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MANAGEMENTS DISCUSSION AND ANALYSIS

For the Year Ended December 31, 2012

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MANAGEMENTS DISCUSSION AND ANALYSIS

General

The following Managements Discussion and Analysis (MD&A)
of Augusta Resource Corporation and its subsidiaries, (Augusta or the
Company) provides an analysis of the Companys audited financial results for
the year ended December 31, 2012 compared to the previous year.

The following information should be read in conjunction with the Company’s December 31, 2012 consolidated financial statements and related notes which were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Company adopted IFRS with a transition date of January 1, 2010.  A reconciliation of the previously disclosed comparative years’ financial statements prepared in accordance with previous Canadian generally accepted accounting principles with IFRS, is set out in Note 3 to the Company’s audited consolidated financial statements for the year ended December 31, 2011.  This MD&A contains “forward-looking statements” that are subject to risk factors set out in the cautionary note contained herein. All figures are in United States dollar unless otherwise noted. This MD&A has been prepared as of March 25, 2013.

The Companys shares are listed on the Toronto Stock Exchange
(TSX) and the NYSE MKT LLC under the symbol AZC.

Cautionary Statement on Forward-Looking Statements

Certain of the statements made and information contained herein
and in the documents incorporated by reference may contain forward-looking
statements or information within the meaning of the United States Private
Securities Litigation Reform Act of 1995and forward-looking statements or
information within the meaning of the Securities Act (Ontario).
Forward-looking statements or information include statements regarding the
expectations and beliefs of management. Forward-looking statements or
information include, but are not limited to, statements or information with
respect to known or unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements or information. Forward-looking statements or information are subject
to a variety of risks and uncertainties which could cause actual events or
results to differ from those reflected in the forward-looking statements or
information, including, without limitation, risks and uncertainties relating to
Augustas plans at its Rosemont property and other mineral properties, the
interpretation of drill results and the estimation of mineral resources and
reserves, the geology, grade and continuity of mineral deposits, the possibility
that future exploration, development or mining results will not be consistent
with the Companys expectations, metal recoveries, accidents, equipment
breakdowns, title matters, labor disputes or other unanticipated difficulties
with or interruptions in production and operations, the potential for delays in
exploration or development activities or the completion of feasibility studies,
the inherent uncertainty of production and cost estimates and the potential for
unexpected costs and expenses, commodity price fluctuations, currency
fluctuations, failure to obtain adequate financing on a timely basis, the effect
of hedging activities, including margin limits and margin calls, regulatory
restrictions, including environmental regulatory restrictions and liability, the
speculative nature of mineral exploration, dilution, competition, loss of key
employees, and other risks and uncertainties. Should one or more of these risks
and uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in forward-looking
statements. Accordingly, readers are advised not to place undue reliance on
forward-looking statements or information. Augusta does not expect to update
forward-looking statements or information continually as conditions change, and
you are referred to the full discussion of the Companys business contained in
the Companys reports filed with the securities regulatory authorities in Canada
and the United States. Readers are also advised to consider such forward-looking
statements, which speak only as of the date the statements were made.

Description of the Business

Augusta and its wholly-owned subsidiary, Rosemont Copper
Company (RCC), are engaged in the exploration and development of mineral
properties in Pima County, Arizona. Augustas main asset is the Rosemont copper
project (Rosemont Copper) which is currently in the final stages of
the permitting process. The Company expects the Record of Decision (ROD) to be
issued in the second quarter of 2013 with construction to start in second half
of 2013. Rosemont is expected to be one of the largest copper mines in the
United States, accounting for approximately 10% of total U.S. copper
production.

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
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The Rosemont property is comprised of approximately 30,000
acres (12,140 hectares) of patented and unpatented claims and fee land and
surface grazing rights. Rosemont is approximately 50 kilometres southeast of
Tucson, Arizona near a number of large porphyry type producing copper mines
operated by Freeport-McMoRan Copper & Gold Inc. and ASARCO LLC (ASARCO).
Rosemont contains an open-pit mineable copper/molybdenum/silver skarn deposit,
as well as other exploration targets.

Corporate Developments

In 2012 and as of the date of the MD&A, the Company
successfully delivered on key objectives established at the beginning of the
year which were as follows:

- Received the Air Quality Permit issued by the Arizona Department of
  Environmental Quality (ADEQ);
- Strengthened the financial position with a $40 million increase to an
  existing Red Kite Loan Facility;
- Completed the 2012 Feasibility Study Update;
- Increased Rosemonts Sulfide Mineral Resource by 34%; and
- Strengthen the Board of Directors with the addition of Robert P. Pirooz.

On November 16, 2012, the Company provided a permitting update
on its Rosemont Copper project following an information session held by the
USFS. The USFS had indicated that the permitting process is approximately 90%
complete and three major items needed to be completed for the last milestone
which is the issuance of the final Environmental Impact Statement (EIS) and
ROD. These three items include: the consultation with the U.S. Fish and Wildlife
Service which is nearing completion; the consultation with tribes and the State
Historic Preservation Office of which the draft Memorandum of Agreement is under
review; and an update of air quality models. The Company has reviewed the work
that still needs to be completed with the USFS, and expects that the process for
the issuance of the final EIS and ROD can be concluded in the first half of
2013.

