---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
  20549

FORM 20-F

(Mark One)

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

OR

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

For the fiscal year ended December 31, 2008

OR

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

OR

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

Date of event requiring this shell company report _____________

For the transition period from _____________to _____________

Commission file number 000-52699

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

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

British Columbia, Canada(Jurisdiction of
  incorporation or organization)

688 West Hastings Street, Suite 490, Vancouver, British
  ColumbiaV6B 1P1(Address of principal executive offices)

Graham Dickson, (604) 688-9427,graham@yngc.ca, 688 West Hastings Street, Suite
  490, Vancouver, British Columbia V6B 1P1(Name, Telephone,
  E-mail and/or Facsimile number and Address of Company Contact Person)

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

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

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2

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

Common shares, no par value(Title of Class)

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

None(Title of Class)

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

272,655,430 Common Shares

Indicate by check mark if the registrant is a well-known
  seasoned issuer, as defined in Rule 405 of the Securities Act. 
  [  
  ] Yes    [X] No

If this report is an annual or transition report, indicate by
  check mark if the registrant is not required to file reports 
  pursuant to
  Section 13 or 15(d) of the Securities Exchange Act of 1934.
  [   ]
  Yes    [X] No

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

Indicate by check mark whether the registrant (1) has filed all
  reports required to be filed by Section 13 or 15(d) of the 
  Securities
  Exchange Act of 1934 during the preceding 12 months (or for such shorter period
  that the registrant was 
  required to file such reports), and (2) has been
  subject to such filing requirements for the past 90 days.
  [X] Yes 
   [   ] No

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

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

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

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

If Other has been checked in response to the previous
  question, indicate by check mark which financial statement item the 
  registrant has elected to follow.
  [X] Item 17    [ 
   ] Item 18

If this is an annual report, indicate by check mark whether the
  registrant is a shell company (as defined in Rule 12b-2 of the Exchange 
  Act).
  [   ] Yes    [X] No

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

Indicate by check mark whether the registrant has filed all
  documents and reports required to be filed by Sections 12, 13 or 15(d) 
  of
  the Securities Exchange Act of 1934 subsequent to the distribution of securities
  under a plan confirmed by a court.
  [   ] Yes  
   [   ] No

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3

TABLE OF CONTENTS

|PART I                                                                | 5  
|--------------------------------------------------------------------- | ---
|Introduction                                                          | 5  
|Forward-Looking
      Information                                     | 5  
|Cautionary
      Note to U.S. Investors Concerning Resource Estimates | 5  
|Item
      1. Identity of Directors, Senior Management and Advisers   | 7  
|Item
      2. Offer Statistics and Expected Timetable                 | 7  
|Item
      3. Key Information                                         | 7  
|A.Selected financial data.                                            | 7  
|Currency
        and Exchange Rates                                   | 8  
|B.Capitalization and indebtedness.                                    | 9  
|C.Reasons for the offer and use of proceeds.                          | 9  
|D.Risk factors.                                                       | 9  
|Item
      4. Information on the Company.                             | 11 
|A.History and Development of the Company.                             | 11 
|B.Business overview.                                                  | 13 
|C.Organizational Structure.                                           | 13 
|D.Property, plants and equipment.                                     | 14 
|Item
      4A. Unresolved Staff Comments.                             | 83 
|Item
      5. Operating and Financial Review and Prospects.           | 83 
|Introduction.                                                         | 83 
|Overall
        Performance.                                          | 83 
|Selected
        Annual Financial Information.                        | 86 
|Results
        of Operations.                                        | 87 
|Summary
        of Quarterly Results.                                 | 89 
|Liquidity
        and Capital Resources.                              | 90 
|Capital
        Resources                                             | 92 
|***Outlook***                                                         | 92 
|Off-Balance
        Sheet Arrangements                                | 93 
|Subsequent
        Events                                             | 93 
|Non-GAAP
        Financial Measures                                   | 94 
|Related
        Party Transactions                                    | 94 
|Critical
        Accounting Estimates                                 | 94 
|Impact
        of Adoption of New Accounting Policies                 | 96 
|Recent
        Accounting Pronouncements                              | 96 
|Financial
        Instruments                                         | 97 
|Risk
        Assessment                                               | 97 
|Item
      6. Directors, Senior Management and Employees.             | 100
|A.Directors and senior management.                                    | 100
|B.Compensation.                                                       | 102
|C.Board practices.                                                    | 103
|**D.** Employees.                                                     | 104
|**E.** Share ownership.                                               | 104
|Item
      7. Major Shareholders and Related Party Transactions       | 105
|**A.** Major shareholders.                                            | 105
|**B.** Related party transactions.                                    | 105
|**C.** Interests of experts and counsel.                              | 105
|Item
      8. Financial Information                                   | 105
|***A.*** Consolidated Statements and Other Financial Information.     | 105
|**B.** Significant Changes.                                           | 105
|Item
      9 The Offer and Listing                                    | 105
|***A.*** Offer and listing details.                                   | 105
|***B.*** Plan of distribution.                                        | 106
|**C.** Markets.                                                       | 106

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|**D.** Selling shareholders.                                                                | 106
|------------------------------------------------------------------------------------------- | ---
|**E.** Dilution.                                                                            | 106
|**F.** Expenses of the issue.                                                               | 106
|Item 10. Additional Information                                                             | 106
|**A.** Share capital.                                                                       | 106
|**B.** Memorandum and articles of
      association.                                        | 106
|**C.** Material contracts.                                                                  | 107
|***D.*** Exchange
      controls.                                                           | 108
|**E.** Taxation.                                                                            | 109
|**F.** Dividends and paying
      agents.                                                   | 113
|**G.** Statement by experts.                                                                | 113
|**H.** Documents on display.                                                                | 113
|**I****.** Subsidiary
      Information.                                                    | 114
|Item 11. Quantitative and Qualitative Disclosures
      About Market Risk                   | 114
|(A) Quantitative information about market risk.                                             | 114
|(B)
        Qualitative information about market risk.                                      | 114
|Item 12. Description of Securities Other than Equity
      Securities                       | 116
|PART II                                                                                     | 116
|Item 13. Defaults, Dividend Arrearages and
      Delinquencies                              | 116
|Item 14. Material Modifications to the Rights of
      Security Holders and Use of Proceeds | 116
|Item 15. Controls and Procedures.                                                           | 116
|Item 15T. Controls and Procedures.                                                          | 118
|Item 16.
      [Reserved]                                                                   | 118
|Item 16A. Audit Committee Financial Expert.                                                 | 118
|Item 16B. Code of Ethics.                                                                   | 119
|Item 16C. Principal Accountant Fees and Services.                                           | 119
|Item 16D. Exemptions from the Listing Standards for
      Audit Committees.                 | 119
|Item 16E. Purchases of Equity Securities by the Issuer
      and Affiliated Purchasers.     | 119
|Item 16F. Change in Registrants Certifying
      Accountant.                               | 119
|Item 16G. Corporate Governance.                                                             | 119
|PART III                                                                                    | 119
|Item 17. Financial Statements.                                                              | 119
|Item 18. Financial Statements.                                                              | 120
|Item 19. Exhibits.                                                                          | 120
|EXHIBIT INDEX                                                                               | 122

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5

PART I

Introduction

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

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

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

Forward-Looking Information

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

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

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

Cautionary Note to U.S. Investors Concerning Resource
  Estimates

Resource estimates reported herein are made in accordance with
  definitions adopted by the Canadian Institute of Mining, Metallurgy and
  Petroleum and incorporated into National Instrument 43-101 (NI 43-101).
  Estimates of mineral resources were prepared by or under the supervision of
  qualified persons who are identified in this document and other public filings.
  Yukon-Nevada reports its reserves and resources in accordance with NI 43-101, as
  required by Canadian securities regulatory authorities. For U.S. reporting
  purposes, Industry Guide 7 under the Securities Exchange Act of 1934, as amended
  (as interpreted by Staff of the U.S. Securities and Exchange Commission (the
  SEC)), applies different standards in order to

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6

classify mineralization as a reserve. Accordingly, for U.S.
  reporting purposes all mineral resources must be considered as mineralized
  material. Mineral resources are not mineral reserves and do not have
  demonstrated economic viability, but do have reasonable prospects for economic
  extraction. Measured and indicated mineral resources are sufficiently well
  defined to allow geological and grade continuity to be reasonably assumed and
  permit the application of technical and economic parameters in assessing the
  economic viability of the resources. Inferred resources are estimated on limited
  information not sufficient to verify geological and grade continuity or to allow
  technical and economic parameters to be applied. Inferred resources are too
  speculative geologically to have economic considerations applied to enable them
  to be categorized as mineral reserves. There is no certainty that mineral
  resources will be upgraded to mineral reserves through continued exploration.

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7

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

Not applicable.

Item 2. Offer Statistics and Expected Timetable.

Not applicable.

Item 3. Key Information.

A.Selected financial data.

The following table summarizes certain of our selected
  financial information (stated in thousands of U.S. dollars) prepared in
  accordance with Canadian GAAP. The information in the table was derived from the
  more detailed financial statements for the period ended December 31, 2004
  through the fiscal year ended December 31, 2008, inclusive, and the related
  notes, and should be read in conjunction with the financial statements and with
  the information appearing under the headings "Item 5  Operating and
    Financial Review and Prospects" and "Item 18  Financial Statements".
  Historical results are not necessarily indicative of results to be expected for
  any future period. No dividends have been paid in any of the fiscal years ended
  December 31, 2004 throughout the fiscal year ended December 31, 2008.

(In thousands of U.S. dollars, except where noted)
      December 31, 2008
      December 31, 2007
      December 31, 2006
      December 31, 2005
      December 31, 2004Gold sales
      48,981
      64,460
      -
      n/a
      n/aCost of sales
      58,742,
      48,218
      -
      n/a
      n/aGross Margin
      (9,761)
      16,242,
      -
      n/a
      n/aTemporary shutdown costs
      13,115
      -
      -
      n/a
      n/aDepletion, depreciation and amortization
      9,279
      5,731
      16
      n/a
      n/aAccretion
      2,117
      1,082
      145
      n/a
      n/aEarning (loss) from mining activities
      (34,272)
      9,429
      (161)
      n/a
      n/aNet loss
      (105,360)
      (1,899)
      (1,189)
      n/a
      n/aBasic and diluted net loss per share
      (0.57)
      (0.02)
      (0.02)
      n/a
      n/aTotal assets
      199,636
      296,167
      31,912
      n/a
      n/aShare capital, warrants and contributed surplus
      234,579
      213,415
      33,867
      21,587
      n/aAccumulated deficit and accumulated other
        comprehensive loss
      (112,931)
      (7,571)
      (8,271)
      (6,756)
      n/aNet assets
      121,648
      205,844
      25,596
      n/a
      n/aOutstanding shares, in thousands
      272,655
      175,133
      58,950
      46,643
      25,299


Prior to July 1, 2007, the Companys operations were measured
  in Canadian dollars and the consolidated financial statements were expressed in
  Canadian dollars. As a result of the significant operations (sales, assets) that
  are located in the United States arising from the acquisition of Queenstake
  Resources Ltd. (Queenstake) on June 20, 2007, it was determined that the
  Companys functional currency had changed to the US dollar. Comparable numbers
  in U.S. dollars are not available for 2005 and 2004.

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

(In thousands of U.S. dollars, except where noted)
      
      December 31, 2008
      
      
      December 31, 2007
      
      
      December 31, 2006
      
      
      December 31, 2005
      
      
      December 31, 2004Gold sales
      
      48,981
      
      
      64,460
      
      
      -
      
      
      n/a
      
      
      n/a


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(In thousands of U.S. dollars, except
        where noted)
      
      December 31,
            2008
      
      
      December 31,
            2007
      
      
      December 31,
            2006
      
      
      December 31,
            2005
      
      
      December 31,
            2004Cost of sales
      
      58,742,
      
      
      48,218
      
      
      -
      
      
      n/a
      
      
      n/aGross Margin
      
      (9,761
      )
      
      16,242,
      
      
      -
      
      
      n/a
      
      
      n/aTemporary shutdown costs
      
      13,115
      
      
      -
      
      
      -
      
      
      n/a
      
      
      n/aDepletion, depreciation and amortization
      
      9,665
      
      
      5,731
      
      
      16
      
      
      n/a
      
      
      n/aAccretion
      
      2,117
      
      
      1,082
      
      
      145
      
      
      n/a
      
      
      n/aEarning (loss) from mining activities
      
      (34,658
      )
      
      9,429
      
      
      (161
      )
      
      n/a
      
      
      n/aExploration expense
      
      19,479
      
      
      23,629
      
      
      6,862Net loss
      
      (111,139
      )
      
      (21,631
      )
      
      (7,029
      )
      
      n/a
      
      
      n/aBasic and diluted net loss per share
      
      (0.60
      )
      
      (0.18
      )
      
      (0.13
      )
      
      n/a
      
      
      n/aTotal assets
      
      158,119
      
      
      260,801
      
      
      31,192
      
      
      n/a
      
      
      n/aShare capital, warrants and contributed surplus
      
      231,408
      
      
      214,202
      
      
      33,867
      
      
      n/a
      
      
      n/aAccumulated deficit and accumulated other
        comprehensive loss
      
      (149,157
      )
      
      (38,018
      )
      
      (8,271
      )
      
      n/a
      
      
      n/aNet assets
      
      82,251
      
      
      176,184
      
      
      25,596
      
      
      n/a
      
      
      n/aOutstanding shares, in thousands
      
      272,655
      
      
      175,133
      
      
      58,950
      
      
      46,643
      
      
      25,299


Prior to July 1, 2007, the Companys operations were measured
  in Canadian dollars and the consolidated financial statements were expressed in
  Canadian dollars. As a result of the significant operations (sales, assets) that
  are located in the United States arising from the acquisition of Queenstake
  Resources Ltd. (Queenstake) on June 20, 2007, it was determined that the
  Companys functional currency had changed to the US dollar. Comparable numbers
  in U.S. dollars are not available for 2005 and 2004

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

Currency and Exchange Rates

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

In Canadian $
      Year Ended December 312008
      2007
      2006
      2005
      2004End of period
      1.224
      0.988
      1.165
      1.166
      1.203Average for the period
      1.066
      1.074
      1.134
      1.212
      1.302


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9

In Canadian $
      July 2008
      August 2008
      September 2008
      October 2008
      November 2008
      December 2008High for the month
      1.026
      1.068
      1.080
      1.294
      1.285
      1.297Low for the month
      1.002
      1.025
      1.034
      1.061
      1.150
      1.196


Exchange rates are based upon the noon buying rate in New York
  City for cable transfers in foreign currencies, as certified for customs
  purposes by the Federal Reserve Bank of New York. The noon rate of exchange on
  March 31, 2009 as reported by the United States Federal Reserve Bank of New York
  for the conversion of United States dollars into Canadian dollars was C$1.24960
  = US$1.00.

B.Capitalization and
  indebtedness.

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

C.Reasons for the offer and use of
  proceeds.

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

D.Risk factors.

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

Precious Metal Price Fluctuations

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

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

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

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10

Operating Hazards and Risks

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

Exploration and Development

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

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

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

Calculation of Reserves, Resources and Metal Recoveries

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

Title to Mining Properties

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

Issuance of Debt

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

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11

Dilution

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

Regulatory and environmental matters

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

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

Passive Foreign Investment Company (PFIC)

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

Enforcement of Civil Liabilities

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

Item 4. Information on the Company.

A.History and Development of the
  Company.

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

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12

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

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

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

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

Fiscal Year
      Property, plant and equipment
      Mineral propertiesFiscal 2006
      $376
      $6,559Fiscal 2007
      $6,266
      $26,588Fiscal 2008
      $25,703
      $29,104


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

Date of Offering
      Nature of Issuance
      Number of Shares
      Capital RaisedMay 30, 2006
      Private Placement (1)
      5,500,000
      $8,250,000June 14, 2006
      Private Placement (2)
      1,449,298
      $2,170,100December 21, 2006
      Private Placement (3)
      900,000
      $2,250,000June 2007
      Private Placement (4)
      65,326,521
      $76,233,355October 5, 2007
      Private Placement (5)
      5,000,000
      $10,000,000May 12, 2008
      Private Placement (6)
      10,050,000
      $20,100,000July 17, 2008
      Promissory Note (7)
      -
      $4,500,000December 18, 2008
      Private Placement (8)
      79,800,000
      $3,990,000


|(1) | 5,500,000 flow-through shares were sold at C$1.50 per
      share. A commission of 88,846 Shares was issued to the Agent, as a portion
      of the Agents commission, and 385,000 Agents Options were issued at
      closing;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | 1,430,067 Flow-Through Shares (the FT Shares) were sold
      at C$1.50 per FT Share and 19,231 Non-Flow-Through Shares (the NFT
      Shares) were sold at C$1.30 per NFT Share. No commission was
      paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(3) | 900,000 Flow-Through Shares were sold at a price of
      C$2.50 per FT Share. No commission was paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(4) | 42,351,864 Subscription Receipts (the Subscription
      Receipts) were sold at a price of C$1.80 per Subscription Receipt. Each
      Subscription Receipt is exercisable into one unit. Each Unit consists of
      one common share and 1⁄2 of one transferable common share purchase warrant
      (a Warrant). Each whole Warrant entitles the holder to purchase one
      additional share (a Warrant Share) at the price of C$3.00 per Warrant
      Share for a period of five years. A commission of 1,798,725 agents
      options (the Agents Options) were issued to the Agents. Each Agents
      Option entitled the Agents to purchase for a period of two years from the
      closing of the Plan of Arrangement, an agents share (an Agents Option
      Share) at a price of C$2.10 per Agents Option Share.
|(5) | 5,000,000 Flow-Through Shares were issued at a price of
      C$2.00 per FT Share. No commission was paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(6) | 10,500,000 Flow-Through Shares were issued at a price of
      C$2.00 per FT Share. No commission was paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(7) | 250,000 Warrants were issued exercisable at a price of
      C$3.00 per share on or before June 20, 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(8) | 79,800,000 Units were sold at a price of C$0.05 per unit,
      each unit comprising one common share (a Share), one series A share
      purchase warrant (the A Warrant), each A Warrant entitling the
      holder to purchase one additional share at a price of C$0.07 for a period
      of 12 months from the closing and one series B share purchase warrant
      (the B Warrant), each B Warrant entitling the holder to purchase one
      additional share at a price of C$0.09 for a period of 18 months from the
      closing. A commission of 7,400,000 Units were
      issued.                                                                                                                                                                                                                             

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13

The information contained in this Annual Report is current as
  at December 31, 2008, other than where a different date is specified.

B.Business overview.

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

Jerritt Canyon Property, Nevada, USA

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

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

Ketza River Property, Yukon, Canada

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

Principal Markets

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

Revenues

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

C.Organizational Structure.

Set forth below are the names of our subsidiaries:

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14



D.Property, plants and equipment.

(a)          
  Jerritt Canyon Property, Nevada, USA

On June 30, 2003, one of our subsidiaries, Queenstake Resources
  Ltd. (Queenstake), acquired the Jerritt Canyon mine in Nevada. The Jerritt
  Canyon mine is an operating gold property with two producing underground mines
  and ore stock piles, currently feeding ore to a 1.5 million ton per year
  capacity processing plant.

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15

Figure 1: General Location Map of the Jerritt Canyon Mine



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16

Figure 2: General Land Map of the Jerritt Canyon District



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Accessibility, Climate, Local Resources,
  Infrastructure and Physiography

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

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

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

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

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

History

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

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

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

Since its inception, the Jerritt Canyon Mine has produced over
  seven million ounces of gold. Annual production has historically averaged
  between 125,000 and 350,000 ounces of gold. Queenstake reports the 2007 mill
  production at 175,645 ounces of gold comprised of 126,140 ounces of gold from
  Jerritt Canyon ores and 49,505 ounces of gold from toll milled ores. This
  production is from a total of 968,130 tons of ore comprised of 619,933 tons of
  Jerritt Canyon ore and 348,197 tons of toll milled ore.

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18

Surface exploration drilling and underground core drilling
  which is also used as an exploration tool, decreased from 2001 to 2002, when the
  former owner, Anglo Gold shifted focus from exploration to reserve development.
  In 2000, about 445,000 feet of exploration and development were completed, of
  which 165,000 feet consisted of surface Reverse Circulation (RC) drilling and
  the remainder was underground (UG) core and RC drilling. In 2001, a total of
  about 500,450 feet were drilled, 65,450 of which were surface RC holes. In 2002,
  435,000 feet were drilled, all of which were from underground. After the
  acquisition of Jerritt Canyon at mid-2003, Queenstake started more aggressive
  exploration and mine development programs and those programs have continued
  throughout 2006. These programs were continued after the merger of Queenstake
  Resources and YGC Resources in 2007.

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

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

|Year | Tons      | Grade | Ounces   
|---- | --------- | ----- | ---------
|2003 | 9,497,000 | 0.242 | 2,295,000
|2004 | 9,988,000 | 0.241 | 2,410,000
|2005 | 8,812,000 | 0.236 | 2,079,000
|2006 | 8,203,000 | 0.232 | 1,907,000

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

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

|Year | Tons      | Grade | Ounces 
|---- | --------- | ----- | -------
|2003 | 3,065,000 | 0.268 | 820,000
|2004 | 3,511,000 | 0.249 | 875,000
|2005 | 3,723,000 | 0.236 | 878,000
|2006 | 1,985,000 | 0.245 | 486,000

Geological Setting

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

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

- The western facies, or upper plate of the thrust, consists of the Cambrian
      to Ordovician Valmy Group and forms about 70% of the exposed rock in the area.
      In the Jerritt Canyon district, the Valmy Group consists of the Snow Canyon
      formation, a chert, argillite, greenstone, and carbonaceous siltstone
      sequence, and the McAfee Quartzite, a sequence of massive quartzite and shale;
- The eastern facies, or lower plate of the thrust, consists of a sequence of
      Ordovician to Devonian shallow water sedimentary rocks that are exposed in
      tectonic and erosional windows through the upper plate. The gold
      mineralization in the district is contained with the eastern facies rocks. The
      Pogonip Group rock is exposed in the west-central part of the district and is
      composed of fossiliferous limestone with calcareous shale and dolomite
      interbeds. The Eureka Quartzite is a massive quartzite with minor interbeds of
      siltstone. The Hansen Creek Formation is one of two principal ore hosts in the
      district. It is divided into five units, with the contacts between the units
      being the favorable sites of gold mineralization. The Hansen Creek consists of
      interbedded silty limestone, calcareous siltstone, dolomite, chert, and
      carbonaceous limestone. The Roberts Mountains Formation is the second ore host
      and consists of calcareous, carbonaceous siltstone and thinly bedded, silty
      limestone. The Waterpipe Canyon formation is thought to have been deposited in
      a synkinematic foreland basin that formed during the Antler orogeny; it

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19

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

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

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

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

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

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

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20

Figure 3: General Geology Map of the Jerritt Canyon District



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21

Figure 4: Stratigraphic Column of the Jerritt Canyon
  District



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22

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



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23

Exploration

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

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

The Jerritt Canyon operation has had a history of exploration
  and discovery since the 1970s. In the last few years until Queenstakes
  acquisition of the property, most of the exploration efforts have been
  concentrated at and around the existing underground mines. Exploration efforts
  in the southern part of the range were directed to areas such as Water Pipe, Pie
  Creek, and Starvation Canyon. Queenstake has increased the exploration effort
  near the mine areas and also in the south. As a result, the known mineralization
  at Starvation Canyon has increased in size and quality so that a portion of it
  was included in the end of 2005 reserves. Additional drilling at Starvation
  Canyon in 2006 and 2007 was targeted toward further definition and expansion of
  the resource.

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

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

Queenstake continues to evaluate its landholdings with the
  objective of focusing future exploration and drilling the most promising areas
  both near and away from the existing mines.

Mineralization

SSX Mine

The drift connecting the SSX and Steer mines was completed in
  the latter half of 2005 and the mines have been operated as a single unit
  referred to as the SSX complex since then. In 2007 a drift out to the Saval III
  portal was completed allowing access to the resource extending in the pit wall.

The SSX deposit was discovered in the early 1990s following
  the northeast structural trends between the Burns Basin and California Mountain
  deposits and the west-northwest trends from the Steer/Saval deposits. Mining
  started in 1997, and SSX has been the main ore producer for the last few
  years.

Mineralization at the SSX mine occurs mostly in the micritic
  unit III of the Hansen Creek Formation. A smaller portion of the mineralization
  occurs in calcareous siltstone at the base of the Roberts Mountains Formation or
  in the upper two cherty and dolomitic members of the Hansen Creek Formation.
  Mineralized zones are localized in and near west-northwest trending steeply
  dipping dikes (e.g. South Boundary Dike); however, dike material is a minor
  component of the ore at SSX. Mineralization is also localized along
  cross-cutting northeast trending faults (the Purple Fault in Zones 4 and 6, and
  the

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24

Crestline Fault in Zone 1). Folding of the mineralized horizons
  is apparent along axes parallel to the west-northwest dike trend and, more
  prominently, parallel to the northeast fault set. Gold occurs in decarbonitized
  rock, commonly in association with variable amounts of orpiment and realgar.
  Silicification with stibnite can also be associated with gold in portions of the
  upper cherty member of the Hansen Creek Formation. The intersection of the
  northeast and west-northwest structural trends remain a primary target for
  resource expansion. The westward extension of the South Boundary Dike and the
  West Mahala resource to the east represent exploration opportunities.

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

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

At Steer and SSX the structural intersections are the primary
  targets for resource expansion, as well as the westward extension of the South
  Boundary dike. In the eastern part of the SSX complex, the West Mahala mineral
  resource remains an excellent exploration opportunity.

Smith Mine

The Smith Mine, accessed from the Dash open pit, was started in
  1999 as the pit was being mined out. The Smith Mine complex consists of several
  distinct areas that are accessed from the Smith portal, as well as an area to
  the east, East Dash, that will be accessed from a separate portal in the Dash
  pit. During 2006 the portal was developed to access mineralization in the east
  highwall of the Dash pit.

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

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

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

The West and East Dash deposits occur at the extreme ends of
  the west-northwest trending Dash Fault system which formed the mineralization
  mined in the Dash pit. The West Dash deposit occurs at the intersection of the
  Coulee fault and the west-northwest trending Dash fault. Most gold
  mineralization at West Dash occurs in fault-bounded slices of Hansen Creek unit
  III with minor amounts in the overlying Hansen Creek unit II and Roberts
  Mountains Formation. West Dash is accessed through

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25

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

In 2007, surface and underground drilling along the western
  extension of the Coulee and Mahala Dike Trends, revealed additional
  mineralization which was brought into the resource category during the year. The
  results from drilling in 2008 are expected to extend the mineralization further.

Murray Mine

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

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

Starvation Canyon

Mineralization at the Starvation Canyon project occurs at the
  Hansen II-III contact and is localized along a west-northwest fault zone at
  northeast structural intersections. The majority of the mineralization is within
  the interbedded micrite and argillaceous limestone of the Hansen Creek III,
  starting at or just beneath the contact. There are instances where
  mineralization has formed within the massive limestone of the basal Hansen Creek
  II, but these are rare. Drilling in 2007 has further defined the resource at
  Starvation, along its outer edges as well as the internal grade distributions
  and higher angled structures. In particular, core drilling had an impact as
  sample recovery increased.

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

Saval

Gold mineralization in the Saval Basin area to the west of the
  SSX mine is primarily hosted in favorable Hansen Creek Formation unit III where
  it has been structurally prepared by faulting and has locally been
  compartmentalized by northwest-trending dike systems. In this area, a series of
  west-northwest trending structures have been cut by northeast-trending faults.
  Notable structural features include the west-northwest trending Saval horst and
  the northeast-trending Husky fault, which cuts across the older Saval horst and
  down-drops it to the southeast. Ore zones were mostly formed in Hansen III host
  in the vicinity of structural intersections, often forming relatively steep,
  narrow, plunging orebodies. Dikes, such as the Saval 3 pit dike can be traced
  for thousands of feet. High-grade gold mineralization has been concentrated
  along the Saval 3 pit dike in several locations, most prominently in the Saval 3
  pit and in the north part of zone 5 at SSX. Except at the Saval 4 deposit, most
  economic zones in the Saval basin area have been mined out leaving relatively
  small mineralized zones in difficult-to-access pit walls and bottoms. During
  2006 access to a small resource in the highwall of the Saval 2 pit was completed
  with a small amount of production. A small reserve is being carried in the
  highwall of the Saval 2 pit in 2008.

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26

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

Other Reserve/Resource Areas

Wright Window Pit

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

Pie Creek Resource

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

Drilling

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

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

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

Table 3: Jerritt Canyon Drilling (2001 through 2008)

|Year | Surface
      RC | Surface
      Core | UG
      Core | UG
      RC | Production
|---- | ---------------- | ------------------ | ------------- | ----------- | ----------
|     | No.              | Footage            | No.           | Footage     | No.       
|2001 | 59               | 65,450             | 0             | 0           | 268       
|2002 | 27               | 18,905             | 0             | 0           | 186       
|2003 | 108              | 47,277             | 0             | 0           | 119       
|2004 | 377              | 300,226            | 34            | 21,212      | 297       

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27

|Year | Surface
      RC | Surface
      Core | UG
      Core | UG
      RC | Production
|---- | ---------------- | ------------------ | ------------- | ----------- | ----------
|     | No.              | Footage            | No.           | Footage     | No.       
|2005 | 126              | 101,413            | 4             | 1,403       | 179       
|2006 | 155              | 135,940            | 0             | 0           | 125       
|2007 | 220              | 216,592            | 15            | 12,495      | 44        
|2008 | 101              | 104,182            | 7             | 8,939       | 94        

Sampling and Analysis

Surface Drilling - Reverse Circulation Drilling

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

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

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

Underground Drilling

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

Production Samples

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

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28

Truck Samples

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

Sample Preparation, Analyses and Security

Jerritt Canyon Laboratory Procedures

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

Sample Preparation

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

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

Jerritt Canyon Lab Fire Assay Procedures:

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

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

Commercial Laboratories

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

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

Jerritt Canyon Laboratory

- One standard sample per 20 samples;

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29

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

Commercial Laboratory

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

The standards have been prepared from Jerritt Canyon
  mineralized rock and have several different gold values. Samples that were used
  throughout the year include High with a value of 0.268 ounces per ton (opt),
  JCQ01 with a value of 0.117 opt, JCQ02 at 0.256 opt, JCQ03 at 0.051 opt, and
  JCQ04 at 0.120 opt. Results from the standards or duplicates are reviewed by
  geologists. If there is significant deviation (generally allowance are between
  10% and 20%) from the expected value then the batch of samples is re-fired. If
  the lab is unable to match the original results within reasonable limits then
  the sample is re-fired again until assays are matched. The results from these
  analytical determinations are available in the QA/QC section below. SRK reviewed
  the Jerritt Canyon assay QA/QC data during 2007 and found the results within
  industry standards. Various graphs representing the results of the QA/QC program
  are located in Appendix B.

Data Verification

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

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

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

Mineral Processing and Metallurgical Testing

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

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

- Primary crushing;
- Secondary crushing;

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30

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

Table 4 contains historic production and cost data for the
  Jerritt Canyon processing plant as well as the budgeted figures for 2008. The
  Jerritt Canyon process plant operated at only 80.5% of its budgeted ore
  production rate in 2007 due to pinion and bullgear problems with the grinding
  mill and air permit limitations. The pinion was replaced in first quarter 2006.
  Queenstake replaced the bullgear in June 2007. The production numbers in the
  2008 reflect the shutdown periods extending from February 22, 2008 to April 30,
  2008 and again on August 15, 2008 to the end of the fiscal year.

