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YUKON-NEVADA GOLD CORP. Managements Discussion and
Analysis For the year ended December 31, 2011

The following managements discussion and analysis
(MD&A) should be read in conjunction with the consolidated financial
statements of Yukon-Nevada Gold Corp. (the Company or Yukon-Nevada) for the
year ended December 31, 2011 and related notes thereto, which have been prepared
in accordance with International Financial Reporting Standards (GAAP or IFRS
as issued by the International Accounting Standards Board (IASB)). The Company
previously prepared its annual consolidated financial statements in accordance
with Canadian generally accepted accounting principles (Canadian GAAP). A
reconciliation of the previously disclosed comparative periods financial
statements prepared in accordance with Canadian GAAP to IFRS is set out in Note
27 to the consolidated financial statements for the year ended December 31,
2011. The Companys 2010 comparatives in this MD&A have restated and
presented in accordance with IFRS. As the date of transition to IFRS was January
1, 2010, the 2009 comparative information included in this MD&A have not
been restated to be in accordance with IFRS. All figures are in United States
dollars unless otherwise noted. References to (CAD) are to Canadian dollars.
This MD&A has been prepared as of March 29, 2012.

The Companys shares are listed on the TSX (trading symbol 
YNG) and the Frankfurt Stock Exchange (trading symbol  NG6) and at March
29, 2012 the Company had 931,479,031 shares outstanding.

ANNUAL HIGHLIGHTS

- The Jerritt Canyon Mill shipped 13,864 ounces of gold during the quarter
  from purchased ore, stockpiles and mining operations, compared with 22,777
  ounces of gold in 2010. Total ounces produced for the quarter declined
  significantly compared with the fourth quarter of 2010 primarily as a result
  of the Company processing higher grade (and higher cost) Newmont ore in the
  fourth quarter of 2010 and higher than normal down time as a result of
  continued delays in the annual shutdown (originally scheduled for June of
  2011) as the site waited for key components required for completing the
  installation of the ore dryer. Jerritt Canyon shipped a total of 67,748 ounces
  from stockpiles, purchased ore, and mining operations for the year ended
  December 31, 2011 compared with 65,104 ounces for the year ended December 31,
  2010.
- The Company took delivery of sufficient mining equipment to ramp up mining
  of the SSX-Steer mine, as well as equipment for the mill facilities, completed
  significant upgrades to the lab, continued work on the structure for the new
  ore dryer, including installation of the bag house and scrubbers (used to
  reduce sulfur dioxide emissions), and completed the lining of the two new
  water storage reservoirs with the remaining lining of the second tailings
  facility to be completed in 2012. The Company also carried out extensive
  exploration activities in the fourth quarter in Starvation Canyon, Mahala, and
  existing areas of activity (Smith and SSX- Steer) as well as two of the
  historical pit areas.
- The Company closed a $120 million Forward Gold Purchase Agreement (Gold
  Purchase Agreement) with Deutsche Bank AG (Deutsche Bank) on August 12,
  2011 for the delivery of 173,880 ounces over a four year period, commencing
  September 30, 2011. The proceeds of the Gold Purchase Agreement are primarily
  being used for capital expenditures at the Jerritt Canyon property, including
  the winterization of the processing facility, construction of the second
  tailings storage facility and development of the existing underground and open
  pit mines in addition to further improvements to the gold production processes
  to enhance throughput at the mill. The proceeds were also used to repay the
  senior secured notes issued to note holders led by Sprott Asset Management LP
  in August 2010 (the Notes).

1

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- On May 24, 2011 the Company closed a non-brokered private placement for a
  total of 33.5 million units with Deutsche Bank AG at a price of C$0.43 per
  unit for proceeds of C$14.4 million. Each unit contains one common share and
  one warrant with a twenty-four month term at an exercise price of C$0.55. The
  Company also closed a non-brokered private placement for a total of 8.3
  million common shares at a price of C$0.85 per share for proceeds of $7.2
  million.
- The gross margin from mining operations at the Jerritt Canyon Mine was a
  loss of $2.8 million in the three months ended December 31, 2011, compared
  with $8.0 million for the same period in 2010, a significant improvement as
  Jerritt Canyon reduced the processing of third party ore and focused on
  processing stockpiles and ore from the Smith and SSX-Steer mines. The benefit
  of processing lower cost ore was offset by the significant down time during
  the quarter as the operations carried out critical maintenance work while
  waiting for the arrival of equipment required for a complete shutdown
  maintenance and upgrade program. For the year-ended December 31, 2011 the
  operations lost $25.9 million compared with $11.6 million in the year-ended
  December 31, 2010, primarily resulting from the processing of higher cost
  third party ores and significant downtime during the year.
- The Company had a loss of $7.5 million in the fourth quarter of 2011
  compared to a loss of $49.3 million in the fourth quarter of 2010. This lower
  loss in 2011 is largely due to the improvement in the gross margin from
  operations and the significantly lower loss on revaluation of warrants largely
  arose from the loss from mining operations noted above as well as the interest
  costs on the $25 million Notes and derivative losses of $7.2 million.

OVERVIEW

Yukon-Nevada Gold Corp. (Yukon-Nevada Gold or the Company)
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 doré, 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 extent of exploration activity 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.

Yukon-Nevada Gold 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.

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Jerritt Canyon

The Jerritt Canyon operation consists of a milling facility and
two underground mines, the Smith and the SSX, located in Nevada, U.S.

Jerritt Canyon Operating Highlights

(Dollars in thousands except for per ounce amounts)

|                             |   | Q1 2011 |  |   | Q2 2011 |  |   | Q3 2011 |  |   | Q4 2011 |  |   | Total 2011 | 
|---------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ---------- | 
|Gold (troy ounces)           |   |         |  |   |         |  |   |         |  |   |         |  |   |            | 
|Payable Ounces Produced      |   | 13,181  |  |   | 19,407  |  |   | 21,296  |  |   | 13,864  |  |   | 67,748     | 
|Gold Ounces Sold             |   | 13,650  |  |   | 18,341  |  |   | 18,035  |  |   | 16,850  |  |   | 66,876     | 
|Gold sales                   | $ | 18,973  |  | $ | 28,258  |  | $ | 30,116  |  | $ | 27,769  |  | $ | 105,116    | 
|Cost of gold sold            | $ | 32,890  |  | $ | 30,191  |  | $ | 37,279  |  | $ | 30,450  |  | $ | 130,810    | 
|Average gold price per ounce | $ | 1,390   |  | $ | 1,541   |  | $ | 1,678   |  | $ | 1,676   |  | $ | 1,623      | 

|                             |   | Q1 2010 |  |   | Q2 2010 |  |   | Q3 2010 |  |   | Q4 2010 |  |   | Total 2010 | 
|---------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ---------- | 
|Gold (troy ounces)           |   |         |  |   |         |  |   |         |  |   |         |  |   |            | 
|Payable Ounces Produced      |   | 7,650   |  |   | 9,337   |  |   | 17,202  |  |   | 22,777  |  |   | 56,966     | 
|Gold Ounces Sold             |   | 9,108   |  |   | 9,876   |  |   | 15,547  |  |   | 21,883  |  |   | 56,414     | 
|Gold sales                   | $ | 10,158  |  | $ | 11,850  |  | $ | 19,466  |  | $ | 29,896  |  | $ | 71,370     | 
|Cost of gold sold            | $ | 13,460  |  | $ | 13,536  |  | $ | 18,036  |  | $ | 37,911  |  | $ | 82,943     | 
|Average gold price per ounce | $ | 1,116   |  | $ | 1,200   |  | $ | 1,252   |  | $ | 1,366   |  | $ | 1,265      | 

|                                   |   | Q1 2009 |  |   | Q2 2009 |  |   | Q3 2009 |  |   | Q4 2009 |  |   | Total 2009 | 
|---------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ---------- | 
|Gold (troy ounces)                 |   |         |  |   |         |  |   |         |  |   |         |  |   |            | 
|Payable Ounces Produced            |   | -       |  |   | 5,180   |  |   | -       |  |   | 4,590   |  |   | 9,770      | 
|Gold Ounces Sold                   |   | -       |  |   | 5,180   |  |   | -       |  |   | 4,590   |  |   | 9,770      | 
|Gold sales                         | $ | -       |  | $ | 4,788   |  | $ | -       |  | $ | 5,125   |  | $ | 9,913      | 
|Cost of gold sold                  | $ | 68      |  | $ | 6,089   |  | $ | 1,347   |  | $ | 18,545  |  | $ | 26,049     | 
|Temporary shutdown costs           | $ | 2,452   |  | $ | 2,460   |  | $ | 5,176   |  | $ | 462     |  | $ | 10,550     | 
|Average gold price
      per ounce | $ | -       |  | $ | 924     |  | $ | -       |  | $ | 1,117   |  | $ | 1,015      | 

In 2008 the Jerritt Canyon operations were shut down in the
third quarter due to increasing mining costs resulting from a lack of historical
development prior to the Company acquiring the property and also the significant
amounts of required infrastructure expenditures remaining to be completed. The
workforce at Jerritt Canyon was reduced to maintenance levels while the Company
undertook discussions with the Nevada Division of Environmental Protection
(NDEP) to obtain permission to restart the facility and sought additional
financing to fund the recommencement of operations. In early 2009, the Company
submitted new design plans for mercury emissions control equipment along with
plans to address other environmental concerns arising from the NDEP, resulting
in conditional approval to restart operations on March 25, 2009. The Company
shutdown roaster operations again on May 30, 2009 as delays in receiving
critical components required in the construction of the new mercury emission
control system resulted in the Company being unable to meet critical deadlines
within the restart approval received.

