerritt Canyon) and the Yukon Territory, Canada (Ketza
      River and Silver Valley).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | For properties other than the producing mine at Jerritt
      Canyon, 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.                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | During the third quarter of 2008 the Company determined
      that under current conditions the Jerritt Canyon mine was not economic,
      and the mine was shutdown on August 8, 2008. The Company did not have
      persuasive evidence that the capitalized costs associated with the mineral
      properties could be recovered. Accordingly, management wrote off all costs
      ($69.4 million) related to the mineral property and an additional $2.2
      million of property, plant and equipment and a provision of $4.7 million
      related to the increase in the asset retirement obligation (see note
      6).                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Subsequent to the mine closure, the Company began work on
      addressing a number of key operational issues that had previously caused
      the mine to operate at a loss plus issues related to the stop order issued
      by the Nevada Division of Environmental Protection (NDEP) in the first
      quarter of 2008 in order to receive permission to restart the milling
      operations. These issues included bringing the evaporation pond into
      operational use and beginning the drawdown of the tailings pond,
      finalizing engineering design plans of a new mercury emissions system, and
      the cleanup of waste materials onsite. The Company addressed all of these
      requirements and received approval from the NDEP to restart milling
      operations on March 25, 2009, with the requirement that the new mercury
      emissions system as proposed would be completed by May 31, 2009.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | On May 30, 2009, the roaster circuits at Jerritt Canyon
      were once again shut down as delays in receiving critical components of
      the new mercury emissions system resulted in the Company being unable to
      meet the May 30, 2009 installation date. The system was completed in July
      2009 and in October 2009 the Company obtained a consent decree to allow
      for the restart of the Jerritt Canyon facility from the Attorney General
      representing the NDEP.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Upon recommencement of operations, the Company continued
      to mill the remaining stockpiles on site as well as pursue toll milling
      opportunities at the Jerritt Canyon site. Additional financing is required
      in order to fund further development of the Jerritt Canyon mines and
      enable a return to mining once the necessary infrastructure work has been
      completed. Management is currently pursuing financing alternatives and
      believes it will be able to secure the required financing in the near
      future (see note 23(b)). Should such financing be obtained, Management
      believes that the remaining property, plant, and equipment costs can be
      fully recovered through a combination of toll milling and a return to
      mining.                                                                                                                                      

5

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

At December 31, 2009 the Company had a
working capital deficiency of $28.8 million. These consolidated financial
statements are prepared on the basis that the Company will continue as a going
concern. The conditions described in the preceding paragraphs raise substantial
doubt about the Companys ability to continue as a going concern. The Companys
ability to continue as a going concern and recover its 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, 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. Failure to continue as a
going concern would require that the Company's assets and liabilities be
restated on a liquidation basis which could differ significantly from the going
concern basis.

|2. | Significant accounting policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The financial statements of the Company have been
      prepared by management in accordance with Canadian generally accepted
      accounting principles (GAAP). Material measurement differences between
      Canadian GAAP and U.S. GAAP are disclosed in Note 22. The financial
      statements have, in managements opinion, been properly prepared within
      reasonable limits of materiality and within the framework of the
      accounting policies summarized below:
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (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% 
| | Yukon-Shaanxi Mining Company - Joint Venture (Yukon) | 37.5%
| |                                                      |      

| | (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) | Inventories                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                          
| |     | Work-in-process inventories are valued at the lower of
      average production cost and net realizable value, after a reasonable
      allowance for further processing and sales costs. Production costs include
      the cost of raw materials, direct labor, mine-site overhead expenses and
      depreciation and depletion of property, plant and

6

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

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.

Finished goods inventories are valued
at the lower of average production cost and net realizable value. Cost is based
on the related three-month periods average costs. Net realizable value is after
a reasonable allowance for sales costs. 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.

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 depreciations and
depletion on Jerritt Canyon mine equipment and mineral properties.

| | (e) | Assets Held for Resale                                                                                                                                                                                                                                                                                   
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                          
| |     | Assets held for resale are carried at fair value with
      unrealized gains and losses at the reporting date recognized in income in
      the statement of operations.                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                          
| | (f) | Property, plant and equipment:                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                          
| |     | Property, plant and equipment is recorded at cost and
      depreciated on a straight-line basis over the estimated useful lives of
      the assets. Property, plant and equipment used in exploration is
      depreciated and included in mineral properties. Depreciation rates are as
      follows:

Buildings
    20 yearsComputer hardware and software
    3 yearsEquipment and facilities
    5 - 20 yearsFurniture and fixtures
    7 yearsLeasehold improvements
    straight-line over the term of
      the leaseVehicles
    3 - 7 years


7

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| | (g) | Mineral properties:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The acquisition cost of a mineral property and related
      exploration expenditures net of any option payments or income tax credits
      received are deferred until the property is placed into production, is
      sold or abandoned or determined to be impaired. These deferred
      expenditures are amortized on a units-of-production basis over the
      estimated useful life of the property based on proven and probable
      reserves following commencement of production or written off if the
      property is abandoned or sold or determined to be impaired.                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (h) | Long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The Company monitors the recoverability of long-lived
      assets based on factors such as current market value, future asset
      utilization, business climate and future undiscounted cash flows expected
      to result from the use of the related assets. The Company records an
      impairment loss in the period it is determined that the carrying amount of
      the asset may not be recoverable. The impairment loss is calculated as the
      amount by which the carrying amount of the asset exceeds its fair
      value.                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (i) | Asset retirement obligations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The fair value of an asset retirement obligation is
      recorded in the period in which it is incurred. When the liability is
      initially recorded, the cost is capitalized by increasing the carrying
      amount of the related long-lived asset. Over time, the liability is
      adjusted to reflect the passage of time (accretion expense) and for
      changes in estimated future cash flows. 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.                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (j) | Stock based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The Company has established a stock-based compensation
      plan as described in note 16(d). The Company measures stock-based
      compensation at fair value and recognizes costs 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 as stock-based compensation and is credited to contributed
      surplus. 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 contributed surplus. Upon exercise, the proceeds of the
      options are credited to capital stock at the option price and the fair
      value of the options, as previously recorded, is reclassified from
      contributed surplus to capital stock.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (k) | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Revenue is recognized when there is pervasive evidence
      that a metal sale contract exists, delivery to the customer has occurred,
      legal title has passed and the sales price and timing of payment has been
      agreed upon with the purchaser and collections is reasonable
    assured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

8

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| | (l) | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | The Company recognizes income tax assets and liabilities
      using the asset and liability method of accounting for income taxes. Under
      this method, current income taxes are recognized for the estimated taxes
      payable for the current year. Future income tax assets and liabilities are
      recognized for temporary differences between the tax and accounting bases
      of assets and liabilities as well as for the benefit of losses available
      for tax purposes to be carried forward to future years. A valuation
      allowance is provided against future income tax assets to the extent that
      realization is not considered to be more likely than not.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (m) | 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 Company recognizes a future income tax
      liability, with an offset to share capital, when it renounces these
      expenditures to shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (n) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (o) | Use of estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | The preparation of financial statements in conformity
      with generally accepted accounting principles requires management to make
      estimates and judgments that affect the reported amounts of assets and
      liabilities at the date of the financial statements and revenues and
      expenses for the period. By their nature, these estimates and judgments
      are subject to management uncertainty and the effect on the financial
      statements of changes in such estimates in future periods could be
      significant. Significant estimates and judgments include those relating to
      the assessment of the Companys ability to continue as a going concern,
      mineral properties including amount of expenditures to be capitalized, and
      estimates required to determine whether impairment of long lived assets is
      required, asset retirement obligations, the fair valuation of stock
      options, share purchase warrants and agent's options issued, and the
      recognition of income tax assets and liabilities. Actual results may
      differ from those estimates and judgments.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (p) | Loss per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | Basic loss per share is computed by dividing the amount
      of loss for the period by the weighted average number of common shares
      outstanding during the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | Diluted loss 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 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 year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

9

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

Existing stock options (note 16(d))
and share purchase warrants (note 16(c)) have not been included in the
computation of diluted loss per share as to do so would be anti-dilutive.
Accordingly, basic and diluted loss per share amounts are the same.

| | (q) | Investment in joint venture:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The Company conducts a portion of its exploration
      business through the joint venture Yukon-Shaanxi Mining Company (YSMC).
      The joint venture is bound by a contractual agreement which establishes
      the joint control for each of the venturers. The Company records its
      proportionate share of the joint ventures assets, liabilities, revenues
      and operating costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (r) | 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
      held-for-trading, available-for-sale, held-to-maturity, loans and
      receivables or other financial liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Financial assets and liabilities 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 the
      accumulated other comprehensive income until realized or a loss in value
      is determine to be other than temporary. 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.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (s) | Comprehensive income/loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Other comprehensive income represents changes in
      shareholders equity during a period arising from transactions and other
      events and circumstances from non-owner sources and includes unrealized
      gains and losses on financial assets classified as available-for-sale. The
      components of accumulated comprehensive income are disclosed in the
      consolidated statement of shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