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

Actual
      Actual
      Actual
      Actual
      Actual
      ActualOperating Data
      Units
      2003
      2004
      2005
      2006
      2007
      2008Production DataTons Processed:Annual
      000s tons
      1,496
      1,305
      1,107
      974
      968
      338Daily Average
      Tons
      4,100
      3,578
      3,033
      2,667
      2,652
      926Ore Grade
      oz Au/ton
      0.228
      0.214
      0.215
      0.211
      0.181
      0.16Recovery
      %
      88.4
      87.0
      86.5
      86.2
      88.1
      87.3Gold
        Production (1)
      000s
        oz
      302
      243
      203
      170
      176
      49Cost DataAnnual Total Cost
      $000s
      25,182
      28,523
      26,539
      29,602
      35,271
      17,508Unit Processing Costs:Ore
      $/ton Milled
      16.83
      21.86
      23.97
      30.41
      36.43
      51.75Gold
      $/oz Au
      83.36
      117.22
      130.79
      157.25
      200.81
      359.9


(1)Includes purchased ores for actual 2007 and
  2008.

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

Mineral Resource and Mineral Reserve Estimates

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

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31

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

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

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

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

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

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

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

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32

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

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

Table 5: Jerritt Canyon Resource Estimation Methods by
  Project

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

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

Variography

There was no new variography run in 2007 and 2008. All of the
  geostatistics used in this resource calculation were compiled from
  geostatistical analysis in previous years. Because of the mature nature of the
  resource in the areas that geostatical methods are used it is viewed that the
  new data would not have a significant impact on the variography. Therefore there
  was no change.

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33

Definition of Resource Categories

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

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

Mineral Resource Checks

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

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

Mineral Resource Statement

The Jerritt Canyon mine resources, including reserves, as of
  December 2008 are listed in Table 6. The resources are contained within areas
  where mining is currently taking place or where mining is reasonably expected to
  take place in the future. The metal ounces are on a contained basis without
  adjustment for process recoveries.

---

34

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

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

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35

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

Mineral Reserve Estimate

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

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

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

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

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

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

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


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

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

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36

Table 7: Jerritt Canyon Cutoff Grades Parameters

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

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

Table 8: Jerritt Canyon Cutoff Grades

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

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

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

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

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37

Table 9: Jerritt Canyon Dilution Factors

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

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

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

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

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

Mining Operations

Jerritt Canyon is an operating property with over 25 years of
  production experience, during which over seven million ounces of gold have been
  produced. The Jerritt Canyon mine complex consists of two operating underground
  mines located several miles west of the processing plant and administration
  facilities which are 50 miles north of Elko, Nevada.

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

Table 11: Jerritt Canyon 2007 Production

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

---

38

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

The plant processed an average of 2,700 tons per day, or just
  under 0.97 million tons for the year. Plant capacity is limited to some extent
  by the fuel content of the ore (principally contained pyrite) which tends to
  enhance temperatures in the roaster and so must be regulated carefully when this
  type of rock serves as feedstock. Blending of various mined products is
  practiced constantly to reduce deleterious impacts from rock types with high
  fuel content, high arsenic content, and so forth. Gold produced in 2007 was
  175,646 ounces from 968,130 tons of processed ore and purchased material at a
  metallurgical recovery that averaged 88%. In 2008 this reduced to 48,648 ounces
  from 338,350 tons of processed ore and purchased material at a metallurgical
  recovery that averaged 87% as a result of the shutdown during the year.

The mines reported production of 429,602 tons of ore, along
  with 229,370 waste tons in 2007 and 135,909 tons of ore and 136,070 of waste
  tons in 2008. The daily ore production rate calculates at almost 1,176 tons in
  2007 and 745 in 2008 for the complex at an average grade of 0.294 and 0.20 opt,
  respectively. This tonnage figure was less than budgeted amounts of nearly due
  to the shutdown of the mines during most of 2008.

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

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

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

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

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

On February 22, 2008 Queenstake initiated a voluntary shutdown
  of operations in the mill and underground mines in order to undertake
  maintenance, repairs, and capital improvements at the site. Although the mine
  operations recommenced at the end of April, they were suspended again on August
  8, 2008 due to the high cost of mining activity.

---

39

Gold recovery in 2008 remained reasonably constant during the
  period of normal operations and averaged 86.1% of contained metal delivered to
  the process plant (weighted by tonnage). Data were recorded by month, as shown
  below in Table 12:

Table 12: Jerritt Canyon 2008 Gold Recovery by Month

|Month                         | % Au Recovery | 
|----------------------------- | ------------- | 
|January                       | 83.3          | 
|February                      | 85.8          | 
|March                         | n/a           | 
|April                         | 75.2          | 
|May                           | 83.7          | 
|June                          | 87.6          | 
|July                          | 87.9          | 
|August                        | 86.8          | 
|September                     | n/a           | 
|October                       | n/a           | 
|November                      | n/a           | 
|December                      | n/a           | 
|Average (weighted by tonnage) | 86.1          | 

The average for 2008 is typical of process recovery attained in
  prior years, and is expected to continue and improve as a result of the
  extensive infrastructure work performed during the shutdown period.

Gold markets are mature, global markets with reputable smelters
  and refiners located throughout the world. Demand is presently high with prices
  for gold showing a remarkable increase during the past year--London Final price
  averaged just over $872 /ounce for 2008.

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

Environmental Issues

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

Environmental liabilities at the Mine include:

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

Waste Rock Runoff

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

The Mine has been working with the NDEP-BMRR to address runoff
  with high concentrations of sulfate and TDS from the RDAs. The Mine installed a
  sulfate reduction trench in Marlboro Canyon to reduce the sulfate and TDS
  concentrations. The trench showed reductions in the concentrations but not to an
  acceptable level. Monitoring continued through 2007. This information is
  routinely reported to NDEP. Meetings/discussions with NDEP-BMRR have resulted in
  the need for Queenstake

---

40

to look into other possibilities for sulfate reduction. The
  data from the Marlboro SRT and from the DASH RDA instrumentation project will be
  the basis for any new proposal. The discharge ultimately flows into Jerritt
  Creek which flows into Independence Valley through several ranch properties and
  infiltrates into the sub-surface. However, it should be noted that simple
  analyses downstream from the SRT show acceptable sulfate and TDS levels

Three other RDAs are also exhibiting elevated concentrations
  of sulfate besides Marlboro Canyon. These are: Gracie; Snow Canyon; and, DASH.
  Under a schedule of compliance item within the Water Pollution Control Permit
  (WCPC), the Mine drilled three holes in the lower lift of the DASH RDA and one
  on the middle lift to assess the water flux and sulfate profile of the RDA. The
  lower lift of the DASH RDA is an unvegetated the angle of repose slope.
  NDEP-BMRR felt this angle of repose face was a significant contributor to the
  sulfate generation within the RDA. Preliminarily, this has not been borne out by
  the data.

Tailings Impoundment Seepage Control

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

Air Emissions Violations

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

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

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

We are in discussions with NDEP-BAPC and expect a favorable
  resolution that will allow startup of the Jerritt Canyon processing facility in
  compliance with NDEP-BAPC regulations and requirements.

Reclamation Bond Cost

Approved reclamation and closure plans are in place and the
  Mine is concurrently reclaiming disturbance when possible. Reclamation,
  consisting of earthworks and reseeding, and closure of mine components,
  consisting of characterization and chemical stabilization, are among the most
  expensive activities that take place, especially as the operating income begins
  to wane. Mine staff and the USFS/NDEP update the reclamation bond on an annual
  basis. As of January 2008, the reclamation bond was estimated to be about $40
  million. The 2009 bond is in preparation.

Review of the 2008 bond is being performed using the
  measurements taken during the shutdown and planning for an acceleration in the
  timing of costs. Bond increases are a result of more surface disturbance, and
  increased unit costs (labor, equipment, and fuel costs). Queenstake has already
  funded the estimated reclamation and closure costs by placing $25.2

---

41

million in a commutation account with American Insurance Group
  (AIG). Queenstake has a policy with the American Insurance Group (AIG) for a
  closure cost and cap insurance policy that has been accepted by the regulatory
  agencies to serve both to fund the physical reclamation and post-closure site
  management, and meet agency requirements for bonding.

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

Operating permits for the mine are in place and are presented
  in Table 13. Environmental management systems are in place and are managed by an
  experienced and qualified onsite environmental staff. Operating and maintenance
  staffs are informed of their responsibilities during annual MSHA refresher
  classes. In addition to MSHA classes, the Mine holds leadership classes for the
  supervisory staff. During these classes, supervisors are informed of their
  environmental responsibilities.

Table 13: Operating Permits

|Permit/Approval                    | Granting
      Agency       | Comments                                                                                                                                                                                                                                                            
|---------------------------------- | --------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Plan of Operations                 | USFS                        |                                                                                                                                                                                                                                                                     
|Work Plans                         | USFS                        | Annual
      work plan submitted to USFS and NDEP                                                                                                                                                                                                                   
|Clean Water Act Section 404 Permit | U.S. Army Corps of          | Will be updating the existing 404 fieldwork and                                                                                                                                                                                                                     
|                                   | Engineers                   | permit in the near future. There are no triggers                                                                                                                                                                                                                    
|                                   |                             | requiring the update.                                                                                                                                                                                                                                               
|EPA ID Number                      | U.S. Environmental          | The
      Mine, a large-quantity generator, has the typical hazardous wastes found
      at a mine such as cupels and crucibles. Seven to eight barrels of waste
      paint/solvents, a characteristic waste due to the flammability, are generated
      annually.
|                                   | Protection Agency          
|                                   |                            
|                                   |                            
|                                   |                            
|Air Quality Permit                 | Nevada Division of          | The Mine has a current Title V air
      permit received in March 2004. A Compliance Orderwas received in
      2007.                                                                                                                                               
|                                   | Environmental Protection   
|                                   | (NDEP)/ Bureau of Air      
|                                   | Pollution Control           |                                                                                                                                                                                                                                                                     
|Reclamation Permit                 | USFS and NDEP/              | The
      bond estimate is updated annually with the USFS & NDEP. As of December
      2008, the reclamation bond was estimated to be about $40.0 million. The
      mine is currently in the process of updating the bond for the USFS &
      NDEP                
|                                   | Bureau of Mining Regulation
|                                   | and Reclamation (BMRR)     
|                                   |                            
|                                   |                            
|Water Pollution Control Permit     | NDEP-BMRR                   | One
      water pollution control permit covers the entire mine area. Two issues exist:
      the tailings seepage/chloride plume; and the high sulfate/total dissolved
      solids emanating from four rock disposal areas.                                       
|                                   |                            
|                                   |                            
|                                   |                            
|                                   |                            
|Underground Injection Control      | NDEP/ Bureau of Water       | Addresses
      dewatering water from the Murray and Smith underground mines.                                                                                                                                                                                       
|                                   | Pollution Control          
|Solid Waste Class III Landfill     | NDEP/ Bureau of Solid       | The
      Mine has three authorized landfills at the lower mill area, Burns Basin,
      and Alchem. Employees are instructed during annual MSHA refreshers with
      regard to what is acceptable to dispose of in the landfill.                                  
|Waiver                             | Waste                      
|                                   |                            
|                                   |                            
|                                   |                            
|General Stormwater Discharge       | NDEP/Bureau of Water        | An
      updated general permit was submitted to NDEP in Dec 2007 due to new permit
      requirements. No concerns were noted.                                                                                                                                     
|Permit NVR300000                   | Pollution Control          
|                                   |                            
|Permit to Appropriate Waters       | NV Division of Water        | No
      concerns were identified. The Mine has sufficient appropriations to cover
      processing and dewatering needs.                                                                                                                                           
|                                   | Resources                  
|                                   |                            
|Permit to Construct                | NV Division of Water        | No concerns identified                                                                                                                                                                                                                                              
|Impoundments/Dam Safety            | Resources                   |                                                                                                                                                                                                                                                                     

---

42

|Permit/Approval                    | Granting
      Agency            | Comments                                                                                                                                                                                                  
|---------------------------------- | -------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Industrial Artificial Pond Permits | Nevada Department of             | No concerns identified                                                                                                                                                                                    
|                                   | Wildlife                         |                                                                                                                                                                                                           
|Liquefied Petroleum Gas License    | NV Board of the Regulation       | No concerns identified                                                                                                                                                                                    
|                                   | of Liquefied
      Petroleum Gas |                                                                                                                                                                                                           
|Potable Water System               | Nevada State Health Division     | Potable
      water systems are located at the Murray, SSX, and millsite. No concerns
      identified                                                                                                    
|                                   |                                 
|Septic System Permit               | Nevada State Health Division     | The
      Mine has general permits for five systems: SSX; Steer; Murray; USA; and
      Smith. The mill site has a package plant that discharges to the tailings
      impoundment. No concerns identified
|                                   |                                 
|                                   |                                 
|                                   |                                 

The current closure cost estimate for Jerritt Canyon is
  approximately $41 million, assuming the work is accomplished by an in-house work
  force. The reclamation cost for the agency bond is somewhat higher at $55
  million as calculated under the U.S. Forest Service bonding guidelines; this
  figure includes agency oversight and administration. Queenstake has a policy
  with the American Insurance Group (AIG) for a closure cost and cap insurance
  policy that has been accepted by the regulatory agencies to serve both to fund
  the physical reclamation and post-closure site management, and meet agency
  requirements for bonding.

Closure and reclamation will consist of the following actions:

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

---

43

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

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

Taxes

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

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

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

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

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

Capital and Operating Cost Estimates

Jerritt Canyon is forecasting an expenditure of $74.4 million
  over the coming four-year period for mine-related capital items. These include
  the categories of: equipment, underground development, and mine facilities. The
  largest expenditure outlays will be for mine development at $22.5 million with
  an additional $5.0 million for mine equipment. Sustaining capital costs for the
  ore processing plant is budgeted at $17.1 million for upgrades to existing
  facilities. Sustaining capital costs for surface services and G&A is
  budgeted at $1.6 million. G&A sustaining capital at Jerritt Canyon is
  typically for the replacement of light vehicles and office equipment. Tailings
  impoundment capital is nearly $10.0 million over the next three years, with an
  additional $16 million related to the construction of a new tailings pond to
  begin in the fourth year. A breakdown by property is given in Table 14.

Table 14: Jerritt Canyon Capital Expenditures for LoM
  ($000s)

Starvation
      
      
      WrightCost Center
      
      Murray
      
      
      SSX
        Complex
      
      
      Saval
        4
      
      
      Smith
      
      
      Canyon
      
      
      Window
      
      
      TotalEquipment
      
      0.0
      
      
      1,500
      
      
      0.0
      
      
      1,500
      
      
      2,000
      
      
      0.0
      
      
      5,000Mine Development
      
      0.0
      
      
      3,492
      
      
      1,238
      
      
      14,478
      
      
      3,243
      
      
      0.0
      
      
      22,451Mine Facilities
      
      0.0
      
      
      0.0
      
      
      0.0
      
      
      0.0
      
      
      2,224
      
      
      70.0
      
      
      2,294Process
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      17,115Surface Serv; Admn
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      1,560Tailings
        Impoundment
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      26,000Total
      $
      0.0
      
      $
      3,492
      
      $
      1,238
      
      $
      15,553
      
      $
      9,584
      
      $
      70.0
      
      $
      74,420


---

44

The operating costs per ton of ore for processing have steadily
  increased over the last 7 years from $15.67 in 2001 to $36.43 in 2007, primarily
  as a function of the production throughput and energy costs. Of this total,
  approximately 75% is for operations and 25% is for maintenance.

As previously noted, the budgeted processing costs for 2009
  will be about $25.0/ton of ore, down from an actual 2008 cost of $51.7/ton of
  ore. The cost of $51.7/ton represents a reduced throughput capacity in 2008 due
  to the shutdown as well as the higher than normal labour cost. Under the current
  plan and the agreement in place will a third party, milling costs are expected
  to be $25.0/ton.

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

The expected life of the Jerritt Canyon operation is five
  years, based on the current processing rate and reported proven and probable
  reserves as of December 31, 2008. We control a large land position in the
  immediate area and it is expected that future exploration will continue to
  convert certain resources to a reserve category over time.

Exploration and Development

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

SRK has the following recommendations:

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

(b)         
   Ketza River Project, Yukon Territory

Our interest in the Ketza River Property is the subject of a
  report prepared by (the SRK Report), which is dated March 2008, prepared by
  SKR Consulting (US), Inc. (SRK), of #3000, 7175 West Jefferson Avenue,
  Lakewood, Colorado, USA 80235.

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

Project Description and Location

The Property is located on the headwaters of Cache Creek, a
  tributary of the Ketza River, in the Watson Lake Mining District of the Yukon
  Territory, and is centered at 61o 32' N and 132o 13' W on
  NTS map sheet 105 F/9 (Figure 6).

The Property consists of 620 Yukon quartz claims and fractions
  of claims as shown in Figure 7. Another 66 quartz claims have been converted to
  quartz leases covering 853.9ha. All claims are controlled 100% by us.

Included in this total are six leased quartz leases and 114
  quartz claims covering a silver-lead-gold vein known as the Silver Valley
  Property. Silver Valley lies approximately 6km east of the existing Project. The
  Silver Valley Property is not included in the current resource and will not be
  discussed further in this report.

The validity of the claims was not reviewed by SRK.

---

45

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

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

Environmental permits are in place for exploration and related
  activities, as well as the maintenance of the Ketza River camp. We have an
  environmental staff based at the Ketza River camp to routinely monitor
  environmental parameters, and also maintains an environmental office in the
  provincial capital of Whitehorse. Relevant permits are presented in Table 17.
  All permits except the Water License are issued by the Department of Energy,
  Mines and Resources or the Department of Environment. The Water License is
  issued by the Yukon Water Board.

Table 17: Permits for the Ketza River Project

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

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

---

46

Figure 6  Location Map



---

47

Figure 7: Ketza River Project Land Position



Accessibility, Climate, Land Resources, Infrastructure
  and Physiography

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

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

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

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

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

---

48

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

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

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

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

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

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

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

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

Suitable mine waste dump sites are present on the property.

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

---

49

Figure 8: Ketza River Project Access



History

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

In June of 2007 YGC completed a merger with Queenstake
  Resources Ltd to create us, who are the current owner of the property. The
  Property is 100% controlled by us. There are no underlying agreements or
  encumbrances.

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

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

---

50

Figure 9: Mineralized Zones and Facilities



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

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

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

From July 1988 to November 1990, production from the property
  was 100,033oz-Au from 342,395t at an average millhead grade of 11.6g/t -Au.
  Average mill throughput over the life of the mine was 364t/d with an average
  gold recovery of 88.65% . A summary of total production by zone is presented in
  Table 4.4.1 (Hodgson, 1991). It should be noted that mine production figures
  were not reconciled with total mill production of 100,033oz-Au. Based on the
  numbers presented in Table 18, the Mine production should have been 131,046oz as
  opposed to actual production of 100,033oz.

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51

Table 18: Summary of Total Gold Production July 1988 
  November 1990

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

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

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

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

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

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

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

Table 19: Summary of Drilling from 1955 to 1997

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


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52

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


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

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

Historic Mineral Resource and Reserve Estimates

Pre-production Resource Estimates

Canamax calculated reserve estimates prior to production
  using cross sectional methods in which blocks were drawn halfway to the nearest
  adjacent drillhole and halfway to the adjacent cross-section except where
  geology dictated a reduction in block size due to structural discontinuity.
  These estimates used a variety of cut-offs and included or excluded different
  satellite deposits, so it is difficult to make meaningful comparisons between
  the estimates from year to year. These estimates were done before the NI 43-101
  standards were required, and the similarity to todays definitions regarding
  measured, indicated and inferred resources are uncertain. Specific Gravity (SG)
  values applied to sulfide and oxide are not mentioned in the 1984 resource, but
  in 1985 2.8 was used for oxide, and 3.3 was used for sulfide. In 1986 oxide used
  3.1 for SG, and sulfide is not mentioned. These pre-production estimates are
  summarized in Table 20, and Figure 10.

Table 20: Historic Resource Estimates

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

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53

Figure 10: Preproduction Resource Estimates



Post-production Resource Estimates

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

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

Table 21: YGC Measured and Indicated Resources, 2004-2005

Measured & IndicatedSulfide + Oxide ResourcesYear
      Area
      Tonnes
      g/t
      ozPeel
      4,250,000
      2.81
      385,5002004
      Shamrock
      2,590,000
      2.19
      182,0002005
      Peel + Peng-Lab + Tarn
      5,950,000
      3.00
      574,600


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54

Table 22: YGC Inferred Resources, 2004-2005

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


Geological Setting

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

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

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

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

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

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

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

Geology of the Ketza River Property

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

Local Lithology

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

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55

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

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

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

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

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

Alteration

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

Silicification, sulfidization, and bleaching are closely
  associated with quartz-sulfide veins in sedimentary rocks in the
  argillite-hosted targets. Skarn mineralization at the Project is rare, and
  usually does not yield significant gold values. Epidote, biotite and diopside
  hornfels are wide-spread in Unit 1a, with quartz-sericite enclosing a core of
  quartz and silicification. Structure The Property lies on the southern
  flank of a westward plunging anticline which is cored by the Unit 1a argillite
  exposed along Peel Creek. The strata are strongly folded with limbs ranging from
  steep to flat-lying. A later deformation has overprinted these structures with
  broad, open folds and drag folds that occur adjacent to thrust faults.

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

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

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56

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

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

Figure 11: Stratigraphic Column



---

57

Figure 12: Generalized Geology Map



Exploration

In May of 2005, YGC commenced drilling at the Ketza River
  Project, and has been drilling continuously since then, with the exception of
  holiday shutdowns. In 2006, the main Project area was flown for new
  one-meter-contour topographic map coverage. In the spring of 2007 the Ketza
  claim block was expanded on the south and west. A limited amount of
  reconnaissance work was conducted in 2006, followed by a major effort in 2007,
  yielding several new target areas. Ground magnetic and gravity surveys were
  carried out over known mineralization. A soil sampling program was completed in
  the area of Peel Ridge north to the top of Shamrock Mountain. A petrographic
  study was completed for manto-style mineralization.

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

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58

Rock Sampling

Tarn Pit

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

Creek Zone

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

Gully Pit

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

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

Soil Sampling

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

Topographic Surveys

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

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

Mineralization

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

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

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

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59

Mineralized Zones

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

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

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

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

Tarn Zone

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

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

Penguin Zone

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

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

Lab Zone

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

Hoodoo Zone

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

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60

Peel Model Area Occurrences

Peel Zone

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

Peel West Zone

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

Ridge Oxide Zone

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

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

Nu-Break Zone

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

Freds Vein East

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

Shamrock Model Area Occurrences

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

Gully Zone

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

QB Zone

The QB zone consists of multiple irregular lenses of
  quartz-breccia occurring in siliciclastic rocks north of the Peel fault. The
  vein is located approximately 1.75km northeast of the Ketza River Camp on the
  south flank of Shamrock Mountain in the Peel

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61

Creek drainage. The overall dimensions of the mineralized body
  as presently defined are approximately 525m in length, 220m in width and 2m to
  70m in thickness. The zone extends from the surface to a depth of 270m with an
  azimuth of 140o and a plunge of 040o to the south.

3M Zone

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

Knoll Zone

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

Figure 13: Drillhole Locations and Modeled Areas with
  Deposit Names



Drilling

From May of 2005 through August of 2008, we drilled a total of
  897 holes for a total of 118,347m (Table 23). The principal objective of the
  drilling programs was the continued definition of known mineralized areas and
  the testing of newly discovered areas. All diamond drill holes completed in the
  resource area since 2005 are shown in Figure 13.

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62

Table 23: Summary of Diamond Drilling 2005 Through 2008

Year
      Operator
      No. of Holes
      Type drilling
      No. of m Drilled2005
      YGC Resources Ltd.
      99
      Diamond
      12,7342006
      YGC Resources Ltd.
      270
      Diamond
      33,8742007
      YGC Resources Ltd.
      305
      Diamond
      41,5872008
      YGC
        Resources Ltd.
      223
      Diamond
      30,151Total
      
      897
      
      118,347


All of the drilling from 2005 through 2008 was diamond
  drilling. Holes were started with NQ-sized core (47.6mm in diameter) or HQ-sized
  core (63.5mm in diameter) and reduced to NQ-sized core as required. Holes
  drilled for metallurgical purposes are HQ-sized (63.5mm) .

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

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

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

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

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

Sampling Method and Approach

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

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

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

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

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

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63

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

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

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

Samples are transported by company personnel at least once per
  week to Canadian Freightways in Whitehorse, Yukon. A sample shipment form is
  filled out and kept on file, indicating the date, truck being driven, person
  transporting the samples, hole numbers and number of bags. Upon arrival in
  Whitehorse, samples are directly loaded upon pallets at Canadian Freightways and
  shipped to ALS Chemex.

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

Sample Preparation, Analysis and Security of Samples

In the 1980s Canamax used Northern Analytical Laboratory in
  Whitehorse, YT and Rossbacher Labs in Burnaby, BC. For sample preparation and
  analysis. In 2006-2008, YGC used Eco-Tech labs in Kamloops, BC. In 2006-2008 all
  sample preparation was done by ALS Chemex in their Elko, Nevada or Terrance
  British Columbia sample preparation facilities. No sample preparation was done
  on site.

ALS-Chemex (2006-2008):

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

Eco-Tech Labs followed essentially the same process.

Quality Controls and Quality Assurance

2005-2008 (YGC-YNGC)

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

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

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

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64

commercial standards was realized, and commercial standards
  from CDN Resource Laboratories Ltd were used starting in 2006.

After mid-year 2006, for manto-styled mineralization Gold Ore
  Reference Standard CDN-GS-10A (9.78+/ - 0.53g/t) or CDN-GS-10B (8.6 +/- 0.49g/t)
  was used. For stockwork-style mineralization Gold Ore Reference Standard:
  CDN-GS-2B (2.03 +/- 0.12g/t) was used.

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

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

Interpretation

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

Figure 14: Laboratory QA/QC Blank Samples



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65

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



Figure 16: Laboratory QA/QC 10g Commercial Standards



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



Mineral Processing and Metallurgical
  Results

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

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

The results of these test programs are summarized below.

YNG is currently conducting a metallurgical test program at PRA
  in Vancouver, Canada to determine and optimize the metallurgical characteristics
  and process flow sheets of the ore types that comprise the current resource. At
  this time, no preferred processing flow sheet has been defined for Ketza River
  awaiting results from the current program being done at PRA. Lakefield
    Research 1986-1987 Test Work A series of standard cyanide leach tests were
  run under various conditions of grind, pre-aeration and leach time, with and
  without CIL (carbon-in-leach). The precise conditions of the individual tests
  are reported, along with the results, in Lakefield Research (1986a, 1986b,
  1987).

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

A series of nine additional samples from the oxide zone was
  subjected to confirmatory tests (Lakefield Research, 1987). The recoveries on
  these tests were significantly lower, with only two samples yielding residues
  below 1g/t-Au. Average recoveries

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67

were 87%. Further tests at finer grinds (80% minus 200 mesh)
  were carried out on these nine samples, and although recoveries fell short of
  those anticipated from Lakefield Research (1986a and 1986b), they were
  consistently over 90%.

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

PRA 2003-2004 Test Work

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

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

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

The results of these tests are summarized below in Table 24.

Table 24: Summary of PRA Metallurgical Test Results
  2003-2004

Date
      Test/Description
      Sample
      Units
      ResultsNov-03
      Flotation; P8074μm;
      Composite 1; head
        grade of
      %
      Au recovery = 82.2Rougher-Scavenger Concs (1)
      9.15 g/t Au; 0.8 g/t Ag
      %
      Ag recovery = 66.2Nov-03
      Cyanide Leach #1; pH 10.5; 72
        hrs;
      Composite 1; head
        grade of
      %
      Au recovery = 77.340% solids; P8074μm; 1 g/L NaCN
      9.15 g/t Au; 0.8 g/t Ag
      %
      Ag recovery = 19.1Mar-04
      Cyanide Leach #2; pre-areate 16
        hrs;
      Composite 1; head
        grade of
      %
      Au recovery = 65.9pH 10.5; 72 hrs; 40% solids,
      9.15 g/t Au; 0.8 g/t Ag
      %
      Ag recovery = 70.3P8085μm; 1g/L
        NaCNMar-04
      Cyanide Leach #3; pre-areate 16 hrs;
      Composite 1; head grade of
      %
      Au recovery = 91.3pH 10.5; 72 hrs; 40% solids,
      9.15 g/t
        Au; 0.8 g/t Ag
      %
      Ag recovery = 60.6P8085μm; 1g/L NaCNMar-04
      Cyanide Leach #4; pre-areate 16
        hrs;
      Composite 1; head
        grade of
      %
      Au recovery = 82.0pH 10.5; 72 hrs; 40% solids,
      9.15 g/t Au; 0.8 g/t Ag
      %
      Ag recovery = 74.6P8054μm; 1g/L
        NaCNMar-04
      Cyanide Leach #5; pre-areate 16 hrs;
      Composite 1; head grade of
      %
      Au recovery = 78.0pH 10.5; 72 hrs; 40% solids,
      9.15 g/t
        Au; 0.8 g/t Ag
      %
      Ag recovery = 66.6P8054μm ; 1g/L NaCNSep-04
      Specific Gravity
      Composite 1 (average 2 tests)
      g/cm3
      4.265Oct-04
      Bulk Density - Waxed
      KR-96-575 57.95m 5.93g/t Au
      g/cm3
      2.58Oct-04
      Bulk Density - Waxed
      KR-96-575 57.95m
        5.93g/t Au
      g/cm3
      2.57Oct-04
      Bulk Density - Waxed
      KR-96-575 52.4m 0.86g/t Ag
      g/cm3
      3.66Oct-04
      Bulk Density - Pulverized
      KR-96-575 57.95m
        5.93g/t Au
      g/cm3
      2.71Oct-04
      Bulk Density - Pulverized
      KR-96-575 52.4m 0.86g/t Ag
      g/cm3
      3.66


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

The test results indicate the following:

- Good gold and silver recoveries of 82.2% and 66.2%, respectively, were
    obtained by flotation into rougher and scavenger concentrates at a fine grind
    of P8074μm using standard flotation conditions and reagents;

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68

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

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

.Mineral Resource and Mineral Reserve Estimates

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

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

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

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

In 2007, we undertook a complete update of the Ketza River
  resource estimate. Compared to previous estimates, the 2007 update included 637
  additional drillholes in the resource database and reflected a significantly
  enhanced understanding of geologic controls on mineralization in both the manto
  and Shamrock zones. The 2007 resource estimate was also undertaken with a view
  to transition the Project from an exploration project to a
  feasibility/development project.

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

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

The drillhole database is currently maintained at the Ketza
  Minesite in acQuire software, and was transferred from a Drill King database in
  late 2007. It contains information for 1,360 drillholes, including 674 core
  holes from the 2005 to 2007 programs, 591 core holes from pre-2005 programs
  (1984-1996), and 95 RC holes from 1987.