Subsequent to the second shutdown the Company assumed control
  of the operations from a third party operator and undertook the completion of
  the calomel emission system along with other critical maintenance. The calomel
  system put in place is from a design proprietary to an Officer of the Company
  and in subsequent stack testing it has surpassed the requirements set by the
  NDEP, setting a new standard for Nevada emissions. After coming to an agreement
  with the NDEP in the form of a Consent Decree (CD) issued by the
  Attorney General of the State of Nevada, the Company was able to restart operations
  in the fourth quarter of 2009.

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The CD resolved 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 gave the Company the right to operate the
  milling facility from the effective date. The CD 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.

During the fourth quarter of 2011, SMD delivered 81,843 dry
tons to the mill containing 13,172 ounces from the Smith mine, lower than
previous quarter deliveries of 87,330 tons containing 14,893 ounces as they
focused on capital development during the quarter.

During the fourth quarter, the Company purchased 31,953 dry
tons of ore from Newmont, containing 1,643 ounces, at an average cost per wet
ton of $93. The ounces purchased and the cost per ton, which is a function of
grade and gold price, was lower than the previous quarter as Newmont delivered
lower grade stockpiles throughout the fourth quarter and deliveries ceased by
mutual agreement after November, with the existing contract expiring at the end
of December 2011.

With the commencement of mining at the SSX-Steer mine in the
fourth quarter of 2011, the Company also took delivery of 9,051 tons to the mill
containing 1,117 ounces. The rate of mining increased throughout the quarter as
the Company continued recruiting mining personnel and took delivery of
additional equipment.

During the year, mill production levels significantly
underperformed targets as the operation was subjected to both scheduled and
unscheduled downtime, aggravated early in the year by limited resources and long
lead times on equipment. The scheduled shutdowns were used to carry out required
maintenance, including the replacement of the ball mill and ore dryer liners,
refurbishing the thickener, and completing upgrades to the CIL circuit. The
unscheduled downtime during the year was largely the result of a series of
mechanical or power failures at the mill site resulting either from overdue
maintenance required or, in the latter case, salt from tailings pond evaporators
calcifying on power lines and transformers in the vicinity of the tailings pond.
For the current year the Company has significantly increased the total number of
evaporators operating in order to reduce the supernatant water levels in
compliance with the requirements of the CD, however this has significantly
increased the exposure of the sites various transformers to water vapor with
high salt content. Mechanical failures that arose during the year consisted of
thickener rake failures in the fourth quarter (requiring complete clean out and
rehabilitation of the thickener bed) and in earlier quarters the failure and
subsequent replacement of the induction fan, one of the tertiary cone crushers,
the bucket elevator in the crushing circuit, and the thickener pump. These
failures would have normally been addressed in the annual scheduled shutdown
but, due to delays in necessary equipment (primarily the ore dryer components)
the Company repeatedly deferred the shutdown which was originally scheduled for
June until the equipment was on hand.

These equipment failures during the year led to significant downtime
  for the mill operations. Most of the problems were the result of aging equipment
  and have largely been rectified following the outages. With the resulting low
  tonnages during the year, the largely fixed costs (82%) of operating the mill
  contributed to an overall higher cost of production. The combination of low
  tonnages and the high relative proportion of purchased ore processed resulted
  in a negative margin during the year. With the completion of the shutdown in
  January 2012 the Company expects to be able to increase the daily production
  amounts and, with a phase out of purchased ore occurring at the end of 2011,
  will be processing a larger portion of higher grade ore from the Smith, SSX-Steer
  mine and also from lower cost stockpiles, a significant improvement in margins
  will be realized.

4

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In order to ensure the long term viability of the operation,
  the Company has raised significant funds during the year to address key areas
  that have historically been the cause of either production bottlenecks or limitations
  on the life of the asset. The two key projects that the Company has made significant
  headway on are the construction of the new ore dryer, which has been designed
  and built to follow the primary crushing circuit rather than secondary crushing,
  and the second tailings facility including two additional water storage reservoirs.
  The reengineering of the ore dryer is part of both the winterization program
  as well as a compliance requirement of the CD. By placing the ore dryer early
  in the circuit and housing exposed areas following the dryer, issues with wet
  ore, which typically lead to blocked chutes in the winter due to freezing, will
  be mitigated allowing for increased production rates throughout the year. The
  Company is also adding additional filtration (cyclones, bag house) and mercury
  scrubbers to bring emissions from the drying circuit under the compliance requirements
  of the CD. The addition of a new tailings facility, once it has been double
  lined and put into service in mid-2012 will extend the life of the facility
  for several years as well as bring it into compliance with current environmental
  standards.

Underground Exploration summary

A total of 248 production cubex drill holes were completed at
Smith and SSX-Steer underground mines in the four months ended December 31, 2011
(Table 1). For the year ended December 31, 2011, a total of 809 production cubex
drill holes totaling 93,753 feet were completed at both the Smith and SSX-Steer
underground mines. A majority of these drill holes that had assays received by
late December 2011 have been added to the Companys drill hole database and will
be used in the upcoming revised resource calculation.

SMD continued drilling underground definition (production)
drill holes using their own cubex (RC) drill (Table 1). The underground
definition drilling at Smith for the four months ended December 31, 2011 was
focused in Zone 8 where a total of 19,413 feet in 162 drill holes were
completed.

Queenstake drilled a total of 11,225 feet in 86 production
drill holes in Zones 1A and 7 of the SSX-Steer mine complex in Quarter 4 using
our own cubex drill and staff.

Table 1. Q4 2011 Underground Definition RC Drilling (Cubex
drilling)

Mine
    # of Drill Holes
    Footage (ft)Smith Mine
    162
    19,413SSX-Steer Mine
    86
    11,225Total
    248
    30,638


During the fourth quarter of 2011 eleven exploration drill
holes totaling 7,333 feet and one resource conversion drill hole totaling 992
feet have been completed from underground drill stations at the Smith mine
(Table 2). For the year ended December 31, 2011, a total of 14 exploration drill
holes totaling 11,980 feet, and 23 resource conversion diamond drill holes
totaling 11,962 feet have been completed at the Smith underground mine.

The goal of the 2011 underground diamond drilling program is to
add resources that are not included in the current Smith Mine 4-year Life of
Mine plan.

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Table 2. Q4 2011 Underground Diamond Drilling (Contractor) 
Smith Mine

Exploration
      Resource Conversion# of Drill Holes
      Footage
      # of Drill Holes
      Footage (ft)Smith Mine
      11
      7,333
      1
      992


Surface Exploration summary

A total of 105 RC surface resource conversion drill holes
totaling 52,750 feet, and 14 surface diamond drill holes totaling 8,346 feet
were completed in fourth quarter of 2011 (Tables 3 and 4). The surface drills
were active at Burns Basin, Mahala and East Dash, Saval, West Mahala, Starvation
Canyon, and Pie Creek during the quarter. Included in this total are two 4-inch
(ID) monitor wells completed at Starvation Canyon. For the entire 2011 year, a
total of 12 surface diamond drill holes totaling 14,147 feet were completed at
Starvation Canyon. In addition, a total of 15 diamond drilling core tails
(drilled after a RC precollar) were completed in 2011.

Table 3. Q4 2011 Jerritt Canyon Surface RC Drilling Summary

Resource Conversion# Drill Holes
      FootageBurns Basin
      61
      23,740East DASH/Mahala
      5
      5,760Pie Creek (OP Target)
      8
      2,560Saval (OP target)
      4
      1,900Starvation
      13
      7,490West Mahala
      14
      11,300Total
      105
      52,750


The surface diamond drilling for the fourth quarter of 2011
focused at the Mahala, East Dash, and West Mahala areas (Table 4) and were all
core tails that deepened RC precollars. A total of 3 exploration diamond drill
holes totaling 1,758 feet were completed at East Dash and East Mahala. Eleven
resource conversion core tails totaling 6,588 feet were completed at East Dash,
Mahala, and West Mahala.

Table 4. Q4 2011 Jerritt Canyon Surface Core Drilling
Summary

Exploration (core)
      Resource Conversion (core)# Drill Holes
      Footage
      # Drill Holes
      FootageEast Dash/East Mahala
      3
      1,758
      2
      850West Mahala
      -
      -
      9
      5,738TOTAL
      3
      1,758
      11
      6,588


For the entire 2011 year, a total of 208 surface RC drill holes
totaling 120,130 feet were completed. In addition, a total of 12 surface diamond
drill holes in the Starvation Canyon area totaling 5,251 feet, and another 15
core tails totaling 8,896 feet from the West Mahala and Mahala areas were
completed in 2011. Most of the Mahala, East Dash, West Mahala, Saval (open-pit)
and Pie Creek surface drill hole assay results will make it into the upcoming NI
43-101 report.