10

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|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| | (t) | Foreign currency translation                                                                                                                                                                   
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                
| |     | The Company uses the U.S. dollar as its functional and
      reporting currency. Therefore accounts denominated in currencies other
      than the U.S. dollar have been translated as follows:
| |     |                                                                                                                                                                                                
| |     | •                                                                                                                                                                                              
| |     |                                                                                                                                                                                                
| |     | •                                                                                                                                                                                              
| |     |                                                                                                                                                                                                
| |     | •                                                                                                                                                                                              
| |     |                                                                                                                                                                                                
| |     | •                                                                                                                                                                                              
| |     |                                                                                                                                                                                                
| | (u) | Comparative figures:                                                                                                                                                                           
| |     |                                                                                                                                                                                                
| |     | Certain of the comparative figures have been reclassified
      to conform with the presentation adopted in the current
  year.                                                                

|3. | Change in Accounting Policy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | In the first quarter of 2009, the Company retrospectively
      changed the accounting policy used for valuation of warrants issued.
      Previously, proceeds received on units issued by the Company consisting of
      a combination of common shares and warrants were assigned first to the
      warrants as determined by a Black Scholes model with the balance to the
      common shares. The new policy assigns the proceeds to common shares and
      warrants based on the relative fair values of the common shares and
      warrants. 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 model. As a result of this change,
      opening share capital was increased by $4.3 million, with an offsetting
      decrease in the assigned value of warrants. The Company believes that the
      relative fair value provides a better measure of the fair value of each
      instrument for accounting purposes.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4. | Adoption of new accounting standards:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Goodwill and Intangible Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

11

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|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

application. The adoption of EIC-173
did not result in a material impact on the Companys consolidated financial
statements.

| | (c) | Mining Exploration Costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | In March 2009, the CICA issued EIC Abstract 174 -
      Mining Exploration Costs(EIC-174) which supersedes EIC Abstract
      126 - Accounting by Mining Enterprises for Exploration Costs(EIC-126), to provide additional guidance for mining exploration
      enterprises on the accounting for capitalization of exploration costs and
      when an impairment test of these costs is required. EIC-174 is applicable
      for the Company for the year ended December 31, 2009, with retrospective
      application. The adoption of EIC-174 did not result in a material impact
      on the Companys consolidated financial statements.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (d) | Financial Instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | In 2009, the Company adopted the amendments to CICA to
      Handbook Section 3862  Financial Instruments  Disclosures to include
      additional disclosure requirements about fair value measurements of
      financial instruments and to enhance liquidity risk disclosure
      requirements for publicly accountable enterprises. The additional
      disclosures are included in note 20.                                                                                                                                                                                                                                                 

On July 1, 2009, the Company adopted
the amendments to CICA to Handbook Section 3855  Financial Instruments 
Recognition and Measurement (Section 3855) to provide additional guidance
concerning the assessment of embedded derivatives upon reclassification of a
financial asset out of the held-for-trading category, amend the definition of
loans and receivables, amend the categories of financial assets into which debt
instruments are required or permitted to be classified, amend the impairment
guidance for held-to-maturity debt instruments and require reversal of
impairment losses on available-for-sale debt instruments when conditions have
changed. The adoption of these amendments did not result in a material impact on
the Companys consolidated financial statements.

|5. | Future accounting changes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In February 2008, the AcSB announced that 2011 is the
      transition date for publicly listed companies to use IFRS, which will
      replace existing Canadian GAAP. The effective date is for interim and
      annual financial statements relating to fiscal years beginning on or after
      January 1, 2011. The transition date of January 1, 2011 will require the
      restatement for comparative purposes of amounts reported by the Company
      for the year ended December 31, 2010. As a result, the Company has
      developed a plan to convert its consolidated financial statements to IFRS
      and will commence reporting on an IFRS basis in the quarter ended March
      31, 2011 with comparative 2010 data on an IFRS basis as required. The
      adoption of IFRS will have a significant impact on property, plant and
      equipment, asset retirement obligation, provisions and accumulated other
      comprehensive income.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|6. | Temporary Shutdown Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Between February 22, 2008 and April 30, 2008, the Company
      temporarily suspended mining and processing operations at the Jerritt
      Canyon mine in order to upgrade and install several components within the
      mill and the mine facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

12

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|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

On August 8, 2008 the Company announced
the suspension of underground mining activity at the Jerritt Canyon property.
The mill was subsequently shut down from August 15, 2008 until receipt of
permission to restart from the NDEP on March 25, 2009. Expenses incurred during
the shut downs were recorded either as capital or, if they were determined to be
maintenance or support expenses, as temporary shutdown costs. Temporary shutdown
costs were $10.6 million and $13.1 million for the years ended December 31, 2009
and 2008, respectively.

The August 2008 shutdown resulted in a
work force reduction of 394 employees, all located at the Jerritt Canyon
location. A related restructuring charge of $4.5 million arose from the
severance and vacation payments due to former employees of the Company. As of
December 31, 2009, the Company had paid $2.6 million of this obligation.

Due to the absence of a profitable long
term mine plan, the Company wrote down the Jerritt Canyon mineral properties to
their estimated fair value, which management determined to be nil based on
market conditions at the time. The impairment expense recorded during the third
quarter of 2008 was $69.4 million for mineral properties. An additional $2.2
million of property, plant and equipment related to the mine was written off in
the fourth quarter of 2008. Also included in the impairment expense in the
fourth quarter of 2008 was a provision of $4.7 million related to the increase
in the asset retirement obligation. This impairment charge was a non-cash
transaction. The following table summarizes the values used in the write-down of
the Jerritt Canyon mineral properties, property, plant and equipment and
increase in the asset retirement obligation recorded in the third and fourth
quarter of 2008.

| |                                               |   |        |  
| | --------------------------------------------- | - | ------ | -
| | Fair value assigned on acquisition            | $ | 44,306 |  
| | Development spending                          |   | 13,995 |  
| | Value beyond proven and probable              |   | 13,713 |  
| | Depletion of producing properties             |   | (2,607 | )
| | Property, plant and equipment                 |   | 2,243  |  
| | Increase in asset
      retirement obligation |   | 4,713  |  
| |                                               | $ | 76,363 |  

On May 30, 2009, Jerritt Canyon
shutdown roaster operations due to a delay in the fabrication of certain
fiberglass ductwork required in the construction of the new mercury emission
control system. This resulted in the Company being unable to meet the deadline
for this equipment to be installed as set by the NDEP. On October 20, 2009,
after coming to an agreement with the NDEP in the form of a Consent Decree to
resume production, the Company has restarted mining and milling operations at
Jerritt Canyon (note 1).

The 2009 impairment expense relates to
a tailings expansion project being discontinued during the year and previously
capitalized environmental costs being written off.

13

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

|7. | Inventories:
|-- | ------------

| |                        |   | 2009  |  |   | 2008   | 
| | ---------------------- | - | ----- |  | - | ------ | 
| |                        |   |       |  |   |        | 
| | Finished goods         | $ | 1,316 |  | $ | 26     | 
| | Stockpiled ore         |   | -     |  |   | 2,655  | 
| | Purchased ore          |   | 5,340 |  |   | 17,872 | 
| | Work in progress       |   | 558   |  |   | -      | 
| | Materials and supplies |   | 2,716 |  |   | 3,466  | 
| |                        | $ | 9,930 |  | $ | 24,019 | 

|   | All of the Companys inventories on hand are located at
      the Jerritt Canyon mine in Nevada, USA. Included in cost of gold sold and
      depreciation, depletion and amortization expense on the statement of loss
      are total inventory related costs of $0.6 million (2008  $3.4 million,
      2007  $9.2 million) and $0.3 million (2008  $1.4 million, 2007  $0.9
      million), respectively. As at December 31, 2009, there is a net realizable
      value adjustment (expense) of $0.4 million (December 31, 2008 - $0.6
      million).
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|8. | Restricted funds:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                                            |   | 2009   |  |   | 2008   | 
| | ---------------------------------------------------------- | - | ------ |  | - | ------ | 
| | AIG commutation account (a)                                | $ | 25,580 |  | $ | 25,289 | 
| | Water use license letter of credit (c)                     |   | 2,940  |  |   | 2,535  | 
| | Workmens' compensation self-insurance                      |   | 431    |  |   | 423    | 
| | Cash pledged as security for letters of credit             |   | 224    |  |   | 206    | 
| | Cash restricted for future exploration in
      Canada (b) |   | -      |  |   | 2      | 
| | Other                                                      |   | -      |  |   | 29     | 
| |                                                            | $ | 29,175 |  | $ | 28,484 | 

| | (a) | The Company purchased from American Insurance Group (AIG)
      an environmental risk transfer program (the ERTP) (note 11). As part of
      the ERTP, $25.8 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. During 2009, the Company
      earned $0.4 million in interest from the commutation account. During 2008
      the company received $5.0 million from the account related primarily to a
      payment settlement for the construction of the evaporation pond at Jerritt
      Canyon, earned $1.0 million in interest revenue and contributed an
      additional $2.2 million to the bonding.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (b) | During 2008, the Company raised C$20.1 million by way of
      private placements of flow-through shares. Under the conditions of these
      private placements, the funds must be spent in 2008 and 2009 on Canadian
      Exploration Expenditures (CEE) on properties located in Canada. At
      December 31, 2008, only a nominal cash balance was available due to the
      use of cash on non-flow through expenditures. In 2009, the Company
      incurred sufficient expenditures to meet its requirements under the flow
      through agreements.                                                                                                                                                                                                                                                                            