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

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

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69

- Assays -From, to, and gold assay

Table 25 Geology Database Fields

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

Table 26 Most Common Lithology Codes

|LCODE | Description                   | LCODE | Description                  
|----- | ----------------------------- | ----- | -----------------------------
|MSLT  | Massive-oolitic limestone     | BSLT  | Black siltstone              
|WBN   | Wispy banded limestone        | SQA   | Siltstone/Quartzite/Argillite
|ARG   | Argillite                     | VEIN  | Vein                         
|LST   | Limestone                     | CAS   | Casing                       
|FSLT  | Fossiliferous limestone       | QTE   | Quartzite                    
|ARS   | Argillite/Siltstone           | FZ    | Fault zone                   
|OXIDE | Oxide Mineralization          | QAS   | Quartzite/Argillite/Siltstone
|SULF  | Massive sulfide(>50%)         | BA    | Black argillite              
|QSA   | Quartzite/Siltstone/Argillite | OVB   | Overburden                   
|MUD   | Mudstone                      | HFLS  | Hornfels                     
|SAQ   | SLT/ARG/QTE                   | AQS   | Argillite/Quartzite/Siltstone
|BXLT  | Blue crystalline limestone    | PHIL  | Phyllite                     
|SLT   | Siltstone                     | QTZ   | Quartz                       
|ASQ   | Argillite/Siltstone/Quartzite | GO    | Gouge                        

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

Of the 1,360 drillholes in the Ketza database, 82 Drillholes
  were rejected from the database due primarily to irreconcilable location issues.
  A few were rejected due to the hole orientation which drilled directly down the
  vein making any given intercept biased or unable to be extrapolated accurately
  to any given volume. Three RC holes were also rejected due to likely downhole
  contamination. Figure 18 is a drillhole location map showing the drilling that
  was used for resource estimation. Another 34 non-resource holes contained no
  significant mineralization and were drilled outside of any deposit of interest.
  Although they were not specifically excluded they had no influence on this
  resource estimate. Another 35 were drilled in the

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70

Knoll Zone which is essentially mined out and therefore was not
  estimated. Table 27 is a summary of drillholes used and rejected by model area.

Table 27: Summary of Drillholes used and Rejected by Model
  Area

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

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

Figure 18: Drillhole Locations and Modeled Areas with
  Deposit Names



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71

Figure 19: Cross-Section, Peel Deposit



Figure 20: Cross-Section, Gulley Deposit



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72

Figure 21: Cross-Section, Lab Deposit



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

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

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

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

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

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

In late 2007, specific gravity measurements were collected for
  101 samples from across the entire deposit area. Due to the relatively few
  samples measured and the apparent irrelevance of area on the measurements,
  samples were analyzed primarily by lithology/ore type. Only a few samples of
  pure oxide and sulfide material were collected for this program because
  exhaustive studies had been made of these previously by Canamax in the late
  1980s and YGC in 2005-2006. The samples

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73

taken in 2007 confirmed these previous studies and that the
  average SG of the unmineralized material is 2.75. Based upon the results form
  all of the studies, the following scheme was used for assigning specific gravity
  values to each drillhole composite:

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

Table 28 lists the average and minimum and maximum SG values
  for the various rock types at each of the areas.

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74

Table 28:Statisticsfor SG Data

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

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75

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

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

Variograms were generated from 1.5m composites for each main
  group of ore zones (Figures 22 and 23). Each group had at least one orientation
  which yielded a recognizable variogram structure, but rarely more than one. This
  is not uncommon for such discontinuous zones with limited spatial extent and
  moderate drill spacing. The relative similarity of the recognizable variogram
  ranges, influenced the choice of Major and Semi-Major axis of the search radius
  in the grade estimation. Variogram model attributes are listed in Table 29.

Table 29: Variogram Model Parameters

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

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

Table 30: Composite Summary Statistics by Model Area

Count
      g/t-Au
      Quartile g/t-Au
      HG
        LimitModel Area
      #Assays
      Average
      Min
      Q1
      Q2
      Q3
      Max
      g/t-AuPeel Inside
      2,366
      5.07
      0.00
      0.14
      1.59
      5.48
      92.57
      65Penguin Inside
      1,038
      2.74
      0.00
      0.02
      0.77
      2.81
      62.89
      35Shamrock Inside
      830
      1.83
      0.00
      0.10
      0.57
      1.91
      28.00
      20Tarn Inside
      228
      4.14
      0.00
      0.50
      1.48
      4.18
      48.90
      25Gully Inside
      246
      3.29
      0.00
      1.21
      2.03
      3.64
      37.60
      35Peel Outside
      8,739
      0.157
      0.001
      0.003
      0.010
      0.045
      68.80
      35Penguin Outside
      7,401
      0.102
      0.001
      0.001
      0.006
      0.028
      25.40
      NASham. Outside
      7,779
      0.147
      0.001
      0.005
      0.025
      0.094
      25.10
      15Tarn Outside
      997
      0.066
      0.001
      0.001
      0.004
      0.023
      3.35
      NAGully Outside
      4,107
      0.068
      0.001
      0.001
      0.006
      0.021
      14.10
      NA


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

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76

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

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

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

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

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

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

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77

Figure 22: Peel Model Variograms



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78

Figure 23: Penguin-Lab Shamrock Variograms



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79

Table 31 Mineral Inventory at a 1.0g/t CoG

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


Resource Definition

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

Pit Optimization Net Value Calculation

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

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

Optimization ParametersGold Price:
      $1,000 $/troy ozMetallurgical recovery
      85%


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80

Specific Gravity
      SG variable as modeled per
        block(for gold content and process costs)Specific Gravity
      2.75(for mining costs)Mining cost/t
      $2.82Process cost/t-ore
      $12.00


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

Lerchs-Grossmann Pit Optimization

Once the net values have been calculated, the Lerchs-Grossmann
  process operates solely on these, using the specified pit slope. In the pit
  optimization analysis, blocks must contain enough revenue in the VAL fields to
  not only pay for their own mining, but also help pay for waste blocks above
  them. Very low-grade blocks (with only minor revenue after process to partially
  offset their own mining) can have their mining paid for by higher-grade blocks
  below them, thus they can be treated as a form of incremental ore. Note that the
  cut-off grade for each block will differ slightly as there are a variety of
  modeled SGs which influence the net value in conjunction with the gold grade.
  The output of the process is a surface file, which can be used in tabulating
  resources from the block model. The mineral resource for Ketza River is
  presented in Table 32. Figure 25 is a map showing the extent of the pits
  resulting from this exercise.

Resource Statement

Table 32: Ketza River Resource Statement

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

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

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81

Figure 25: Optimized Pits, $1,000 Gold



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82

Figure 26: Grade Tonnage Curves



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83

***(c)***          
***Other Properties***

Silver Valley Property, Yukon  We were granted an
option to acquire a 100% interest in six (6) claims located in the Yukon
Territory. The primary focus of exploration for this property will be silver,
with a secondary focus on gold, lead and zinc. We have also staked 114 claims
around the six claims.

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

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

Item 4A. Unresolved Staff Comments.

None.

Item 5. Operating and Financial Review and Prospects.

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

INTRODUCTION

The following managements discussion and analysis
(MD&A) relates to the financial condition and results of operations of
Yukon-Nevada Gold Corp. (the Company or Yukon-Nevada) together with its
wholly owned subsidiaries as of December 31, 2008, and is intended to supplement
and complement the Companys audited consolidated financial statements for the
year ended December 31, 2008. The MD&A has been approved by the Companys
Audit Committee and Board of Directors prior to release. Readers are cautioned
that the MD&A contains forward-looking statements and that actual events may
vary from managements expectations. The consolidated financial statements and
MD&A are presented in United States dollars and have been prepared in
accordance with Canadian generally accepted accounting principles (Canadian
GAAP).

The Companys shares are listed on the TSX (trading symbol 
YNG) and the Frankfurt Stock Exchange (trading symbol  NG6) and at March
31, 2009 the Company had 301,388,763 shares outstanding.

OVERALL PERFORMANCE

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

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. The Canadian dollar weakened
against the U.S. dollar in 2008, resulting in foreign exchange gains on
translation due to the net liability position of the Canadian operations.

The global financial markets have experienced significant
events which have impacted the global economy with reduced credit availability,
reduced availability of funding, high volatility in commodity prices and foreign
exchange markets; and a slowdown in general economic activity. These events
could have a significant impact on our business such as:

- Reduced availability and higher cost of project financing.

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84

- Volatile gold prices will impact our future revenues, earnings and cash
  flow.
- Stock market volatility impacts the valuation of the Companys assets.

We will continue to adopt strategies to mitigate these
challenges.

Jerritt Canyon

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

Jerritt Canyon Operating Highlights

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


|                                                   |   | Q3 2007 |  |   | Q4 2007 |  |   | 2007   | 
|-------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------ | 
|Gold - produced from mined ore (troy
      ounces) |   | 34,636  |  |   | 24,464  |  |   | 59,100 | 
|Gold  produced from purchased ore (troy           |   |         |  |   |         |  |   |        | 
|ounces)                                            |   | 13,693  |  |   | 24,405  |  |   | 38,098 | 
|Gold  produced -
      total (troy ounces)        |   | 48,329  |  |   | 48,869  |  |   | 97,198 | 
|Gold  sold from mined ore (troy ounces)           |   | 26,474  |  |   | 31,040  |  |   | 57,514 | 
|Gold  sold from
      purchased ore (troy ounces) |   | 12,502  |  |   | 20,100  |  |   | 32,602 | 
|Gold  sold - total (troy ounces)                  |   | 38,976  |  |   | 51,140  |  |   | 90,116 | 
|Gold sales                                         | $ | 26,236  |  | $ | 38,224  |  | $ | 64,460 | 
|Cost of gold sold                                  |   | 18,757  |  |   | 28,535  |  |   | 48,218 | 
|Average gold price per ounce                       |   | 673     |  |   | 747     |  |   | 715    | 
|Cash cost per ounce produced (a)                   |   | 354     |  |   | 504     |  |   | 416    | 

|(a) | See the Non-GAAP Financial Measures section for a
      reconciliation of cash costs per ounce to the cost of sales. The Company
      calculates cash cost as the total cost of producing an ounce of gold from
      mined ore in the period, which differs from cost of sales which matches
      the cost of gold sold to the gold sales in the period. Cash cost per ounce
      does not include the cost attributable to third party ore purchases or
      depletion, depreciation and amortization. Due to the closure of the mine
      and mill operations for extended periods in 2008, the calculation of cash
      cost per ounce does not provide a meaningful number for comparative
      purposes in 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the year the following important developments occurred
at the Jerritt Canyon mine site:

- Early in 2008, the Company shutdown the mill and the mines for an extended
  safety, care and maintenance cycle to deal with the effects of a lack of focus
  in these areas over the last five or more years.
- During this period, extensive capital projects were undertaken to improve
  the infrastructure at the mines and the processing facility designed to
  improve the performance of the site and increase compliance with state safety
  and environmental regulations.

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85

- On August 8, the Company shutdown mining operations due to the increasing
  costs associated with the current mining plan and the required infrastructure
  expenditures still required at the mines. Managements intention was to cease
  operations until a revised mine plan could be developed and financing obtained
  to support the plan.
- Subsequently, the milling operations were shut-down so that necessary
  repair work could be performed and discussions with the state regulators
  commenced on permission to restart.
- As a result of the above, the workforce at Jerritt Canyon was reduced to
  maintenance levels.

During 2008 the Jerritt Canyon milling operations were shutdown
for the majority of the year. Early in 2008 the shutdown was undertaken to
perform the improvements noted above. Subsequent to this voluntary shutdown, on
March 19, 2008, the Company received a stop order from the Nevada Division of
Environmental Protection (NDEP) due to issues involving the installation and the
maintenance of instrumentation necessary to monitor key operating parameters in
the emissions control systems. Management worked diligently with the NDEP to
comply with the stop order and subsequently received approval to recommence
milling operations subject to meeting specific requirements within the
order.

In late April 2008, upon completion of the work program
undertaken to make infrastructure and safety improvements to the mill and mine
sites, the two producing gold mines at Jerritt Canyon (the Smith mine and the
SSX mine) and the process mill resumed commercial mining operations.

On August 8, 2008 the Company made the decision to shutdown
mining operations due to the increasing costs associated with the current mining
plan and the required infrastructure expenditures remaining to be completed. In
order to recommence mining at Jerritt Canyon, management began work on a revised
mine plan that would involve additional upfront development of the mines but
would ultimately reduce the dilution of the mine results. This mine plan, when
completed, will require additional financing in order to fund the initial
investment in the mines. The plan to continue toll milling after the shutdown of
the mines was halted due to necessary repair work on damage to a key component
of the process mill that had to be performed in order to continue operations. As
a result, the workforce at Jerritt Canyon was reduced to maintenance levels.

Subsequent to the shutdown, the Company has been working with
third parties to restart the process mill and commence milling of the remaining
stock pile and recommence toll milling operations. Management has worked
diligently with the NDEP to address the air emissions, fluids and water
management concerns raised in the stop order issued in March of 2008. In the
first quarter of 2009, management submitted a full report to the NDEP of their
plans for addressing the stop order items, including engineering design plans to
install a new gas handling system. This report has been accepted by the NDEP and
approval order was received to restart the process mill at Jerritt Canyon on
March 25, 2009.

Over the year the Company has invested approximately $15
million in the processing facilities at Jerritt Canyon. These expenditures were
made in the areas of:

- Infrastructure upgrades; improving the productivity and efficiency of the
  milling facility.
- Safety; dealing with items identified by management and the special safety
  committees.
- Instrument installation; to assist with monitoring emissions control
  systems.

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

Ketza River

In 2008 the Company focused on completing the geotechnical work
required for mine planning, metallurgical test work and on completing its
exploration program. The expansion of deposits within the projected open pits
will add value to the Pre-feasibility Study. Management plans to return to Ketza
River in the second quarter of 2009 and the primary focus will be on further
exploration and definition of the ore body, completion of the Pre-feasibility
study, the commencement of development at the site and the relocation of unused
wet mill assets from the Jerritt Canyon operation.

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86

Silver Valley

No work was carried out on the Silver Valley property in 2008.
Work on this property will commence in 2009 when additional funding becomes
available.

Yukon-Shaanxi Mining Company

In 2008 the Company formed the joint venture Yukon-Shaanxi
Mining Company Inc. (Yukon-Shaanxi) with contributions of C$1.5 million from
each party. An option agreement to acquire 298 claims, in the Mount Nansen area
of the Yukon, was signed and an exploration program for this property is
ongoing. Yukon-Shaanxi is reviewing other mining interests in the Yukon for
further investment. The Company proportionately consolidates its 50% share the
accounts of this joint-venture. As at December 31, 2008, Yukon-Shaanxi has spent
C$0.2M on exploration activities in the Yukon territories.

SELECTED ANNUAL FINANCIAL INFORMATION

|                                                    |   | 2008     |   |   | 2007    |   |   | 2006   |  
|--------------------------------------------------- | - | -------- | - | - | ------- | - | - | ------ | -
|Gold sales                                          | $ | 48,981   |   | $ | 64,460  |   | $ |       |  
|Cost of sales                                       |   | 58,742   |   |   | 48,218  |   |   |       |  
|Gross Margin                                        |   | (9,761   | ) |   | 16,242  |   |   |       |  
|Temporary shutdown costs                            |   | 13,115   |   |   |        |   |   |       |  
|Depletion, depreciation and amortization            |   | 9,279    |   |   | 5,731   |   |   | 16     |  
|Accretion                                           |   | 2,117    |   |   | 1,082   |   |   | 145    |  
|Earnings from mining operations                     |   | (34,272  | ) |   | 9,429   |   |   | (161   | )
|Net loss                                            |   | (105,360 | ) |   | (1,899  | ) |   | (1,189 | )
|Loss per share - basic                              |   | (0.57    | ) |   | (0.02   | ) |   | (0.02  | )
|Weighted average # of shares outstanding (millions) |   | 185.1    |   |   | 121.4   |   |   | 53     |  
|                                                    |   |          |   |   |         |   |   |        |  
|Total assets                                        |   | 199,636  |   |   | 296,167 |   |   | 31,912 |  

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

The Company incurred a pre-tax loss of $117.4 million during
the year ended December 31, 2008, compared with a pre-tax loss of $0.9 million
in the year-ended December 31, 2007. The loss is primarily a result of the
shutdown of mining operations in August 2008 and the subsequent impairment
charges related to the Jerritt Canyon mineral property and related assets
totaling $76.4 million, a $25.0 million reduction in results from mining
operations, shutdown related costs of $13.1 million incurred during the closure
of Jerritt Canyon as well as restructuring costs relating to the workforce
reduction at Jerritt Canyon of $4.5 million.

The Company incurred a net loss of $105.4 million after income
taxes during year ended December 31, 2008. The income tax recovery of $12.1
million recorded in 2008 reflects the increase in tax losses recorded as future
income tax assets available to offset against future taxable income, net of the
valuation allowance that provides for uncertainty of the use of some of the loss
carryforwards. Future income taxes are a non-cash item, and due to the
availability of these loss carryforwards there will likely be no requirement to
pay income taxes in the foreseeable future.

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87

RESULTS OF OPERATIONS

Gold sales:For the year ended December 31,
2008, the Company realized gold sales of $49.0 million on sales of 56,360 ounces
of gold compared with $64.5 million on sales of 90,116 ounces in 2007 and nil in
2006. The lower number of ounces sold in 2008 is largely due to the
significantly reduced duration of operations during the year. This was partially
offset by the higher average price realized of $869 per ounce in 2008 compared
with $715 per ounce in 2007. There were no gold sales in 2006 as the operations
of Jerritt Canyon were acquired in 2007.

Gross margin  mining operations:Gross
margin from mining operations was a loss of $9.8 million for the year ended
December 31, 2008 compared to earnings of $16.2 million in the year ended
December 31, 2007 and nil in 2006 (as there were no gold producing operations in
2006). The negative gross margin in 2008 was a result of the higher than normal
operating costs for mining operations, due to the extent of development and
infrastructure work required in the two operating mines at Jerritt Canyon that
was being performed concurrently with mining activities. The Company produced
32,131 ounces of gold from Jerritt Canyon and 12,601 ounces of gold from
purchased ore during the year ended December 31, 2008, a 46% and 63% decline,
respectively, from the 59,100 ounces of gold from Jerritt Canyon and 38,098
ounces of gold from purchased ore produced in 2007. The mine shut down on August
8, 2008 and will remained closed until the Company completes development of a
new mine plan in 2009 and is able to obtain additional financing, preferably
debt, to fund the new plan.

Temporary shutdown costs:In 2008 the Company
had $13.1 million in temporary shutdown costs. During the temporary shutdown in
the first and second quarters of 2008, the Company capitalized some of these
expenditures that the Company determined would benefit the operations beyond the
upcoming year. Expenditures that did not have a future economic benefit to the
Company beyond the upcoming year or that were deemed to be due to a buildup of
maintenance not performed were included in the Statement of Operations as
temporary shutdown costs in the amount of $7.9 million for the nine months
ended September 30, 2008. In the fourth quarter, all costs except for basic
operational requirements such as utilities or those relating to the limited ore
processing that occurred were classified as shutdown costs, aggregating to $5.3
million. The Company did not incur any shutdown related costs in 2007 and 2006.

Depreciation, depletion and amortization:The
Company had $9.3 million in depreciation, depletion and amortization for the
year ended December 31, 2008 compared with $5.7 million and $0.1 million for the
years ended December 31, 2007 and 2006, respectively. Depreciation expense was
significantly higher as a result of the increase in the property, plant and
equipment balances at Jerritt Canyon and ownership of those assets for the full
year in 2008 compared to six months in 2007. In 2006 the depreciation is only
for the equipment at the corporate office.

Depletion for the 2008 year is lower than the comparable 2007
year as depletion is driven by the number of ounces mined from the Jerritt
Canyon mines and there was a 46% reduction in ounces mined during the year due
to reasons previously discussed.

AccretionAccretion expense was $2.1 million
in 2008 compared to $1.1 million in 2007 and $0.1 million in 2006 due primarily
to the fact that the Jerritt Canyon mine was owned for the full year in 2008
compared to six months in 2007. In 2006 the accretion is only related to the
Ketza River property.

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

As a result of the uncertainty regarding the Companys ability
to obtain financing and develop a profitable mine plan, an indicator of
impairment arises under existing accounting rules. The Company has reviewed the
mineral property and related

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88

property, plant and equipment and, based on the uncertainty
with respect to their ability to move forward with the development plan, has
taken a full charge against the value of the property and certain equipment as
noted in the table below.

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

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

General and administrative expenses:

The Company incurred $4.1 million in general and administrative
expense for the year ended December 31, 2008, compared with $3.6 million and
$1.2 million in the comparable 2007 and 2006 periods. The operations of the
Company are more complex in 2008 compared with the first half of 2007 and 2006
(Queenstake was acquired late in the second quarter of 2007). Increased costs
associated with administering a business in two countries, the addition of
numerous employees, an increase in financial and taxation compliance and an
increase in legal and corporate governance costs have all been major factors in
the increased general and administrative expense of the Company.

Restructuring charges:

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

Interest and other income:

The Company earned $4.6 million of interest and other income in
2008 compared to $2.5 million in 2007 and $0.4 million in 2006. During the third
quarter of 2008 the Company sold underground equipment for proceeds of $4.0
million at a gain of $2.5 million. Interest earned on the commutation fund
(restricted cash) was $1.0 million in 2008, $0.3 million higher than 2007 due to
full year ownership of the fund compared to six months in 2007.

Income taxes:

The Company has recorded an income tax recovery of $12.1
million during 2008. This recovery primarily relates to the recognition of
additional loss carryforwards available to offset taxable income. The Company
offset the total future income tax assets with a valuation allowance of $36.0
million until there is sufficient evidence that, more likely than not, the
Company will be able to utilize these losses to offset income.

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89

SUMMARY OF QUARTERLY RESULTS

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


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


The Company incurred a loss of $13.6 million during the quarter
ended December 31, 2008, compared to net earnings of $2.4 million in the quarter
ended December 31, 2007. The $16.0 million decrease in earnings is due to lower
gross margins from mining operations, temporary mine shut down costs and
additional impairments in the fourth quarter of 2008, partially offset by a $2.4
million reduction in the loss on forward sales due to the settlement of all
forward contracts in the third quarter. Gross margin from mining operations
decreased from $9.7 million in the fourth quarter of 2007 to a loss of $1.0
million. The $10.7 million decrease is primarily a result of the shutdown of
mining operations in August 2008. Also related to the temporary suspension of
mining operations in August, further impairments of $6.9 million were recorded
in the fourth quarter of 2008 and costs of $5.3 million of additional shutdown
costs incurred during the quarter.

Gold sales:During the fourth quarter of
2008, the Company realized gold sales of $2.3 million on sales of 1,921 ounces
of gold, compared with $38.2 million on 51,140 ounces, a decrease of $35.9
million due to the cessation of milling operations at Jerritt Canyon on August
15, 2008. Sales in the fourth quarter of 2008 related to ounces that were
in-circuit or in process at the end of the third quarter. Jerritt Canyon ore
yielded 550 (2007  31,040) ounces while third party ore yielded 1,371 (2007 
20,100) ounces. The average price in dollars realized during the fourth quarter
of 2008 on gold produced was $888 per ounce compared with $747 in 2007.

Gross margin  mining operations:The Company had a gross margin loss on gold sales of $1.0 million in
  the fourth quarter of 2008, compared with a gross margin of $9.7 million in
  the same period in 2007. The decrease of $10.7 million is due to the cessation
  of operations at Jerritt Canyon during the third quarter of 2008. In 2007, Jerritt
  Canyon produced 24,464 ounces and 24,405 ounces from ore purchased in the fourth
  quarter.

Depreciation, depletion and amortization:The
Company had $1.4 million in depreciation, depletion and amortization in fourth
quarter of 2008 compared to $1.8 million in 2007. Depletion for the fourth
quarter of 2008 is significantly less than the comparable 2007 period as
depletion is based on units of production, and the mine was closed throughout
the fourth quarter and a full impairment taken on mineral properties at the end
of the third quarter of 2008. Depreciation expense was not impacted by the
shutdown of the mines and mill during the fourth quarter as this expense is not
driven by production, but by the passage of time.

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90

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

General and administrative expenses:For the
three months ended December 31, 2008, the Company incurred general and
administrative expenses of $0.6 million compared with $0.7 million in the
comparable 2007 period and $1.1 million in the third quarter of 2008. The fourth
quarter is lower in 2008 compared with 2007 and the previous quarter as a result
of the closure of the Jerritt Canyon operations and the subsequent workforce
reduction and cost curtailment actions taken by the Company.

Income taxes:The Company recorded an
additional $0.4 million of income tax recovery during the period due to the
recognition of future income tax assets arising from the additional taxable
losses arising during the quarter. In total, the Company incurred $84.0 million
of tax loss carryforwards available to offset future taxable income, however the
realization of these tax loss carryforwards is not considered more likely than
not, so the Company has taken a valuation allowance against the asset.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

During 2008, cash and cash equivalents decrease from
approximately $40.0 million to $1.1 million due to the significant capital and
operating costs at Jerritt Canyon. At December 31, 2008 the Company had a
working capital deficiency of $7.8 million, compared to working capital of $54.4
million at December 31, 2007 as a result of the following activities:

Operations

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

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

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

Investing

Jerritt Canyon

During the first three quarters of 2008, the Company continued
to incur higher than anticipated expenditures on investing activities at Jerritt
Canyon as a result of the extensive infrastructure work required at the mine
sites and the process mill improvements. Due to the increasing cost of
continuing to operate the two mine locations, the Company discontinued all
mining activities at Jerritt Canyon on August 8, 2008. A number of vendors have
filed liens on Jerritt Canyon assets due to

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91

overdue payments for goods and services that, if unresolved by
management, could result in the sale of assets in order to settle these liens if
sufficient cash is not provided from operations or further financing.

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

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

Ketza River

Exploration expenditures at the Ketza River project during the
  2008 totaled $13.0 million, of which $5.5 million was funded by cash restricted
  for future exploration and therefore, had no impact on unrestricted cash.

2007
      
      
      2008Property,
      
      
      
      
      
      
      
      
      Property,plant and
      
      
      Mineral
      
      
      
      
      
      plant and
      
      
      Mineralequipment
      
      
      properties
      
      
      Total
      
      
      equipment
      
      
      properties
      
      
      TotalMine capital expenditures - Jerritt Canyon
        mine
      $
      -
      
      $
      2,959
      
      $
      2,959
      
      $
      -
      
      $
      9,626
      
      $
      9,626Mill and equipment capital expenditures - JerrittCanyon mine
      
      5,358
      
      
      -
      
      
      5,358
      
      
      25,522
      
      
      -
      
      
      25,522Exploration expenditures - Jerritt Canyon mine
      
      -
      
      
      7,231
      
      
      7,231
      
      
      -
      
      
      6,483
      
      
      6,483Exploration expenditures - Ketza River project
      
      861
      
      
      16,398
      
      
      17,259
      
      
      110
      
      
      12,826
      
      
      12,936Exploration expenditures - Yukon-Shaanxi
      
      -
      
      
      -
      
      
      -
      
      
      19
      
      
      169
      
      
      188Other
      
      47
      
      
      -
      
      
      47
      
      
      52
      
      
      
      
      
      52$
      6,266
      
      $
      26,588
      
      $
      32,854
      
      $
      25,703
      
      $
      29,104
      
      $
      54,807


Of these amounts, $0.3 million (2007- 3.3 million) and $0.5
million (2007-$12.0 million) was spent on property, plant and equipment and
mineral properties respectively in the fourth quarter.

Financing

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

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

During 2008 the Company made $1.3 million in capital lease
payments and retired three of the capital leases related to underground
equipment. At the end of the year management was actively marketing an
additional asset held under capital lease for $0.8 million which was sold
subsequent to year-end.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Company manages liquidity
risk through forecasting its cash flows from operations and anticipating
investing and financing activities. Senior management is actively involved in
the review and approval of planned expenditures and typically ensures that it
has sufficient cash on hand to meet expected operating expenses for 60 days. The
shutdown of the Jerritt Canyon operations and current market conditions have
increased the difficulty in generating funds to meet the ongoing expenses of
operating two mine sites, and management has thus far financed operations
through a series of private placements in order to meet ongoing operational
costs. When the operations at Jerritt Canyon recommence, management believes
that the ability to fund operations

---

92

through cash generated from toll milling, a return to mining,
and financing should be sufficient to meet the ongoing capital and operating
requirements of the Company.

During the third quarter of 2008, in order to fund
expenditures, the Company withdrew cash that was restricted for exploration
expenditures in the Yukon under the terms of the flow through share subscription
agreements, referred to in investing activities above. The Company intends to
replace the cash withdrawn from the restricted funds account during 2009 from
additional financing and funds from ongoing operations.

The following are the contractual maturities of the
undiscounted cash flows of financial liabilities at December 31, 2008:

|Contractual
      obligations                  |   | Less
      than 3 |  |  | 4 to
      12 |  |  | 1 to
      2 years |  |  | Greater than  | 
|---------------------------------------------- | - | ----------------- |  |  | ------------- |  |  | ------------------ |  |  | ------------- | 
|                                               |   | months            |  |  | months        |  |  |                    |  |  | 2
      years | 
|Accounts payable and accrued
      liabilities | $ | 28,599            |  |  |              |  |  |                   |  |  |              | 
|Payable on purchased ore                       |   | 8,257             |  |  |              |  |  |                   |  |  |              | 
|Capital lease obligations                      |   | 740               |  |  | 43            |  |  | 25                 |  |  |              | 

CAPITAL RESOURCES

The Company had a cash balance of $1.1 million as of December
31, 2008 and a negative working capital balance of $7.8 million. The Company had
a nominal cash balance in cash restricted for future exploration (part of
Restricted funds on the balance sheet) as of December 31, 2008. This
represents a portion of the remaining C$12.6 million of the required future
exploration expenditures to be spent from the flow-through financing in May 2008
that provided C$20.1 million for exploration on the Ketza River project and
other exploration activity in Canada. These restricted funds were applied to
non-flow-through expenditures during the last six months of 2008, reducing the
amount available to fund this requirement. These restricted funds must be spent
by the Company, in accordance with the flow-through share agreement, by the end
of 2009. Management intends to take steps necessary to bring the Company back
into compliance with the flow-through agreements. If it fails to do so, it will
be liable to the investors for their additional taxes payable.

The cash on hand at March 31, 2009 is not sufficient to
maintain the ongoing operations of the Company for more than six weeks.
Management believes that further financing can be obtained in order to ensure
the company will continue as a going concern and return to operations. Should a
return to operations be determined to be unprofitable, further curtailment of
operations would be undertaken to reduce costs.

OUTLOOK

Managements primary focus has been on working with the NDEP to
obtain an order allowing the restart of milling operations at Jerritt Canyon. On
March 25, 2009, the Company received the order from the NDEP that will allow the
Company to return to full milling operations at Jerritt Canyon. The ability to
operate the facility will enable the Company to fund its liabilities and
reinvest in the mine plan at Jerritt Canyon and continue work at Ketza River in
the Yukon.

The Companys focus over the coming months at Jerritt Canyon
will be on the development of a long term mine plan and obtaining financing,
preferably debt, to fund the required development and backfill to support future
mining activities. As well, the Company will continue to pursue additional toll
milling agreements with properties in the area to supplement production from the
Companys own existing stockpile and future mining activities.