Surface core drilling will continue into 2012 as long as the
weather remains favorable for drilling. As of December 31, 2011, assay results
have been received for 126 of the 220 completed Surface RC and diamond drill
holes. Drill hole geochemical data has been analyzed in the open pit ore zones
for Leco C, Leco S, Sulfide S (or sulfate S), organic Carbon, and preg-rob
carbon from Burns Basin, Saval-Steer, and Pie Creek. These analyses are
necessary to conduct to help determine if it is feasible to recommence the
Jerritt wet mill circuit to help process less refractory open pit ores in the
future.

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Modeling and NI 43-101 Update

Modeling in the fourth quarter focused on finishing all of the
open pit models that included digitizing 0.01 opt Au shapes and making new
triangulation solids and block models. All of the open pit resources will be
included in the upcoming NI 43-101 report and will supersede all of the previous
open pit resources included in the previous Year-End 2008 NI 43-101 report by
SRK (2008). Revised resource work for the Saval, Pie Creek, Road Canyon, and
Burns Basin open pit areas was started in the fourth quarter of 2011. Remaining
block models to be finished by the end of January include the Smith mine, West
Mahala (part of the SSX-Steer model), and Murray mine.

Ketza River

Exploration summary

The fourth quarter of 2011 drilling at Ketza River is
summarized below in Table 5.

Table 5. Q4 2011 Year-End Ketza River Drilling Summary

Total
    South Hill Target
    NW Target
    Hoodoo Zone
    Penguin ZoneHoles Completed
    25
    10
    4
    2
    9Total Footage
    14,441
    7,965
    1,393
    174
    4,909


For the entire 2011 year, a total of 26 drill holes totaling
9,529 feet were completed at the Ketza River Project. Drilling started late in
September 2011 and continued until early December 2011.

Exploration at the South Hill Target was focused on the western
portion of the target on identified magnetic highs. All drill holes have
intersected weak to moderate quartz-calcite-pyrrhotite-pyrite stockwork and
stringer veins at depth in calcareous argillite (1C unit). Several drill holes
have intercepted linearly non-continuous oxide and sulphide manto replacement
mineralization in 1D limestone lithologies.

Six diamond drill holes were completed at the NW Target and
eastern portion of the Hoodoo Zone. The drilling conditions were very poor with
low core recovery. Three holes were terminated before they reached target depth
due to ground conditions. All six holes intercepted zones of moderate to very
strong limonite, hematite, hissingerite in 1D limestone, 1A weakly silicified
phyllite, and quartzite. A drill hole had previously intercepted oxide at this
target grading up to 2.67 grams per ton Au. Even though the 2011 drill holes did
not all reach final target depth, it is expected that the oxide mineralization
encountered will have gold grades similar to those from the previous drill hole
and expand the resource body.

All of the drilling at the Penguin Zone conducted in 2011
targeted three anomalous total magnetic field highs east of the main Penguin
Resource that were only partially tested during the 2010 drill program. Previous
drill holes in the target include KR-10-1546 to KR-10-1550 that intercepted
massive pyrrhotite, pyrite, and arsenopyrite in 1D limestone lithologies with
geochemical results up to 9.71 grams per ton Au. All 2011 drill holes
intercepted similar mineralization in the same 1D limestone unit. The 2010 and
2011 drill holes at the Penguin Zone are not currently included in the proposed
Penguin open pit resource.

All 2011 Ketza River drill hole assays were in progress as of
December 31, 2011. A total of 290 drill core pulps from the 2007-2010
exploration drilling program at Ketza and Silver Valley were submitted to two
assay labs for duplicate geochemical analysis on December 15, 2011. The assays
will be used for future QAQC work on the Ketza River and Silver Valley deposit
models.

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YESAB Activities

Questions are being addressed to the Yukon Environmental and
Socio-economic Assessment Board (YESAB) regarding the Yukon Environmental and
Socio-economic Assessment Application (YESAA) that was submitted in late
September of 2011. This report assesses the environmental and socio-economic
effects of activities and will integrate scientific information, traditional
knowledge and other local knowledge. The time schedule for the YESAA review will
be a minimum of one year from the submission date.

Various other YESAB work have been completed during the quarter
including several meetings with local communities (Ross River, Faro, and Teslin)
and local First Nations (Ross River Dena and Teslin) were held to update
everyone on the Companys proposed Ketza River Mine Project. Numerous meetings
were also held with the Water Board, YESAA, Water Resources, and Energy, Mines
and Resources to help address project needs and the water license application
for the existing tailings pond. Bids for a new large capacity arsenic treatment
plant have been acquired in order to help treat all tailings water prior to
discharging into Cache Creek.

Silver Valley

No exploration work has been carried out on the Silver Valley
  property during 2011.

Yukon-Shaanxi Mining Company

During 2011 there was minimal activity in the YS Mining Inc.
(YSM) joint venture, or its wholly owned subsidiary Yukon-Shaanxi Mining
Company.

During the fourth quarter of 2011 the joint
venture shareholders of YSM agreed to dissolve YSM. This was done by way of a
Corporate Dissolution Agreement (the Agreement); and, the shareholders of YSM
executing a consent resolution authorizing the dissolution of YSM (the
Resolution).

The Resolution and the Agreement were both
dated and executed on October 18, 2011 and all remaining assets, primarily cash,
were distributed to the joint venture shareholders. The Company received a CAD
$2.2 million from the distribution of assets on October 25, 2011. As at December
31, 2011 an application of dissolution had yet to be filed and YSM had yet to be
dissolved. Remaining costs to dissolve YSM will be nominal and will be funded by
each joint venture party as they arise.

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SELECTED ANNUAL FINANCIAL INFORMATION

(In thousands of dollars, except for share and per share
amounts)

20092011
    
    
    2010
    
    
    (Canadian GAAP)Income StatementRevenue
    $
    105,116
    
    $
    71,370
    
    $
    9,913Cost
      of gold sold
    
    130,975
    
    
    82,943
    
    
    26,049Gross loss
    
    (25,859
    )
    
    (11,573
    )
    
    (16,136
    )Loss from mine operations
    
    (32,535
    )
    
    (17,001
    )
    
    (35,847
    )Income (loss) before taxes
    
    26,190
    
    
    (192,018
    )
    
    (42,804
    )Net income (loss)
    
    26,382
    
    
    (190,388
    )
    
    (42,660
    )Basic income (loss) per share
    
    0.03
    
    
    (0.29
    )
    
    (0.13
    )Weighted average # of shares outstanding
    
    800,430,950
    
    
    646,540,724
    
    
    338,967,089Balance SheetCash and cash equivalents
    $
    2,261
    
    $
    -
    
    $
    185Total assets
    
    327,646
    
    
    219,241
    
    
    195,441Total non-current liabilities
    
    162,495
    
    
    212,608
    
    
    51,329


Subsequent to a complete shutdown in mid-2008, the milling
operations resumed March 25, 2009 when approvals were received from NDEP on the
progress and plans developed by the Company to address environmental compliance
concerns. Operations were shutdown again on May 30, 2009 due to a delay in the
fabrication of certain fiberglass ductwork required in the construction of the
new mercury emission control system, a requirement of 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 resolved 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 gave the Company the right to operate the milling
facility from the effective date.

RESULTS OF OPERATIONS

The Company had a net income of $26.4 million during the year
ended December 31, 2011, compared with a net loss of $190.4 million in the
year-ended December 31, 2010. The increase in results from 2010 to 2011 is
primarily the result of $77.9 of interest and other income being recognized in
2011. The increase was principally the result of a non-cash gain of $97.2
million that resulted from the change in fair-value of share purchase warrants,
compared to a $100.4 million loss from the fair-value measurement of warrants in
recognized 2010. The decrease in the fair value of warrants, and the
corresponding liability, is attributable to the decrease in the Companys share
price during 2011. The 2011 gain from warrant fair value measurement was offset
by a $41.5 million loss from operations; $11.6 million of finance and
transaction costs, principally comprised of interest incurred on the Notes which
were settled in the year; and, the recognition of $19.5 million in loss on
derivatives being attributable to rising gold prices in the year.

The gross margin loss for 2011 was $25.9 million compared to
$11.6 million for the year ended December 31, 2010. The increased loss in 2011
is primarily the result of the low production tonnage rates caused by excessive
levels of down time and high cost purchased ore comprising a significant amount
of the ore processed for the first three quarters.

9

---

Gold sales:

For the year ended December 31, 2011, the Company realized gold
sales of $105.1 million on sales of 66,876 ounces of gold, compared with
realized gold sales of $71.4 million on sales of 56,414 ounces of gold in 2010.
The increase in sales in 2011 compared to 2010 is attributable to (i) the
increase in the average sale price of gold of $1,623 per-ounce in 2011 from
$1,265 per-ounce in 2010; and (ii) a 17% increase in the number of ounces sold
in 2011 compared to 2010, as the Company continued to ramp up production at
Jerritt Canyon towards stead y-state production.

Gross loss:

The Company had a gross margin loss of $25.9 million for the
year ended December 31, 2011, compared to a loss of $11.6 million for the year
ended December 31, 2010. The increased loss in 2011 compared to 2010 is caused
by a combination of (i) low production rates at the mill which resulted from
both scheduled maintenance downtime and unscheduled downtime due to equipment
failure; and (ii) the processing of high cost purchased ore, which comprised
close to 50% of daily production during the first three quarters of 2011
(discontinued in mid-November of 2011).

The Company produced 67,748 payable ounces of gold during the
year ended December 31, 2011 compared to 56,966 ounces in 2010.