14

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| | (c) | The Yukon Territorial Government has a letter of credit
      with the Company which was put in place to secure payment of potential
      reclamation work relating to the Ketza River
project.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

|9. | Property, plant and equipment:         
|-- | ---------------------------------------
|   |                                        
|   | Property, plant and equipment
comprise:

| |                             |   |         |  |   | 2009         |  |   |          |  |   |         |  |   | 2008         |  |   |                      | 
| | --------------------------- | - | ------- |  | - | ------------ |  | - | -------- |  | - | ------- |  | - | ------------ |  | - | -------------------- | 
| |                             |   |         |  |   | Accumulated  |  |   | Net book |  |   |         |  |   | Accumulated  |  |   |                      | 
| |                             |   | Cost    |  |   | amortization |  |   | value    |  |   | Cost    |  |   | amortization |  |   | Net
      book value | 
| | Jerritt Canyon mine, USA    | $ | 105,685 |  | $ | 17,032       |  | $ | 88,653   |  | $ | 103,935 |  | $ | 11,036       |  | $ | 92,899               | 
| | Ketza River project, Canada |   | 1,642   |  |   | 1,126        |  |   | 516      |  |   | 1,643   |  |   | 780          |  |   | 863                  | 
| | Corporate and other, Canada |   | 239     |  |   | 138          |  |   | 101      |  |   | 185     |  |   | 97           |  |   | 88                   | 
| |                             | $ | 107,566 |  | $ | 18,296       |  | $ | 89,270   |  | $ | 105,763 |  | $ | 11,913       |  | $ | 93,850               | 

The continuity of property, plant and
equipment is as follows:

| |                            |   |         |   |   | 2009         |   |   |          |   |   |         |   |   | 2008         |   |   |                      |  
| | -------------------------- | - | ------- | - | - | ------------ | - | - | -------- | - | - | ------- | - | - | ------------ | - | - | -------------------- | -
| |                            |   |         |   |   | Accumulated  |   |   | Net book |   |   |         |   |   | Accumulated  |   |   |                      |  
| |                            |   | Cost    |   |   | amortization |   |   | value    |   |   | Cost    |   |   | amortization |   |   | Net
      book value |  
| | Opening, January 1         | $ | 105,763 |   | $ | 11,913       |   | $ | 93,850   |   | $ | 86,595  |   | $ | 4,786        |   | $ | 81,809               |  
| | Addtions                   |   | 2,629   |   |   | n/a          |   |   | 2,629    |   |   | 25,705  |   |   | n/a          |   |   | 25,705               |  
| | Depreciation               |   | n/a     |   |   | 6,425        |   |   | (6,425   | ) |   | n/a     |   |   | 7,892        |   |   | (7,892               | )
| | Disposals                  |   | -       |   |   | -            |   |   | -        |   |   | (2,029  | ) |   | -            |   |   | (2,029               | )
| | Write-downs                |   | (772    | ) |   | (42          | ) |   | (730     | ) |   | (2,915  | ) |   | (670         | ) |   | (2,245               | )
| | Reclass                    |   | (54     | ) |   | -            |   |   | (54      | ) |   | (935    | ) |   | (95          | ) |   | (840                 | )
| | Other                      |   | -       |   |   | -            |   |   | -        |   |   | (658    | ) |   | -            |   |   | (658                 | )
| | Closing, December
      31 | $ | 107,566 |   | $ | 18,296       |   | $ | 89,270   |   | $ | 105,763 |   | $ | 11,913       |   | $ | 93,850               |  

The Company recorded a $0.7 million
(2008 - $2.2 million) impairment charge on property, plant and equipment. In
2009 the impairment charges related to certain projects which the Company
elected not to continue with. With the closure of the mine in August of 2008,
the Company disposed of selected mining assets and began actively marketing
others. At the end of December 31, 2008, the Company was actively marketing an
asset under capital lease of $0.8 million which subsequently sold in 2009.

16

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

|10. | Mineral properties:
|--- | -------------------

| |                                              |   |        |  |   | Additions   |   |   |        | 
| | -------------------------------------------- | - | ------ |  | - | ----------- | - | - | ------ | 
| |                                              |   | 2008   |  |   | (disposals) |   |   | 2009   | 
| |                                              |   |        |  |   |             |   |   |        | 
| | Ketza River project, Canada (b)              | $ | 45,240 |  | $ | 12,853      |   | $ | 58,093 | 
| | Silver Valley project, Canada (b)            |   | 1,334  |  |   | 174         |   |   | 1,508  | 
| | Arizona project, USA (c)                     |   | 589    |  |   | 2           |   |   | 591    | 
| | Yukon-Shaanxi project, Canada (d)            |   | 169    |  |   | 158         |   |   | 327    | 
| | Other Yukon and BC projects, Canada (e), (f) |   | 15     |  |   | (8          | ) |   | 7      | 
| |                                              | $ | 47,347 |  | $ | 13,179      |   | $ | 60,526 | 

| | (a) | Jerritt Canyon, Nevada:                                                                                                                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                               
| |     | The Company has a 100% interest in the Jerritt Canyon
      property which consists of two gold producing mines, the SSX-Steer complex
      and the Smith mine. The carrying value of Jerrit Canyon is nil at December
      31, 2008 and 2009 due to a $69.4 million impairment charge on Jerritt
      Canyon mineral properties recorded in 2008 (note 6).
| |     |                                                                                                                                                                                                                                                                                                                                                               
| | (b) | Yukon properties:                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                               
| |     | (i)                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                               
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                               
| | (c) | Silver Bar, Arizona:                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                               
| |     | The Company has a 100% interest in 55 claims in Pinal
      County, Arizona. The focus of exploration of this property will be gold
      and copper.                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                               
| | (d) | Mount Nansen, Yukon:                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                               
| |     | The Company, through YSMC, has an option agreement to
      acquire 298 claims, in the Mount Nansen area of the Yukon. Exploration
      activity is underway in that area and further claims in that area are
      being evaluated.                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                               
| | (e) | Greenwood properties:                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                               
| |     | The Company owns a 75% interest in 31 claims in the
      Greenwood Mining District in south east British Columbia which are subject
      to a 2% net smelter returns royalty. The remaining 25% interest in this
      gold property is owned by Intrepid Minerals Corporation. This property was
      written down to a nominal amount in 2005.           

17

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| | (f) | Other Yukon Base Metals properties:             
| | --- | ------------------------------------------------
| |     |                                                 
| |     | (i)                                             
| |     |                                                 
| |     |                                                 
| |     |                                                 
| |     | (ii)                                            
| |     |                                                 
| |     |                                                 
| |     |                                                 
| |     | (iii)                                           
| |     |                                                 
| |     |                                                 
| |     |                                                 
| |     | These properties have nominal carrying
  values.

|11. | Other assets:                                                                                   
|--- | ------------------------------------------------------------------------------------------------
|    |                                                                                                 
|    | Other assets consist of insurance policies associated
      with the Companys ERTP (note 8(a)):
|    |                                                                                                 
|    | (a)                                                                                             
|    |                                                                                                 
|    |                                                                                                 
|    |                                                                                                 
|    | (b)                                                                                             
|    |                                                                                                 
|    |                                                                                                 
|    |                                                                                                 
|    | (c)                                                                                             

18

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

|12. | Related party transactions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | During the year, the Company was charged a total of $0.2
      million (2008 - $0.2 million, 2007 - $0.3 million) in legal fees by a law
      firm in which the corporate secretary of the Company is a partner. The
      amount owing at December 31, 2009 is $0.2 million (2008  $0.1 million). A
      portion of these fees are included in share issue costs with the remainder
      included under general and administrative expenses. In 2007, a portion of
      these costs were also included in the transaction costs associated with a
      business combination.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | During 2007, the Company was charged $0.1 million in
      management fees by a company owned by a director of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | In 2009, the Company engaged in several transactions with
      Tagish Lake Gold Corp (Tagish Lake). The Chief Operating Officer of the
      Company is currently the President of Tagish Lake and one of the Directors
      of the Company is also a director of Tagish Lake. During 2009, the Company
      advanced funds of $0.4 million and purchased a loan receivable from a
      creditor of Tagish Lake for $0.5 million that is secured by the Skukum
      property owned by Tagish Lake.                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | In 2009, the Company was charged a total C$1.8 million by
      a Company owned by a director of the Company, for the management of the
      Yukon properties. As well, the Company was charged C$2.4 million (2008 
      nil, 2007  nil) for metallurgical and geological services provided by a
      director of the Company.                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The company measures the related party transactions at
      the carrying value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|13. | Other long-term
liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| |                                         |   | 2009 |   |   | 2008 |  
| | --------------------------------------- | - | ---- | - | - | ---- | -
| |                                         |   |      |   |   |      |  
| | Capital leases                          | $ | 80   |   | $ | 810  |  
| | Current portion of
      capital leases |   | (30  | ) |   | (785 | )
| |                                         | $ | 50   |   | $ | 25   |  

|    | The Company has two capital lease obligations with
      respect to mine equipment in use at Jerritt Canyon. The lease obligations
      bear interest at rates between 8 and 9 percent. In 2008, the current
      portion of capital leases is primarily comprised of $0.7 million for the
      property, plant, and equipment classified as held for resale. The current
      portion is included in accounts payable and accrued liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|14. | Asset retirement
obligations:                                                                                                                                                                                                                                                                                                                                                                                                                      

| |                                       |   | 2009   |   |   | 2008   |  
| | ------------------------------------- | - | ------ | - | - | ------ | -
| |                                       |   |        |   |   |        |  
| | Balance, beginning of year            | $ | 32,688 |   | $ | 26,528 |  
| | Accretion expense                     |   | 2,890  |   |   | 2,117  |  
| | Foreign exchange                      |   | 402    |   |   | (521   | )
| | Reclamation spending                  |   | (73    | ) |   | (130   | )
| | Revisions in estimates of liabilities |   | -      |   |   | 4,694  |  
| |                                       |   |        |   |   |        |  
| |                                       | $ | 35,907 |   | $ | 32,688 |  