In the Yukon, the Company will be completing the YESSA
application using historical drilling results and will continue exploration
activity at the Ketza River and Silver Valley properties and begin development
toward the end of 2009. These expenditures will be funded through cashflows from
Jerritt Canyon as well as external sources of financing. Sources of external
financing may include bank borrowings and future equity offerings. There can be
no assurance that financing will be available on acceptable terms, or at all.
The failure to obtain financing could have a material adverse effect on the
Companys growth strategy and or results of operations and financial condition
should cashflows be insufficient to support the operations. There can be no
assurance that the Company will be able to secure the financing necessary to
retain its rights to, or to begin or sustain production at, any of its mineral
properties.

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93

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

At March 30, 2009, the Company had $0.8 million of cash and
cash equivalents.

Gold Prices

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

In 2008, the price of gold (per the London pm fix) ranged from
a low of $713 to a high of $1,011. The average price of gold based on the London
pm fix in the past 8 quarters is as follows:

US$/ounce
    Q1
    Q2
    Q3
    Q4
    Annual2008
    $925
    $896
    $872
    $795
    $8722007
    $650
    $667
    $680
    $786
    $695


OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements as of
December 31, 2008.

SUBSEQUENT EVENTS

Subsequent to year-end, the Company closed the following
private placements:

- The Company issued 17.3 million units ("Unit 1") at a price of C$0.06 per
  Unit 1 to net the treasury an aggregate of C$1,040,000. A finder's fee was
  paid in respect of a portion of the private placement. Each Unit 1 consists of
  one common share (a "Share") and one Share purchase warrant (the "Warrant").
  The Warrant can be exercised to purchase one additional Share (the "Warrant
  Share") at a price of C$0.08 within 24 months of closing of the private
  placement. In accordance with securities legislation currently in effect, the
  Shares, the Warrants and the Warrant Shares will be subject to a "hold period"
  of four months plus one day expiring on June 26, 2009.
- The Company issued 10.0 million units ("Unit 2") at a price of C$0.05 per
  Unit 2 to net the treasury an aggregate of C$0.5 million. A finder's fee was
  paid in respect of the private placement. Each Unit 2 consists of one common
  share (a "Share") and two series of Share purchase warrants. The first warrant
  (the "Series "A" Warrant") can be exercised to purchase one additional Share
  (the ""A" Warrant Share") at a price of C$0.07 per share within 12 months of
  closing of the private placement and the second warrant (the "Series "B"
  Warrant") can be exercised to purchase one additional Share (the ""B" Warrant
  Share") at a price of C$0.09 per share within 18 months of closing of the
  private placement. In accordance with securities legislation currently in
  effect, the Shares, the "A" Warrants, the "B" Warrants, the "A" Warrant Shares
  and the "B" Warrant Shares will be subject to "hold period" of four months
  plus one day expiring on June 25, 2009.
- Jerritt Canyon Mine has completed a series of environmental-compliance
  requirements and the NDEP has approved the restart of the Mine's milling
  operations.

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94

NON-GAAP FINANCIAL MEASURES

Cash cost per ounce is a measure management uses to monitor the
cost of producing an ounce of gold extracted from the Companys property in
Jerritt Canyon. This does not include the impact on costs of ore purchased from
third parties, nor does it include inventory adjustments required to match cost
of sales to sales. For the last two quarters of 2008 the cash cost per ounce
does not provide a meaningful figure for comparative purposes and has been
excluded from this analysis.

The following is a reconciliation of cash cost per ounce
produced from mined ore to Cost of Gold Sold in the Statement of Operations for
2007:

Cost of gold sold
    $
    48,218LessThird party ore processing
    
    (20,245
    )Operating
      expense adjustment
    
    (936
    )Production royalties
    
    (390
    )Refining costs
    
    (85
    )Gold inventory cash costs required to
      adjust from cost of sales to cost of production
    
    (1966
    )Cash cost of producing Jerritt Canyon mined gold
    $
    24,596Ounces of gold produced from Jerritt
      Canyon property
    
    59,100Cash cost per ounce produced from mined ore
    $
    416


RELATED PARTY TRANSACTIONS

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

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

CRITICAL ACCOUNTING ESTIMATES

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

Depletion of mineral properties

Depletion of producing mineral properties is impacted by the
estimation of proven and probable reserves, in accordance with National
Instrument 43-101. There are many uncertainties associated with having a reserve
estimate completed. The proven and probable reserve estimate is completed once a
year, near the calendar year-end, on the Jerritt Canyon property and this
estimate is the basis of depletion for the upcoming year. Consequently, the
depletion calculation for each period is directly affected by the reserve
estimate at year-end.

Capitalization of long-term mine development costs

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

---

95

Impairment testing of long-lived assets

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

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

Purchase price allocations on business combination

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

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

Asset retirement obligation

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

Income taxes

The Company uses the asset and liability method of accounting
for income taxes. Under this method, incomes taxes are recognized for the
estimated income taxes payable for the current year. Future income tax assets
and liabilities are recognized based on temporary differences between accounting
and tax bases of assets and liabilities as well as the benefit of losses
available to be carried forward to future years for tax purposes. Future income
tax assets and liabilities are measured using enacted or substantively enacted
tax rates and laws that will be in effect when differences are expected to
reverse. Future income tax assets and liabilities are evaluated utilizing the
guidance provided in FIN 48, Accounting for Uncertainty in Income Taxes,
which prescribes a minimum recognition threshold that a tax position is required
to meet before being recognized in the financial statements.

Stock-based compensation

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

---

96

IMPACT OF ADOPTION OF NEW ACCOUNTING POLICIES

Capital disclosures

On January 1, 2008 the Company adopted the recommendations of
The Canadian Institute of Chartered Accountants (CICA) Handbook Section 1535,
Capital Disclosures (section 1535). The new standard requires an entity to
disclose information to enable users of its financial statements to evaluate the
entitys objectives, policies, and processes for managing capital. As the
standard under section 1535 are for disclosure purposes only, the adoption did
not have an impact Companys operating results.

Financial instruments

On January 1, 2008 the Company adopted the recommendations of
CICA Handbook Section 3862, Financial Instruments - Disclosures (section 3862)
and CICA Handbook Section 3863  Financial Instruments  Presentation (section
3863). Section 3862 provides standards for disclosures about financial
instruments, including disclosures about fair value and the credit, liquidity
and market risks associated with the financial instruments. Disclosure
requirements pertaining to this section are in note 20. Section 3863 provides
standards for presentation of financial instruments and non-financial
derivatives. The adoption of these standards did not have an impact on the
Companys operating results.

Inventories

On January 1, 2008 the Company adopted the recommendations of
CICA Handbook Section 3031, Inventories. This section provides additional
guidance on the determination of cost and its subsequent recognition as an
expense, including any write-down to net realizable value, and disclosures made
within the financial statements. This section also provides guidance on the
reversal of write-downs previously taken and introduces the requirement for the
allocation of overhead cost based on normal capacity.

RECENT ACCOUNTING PRONOUNCEMENTS

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

International Financial Reporting Standards

In 2006, the Canadian Accounting Standards Board (AcSB)
published a new strategic plan that will significantly affect financial
reporting requirements for Canadian companies. The AcSB strategic plan outlines
the convergence of Canadian GAAP with International Financial Reporting
Standards (IFRS) over an expected five-year transitional period. In February
2008, the AcSB announced that 2011 is the transition date for publicly listed
companies to use IFRS, which will replace Canadian GAAP. The effective date is
for interim and annual financial statements relating to fiscal years beginning
on or after January 1, 2011. The transition date of January 1, 2011 will require
the restatement for comparative purposes of amounts reported by the Company for
the year ended December 31, 2010. While we have begun assessing the adoption of
IFRS for 2011 and have identified the primary differences on our financial
statements, the financial reporting impact of the transition to IFRS cannot be
reasonably estimated at this time.

Goodwill and Intangible Assets

In February 2008, the CICA issued accounting standard Section
3064 Goodwill, and intangible assets, replacing accounting standard Section 3062
Goodwill and other intangible assets and accounting standard Section 3450,
Research and development costs. Various changes have been made to other sections
of the CICA Handbook for consistency purposes. The new Section will be
applicable to financial statements relating to fiscal years beginning on or
after October 1, 2008. Accordingly, the Company will adopt the new standards for
its fiscal year beginning January 1, 2009. Section 3064 establishes standards
for the recognition, measurement, presentation and disclosure of goodwill
subsequent to its initial recognition and of intangible assets by
profit-oriented enterprises. Standards concerning goodwill are unchanged from
the standards included in the previous Section 3062. The Company has not yet
determined the effect these new standards will have on its financial position
and results of operations.

---

97

FINANCIAL INSTRUMENTS

The Companys financial instruments consist of cash and cash
equivalents, marketable securities, accounts receivable, inventory, accounts
payable, accrued liabilities, payable on third-party purchased ore, forward
sales contracts, and other long term liabilities. The carrying amounts of
financial instruments, except for as noted below, approximate their fair
values.

Previously, the Company engaged in the forward sale of gold
produced from ore purchased from third parties to ensure the Company achieves an
acceptable profit margin on this activity and to protect against a decline in
the price of gold. The Company discontinued this practice in August of 2008 and
settled all remaining contracts outstanding at that time, resulting in a
realized gain on settlement of $0.3 million.

RISK ASSESSMENT

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

Gold price volatility

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

Estimates of reserves and resources

Resource estimates involve a certain level of interpretation
and professional judgment. The Company has opted to utilize the services of SRK
Consulting in its 43-101 work for both the Jerritt Canyon mine and the Ketza
River project in the past. This ensures a consistent methodology is utilized
from property to property. SRK Consulting has done reserve and resource estimate
work for numerous years on the Jerritt Canyon mine and is quite familiar with
the property.

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. Management is currently in the process of working with the
Nevada Division of Environmental Protection to develop a plan to ensure
long-term compliance of the Jerritt Canyon mine.

Safety risk

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

Ability to raise capital

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

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98

Exploration for future gold resources and reserves

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

Notes to the Reconciliation between Canadian and US GAAP

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

|(i)   | Mineral properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | Under Canadian GAAP, resource property acquisition costs
      and exploration costs may be deferred and amortized to the extent they
      meet certain criteria. Capitalized costs under Canadian GAAP are amortized
      on a unit-of-production basis based on proven, probable and possible
      reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | Under US GAAP, exploration costs must be expensed as
      incurred unless the resource properties have proven and probable reserves
      at which time costs incurred to bring the mine into production are
      capitalized as development costs. Drilling and related costs in
      delineating an ore body and converting mineral resources to mineral
      reserves are expensed as exploration costs under US GAAP. Capitalized
      costs are then amortized on a unit-of-production basis based on proven and
      probable reserves rather than over the proven and probable reserves of the
      mine and the applicable portion of resources expected to ultimately be
      mined. This additional depletion and exploration expense is recognized in
      the statement of operations under US GAAP. For the purposes of the
      consolidated statements of cash flows, the exploration costs are
      classified as cash used in investing activities under Canadian GAAP and
      cash used in operating activities under US GAAP.
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | The impact of this difference under Canadian GAAP and US
      GAAP affected depreciation as a portion of property, plant and equipment
      is depreciated and capitalized to mineral property for Canadian GAAP which
      is expensed for US GAAP and equity loss as the incorporated joint venture
      also capitalizes mineral property costs for Canadian GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(ii)  | Flow-through shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | Under Canadian income tax legislation, the Company is
      permitted to issue shares whereby the Company agrees to incur Canadian
      exploration expenditures (as defined in the Income Tax Act, Canada) and
      renounce the related income tax deductions to investors. Under Canadian
      GAAP, the full amount of funds received from flow-through share issuances
      are initially recorded as share capital. Upon renouncing the expenditures,
      the amount of deferred tax on the expenditures is deducted from share
      capital. Under US GAAP, the premium paid for the flow-through shares in
      excess of market value is credited to liabilities and included in income
      when the related tax benefits are renounced by the Company.                                                                                                                                                                                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(iii) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | Under Canadian GAAP, future tax assets and liabilities
      are recorded at substantially enacted tax rates. Under Financial
      Accounting Standards Board (FASB) Statement of Financial Accounting
      Standards (SFAS) 109, Income taxes for US GAAP, deferred tax assets and
      liabilities are recorded at enacted tax rates. In 2007 and 2008, there
      were no differences between enacted and substantially enacted rates. As a
      result, the application of US GAAP in accounting for income taxes does not
      result in any material measurement differences from Canadian GAAP for
      future tax assets or liabilities.                                                                                                                                                                                                                                                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | Due to the treatment of exploration costs under US GAAP
      described in note 1 above, there would be a larger tax benefit arising
      under US GAAP when compared to Canadian GAAP. With respect to the Canadian
      operations, any future tax assets arising are fully offset by a valuation
      allowance as it is not more likely than not that the future tax assets
      would be realized. For the US operations, a valuation allowance has been
      taken against all future income tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

---

99

|      | assets in excess of liabilities, therefore the asset
      arising under US GAAP will not be recognized in 2008 and the balance from
      2007 has been adjusted accordingly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(iv)  | Accounting for warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | Under Canadian GAAP units issued by the Company
      consisting of a combination of common shares and warrants are valued by
      assigning the proceeds received to the common share and deducting the
      value of the warrants as determined by a Black Scholes model. Under US
      GAAP the value is assigned to common shares and warrants based on the
      relative fair value. The fair value of the common shares is deteremined by
      the closing price on the date of the transaction and the fair value of the
      warrants are determined based on a Black Scholes model. As a result of
      this difference, share capital was increased by $0.7 million, with an
      offsetting decrease in the warrants.                                                                                                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(v)   | Accounting for uncertainty in income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | The Company adopted Financial Accounting Standards Board
      Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48)
      effective January 1, 2007. FIN 48 prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and
      measurement of a tax position taken or expected to be taken in a tax
      return. FIN 48 requires that the Company recognize on adoption only those
      tax positions that are more-likely- than-not (50% or greater) of being
      sustained on audit, based on the technical merits of the position.
      Additionally, this standard provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. With the adoption of this standard, the Company
      has performed a comprehensive review of all material tax positions in
      accordance with recognition and measurement standards established by FIN
      48.
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | Based on this review, the provisions of FIN 48 did not
      have a material impact on the Companys annual consolidated financial
      statements. The Company has elected to apply the provisions of FIN 48 in
      assessing their uncertain tax positions under Canadian GAAP as well,
      removing any differences that would arise with US GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(vi)  | Adoption of New Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | In September 2006, FASB issued SFAS No. 157, Fair Value
      Measurements (SFAS 157). This statement defines fair value, establishes
      guidelines for measuring fair value and expands disclosures regarding fair
      value measurements. SFAS 157 does not require any new fair value
      measurements but rather eliminates inconsistencies in guidance found in
      various prior accounting pronouncements. SFAS 157 is effective for fiscal
      years beginning after November 15, 2007. The Company believes that the
      adoption of SFAS 157 did not have a material effect on the Companys
      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                 
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | In February 2007, the FASB issued SFAS No.159, the Fair
      Value Option for Financial Assets and Financial Liabilities - including an
      amendment to FAS 115. This standard permits a company to choose to measure
      certain financial assets, financial liabilities and firm commitments at
      fair value. The standard is effective for fiscal years beginning after
      November 15, 2007. The Company believes that the adoption of SFAS No.159
      did not have a material effect on the Companys consolidated financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(vii) | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | In December 2007, the FASB released SFAS 141-R, Business
      Combinations. This Statement applies prospectively to business
      combinations for which the acquisition date is on or after the beginning
      of the first annual reporting period beginning on or after December 15,
      2008, which is a business combination in the year ending December 31, 2009
      for the Company. The objective of this Statement is to improve the
      relevance, representational faithfulness, and comparability of the
      information that a reporting entity provides in its financial reports
      about a business combination and its effects. The Company will assess the
      impact of this standard for Business Combinations occurring after January
      1, 2009.                                                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | In March 2008, FASB issued FASB Statement No. 161,
      Disclosures about Derivative Instruments and Hedging Activities - an
      amendment of FASB Statement No. 133. This Statement requires enhanced
      disclosures about an entitys derivative and hedging activities and
      thereby improves the transparency of financial reporting. This
      Statement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

---

100

is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. This Statement encourages, but does not
require, comparative disclosures for earlier periods at initial adoption. The
Company is assessing the impact of the new standard.

The Securities and Exchange Commission
(SEC) and FASB have issued recent interpretations for US GAAP that suggest
warrants with an exercise price that is different from the entitys functional
currency cannot be classified as equity. On June 12, 2008, the EITF reached
final consensus on the application of EITF 07-5, Determining Whether and
Instrument (or an Embedded Feature) is Indexed to an Entitys Own Stock, to
foreign currency denominated warrants and the decision was approved by the FASB.
The EITF is applicable for years beginning after December 15, 2008 and will be
treated as a change in accounting principle through prospective application. As
the Companys functional currency is the US dollar, upon adoption of this
abstract the issued and outstanding warrants that have an exercise price that is
denominated in Canadian dollars will be treated as derivative instruments and
recorded as liabilities under US GAAP and changes in fair value will be
calculated at each reporting period. Any gain or loss arising from this
revaluation will be recorded in the statement of operations.

Item 6. Directors, Senior Management and Employees. A.Directors and senior management.

The following table lists as of December 31, 2008 the names of
our directors and senior management. Each of the directors and senior officers
has served in his respective capacity since his election and/or appointment and
will serve until the next annual general meeting of shareholders or until a
successor is duly elected, unless the office is vacated in accordance with our
Articles. All of our directors are residents of Canada.

Our Directors and Senior Management

|Name                              | Position with YNG           | Date of
      First Appointment | Age
|--------------------------------- | --------------------------- | ------------------------------- | ---
|Robert E. Chafee(3)(4)            | Director                    | May 2005                        | 73 
|Graham C. Dickson(4)              | Director, President and CEO | April 1997                      | 61 
|John R.W. Fox(2)(3)               | Director                    | March 2005                      | 61 
|Iain J. Harris(1)(2)(4) (5)       | Director                    | January 2007                    | 63 
|Peter Holbek(5)                   | Director                    | October 2005                    | 53 
|R.J. (Don) MacDonald(1)           | Director                    | July 2005                       | 54 
|Neil J.F. Steenberg(1)(2) (3) (5) | Director                    | March 2005                      | 59 
|Shaun Heinrichs                   | CFO                         | November 2008                   | 35 
|Graham H. Scott                   | Corporate Secretary         | May 2005                        | 62 

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

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

Graham Dickson, President and Director

Mr. Dickson has been working in the Mining Industry in North
America for the last 24 years. He has acted as general manager of a turnkey
construction company for gold milling facilities in remote locations, including
the Snip Mill for Cominco Ltd., Golden Patricia Mill for Bond Gold and Seabee
Mill for Claude Resources. Before joining us, Mr. Dickson served in various
capacities with BYG Natural Resources Ltd., which had an operating gold mine in
the Yukon Territory. As General Manager

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101

of the General Contractor, Mr. Dickson completed the surface
facilities for Bema Gold's Julietta mine in Far East Russia, ahead of schedule
and under budget.

John R.W. Fox, Director

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

Neil J.F. Steenberg, Director

A practising lawyer for more than 30 years, Mr. Steenberg has
specialized in corporate finance, securities and mining law advising clients on
structuring initial public offerings, private placements and other financings as
well as mergers and acquisitions and mineral exploration and development
agreements. Mr. Steenberg obtained both his undergraduate degree (B.A. Hons.) in
English Literature & History and his law degree (LLB.) at Queen's University
in Kingston, Ontario, Canada. Complementing his corporate law practice Mr.
Steenberg has 5 years management and operational experience working as in-house
counsel and in senior management positions for a group of eight Canadian junior
gold exploration and producing enterprises from 1985 to 1990. He was formerly a
Partner and chair of the national corporate finance and securities practice at
Gowling Lafleur Henderson, LLP, one of the largest Canadian law firms, from 1994
to 2003. Since November, 2003, Mr. Steenberg has operated a private business law
and corporate finance boutique practice in downtown Toronto. As well as being
our board member, Mr. Steenberg is Secretary and a director of Conquest
Resources Limited (TSX Venture Exchange - symbol CQR), Secretary of Labrador
Iron Mines Holdings Limited (TSX symbol LIR) and Secretary of Coniagas Resources
Limited (TSX Venture Exchange - symbol CNY).

Iain Harris, Director

Mr. Harris was President and CEO of AirBC Limited from 1983 to
1995. Prior to that he was Vice President, Finance & Administration with the
Jim Pattison Group. He is a former Chairman of Terasen Inc. (formerly BC Gas
Inc.) and the Canadian Depository for Securities Ltd. He is also a former
director of several companies including International Forest Products Ltd.,
TELUS Corporation, and Nav Canada. Mr. Harris is a past Chairman of Tourism
Vancouver, the Vancouver Board of Trade and the Air Transport Association of
Canada. He is also a former director of the Vancouver Foundation and the Forest
Alliance of B.C. He is a Governor of the Vancouver Board of Trade and the
recipient of the Governor General's Commemorative Medal in recognition of
community and public service.

Robert Chafee, Director

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

R.J. (Don) MacDonald, Director

Mr. MacDonald is Senior VP & CFO of NovaGold Resources Inc.
and has over 21 years of experience in the mining industry. He has been directly
involved in the operation or development of ten mines in North and South
America, and the completion of multiple mine financings and mergers and
acquisitions transactions totaling over $2 billion. Mr. MacDonald's experience
in the mining industry included Senior VP & CFO of De Beers Canada Mining
Inc. (formerly Winspear Diamonds) and Dayton Mining Corporation. Mr. MacDonald
holds a Bachelor and Masters degree in engineering from Oxford University and he
is a Chartered Accountant.

---

102

Peter Holbek, Director

Mr. Holbek is a geologist with more than 28 years experience in
geology, mineral exploration and mine development. He currently runs a
consulting company, Viking GeoScience, which provides exploration and evaluation
services for the Mining Industry in addition to serving as Vice President,
Exploration for Copper Mountain Mining Corp. From 2003 to recently, he served as
Vice President, Exploration for Western Keltic Mines and Blackstone Ventures
Inc. From 1996 to 2002, he was Vice President, Exploration for Atna Resources
Ltd., and has held senior exploration positions with Princeton Mining Corp.,
Homestake Canada and Esso Minerals Canada Ltd., among others. In addition to
extensive exploration experience, Mr. Holbek has been involved in mine
operations, mine development and numerous feasibility and prefeasibility
studies. He has directed explorations that lead to the discovery of epithermal
gold, volcanogenic massive sulphide, and porphyry copper deposits.

Graham H. Scott, Secretary

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

Shaun Heinrichs, CFO

Mr. Heinrichs has 11 years of financial accounting experience,
beginning with 7 years of public practice experience with Ernst & Young in
Vancouver. His primary role at Ernst & Young was as a lead assurance or
advisory manager on several large US and Canadian public companies within the BC
region. He has also held management roles over the last 4 years in two large US
public companies and most recently held a senior management role at a large BC
utility prior to joining us as the Corporate Controller in February of 2008. Mr.
Heinrichs holds a BBA from Simon Fraser University and is both a Chartered
Accountant in Canada and a Certified Public Accountant in the state of Illinois,
United States.

B.Compensation.

Compensation for our executive officers for the financial year
ended December 2008 is as follows:

Name and Principal Position
      Annual
        Compensation
      Long
        Term Compensation
      All Other Compen-
        sation (C$)Salary (C$)
      Bonus (C$)
      Other Annual Compen- sation (C$)
      Awards
      PayoutsSecurities Under Options granted (#)
      Shares or Units subject to Resale
        Restrictions (C$)
      LTIP Payouts (C$)Graham Dickson,  President and CEO
      $299,068
      $100,000
      Nil
      Nil
      Nil
      Nil
      NilChristopher Oxner 
        Former CFO (2)
      $123,185
      $32,000
      Nil
      200,000
      $416,233
      Nil
      NilShaun Heinrichs,  CFO(3)(4)
      $123,788
      $6,000
      Nil
      200,000
      $248,244
      Nil
      Nil


|(1) | January 1 to December 31.                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Chief Financial Officer until August 14, 2008.                                                                                                          
|(3) | Appointed Chief Financial Officer November 21,
    2008.                                                                                                
|(4) | Salary includes $104,029 which was paid to Mr. Heinrichs
      as the controller during 2008, prior to being appointed to Chief Financial
      Officer.

---

103

Option Grants to Executive Officers During the Most
  Recently Completed Financial Year

Name
    Securities Under
      Options (#)
    % of Total Options
      Granted to Employees in Financial
      Year(1)
    Exercise or Base
      Price ($/Security) C$
    Expiration
      DateShaun Heinrichs
    200,000
    19%
    $1.60
    March 28, 2013


|(1) | Reflected as a percentage of the total number of options
      to purchase common shares granted (1,050,000) during the Financial
      Year.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

Each of our Directors is paid an annual retainer of C$12,000,
to be paid quarterly and receive C$750 for each meeting of directors attended,
with the Chairman of a meeting receiving C$1,000 per meeting. None of our
Directors were granted stock options for the financial year ended December 31,
2008 and no stock options were exercised during our most recently completed
financial year.

Our former Chairman, E. Lynn Patterson, was paid an annual
retainer of C$36,000 and received a payment of C$1,000 per meeting attended.

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

Stock Option Plan

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

C.Board practices.

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

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

We have an Audit Committee, which recommends to the full Board
of Directors the engagement of the independent auditors and reviews with the
independent auditors the scope and results of our audits, our internal
accounting controls, and the professional services furnished by the independent
auditors to us. The Audit Committee meets as required to review the annual and
quarterly financial statements, matters relating to the securities commissions,
investments and transactions that could adversely affect our well-being and
management's recommendations regarding share issues. The Audit Committee also
establishes and monitors procedures to reduce conflicts of interest and for
reviewing audit and financial matters. Through meetings with external auditors
and senior management, the Audit Committee discusses, among other things, the
effectiveness of the internal control procedures established for us. At all
times, at least one (1) audit committee member possesses accounting or related
financial expertise, while the remaining members are, at minimum, possessed of
significant experience in analyzing the financial condition of corporations. The
Board of Directors has adopted a charter for the audit committee which sets out
the responsibilities of the committee and provides guidance to committee members
as to their duties which charter is posted on the Corporations website at
www.yukon-nevadagold.com under Corporate
Info/Governance Policy. Our Audit Committee currently consists of three (3)
members: Robert Chafee, Iain Harris and R.J. (Don) MacDonald.

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

---

104

Chief Executive Officer. The members of the Compensation Committee
  are Messrs. John Fox, Neil Steenberg and Robert Chafee (Chair).

D.Employees.

As of December 31, 2008, we had 15 full time employees, 6
located in Nevada, 2 in the Yukon and 7 in British Columbia.

E.Share ownership.

The following table outlines the common shareholdings of the
Directors and Senior Management, as at December 31, 2008.

Name of Beneficial Owner
    Amount and Nature of Beneficial
      Ownership(1)
    Percent of ClassRobert E. Chafee
    4,092,810
    1.50%Graham C. Dickson
    2,596,000
    0.95%John R.W.
      Fox)
    259,800
    0.10%Iain J. Harris
    37,500
    0.01%Shaun Heinrichs
    150,000
    0.06%Peter Holbek
    15,000
    0.005%R.J. (Don)
      MacDonald
    20,000
    0.01%Neil J.F. Steenberg
    20,000
    0.01%


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

The following table sets forth our outstanding stock options in
Canadian dollars to Directors and Senior Management as at December 31, 2008.

Name of Optionee
    Position of Optionee (Director/Officer)
    Date of Grant
    No. of Shares
    Exercise Price
    Expiry DateGraham Dickson
    Director
    Apr.
      14, 2005
    500,000
    $0.60
    Apr.
      14, 2010Neil Steenberg
    Director
    Apr. 14, 2005
    250,000
    $0.60
    Apr. 14, 2010John Fox
    Director
    Apr.
      14, 2005
    250,000
    $0.60
    Apr.
      14, 2010Robert Chafee
    Director
    Oct. 1, 2005
    250,000
    $0.60
    Oct. 1, 2010Lynn Patterson
    Director
    Oct.
      1, 2005
    250,000
    $0.60
    Oct.
      1, 2010Don MacDonald
    Director
    Oct. 1, 2005
    250,000
    $0.60
    Oct. 1, 2010Peter Holbek
    Director
    Oct.
      1, 2005
    250,000
    $0.60
    Oct.
      1, 2010Graham Dickson
    Director
    Jan. 5, 2007
    600,000
    $2.77
    Jan. 5, 2012John Fox
    Director
    Jan.
      5, 2007
    50,000
    $2.77
    Jan.
      5, 2012Neil Steenberg
    Director
    Jan. 5, 2007
    50,000
    $2.77
    Jan. 5, 2012Don MacDonald
    Director
    Jan.
      5, 2007
    50,000
    $2.77
    Jan.
      5, 2012Robert Chafee
    Director
    Jan. 5, 2007
    50,000
    $2.77
    Jan. 5, 2012Peter Holbek
    Director
    Jan.
      5, 2007
    50,000
    $2.77
    Jan.
      5, 2012Lynn Patterson
    Director
    Jan. 5, 2007
    50,000
    $2.77
    Jan. 5, 2012Iain Harris
    Director
    Jan.
      5, 2007
    300,000
    $2.77
    Jan.
      5, 2012Lynn Patterson
    Director
    Aug. 10, 2007
    400,000
    $1.74
    Aug. 10, 2012Graham Dickson
    Director
    Aug.
      10, 2007
    1,000,000
    $1.74
    Aug.
      10, 2012Robert Chafee
    Director
    Aug. 10, 2007
    200,000
    $1.74
    Aug. 10, 2012John Fox
    Director
    Aug.
      10, 2007
    200,000
    $1.74
    Aug.
      10, 2012Neil Steenberg
    Director
    Aug. 10, 2007
    200,000
    $1.74
    Aug. 10, 2012Iain Harris
    Director
    Aug.
      10, 2007
    200,000
    $1.74
    Aug.
      10, 2012Don MacDonald
    Director
    Aug. 10, 2007
    200,000
    $1.74
    Aug. 10, 2012Peter Holbek
    Director
    Aug.
      10, 2007
    200,000
    $1.74
    Aug.
      10, 2012Shaun Heinrichs
    Officer
    March 28, 2008
    200,000
    $1.60
    March 28, 2013


The following table sets forth our outstanding stock options in
Canadian dollars issued to employees as a group, pursuant to the stock option
plan described in Item 6.B, Stock Option Plan, as at December 31, 2008.

---

105

Date of Grant
    No. of Shares
    Exercise Price
    Expiry DateJanuary 26, 2006
    50,000
    $0.82
    January 26, 2011December 12, 2006
    25,000
    $2.25
    December 12, 2011April 2, 2007
    25,000
    $1.61
    April
      2, 2012June 25, 2007
    90,000
    $1.63
    June 25,2012November 13, 2007
    40,000
    $1.70
    November 13, 2012


Item 7. Major Shareholders and Related Party
Transactions.

A.Major shareholders.

At December 31, 2008, we had 272,655,430 Shares outstanding. At
such date, we believe that Orifer S.A. ("Orifer") was the only entity
beneficially owning more than 5% of our outstanding Shares. At such date Orifer
was the beneficial owner of 54,000,000 Shares, which represented 19.81% of our
outstanding Shares. Orifer is not a party to a voting trust agreement and does
not have any different voting rights. With the exception of Orifer, there has
not been any significant change in the percentage ownership of Shares held by
any major shareholder during the past three years.

At December 31, 2008, we had 46 Canadian holders of record,
holding 163,108,793 common shares, which represented 59.82% of our outstanding
Shares. At such date, there were no arrangements, the operation of which could
result in a change of control. All shareholders have the same voting rights with
respect to the Shares.