Depreciation, depletion and amortization:

The Company had $6.7 million in depreciation and amortization
for the year ended December 31, 2011 compared with $5.4 million for the years
ended December 31, 2010. Depreciation expense was higher in 2011 compared to the
prior year due to a higher property, plant and equipment asset base arising from
the purchase of mining equipment and other significant investments in the
operations during 2011. Depletion was nil in 2011 and 2010.

Impairment of Mineral Properties and Equipment

There were no impairment charges on mineral properties in 2011.
During the year ended December 31, 2010, management reviewed the remaining
mineral properties and concluded that management did not intend to pursue
exploration of the Silver Bar property in Arizona and the Mount Nansen project
held by the joint venture. As a result all deferred costs associated with the
two properties were expensed in the year resulting in a $1.0 million impairment
charge. See the section on Critical Accounting Estimates for discussion on
impairment testing of long-lived assets.

Exploration, general and administrative expenses and
share-based payments:

The Company expensed $0.8 million of underground exploration
activity at Jerritt Canyon mine in the year ended December 31, 2011 compared
with $1.0 million in 2010. The Company capitalizes exploration activities
related to non-producing areas.

During 2011 the Company incurred general and administrative
expenses (G&A) of $8.6 million compared with $6.4 million in 2010. The
increase in 2011 G&A, compared to 2010, is the result of a $3. million
increase in general and administrative expenses, offset by a $2.3 million
decrease in share based payments which is included within G&A expense on the
consolidated statement of operations.

10

---

The non-share based payment G&A expenses are primarily
incurred at the head office in Canada and the increase in 2011 from 2010 arises
from a $1.5 million increase in salary and benefit costs; a $0.7 million
increase in professional fees; and, a $0.7 million increase in consulting fees,
all of which were due to the expansion of operations and increased financing
activities. Further contributing to the increase was the effect of the weakening
of the US dollar relative to the Canadian dollar from $0.97 in 2010 to $1.01 in
2011.

Share-based payments included in G&A were $1.8 million in
2011 compared to $4.1 million in 2010. The charge in 2011 relates to the vesting
of stock options that were granted in 2009, 2010 and 2011, while the comparable
charge in 2010 relates primarily to the immediate vesting of options granted to
directors and key management personnel in the third quarter of 2010. The Company
granted 7.9 million stock options during 2011, primarily to key personnel,
compared to the 37.6 million options granted primarily to directors and key
personnel in 2010.

Interest and other income (expense)

Interest and other income (expense) is comprised of:

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


The Company has issued share purchase warrants denominated in
Canadian dollars. As the Canadian dollar is not the functional currency of the
Company, the issued and outstanding warrants are treated as financial
instruments (derivative liabilities) and are thus revalued at each reporting
period, with the change in fair value recorded in net income. For the year ended
December 31, 2011 a gain of $97.2 million was recognized compared to a loss of
$100.4 million in 2010. The 2011 gain is caused by a lower valuation of the
derivative warrant liability which resulted from declines in the Companys share
price during 2011.

As part of the $25.0 million debt issued in the third quarter
of 2010, $6.8 million of the proceeds were allocated to a gold embedded
derivative arising from the loan repayments being indexed to the gold spot
price. This debt was settled on August 12, 2011 using proceeds from the Gold
Purchase Agreement. Immediately prior to settlement the derivative was revalued
resulting in a loss of $11.9 million during the year compared to the revaluation
of this derivative during 2010, which resulted in a loss of $5.3 million being
recognized. Additional derivative losses of $7.5 million was recognized in year
ended December 31, 2011 relating to two gold forward contracts entered into
November 2010 and January 2011, the latter of which was settled in June of 2011.
A derivative loss of $1.9 million was recognized in 2010 in relation to the
November 2010 forward contract.

In 2010 the Company also recorded charges relating to the
settlement of lawsuits ($4.6 million) and the settlement of an advanced gold
payment received in 2009 ($3 million) in interest and other income
(expense).

11

---

Finance and transactions costs:

Finance and transactions costs are comprised of:

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


Finance and transactions costs for the year ended December 31,
2011 were $11.6 million compared to $51.5 million 2010. The large decrease in
2011 compared to 2010 is primarily attributable to a financing charge of $43.6
million incurred in 2010 for the issuance of 190.7 million inducement warrants
(no inducement options were issued in 2011).

The finance and transaction costs in 2011 were predominantly
made up of interest on the Senior Secured Notes (the Notes). In August 2010,
the Company issued $25.0 million in Notes and 25.0 million common share purchase
warrants, raising gross proceeds of $25 million. Each Warrant entitled the
holder thereof to purchase one common share of the Company at a price of C$0.40
per share for a period of three years following closing. The Notes were repaid
through monthly cash installments based on a notional amount of approximately
284,114 shares of SPDR GLD Gold Shares (an exchange listed fund trading on the
NYSE and other global exchanges, meant to provide a proxy for gold price for
repayment purposes) beginning October 1, 2010. The Company had guaranteed a
minimum rate of return of 5% per annum on the aggregate principal amount over
the term of the Notes. In connection with the closing, a finder's fee in the
amount of 4% of the gross proceeds raised was payable in shares of the Company.
Of the total proceeds of $24.8 million, net of transaction costs of $0.2
million, $5.7m was allocated on initial recognition to the warrants issued. A
further $6.8 million was allocated to the gold embedded derivative arising from
the indexing of the loan repayments to the gold spot price. This resulted in an
initial liability being recorded of $12.3 million representing the Companys
residual debt. The carrying amount of the liability is accreted to the face
value of the notes over the term of the notes. The Notes were settled in
entirety in August of 2011 and thus were outstanding for a longer duration in
2011 than in 2010 resulting in higher interest expense being incurred in 2011.
The accreted interest expense recorded in the 2011 was $5.8 million compared to
the $3.7 million recorded in 2010.

Also included in finance and transaction costs are non-cash
accretion charges for the decommissioning and rehabilitation liability, which is
consistent with 2010, and $2.2 million of environmental rehabilitation expense
incurred in 2011 that did not occur in 2010. The Company also incurred
transaction costs of $1.6 million related to the Forward Gold Purchase Agreement
on August 12, 2011 (no comparable costs were incurred in 2010).

12

---

Foreign exchange loss:

There was a foreign exchange gain of $1.8 million in 2011,
compared with a $0.2 million loss in 2010. This was due to the strengthening of
the Canadian dollar relative to the US dollar as disclosed above. The 2011 gain
was the result of Canadian denominated assets having increased value due to the
strengthening Canadian dollar offset by Canadian dollar denominated monetary
liabilities (primarily future income tax and asset retirement obligations),

Income taxes:

The Company recorded an income tax recovery of $0.2 million in
2011 compared $1.6 million in 2010. The total income tax recovery in 2011
reflects a current recovery of $0.7 million, resulting from the current year
reversal of prior year provisions, which is offset by a 2011 deferred income tax
expense of $0.5 million resulting from increased future income tax liabilities
related to Ketza, primarily the result of the issuance and renunciation of
flow-through shares. As at December 31, 2011 the Company had unrecognized
deferred tax assets of $89.1 million (2010 - $74.4 million), in respect of
unrecognized deductible temporary differences, unused tax losses, and unused tax
credits of $246.4 million (2010 - $220.8 million). These unrecognized deductible
temporary differences, unused tax losses, and unused tax credits are
predominantly made up of non-capital and net operating loss carry forwards of
$158.5 million (2010 - $143.3 million) which are to expire between 2012 and
2031.

SUMMARY OF QUARTERLY RESULTS

(In thousands of dollars, except for share and per share
amounts)

|                                                 |   | Q4 2011 |   |   | Q3 2011 |   |   | Q2 2011 |   |   | Q1 2011 |   |   | Q4 2010 |   |   | Q3 2010  |   |   | Q2 2010 |   |   | Q1 2010 |  
|------------------------------------------------ | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | -------- | - | - | ------- | - | - | ------- | -
|Income Statement                                 |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |          |   |   |         |   |   |         |  
|Gold Sales                                       | $ | 27,769  |   | $ | 30,116  |   | $ | 28,258  |   | $ | 18,973  |   | $ | 29,896  |   | $ | 19,466   |   | $ | 11,850  |   | $ | 10,158  |  
|Cost
      of gold sold                          |   | 30,615  |   |   | 37,279  |   |   | 30,191  |   |   | 32,890  |   |   | 37,911  |   |   | 18,036   |   |   | 13,536  |   |   | 13,460  |  
|Gross margin - mining
      operations           |   | (2,846  | ) |   | (7,163  | ) |   | (1,933  | ) |   | (13,917 | ) |   | (8,015  | ) |   | 1,430    |   |   | (1,686  | ) |   | (3,302  | )
|Loss from operations                             |   | (6,055  | ) |   | (11,159 | ) |   | (7,127  | ) |   | (17,133 | ) |   | (11,377 | ) |   | (3,867   | ) |   | (4,201  | ) |   | (5,711  | )
|Profit/(loss) before taxes                       |   | (8,708  | ) |   | (18,119 | ) |   | 22,926  |   |   | 30,091  |   |   | (52,492 | ) |   | (102,106 | ) |   | 4,575   |   |   | (41,995 | )
|Net profit/(loss)                                |   | (7,506  | ) |   | (17,973 | ) |   | 22,915  |   |   | 28,946  |   |   | (50,924 | ) |   | (102,086 | ) |   | 4,537   |   |   | (41,915 | )
|Basic net profit/(loss) per
      share          |   | (0.01   | ) |   | (0.02   | ) |   | 0.03    |   |   | 0.04    |   |   | (0.07   | ) |   | (0.15    | ) |   | 0.01    |   |   | (0.07   | )
|Weighted average # of shares outstanding (000's) |   | 930,606 |   |   | 930,606 |   |   | 826,650 |   |   | 691,128 |   |   | 685,616 |   |   | 667,823  |   |   | 652,520 |   |   | 578,796 |  
|Balance Sheet                                    |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |          |   |   |         |   |   |         |  
|Cash and cash equivalents                        |   | 2,261   |   |   | 37,459  |   |   | 7,761   |   |   | -       |   |   | -       |   |   | 5,821    |   |   | -       |   |   | 2,066   |  
|Total assets                                     | $ | 327,646 |   | $ | 328,259 |   | $ | 261,447 |   | $ | 222,902 |   | $ | 219,241 |   | $ | 223,596  |   | $ | 204,064 |   | $ | 195,651 |  