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 $32.9

19

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

million (2008 - $30.2 million)
reflecting payments for approximately the next 20 years. The present value of
obligations relating to exploration activity in the Yukon properties are
currently estimated at $3.0 million (2008 -$2.4 million) reflecting payments for
approximately the next 11 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 $58.0 million (2008 - $58.0 million). An inflation rate assumption
of 2% has been used. An accretion expense component of $2.9 million (2008 - $2.1
million, 2007 - $1.1 million) has been charged to operations to reflect an
increase in the carrying amount of the asset retirement obligation which has
been determined using a credit adjusted risk free rate of 8%. Revisions of
estimates in 2008 used a credit risk free rate of 14%. There were no revisions
in 2009.

|15. | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company has income tax loss carry forwards of
      approximately $58.1 million (2008 - $84.0 million). Under a change of
      control provision under Section 382: Change-of-Ownership Trigger of the
      IRS code, restrictions are in place on pre-2009 loss carryforwards due to
      more than 50 per cent, on a fully diluted basis, of the Companys share
      ownership changing with the 2008 private placement. The Company will have
      an annual limitation of $0.3 million of these losses available to offset
      future income. The loss carry forwards if unused, expire as
  follows:

| |             |   |        | 
| | ----------- | - | ------ | 
| | 2010 - 2015 | $ | 756    | 
| | 2015        |   | 1,133  | 
| | 2026        |   | 1,575  | 
| | 2027        |   | 3,129  | 
| | 2028        |   | 7,892  | 
| | 2029        |   | 43,636 | 
| |             |   |        | 
| |             | $ | 58,121 | 

20

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

The components of future income taxes
are as follows:

| |                                                                   |   | 2009    |   |   | 2008    |  
| | ----------------------------------------------------------------- | - | ------- | - | - | ------- | -
| |                                                                   |   |         |   |   |         |  
| | Future income tax assets, current                                 |   |         |   |   |         |  
| | Non-capital loss carry forwards                                   | $ | 895     |   | $ | 895     |  
| |                                                                   |   |         |   |   |         |  
| | Future income tax assets, non-current                             |   |         |   |   |         |  
| | Asset retirement
      obligation                                 | $ | 910     |   | $ | 728     |  
| | Non-capital loss carry forwards                                   |   | 19,833  |   |   | 22,719  |  
| | Share issue
      costs                                           |   | 714     |   |   | 1,118   |  
| | Unrealized foreign exchange                                       |   | 90      |   |   | -       |  
| | Mineral property
      and property plant and equioment book less |   |         |   |   |         |  
| | tax basis                                                         |   | 36,838  |   |   | 37,168  |  
| | Other                                                             |   | 2,796   |   |   | 395     |  
| |                                                                   | $ | 61,181  |   | $ | 62,128  |  
| | Valuation allowance                                               |   | (39,339 | ) |   | (36,358 | )
| |                                                                   |   | 21,842  |   |   | 25,770  |  
| |                                                                   |   |         |   |   |         |  
| | Future income tax liabilities, non-current                        |   |         |   |   |         |  
| | Mineral property
      and property plant and equipment book less |   |         |   |   |         |  
| | tax basis                                                         | $ | (37,214 | ) | $ | (32,025 | )
| | Unrealized
      foreign exchange                                 |   | -       |   |   | (2,164  | )
| | Other                                                             |   | -       |   |   | -       |  
| |                                                                   |   | (37,214 | ) |   | (34,189 | )
| | Net future income
      tax liability, non-current                | $ | (15,372 | ) | $ | (8,419  | )

The Company has recorded a valuation
allowance against certain of its future income tax assets as management does not
believe it is more likely than not that sufficient taxable income will be
generated during the carry forward period to realize all the future tax assets.

During 2009 the Company renounced
C$20.1 million (2008  C$10.0 million) of CEE to flow-through shareholders. The
result of this renunciation was that the Cumulative Canadian Exploration
Expenses pool of the Company resources was reduced and a C$6.0 million (2008 -
C$3.0 million) future income tax liability was recorded on the date of
renunciation.

The following table reconciles income
taxes calculated at statutory rates with the income tax expense in these
financial statements:

21

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| |                                             |   | 2009    |   |   | 2008     |   |   | 2007   |  
| | ------------------------------------------- | - | ------- | - | - | -------- | - | - | ------ | -
| |                                             |   |         |   |   |          |   |   |        |  
| | Net loss before taxes                       | $ | (42,804 | ) | $ | (117,435 | ) | $ | (930   | )
| | Federal statutory
      tax rate            |   | 34.86%  |   |   | 35.46%   |   |   | 37.12% |  
| | Tax based on statutory income tax rate      |   | (14,921 | ) |   | (41,642  | ) |   | (345   | )
| | Non-deductible expenses                     |   | 2       |   |   | 121      |   |   | 18     |  
| | Share issuance costs                        |   | -       |   |   | -        |   |   | (1,948 | )
| | Non-deductible stock-based compensation     |   | 226     |   |   | 311      |   |   | 1,933  |  
| | Loss (gain) not recognized for tax purposes |   | 2,160   |   |   | 1,230    |   |   | (274   | )
| | Change in valuation allowance               |   | 2,981   |   |   | 28,393   |   |   | 2,385  |  
| | Change in tax rate and other                |   | (4,616  | ) |   | 40       |   |   | (708   | )
| | Impact of lower foreign taxes               |   | -       |   |   | (528     | ) |   | (92    | )
| | Unrecognized tax assets                     |   | 14,024  |   |   | -        |   |   | -      |  
| | Income tax
      (recovery) expense         | $ | (144    | ) | $ | (12,075  | ) | $ | 969    |  

|16. | Share capital:
|--- | --------------
|    |               
|    | (a)           
|    |               
|    | (b)           
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               

22

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

Each Unit 2 consists of one common
share and one common share purchase warrant (the "Warrant"). The Warrant can be
exercised to purchase one additional common share at a price of C$0.08 within 24
months of closing of the private placement.

| | (v)   | On December 19, 2008, the Company closed a non-brokered
      private placement for a total of 79.8 million units (the "Units") for
      proceeds of $3.3 million. In addition, 7.4 million units were issued as a
      finder's fee in connection with the private placement. Each Unit consisted
      of one common share and two series of common share purchase warrants. The
      first warrant (the "Series A Warrant") can be exercised to purchase one
      additional common share at a price of C$0.07 per share within 12 months of
      closing of the private placement and the second warrant (the "Series B
      Warrant") can be exercised to purchase one additional common share at a
      price of C$0.09 per share within 18 months of closing of the private
      placement.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (vi)  | On May 2, 2008, the Company closed a non-brokered private
      placement of 10.1 million flow-through shares at a price of C$2.00 per
      share for proceeds of $19.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (vii) | On October 5, 2007, the Company closed a non-brokered
      private placement of 5 million flow-through shares at a price of C$2.00
      per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | (viii) | On June 20, 2007, the Company closed a private-placement
      of 42.4 million common share units at a price of C$1.80 per unit. Each
      unit consisted of one common share of the Company and one-half of one
      share purchase warrant or 21.2 million share purchase warrants that
      entitles the holder to purchase one common share of the Company for
      C$3.00. The share purchase warrants expire on June 20, 2012.                                                                                                                  
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (ix)   | On June 20, 2007 the Plan of Arrangement to combine the
      operations of the Company and Queenstake Resources Ltd was executed.
      Pursuant to the Plan of Arrangement, the Company issued one common share
      for 10 shares of Queenstake for 100% of the outstanding shares of
      Queenstake, a total of 58.4 million shares. The consideration for each 10
      Queenstake shares was valued at C$1.62, the average closing price of the
      Companys shares on the TSX before and after the announcement date of
      March 22, 2007.
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (x)    | The Company issued 1.8 million agents options to brokers
      in connection with the brokered portion of the June 20, 2007 private
      placement. Each agents option entitles the holder to purchase one common
      share of the Company for C$2.10. The agents options expire on June 20,
      2009. A fair value of $1.1 million has been assigned to the agents
      options, using the Black-Scholes pricing model (see the assumptions used
      in note (c)).                                                                           

23

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| | (c) | Warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Where the warrants are issued as part of a unit comprised
      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
      pricing model. Where the warrant is issued and not attached to a common
      share, they are valued using the Black Scholes pricing model.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The following warrants were outstanding as of December
      31, 2009:                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| |                   |  |             |  |   |                  |  |  | In thousands |  |  |          | 
| | ----------------- |  | ----------- |  | - | ---------------- |  |  | ------------ |  |  | -------- | 
| |                   |  |             |  |   |                  |  |  |              |  |  |          | 
| |                   |  |             |  |   | Exercise         |  |  | December     |  |  | Warrants | 
| | Expiry date       |  | Note        |  |   | price
      (C$) |  |  | 31, 2008     |  |  | issued   | 
| | January 16, 2009  |  |             |  | $ | 1.80             |  |  | 1,000        |  |  | -        | 
| | April 12, 2010    |  |             |  |   | 5.50             |  |  | 2,851        |  |  | -        | 
| | June 20,2012      |  | 12(b)(viii) |  |   | 3.00             |  |  | 21,426       |  |  | -        | 
| | December 17, 2009 |  | 12(b)(v)    |  |   | 0.07             |  |  | 87,200       |  |  | -        | 
| | June 17, 2010     |  | 12(b)(v)    |  |   | 0.09             |  |  | 87,200       |  |  | -        | 
| | February 25, 2011 |  | 12(b)(iv)   |  |   | 0.08             |  |  | -            |  |  | 17,733   | 
| | February 24, 2010 |  | 12(b)(iv)   |  |   | 0.07             |  |  | -            |  |  | 11,000   | 
| | August 24, 2010   |  | 12(b)(iv)   |  |   | 0.09             |  |  | -            |  |  | 10,000   | 
| | April 24, 2011    |  | 12(b)(iii)  |  |   | 0.08             |  |  | -            |  |  | 12,400   | 
| | February 7, 2012  |  | 12(b)(ii)   |  |   | 0.125            |  |  | -            |  |  | 18,830   | 
| | February 28, 2012 |  | 12(b)(ii)   |  |   | 0.125            |  |  | -            |  |  | 22,220   | 
| | June 1, 2011      |  | 12(b)(i)    |  |   | 0.125            |  |  | -            |  |  | 10,000   | 
| |                   |  |             |  |   |                  |  |  | 199,677      |  |  | 102,183  | 