B.Related party transactions.

By agreement made as of June 1, 2006 between Celec Inc.
("Celec"), and us, Celec agreed to provide the services of Graham C. Dickson as
our President and Chief Executive Officer and provide geological and
metallurgical services to us. Also, Mr. Dickson was to provide management and
administrative services to us for an initial term of two years at a remuneration
of C$15,000 per month, exclusive of GST, subject to an annual increase equal to
the annual percentage increase in the Consumer Price Index published by
Statistics Canada for Vancouver, including the reimbursement of all reasonable
expenses incurred by Celec. Celec is a private company, controlled by Graham
Dickson, our President and one of our directors. On June 1, 2007 our agreement
with Celec Inc. was terminated and Mr. Dickson became an employee.

C.Interests of experts and counsel.Not
applicable.

Item 8. Financial Information.

See Item 17.

Item 9. The Offer and Listing.

A.Offer and listing details.

Our Shares are currently listed for trading on the TSX (Toronto
Stock Exchange) under the trading symbol "YNG" and on Frankfurt Stock Exchange
under the trading symbol NG6.F.

Following is information on the trading history of our
Shares:

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

|Fiscal Year Ended | High  | Low  
|----------------- | ----- | -----
|December 2008     | $1.80 | $0.02
|December 2007     | $2.89 | $1.18
|December 2006     | $2.73 | $0.76
|December 2005(1)  | $0.95 | $0.41

|(1) | Our shares commenced trading on the TSX on April 13,
      2005.
|--- | ----------------------------------------------------------------

---

106

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

|Period Ended       | High  | Low  
|------------------ | ----- | -----
|December 31, 2008  | $0.12 | $0.02
|September 30, 2008 | $1.20 | $0.13
|June 30, 2008      | $1.78 | $1.09
|March 31, 2008     | $1.80 | $1.45
|December 31, 2007  | $1.83 | $1.34
|September 30, 2007 | $1.79 | $1.18
|June 30, 2007      | $2.20 | $1.62
|March 31, 2007     | $2.89 | $1.55

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

|Month Ended    | High  | Low  
|-------------- | ----- | -----
|February 2009  | $0.09 | $0.05
|January 2009   | $0.05 | $0.03
|December 2008  | $0.04 | $0.02
|November 2008  | $0.05 | $0.03
|October 2008   | $0.12 | $0.03
|September 2008 | $0.22 | $0.13

B. Plan of distribution.

Not applicable.

C.Markets.

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

D.Selling shareholders.

Not applicable.

E.Dilution.

Not applicable.

F.Expenses of the issue.

Not applicable.

Item 10. Additional Information.

A.Share capital.

Not applicable.

B.Memorandum and articles of
association.

We were incorporated under the laws of the Province of British
Columbia under the name YGC Resources Ltd. (YGC) on May 30, 1988 under
Certificate of Incorporation Number 346183. On January 25, 2002, we were struck
from the Register of Companies for British Columbia and dissolved and on August
1, 2003 we were restored to the Register. On January 5, 2004 we consolidated our
share capital on a five (5) old for one (1) new basis and increased our
authorized share capital from 4,000,000 shares without par value to 100,000,000
shares without par value. On June 23, 2005, we increased our authorized share
capital from 100,000,000 Common Shares without par value to an unlimited number
of Common Shares without par

---

107

value. We do not have any stated objects or purposes as
such are not required by the corporate laws of the Province of British Columbia.
Rather, we are, by such corporate laws, entitled to carry on any activities
whatsoever, which are not specifically precluded by other statutory provisions
of the Province of British Columbia.

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

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

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

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

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

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

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

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

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

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

C.Material contracts.

The following is a summary of each material contract, other
than contracts entered into in the ordinary course of business, to which we or
any member of the group is a party, for the two years immediately preceding
publication of the document, including dates, parties, general nature of the
contracts, terms and conditions, and amount of any consideration passing to or
from us or any other member of the group.

|1. | On March 16, 2007 we entered into a combination agreement
      (the Combination Agreement) with Queenstake Resources Ltd.
      (Queenstake) pursuant to which we acquired all of the issued and
      outstanding shares of Queenstake.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|   | Shareholders of Queenstake received one of our shares for
      each ten (10) shares of Queenstake held. See Item 4B. Business
      Overview, Jerritt Canyon Property, Nevada; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|2. | As a condition of the Combination Agreement described in
      item 1 above we were required to raise approximately C$80,000,000. On May
      30, 2007 we entered into an Agency Agreement with Pacific International
      Securities Inc., Casimir Capital L.P., Blackmont Capital Inc. and
      Wellington West Capital Markets Inc. (collectively, the Agents), wherein
      the Agents undertook to assist us in finding potential purchasers to
      purchase up to C$71,100,000 Subscription Receipts, which were exchangeable
      into shares and warrants upon our achievement of Release Conditions (as
      defined in the Agency Agreement). The Agents received a cash commission of
      5% of the gross proceeds raised by them, an option entitling the Agents to
      purchase additional shares equal to 5% of the aggregate number of
      subscription receipts sold, and an over-allotment option to purchase up to
      7,200,000 additional Subscription Receipts.

D.Exchange controls.

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

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

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

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

Acquisitions of businesses related to Canada's cultural
heritage or national identity (regardless of the value of assets involved) may
also be reviewable under the Investment Canada Act. In addition,
investments to establish new, unrelated businesses are not generally reviewable.
An investment to establish a new business that is related to the non-Canadian's
existing business in Canada is not notifiable under the Investment Canada Act
unless such investment relates to Canada's cultural heritage or national
identity.

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

Any proposed take-over of us by a "non-Canadian" would likely
be subject only to the simple "notification" requirements of the Investment
Canada Act as in all likelihood that non-Canadian would be a "WTO investor"
for purposes of the Investment Canada Act. Generally, a "WTO investor" is
an individual, other than a Canadian, who is a national of a country that is a
member of the World Trade Organization. In the case of a person that is not an
individual; a WTO investor is a person that

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generally, is ultimately controlled by individuals, other than
Canadians, who are nationals of a WTO member. Currently there are 134 countries
that are members of the WTO, including virtually all countries of the Western
world.

E.Taxation.

Certain Canadian Federal Income Tax Consequences 
General

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

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

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

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

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

Dividends

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

Disposition of Common Shares

A US Holder who realizes a capital gain on the actual or deemed
disposition of a common share will not be subject to Canadian federal income tax
under the Canadian Tax Act in respect of the capital gain unless such common
share constitutes

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110

"taxable Canadian property" to the US Holder for purposes of
the Canadian Tax Act and the US Holder is not exempt from Canadian federal
income tax on such gain pursuant to the terms of the US Treaty.

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

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

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

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

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

United States Taxation

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

The following summary is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS,
and court decisions that are currently applicable, any of which could be
materially and adversely changed, possibly on a retroactive basis, at any time
including, without limitation, United States rates of taxation. This summary
does not consider the potential effects, both adverse and beneficial, of any
recently proposed legislation which, if enacted, could be applied, possibly on a
retroactive basis, at any time. No rulings have been or will be sought from the
IRS with respect to any of the U.S. federal income tax issues discussed in this
summary, and no assurance can be given that the IRS will not successfully
challenge any tax positions described herein.

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

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111

income), state, local, and foreign tax consequences of
purchasing, owning and disposing of common shares of the Company.

U.S. Holders

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

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

Distributions on our Shares

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

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

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

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

Disposition of Common Shares

Subject to the PFIC and CFC discussions below, a U.S. Holder
will recognize a gain or loss upon the sale of the common shares equal to the
difference, if any, between (i) the amount of cash plus the fair market value of
any property received, and (ii) the U.S. Holders adjusted tax basis in the
common shares. This gain or loss will be a capital gain or loss if the common
shares are a capital asset in the hands of the U.S. Holder, and will be a
short-term or long-term capital gain or loss depending

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112

upon the holding period of the U.S. Holder. Preferential tax
rates for long-term capital gains are applicable to a U.S. Holder which is an
individual, estate or trust, under current law. There are currently no
preferential tax rates for long-term capital gains for a U.S. Holder which is a
corporation.

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

Foreign Tax Credit

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

Other Considerations

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

Passive Foreign Investment Company

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

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

Shareholder Election

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

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

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113

Company was classified as a PFIC in a prior year, then
additional considerations apply. U.S. Holders should consult their own U.S.
tax advisors regarding making a QEF Election.

Mark to Market Election

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

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

Controlled Foreign Corporation

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

F.Dividends and paying agents.

Not applicable.

G.Statement by experts.

Not applicable.

H.Documents on display.

Public documents are available for inspection at our head
offices located at 490  688 West Hastings Street, Vancouver, British Columbia
V6B 1P1, and, for certain documents, on the Internet at
www.yukon-nevadagold.com, by accessing the Canadian

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System for Electronic Data Analysis and Retrieval (SEDAR)
website at www.sedar.com and by the Electronic
Data Gathering, Analysis and Retrieval (EDGAR) system at www.sec.gov.

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

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

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

I.Subsidiary Information.

Not applicable.

Item 11. Quantitative and Qualitative Disclosures About
Market Risk.

The Company is exposed to the certain risks through its use of
financial instruments, including market risk (currency risk, interest rate risk
and commodity price risk), credit risk, and liquidity risk. The Companys
manages its exposure to risk through the identification and analysis of risks
faced by the Company, setting appropriate risk limits and controls, and
monitoring those risks and adherence to the limits and controls that are
established. Risk management is carried out by senior management under the
approval of the Board of Directors. Risk management practices are reviewed
regularly by senior management and the Audit Committee to reflect changes in
market conditions and the Companys activities.

Market risk

|    | Market risk is the risk or uncertainty arising from
      possible market price movements and their impact on the future performance
      of the business. The market price movements that could adversely affect
      the value of the Companys financial assets, liabilities and expected
      future cash flows include foreign currency risk, interest rate risk and
      commodity price risk.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                         
|(i) | Currency risk:                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Company has integrated operations in Canada and is
      exposed to foreign currency risk due to fluctuations in the value of the
      Canadian dollar. Foreign currency risk arises from purchase transactions
      as well as financial assets and liabilities denominated in Canadian
      dollars.                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Company manages this risk by maintaining funds in
      Canadian dollars to support the cash requirements of those operations. The
      Company does not use any foreign exchange contracts to hedge these
      currency risks.                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                         
|    | As at December 31 the Company is exposed to currency risk
      through its cash and cash equivalents, marketable securities, accounts
      receivable, restricted funds and accounts payable and accrued liabilities
      denominated in Canadian dollars as follows, based on notional
    amounts:                                                                                                 

|In thousands of C$                             |   | 2008  |  |   | 2007   |  |  |  | 
|---------------------------------------------- | - | ----- |  | - | ------ |  |  |  | 
|Cash and cash
      equivalents                | $ | 1,295 |  | $ | 39,756 |  |  |  | 
|Marketable securities                          |   |      |  |   | 154    |  |  |  | 
|Accounts
      receivable and prepaid expenses |   | 1,482 |  |   | 2,610  |  |  |  | 
|Restricted funds                               |   | 3,341 |  |   | 8,704  |  |  |  | 
|Accounts payable and accrued liabilities       |   | 4,413 |  |   | 1,350  |  |  |  | 

---

115

|      | Based on the above net exposures as at December 31, 2008,
      a 10% appreciation or depreciation in the Canadian dollar against the US
      dollar, assuming all other variables remain constant, would result in a
      $0.1 million increase or decrease, respectively, in operating results and
      shareholder equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(ii)  | Interest rate risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      | This is the risk that the future cash flows of a
      financial instrument will fluctuate because of changes in market interest
      rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      | The Companys cash and cash equivalents contain highly
      liquid investments that earn interest at market rates. The Company manages
      its interest rate risk by maximizing the interest earned on excess funds
      while maintaining the liquidity necessary to fund daily operations.
      Fluctuations in market interest rates do not have a significant impact on
      the Companys results from operations due to the short term to maturity of
      the investments held.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(iii) | Commodity price risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      | The profitability of the Company is directly related to
      the market price of gold because revenues are derived primarily from gold
      mining. Gold prices are affected by numerous factors beyond the Companys
      control, including central bank sales, producer hedging activities, the
      relative exchange rate of the US dollar with other major currencies,
      global and regional demand and political and economic conditions.
      Worldwide gold production levels also affect gold prices, and the price of
      gold is occasionally subject to rapid short-term changes due to
      speculative activities. The Company has not hedged any of its own gold
      production. Previously, forward sales contracts were entered into for gold
      produced under its current tolling arrangements with third parties. These
      forward contracts were recorded at fair value as they were not designated
      as hedging instruments, with gains and losses recorded in income. However,
      all forward contracts were settled during 2008. For the year ended
      December 31, 2008, a 10% increase or decrease in the price of gold would
      have resulted in an increase and decrease of $4.9 million in gold
      sales.

Credit risk

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

|(i)  | Cash and cash equivalents and marketable
  securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | The Company manages its credit risk on cash and cash
      equivalent balances and marketable securities by maintaining balances with
      Tier 1 Canadian banks with a Standard & Poors rating of AA.
      Short-term investments (included in cash and cash equivalents as well as
      marketable securities) are composed of financial instruments issued by
      Canadian banks and companies with high investment-grade ratings. These
      investments mature at various dates over the current operating
    period.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(ii) | Accounts receivables and prepaid expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | Substantially all of the Companys trade receivables are
      based in the US and are with a single counterparty. The Company has
      transacted with this counterparty for several years and there is no
      history of loss arising from receivable amounts.                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | The Company also maintains funds of $25.7 million,
      included in restricted funds (note 8), with a third party insurer with a
      Standard & Poors rating of A+ to fund future reclamation costs at
      Jerritt Canyon. The Company maintains title to these funds should the
      third party be in default of their obligations or enters into bankruptcy
      protection.                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | Other significant deposits and receivables are either
      held by or due from government agencies and relate to the funding of
      future closure costs at Jerritt Canyon or goods and services input tax
      credits.                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | The Company does not have any receivables or deposits
      that would be considered impaired or otherwise uncollectible, therefore no
      allowance for doubtful accounts is required.                                                                                                                                                                                                                                                                                                                                         

---

116

Liquidity risk

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

The following are the contractual maturities of the
undiscounted cash flows of financial liabilities (in thousands of US dollars) at
December 31, 2008:

Less than 3 
        months
      4 to 12 
        months
      1 to 2 years
      Greater than 
        2 yearsAccount payable
      and accrued liabilities
      $ 28,599
      
      
      Payable on purchased ore
      8,257
      
      
      Capital lease
      obligations
      740
      43
      25
      


Item 12. Description of Securities Other than Equity
Securities.

Not applicable.

PART II

Item 13. Defaults, Dividend Arrearages and
Delinquencies.

Not applicable.

Item 14. Material Modifications to the Rights of Security
Holders and Use of Proceeds.

Not applicable.

Item 15. Controls and Procedures.

Managements Report on Internal Control over Financial
Reporting

Management is responsible for establishing and maintaining
adequate internal control over financial reporting. A companys internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.

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

| | (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.                                                                                                                                      

---

117

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, 2008. 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, 2008, the Company did not maintain effective internal control over
financial reporting due to the material weaknesses described below.

A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the companys annual or
interim financial statements will not be prevented or detected on a timely
basis.

| | 1. | Control Environment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | A Companys control environment influences the control
      consciousness of its people, and is the foundation of all other components
      of internal control over financial reporting. The Company'scontrol
      environment did not sufficiently promote effective internal control over
      financial reporting throughout the organization. Specifically, the Company
      (i) did not effectively design or communicate the Companys Whistleblower
      policy, (ii) did not conduct a comprehensive fraud risk assessment (iii)
      did not effectively design the Code of Conduct or communicate the Code to
      employees and (iv) did not maintain records of background checks performed
      on employees. None of these control deficiencies by themselves directly
      resulted in a material misstatement to the financial statements, however,
      deficiencies in the control environment are pervasive in nature.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 2. | Information and Communication                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The Company did not maintain adequate controls to
      facilitate the flow of information throughout the Company or between
      Management and the Board of Directors. The Company did not have effective
      controls to communicate departures from corporate policies to ensure
      departures were responded to on a timely basis and discussed with the
      Board of Directors. Specifically, (i) the Company did have not effective
      communication with the Board with respect to pre-approval for equity
      issuances and (ii) the delegation of operating decisions to Management.
      These control deficiencies did not result in adjustments to the financial
      statements, however, they are pervasive in nature and create a reasonable
      possibility that a material misstatement of the financial statements would
      not be prevented or detected on a timely basis.                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 3. | Management review                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The Company had limited accounting personnel to support
      the Chief Financial Officer during the annual financial close process..
      Specifically, the Company did not have personnel other than the Chief
      Financial Officer with expertise in complex accounting matters to enable
      effective review in complex accounting area. As a result, material errors
      were identified and corrected prior to the issuance of the financial
      statements for the following accounts: depreciation, prepaids, asset
      retirement obligations, equity, income taxes and US GAAP. This deficiency
      creates a reasonable possibly that a material misstatement would not be
      prevented or detected on a timely basis.                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4. | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The Companys controls over inventory were not designed
      effectively. Specifically, (i) a balance in WIP inventory was recorded on
      the financial statements and the Companys account reconciliation was
      insufficiently precise to detect a material error and (ii) the Company did
      not maintain records of interim stockpile counts and did not perform an
      annual count on a timely basis. This resulted in a material adjustment to
      WIP inventory the Company did not maintain records of interim stockpile
      counts and did not perform an annual count on a timely
  basis.                                                                                                                                                                                                                                                                                                                               

---

118

Remediation Plans

Management is undertaking the following initiatives for 2009:

| | 1. | Control Environment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | During the first quarter of 2009 management has corrected
      the existing Whistleblower line and communicated the policy to employees
      within the organization. As well, management is undertaking the
      development of an employee specific Code of Conduct and will have this in
      place by the second quarter of 2009. In the interim, employees have been
      informed to adhere to the existing Code of Conduct which is in place for
      Officers and Directors and the application of this policy to them has been
      communicated. A formal fraud risk review program is under review and will
      be implemented during the second quarter of 2009.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 2. | Information and Communication                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | A formal program for monitoring and enforcing corporate
      policies will be developed and implemented during 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 3. | Resource Constraints                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Management is actively evaluating the need for additional
      accounting resources to support the segregation of duties within the
      organization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4. | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | During the first quarter of 2009 resources were
      identified within the organization to monitor and report on the work-
      in-process balance as well as conduct and document accurate stockpile
      counts throughout the year.                                                                                                                                                                                                                                                                                                                                                                                                                                            

Changes in internal control over financial reporting

Due to the closure of the mine and mill operations in Jerritt
Canyon, significant changes in the ICFR arose during the third quarter of 2008.
The impact of these changes, which largely arise from the departure of several
process owners in that location, has resulted in a reduction in segregation of
duties within the Company as well as reduced expertise in complex accounting
matters.

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 procedure and determined that, as a result of the material weakness in
internal control over financial reporting described above, as of December 31,
2008 our disclosure controls and procedures are not effective to ensure that
information required to be disclosed by us is recorded, processed, summarized
and reported within the time periods specified.

Item 15T. Controls and Procedures.

Not Applicable.

Item 16. [Reserved]

Item 16A. Audit Committee Financial Expert.

We have determined that our all members of the audit committee
are independent and are financially literate, meaning that he must be able to
read and understand financial statements, and that the Chairman of the Audit
Committee, Mr. MacDonald, is an audit committee financial expert, as defined
under the SEC Rules. The members of the Audit Committee are Messrs. MacDonald,
Harris and Chafee.

---

119

Item 16B. Code of Ethics.

We have adopted a written code of ethics for all our directors
and officers entitled Code of Conduct and Conflict of Interest Guidelines for
Directors and Officers (the Code). The Code includes, among other things,
written standards for our principal executive officer, principal financial
officer and principal accounting officer or controller, or persons performing
similar functions that are required by the Commission for a code of ethics
applicable to such officers. A copy of the Code is posted on the Corporations
website at www.yukon-nevadagold.com under
Corporate Info/Governance Policy.

No amendments to the Code were adopted during the year ended
December 31, 2008. No waiver or implicit waiver, as such terms are defined
in Form 20-F, were granted relating to any provision of the Code during the year
ended December 31, 2008.

Item 16C. Principal Accountant Fees and Services.

The following chart summarizes the aggregate fees in Canadian
dollars billed by our external auditors for professional services rendered
during the fiscal years ended December 31, 2008 and 2007 for audit and non-audit
related services:

Type of Work
    Year Ended
      December 31, 2008
    Year Ended
      December 31, 2007Audit fees(1)
    $444,000
    $230,500Audit-related fees(2)
    $50,000
    $64,580Tax
      fees
    $35,000
    NilAll other fees
    nil
    NilTotal
    $529,000
    $295,080


|1. | Aggregate fees billed for our annual financial statements
      and services normally provided by the auditor in connection with the
      Companys statutory and regulatory filings.                                                                                                                                                                                                                           
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                  
|2. | Aggregate fees billed for assurance and related services
      that are reasonably related to the performance of the audit or review of
      our financial statements and are not reported as "Audit fees", including:
      assistance with aspects of tax accounting, attest services not required by
      state or regulation and consultation regarding financial accounting and
      reporting standards.

Item 16D. Exemptions from the Listing Standards for Audit
Committees.

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and
Affiliated Purchasers.

Not applicable.

Item 16F. Change in Registrants Certifying Accountant.

Not applicable.

Item 16G. Corporate Governance.

Not Applicable.

PART III

Item 17. Financial Statements.

See the attached financial statements.

---

120

A.Consolidated Statements and Other Financial
Information.

See attached financial statements.

B.Significant Changes.Not applicable.

Item 18. Financial Statements.

Not applicable.

Item 19. Exhibits.

The list of exhibits is included following the signature page
hereto.

---

121

SIGNATURES

The Registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.

YUKON-NEVADA GOLD CORP.



Per: /s/ Graham C.
Dickson

Graham C. Dickson President and
Chief Executive Officer

Date: March 31, 2009

---

122

ANNUAL REPORT ON FORM 20-F for the year ended
December 31, 2008 EXHIBIT INDEX

|Exhibit  |                                                                                                     
|-------- | ----------------------------------------------------------------------------------------------------
|No. Item | Description of Exhibit                                                                              
|         |                                                                                                     
|1.1      | Articles                                                                                            
|         |                                                                                                     
|4.1      | 2007 Stock Option Plan                                                                              
|         |                                                                                                     
|12.1     | Section 302 Certification
      by Graham C. Dickson, Chief Executive Officer, dated March 31, 2009.
|         |                                                                                                     
|12.2     | Section 302 Certification
      by Shaun Heinrichs, Chief Financial Officer, dated March 31, 2009.  
|         |                                                                                                     
|13.1     | Section 906 Certification
      by Graham C. Dickson, Chief Executive Officer, dated March 31, 2009.
|         |                                                                                                     
|13.2     | Section 906 Certification
      by Shaun Heinrichs, Chief Financial Officer, dated March 31, 2009.  

---











Consolidated Financial Statements
(Expressed in United States dollars)



YUKON-NEVADA GOLD
CORP.

Years ended December 31, 2008,
2007 and 2006

---

MANAGEMENTS RESPONSIBILITY FOR FINANCIAL
REPORTING

The accompanying consolidated financial statements of
Yukon-Nevada Gold Corp. (the Company) have been prepared by management in
accordance with accounting principles generally accepted in Canada, and within
the framework of the summary of significant accounting policies disclosed in the
notes to these consolidated financial statements.

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

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

The consolidated financial statements have been audited by
external auditors, KPMG LLP, in accordance with accounting principles generally
accepted in Canada. KPMG LLP has full and free access to the Audit Committee.





|Graham Dickson        | Shaun Heinrichs      
|----------------------- | -----------------------
|                        |                        
|Graham Dickson          | Shaun Heinrichs        
|President and           | Chief Financial Officer
|Chief Executive Officer |                        
|                        |                        
|                        |                        
|March 31, 2009          |                        

---

MANAGEMENTS REPORT ON INTERNAL
CONTROL OVERFINANCIAL REPORTING  US

The management of Yukon-Nevada Gold Corp. is responsible for
establishing and maintaining adequate internal control over financial reporting.
The Securities and Exchange Act of 1934 in Rule 13a-15(f) and 15d-15(f) defines
this as a process designed by, or under the supervision of, the Companys
principal executive and principal financial officers and effected by the
Companys Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles, and includes those policies and
procedures that:

- Pertain to the maintenance of records that, in reasonable detail,
  accurately and fairly reflect the transaction and dispositions of the assets
  of the Company;
- Provide reasonable assurance that transactions are recorded as necessary to
  permit preparation of financial statements in accordance with generally
  accepted accounting principles, and that receipts and expenditures of the
  Company are being made only in accordance with authorizations of management
  and directors of the company; and
- Provide reasonable assurance regarding prevention or timely detection of
  unauthorized acquisitions, use or disposition of the Companys assets that may
  have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to risk that controls
may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Companys internal
control over financial reporting as of December 31, 2008. In making this
assessment, the Companys management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal ControlIntegrated Framework.

Based upon our assessment and those criteria, management
concluded that the Companys internal control over financial reporting was not
effective as of December 31, 2008 due to the following material weaknesses: (1)
Control Environment, (2) Information and Communication, (3) Financial Resources,
and (4) Inventory which are further described in the Management Discussion and
Analysis.

KPMG LLP, our independent auditors, has issued an attestation
report on internal control over financial reporting for the Company as of
December 31, 2008, which is included herein.

|Graham Dickson        | Shaun Heinrichs      
|----------------------- | -----------------------
|                        |                        
|Graham Dickson          | Shaun Heinrichs        
|President and           | Chief Financial Officer
|Chief Executive Officer |                        
|                        |                        
|March 31, 2009          |                        

1

---

| | KPMG LLP                         | Telephone      (604) 691-3000             
| | -------------------------------- | ------------------------------------------
| | Chartered Accountants            | Fax                  
      (604) 691-3031
| | PO Box 10426 777 Dunsmuir Street | Internet          
    www.kpmg.ca        
| | Vancouver BC V7Y 1K3             |                                           
| | Canada                           |                                           

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

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

We have audited the consolidated balance sheets of Yukon-Nevada
Gold Corp. (the Company") as at December 31, 2008 and 2007 and the consolidated
statements of operations, comprehensive loss, shareholders equity and cash
flows for each of the years in the three-year period ended December 31, 2008.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2008 and 2007, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
2008 in conformity with Canadian generally accepted accounting principles.

Canadian generally accepted accounting principles vary in
certain significant respects from US generally accepted accounting principles.
Information relating to the nature and effect of such differences is presented
in Note 22 to the consolidated financial statements.

We also have audited, in accordance with the standards of the
  Public Company Accounting Oversight Board (United States), the Company's internal
  control over financial reporting as of December 31, 2008, based on the criteria
  established in Internal ControlIntegrated Framework issued by the Committee
  of Sponsoring Organizations of the Treadway Commission (COSO), and our report
  dated March 25, 2009expressed an adverse opinion on the effectiveness of the
  Companys internal control over financial reporting.



KPMG LLP (signed)

Chartered Accountants

Vancouver, Canada

March 25, 2009



KPMG LLP, a Canadian limited
liability partnership is the Canadianmember firm of
KPMG International, a Swiss cooperative.

---

| | KPMG LLP                         | Telephone      (604)
      691-3000       
| | -------------------------------- | ------------------------------------------
| | Chartered Accountants            | Fax                  
      (604) 691-3031
| | PO Box 10426 777 Dunsmuir Street | Internet          
  www.kpmg.ca          
| | Vancouver BC V7Y 1K3             |                                           
| | Canada                           |                                           

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

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

We have audited Yukon-Nevada Gold Corp. (the Company")s
internal control over financial reporting as of December 31, 2008, based on the
criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements
Report on Internal Controls over Financial Reporting. Our responsibility is to
express an opinion the Company's internal control over financial reporting based
on our audit.

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

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

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. 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 the policies or procedures may deteriorate.

KPMG LLP, a Canadian limited
liability partnership is the Canadianmember firm of KPMG
International, a Swiss cooperative.

---

A material weakness is a deficiency, or a 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
financial statements will not be prevented or detected on a timely basis. The
following material weaknesses have been identified and included in managements
assessment: (1) Control Environment, (2) Information and Communication, (3)
Financial Resources and (4) Inventory. We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet of the Company as at December 31, 2008 and the
related consolidated statements of operations, comprehensive loss, shareholders
equity and cash flows for the year ended December 31, 2008. These material
weaknesses were considered in determining the nature, extent and timing of audit
tests applied in our audit of the 2008 consolidated financial statements, and
this report does not affect our report dated March 25, 2009, which expressed an
unqualified opinion on those consolidated financial statements.

In our opinion, because of the aforementioned material weaknesses
  on the achievement of the objectives of the control criteria, Yukon-Nevada Gold
  Corp. has not maintained effective internal control over financial reporting
  as of December 31, 2008, based on the criteria established in Internal ControlIntegrated
  Framework issued by the Committee of Sponsoring Organizations of the Treadway
  Commission (COSO).