RESULTS OF OPERATIONS

The Company incurred a loss of $8.7 million during the quarter
  ended December 31, 2011, compared to a loss of $52.5 million in the quarter
  ended December 31, 2010. The $43.8 million decrease being primarily attributable
  to a $1.0 million gain from the fair valuation of the warrant liability in the
  fourth quarter of 2011 compared to a $33.0 million loss arising from fair value
  measurement of the warrants in the fourth quarter of 2010. Also contributing
  to the decreased loss was improved gross margin results. There was a $2.8 million
  gross loss from mining operations in the fourth quarter of 2011, compared to
  an $8.0 million loss for the same period in 2010.

13

---

Gold sales:

Gold sales in the fourth quarter of 2011 were $27.8 million
which were earned on the sales of 16,850 ounces of gold from Jerritt Canyon, at
an average selling price of $1,676 per ounce. This is a decrease from the $29.9
million in gold sales earned in the fourth quarter of 2010 which was from the
sale of 21,883 ounces of gold from Jerritt Canyon, at an average price of $1,366
per ounce. The decrease is attributable to lower grade ore processed in the
fourth quarter of 2011 (in 2010 the Company was processing higher grade Newmont
purchased ores), and lower production levels as Jerritt operations were subject
to a series of scheduled and unscheduled down time. These factors were offset by
the significant increase in average selling price for gold during the quarter as
gold markets improved over 2010.

Gross loss:

During the three months ended December 31, 2011, the Company
had a gross margin loss on gold sales of $2.8 million compared to a loss of $8.0
million in the fourth quarter of 2010. This improved margin results from a
decrease in cost of sales from $37.9 million in the fourth quarter of 2010 to
$30.6 million in 2011. This cost of sales reduction arose as the Company reduced
the volume, and grade, of purchased ore processed during the quarter
significantly when compared to 2010. This was offset partially due to the
continued production problems arising from excessive downtime in the quarter,
resulting in a negative margin on sales.

Depreciation, depletion and amortization:

The Company had $1.8 million in depreciation and amortization
for the three months ended December 31, 2011, compared with $1.5 million in
2010. The higher depreciation in 2011 is due to an increase in the depreciable
property plant and equipment asset base.

Exploration, general and administrative expenses and
share-based payments:

The Company incurred $0.2 million of underground exploration
activity at Jerritt Canyon mine in the three months ended December 31, 2011,
which was expensed in the period, compared to $0.8 million in 2010.

For the three months ended December 31, 2011, the Company
incurred $1.2 million in general and administrative expenses (G&A)
compared with $0.4 million in 2010. These G&A costs incurred at the head
office in Canada. The 2011 fourth quarter amount, compared to 2010, is primarily
the result of: $0.6 million increase in salaries and benefits costs; and, $0.5
million increase in professional fees, both due to increased operations, which
was offset by $1.0 million reversal of interest and penalty accruals, compared
to a $0.9 million reversal of accruals that occurred in the fourth quarter of
2010.

Stock-based compensation, included in G&A, was $0.1 million
in the three months ended December 31, 2011 compared to $0.5 million in the
comparable period in 2010.

Interest and other income (expense)

Interest and other income (expense) was a loss of $2.3 million
for the three months ended December 31, 2011, compared to a loss of 37.4 million
for the same period in 2010.

The loss recorded in 2010 primarily arose as a result of the
fair value movement warrant liability resulting in a loss of $32.6 million,
compared to a gain of $1.0 million being recognized on the warrant fair value
recording in the fourth quarter of 2011.

14

---

Finance and transaction costs:

Finance and transaction costs was $2.0 million for the three
months ended December 31, 2011, compared to $2.2 million for the same period in
2010. The change is a result of a decrease in interest expense on the on the
Notes which was nil in the fourth quarter of 2011 due to the Notes being settled
August 2011, compared to $2.0 million for the same period in 2010. This decrease
is offset by a $2.1 million in environmental rehabilitation costs incurred in
2011 that were not incurred in the fourth quarter of 2010.

LIQUIDITY

During 2011 cash and cash equivalents increased from nil to
$2.3 million. At December 31, 2011 the Company had a working capital deficiency
of $52.7 million, compared to a working capital deficiency of $51.7 million at
December 31, 2010, as a result of the following activities:

Operations:

During 2011 the Company recorded net income of $26.4 million,
which, after subtracting interest paid and non-cash items, including changes in
working capital, of $52.3 million, and adding net deferred revenue proceeds of
$114 million, resulted in cash inflows of $61.6 million for the year. This cash
inflow is comprised primarily of net deferred revenue proceeds of $114 million,
gross losses of $25.9 million, general and administrative costs $8.2 million,
environmental related expense $2.2 million and exploration expenditures of $1
million.

Changes in non-cash working capital resulted in a $13.0 million
cash outflow compared to $1.5 million outflow in the comparable period in 2010.
The outflows in 2011 were from a reduction in accounts payable of $16.7 million
and a $3 million increase in accounts receivable (primarily due to the Deutsche
Bank settlement on the December delivery), offset by an inflow from the decrease
in inventory of $6.7 million. The outflows in 2010 primarily arise from an
increase in accounts payable of $10.1 million, a $0.8 million increase in
accounts receivable offset by $10.9 million from inventory balance increases.

Investing:

Capital expenditures

2011
      
      
      2010Property,
      
      
      
      
      
      
      
      
      Property,plant and
      
      
      Mineral
      
      
      
      
      
      plant and
      
      
      Mineral(in thousands)
      
      equipment
      
      
      properties
      
      
      Total
      
      
      equipment
      
      
      properties
      
      
      TotalMill and equipment expenditures - Jerritt
        Canyon
      $
      48,667
      
      $
      -
      
      $
      48,667
      
      $
      5,053
      
      $
      -
      
      $
      5,053Exploration expenditures & underground mine development
        - Jerritt Canyon
      
      -
      
      
      11,424
      
      
      11,424
      
      
      -
      
      
      
      
      
      -Property, plant and equipment expenditures
        - Ketza River project
      
      1,616
      
      
      -
      
      
      1,616
      
      
      8
      
      
      
      
      
      8Exploration expenditure - Ketza River project
      
      -
      
      
      5,094
      
      
      5,094
      
      
      
      
      
      8,276
      
      
      8,276Corporate property plant and equipment expenditures
      
      64
      
      
      47
      
      
      111
      
      
      143
      
      
      -
      
      
      143$
      50,347
      
      $
      16,565
      
      $
      66,912
      
      $
      5,204
      
      $
      8,276
      
      $
      13,480


Expenditures on property, plant and equipment and mineral
properties were $66.9 million for the year ended December 31, 2011. The
significant expenditures on property plant and equipment at Jerritt was made up
of

15

---

mining equipment for the SSX-Steer mine ($10.2 million), major
mill upgrades such as the digital control system for mill operations ($1.2
million), the new ore dryer circuit ($10.7 million), and refinery upgrades,
including electro winning equipment ($0.8 million) along with the commencement
of work on the tailings facility and the current evaporation system ($20.5
million).

Exploration and underground development expenditures at Jerritt
Canyon during 2011 was primarily made up of new property exploration and
evaluation program expenditures of $8.3 primarily at Burns Basin, Starvation
Canyon, Pie Creek, and West Mahala, as described in the underground exploration
summary above; and, the addition of $3 million in underground infrastructure and
underground mine development at the Smith and SSX/Steer mines.

Exploration and evaluation at the Ketza River project for 2011
was $5.4 million and have primarily been focused on the preparation of the YESAB
proposal which was submitted in September 2011. Work was also carried out to
construct the necessary roads for the 2011 drill season which commenced in the
fourth quarter and is described in the Ketza River exploration summary section
above. Other expenditures in 2011 related to the Company temporarily closing the
exploration camp facilities to add new camp structures, drill new water wells,
and improve the existing septic system.