The following are shareholder warrants
outstanding as of December 31, 2008:

| |                   |  |           |  |   |                  |  |  | In thousands |  |  |          | 
| | ----------------- |  | --------- |  | - | ---------------- |  |  | ------------ |  |  | -------- | 
| |                   |  |           |  |   |                  |  |  |              |  |  |          | 
| |                   |  |           |  |   | Exercise         |  |  | December     |  |  | Warrants | 
| | Expiry date       |  | Note      |  |   | price
      (C$) |  |  | 31, 2007     |  |  | issued   | 
| | January 16, 2009  |  |           |  | $ | 1.80             |  |  | 1,000        |  |  | -        | 
| | April 12, 2010    |  |           |  |   | 5.50             |  |  | 2,851        |  |  | -        | 
| | June 20,2012      |  |           |  |   | 3.00             |  |  | 21,176       |  |  | 250      | 
| | December 17, 2009 |  | 12(b)(ii) |  |   | 0.07             |  |  | -            |  |  | 87,200   | 
| | June 17, 2010     |  | 12(b)(ii) |  |   | 0.09             |  |  | -            |  |  | 87,200   | 
| |                   |  |           |  |   |                  |  |  | 25,027       |  |  | 174,650  | 

24

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

The fair value of the warrants were
determined using the following assumptions:

WeightedRisk-free
    Dividend
    averageIssue date
    Expiry
      date
    interest rate
    yield
    expected life
    VolatilityJune 20, 2007
    April 12, 2010
    4.25%
    -
    2.8
    79%June 20, 2007
    January 16, 2009
    4.25%
    -
    1.6
    79%June 20, 2007
    June 20, 2012
    4.25%
    -
    5.0
    79%June 20, 2007
    June 20, 2012
    3.24%
    -
    4.0
    96%December 17, 2008
    December 17, 2009
    1.79%
    -
    1.0
    195%December 17, 2008
    June 17, 2010
    1.79%
    -
    1.5
    161%February 24, 2009
    February 24, 2010
    1.39%
    -
    1.0
    213%February 24, 2009
    August 24, 2010
    1.39%
    -
    1.5
    177%February 25, 2009
    February 25, 2011
    1.39%
    -
    2.0
    156%April 24, 2009
    April 24, 2011
    1.10%
    -
    2.0
    163%August 7, 2009
    February 7, 2012
    1.33%
    -
    2.5
    154%August 28, 2009
    February 28, 2012
    1.39%
    -
    2.5
    177%December 1, 2009
    June 1, 2011
    1.31%
    -
    1.5
    100%


25

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| | (d) | 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.                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Under the fair value method, the total fair value of the
      stock based compensation recognized was $1.2 million in 2009 (2008 - $1.1
      million, 2007 - $6.0 million) at a weighted average fair value of C$0.15
      per stock option (2008- C$0.90). Of this amount, $0.2 million (2008 - $1.1
      million, 2007 - $5.6 million) is included in operations and $0.2 million
      (2008  nil, 2007 - $0.5 million) is included in mineral properties (cost
      allocated to fair value of options granted to Ketza River contractors).
      The fair value of the options at the date of grant has been estimated
      using the Black-Scholes option pricing model using the following
      assumptions:

WeightedRisk-free
    Dividend
    averageGrant date
    interest rate
    yield
    expected life
    VolatilityJanuary 26,2006
    3.00%
    -
    5
    97%March 28, 2006
    3.00%
    -
    5
    90%November 10, 2006
    4.50%
    -
    5
    84%December 12, 2006
    4.13%
    -
    5
    85%January 5, 2007
    4.14%
    -
    5
    84%April 3, 2007
    4.24%
    -
    5
    81%June 25, 2007
    4.25%
    -
    5
    79%July 5, 2007
    4.72%
    -
    5
    78%August 10, 2007
    4.53%
    -
    5
    78%September 14, 2007
    4.14%
    -
    2
    78%November 13, 2007
    3.91%
    -
    5
    77%February 22, 2008
    3.22%
    -
    2
    70%March 28, 2008
    3.35%
    -
    5
    98%June 19, 2008
    3.24%
    -
    5
    96%July 17, 2009
    2.44%
    -
    5
    139%September 29, 2009
    2.33%
    -
    5
    139%


26

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

Continuity of stock options
outstanding for the years ended December 31, 2009, 2008 and 2007 is as
follows:

Options
    
    
    Weighted averageoutstanding
    
    
    exercise price(000's)
    
    
    (C$/option)At January 1, 2007
    
    4,094
    
    
    0.75Granted
    
    9,232
    
    
    2.23Exercised
    
    (1,792
    )
    
    0.97At December 31, 2007
    
    11,534
    
    
    1.90Granted
    
    1,050
    
    
    1.37Exercised
    
    (3,715
    )
    
    2.21At December 31, 2008
    
    8,869
    
    
    1.71Granted
    
    21,585
    
    
    0.15Exercised
    
    (120
    )
    
    0.15Expired
    
    (4,297
    )
    
    1.41At December 31, 2009
    
    26,037
    
    
    0.40


The following information pertains to
the options outstanding at December 31, 2009 are as follows:

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)0.15-0.59
      21,465
      0.15
      4.6
      8,865
      0.15
      4.6060-0.82
      1,290
      0.62
      0.6
      1,290
      0.62
      0.60.83-1.60
      325
      1.46
      2.3
      325
      1.46
      2.31.61-1.75
      2,082
      1.73
      2.6
      2,082
      1.73
      2.62.77-5.70
      875
      2.73
      2.0
      875
      2.73
      2.026,037
      0.40
      4.1
      13,437
      0.64
      3.7


|17. | Supplemental
information:
|--- | -------------------------

| | (a) | Cash flow information
| | --- | ---------------------

| | (i) | Non-cash transactions:
| | --- | ----------------------

| |                                                               |   | 2009 |  |   | 2008 |  |   | 2007   | 
| | ------------------------------------------------------------- | - | ---- |  | - | ---- |  | - | ------ | 
| |                                                               |   |      |  |   |      |  |   |        | 
| | Shares issued on acquisition of Queenstake                    | $ | -    |  | $ | -    |  | $ | 89,049 | 
| | Warrants issued on acquisition of Queenstake                  |   | -    |  |   | -    |  |   | 1,828  | 
| | Stock options issued on acquisition of
      Queenstake       |   | -    |  |   | -    |  |   | 116    | 
| | Stock-based
      compensation included in mineral properties |   | 202  |  |   | -    |  |   | 47     | 

27

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| | (ii) | Operating activities included the following cash
      payments:
| | ---- | ----------------------------------------------------------------

| |               |   | 2009 |  |   | 2008 |  |   | 2007 | 
| | ------------- | - | ---- |  | - | ---- |  | - | ---- | 
| |               |   |      |  |   |      |  |   |      | 
| | Interest paid | $ | 168  |  | $ | 257  |  | $ | 217  | 

| | (iii) | Net change in non-cash working
capital:
| | ----- | ---------------------------------------

| |                                          |   | 2009   |   |   | 2008    |   |   | 2007    |  
| | ---------------------------------------- | - | ------ | - | - | ------- | - | - | ------- | -
| |                                          |   |        |   |   |         |   |   |         |  
| | Accounts receivable and prepaid expenses | $ | (2,366 | ) | $ | 5,334   |   | $ | (2,682  | )
| | Inventories                              |   | 13,901 |   |   | 12,793  |   |   | (15,094 | )
| | Accounts payable and accrued liabilities |   | 2,236  |   |   | 7,394   |   |   | (8,043  | )
| | Deferred revenue                         |   | 4,838  |   |   | -       |   |   | -       |  
| | Payable on ore purchase                  |   | (8,257 | ) |   | (10,590 | ) |   | 2,344   |  
| |                                          | $ | 10,352 |   | $ | 14,931  |   | $ | (23,475 | )

| | (b) | Interest in joint venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | The Company conducts a portion of its business through
      joint ventures under which the venturers are bound by contractual
      arrangements establishing joint control over the ventures. Despite the
      decrease in ownership from 50% to 37.5% the Company continues to have 50%
      representation on the board of directors, and the interest is therefore
      accounted for as a joint venture. The Company records its proportionate
      share of assets, liabilities, revenues, operating expenses and other
      income (expense) of the joint ventures. Should the composition of the
      board change to align with the current ownership structure the accounting
      treatment would follow the equity method to reflect the reduced control.
      The following condensed statements of earnings and balance sheets for the
      year ended December 31, 2009 and 2008 detail the amounts relating to the
      Companys interest in a joint venture that has been proportionately
      consolidated.

| |                                          |   | 2009  |  |   | 2008  | 
| | ---------------------------------------- | - | ----- |  | - | ----- | 
| | Ownership percentage                     |   | 37.5% |  |   | 50.0% | 
| |                                          |   |       |  |   |       | 
| | Proportionate share of expenses          | $ | 165   |  | $ | 18    | 
| | Proportionate share of assets            |   |       |  |   |       | 
| | Cash                                     | $ | 89    |  | $ | 938   | 
| | Property plant and equipment             |   | 18    |  |   | 15    | 
| | Accounts
      receivable                |   | 910   |  |   | 124   | 
| | Mineral properties                       |   | 327   |  |   | 169   | 
| |                                          | $ | 1,344 |  | $ | 1,246 | 
| | Proportionate
      share of liabilities | $ | 4     |  | $ | 8     | 

|18. | Segmented information:                                                                                                                                                                                                                                            
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                   
|    | All of the Companys operations are related to the gold
      mining industry. As of the end of December 31, 2009 the Company had one
      gold mine (Jerritt Canyon) located in Nevada, USA. The Company has
      exploration properties in Canada and the USA.