KPMG LLP(signed)

Chartered Accountants



Vancouver, Canada

March 25, 2009

2

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Yukon-Nevada Gold Corp.Consolidated Balance Sheets (In thousands of US dollars)

As at December 31, 2008 and 2007

|                                               |   | 2008     |   |   | 2007    |  
|---------------------------------------------- | - | -------- | - | - | ------- | -
|                                               |   |          |   |   |         |  
|Assets                                         |   |          |   |   |         |  
|                                               |   |          |   |   |         |  
|Current assets:                                |   |          |   |   |         |  
|Cash and cash equivalents                      | $ | 1,106    |   | $ | 41,104  |  
|Marketable securities                          |   | -        |   |   | 173     |  
|Accounts receivable and
      prepaid expenses |   | 2,171    |   |   | 7,778   |  
|Inventories (note 7)                           |   | 24,019   |   |   | 37,995  |  
|Future income taxes (note
      15)            |   | 895      |   |   | 1,453   |  
|Asset held for resale
      (note 9)           |   | 841      |   |   |        |  
|                                               |   | 29,032   |   |   | 88,503  |  
|Restricted funds (note 8)                      |   | 28,484   |   |   | 36,669  |  
|Property, plant and equipment (note 9)         |   | 93,850   |   |   | 81,809  |  
|Mineral properties (note 10)                   |   | 47,347   |   |   | 88,212  |  
|Other assets (note
      11)                   |   | 923      |   |   | 974     |  
|                                               |   |          |   |   |         |  
|                                               | $ | 199,636  |   | $ | 296,167 |  
|                                               |   |          |   |   |         |  
|Liabilities and Shareholders Equity           |   |          |   |   |         |  
|                                               |   |          |   |   |         |  
|Current liabilities:                           |   |          |   |   |         |  
|Accounts
      payable and accrued liabilities | $ | 28,599   |   | $ | 15,273  |  
|Payable on purchased ore                       |   | 8,257    |   |   | 18,847  |  
|                                               |   | 36,856   |   |   | 34,120  |  
|Other long-term liabilities (note 13)          |   | 25       |   |   | 1,148   |  
|Asset retirement obligations (note 14)         |   | 32,688   |   |   | 26,528  |  
|Future income
      taxes (note 15)            |   | 8,419    |   |   | 28,527  |  
|                                               |   | 77,988   |   |   | 90,323  |  
|                                               |   |          |   |   |         |  
|Shareholders' equity (note 16):                |   |          |   |   |         |  
|Share capital                                  |   | 202,441  |   |   | 184,720 |  
|Warrants                                       |   | 23,444   |   |   | 20,603  |  
|Contributed surplus                            |   | 8,694    |   |   | 8,092   |  
|Accumulated other comprehensive income         |   | 2,273    |   |   | 2,273   |  
|Deficit                                        |   | (115,204 | ) |   | (9,844  | )
|                                               |   | 121,648  |   |   | 205,844 |  
|Going concern (note 1)                         |   |          |   |   |         |  
|Commitments and contingencies (note 21)        |   |          |   |   |         |  
|Subsequent events
      (note 23)              |   |          |   |   |         |  
|                                               |   |          |   |   |         |  
|                                               | $ | 199,636  |   | $ | 296,167 |  

See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:

|Graham C.
      Dickson | Director | R.J. MacDonald | Director
|------------------------- | -------- | ---------------- | --------

2

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

Years ended December 31, 2008, 2007 and 2006

|                                            |   | 2008        |   |   | 2007        |   |   | 2006       |  
|------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ---------- | -
|                                            |   |             |   |   |             |   |   |            |  
|Gold sales                                  | $ | 48,981      |   | $ | 64,460      |   | $ | -          |  
|Cost of gold sold                           |   | 58,742      |   |   | 48,218      |   |   | -          |  
|Gross margin  mining operations            |   | (9,761      | ) |   | 16,242      |   |   | -          |  
|Temporary shutdown costs (note 6)           |   | 13,115      |   |   | -           |   |   | -          |  
|Depreciation, depletion, and amortization   |   | 9,279       |   |   | 5,731       |   |   | 16         |  
|Accretion (note
      14)                   |   | 2,117       |   |   | 1,082       |   |   | 145        |  
|Income (loss) from mine operations          |   | (34,272     | ) |   | 9,429       |   |   | (161       | )
|Impairment of mineral properties and        |   |             |   |   |             |   |   |            |  
|equipment (note 6)                          |   | 76,363      |   |   | -           |   |   | -          |  
|General and administration (note 16(c)(ii)) |   | 4,090       |   |   | 3,550       |   |   | 1,228      |  
|Stockbased compensation (note 16(d))       |   | 1,056       |   |   | 5,563       |   |   | 278        |  
|Income (loss) from operations               |   | (115,781    | ) |   | 316         |   |   | (1,667     | )
|Other (loss) income:                        |   |             |   |   |             |   |   |            |  
|Interest and other income                   |   | 4,635       |   |   | 2,503       |   |   | 377        |  
|Loss on
      forward sales arrangements    |   | (1,904      | ) |   | (4,324      | ) |   | -          |  
|Restructuring charges
      (note 6)        |   | (4,532      | ) |   | -           |   |   | -          |  
|Foreign
      exchange gain                 |   | 814         |   |   | 793         |   |   | -          |  
|Interest expense                            |   | (667        | ) |   | (218        | ) |   | -          |  
|                                            |   | (1,654      | ) |   | (1,246      | ) |   | 377        |  
|Loss before income taxes                    |   | (117,435    | ) |   | (930        | ) |   | (1,290     | )
|Income tax (expense) recovery (note 15)     |   |             |   |   |             |   |   |            |  
|Current                                     |   | -           |   |   | (33         | ) |   | -          |  
|Future                                      |   | 12,075      |   |   | (936        | ) |   | 101        |  
|Loss for the year                           | $ | (105,360    | ) | $ | (1,899      | ) | $ | (1,189     | )
|                                            |   |             |   |   |             |   |   |            |  
|Loss per share  basic and diluted          | $ | (0.57       | ) | $ | (0.02       | ) | $ | (0.02      | )
|Weighted average number of shares           |   |             |   |   |             |   |   |            |  
|outstanding (basic
      and diluted)       |   | 185,124,008 |   |   | 121,434,273 |   |   | 53,147,312 |  

Consolidated Statements of Comprehensive Income (Loss)
(In thousands of US dollars)

Years ended December 31, 2008, 2007 and 2006

|                                         |   | 2008     |   |   | 2007   |   |   | 2006   |  
|---------------------------------------- | - | -------- | - | - | ------ | - | - | ------ | -
|Net loss for the year                    | $ | (105,360 | ) | $ | (1,899 | ) | $ | (1,189 | )
|Foreign exchange
      adjustment        |   | -        |   |   | 2,599  |   |   | (326   | )
|Comprehensive income (loss) for the year | $ | (105,360 | ) | $ | 700    |   | $ | (1,515 | )

See accompanying notes to consolidated financial statements.

3

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

Years ended December 31, 2008, 2007 and 2006

|                                        |  | Common shares |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|--------------------------------------- |  | ------------- |  | - | ------- | - | - | -------- | - | - | ----------- | - | - | ------------- | - | - | -------- | -
|                                        |  |               |  |   |         |   |   |          |   |   |             |   |   | Accumulated   |   |   |          |  
|                                        |  |               |  |   |         |   |   |          |   |   |             |   |   | other         |   |   |          |  
|                                        |  | Shares        |  |   |         |   |   |          |   |   | Contributed |   |   | comprehensive |   |   |          |  
|                                        |  | (000's)       |  |   | Amount  |   |   | Warrants |   |   | surplus     |   |   | income (loss) |   |   | Deficit  |  
|Balance January 1, 2006                 |  | 46,643        |  | $ | 19,791  |   | $ | 847      |   | $ | 949         |   | $ | -             |   | $ | (6,756   | )
|Issued on private placement (note       |  |               |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|16(b)(iii))                             |  | 19            |  |   | 22      |   |   |          |   |   |             |   |   |               |   |   |          |  
|Issued on private placement, flow       |  | 7,830         |  |   | 11,149  |   |   |          |   |   |             |   |   |               |   |   |          |  
|through shares (note 16(b)(i)(ii)(iv))  |  |               |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|Exercise of options                     |  | 1,760         |  |   | 1,500   |   |   |          |   |   | (365        | ) |   |               |   |   |          |  
|Exercise of warrants                    |  | 2,579         |  |   | 2,456   |   |   | (160     | ) |   |             |   |   |               |   |   |          |  
|Share issue costs                       |  | 89            |  |   | (718    | ) |   |          |   |   | 116         |   |   |               |   |   |          |  
|Flow through share renunciation         |  |               |  |   | (2,175  | ) |   |          |   |   |             |   |   |               |   |   |          |  
|Other                                   |  | 30            |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|Stockbased compensation (note 16(d))    |  |              |  |   |         |   |   |          |   |   | 455         |   |   |               |   |   |          |  
|Foreign exchange translation adjustment |  |              |  |   |         |   |   |          |   |   |             |   |   | (326          | ) |   |          |  
|Loss for the year                       |  |              |  |   |         |   |   |          |   |   |             |   |   |               |   |   | (1,189   | )
|Balance at December 31, 2006            |  | 58,950        |  |   | 32,025  |   |   | 687      |   |   | 1,155       |   |   | (326          | ) |   | (7,945   | )
|Issued on private placement (note       |  | 42,352        |  |   | 52,900  |   |   | 18,809   |   |   |             |   |   |               |   |   |          |  
|16(b)(v))                               |  |               |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|Issued on private placement, flow       |  | 5,000         |  |   | 10,192  |   |   |          |   |   |             |   |   |               |   |   |          |  
|through shares (note 16(b)(vii))        |  |               |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|Exercise of options                     |  | 993           |  |   | 530     |   |   |          |   |   | (340        | ) |   |               |   |   |          |  
|Exercise of warrants                    |  | 8,579         |  |   | 8,374   |   |   | (721     | ) |   |             |   |   |               |   |   |          |  
|Exercise of agents options and warrants |  | 812           |  |   | 1,084   |   |   |          |   |   |             |   |   |               |   |   |          |  
|Issued on acquisition of mineral        |  |               |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|properties (note 16(b)(vi))             |  | 58,437        |  |   | 89,049  |   |   |          |   |   |             |   |   |               |   |   |          |  
|Share issue costs (note 16(b)(viii))    |  |              |  |   | (5,532  | ) |   |          |   |   | 1,127       |   |   |               |   |   |          |  
|Flow through share renunciation         |  |              |  |   | (3,902  | ) |   |          |   |   |             |   |   |               |   |   |          |  
|Warrants issued to Queenstake           |  |               |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|shareholders (note 16(c)(i))            |  |              |  |   |         |   |   | 1,828    |   |   |             |   |   |               |   |   |          |  
|Fair value of options issued to         |  |               |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|Queenstake options holders              |  |              |  |   |         |   |   |          |   |   | 116         |   |   |               |   |   |          |  
|Stockbased compensation (note 16(d))    |  |              |  |   |         |   |   |          |   |   | 6,034       |   |   |               |   |   |          |  
|Foreign exchange translation adjustment |  |              |  |   |         |   |   |          |   |   |             |   |   | 2,599         |   |   |          |  
|Loss for the year                       |  |              |  |   |         |   |   |          |   |   |             |   |   |               |   |   | (1,899   | )
|Other                                   |  | 10            |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|Balance at December 31, 2007            |  | 175,133       |  |   | 184,720 |   |   | 20,603   |   |   | 8,092       |   |   | 2,273         |   |   | (9,844   | )
|Issued on private placement (note       |  |               |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|16(b)(x))                               |  | 79,800        |  |   | 838     |   |   | 2,689    |   |   |             |   |   |               |   |   |          |  
|Issued on private placement, flow       |  |               |  |   |         |   |   |          |   |   |             |   |   |               |   |   |          |  
|through shares (note 16 (b)(ix))        |  | 10,050        |  |   | 19,901  |   |   |          |   |   |             |   |   |               |   |   |          |  
|Exercise of options                     |  | 267           |  |   | 356     |   |   |          |   |   | (147        | ) |   |               |   |   |          |  
|Share issue costs (note 16 (b)(x))      |  | 7,400         |  |   | (665    | ) |   |          |   |   | (307        | ) |   |               |   |   |          |  
|Flow through share renunciation         |  |              |  |   | (2,709  | ) |   |          |   |   |             |   |   |               |   |   |          |  
|Stockbased compensation (note 16(d))    |  |              |  |   |         |   |   |          |   |   | 1,056       |   |   |               |   |   |          |  
|Loss for the year                       |  |              |  |   |         |   |   |          |   |   |             |   |   |               |   |   | (105,360 | )
|Other                                   |  | 5             |  |   |         |   |   | 152      |   |   |             |   |   |               |   |   |          |  
|Balance at December 31, 2008            |  | 272,655       |  | $ | 202,441 |   | $ | 23,444   |   | $ | 8,694       |   | $ | 2,273         |   | $ | (115,204 | )

See accompanying notes to consolidated financial statements.

4

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

Years ended December 31, 2008 and 2007

|                                                          |   | 2008     |   |   | 2007    |   |   | 2006   |  
|--------------------------------------------------------- | - | -------- | - | - | ------- | - | - | ------ | -
|Cash provided by (used in):                               |   |          |   |   |         |   |   |        |  
|                                                          |   |          |   |   |         |   |   |        |  
|Operations                                                |   |          |   |   |         |   |   |        |  
|Net loss for the year                                     | $ | (105,360 | ) | $ | (1,899  | ) | $ | (1,189 | )
|Items not
      affecting cash:                           |   |          |   |   |         |   |   |        |  
|Depreciation, depletion, and amortization                 |   | 9,279    |   |   | 5,731   |   |   | 16     |  
|Accretion                                                 |   | 2,117    |   |   | 1,082   |   |   | 145    |  
|Impairment of mineral properties and equipment            |   | 76,363   |   |   | -       |   |   | -      |  
|Stock-based compensation                                  |   | 1,056    |   |   | 5,563   |   |   | 278    |  
|Gain on disposal of asset                                 |   | (2,450   | ) |   | (123    | ) |   | (1     | )
|Reclamation payments                                      |   | 195      |   |   | 187     |   |   | -      |  
|Unrealized (gain) loss on forward sales                   |   | (952     | ) |   | 993     |   |   | -      |  
|Future income tax (recovery) expense                      |   | (12,075  | ) |   | 936     |   |   | (101   | )
|Unrealized foreign exchange gain                          |   | (1,668   | ) |   | (763    | ) |   | -      |  
|Warrants issues for debt financing                        |   | 152      |   |   | -       |   |   | -      |  
|                                                          |   | (33,343  | ) |   | 11,707  |   |   | (852   | )
|Change in non cash working capital (note 17(a)(iii))      |   | 14,931   |   |   | (23,475 | ) |   | 150    |  
|                                                          |   | (18,412  | ) |   | (11,768 | ) |   | (702   | )
|Investing                                                 |   |          |   |   |         |   |   |        |  
|Acquistion of Queenstake, net of
      cash acquires of   |   |          |   |   |         |   |   |        |  
|$2,450 (note 3)                                           |   | -        |   |   | (233    | ) |   | -      |  
|Restricted funds                                          |   | 7,476    |   |   | (1,092  | ) |   | (5,582 | )
|Short-term
      investments                              |   | 173      |   |   | 936     |   |   | 3,623  |  
|Mineral property expenditures                             |   | (29,104  | ) |   | (26,588 | ) |   | (6,559 | )
|Deferred
      acquistion costs                           |   | -        |   |   | (111    | ) |   | -      |  
|Property, plant and equipment
      expenditures          |   | (25,703  | ) |   | (6,266  | ) |   | (376   | )
|Proceeds from sale of assets                              |   | 4,480    |   |   | 123     |   |   | 11     |  
|                                                          |   | (42,678  | ) |   | (33,231 | ) |   | (8,883 | )
|Financing                                                 |   |          |   |   |         |   |   |        |  
|Due to related parties                                    |   | -        |   |   | (12     | ) |   | 2      |  
|Notes payable
      and capital leases                    |   | (1,323   | ) |   | (8,382  | ) |   | -      |  
|Common shares issued for cash                             |   | 23,201   |   |   | 80,346  |   |   | 11,171 |  
|Share issue
      costs                                   |   | (995     | ) |   | (4,407  | ) |   | (602   | )
|Common shares issued upon
      exercise of shareholder   |   |          |   |   |         |   |   |        |  
|warrants                                                  |   | -        |   |   | 7,654   |   |   | 1,832  |  
|Common shares issued upon
      exercise of agents       |   |          |   |   |         |   |   |        |  
|options and
      warrants                                |   | -        |   |   | 744     |   |   | 1,483  |  
|                                                          |   |          |   |   |         |   |   |        |  
|Common shares issued upon
      exercise of stock options |   | 209      |   |   | 530     |   |   | 117    |  
|                                                          |   | 21,092   |   |   | 76,473  |   |   | 14,003 |  
|                                                          |   |          |   |   |         |   |   |        |  
|Effect of exchange
      rate changes on cash             |   | -        |   |   | 5,288   |   |   | (117   | )
|Increase in cash and cash equivalents                     |   | (39,998  | ) |   | 36,762  |   |   | 4,301  |  
|                                                          |   |          |   |   |         |   |   |        |  
|Cash and cash equivalents, beginning of year              |   | 41,104   |   |   | 4,342   |   |   | 41     |  
|Cash and cash
      equivalents, end of year              | $ | 1,106    |   | $ | 41,104  |   | $ | 4,342  |  
|Supplemental cash flow information (note
      17)        |   |          |   |   |         |   |   |        |  

See accompanying notes to consolidated financial statements.

5

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|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

|1. | Going Concern:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Yukon-Nevada Gold Corp.s (the Company) business is gold
      mining and related activities, including exploration, development,
      extraction, processing and reclamation. Gold has been produced in Nevada,
      USA (Jerritt Canyon), acquired on June 20, 2007. There are gold
      exploration activities being carried out in Nevada, USA (Jerritt Canyon)
      and the Yukon Territory, Canada (Ketza River and Silver Valley).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | For properties other than the producing mine at Jerritt
      Canyon, the Company is in the process of mineral exploration and has yet
      to determine whether these properties contain reserves that are
      economically recoverable. The recoverability of the amount shown for
      mineral properties is dependent upon the existence of economically
      recoverable reserves, confirmation of the Company's ownership interest in
      the mining claims, the ability of the Company to obtain necessary
      financing to complete the development, and upon future profitable
      production or proceeds from the disposition of the mineral
    properties.                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company has incurred substantial losses from
      operations and has a deficiency in working capital of $7.8 million at
      December 31, 2008. During the third quarter of 2008 the Company determined
      that under current conditions the Jerritt Canyon mine was not economic,
      and accordingly the mine was shutdown on August 8, 2008. The company
      currently does not have persuasive evidence that the capitalized costs
      associated with the mineral properties and certain related assets can be
      recovered. Accordingly, management has written off all costs ($69.4
      million) related to the mineral property, $2.2 million of property, plant
      and equipment and a provision of $4.7 million related to the increase in
      the asset retirement obligation (see note 6).                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Subsequent to the mine closure, the Company has been
      working to address a number of key issues related to the stop order issued
      by the Nevada Division of Environmental Protection (NDEP) in the first
      quarter of 2008 in order to receive permission to restart the milling
      operations. These issues included bringing the recently completed
      evaporation pond into operational use and begin the drawdown of the
      tailings pond, finalizing engineering design plans of a new mercury
      emissions system, and the cleanup of waste materials onsite. The Company
      has addressed all of these requirements and received approval from the
      NDEP to restart milling operations on March 25, 2009.                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company will initially mill the remaining stockpiles
      on site and recommence toll milling at the Jerritt Canyon site. Further
      financing is required in order to fund further development of the Jerritt
      Canyon mines with the intention of returning to mining once the necessary
      development and backfill work has been completed. Management is currently
      pursuing financing alternatives and believes it will be able to secure the
      required financing in the near future. Should such financing be obtained,
      management believes that the remaining property, plant, and equipment
      costs can be fully recovered through a combination of toll milling, a
      return to mining and possibly eventual use of the wet mill circuit at the
      Ketza River property.                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | These consolidated financial statements are prepared on
      the basis that the Company will continue as a going concern. The
      conditions described in the preceding paragraphs raise substantial doubt
      about the Companys ability to continue as a going concern. The Companys
      ability to continue as a going concern and recover its investment in
      property, plant, and equipment and mineral properties is dependent on its
      ability to 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.

6

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

|2. | Significant accounting policies:                                                                                                                                                                                                                                                                                                                                       
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                        
|   | The financial statements of the Company have been
      prepared by management in accordance with Canadian generally accepted
      accounting principles. The financial statements have, in managements
      opinion, been properly prepared within reasonable limits of materiality
      and within the framework of the accounting policies summarized
    below:
|   |                                                                                                                                                                                                                                                                                                                                                                        
|   | (a)                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                        

| |                                                      |     
| | ---------------------------------------------------- | ----
| | Ketza River Holdings Ltd. (Yukon)                    | 100%
| | YGC Resources Arizona Inc. (Arizona)                 | 100%
| | Queenstake Resources Ltd. (British
      Columbia)   | 100%
| | Queenstake Resources U.S.A. Inc. (Delaware)          | 100%
| | Castle Exploration Inc. (Colorado)                   | 100%
| | Yukon-Shaanxi Mining Company - Joint Venture (Yukon) | 50% 
| |                                                      |     

| | (b) | Cash and cash equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Cash and cash equivalents include cash and short-term
      investments that are readily convertible to cash and have a maturity date
      within 90 days of the purchase date. The Company does not have any asset
      backed commercial paper in its short-term investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (c) | Marketable securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Marketable securities are classified as
      available-for-sale and carried at fair value with unrealized gains and
      losses at the reporting date recognized in comprehensive income in
      accordance with CICA Handbook section 1530. If a loss is determined to be
      other than temporary, the loss is recognized in income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (d) | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Work-in-process inventories are valued at the lower of
      average production cost and net realizable value, after a reasonable
      allowance for further processing and sales costs. Production costs include
      the cost of raw materials, direct labor, mine-site overhead expenses and
      depreciation and depletion of Jerritt Canyon mine property, plant and
      equipment and mineral properties. Purchased ore is recorded at cost based
      upon the contracted purchase price, net of an allowance for the Companys
      processing charged to a third party. Finished goods inventories are valued
      at the lower of average production cost and net realizable value. Cost
      valuations are based on the related three-month periods average costs.
      Net realizable value is after a reasonable allowance for sales costs.
      Materials and supplies inventories are valued at the lower of average cost
      and replacement cost, net of a provision for obsolescence with respect to
      identified inventory items. Stockpiles represent ore that has been mined
      or purchased and is available for future processing. Stockpiles are
      measured by estimating the number of tons added and removed from the
      stockpile, the number of

7

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| |     | contained ounces (based on assay data) and the estimated
      metallurgical recovery rates (based on expected processing method).
      Stockpile ore tonnages are verified by periodic surveys. Costs are
      allocated to stockpiles based on relative values of material stockpiled
      and processed using current mining costs incurred up to the point of
      stockpiling the ore. These costs include direct labor, mine-site overhead
      expenses, and depreciations and depletion on Jerritt Canyon mine equipment
      and mineral properties.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (e) | Assets Held for Resale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Assets held for resale are carried at fair value with
      unrealized gains and losses at the reporting date recognized in income in
      accordance with CICA Handbook section 1530.                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (f) | Property, plant and equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Property, plant and equipment is recorded at cost and
      depreciated on a straight-line basis over the estimated useful lives of
      the assets, with a half year of depreciation taken in the year the asset
      is put into service. Property, plant and equipment used in exploration is
      depreciated and included in mineral properties. Effective January 1, 2008
      the Company changed the useful lives for certain mining and milling assets
      to the rates shown in the table below.                                                   

| |                                |                                         
| | ------------------------------ | ----------------------------------------
| | Buildings                      | 20 years                                
| | Computer hardware and software | 3 years                                 
| | Construction in progress       | N/A                                     
| | Equipment and facilities       | 5 - 20 years                            
| | Furniture and fixtures         | 7 years                                 
| | Leasehold improvements         | straight-line over the term of the lease
| | Vehicles                       | 3 - 7 years                             
| |                                |                                         

| | (g) | Mineral properties:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The acquisition cost of a mineral property and related
      exploration expenditures net of any option payments or income tax credits
      received are deferred until the property is placed into production, is
      sold or abandoned or determined to be impaired. These deferred
      expenditures are amortized on a units-of-production basis over the
      estimated useful life of the property based on proven and probable
      reserves following commencement of production or written off if the
      property is abandoned or sold or determined to be impaired.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (h) | Long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The Company monitors the recoverability of long-lived
      assets based on factors such as current market value, future asset
      utilization, business climate and future undiscounted cash flows expected
      to result from the use of the related assets. The Company's policy is to
      record an impairment loss in the period it is determined that the carrying
      amount of the asset may not be recoverable. The impairment loss is
      calculated as the amount by which the carrying amount of the asset exceeds
      its fair value.                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (i) | Asset retirement obligations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The fair value of an asset retirement obligation is
      recorded in the period in which it is incurred. When the liability is
      initially recorded, the cost is capitalized by increasing the carrying
      amount of the related long-lived                                                                                                                                                                                                                                                                                                                                   

8

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| |     | asset. Over time, the liability is adjusted to reflect
      the passage of time (accretion expense) and for changes in estimated
      future cash flows. Accretion expense is charged to income, while
      adjustments related to changes in estimated cashflows are recorded as
      increases or decreases in the carrying value of the asset. The capitalized
      cost is amortized over the useful life of the related asset. Upon
      settlement of the liability, a gain or loss is recorded if the actual
      costs incurred are different from the liability recorded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (j) | Stock based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The CICA Handbook Section 3870, Stock-based
      Compensation and Other Stock-based Payments, establishes standards for
      the recognition, measurement and disclosure of stock-based compensation
      and other stock based payments for goods and or services. The Section
      requires that awards of stock be measured at fair value. The Company uses
      the Black-Scholes option pricing model to determine the fair value of each
      stock option on the date of the grant. The value of the stock options
      issued to directors, employees and service providers is expensed as
      stock-based compensation and is credited to contributed surplus. The value
      of the stock options issued to agents in exchange for brokerage services
      is netted against share capital as share issuance costs and credited to
      contributed surplus. Upon exercise, the proceeds of the options are
      credited to capital stock at the option price and the fair value of the
      options, as previously recorded, is reclassified from contributed surplus
      to capital stock.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The Company has established a stock-based compensation
      plan as described in note 16(d).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (k) | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Revenue is recognized when there is pervasive evidence
      that a metal sale contract exists, delivery to the customer has occurred,
      legal title has passed and the sales price and timing of payment has been
      agreed upon with the purchaser.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (l) | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The Company has adopted the asset and liability method of
      accounting for income taxes as outlined in the provisions of CICA Handbook
      Section 3465, Income Taxes. Under this method, current income taxes
      are recognized for the estimated taxes payable for the current year.
      Future income tax assets and liabilities are recognized for temporary
      differences between the tax and accounting bases of assets and liabilities
      as well as for the benefit of losses available for tax purposes to be
      carried forward to future years. A valuation allowance is provided against
      future income tax assets to the extent that realization is not considered
      to be more likely than not.                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (m) | Flow-through shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The Company has financed a portion of its exploration
      expenditures through the issuance of flow-through shares. Under the terms
      of these share issues, the tax attributes of the related expenditures are
      renounced to subscribers. The Company will recognize a future income tax
      liability, with an offset to share capital, when it renounces these
      expenditures to shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

9

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| | (n) | Use of estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The preparation of financial statements in conformity
      with generally accepted accounting principles requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the financial statements and revenues and
      expenses for the period. By their nature, these estimates are subject to
      management uncertainty and the effect on the financial statements of
      changes in such estimates in future periods could be significant.
      Significant estimates include those relating to the assessment of the
      Companys ability to continue as a going concern, mineral properties
      including amount of expenditures to be capitalized, and estimates required
      to determine whether impairment of long lived assets is required, asset
      retirement obligations, the fair valuation of stock options, share
      purchase warrants and agent's options issued, the recognition of income
      tax assets and liabilities, and the fair value of assets and liabilities
      acquired in business combinations. Actual results may differ from those
      estimates.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (o) | Loss per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Basic loss per share is computed by dividing the amount
      of loss for the period by the weighted average number of common shares
      outstanding during the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Diluted loss per share is calculated using the treasury
      stock method. Under the treasury stock method, the weighted average number
      of shares outstanding used in the calculation of diluted loss per share
      assumes that the deemed proceeds received from the exercise of stock
      options, agents' options and share purchase warrants that are "in the
      money" would be used to repurchase common shares of the Company at the
      average market price during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Existing stock options (note 16(d)) and share purchase
      warrants (note 16(c)) have not been included in the computation of diluted
      loss per share as to do so would be anti-dilutive. Accordingly, basic and
      diluted loss per share amounts are the same.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (p) | Investment in joint venture:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The Company conducts a portion of its exploration
      business through the joint venture Yukon-Shaanxi Mining Company (YSMC).
      The joint venture is bound by a contractual agreement which establishes
      the joint control for each of the venturers. The Company records its
      proportionate share of the joint ventures assets, liabilities, revenues
      and operating costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | As at December 31, 2008, the Company recorded $1.2
      million in assets from YSMC and a nominal amount of interest
  income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (q) | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Financial assets and financial liabilities, including
      derivatives, are measured at fair value on initial recognition and
      recorded on the balance sheet. Measurement in subsequent periods depends
      on whether the financial instrument has been classified as
      held-for-trading, available-for-sale, held-to-maturity, loans and
      receivables or other financial liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Financial assets and liabilities held-for-trading are
      measured at fair value with changes in those fair values recognized in net
      income. Financial assets and financial liabilities considered
      held-to-maturity, loans and receivables, and other financial liabilities
      are measured at amortized cost using the effective interest
  method                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

10

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| |     | of amortization. Available-for-sale financial assets are
      measured at fair value with unrealized gains and losses recognized in
      income. Investments in equity instruments classified as available-for-sale
      that do not have a quoted market price in an active market are measured at
      cost. Derivative instruments, including embedded derivatives, are recorded
      on the balance sheet at fair value. Changes in the fair values of
      derivative instruments are recognized in net income with the exception of
      derivatives designated as effective cash flow hedges. The Company has no
      such designated hedges.                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The disclosure of the Company financial instruments is
      further described in Note 20.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The transition adjustment attributable to the
      re-measurement of financial assets and financial liabilities at fair value
      for available-for-sale financial assets was recognized in accumulated
      other comprehensive income as at January 1, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (q) | Fair value of financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The fair values of the Companys cash and cash
      equivalents, accounts receivable, and accounts payable and accrued
      liabilities approximate their carrying values due to their short terms to
      maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (r) | Comprehensive income/loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Other comprehensive income represents changes in
      shareholders equity during a period arising from transactions and other
      events and circumstances from non-owner sources and includes unrealized
      gains and losses on financial assets classified as available-for-sale. The
      components of accumulated comprehensive income are disclosed in the
      consolidated statement of shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (s) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The Company uses the U.S. dollar as its functional and
      reporting currency. Therefore accounts denominated in currencies other
      than the U.S. dollar have been translated as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (t) | Hedges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | On January 1, 2007, the Company adopted CICA Handbook
      section 3865, Hedges. In a fair value hedging relationship, the
      carrying value of the hedged item is adjusted for unrealized gains or
      losses attributable to the hedged risk and recognized in net income.
      Changes in the fair value of the hedged item, to the extent that the
      hedging relationship is effective, are offset by changes in the fair value
      of the hedging derivative, which is also recorded in net income. When
      hedge accounting is discontinued, the carrying value of the hedged item is
      no longer adjusted and the cumulative fair value adjustments to the
      carrying value of the hedged item are amortized to net income over the
      remaining term of the original hedging relationship. In a cash flow
      hedging relationship, the effective portion of the change in the fair
      value of the hedging derivative is recognized in other comprehensive
      income. The ineffective portion is recognized in net income.
  The

11

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| |     | amounts recognized in accumulated other comprehensive
      income are reclassified to net income in the periods in which net income
      is affected by the variability in the cash flows of the hedged item. The
      Company currently does not have any designated hedges.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                 
| | (v) | Comparative figures:                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                 
| |     | Certain of the comparative figures have been reclassified
      to conform with the presentation adopted in the current
  year.                                                                                                                                                 

|3. | Business acquisition:                                                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Effective June 20, 2007 the Company acquired 100% of the
      outstanding common shares of Queenstake. This business acquisition has
      been accounted for as a purchase transaction, with the Company being
      identified as the acquirer and Queenstake as the acquiree. These
      consolidated financial statements include 100% of Queenstakes operating
      results from June 20, 2007.
|   |                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The purchase price was determined as
  follows:                                                                                                                                                                                                                                                                                                                                                         

| | Purchase price:                                                   |   |        | 
| | ----------------------------------------------------------------- | - | ------ | 
| | Share
      consideration (58,436,531 shares at C$1.62 per share) | $ | 89,049 | 
| | Fair value of share
      purchase warrants and stock options     |   | 1,944  | 
| | Acquisition costs                                                 |   | 2,683  | 
| |                                                                   |   |        | 
| |                                                                   | $ | 93,676 | 

The final purchase price allocation,
determined in the three months ended June 30, 2008, is as follows:

| |                                                |   | December
      31, |   |   | Purchase
      Price |   |   | December
      31, |  
| | ---------------------------------------------- | - | ------------------ | - | - | -------------------- | - | - | ------------------ | -
| | Net assets
      acquired:                     |   | 2007               |   |   | Adjustments          |   |   | 2008               |  
| | Cash                                           | $ | 2,450              |   | $ |                     |   | $ | 2,450              |  
| | Accounts receivable and
      prepaid expenses |   | 3,764              |   |   |                     |   |   | 3,764              |  
| | Marketable securities                          |   | 32                 |   |   |                     |   |   | 32                 |  
| | Inventories                                    |   | 21,809             |   |   |                     |   |   | 21,809             |  
| | Restricted funds                               |   | 27,589             |   |   |                     |   |   | 27,589             |  
| | Property, plant and
      equipment            |   | 79,868             |   |   | 1,558                |   |   | 81,426             |  
| | Mineral
      properties                       |   | 44,733             |   |   | 1,008                |   |   | 45,741             |  
| | Other assets                                   |   | 1,110              |   |   |                     |   |   | 1,110              |  
| | Accounts
      payable and accruals            |   | (45,498            | ) |   | (7,122               | ) |   | (52,620            | )
| | Future income taxes                            |   | (17,419            | ) |   | 4,556                |   |   | (12,863            | )
| | Long-term liabilities                          |   | (24,762            | ) |   |                     |   |   | (24,762            | )
| |                                                | $ | 93,676             |   |   |                     |   | $ | 93,676             |  

The change in the purchase price
allocation arises from adjustments to the tax assets and liabilities that were
acquired with the Queenstake purchase.