Property plant and equipment expenditures for 2010 related to
the completion the majority of the heat tracing at the facility to reduce line
freezing ($0.4 million), upgraded the existing roaster control system from an
outdated pneumatic system to electronically controlled ($0.2 million), replacing
one quench tank ($0.4 million), replacing the north cone crusher that had been
operating for 20 years ($0.4 million), purchased mining equipment needed for
initial development work ($0.4 million), refurbished the exterior of the mill
($0.3 million) and completed several Consent Decree projects such as the initial
design for water treatment facilities, installation of seepage wells and
monitoring, and upgrades to current systems to monitor emissions (total of $1.2
million).

Financing:

During the first quarter of 2011, the Company raised $7.2
million of financing through the issuance of flow-through shares and a further
$5.0 million through a forward sales contract entered into in January 2011. The
forward contract matured on September 30, 2011 and was settled through a
combination of cash ($5.4 million) derived from the sale of 3,465 ounces on
behalf of the lender and the transfer of an additional 1,000 ounces to the
account of the lender to satisfy the terms of the contract.

On May 24, 2011, the Company raised C$14.7 million of financing
through the private placement of 33.5 million C$0.43 units with Deutsche Bank
AG, each unit consisting of one common share and a common share purchase warrant
with an exercise price C$0.55. As well, an additional C$44.9 million was raised
through the sale of warrants from the Companys major shareholder to a group of
institutional investors, including Deutsche Bank AG, under the condition the
warrants were to be immediately exercised. A further C$12.5 million was raised
from 59.1 million warrants that were exercised during a 30 day period wherein
the warrants could be exercised for an 18% discount to their original strike
price.

In August 2011 the Senior Secured Notes entered into in August
2010 (the Notes, further detail below), including the embedded gold
derivative, were settled in entirety. Total cash repayments on the Notes in 2011
totaled $41.7 million.

16

---

On November 25, 2010, the Company entered into a gold sales
contract which specified that 6,255 troy ounces of refined gold will be sold to
the Purchaser by May, 2011, which was extended to December 2012. In return, the
Company received an upfront payment of $7.0 million cash.

In August 2010 the Company issued $25.0 million in Senior
Secured Notes and 25,000,000 common share purchase warrants, raising net
proceeds of $24.8 million. Of the total proceeds of $24.8 million, net of
transaction costs of $0.2 million, $5.7 was allocated on initial recognition to
the warrants. A further $6.8 million was allocated to the gold embedded
derivative arising from the loan repayments being indexed to the gold spot
price.

In the second quarter of 2010, the Company issued 34.6 million
flow-through shares for proceeds of $9.2 million. Under the conditions of the
flow through shares, funds must be spent in 2010 and 2011 on Canadian
Exploration Expenditures (CEE) on properties located in Canada. The Company
incurred cash share issue costs of $0.6 million related to this share issue. In
the first quarter of 2010, the Company also issued 22.7 million shares for net
proceeds of $4.8 million.

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
previous shutdowns at Jerritt Canyon and operating issues since restarting have
increased the need for the Company to continue pursuing additional financing to
meet the ongoing capital requirements to ensure continuity of operations. The
operations have undergone a significant upgrade in early 2012 with the
installation of a new ore dryer and conveyor system, along with an upgrade of
the oxygen plant and refinery and the installation of a new DCS system. These
changes, once personnel are fully trained and functioning should have a
significant impact on the mills output capacity and return to 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. 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.

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

Contractual obligations
    
    Less
      than
    
    
    4 to
      12
    
    
    1 to
      2
    
    
    Greater
    
    
    Total3 months
    
    
    months
    
    
    years
    
    
    than 2yearsAccounts payable and accrued
      liabilities
    $
    40,515
    
    
    −
    
    
    −
    
    
    −
    
    $
    40,515Finance lease obligations
    
    8
    
    
    11
    
    
    −
    
    
    −
    
    
    19Operating lease obligations
    
    55
    
    
    166
    
    
    221
    
    
    367
    
    
    809Decommissioning and rehabilitation provisions
    
    −
    
    
    −
    
    
    −
    
    
    60,736
    
    
    60,736Total
    $
    40,578
    
    $
    177
    
    $
    221
    
    $
    61,103
    
    $
    102,079


17

---

CAPITAL RESOURCES:

The Company had a cash balance of $2.3 million as of December
31, 2011 and a negative working capital balance of $52.7 million. The Company
had a $65.8 million cash balance in restricted cash as of December 31, 2011,
primarily related to cash restricted for future reclamation at the Jerritt
Canyon property. Although current cash flows from operations are improving and
returning to maintenance levels, at year-end management was pursuing further
financing to supplement working capital.

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

COMMITMENTS

On August 12, 2011, the Company entered into a Forward Gold Purchase
  Agreement (the Agreement) with Deutsche Bank, AG, London Branch
  (Deutsche Bank), which holds more than 10% of the Companys
  issued and outstanding common shares. Under the Agreement the Company received
  a gross prepayment of $120 million (the Prepayment), of which net
  cash proceeds of $73.5 million were received on August 12, 2011. Under the terms
  of the Agreement, the Company has sold to Deutsche Bank, a Contract Quantity
  of Gold in the amount of 173,880 ounces to be delivered to Deutsche Bank over
  a forty-eight month term commencing September 2011. The scheduled future gold
  deliveries to Deutsche Bank are: (i) 1,000 ounces per month during the first
  six months of the term; (ii) 2,000 ounces per month for the following six months
  of the term; and, (iii) 4,330 ounces per month for the final thirty-six months
  of the term (the Future Gold Deliveries). As described above, in
  February 2012 the Company entered into an extension of this agreement whereby
  the Company would deliver an additional 650 ounces of gold per month, over a
  forty-three month term commencing March 31, 2012.

On November 25, 2010, the Company entered into a forward gold
  sales contract which specifies that 6,255 troy ounces of refined gold would
  be sold to the counterparty by May 30, 2011. In return, the Company received
  an upfront payment of $7.0 million cash. In November 2011 the Company and the
  counterparty agreed that the gold delivery required to settle the contract would
  occur in December 2012, and that approximately 2,674 additional ounces would
  be delivered at that time.

18

---

The additional ounces to be delivered is based on a 2.25% monthly
  increase in the ounces of gold to be delivered for each month the contracted
  gold delivery is outstanding from May 30, 2011. However, at the option of the
  counterparty, the Company may be requested to settle the liability through a
  cash payment rather than through physical delivery of the gold.

OUTLOOK

In achieving the targeted production rate of 150,000 ounces of
gold under steady state operations, the Company will focus on ramping up
production from the SSX-Steer mine, processing available stockpiles, and
continue receiving ore from the Smith mine, while pursuing profitable
opportunities to process third party ore, either under a purchase agreement or
toll milling arrangement. The Company will also continue building the necessary
infrastructure and making equipment purchases in order to open a third mine on
the property, Starvation Canyon, located on the south end of Jerritt Canyon.

The Company has continued to pass all independent stack tests
for mercury and other emissions and is currently able to operate over 100 tons
of ore per hour through each roaster circuit based on current emissions. As part
of the January 2012 shutdown the Company was able to install the second quench
tank and the necessary emissions control equipment (additional bag house to
filter dust, sulfur dioxide scrubber) on the new ore dryer as well as all other
remaining items on the CD except for the cleanup of rock dump sites from
historic mining activity. The Company has also substantially completed the
second tailings facility and water storage reservoirs, although lining and
commissioning will take place in the second quarter of 2012. This investment is
not a component of the CD itself; however this investment will extend the life
of the mill and bring it in line with current standards. With the majority of
the key items in the CD complete the Company is looking at alternative ways to
structure the remaining project so that the CD can be brought to a close.

The surface exploration program in 2011 has identified a number
of areas of interest and proven the viability of the East and West Mahala
resources which lie between the Smith and the SSX-Steer mine. Additional survey
work in the Starvation area has identified further areas of interest that will
need to be explored in the 2012 drill program as well. These results have
largely been incorporated into a new reserve up date that the Company expects to
release in the second quarter of 2012.

In the Yukon, the Company completed the YESSA application
process in September and has entered the question and answer phase with YESAB.
Should the permitting be approved on a timely basis (within 9 months of
submission) the Company will be able to commence construction of the planned
tailings facility and commence mining upon its completion.

The consolidated financial statements are prepared on the basis
that the Company will continue as a going concern. The Companys ability to
continue as a going concern and recover its investment in property, plant, and
equipment and mineral properties is dependent on its ability to 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 29, 2012, the Company had $6.4 million of cash and
cash equivalents.

19

---

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements as of
December 31, 2011.

SUBSEQUENT EVENTS

On January 12, 2012, the Company entered into a forward gold
sales contract with a company related by common directors for which the Company
received advance proceeds of $5.0 million. The agreement specified that 3,665
troy ounces of refined gold is to be sold to the counterparty by June 12, 2012.
However, at the option of the counterparty, the Company may be requested to
settle the liability through a cash payment of $6.0 million rather than through
physical delivery of the gold.

On February 7, 2012, the Company entered into an extension of
the Forward Gold Purchase Agreement with Deutsche Bank as described in the
Capital Resources section above.

RELATED PARTY TRANSACTIONS

During the year ended December 31, 2011, the Company was
charged a total of $0.4 million (2010 - $0.4 million) in legal fees by a law
firm in which the corporate secretary of the Company is a partner. The amount
owing at December 21, 2011 is $nil (2010  $0.1 million).