28

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

Assets and liabilities held by
geographic location are as follows:

| |           |   | 2009    |  |   | 2008    | 
| | --------- | - | ------- |  | - | ------- | 
| | Asset     |   |         |  |   |         | 
| | Canada    | $ | 66,771  |  | $ | 53,329  | 
| | USA       |   | 128,670 |  |   | 146,307 | 
| |           | $ | 195,441 |  | $ | 199,636 | 
| | Liability |   |         |  |   |         | 
| | Canada    | $ | 31,637  |  | $ | 14,470  | 
| | USA       |   | 64,094  |  |   | 63,518  | 
| |           | $ | 95,731  |  | $ | 77,988  | 

|19. | Capital Management:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company manages its common shares, stock options and
      warrants as capital. 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 future production in 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 90
      days or less from the original date of acquisition, selected with regards
      to the expected timing of expenditures from continuing
  operations.                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company is not subject to any externally imposed
      capital requirements and there has been no change with respect to the
      overall capital risk management strategy during the year ended December
      31, 2009.                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|20. | Financial Instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Companys financial instruments consist of cash and
      cash equivalents, receivables, restricted funds, accounts payable and
      accrued liabilities. Cash and cash equivalents are designated as held for
      trading and therefore carried at fair value, with the unrealized gain or
      loss recorded in income. Restricted funds as designated as held for
      trading and carried at fair value with unrealized gains and losses at the
      reporting date recognized in income. Interest income and expense are both
      recorded in income.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The fair values of accounts receivables, accounts payable
      and accrued liabilities approximate carrying value because of the short
      term nature of these instruments. Accounts receivables are classified as
      loan and receivables and accrued liabilities are classified as other
      liabilities                                                                                                                                                                                                                                                   

29

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

The amendments to Section 3862 (note 4)
introduce a fair value hierarchy that reflects the significance of inputs used
in making fair value measurements 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.                                                                                                           

At December 31, 2009, cash and cash
equivalents and restricted cash which are valued on the balance sheet using
quoted prices in active markets are included in level 1.

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s 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.

| | a) | 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)                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                         

| | In thousands of CAD                            |   | 2009   |  |   | 2008  | 
| | ---------------------------------------------- | - | ------ |  | - | ----- | 
| | Cash and cash equivalents                      | $ | 398    |  | $ | 1,295 | 
| | Accounts receivable                            |   | 1,901  |  |   | 1,482 | 
| | Restricted funds                               |   | 3,324  |  |   | 3,341 | 
| | Accounts payable
      and accrued liabilities |   | 13,022 |  |   | 4,413 | 

30

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

Based on the above net exposures as at
December 31, 2009, a 10% appreciation or depreciation in the Canadian dollar
against the US dollar, assuming all other variables remain constant, would
result in a $0.7 million increase or decrease, respectively, in operating
results and shareholder 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 not hedged any of its own gold
      production. Previously, forward sales contracts were entered into for gold
      produced under its current tolling arrangements with third parties. These
      forward contracts were recorded at fair value as they were not designated
      as hedging instruments, with gains and losses recorded in income. However,
      all forward contracts were settled during
2008.

| | b) | 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)                                                                                                                                                                    
| |    |                                                                                                                                                                        
| |    |                                                                                                                                                                        
| |    |                                                                                                                                                                        
| |    | (ii)                                                                                                                                                                   
| |    |                                                                                                                                                                        
| |    |                                                                                                                                                                        
| |    |                                                                                                                                                                        
| |    |                                                                                                                                                                        

31

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

Company maintains title to these funds
should the third party be in default of their obligations or enters into
bankruptcy protection.

Other significant deposits and
receivables are either held by or due from government agencies and relate to the
funding of future closure costs at Jerritt Canyon or goods and services input
tax credits.

The Company does not have any
receivables or deposits that would be considered impaired or otherwise
uncollectible, therefore no allowance for doubtful accounts is required.

The Companys receivables are
comprised of the following items:

| | • | Input tax credits $0.4 million recoverable from the
      Canada Revenue Agency (CRA) for goods and services tax paid to vendors.
      The Company has assessed that there is no uncertainty of the credit
      worthiness of the CRA or the Companys ability to receive these funds.                                                                                                                                                                                                                                                                                                  
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | • | A loan to Tagish Lake Gold Corp held by the Companys
      37.5% owned joint venture, YSMC, for $0.5 million as well as a lien filed
      for receivables arising from services provided of $0.4 million, both of
      which are secured by the Skukum Lake property (see note 12) held by Tagish
      Lake Gold Corp. The value of this property has been assessed to be higher
      than the carrying value of these receivables, and therefore there is no
      uncertainty on the collectability of this loan despite the negative
      working capital of Tagish Lake Gold Corp.

The remaining balance in accounts
receivable and prepaid expenses is comprised of deposits and prepaid expenses,
primarily for insurance and with the utility company. The Company has transacted
with these counterparties for several years and there is no history of loss
arising from deposit or prepaid amounts.

| | c) | 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.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The following are the contractual maturities of the
      undiscounted cash flows of financial liabilities at December 31,
    2009:                                                                                                                                                                                                                                                                                                                                                                  

| |                                         |   | Less
      than 3 |  |  | 4 to 12 |  |  | 1 to 2
      years |  |  | Greater
      than | 
| | --------------------------------------- | - | ----------------- |  |  | ------- |  |  | ------------------ |  |  | ------------------ | 
| |                                         |   | months            |  |  | months  |  |  |                    |  |  | 2
      years      | 
| | Account payable and accrued liabilities | $ | 39,564            |  |  |        |  |  |                   |  |  |                   | 
| |                                         |   |                   |  |  |         |  |  |                    |  |  |                    | 
| | Capital lease obligations               |   |                  |  |  |        |  |  | 28                 |  |  | 22                 | 

|21. | Commitments and contingencies:
|--- | ------------------------------
|    |                               
|    | (a)                           
|    |                               
|    |                               

32

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

In conjunction with the receipt of
advance payment on gold sales the Company committed to the delivery of 6,508
ounces as follows:

Ounces sold
    
    Delivery date
    
    
    Contract price (per ounce)1,000
    
    April 30, 2009
    
    $
    8502,650
    
    August 31, 2009
    
    
    7502,858
    
    October 30, 2009
    
    
    7006,508
    
    
    
    $
    743


Each contract has a specific penalty
payment required for late delivery. For the first contract, this penalty amounts
to $0.03 million per month, whereas the latter two contracts contain penalties
of $0.08 million per month. As of December 31, 2009, the Company has not
delivered the ounces required under the contracts and has made penalty payments
of $0.7 million to the counterparty.

33

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| | (b) | Contingencies:
| | --- | --------------

| | (i)   | On April 22, 2009, the Company received a notice of
      complaint from the U.S. Department of Justice representing the
      Environmental Protection Agency (EPA) alleging the Company had violated
      specific provisions of the Resource Conservation and Recovery Act relating
      to the generation, storage, handling, and disposal of hazardous wastes at
      the Jerritt Canyon facility. The Company has responded to the allegations
      and has held discussions with the EPA on the matter in order to determine
      the nature of the violations. The final outcome and the extent of any
      liability is not yet determinable.                                                                                                                                                                                                                                   
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (ii)  | On June 10, 2009 Queenstake Resources USA Inc.
      (Queenstake), a subsidiary of the Company filed a complaint in the
      Fourth Judicial District Court, State of Nevada, against the former mill
      operator, Golden Eagle International Inc. (GEII), stating that GEII had
      not operated the mill in a workmanlike manner and at a level consistent
      with industry standards, resulting in a loss of revenues to Queenstake.
      The Company, through its subsidiary, is claiming damages, the ultimate
      amount of which is yet to be determined. Subsequently, GEII has filed an
      answer and counterclaim alleging that the Company had breached the mill
      operating agreement, resulting in loss of future revenues to GEII and loss
      of reputation. GEII is also claiming damages, the ultimate amount of which
      is yet to be determined.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (iii) | Queenstake has been named as a defendant in a class
      action lawsuit initiated by certain employees who were laid off in August
      2008. The action is for an alleged violation of the Federal WARN Act,
      Employment Retirement Income Security Act, and State Labor Laws and to
      foreclose on labor liens not yet filed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |       | Queenstake intends to satisfy all outstanding legal
      obligations caused by the shut down in August 2008. When the mine closed
      the Company took steps to pay out these obligations from available cash at
      the time, which was half of the amount required under the Federal WARN
      Act. The Company has provided for what it believes to be the amount that
      remains due under the Federal WARN Act, Employment Retirement Income
      Security Act, and State Labor Law obligations. The Company and Queenstake
      will defend the class action from any and all unjustified claims where
      they believe there is no obligation. The class action lawsuit has not been
      certified by the courts.                                                                                                                                                        

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

| |      |   |     | 
| | ---- | - | --- | 
| | 2010 | $ | 247 | 
| | 2011 |   | 186 | 
| | 2012 |   | 102 | 
| | 2013 |   | 12  | 
| | 2014 |   | 1   | 
| |      | $ | 548 | 

34

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

|22. | Reconciliation between Canadian and United States
      Generally Accepted Accounting Principles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | These consolidated financial statements have been
      prepared in accordance with Canadian GAAP. Material measurement
      differences in the accounting principles, practices and methods used in
      preparing these consolidated financial statements from principles,
      practices and methods accepted by United States of America generally
      accepted accounting principles (US GAAP) are described and quantified
      below. On July 1, 2009, the Financial Accounting Standards Board (FASB)
      ratified the Accounting Standards Codification (ASC) as the sole source
      of authoritative non-governmental US GAAP. The ASC has not intended to
      change US GAAP, but rather reorganized existing guidance by accounting
      topic to allowed easier identification of accounting standards. New
      accounting pronouncements issued by the FASB are called Accounting
      Standards Updates (ASU). The Company has updated references to US GAAP
      to reflect the ASC.