12

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

|4. | Adoption of new accounting standards:
|-- | -------------------------------------
|   |                                      
|   | (a)                                  
|   |                                      
|   |                                      
|   |                                      
|   | (b)                                  
|   |                                      
|   |                                      
|   |                                      
|   |                                      
|   |                                      
|   | (c)                                  
|   |                                      
|   |                                      
|   |                                      
|5. | Future accounting changes:           
|   |                                      
|   | (a)                                  
|   |                                      
|   |                                      
|   |                                      
|   |                                      
|   |                                      
|   | (b)                                  
|   |                                      
|   |                                      

13

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

outlines the convergence of Canadian
GAAP with International Financial Reporting Standards (IFRS) over an expected
five-year transitional period. In February 2008, the AcSB announced that 2011 is
the transition date for publicly listed companies to use IFRS, which will
replace existing Canadian GAAP. The effective date is for interim and annual
financial statements relating to fiscal years beginning on or after January 1,
2011. The transition date of January 1, 2011 will require the restatement for
comparative purposes of amounts reported by the Company for the year ended
December 31, 2010. While we have begun assessing the adoption of IFRS for 2011,
the financial reporting impact of the transition to IFRS cannot be reasonably
estimated at this time.

|6. | Temporary Suspension of Jerritt Canyon
      Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | On February 22, 2008 the Company temporarily suspended
      mining and processing operations at the Jerritt Canyon mine in order to
      upgrade and install several components within the mill and the mine
      facilities. Expenses incurred from this date through to the recommencement
      of commercial operations on April 30, 2008 were recorded either as capital
      or, if they were determined to be maintenance or support expenses, as
      temporary shutdown costs aggregating $7.9 million.                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | On August 8, 2008 the Company announced the suspension of
      underground mining activity at the Jerritt Canyon property, with a
      suspension of the milling operations occurring the following week. The
      mill has been shut down temporarily and will recommence processing
      available stockpiles in 2009 and continue to pursue toll milling
      opportunities and financing to continue mining activities. Prior to
      recommencing operations the Company has been working to address
      environmental concerns relating to the stop order issued by the NDEP in
      the first quarter of 2008 (note 21(a)(i)).                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The revised work program resulted in a work force
      reduction of 394 employees, all located at the Jerritt Canyon location.
      The related restructuring charge of $4.5 million arises from the severance
      and vacation payments due to former employees of the Company. As of
      December 31, 2008, the Company had paid $2.6 million of this obligation.
      Other expenses incurred relating to the shutdown of the mill, other than
      normal course operating cost of $5.2 million, have been included in
      temporary shutdown costs.                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | During the three months ended September 30, 2008, the
      Company determined that the costs associated with the current mine plan
      for Jerritt Canyon exceeded the projected cash flows. Due to inadequate
      infrastructure which caused high operating costs and low production,
      mining at the Jerritt Canyon Mine was halted until further financing is
      obtained to enable the Company to perform the necessary development and
      infrastructure work to support more cost-efficient ore
  extraction.                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Due to the absence of a profitable long term mine plan,
      the Company wrote down the Jerritt Canyon mineral properties to their
      estimated fair value, which management determined to be nil based on
      current market conditions. The impairment expense recorded during the
      third quarter was $69.4 million for mineral properties. An additional $2.2
      million of property, plant and equipment related to the mine was written
      off in the fourth quarter. Also included in the impairment expense in the
      fourth quarter is a provision of $4.7 million related to the increase in
      the asset retirement obligation. The impairment charge was a non-cash
      transaction. The following table illustrates the values used in the
      write-down of the Jerritt Canyon mineral properties, property, plant and
      equipment and increase in the asset retirement
  obligation.

14

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

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

|7. | Inventories:
|-- | ------------

| |                        |   | 2008   |  |   | 2007   | 
| | ---------------------- | - | ------ |  | - | ------ | 
| |                        |   |        |  |   |        | 
| | Finished goods         | $ | 26     |  | $ | 7,749  | 
| | Stockpiled ore         |   | 2,655  |  |   | 1,827  | 
| | Purchased ore          |   | 17,872 |  |   | 21,408 | 
| | Work-in-process        |   |       |  |   | 2,962  | 
| | Materials and supplies |   | 3,466  |  |   | 4,049  | 
| |                        |   |        |  |   |        | 
| |                        | $ | 24,019 |  | $ | 37,995 | 

|   | All of the Companys inventories on hand as of December
      31, 2008 and 2007 are located at the Jerritt Canyon mine in Nevada,
      USA.                                                                                                                
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                             
|   | Included in cost of gold sold and depreciation,
      depletion, and amortization expense on the statement of loss are total
      inventory related costs of $3.4 million (2007  $9.2 million) and $1.4
      million (2007  $0.9 million), respectively.
|   |                                                                                                                                                                                                                                                             
|8. | Restricted funds:                                                                                                                                                                                                                                           

| |                                                      |   | 2008   |  |   | 2007   | 
| | ---------------------------------------------------- | - | ------ |  | - | ------ | 
| |                                                      |   |        |  |   |        | 
| | AIG commutation account (a)                          | $ | 25,741 |  | $ | 27,888 | 
| | Cash restricted for future exploration in Canada (b) |   | 2      |  |   | 5,485  | 
| | Water use license letter of credit (c)               |   | 2,535  |  |   | 3,114  | 
| | Cash pledged as
      security for letters of credit |   | 206    |  |   | 182    | 
| |                                                      |   |        |  |   |        | 
| |                                                      | $ | 28,484 |  | $ | 36,669 | 

| | (a) | On June 30, 2003, Queenstake purchased from American
      Insurance Group (AIG) an environmental risk transfer program (the ERTP)
      (note 11). As part of the ERTP, $25.8 million was deposited in an
      interest- bearing account with AIG (the Commutation Account). The
      Commutation Account principal plus interest earned on the principal is
      used to fund Jerritt Canyon mines ongoing reclamation and mine closure
      obligations. During 2008 the company received $5.0 million from the
      account related primarily to a payment settlement for the construction of
      the evaporation pond at Jerritt Canyon, earned $1.0 million in interest
      revenue and contributed an additional $2.2 million to the
  bonding.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| | (b) | During 2007 and 2008, the Company raised funds by way of
      private placements of flow-through shares. Under the conditions of these
      private placements, the funds must be spent in 2006, 2007 and 2008 on
      Canadian Exploration Expenditures (CEE) on properties located in Canada. A
      total of C$12.6 million of cash is required to fund future exploration
      under the terms of the flow through share subscription agreements signed
      in May 2008, however only a nominal cash balance was available due to the
      use of cash on non-flow through expenditures at December 31, 2008. The
      Company is obligated to fund the remaining C$12.6 million of expenditures
      by December 31, 2009 (see note 21(ii)).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (c) | The Yukon Territorial Government has a letter of credit
      with the Company for $2.5 million which was put in place to secure payment
      of potential reclamation work relating to the Ketza River
  project.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|9. | Property, plant and
equipment:
|-- | ------------------------------

2008
    
    
    
    
    
    
    
    
    2007Accumulated
    
    
    Net book
    
    
    
    
    
    Accumulated
    
    
      Net bookCost
    
    
    amortization
    
    
    value
    
    
    Cost
    
    
    amortization
    
    
      valueJerritt Canyon mine USA
    $
    103,935
    
    $
    11,036
    
    $
    92,899
    
    $
    84,948
    
    $
    4,306
    
    $
    80,642Ketza River project, Canada
    
    1,643
    
    
    780
    
    
    863
    
    
    1,533
    
    
    415
    
    
    1,118Corporate and other, Canada
    
    185
    
    
    97
    
    
    88
    
    
    114
    
    
    65
    
    
    49$
    105,763
    
    $
    11,913
    
    $
    93,850
    
    $
    86,595
    
    $
    4,786
    
    $
    81,809


|    | During the year the Company recorded a $2.2 million
      impairment charge on property, plant and equipment (note 6). With the
      closure of the mine in August of 2008, the Company disposed of selected
      mining assets and began actively marketing others. At the end of December
      31, 2008, the Company was actively marketing an asset under capital lease
      of $0.8 million which subsequently sold after year-end.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10. | Mineral properties:                                                                                                                                                                                                                                                                                                                                                                                                                        

2008
      
      
      
      
      
      2007Cost non-
      
      
      Accumulated
      
      
      Net book
      
      
      Cost
      
      
      Cost non-
      
      
      Accumulated
      
      
      Net bookdepletable
      
      
      depletion
      
      
      value
      
      
      depletable
      
      
      depletable
      
      
      depletion
      
      
      valueJerritt Canyon mine, USA
      $
      
      
      $
      
      
      $
      
      
      $
      9,551
      
      $
      46,782
      
      $
      2,085
      
      $
      54,248Ketza River project, Canada
      
      45,240
      
      
      
      
      
      45,240
      
      
      
      
      
      32,129
      
      
      
      
      
      32,129Silver Valley project, Canada
      
      1,334
      
      
      
      
      
      1,334
      
      
      
      
      
      1,297
      
      
      
      
      
      1,297Arizona project, USA
      
      589
      
      
      
      
      
      589
      
      
      
      
      
      519
      
      
      
      
      
      519Yukon-Shaanxi project,Canada (note 17(b))
      
      169
      
      
      
      
      
      169
      
      
      
      
      
      
      
      
      
      
      
      Other Yukon and BC projects,Canada
      
      15
      
      
      
      
      
      15
      
      
      
      
      
      19
      
      
      
      
      
      19$
      47,347
      
      $
      
      
      $
      47,347
      
      $
      9,551
      
      $
      80,746
      
      $
      2,085
      
      $
      88,212


| | (a) | Jerritt Canyon, Nevada:                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                              
| |     | With the acquisition of Queenstake (note 3), the Company
      has a 100% interest in the Jerritt Canyon property which consists of two
      gold producing mines, the SSX-Steer complex and the Smith mine.
| |     |                                                                                                                                                                                                              
| |     | During the year the Company recorded a $69.4 million
      impairment charge on Jerritt Canyon mineral properties (note
  6).                                                                                

16

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| | (b) | Yukon properties:                                                                                                                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     | (i)                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     | (ii)                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                    
| | (c) | Silver Bar, Arizona:                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     | The Company has a 100% interest in 55 claims in Pinal
      County, Arizona. The focus of exploration of this property will be gold
      and copper.                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                    
| | (d) | Mount Nansen, Yukon:                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     | The Company, through YSMC, has an option agreement to
      acquire 298 claims, in the Mount Nansen area of the Yukon. Exploration
      activity is underway in that area and further claims in that area are
      being evaluated.                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                    
| | (e) | Greenwood properties:                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     | The Company owns a 75% interest in 31 claims in the
      Greenwood Mining District in south east British Columbia which are subject
      to a 2% net smelter returns royalty. The remaining 25% interest in this
      gold property is owned by Intrepid Minerals Corporation. This property was
      written down to a nominal amount in 2005.
| |     |                                                                                                                                                                                                                                                                                                                                                    
| | (f) | Other Yukon Base Metals properties:                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     | (i)                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     | (ii)                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                    

17

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

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

These properties have nominal carrying
values.

|11. | Other assets:
|--- | -------------

| |                                     |   | 2008 |  |   | 2007 | 
| | ----------------------------------- | - | ---- |  | - | ---- | 
| |                                     |   |      |  |   |      | 
| | Environmental Risk Transfer Program | $ | 923  |  | $ | 974  | 

| | (a) | Environmental Risk Transfer Program / Reclamation cost
      cap insurance:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | The ERTP that Queenstake purchased from AIG also includes
      a reclamation and mine closure cost cap insurance policy. The insurance
      policy provides coverage for future reclamation and mine closure costs in
      existence at June 30, 2003, if they exceed those funded by the Commutation
      Account (note 8). If these reclamation costs are less than the amount in
      the Commutation Account, the Company would be refunded the excess cash. In
      the event that these reclamation costs are more than the Commutation
      Account balance, the cost cap insurance policy will pay the excess costs
      up to a defined maximum (note 20(b)(ii)).
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (b) | Pollution legal liability:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | The ERTP also includes a pollution legal liability
      insurance coverage for third-party damage claims against the Company for
      both pre-existing pollution conditions and new pollution conditions, for a
      period of 20 years commencing June 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (c) | The insurance premium paid for the ERTP in June 2003 is
      being amortized over the estimated proven and probable reserves at the
      inception of the policy. Amortization of the insurance premium is
      calculated based on each respective periods production ounces with
      respect to the estimated proven and probable
reserves.                                                                                                                                                                                                                                                                                                                               

|12. | Related party transactions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | During the year, the Company was charged nil (2007 - $0.1
      million, 2006 - $0.1 million) in management fees by a company owned by a
      director of the Company.                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | During the year, the Company was charged a total of $0.2
      million (2007 - $0.3 million, 2006 - $0.1 million) in legal fees by a law
      firm in which the corporate secretary of the Company is a partner. The
      amount owing at December 31, 2008 is $0.1 million. A portion of these fees
      are included in share issue costs with the remainder included under
      general and administrative expenses. In 2007, a portion of these costs
      were also included in the transaction costs associated with the Queenstake
      business combination.

18

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

|13. | Other long-term
liabilities:
|--- | ----------------------------

| |                                         |   | 2008 |   |   | 2007  |  
| | --------------------------------------- | - | ---- | - | - | ----- | -
| | Capital leases                          | $ | 810  |   | $ | 2,079 |  
| | Current portion of
      capital leases |   | (785 | ) |   | (931  | )
| |                                         | $ | 25   |   | $ | 1,148 |  

|    | The Company has three capital lease obligations with
      respect to mine equipment in use at Jerritt Canyon. The lease obligations
      bear interest at rates between 6 and 9 percent. The current portion of
      capital leases is primarily comprised of $0.7 million for the property,
      plant, and equipment classified as held for resale. The current portion is
      included in accounts payable and accrued liabilities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|14. | Asset retirement
obligations:                                                                                                                                                                                                                                                                                                                                                                                                               

| |                                             |   | 2008   |  |   | 2007   | 
| | ------------------------------------------- | - | ------ |  | - | ------ | 
| |                                             |   |        |  |   |        | 
| | Balance, beginning of year                  | $ | 26,528 |  | $ | 1,903  | 
| | Acquisition of Jerritt Canyon property      |   | -      |  |   | 23,257 | 
| | Accretion expense                           |   | 2,117  |  |   | 1,082  | 
| | Revisions in
      estimates of liabilities |   | 4,043  |  |   | 286    | 
| |                                             |   |        |  |   |        | 
| | Balance, end of
      year                  | $ | 32,688 |  | $ | 26,528 | 

|    | The Companys asset retirement obligations consist of
      reclamation and closure costs for both active mines and exploration
      activities. The present value of obligations relating to active mines
      which the Company assumed with the acquisition of Queenstake is currently
      estimated at $25.5 million (2007 - $23.7 million) reflecting payments for
      approximately the next 20 years. The present value of obligations relating
      to exploration activity in the Yukon properties are currently estimated at
      $2.4 million (2007 - $2.8 million) reflecting payments for approximately
      the next 11 years. Significant reclamation and closure activities include
      land and water rehabilitation, demolition of buildings and mine
      facilities, ongoing care and maintenance and other costs.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Companys total liability for reclamation and closure
      cost obligations at December 31, 2008 is $32.7 million (2007 - $26.5
      million). The undiscounted value of this liability is $58.0 million
      (2007-$60.7 million). An inflation rate assumption of 2% has been used. An
      accretion expense component of $2.1 million (2007 - $1.1 million, 2006 -
      $0.1 million) has been charged to operations to reflect an increase in the
      carrying amount of the asset retirement obligation which has been
      determined using a credit adjusted risk free rate of 8%. Revisions in
      estimates in costs and timing of reclamation expenditures for 2008 used a
      credit risk free rate of 14%.                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|15. | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Company has income tax loss carry forwards of
      approximately $84.0 million (2007 - $22.0 million). Of this amount, $76.4
      million relates to the Companys US operations, a portion of which has
      been recognized as an asset and a valuation allowance has been provided
      for the remainder. The loss carry forwards, if unused, will expire as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                           

19

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| |             |   |        | 
| | ----------- | - | ------ | 
| | 2008 - 2011 | $ | 328    | 
| | 2015        |   | 521    | 
| | 2016        |   | 978    | 
| | 2024        |   | 3,824  | 
| | 2025        |   | 6,769  | 
| | 2026        |   | 5,554  | 
| | 2027        |   | 2,699  | 
| | 2028        |   | 63,334 | 
| |             |   |        | 
| |             | $ | 84,007 | 

The components of future income taxes
are as follows:

| |                                                  |   | 2008    |   |   | 2007    |  
| | ------------------------------------------------ | - | ------- | - | - | ------- | -
| |                                                  |   |         |   |   |         |  
| | Future income tax assets, current:               |   |         |   |   |         |  
| | Non-capital loss carry forwards                  | $ | 895     |   | $ | 1,453   |  
| |                                                  |   |         |   |   |         |  
| | Future income tax assets, non-current:           |   |         |   |   |         |  
| | Asset
      retirement obligation                |   | 728     |   |   | 826     |  
| | Non-capital loss carry
      forwards            |   | 22,719  |   |   | 11,110  |  
| | Share
      issue costs                          |   | 1,118   |   |   | 2,063   |  
| | Unrealized foreign
      exchange                |   |        |   |   | 694     |  
| | Mineral
      properties and property, plant and |   |         |   |   |         |  
| | equipment
      book less than tax basis         |   | 37,168  |   |   | 21,033  |  
| | Other                                            |   | 395     |   |   | 677     |  
| |                                                  |   | 62,128  |   |   | 36,403  |  
| | Valuation allowance                              |   | (36,358 | ) |   | (19,082 | )
| |                                                  |   | 25,770  |   |   | 17,321  |  
| | Future income tax liabilities, non-current:      |   |         |   |   |         |  
| | Mineral properties and
      property, plant and |   |         |   |   |         |  
| | equipment book in excess of tax basis            |   | (32,025 | ) |   | (44,566 | )
| | Unrealized foreign
      exchange                |   | (2,164  | ) |   |        |  
| | Other                                            |   |        |   |   | (1,282  | )
| |                                                  |   | (34,189 | ) |   | (45,848 | )
| | Net future income tax liability, non-current     | $ | (8,419  | ) | $ | (28,527 | )

The Company has recorded a valuation
allowance against certain of its future income tax assets as management does not
believe it is more likely than not that sufficient taxable income will be
generated during the carry forward period to realize all the future tax assets.

Combined federal, provincial and state
statutory tax rates which aggregate to 35.46% have been used for future tax
asset and liability calculations to reflect the substantively enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled.

During 2008 the Company renounced
C$10.0 million of CEE to flow-through shareholders. The result of this
renunciation was that the Cumulative Canadian Exploration Expenses pool of the
Company resources was reduced and a $3 million future income tax liability was
recorded on the date of renunciation.

20

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

The following table reconciles income
taxes calculated at statutory rates with the income tax expense in these
financial statements:

| |                                             |   | 2008     |   |   | 2007   |   |   | 2006    |  
| | ------------------------------------------- | - | -------- | - | - | ------ | - | - | ------- | -
| |                                             |   |          |   |   |        |   |   |         |  
| | Net loss before taxes                       | $ | (117,435 | ) | $ | (930   | ) | $ | (1,290  | )
| | Federal statutory
      tax rate            |   | 35.46%   |   |   | 37.12% |   |   | 37.12%  |  
| | Tax based on statutory income tax rate      |   | (41,642  | ) |   | (345   | ) |   | (479    | )
| | Non-deductible expenses                     |   | 121      |   |   | 18     |   |   | -       |  
| | Share issuance costs                        |   | -        |   |   | (1,948 | ) |   | (203    | )
| | Non-deductible stock-based compensation     |   | 311      |   |   | 1,933  |   |   | 91      |  
| | Loss (gain) not recognized for tax purposes |   | 1,230    |   |   | (274   | ) |   | -       |  
| | Change in valuation allowance               |   | 28,393   |   |   | 2,385  |   |   | -       |  
| | Change in tax rate and other                |   | 40       |   |   | (708   | ) |   | (332.00 | )
| | Impact of lower foreign taxes               |   | (528     | ) |   | (92    | ) |   | -       |  
| | Unrecognized tax assets                     |   | -        |   |   | -      |   |   | 822     |  
| | Income tax
      (recovery) expense         |   | (12,075  | ) |   | 969    |   |   | (101    | )

|16. | Share capital:
|--- | --------------
|    |               
|    | (a)           
|    |               
|    | (b)           
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               

21

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| |        | the Companys shares on the TSX before and after the
      announcement date of March 22, 2007. The value of the shares of the
      Company issued to Queenstake shareholders has been included in the
      purchase price consideration (note 3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (vii)  | On October 5, 2007, the Company closed a non-brokered
      private placement of 5 million flow-through shares at a price of C$2.00
      per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (viii) | The Company issued 1.8 million agents options to brokers
      in connection with the brokered portion of the June 20, 2007 private
      placement. Each agents option entitles the holder to purchase one common
      share of the Company for C$2.10. The agents options expire on June 20,
      2009. A fair value of $1.1 million has been assigned to the agents
      options, using the Black-Scholes pricing model (see the assumptions used
      in note (c)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (ix)   | On May 2, 2008, the Company closed a non-brokered private
      placement of 10.1 million flow-through shares at a price of C$2.00 per
      share for proceeds of $19.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (x)    | On December 19, 2008, the Company closed a non-brokered
      private placement for a total of 79.8 million common share units (the
      "Units") for $3.3 million. Each Unit consists of one common share (a
      "Share") and two series of Share purchase warrants. The first warrant (the
      "Series "A" Warrant") can be exercised to purchase one additional Share
      (the ""A" Warrant Share") at a price of C$0.07 per share within 12 months
      of closing of the private placement and the second warrant (the "Series
      "B" Warrant") can be exercised to purchase one additional Share (the ""B"
      Warrant Share") at a price of C$0.09 per share within 18 months of closing
      of the private placement. In accordance with securities legislation
      currently in effect, the Shares, the "A" Warrants, the "B" Warrants, the
      "A" Warrant Shares and the "B" Warrant Shares will be subject to "hold
      period" of four months plus one day expiring on expiring on April 18,
      2009.
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |        | The Company paid a 10% finder's fee to Procter Advisors
      Ltd. ("Procter") in connection with the private placement, payable in
      Units of the Company, of 7.4 million Units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |        | The 87.2 million Series A and 87.2 million Series B share
      purchase warrants expire on December 19, 2009 and June 19, 2010,
      respectively and the fair value using the Black-Scholes pricing model was
      $1.2 million each (see note (c)) for the assumptions
  used).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

22

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| | (c) | Warrants:                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------
| |     |                                                                                                       
| |     | Continuity of warrants outstanding for the year ended
      December 31, 2008 and 2007 are as follows:

Thousands of unitsWarrantsExercise
      
      
      December
      
      
      exercised/
      
      
      Warrants
      
      
      DecemberExpiry date
      
      Note
      
      
      price
        (C$)
      
      
      31,
        2006
      
      
      expired
      
      
      issued
      
      
      31,
        2007January 31, 2007
      
      
      
      
      2.40
      
      
      20
      
      
      (20
      )
      
      
      
      
      -April 13, 2007
      
      
      
      
      1.00
      
      
      5,724
      
      
      (5,724
      )
      
      
      
      
      -July 29, 2007
      
      
      
      
      1.00
      
      
      2,405
      
      
      (2,405
      )
      
      
      
      
      -August 26, 2007
      
      
      
      
      1.00
      
      
      466
      
      
      (466
      )
      
      
      
      
      -January 16, 2009
      
      (i)
      
      
      1.80
      
      
      -
      
      
      -
      
      
      1,000
      
      
      1,000April 12, 2010
      
      (i)
      
      
      5.50
      
      
      -
      
      
      -
      
      
      2,851
      
      
      2,851June 20,2012
      
      (ii)
      
      
      3.00
      
      
      -
      
      
      -
      
      
      21,176
      
      
      21,176April 13, 2007
      
      
      
      
      1.05
      
      
      194
      
      
      (246
      )
      
      52
      
      
      -July 29, 2007
      
      
      
      
      1.05
      
      
      31
      
      
      (127
      )
      
      96
      
      
      -8,840
      
      
      (8,988
      )
      
      25,175
      
      
      25,027


Thousands of unitsExercise
      
      
      December
      
      
      Warrants
      
      
      Warrants
      
      
      DecemberExpiry date
      
      Note
      
      
      price
        (C$)
      
      
      31,
        2007
      
      
      exercised
      
      
      issued
      
      
      31,
        2008January 16, 2009
      
      (i)
      
      
      1.80
      
      
      1,000
      
      
      -
      
      
      -
      
      
      1,000April 12, 2010
      
      (i)
      
      
      5.50
      
      
      2,851
      
      
      -
      
      
      -
      
      
      2,851June 20,2012
      
      (ii)
      
      
      3.00
      
      
      21,176
      
      
      -
      
      
      250
      
      
      21,426December 19, 2009
      
      16(b)(x)
      
      
      0.07
      
      
      -
      
      
      -
      
      
      87,200
      
      
      87,200June 19, 2010
      
      16(b)(x)
      
      
      0.09
      
      
      -
      
      
      -
      
      
      87,200
      
      
      87,20025,027
      
      
      -
      
      
      174,650
      
      
      199,677


Fair value of the shareholder and
agents warrants were determined using the Black-Scholes pricing model using the
following assumptions:

| |                   |  |               |  |  |                |  |  | Weighted      |  |  |            | 
| | ----------------- |  | ------------- |  |  | -------------- |  |  | ------------- |  |  | ---------- | 
| |                   |  | Risk-free     |  |  |                |  |  | average       |  |  |            | 
| | Expiry date       |  | interest rate |  |  | Dividend yield |  |  | expected life |  |  | Volatility | 
| | January 16, 2009  |  | 4.25%         |  |  | 0%             |  |  | 1.6           |  |  | 79%        | 
| | April 12, 2010    |  | 4.25%         |  |  | 0%             |  |  | 2.8           |  |  | 79%        | 
| | June 20, 2012     |  | 4.25%         |  |  | 0%             |  |  | 5             |  |  | 79%        | 
| | December 19, 2009 |  | 1.79%         |  |  | 0%             |  |  | 1             |  |  | 195%       | 
| | June 19, 2010     |  | 1.79%         |  |  | 0%             |  |  | 1.5           |  |  | 161%       | 

| | (i) | Pursuant to the terms of the Plan of Arrangement, the
      Company issued one share purchase warrant for every 10 Queenstake share
      purchase warrants outstanding as of the date of the business acquisition,
      June 20, 2007. The strike price of the Queenstake warrants was multiplied
      by 10 to calculate the exercise price of the warrants issued by the
      Company for the Queenstake warrants.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| |      | The fair value of the warrants of $1.8 million issued to
      Queenstake warrant holders has been included as part of the purchase price
      consideration (note 3) and was determined using the Black-Sholes pricing
      model (see above for assumptions used).                                                                                                                      
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                             
| | (ii) | During the three months ended June 30, 2008 the Company
      issued 0.3 million warrants in connection with obtaining $4.5 million in
      short term financing which was subsequently repaid during the month of
      July. The fair value of $0.2 million, recorded in general and
      administration expense, was determined using the Black-Scholes pricing
      model as follows:

| |                                              |      
| | -------------------------------------------- | -----
| | Risk-free interest rate                      | 3.24%
| | Dividend yield                               | 0%   
| | Weighted average expected life
      (years) | 4    
| | Volatility                                   | 96%  

| | (d) | Stock options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | The Company has a stock option plan (the Plan) in place
      under which the Board of Directors may grant options to acquire common
      shares of the Company to directors, employees and service providers. Under
      the terms of the Plan, the number of securities issuable to insiders, at
      any time under old security based agreements, cannot exceed 10% of the
      issued and outstanding securities.                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Under the fair value method, the total fair value of the
      stock based compensation granted to employees, directors, officers and
      service providers was $1.1 million in 2008 (2007 - $6 million, 2006 - $0.5
      million) at a weighted average of C$0.9 per stock option. Of this amount,
      $1.1 million (2007 - $5.6 million, 2006 - $0.5 million) is included in
      operations and nil (2007 - $0.5 million, 2006  nil) is included in
      mineral properties (cost allocated to fair value of options granted to
      Ketza River contractors). The fair value of the options at the date of
      grant has been estimated using the Black-Scholes option pricing model
      using the following assumptions:

WeightedRisk-free
    
    averageGrant date
    interest rate
    Dividend yield
    expected life
    VolatilityJanuary 26,2006
    3.00%
    -
    5
    97%March 28, 2006
    3.00%
    -
    5
    90%November 10, 2006
    4.50%
    -
    5
    84%December 12, 2006
    4.13%
    -
    5
    85%January 5, 2007
    4.14%
    -
    5
    84%April 3, 2007
    4.24%
    -
    5
    81%June 25, 2007
    4.25%
    -
    5
    79%July 5, 2007
    4.72%
    -
    5
    78%August 10, 2007
    4.53%
    -
    5
    78%September 14, 2007
    4.14%
    -
    2
    78%November 13, 2007
    3.91%
    -
    5
    77%February 22, 2008
    3.22%
    -
    2
    70%March 28, 2008
    3.35%
    -
    5
    98%June 19, 2008
    3.24%
    -
    5
    96%


24

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

Continuity of stock options outstanding
for the years ended December 31, 2008, 2007 and 2006 is as follows:

|                   |  |          |  |  | Number of stock options (000's) | 
|------------------ |  | -------- |  |  | ------------------------------- | 
|                   |  | Exercise |  |  |                                 | 
|                   |  | price    |  |  | January 1,                      | 
|Expiry Date        |  | (C$)     |  |  | 2006                            | 
|April 13, 2010     |  | 0.60     |  |  | 1,400                           | 
|May 17, 2010       |  | 0.60     |  |  | 550                             | 
|October 1, 2010    |  | 0.60     |  |  | 1,150                           | 
|April 13, 2007     |  | 0.65     |  |  | 1,190                           | 
|July 28, 2007      |  | 0.75     |  |  | 560                             | 
|May 30, 2007       |  | 1.55     |  |  | -                               | 
|January 25, 2011   |  | 0.82     |  |  | -                               | 
|March 28, 2011     |  | 1.06     |  |  | -                               | 
|November 10, 2011  |  | 1.71     |  |  | -                               | 
|December 12, 2011  |  | 2.25     |  |  | -                               | 
|June 20,2009       |  | 2.10     |  |  | -                               | 
|January 5, 2012    |  | 2.77     |  |  | -                               | 
|April 3, 2012      |  | 1.61     |  |  | -                               | 
|June 25, 2012      |  | 1.64     |  |  | -                               | 
|July 5, 2012       |  | 1.58     |  |  | -                               | 
|August 10, 2012    |  | 1.74     |  |  | -                               | 
|September 14, 2009 |  | 2.10     |  |  | -                               | 
|August 17, 2008    |  | 3.70     |  |  | -                               | 
|November 13, 2007  |  | 2.15     |  |  | -                               | 
|May 12, 2010       |  | 2.15     |  |  | -                               | 
|August 23, 2010    |  | 2.15     |  |  | -                               | 
|August 15, 2010    |  | 2.20     |  |  | -                               | 
|April 6, 2011      |  | 4.20     |  |  | -                               | 
|July 27, 2008      |  | 3.85     |  |  | -                               | 
|June 20, 2008      |  | 5.70     |  |  | -                               | 
|July 5, 2009       |  | 5.70     |  |  | -                               | 
|October 25, 2009   |  | 5.70     |  |  | -                               | 
|May 3, 2010        |  | 2.25     |  |  | -                               | 
|November 13, 2012  |  | 1.70     |  |  | -                               | 
|March 28, 2013     |  | 1.60     |  |  | -                               | 
|June 19, 2013      |  | 1.12     |  |  | -                               | 
|February 22, 2010  |  | 1.51     |  |  | -                               | 
|                   |  |          |  |  | 4,850                           | 

25

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

|17. | Supplemental
information:
|--- | -------------------------

| | (a) | Non cash transactions included in the cash
  flow
| | --- | -------------------------------------------------

| | (i) | Supplementary information regarding other non-cash
      transactions:
| | --- | ----------------------------------------------------------------------

| |                                                         |   | 2008 |  |  | 2007   |  |   | 2006 | 
| | ------------------------------------------------------- | - | ---- |  |  | ------ |  | - | ---- | 
| |                                                         |   |      |  |  |        |  |   |      | 
| | Shares issued on acquisition of Queenstake              | $ | -    |  |  | 89,049 |  | $ | -    | 
| | Warrants issued on acquisition of Queenstake            |   | -    |  |  | 1828   |  |   | -    | 
| | Stock options issued on acquisition of
      Queenstake |   | -    |  |  | 116    |  |   | -    | 
| | Stock-based compensation included in mineral properties |   | -    |  |  | 47     |  |   | -    | 
| |                                                         |   |      |  |  |        |  |   |      | 

| | (ii) | Operating activities included the following cash
      payments:
| | ---- | ----------------------------------------------------------------

| |               |   | 2008 |  |   | 2007 |  |   | 2006 | 
| | ------------- | - | ---- |  | - | ---- |  | - | ---- | 
| |               |   |      |  |   |      |  |   |      | 
| | Interest paid | $ | 257  |  | $ | 217  |  | $ |     | 
| |               |   |      |  |   |      |  |   |      | 

| | (iii) | Net change in non-cash working
capital:
| | ----- | ---------------------------------------

| |                                          |   | 2008    |   |   | 2007    |   |   | 2006 |  
| | ---------------------------------------- | - | ------- | - | - | ------- | - | - | ---- | -
| |                                          |   |         |   |   |         |   |   |      |  
| | Accounts receivable and prepaid expenses | $ | 5,334   |   | $ | (2,682  | ) | $ | (130 | )
| | Inventories                              |   | 12,793  |   |   | (15,094 | ) |   | -    |  
| | Accounts payable and accrued liabilities |   | 7,394   |   |   | (8,043  | ) |   | 280  |  
| | Payable on ore
      purchase            |   | (10,590 | ) |   | 2,344   |   |   | -    |  
| |                                          | $ | 14,931  |   | $ | (23,475 | ) | $ | 150  |  

| | (b) | Interest in joint venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The Company conducts a portion of its business through
      joint ventures under which the venturers are bound by contractual
      arrangements establishing joint control over the ventures. The Company
      records its proportionate share of assets, liabilities, revenues,
      operating expenses and other income (expense) of the joint ventures. The
      following condensed statements of earnings and balance sheets for the year
      ended December 31, 2008 detail the amounts relating to the Companys
      interest in a joint venture that has been proportionately
    consolidated.