In January 2011 the Company entered into a gold forward
contract with a company related by common directors. The liability was settled
in June 2011 at which time its fair value was $6.9 million resulting in a loss
of $1.5 million being recognized in 2011. As described in the subsequent events
section above, in January 2012 the Company entered into another gold forward
contract with the same company whereby the Company received $5.0 million for the
future delivery of 3,665 troy ounces of refined gold.

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

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

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

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


The remuneration of directors and key executives is determined
by the compensation committee and is dependent upon the performance of
individuals, the performance of the Company, and external market trends.

20

---

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and judgments that affect the amounts reported in the financial statements. By
their nature, these estimates and judgments are subject to management
uncertainty and the effect on the financial statements of changes in such
estimates in future periods could be significant.

Critical accounting estimates that have the most significant
effect on the amounts recognized in the financial statements are:

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

At each reporting date, the Company reviews the carrying
amounts of its long-lived assets to determine whether there is any indication
that those assets are impaired. If such impairment exists, the recoverable
amount of the asset is estimated in order to determine the extent, if any, of
the impairment. Where the asset does not generate cash flows that are
independent from other assets, the Company estimates the recoverable amount of
the cash generating unit (CGU) to which the asset belongs.

Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset for which estimates of future cash flows have not been
adjusted.

If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount of the asset is reduced to
its recoverable amount. An impairment is recognized immediately as an expense.

All capitalized exploration and evaluation expenditures are
monitored for indications of impairment. Where a potential impairment is
indicated, assessments are performed for each area of interest.

Where an impairment subsequently reverses, the carrying amount
of the asset (or CGU) is increased to the revised estimate of its recoverable
value, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment been recognized for the
asset (or CGU) in prior years. A reversal of an impairment is recognized as
income immediately.

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.

21

---

Decommissioning and rehabilitation provisions

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

Deferred taxation is recognized using the liability method, on
unused tax losses, unused tax credits, and temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. However, the deferred taxation is not
recognized for if it arises from initial recognition of an asset or liability in
a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit nor loss. Deferred
taxation is determined using tax rates and laws that have been enacted or
substantively enacted by the reporting date and are expected to apply when the
related deferred taxation asset is realized or the deferred taxation liability
is settled.

Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and assets, and they
relate to income taxes levied by the same tax authority on the same taxable
entity, or on different tax entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities will
be realized simultaneously.

A deferred tax asset is recognized to the extent that it is
probable that future taxable profits will be available against which the on
unused tax losses, unused tax credits, and temporary difference can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be
realized.

Share based payments 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 the estimated outstanding life of stock options
granted.

When the Company issues Units that are comprised of a
combination of common shares and warrants, the value is assigned to common
shares and warrants based on their relative fair values. The fair value of the
common shares is determined by the closing price on the date of the transaction
and the fair value of the warrants is determined based on a Black-Scholes option
pricing model. Those warrants which are denominated in a currency other than the
Companys functional currency are recognized on the statement of financial
position as derivative instruments.

Derivative Instruments

All financial instruments that meet the definition of a
derivative are recorded on the statement of financial position at fair value.
Changes in the fair value of derivatives are recorded in the statement of
operations. Management applies significant judgment in estimating the fair value
of those derivatives linked to the price of gold.

22

---

RECENT ACCOUNTING PRONOUNCEMENTS

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

Accounting standards effective January 1, 2012:

| | 1.) | Amendments to IFRS 7 - Financial Instruments:
      Disclosures(IFRS 7)                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | In October 2010, the IASB issued the IFRS 7 amendments to
      enhance the disclosure requirements with regards to the transfer of
      financial assets. The amendments are effective for annual periods
      beginning on or after July 1, 2011, with earlier adoption permitted. The
      Company does not anticipate this amendment to have a significant impact on
      its consolidated financial statements.                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 2.) | Amendments to IAS 12 - Income Taxes(IAS
    12)                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | The IAS 12 amendment was issued in December 2010, and
      provides a solution to determining the recovery of investment properties
      as it relates to the accounting for deferred income taxes. This amendment
      is effective for annual periods beginning on or after July 1, 2012, with
      earlier application permitted. The Company does not anticipate this
      amendment to have a significant impact on its consolidated financial
      statements.

Accounting standards effective January 1, 2013:

| | 1.) | IFRS 10 - Consolidated Financial Statements(IFRS
      10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Issued in May 2011, IFRS 10 replaces the consolidation
      guidance previously provided by IAS 27- Consolidated and Separate
      Financial Statementsand SIC 12 Consolidation  Special Purpose
      Entities. IFRS 10 is effective for annual periods beginning on or
      after January 1, 2013, with earlier adoption permitted. This new standard
      redefines the principle of control for all types of entities, being based
      on exposure or rights to variable returns from the investee and the
      ability to affect the reporting entitys returns. The Company is currently
      evaluating the impact the final standard is expected to have on its
      consolidated financial statements.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 2.) | IFRS 11 - Joint Arrangements(IFRS 11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | IFRS 11 replaces IAS 31 - Interests in Joint
      Ventures, and SIC 31- Jointly Controlled Entities  Non- Monetary
      Contributions by Venturers. IFRS 11 establishes a principle based
      approach to accounting for joint arrangements, in which an entity is
      involved, by assessing its rights and obligations and classifying the type
      of joint arrangement based on such an assessment. This standard is
      effective for annual periods beginning on or after January 1, 2013, with
      early application permitted. The Company is currently evaluating the
      impact the final standard is expected to have on its consolidated
      financial statements.                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 3.) | IFRS 12 - Disclosure of Interests in Other Entities(IFRS 12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | IFRS 12 requires enhanced disclosure of the Companys
      interests in both consolidated and non- consolidated entities to enable
      readers of the financial statements to evaluate the nature of and risks
      associated with these interests. This standard is effective for annual
      periods beginning on or after January 1, 2013, with early application
      permitted. The Company is currently evaluating the impact the final
      standard is expected to have on its consolidated financial
    statements.                                                                                                                                                                                    

23

---

| | 4.) | IFRS 13 - Fair Value Measurement(IFRS
  13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Issued in May 2011, IFRS 13 sets out a single framework
      for measurement and disclosure of information regarding fair value
      measurement. This standard applies when another IFRS requires, or permits,
      fair value measurements and/or disclosures about fair value measurements.
      IFRS 13 is effective for annual periods beginning on or after January 1,
      2013, with early adoption permitted. The Company is currently evaluating
      the impact the final standard is expected to have on its consolidated
      financial statements.                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 5.) | Amendments to IAS 1 - Presentation of Financial
      Statements(IAS 1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | This amendment, issued in June 2011, requires an entity
      to group items presented in the Statement of Comprehensive Income on the
      basis of whether they may be reclassified to earnings subsequent to
      initial recognition. For those items presented before taxes, the
      amendments to IAS 1 also require that the taxes related to the two
      separate groups be presented separately. The amendments are effective for
      annual periods beginning on or after July 1, 2012, with earlier adoption
      permitted. The Company does not anticipate the application of the IAS 1
      amendments to have a material impact on its consolidated financial
      statements.                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 6.) | Amendment to IAS 19  Employee Benefits(IAS
      19)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | This amendment, issued in June 2011, introduced changes
      to the accounting for defined benefit plans and other employee benefits.
      The amendments include elimination of the option to defer, or recognize in
      full in earnings, actuarial gains and losses, and instead mandates the
      immediate recognition of all actuarial gains and losses in other
      comprehensive income, and requires use of the same discount rate for both
      defined benefit obligation and expected asset return when calculating
      interest costs. Other amendments include modification of the accounting
      for termination benefits and classification of other employees. The
      Company does not anticipate application of IAS 19 amendments to have a
      material impact on its consolidated financial statements.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 7.) | IFRIC 20  Stripping Costs in the Production Phase of
      A Surface Mine (IFRIC 20)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | In October 2011, the IASB issued IFRIC 20 which clarifies
      the requirements for accounting for the costs of stripping activity in the
      production phase when two benefits accrue: (i) usable ore that can be used
      to produce inventory; and (ii) improved access to further quantities of
      material that will be mined in future periods. IFRIC 20 is effective for
      annual periods beginning on or after January 1, 2013, with earlier
      application permitted, and includes guidance on transition for
      pre-existing stripping assets. The Company is currently evaluating the
      impact the new guidance is expected to have on its consolidated financial
      statements.                                                                                                                       

24

---

Accounting standards effective January 1, 2015:

IFRS 9 - Financial Instruments(IFRS 9)

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

25

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Transitional Financial Impact

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

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


As a result of the changes required following adoption of IFRS,
the Company recorded an increase in comprehensive loss of $95.1 million for the
year ended December 31, 2010.

Year
      endedDecember 31, 2010Comprehensive income under Canadian GAAP
    
    (93,095
    )change in functional
      currency
    
    1000foreign exchange impact on deferred tax
    
    104decommissioning and
      rehabilitation provision
    
    1559share based payment
    
    456warrants reclassified as derivatives
    
    (100,412
    )Comprehensive income under IFRS
    
    (190,388
    )Cumulative translation adjustment
    
    2,169Total comprehensive income under IFRS
    
    (188,219
    )


The only transition adjustment to impact the consolidated
statement of cash flows was as a result of the accounting policy choice to
consolidate the YS Mining Company joint venture using the equity method. The
Company has excluded the Companys share of cash held by the joint venture and
cash movements from the consolidated statement of cash flows and recorded the
impact of net income/loss recorded in the consolidated cash flow from
operations.