35

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

The impact of US GAAP differences on
the consolidated statement of operations is as follows:

| |                                                                                                          |  |      |  |   | For the year ended December 31 |  
| | -------------------------------------------------------------------------------------------------------- |  | ---- |  | - | ------------------------------ | -
| | In thousands                                                                                             |  |      |  |   | 2009                           |  
| |                                                                                                          |  |      |  |   |                                |  
| | Net loss under Canadian GAAP                                                                             |  |      |  | $ | (42,660                        | )
| | Recognition of losses on liabilties related to warrants denominated
      in foreign currencies          |  | (v)  |  |   | (32,924                        | )
| | Write-off of exploration mineral property
      costs                                                    |  | (i)  |  |   | (12,940                        | )
| | Recognition of future income tax asset due to write-off of
      exploration mineral property costs      |  | (i)  |  |   | -                              |  
| | Premium received on flow-through shares                                                                  |  | (ii) |  |   | 6,667                          |  
| | Reduction in impairment due to write-off of exploration mineral
      property costs prior to impairment |  | (i)  |  |   | -                              |  
| | Depreciation
      capitalized to mineral properties                                                     |  | (i)  |  |   | (346                           | )
| |                                                                                                          |  |      |  |   |                                |  
| | Net
      loss under US GAAP                                                                             |  |      |  | $ | (82,203                        | )
| | Other comprehensive
      income  foreign exchange adjustment                                           |  |      |  |   | -                              |  
| | Comprehensive
      income under US GAAP                                                                 |  |      |  | $ | (82,203                        | )
| |                                                                                                          |  |      |  |   |                                |  
| | Loss per share under US GAAP - basic and
      diluted                                                   |  |      |  | $ | (0.24                          | )

The impact of US GAAP differences on
the consolidated balance sheet is as follows:

| |                                                                                                     |  |                   |  |   | As at December
      31 |  
| | --------------------------------------------------------------------------------------------------- |  | ----------------- |  | - | ----------------------- | -
| | In thousands                                                                                        |  |                   |  |   | 2009                    |  
| |                                                                                                     |  |                   |  |   |                         |  
| |                                                                                                     |  |                   |  |   |                         |  
| | Assets under Canadian GAAP                                                                          |  |                   |  | $ | 195,441                 |  
| | Opening adjustment to mineral property costs                                                        |  | (i)               |  |   | (41,517                 | )
| | Write-off of exploration mineral property costs                                                     |  | (i)               |  |   | (13,286                 | )
| | Equity investment
      in incorporated joint venture                                               |  | (viii)            |  |   | -                       |  
| | Assets under US GAAP                                                                                |  |                   |  | $ | 140,638                 |  
| | Liabilities under Canadian GAAP                                                                     |  |                   |  | $ | 95,731                  |  
| | Opening adjustment to future income tax liabilities                                                 |  | (ii),
      (iii) |  |   | (2,120                  | )
| | Recognition of future income tax asset due to write-off of
      exploration mineral property costs |  | (i)               |  |   | -                       |  
| | Premium received on flow through shares                                                             |  | (ii)              |  |   | -                       |  
| | Premium on flow-through shares expensed on renunciation                                             |  | (ii)              |  |   | (6,667                  | )
| | Reversal of future income tax liability arising
      from                                          |  |                   |  |   |                         |  
| | renunciation under Canadian GAAP                                                                    |  | (ii)              |  |   | (5,411                  | )
| | Warrants denominated in foreign currencies                                                          |  | (v)               |  |   | 9,857                   |  
| | Liabilities under
      US GAAP                                                                     |  |                   |  | $ | 91,390                  |  

36

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| |                                                                         |  |      |  |   | December
      31 |  
| | ----------------------------------------------------------------------- |  | ---- |  | - | ----------------- | -
| | In thousands                                                            |  |      |  |   | 2009              |  
| |                                                                         |  |      |  |   |                   |  
| | Shareholders equity under Canadian
      GAAP                          |  |      |  | $ | 99,710            |  
| | Opening adjustments to record the write-off of mineral property         |  |      |  |   |                   |  
| | costs and premium on flow-through
      shares                          |  |      |  |   | (39,397           | )
| | Write-off of exploration mineral property costs                         |  | (i)  |  |   | (13,286           | )
| | Reduction in impairment due to write-off of
      exploration mineral   |  |      |  |   |                   |  
| | property costs prior to impairment                                      |  | (i)  |  |   | -                 |  
| | Recognition of future income tax asset due
      to write-off of        |  |      |  |   |                   |  
| | exploration mineral property costs                                      |  | (i)  |  |   | -                 |  
| | Premium received on flow through shares                                 |  | (ii) |  |   | -                 |  
| | Premium on flow-through shares expensed on renunciation                 |  | (ii) |  |   | 6,667             |  
| | Reversal of future income tax liability arising
      from renunciation |  | (ii) |  |   | 5,411             |  
| | Reduction in foreign denominated warrants                               |  | (v)  |  |   | (18,392           | )
| | Increase in share capital due to foreign denominated
      warrants     |  | (v)  |  |   | 25,138            |  
| | Increase in paid in capital due to foreign denominated warrants         |  | (v)  |  |   | 16,321            |  
| | Recognition of losses on liabilties related
      to warrants           |  |      |  |   |                   |  
| | denominated
      in foreign currencies                                 |  | (v)  |  |   | (32,924           | )
| |                                                                         |  |      |  |   |                   |  
| | Shareholders
      equity under US GAAP                                |  |      |  | $ | 49,248            |  

The components of Shareholders equity
under US GAAP would be as follows:

| |                                        |  |     |  |   | December
      31 |  
| | -------------------------------------- |  | --- |  | - | ----------------- | -
| | In thousands                           |  |     |  |   | 2009              |  
| |                                        |  |     |  |   |                   |  
| | Share capital                          |  | (v) |  | $ | 253,798           |  
| | Accumulated paid in capital            |  | (v) |  | $ | 16,321            |  
| | Warrants                               |  | (v) |  |   | -                 |  
| | Contributed surplus                    |  |     |  |   | 10,489            |  
| | Accumulated other comprehensive income |  |     |  |   | 2,264             |  
| | Deficit                                |  |     |  |   | (233,624          | )
| |                                        |  |     |  |   |                   |  
| | Total Shareholders
      equity       |  |     |  | $ | 49,248            |  

37

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| |                                                               |  |      |  |   | For the
      year ended December 31 |  
| | ------------------------------------------------------------- |  | ---- |  | - | ------------------------------------ | -
| | In thousands                                                  |  |      |  |   | 2009                                 |  
| | Cash used in operating activities under
      Canadian GAAP   |  |      |  | $ | (19,389                              | )
| | Write-off of exploration mineral property costs               |  | (i)  |  |   | (13,286                              | )
| | Premium received on flow-through shares                       |  | (ii) |  |   | -                                    |  
| | Cash used in operating activities under US GAAP               |  |      |  | $ | (32,675                              | )
| | Cash used in investing activities under
      Canadian GAAP   |  |      |  | $ | (6,322                               | )
| | Write-off of exploration mineral property costs               |  | (i)  |  |   | 13,286                               |  
| | Cash provided by (used in) investing activities under US GAAP |  |      |  | $ | 6,964                                |  
| | Cash provided by financing activities under Canadian GAAP     |  |      |  | $ | 24,790                               |  
| | Premium received on flow-through shares                       |  | (ii) |  |   | -                                    |  
| | Cash provided by financing activities under US GAAP           |  |      |  | $ | 24,790                               |  

Under US GAAP there would be no
subtotal to the cashflow from operations in the cashflow statement.