26

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| |                                          |   | 2008  | 
| | ---------------------------------------- | - | ----- | 
| |                                          |   |       | 
| | Proportionate share of expenses          | $ | 18    | 
| | Proportionate share of assets            |   |       | 
| | Cash                                     | $ | 938   | 
| | Property plant and equipment             |   | 15    | 
| | Accounts
      receivable                |   | 124   | 
| | Mineral properties                       |   | 169   | 
| |                                          | $ | 1,246 | 
| | Proportionate
      share of liabilities | $ | 8     | 

|18. | Segmented information:                                                                                                                                                                                                                                            
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                   
|    | All of the Companys operations are related to the gold
      mining industry. As of the end of December 31, 2008 the Company had one
      gold mine (Jerritt Canyon) located in Nevada, USA. The Company has
      exploration properties in Canada and the USA.
|    |                                                                                                                                                                                                                                                                   
|    | Assets and liabilities held by geographic location are as
      follows:                                                                                                                                                                                          

| |              |   | 2008    |  |   | 2007    | 
| | ------------ | - | ------- |  | - | ------- | 
| |              |   |         |  |   |         | 
| | Assets:      |   |         |  |   |         | 
| | Canada       | $ | 53,329  |  | $ | 86,288  | 
| | USA          |   | 146,307 |  |   | 209,879 | 
| |              |   |         |  |   |         | 
| |              | $ | 199,636 |  | $ | 296,167 | 
| |              |   |         |  |   |         | 
| | Liabilities: |   |         |  |   |         | 
| | Canada       | $ | 14,470  |  | $ | 12,200  | 
| | USA          |   | 63,518  |  |   | 78,123  | 
| |              |   |         |  |   |         | 
| |              | $ | 77,988  |  | $ | 90,323  | 

|19. | Capital Management:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company manages its common shares, stock options and
      warrants as capital. The Companys objectives in managing capital are to
      safeguard its ability to continue as a going concern to provide returns
      for shareholders and benefits for other stakeholders. To meet this
      objective the Company will ensure it has sufficient cash resources to
      pursue the exploration and development of its mineral properties and fund
      potential acquisitions and future production in its Jerritt Canyon
      operations.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | To support these objectives the Company manages its
      capital structure and makes adjustments to it in light of changes in
      economic conditions and risk characteristics of underlying assets. To
      maintain or adjust its capital structure, the Company may attempt to issue
      new shares, issue new debt, acquire or dispose of assets or adjust the
      amount of cash and cash equivalents. In order to maximize the exploration
      and development efforts, the Company does not pay out
  dividends.                    

27

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

|    | The Companys investment policy is to invest its cash in
      highly liquid short-term interest-bearing investments with maturities 90
      days or less from the original date of acquisition, selected with regards
      to the expected timing of expenditures from continuing
  operations.                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Company is not subject to any externally imposed
      capital requirements and there has been no change with respect to the
      overall capital risk management strategy during the year ended December
      31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|20. | Financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Companys financial instruments consist of cash and
      cash equivalents, receivables, marketable securities, restricted funds,
      accounts payable and accrued liabilities. Cash and cash equivalents are
      designated as held for trading and therefore carried at fair value, with
      the unrealized gain or loss recorded in income. Marketable securities are
      classified as available for sale with the unrealized gain or loss
      recognized in income. Restricted funds as designated as held for trading
      and carried at fair value with unrealized gains and losses at the
      reporting date recognized in income. Interest income and expense are both
      recorded in income.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The fair values of accounts receivables, accounts payable
      and accrued liabilities approximate carrying value because of the short
      term nature of these instruments. There are no significant differences
      between the carrying values and the fair values of any financial assets or
      liabilities.                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Company is exposed to the certain risks through its
      use of financial instruments, including market risk (currency risk,
      interest rate risk and commodity price risk), credit risk, and liquidity
      risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Companys manages its exposure to risk through the
      identification and analysis of risks faced by the Company, setting
      appropriate risk limits and controls, and monitoring those risks and
      adherence to the limits and controls that are established. Risk management
      is carried out by senior management under the approval of the Board of
      Directors. Risk management practices are reviewed regularly by senior
      management and the Audit Committee to reflect changes in market conditions
      and the Companys activities.                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

28

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

As at December 31 the Company is
exposed to currency risk through its cash and cash equivalents, marketable
securities, accounts receivable, restricted funds and accounts payable and
accrued liabilities denominated in Canadian dollars as follows, based on
notional amounts:

| | In thousands of CAD                      |   | 2008  |  |   | 2007   | 
| | ---------------------------------------- | - | ----- |  | - | ------ | 
| | Cash and cash equivalents                | $ | 1,295 |  | $ | 39,756 | 
| | Marketable securities                    |   |      |  |   | 154    | 
| | Accounts receivable and prepaid expenses |   | 1,482 |  |   | 2,610  | 
| | Restricted funds                         |   | 3,341 |  |   | 8,704  | 
| | Accounts payable and accrued liabilities |   | 4,413 |  |   | 1,350  | 

| |       | Based on the above net exposures as at December 31, 2008,
      a 10% appreciation or depreciation in the Canadian dollar against the US
      dollar, assuming all other variables remain constant, would result in a
      $0.1 million increase or decrease, respectively, in operating results and
      shareholder equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (ii)  | Interest rate risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       | This is the risk that the future cash flows of a
      financial instrument will fluctuate because of changes in market interest
      rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       | The Companys cash and cash equivalents contain highly
      liquid investments that earn interest at market rates. The Company manages
      its interest rate risk by maximizing the interest earned on excess funds
      while maintaining the liquidity necessary to fund daily operations.
      Fluctuations in market interest rates do not have a significant impact on
      the Companys results from operations due to the short term to maturity of
      the investments held.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (iii) | Commodity price risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       | The profitability of the Company is directly related to
      the market price of gold because revenues are derived primarily from gold
      mining. Gold prices are affected by numerous factors beyond the Companys
      control, including central bank sales, producer hedging activities, the
      relative exchange rate of the US dollar with other major currencies,
      global and regional demand and political and economic conditions.
      Worldwide gold production levels also affect gold prices, and the price of
      gold is occasionally subject to rapid short-term changes due to
      speculative activities. The Company has not hedged any of its own gold
      production. Previously, forward sales contracts were entered into for gold
      produced under its current tolling arrangements with third parties. These
      forward contracts were recorded at fair value as they were not designated
      as hedging instruments, with gains and losses recorded in income. However,
      all forward contracts were settled during 2008. For the year ended
      December 31, 2008, a 10% increase or decrease in the price of gold would
      have resulted in an increase and decrease of $4.9 million in gold
      sales.

| | b) | Credit risk:                                                                                                                                                           
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                        
| |    | Credit risk is the risk of financial loss to the Company
      if a customer or counterparty to a financial instrument fails to meet its
      contractual obligations.
| |    |                                                                                                                                                                        
| |    | (i)                                                                                                                                                                    
| |    |                                                                                                                                                                        
| |    |                                                                                                                                                                        

29

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| |      | investments (included in cash and cash equivalents as
      well as marketable securities) are composed of financial instruments
      issued by Canadian banks and companies with high investment-grade ratings.
      These investments mature at various dates over the current operating
      period.                                                                             
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                        
| | (ii) | Accounts receivables and prepaid expenses                                                                                                                                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Substantially all of the Companys trade receivables are
      based in the US and are with a single counterparty. The Company has
      transacted with this counterparty for several years and there is no
      history of loss arising from receivable amounts.                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                        
| |      | The Company also maintains funds of $25.7 million,
      included in restricted funds (note 8), with a third party insurer with a
      Standard & Poors rating of A+ to fund future reclamation costs at
      Jerritt Canyon. The Company maintains title to these funds should the
      third party be in default of their obligations or enters into bankruptcy
      protection.
| |      |                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Other significant deposits and receivables are either
      held by or due from government agencies and relate to the funding of
      future closure costs at Jerritt Canyon or goods and services input tax
      credits.                                                                                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                        
| |      | The Company does not have any receivables or deposits
      that would be considered impaired or otherwise uncollectible, therefore no
      allowance for doubtful accounts is required.                                                                                                                                                                                              

| | c) | Liquidity risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Liquidity risk is the risk that the Company will not be
      able to meet its financial obligations as they fall due. The Company
      manages liquidity risk through forecasting its cash flows from operations
      and anticipating investing and financing activities. Senior management is
      actively involved in the review and approval of planned expenditures and
      typically ensures that it has sufficient cash on demand to meet expected
      operating expenses for 60 days.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The following are the contractual maturities of the
      undiscounted cash flows of financial liabilities at December 31,
    2008:                                                                                                                                                                                                                                                                                                                                                                  

| |                                         |   | Less
      than 3 |  |  | 4 to 12 |  |  | 1 to 2
      years |  |  | Greater
      than | 
| | --------------------------------------- | - | ----------------- |  |  | ------- |  |  | ------------------ |  |  | ------------------ | 
| |                                         |   | months            |  |  | months  |  |  |                    |  |  | 2
      years      | 
| | Account payable and accrued liabilities | $ | 28,599            |  |  |        |  |  |                   |  |  |                   | 
| | Payable on purchased ore                |   | 8,257             |  |  |        |  |  |                   |  |  |                   | 
| | Capital lease obligations               |   | 740               |  |  | 43      |  |  | 25                 |  |  |                   | 

|21. | Commitments and contingencies:
|--- | ------------------------------
|    |                               
|    | (a)                           
|    |                               
|    |                               

30

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| | (ii) | The Company is required to spend C$12.6 million on future
      exploration expenditures pursuant to the flow-through financing in May
      2008 that provided C$20.1 million for exploration on the Ketza River
      project and other exploration activity in Canada. These restricted funds
      were applied to non-flow- through expenditures during the last six months
      of 2008, reducing the amount available to fund this requirement. These
      restricted funds must be spent by the Company, in accordance with the
      flow- through share agreement, by the end of 2009. Management intends to
      take steps necessary to bring the Company back into compliance with the
      flow-through agreements. If it fails to do so, it will be liable to the
      investors for their additional taxes payable.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |      |   |     | 
| | ---- | - | --- | 
| | 2009 | $ | 218 | 
| | 2010 |   | 124 | 
| | 2011 |   | 94  | 
| | 2012 |   | 44  | 
| |      |   |     | 
| |      | $ | 480 | 

31

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

|22. | Reconciliation between Canadian and United States
      Generally Accepted Accounting Principles                                                                                                                                                                                                                                                                                                                                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | These consolidated financial statements have been
      prepared in accordance with Canadian generally accepted accounting
      principles (Canadian GAAP). Material variations in the accounting
      principles, practices and methods used in preparing these consolidated
      financial statements from principles, practices and methods accepted by
      United States of America generally accepted accounting principles (US
      GAAP) are described and quantified below.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The impact of US GAAP on the consolidated statement of
      operations is as follows:                                                                                                                                                                                                                                                                                                                                                                                                   

| |                                                                  |  |      |  |   | For the
      year ended December 31 |  
| | ---------------------------------------------------------------- |  | ---- |  | - | ------------------------------------ | -
| | In thousands                                                     |  | Note |  |   | 2008                                 |  
| |                                                                  |  |      |  |   |                                      |  
| | Net loss under Canadian GAAP                                     |  |      |  | $ | (105,360                             | )
| | Write-off of exploration mineral property costs                  |  | (i)  |  |   | (19,479                              | )
| | Recognition of future income tax
      asset due to write-off of |  |      |  |   |                                      |  
| | exploration mineral property costs                               |  | (i)  |  |   | (2,278                               | )
| | Premium received on flow-through shares                          |  | (ii) |  |   | 2,650                                |  
| | Reduction in impairment due to write-off of exploration          |  |      |  |   |                                      |  
| | mineral property costs prior to impairment                       |  | (i)  |  |   | 13,714                               |  
| | Depreciation capitalized
      to mineral properties             |  | (i)  |  |   | (386                                 | )
| |                                                                  |  |      |  |   |                                      |  
| | Net loss under
      US GAAP                                     |  |      |  | $ | (111,139                             | )
| | Other comprehensive income  foreign exchange adjustment         |  |      |  |   | -                                    |  
| | Comprehensive income
      under US GAAP                         |  |      |  | $ | (111,139                             | )
| |                                                                  |  |      |  |   |                                      |  
| | Loss per share under US GAAP - basic and diluted                 |  |      |  | $ | (0.60                                | )

The impact of US GAAP on the
consolidated balance sheet is as follows:

| |                                                               |  |            |  |   | As at December
      31 |  
| | ------------------------------------------------------------- |  | ---------- |  | - | ----------------------- | -
| | In thousands                                                  |  | Note       |  |   | 2008                    |  
| |                                                               |  |            |  |   |                         |  
| | Assets under Canadian GAAP                                    |  |            |  | $ | 199,636                 |  
| | Opening adjustment to mineral property costs                  |  | (i)        |  |   | (35,366                 | )
| | Write-off of exploration mineral property costs               |  | (i), (iii) |  |   | (6,151                  | )
| | Equity investment
      in incorporated joint venture         |  | (iii)      |  |   | -                       |  
| | Assets under US GAAP                                          |  |            |  |   | 158,119                 |  
| | Liabilities under Canadian GAAP                               |  |            |  | $ | 77,988                  |  
| | Opening adjustment to future income tax liabilities           |  | (ii)       |  |   | (5,706                  | )
| | Recognition of future income tax asset due to write-off of    |  |            |  |   |                         |  
| | exploration mineral property costs                            |  | (i)        |  |   | 2,278                   |  
| | Premium received on flow through shares                       |  | (ii)       |  |   | 6,667                   |  
| | Premium on flow-through shares expensed on
      renunciation |  | (ii)       |  |   | (2,650                  | )
| | Reversal of future income tax liability arising from          |  |            |  |   |                         |  
| | renunciation under Canadian GAAP                              |  | (ii)       |  |   | (2,709                  | )
| | Liabilities under
      US GAAP                               |  |            |  | $ | 75,868                  |  

32

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| |                                                                         |  |       |  |   | December
      31 |  
| | ----------------------------------------------------------------------- |  | ----- |  | - | ----------------- | -
| | In thousands                                                            |  | Notes |  |   | 2008              |  
| | Shareholders equity under Canadian
      GAAP                          |  |       |  | $ | 121,648           |  
| | Opening adjustments to record the write-off of mineral property         |  |       |  |   |                   |  
| | costs and premium on flow-through shares                                |  |       |  |   | (29,660           | )
| | Write-off of exploration mineral property costs                         |  | (i)   |  |   | (19,865           | )
| | Reduction in impairment due to write-off of
      exploration mineral   |  |       |  |   |                   |  
| | property costs prior to impairment                                      |  | (i)   |  |   | 13,714            |  
| | Recognition of future income tax asset due
      to write-off of        |  |       |  |   |                   |  
| | exploration mineral property costs                                      |  | (i)   |  |   | (2,278            | )
| | Premium received on flow through shares                                 |  | (ii)  |  |   | (6,667            | )
| | Premium on flow-through shares expensed on renunciation                 |  | (ii)  |  |   | 2,650             |  
| | Reversal of future income tax liability arising
      from renunciation |  |       |  |   |                   |  
| | under Canadian GAAP                                                     |  | (ii)  |  |   | 2,709             |  
| |                                                                         |  |       |  |   |                   |  
| | Shareholders
      equity under US GAAP                                |  |       |  | $ | 82,251            |  

The components of Shareholders equity
under US GAAP would be as follows:

| |                                        |  |      |  |   | December
      31 |  
| | -------------------------------------- |  | ---- |  | - | ----------------- | -
| | In thousands                           |  |      |  |   | 2008              |  
| | Share capital                          |  | (iv) |  | $ | 199,961           |  
| | Warrants                               |  | (iv) |  |   | 22,753            |  
| | Contributed surplus                    |  |      |  |   | 8,694             |  
| | Accumulated other comprehensive income |  |      |  |   | 2,264             |  
| | Deficit                                |  |      |  |   | (151,421          | )
| |                                        |  |      |  |   |                   |  
| | Total Shareholders equity             |  |      |  | $ | 82,251            |  

| | In
      thousands                                          |  | Note |         |   | 2008    |         |   | 2007    |        |   | 2006   |  
| | ----------------------------------------------------------- |  | ---- | ------- | - | ------- | ------- | - | ------- | ------ | - | ------ | -
| | Cash used in operating activities
      under Canadian GAAP |  | $    | (18,412 | ) | $       | (11,768 | ) | $       | (702   | )
| | Write-off of exploration mineral property costs             |  | (i)  |         |   | (19,865 | )       |   | (23,629 | )      |   | (6,559 | )
| | Premium received on flow-through shares                     |  | (ii) |         |   | 6,667   |         |   | 2,650   |        |   | 1,619  |  
| | Cash used in operating
      activities under US GAAP       |  |      |         | $ | (31,610 | )       | $ | (32,747 | )      | $ | (5,642 | )
| | Cash used in investing activities
      under Canadian GAAP |  | $    | (42,628 | ) | $       | (33,231 | ) | $       | (8,883 | )
| | Write-off of exploration
      mineral property costs       |  | (i)  |         |   | 19,865  |         |   | 23,629  |        |   | 6,559  |  
| | Cash used in investing activities under US GAAP             |  |      |         | $ | (22,763 | )       | $ | (9,602  | )      | $ | (2,324 | )
| | Cash used in financing activities under Canadian
      GAAP |  | $    | 21,092  |   | $       | 76,476  |   | $       | 14,003 |  
| | Write-off of exploration mineral property costs             |  | (ii) |         |   | (6,667  | )       |   | (2,650  | )      |   | (1,619 | )
| | Cash used in financing
      activities under US GAAP       |  |      |         | $ | 14,425  |         | $ | 73,826  |        | $ | 12,384 |  

Under US GAAP there would be no
subtotal to the cashflow from operations in the cashflow statement.

33

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

Notes to the Reconciliation between
Canadian and US GAAP

| | (i)   | Mineral properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       | Under Canadian GAAP, resource property acquisition costs
      and exploration costs may be deferred and amortized to the extent they
      meet certain criteria. Capitalized costs under Canadian GAAP are amortized
      on a unit-of-production basis based on proven, probable and possible
      reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       | Under US GAAP, exploration costs must be expensed as
      incurred unless the resource properties have proven and probable reserves
      at which time costs incurred to bring the mine into production are
      capitalized as development costs. Drilling and related costs in
      delineating an ore body and converting mineral resources to mineral
      reserves are expensed as exploration costs under US GAAP. Capitalized
      costs are then amortized on a unit-of-production basis based on proven and
      probable reserves rather than over the proven and probable reserves of the
      mine and the applicable portion of resources expected to ultimately be
      mined. This additional depletion and exploration expense is recognized in
      the statement of operations under US GAAP. For the purposes of the
      consolidated statements of cash flows, the exploration costs are
      classified as cash used in investing activities under Canadian GAAP and
      cash used in operating activities under US GAAP.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       | The impact of this difference under Canadian GAAP and US
      GAAP affected depreciation as a portion of property, plant and equipment
      is depreciated and capitalized to mineral property for Canadian GAAP which
      is expensed for US GAAP and equity loss as the incorporated joint venture
      also capitalizes mineral property costs for Canadian GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (ii)  | Flow-through shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       | Under Canadian income tax legislation, the Company is
      permitted to issue shares whereby the Company agrees to incur Canadian
      exploration expenditures (as defined in the Income Tax Act, Canada) and
      renounce the related income tax deductions to investors. Under Canadian
      GAAP, the full amount of funds received from flow-through share issuances
      are initially recorded as share capital. Upon renouncing the expenditures,
      the amount of deferred tax on the expenditures is deducted from share
      capital. Under US GAAP, the premium paid for the flow-through shares in
      excess of market value is credited to liabilities and included in income
      when the related tax benefits are renounced by the Company.                                                                                                                                                                                                                                                                                   
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (iii) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       | Under Canadian GAAP, future tax assets and liabilities
      are recorded at substantially enacted tax rates. Under Financial
      Accounting Standards Board (FASB) Statement of Financial Accounting
      Standards (SFAS) 109, Income taxes for US GAAP, deferred tax assets and
      liabilities are recorded at enacted tax rates. In 2007 and 2008, there
      were no differences between enacted and substantially enacted rates. As a
      result, the application of US GAAP in accounting for income taxes does not
      result in any material measurement differences from Canadian GAAP for
      future tax assets or liabilities.                                                                                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       | Due to the treatment of exploration costs under US GAAP
      described in note 1 above, there would be a larger tax benefit arising
      under US GAAP when compared to Canadian GAAP. With respect to the Canadian
      operations, any future tax assets arising are fully offset by a valuation
      allowance as it is not more likely than not that the future tax assets
      would be realized. For the US operations, a valuation allowance has
      been                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

34

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| |      | taken against all future income tax assets in excess of
      liabilities, therefore the asset arising under US GAAP will not be
      recognized in 2008 and the balance from 2007 has been adjusted
      accordingly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (iv) | Accounting for warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | Under Canadian GAAP units issued by the Company
      consisting of a combination of common shares and warrants are valued by
      assigning the proceeds received to the common share and deducting the
      value of the warrants as determined by a Black Scholes model. Under US
      GAAP the value is assigned to common shares and warrants based on the
      relative fair value. The fair value of the common shares is detemined by
      the closing price on the date of the transaction and the fair value of the
      warrants are determined based on a Black Scholes model. As a result of
      this difference, share capital was increased by $0.7 million, with an
      offsetting decrease in the warrants.                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (v)  | Accounting for uncertainty in income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | The Company adopted Financial Accounting Standards Board
      Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48)
      effective January 1, 2007. FIN 48 prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and
      measurement of a tax position taken or expected to be taken in a tax
      return. FIN 48 requires that the Company recognize on adoption only those
      tax positions that are more-likely-than-not (50% or greater) of being
      sustained on audit, based on the technical merits of the position.
      Additionally, this standard provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. With the adoption of this standard, the Company
      has performed a comprehensive review of all material tax positions in
      accordance with recognition and measurement standards established by FIN
      48.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | Based on this review, the provisions of FIN 48 did not
      have a material impact on the Companys annual consolidated financial
      statements. The Company has elected to apply the provisions of FIN 48 in
      assessing their uncertain tax positions under Canadian GAAP as well,
      removing any differences that would arise with US GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (vi) | Adoption of New Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | In September 2006, FASB issued SFAS No. 157, Fair Value
      Measurements (SFAS 157). This statement defines fair value, establishes
      guidelines for measuring fair value and expands disclosures regarding fair
      value measurements. SFAS 157 does not require any new fair value
      measurements but rather eliminates inconsistencies in guidance found in
      various prior accounting pronouncements. SFAS 157 is effective for fiscal
      years beginning after November 15, 2007. The Company believes that the
      adoption of SFAS 157 did not have a material effect on the Companys
      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | In February 2007, the FASB issued SFAS No.159, the Fair
      Value Option for Financial Assets and Financial Liabilities - including an
      amendment to FAS 115. This standard permits a company to choose to measure
      certain financial assets, financial liabilities and firm commitments at
      fair value. The standard is effective for fiscal years beginning after
      November 15, 2007. The adoption of SFAS No.159 did not have a material
      effect on the Companys consolidated financial
  statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

35

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|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

| | (vii)  | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |        | In December 2007, the FASB released SFAS 141-R, Business
      Combinations. This Statement applies prospectively to business
      combinations for which the acquisition date is on or after the beginning
      of the first annual reporting period beginning on or after December 15,
      2008, which is a business combination in the year ending December 31, 2009
      for the Company. The objective of this Statement is to improve the
      relevance, representational faithfulness, and comparability of the
      information that a reporting entity provides in its financial reports
      about a business combination and its effects. The Company will assess the
      impact of this standard for Business Combinations occurring after January
      1, 2009.                                                                                                                                                                                                                                                                                                                                                                                                         
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |        | In March 2008, FASB issued FASB Statement No. 161,
      Disclosures about Derivative Instruments and Hedging Activities - an
      amendment of FASB Statement No. 133. This Statement requires enhanced
      disclosures about an entitys derivative and hedging activities and
      thereby improves the transparency of financial reporting. This Statement
      is effective for financial statements issued for fiscal years and interim
      periods beginning after November 15, 2008, with early application
      encouraged. This Statement encourages, but does not require, comparative
      disclosures for earlier periods at initial adoption. The Company is
      assessing the impact of the new standard.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |        | FASB has issued recent interpretations for US GAAP that
      suggest warrants with an exercise price that is different from the
      entitys functional currency cannot be classified as equity. On June 12,
      2008, the EITF reached final consensus on the application of EITF 07-5,
      Determining Whether and Instrument (or an Embedded Feature) is Indexed to
      an Entitys Own Stock, to foreign currency denominated warrants and the
      decision was approved by the FASB. The EITF is applicable for years
      beginning after December 15, 2008 and will be treated as a change in
      accounting principle through prospective application. As the Companys
      functional currency is the US dollar, upon adoption of this abstract the
      issued and outstanding warrants that have an exercise price that is
      denominated in Canadian dollars will be treated as derivative instruments
      and recorded as liabilities under US GAAP instead of equity and changes in
      fair value will be calculated at each reporting period. Any gain or loss
      arising from this revaluation will be recorded in the statement of
      operations.
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (viii) | Incorporated joint venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |        | Under Canadian GAAP incorporated joint ventures are
      proportionately consolidated. Under US GAAP the investment of a joint
      venture is equity accounted for where there incorporated joint venture is
      not controlled by the Company or consolidated where control exists. The
      Company owns 50% of the Yukon-Shanxi Mining Corp. an incorporated joint
      venture and accordingly has equity accounted for this investment for US
      GAAP. The impact is to reclassify the earnings of the joint venture to the
      Equity loss in the income statements and include the net investment as an
      equity investment on the balance sheet. As the Company files a Form 20-F,
      they are exempt from difference in accounting principles and has therefore
      elected not to adopt it. See note 17(b) for the details of the joint
      venture.                                                                                                                                                                                                                                                                                                            
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (ix)   | Stock based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |        | Under Canadian GAAP stock based compensation is included
      on the Statements of Operations in aggregate under income (loss) from
      operations. Under US GAAP you are required to segregate between individual
      line items. For US GAAP the Company allocates as the amount between
      general and administration of $1.1 million (2007- $5.1 million, 2006  0.3
      million) and cost of goods sold of nil (2007 - $0.5 million, 2006 
      nil).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

36

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|(Formerly YGC Resources Ltd.)                                            
|                                                                         
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless otherwise
      noted)
|                                                                         
|Years ended December 31, 2008, 2007 and 2006                             
|                                                                         

|23. | Subsequent events:
|--- | ------------------

| | (a) | On March 25, 2009 the Company received approval from the
      NDEP for the restart of the Jerritt Canyon milling operations. This
      followed the determination by the NDEP that the Company had completed all
      environmental-compliance requirements necessary for the NDEP to authorize
      the recommencement of operations
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                          
| | (b) | On February 27, 2009 the Company, announced that it has
      closed two non-brokered private placement as follows:                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                          
| |     | (i)                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                          
| |     | (ii)                                                                                                                                                                                                                                                                                                                                     

37

---