Financial Statement Presentation Changes

The transition to IFRS has resulted in the reclassification of
certain additional items for presentation purposes to comply with the
requirements of IAS 1 Presentation of Financial Statements. Significant
changes to presentation and disclosure are as follows: a) accretion expense has
been reclassified from operating expenses to finance costs; b) share based
payments are no longer disclosed separately and are held within general and
administrative expense or cost of sales dependent upon the role of the
individual to whom the options have been awarded; and c) mineral properties have
been reclassified into property, plant and equipment.

The International Accounting Board (IASB) has a work plan in
effect which continues to amend and add to current IFRS standards. The Company
will monitor the progress of this work plan and assess the impact of the changes
to the Company on a timely basis.

26

---

Outlook on Future Earnings

Future net earnings will be primarily impacted by changes in
fair values to the Companys share purchase warrants, with an exercise price
denominated in Canadian dollars. Changes in the fair value of the share purchase
warrants are primarily influenced by the Companys share price, the volatility
of the Companys share price and the Canadian to USD exchange rate. Generally,
if either the share price or the volatility increase or the Canadian dollar
strengthens against the USD, with other factors remaining constant, the fair
value of the warrant liability will increase and the Company will record an
expense in its future earnings.

The International Accounting Board (IASB) has a work plan in
effect which continues to amend and add to current IFRS standards. The Company
will monitor the progress of this work plan and assess the impact of the changes
on the Company on a timely basis.

FINANCIAL INSTRUMENTS

The Companys financial instruments consist of cash and cash
equivalents, receivables, restricted funds, accounts payable, accrued
liabilities, borrowings, warrants and other derivative assets and
liabilities.

Cash and cash equivalents, restricted funds, and derivative
assets and liabilities, are designated as fair value through profit or loss
(FVTPL, all held for trading) and are therefore carried at fair value, with
any unrealized gain or loss recorded in income. Derivative assets are forward
metal sale option contracts (Puts). Subsequent to recording the initial
acquisition of these derivative assets, fair value is derived from observable
market prices for Puts with like terms. The Companys derivative liabilities are
comprised of: (a) Warrants (considered derivatives due to being denominated in
Canadian dollars, a different currency than the Companys U.S. dollar functional
currency); (b) derivative Forward Contracts; and, (c) the gold derivative
embedded within the Notes (the Embedded Derivative). The fair value of the
Embedded Derivative and derivative forward contracts are made by reference to
the gold spot price at period end. The fair value of the companys share
purchase warrants is determined using an option pricing model.

Account receivables are classified as loans and receivables with
  accounts payable, accrued liabilities and borrowings classified as other liabilities
  and are held at amortized cost using the effective interest method of amortization.
  The fair value of accounts receivable, and accounts payable and accrued liabilities,
  approximates the carrying values because of the short term nature of these instruments.

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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 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 also being exposed to
downward movements in the price of gold. The Company has currently entered into
two derivative forward contracts whereby future settlement will be determined by
the future market price of gold, one of which was outstanding at December 31,
2011, and one of which was entered into with a related party in January 2012. As
repayment of these obligations is referenced to the gold spot price, increases
in the price of gold will increase the cost of payment.

Further, the companys deferred revenue represents the
prepayment of funds for Forward Gold Purchase Agreement with Deutsche Bank, AG,
London Branch (Deutsche Bank), entered into on August 12, 2012 (the Gold
Purchase Agreement). Under the Gold Purchase Agreement the Company is obligated
to deliver 173.880 ounces of gold to Deutsche Bank, to be delivered through
scheduled monthly deliveries over a forty-eight month term that commenced in
September of 2011. On February 8, 2012 the Company entered into an agreement
with Deutsche Bank to extend the Gold Purchase Agreement whereby a further US
$20 million prepayment was received by the Company in exchange for the future
delivery of an additional 27,950 ounces of gold to be delivered through monthly
deliveries of 650 ounces of gold, over a forty-three month term commencing March
31, 2012 (the Gold Purchase Agreement Extension). The Company is to receive
additional payments from Deutsche Bank for the monthly gold deliveries
associated with the Gold Purchase Agreement, and the Gold Purchase Agreement
Extension. The dollar amount of the additional payments is contingent on the
future price of gold.

Estimates of reserves and resources

Resource estimates involve a certain level of interpretation
and professional judgment. In the past the Company opted to utilize the services
of SRK Consulting in the National Instrument 43-101 work for both the Jerritt
Canyon mine and the Ketza River project. This ensures a consistent methodology
is utilized from property to property. The Company is currently in the process
of completing an updated National Instrument 43-101 report for both the Ketza
River and Jerritt Canyon property and expects these to be completed during the
second quarter of 2012.

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. The operations in Nevada are subject to close environmental
regulation from the NDEP and the Company is currently operating under the terms
of a Consent Decree signed in October 2009. The Company must continue to comply
with the terms and deadlines of the Consent Decree or be subject to further
fines until it returns to compliance.

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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 since
acquiring the property in 2007 to mitigate the impact of these risks. In 2011
safety related improvements continue to be a component of the capital budget.

Ability to raise capital

The availability of capital is dependent on both macroeconomic
factors and the Companys track record in utilizing capital. The industry
continues to go through a period of credit tightening, with heightened security
requirements and lowered funding expectations, which present significant
challenges to companies attempting to obtain financing. Although the
availability of some forms of funding improved in early 2011, the ability to
obtain regular debt financing continued to prove difficult for companies without
a sufficient history of sustainable earnings, especially towards the latter part
of 2011.

The Company was able to obtain financing in 2011 primarily
through a Gold Facility which entailed an upfront partial payment for the future
delivery of gold production. Further funding in the first half of the year was
obtained through both the issuance of flowthrough shares and also through a
limited issuance of non-flowthrough shares through private placement. During
2011 the market for smaller gold companies experienced an exodus of capital and
this has directly impacted the Companys market capitalization, increasing the
difficulty to do any significant forms of equity financing without incurring
significant dilution. 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 use available
resources 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.

OUTSTANDING SHARE DATA

The following is the outstanding share information for
Yukon-Nevada Gold as of March 29, 2012:

|Common shares issued and
      outstanding |  | 931,479,031         |  |   |                  |  |  |                     | 
|------------------------------------------ |  | ------------------- |  | - | ---------------- |  |  | ------------------- | 
|                                           |  |                     |  |   |                  |  |  |                     | 
|                                           |  |                     |  |   | Weighted average |  |  | Weighted average    | 
|Outstanding equity instruments             |  | #
      Outstanding |  |   | Exercise price   |  |  | Years to expiration | 
|Shareholder warrants                       |  | 94,914,372          |  | $ | 1.10             |  |  | 1.2                 | 
|Stock options                              |  | 61,156,514          |  | $ | 0.34             |  |  | 3.0                 | 

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INTERNAL CONTROL OVER FINANCIAL REPORTING

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 International
Financial Reporting Standards, as issued by the International Accounting
Standards Board.

A companys internal control over financial reporting includes
those policies and procedures that:

| | (i)   | pertain to the maintenance of records that, in reasonable
      detail, accurately and fairly reflect the transactions and dispositions of
      the assets of the company;                                                                                                                                                                                          
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                      
| | (ii)  | 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
| |       |                                                                                                                                                                                                                                                                                                                                                                      
| | (iii) | 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, 2011. 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, 2011, the Company maintained effective internal control over
financial reporting.

Material Weakness:

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. As of December 31, 2010 it was concluded that Companys internal controls
were not designed or operating effectively as a result of a material weakness in
controls over inventory. Specifically i) the design and operation of the
work-in-process reconciliations to track movement of ounces through the refinery
were not performed on a timely basis and did not maintain an accurate record of
ounces in the refinery. This resulted in the loss of 2,700 gold ounces as
disclosed in the September 30, 2010 quarterly financial statements; and ii)
additional deficiencies were identified in the operation of controls around
reconciliations of finished gold.

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Remediation activities:

Following the identification of the unaccounted for gold in Q3
2010, the following measures were taken to strengthen the controls over
inventory:

|• | Further security measures were implemented in the
      refinery, including an upgrade of the current scanning
equipment.
|- | -------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                          
|• | Additional resources were appointed at the mine site
      including:                                                    
|  |                                                                                                                          
|  | o                                                                                                                        
|  |                                                                                                                          
|  | o                                                                                                                        
|  |                                                                                                                          
|  | o                                                                                                                        

As a result of these mitigating measures undertaken in 2011 the
timely and accurate measurement of gold inventory has taken place, and there has
not been a reoccurrence of missing gold ounces as was experienced in 2010. Based
on this is has been concluded that the 2010 identified material weakness has
been remediated and no such weakness exists as of December 31, 2011.

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 effectiveness of our disclosure controls
and procedures and determined that, as a result of the material weakness in
internal control over financial reporting described above, as of December 31,
2011 our disclosure controls and procedures are effective.

ADDITIONAL INFORMATION

Additional information may be examined or obtained through the
internet by accessing the Companys website at www.yukon-nevadagold.com or by accessing the Canadian
System for Electronic Data Analysis and Retrieval (SEDAR) website at www.sedar.com.

FORWARD LOOKING STATEMENTS

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.

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With respect to forward-looking statements and the information
  included in this MD&A, 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.

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