Notes to the Reconciliation between
Canadian and US GAAP

| | (i) | Mineral properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Under Canadian GAAP, resource property acquisition costs
      and exploration costs may be deferred and amortized to the extent they
      meet certain criteria. Capitalized costs under Canadian GAAP are amortized
      on a unit-of-production basis based on proven, probable and possible
      reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Under US GAAP, exploration costs must be expensed as
      incurred unless the resource properties have proven and probable reserves
      at which time costs incurred to bring the mine into production are
      capitalized as development costs. Drilling and related costs in
      delineating an ore body and converting mineral resources to mineral
      reserves are expensed as exploration costs under US GAAP. Capitalized
      costs are then amortized on a unit-of-production basis based on proven and
      probable reserves rather than over the proven and probable reserves of the
      mine and the applicable portion of resources expected to ultimately be
      mined. This additional depletion and exploration expense is recognized in
      the statement of operations under US GAAP. For the purposes of the
      consolidated statements of cash flows, the exploration costs are
      classified as cash used in investing activities under Canadian GAAP and
      cash used in operating activities under US GAAP.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | As amounts capitalized may vary between Canadian GAAP and
      US GAAP, depreciation may also vary. Option payments are capitalized under
      US GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

38

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| | (ii)  | Flow-through shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       | Under Canadian income tax legislation, the Company is
      permitted to issue shares whereby the Company agrees to incur Canadian
      exploration expenditures (as defined in the Income Tax Act, Canada) and
      renounce the related income tax deductions to investors. Under Canadian
      GAAP, the full amount of funds received from flow-through share issuances
      are initially recorded as share capital. Upon renouncing the expenditures,
      the amount of deferred tax liability on the expenditures is deducted from
      share capital. Under US GAAP, 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.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (iii) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       | Under Canadian GAAP, future tax assets and liabilities
      are recorded at substantially enacted tax rates. Under US GAAP, deferred
      tax assets and liabilities are recorded at enacted tax rates. In 2008 and
      2009, there was no difference between enacted and substantially enacted
      rates. As a result, the application of US GAAP in accounting for income
      taxes does not result in any material measurement differences from
      Canadian GAAP for future tax assets or liabilities.                                                                                                                                                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       | Due to the treatment of exploration costs under US GAAP
      described in note 22 (i) above, there would be a larger tax benefit
      arising under US GAAP when compared to Canadian GAAP. With respect to the
      Canadian operations, any future tax assets arising are fully offset by a
      valuation allowance as it is not more likely than not that the future tax
      assets would be realized. For the US operations, a valuation allowance has
      been taken against all future income tax assets in excess of liabilities,
      therefore the asset arising under US GAAP will not be recognized in 2009
      and 2008 and the balance from 2007 has been adjusted
accordingly.                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (iv)  | Accounting for uncertainty in income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       | The Company recognizes uncertain tax positions that are
      more-likely-than-not (50% or greater) of being sustained on audit, based
      on the technical merits of the position. With the adoption of this
      standard, the Company has performed a comprehensive review of all material
      tax positions in accordance with recognition and measurement standards
      established by FIN 48 (now known as ASC 740).                                                                                                                                                                                                                                                                                                                                                   
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       | Based on this review, the provisions of FIN 48 did not
      have a material impact on the Companys annual consolidated financial
      statements. The Company has elected to apply the provisions of FIN 48 in
      assessing their uncertain tax positions under Canadian GAAP as well,
      removing any differences that would arise with US GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (v)   | Reclassification of warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       | In June 2008, FASB released guidance on the accounting
      treatment for certain equity instruments with elements of foreign currency
      risk. Warrants with an exercise price that is different from the entitys
      functional currency cannot be classified as equity. This is applicable for
      years beginning after December 15, 2008 and will be treated as a change in
      accounting principle through prospective application. As the Companys
      functional currency is the US dollar, upon adoption of this abstract the
      issued and outstanding warrants that have an exercise price that is
      denominated in Canadian dollars will be treated as derivative instruments
      and                                                             

39

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

recorded as liabilities under US GAAP
instead of equity and changes in fair value will be calculated at each reporting
period. Any gain or loss arising from this revaluation will be recorded in the
statement of operations. Accordingly, for US GAAP purposes, the Company assessed
the fair value of these warrants as of January 1, 2009, and recorded a reduction
in share purchase warrants of $19.1 million, an increase in opening accumulated
paid in capital of $16.3 million and a $2.8 million increase in liabilities.
During 2009, 225,883,333 warrants were exercised and 1,000,000 expired. Upon
exercise the fair value of the warrants of $31.8 million was reclassified to
common shares, which resulted in a reduction in the liabilities of $6.2 million
and a loss of $25.6 million recognized in income in the period. For the year
ended December 31, 2009, the Company has assessed the fair value of the warrants
and recorded increased the liability by $5.8 million with an offsetting
adjustment to the mark-to-market for the year.

| | (vi) | Adoption of New Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | In December 2007, the FASB released guidance on Business
      Combinations. This guidance applies prospectively for the Company to
      business combinations for which the acquisition date is on or after
      January 1, 2009. The objective of this Statement is to improve the
      relevance, representational faithfulness, and comparability of the
      information that a reporting entity provides in its financial reports
      about a business combination and its effects. The Company did not have any
      Business Combinations in 2009 and therefore there was no impact on the
      Companys financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | In March 2008, FASB issued guidance on disclosures about
      derivative instruments and hedging activities. This guidance requires
      enhanced disclosures about an entitys derivative and hedging activities.
      This Statement was effective for the Company on January 1, 2009. The
      Company did not have any hedging activities in 2009 and therefore there
      was no impact on the Companys financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | In August 2009, the FASB issued guidance on measuring
      liabilities at fair value, which is effective for the Company for the year
      ended December 31, 2009. This guidance provides clarification that in
      circumstances in which a quoted price in an active market for the
      identical liability is not available, a reporting entity is required to
      measure fair value using one of the valuation techniques that uses (a) the
      quoted price of the identical liability when traded as asset; (b) quoted
      prices for similar liabilities when traded as assets; or another valuation
      technique that is consistent with the principles of Topic 820 Fair Value
      Measurements and Disclosures. Therefore, the fair value of the liability
      should reflect non-performance risk, including but not limited to a
      reporting entitys own credit risk. This guidance also clarifies that when
      estimating the fair value of a liability, a reporting entity is not
      required to include a separate input or adjustment to other inputs
      relating to the existence of a restriction that prevents the transfer of
      liability. The Company adopted this guidance in the fourth quarter of 2009
      which did not have an impact on the financial
statements.

In May 2009, FASB issued guidance on
subsequent events. This guidance established general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. In particular,
this guidance set forth: 1) The period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements. 2)
The circumstances under which an entity should recognize events or transactions
occurring after the balance

40

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|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

sheet date in its financial statements
and 3) The disclosures that an entity should make about events or transactions
that occur after the balance sheet date. Adoption of this standard did not have
a material impact on the financial statements.

| | (vii)  | New Accounting Pronouncements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |        | In June 2009, FASB issued codification, which is the
      source of authoritative U.S. generally accepted accounting principles (US
      GAAP) recognized by the FASB to be applied by nongovernmental entities.
      Rules and interpretive releases of the Securities and Exchange Commission
      (SEC) under authority of federal securities laws are also sources of
      authoritative US GAAP for SEC registrants. The Codification superseded all
      then-existing non-SEC accounting and reporting standards. All other
      non-grandfathered non-SEC accounting literature not included in the
      Codification will become non-authoritative. This Statement is effective
      for financial statements issued for interim and annual periods ending
      after September 15, 2009.                                                                                                                                                                                                                                                   
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |        | In June 2009, FASB issued further guidance on accounting
      of transfers of financial assets. This guidance improves the relevance,
      representational faithfulness, and comparability of the information that a
      reporting entity provides in its financial statements about a transfer of
      financial assets; the effects of a transfer on its financial position,
      financial performance, and cash flows; and a transferors continuing
      involvement, if any, in transferred financial assets. The Board undertook
      this project to address (1) practices that have developed that are not
      consistent with the original intent and key requirements of that guidance
      and (2) concerns of financial statement users that many of the financial
      assets (and related obligations) that have been derecognized should
      continue to be reported in the financial statements of transferors. This
      guidance must be applied for the Company on January 1, 2010. Adoption will
      not have an impact.
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |        | In June 2009, FASB issued guidance which improves
      financial reporting by enterprises involved with variable interest
      entities. The Board undertook this project to address (1) the effects on
      certain provisions of as a result of the elimination of the qualifying
      special-purpose entity concept in FASB Statement No. 166, Accounting
      for Transfers of Financial Assets, and (2) constituent concerns about
      the application of certain key provisions, including those in which the
      accounting and disclosures under the Interpretation do not always provide
      timely and useful information about an enterprises involvement in a
      variable interest entity. This guidance is effective for the Company on
      January 1, 2010. The Company is assessing the impact of the new
      standard.                                                                                                                                                                                                     
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (viii) | Incorporated joint venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |        | Under Canadian GAAP incorporated joint ventures are
      proportionately consolidated. Under US GAAP the investment of a joint
      venture is equity accounted for where there incorporated joint venture is
      not controlled by the Company or consolidated where control exists. The
      Company owns 37.5% of the Yukon-Shaanxi Mining Corp. an incorporated joint
      venture and accordingly should equity account for this investment for US
      GAAP. The impact is to reclassify the earnings of the joint venture to the
      Equity loss in the income statements and include the net investment as an
      equity investment on the balance sheet. However, as permitted by the
      Securities Exchange Commission regulation for the preparation of Item 17,
      financial statement for the Company has not quantified the difference in
      classification and display related to the joint
venture.                                                                                                                        

41

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|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2009, 2008 and 2007                             
|                                                                         

| | (ix) | Stock based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      | Under Canadian GAAP stock based compensation is included
      on the Statements of Operations in aggregate under income (loss) from
      operations. Under US GAAP you are required to segregate between individual
      line items. For US GAAP the Company allocates as the amount between
      general and administration of $0.8 million (2008 - $1.1 million, 2007 
      5.1 million) and cost of goods sold of $0.2 million (2008  nil, 2007 -
      $0.5 million).

|23. | Subsequent events:
|--- | ------------------
|    |                   
|    | a)                
|    |                   
|    |                   
|    |                   
|    |                   
|    |                   
|    |                   
|    |                   
|    |                   
|    |                   
|    | b)                

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