On January 31, 2013, the Company received the Air Quality
Permit for its Rosemont Copper project from the Arizona Department of
Environmental Quality (EDEQ). The Air Quality Permit stipulates the operating,
monitoring and reporting parameters that Rosemont must comply with to meet all
federal, state and local air quality requirements. Rosemont has now received
seven major permits with one major permit remaining, the Clean Water Act Section
404 Permit to be issued by the U.S. Army Corp of Engineers (ACOE), which the
Company expects to receive upon the issuance of ROD on the Plan of Operations
from the USFS. Construction can commence following the 105-day ROD appeal
process.

On September 12, 2012, the Company received the first $5
million from a $40 million loan increase to the existing $43 million loan
facility (collectively, Expanded Loan) with RK Mine Finance Trust I (Red
Kite) and remaining $35 million balance was received on October 5, 2012 on
satisfying certain conditions. The terms of the Expanded Loan include interest
payable at LIBOR plus 4.5% and maturing on the earlier of July 21, 2014 or
closing of project debt financing. In addition, the exercise price of the
existing 1,791,700 Red Kite share purchase warrants was changed from Cdn$3.90 to
US$3.85 and the expiry date on 1,374,951 warrants was extended to July 22, 2015.
The expiry date of the remaining 416,749 warrants remains unchanged at April 22,
2014. The $40 million increase to the Expanded Loan was subject to a 2.2925%
loan origination fee. In conjunction with the Expanded Loan, Rosemont amended
Red Kite Copper Concentrate Off-Take Sales Agreement whereby Red Kite can
purchase 20%, up from 16.125%, of Rosemonts gross annual copper concentrate
production until a cumulative 1.5 million tonnes have been delivered.

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
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Feasibility Study Update

On July 24, 2012, the Company issued an updated mineral reserve
estimate and results from its NI 43-101 compliant Feasibility Study update for
its Rosemont Copper project.

Financial Analysis

The Feasibility Study update includes financial analysis on
three scenarios with varying metal prices: 1) 60/40 pricing reflecting a
weighted average of 60% on three-year historical prices and 40% on two-year
forward market prices; 2) three-year historical pricing; and, 3) long-term metal
prices reflecting a long-term copper price of $2.50/lb. A comparison of project
economics based on these three scenarios is provided below.

In Billions of U.S. dollars
    60/40 Pricing(1)
    Historical 3 Year Average(2)
    Long-term Pricing (3)After-tax NPV (0%)
    $7.26B
    $7.50B
    $4.55BAfter-tax NPV (5%)
    $3.65B
    $3.78B
    $2.26BAfter-tax NPV (8%)
    $2.51B
    $2.60B
    $1.53BAfter-tax IRR
    38%
    39%
    31%Payback
    2.3 years
    2.2 years
    2.4 years


Note: All scenarios include silver
and gold pricing from the Silver Wheaton Agreement, which are $3.90/oz silver
and $450/oz gold.

| | 1. | Assumes a copper price of $3.50/lb and molybdenum
      price of $14.19/lb throughout the mine life; pricing is as of June 30,
      2012.                                                                                                     
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Assumes a copper price of $3.56/lb and molybdenum
      price of $15.06/lb throughout the mine life; pricing is as of June 30,
      2012.                                                                                                     
| | 3. | Assumes a copper price of $3.50/lb in year one,
      $3.25/lb in year two, $3.00/lb in year three, $2.75/lb in year four, and
      $2.50/lb in year five and thereafter, and, a molybdenum price of $15.00/lb
      throughout the mine life.

Capital Cost Estimate

The total capital cost for construction, commissioning and mine
pre-development is estimated at $1.23 billion and includes additional tailings
filtration capacity and a redundant tailings stacking system. Capitalized mine
pre-development expense is estimated at $116 million. The total capital cost
represents an overall increase of 32% from the cost estimate in the 2009
Feasibility Study, reflecting additional equipment and escalation in costs of
equipment, materials and labor.

Augusta has already spent approximately $90 million on
purchases of long-lead equipment and $23 million on EPCM costs, for a total of
$113 million, which is included in the capital cost estimate.

Capital Expenditures (CAPEX) Breakdown ($
      millions)General Site /
      Ancillary Facilities
    $
    60Mine
    
    252Sulfide Plant /
      Tailings
    
    471Power / Water Supply
    
    122EPCM, Commissioning,
      Spare Parts
    
    104Owners Costs
    
    163Contingency
    
    51Spent Costs (Long-lead Equipment and EPCM)
    
    (113
    )Total Construction and Commissioning CAPEX
    
    1,110Mine Pre-development CAPEX
    
    116Total CAPEX
    $
    1,226


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      Discussion and Analysis for the Year Ended December 31, 2012
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Sustaining capital for the life of mine is estimated at $276
million, which includes equipment replacement and process optimization.

Mining and ProcessingThe Rosemont
deposit is a large tonnage, skarn-hosted, porphyry-intruded, copper-molybdenum
deposit located in close proximity to the surface and is amenable to open pit
mining methods. The proposed pit operations will be conducted from 50-foot-high
benches using large-scale equipment, including: 12.25 -inch-diameter rotary
blast-hole drills, 65-cu-yd electric mining shovels, 36-cu-yd front-end loaders,
35 cyd hydraulic excavators, 260 ton off-highway haul trucks, 580-hp to 850-hp
crawler dozers, 500-hp rubber-tired dozers, 297-hp motor graders and
30,000-gallon off-highway water trucks.

Preproduction, mining and construction are estimated to be 22
months followed by 21 years of mining production. Sulfide ore feed to the
concentrator plant starts at 27 million tons per year ramping up to 33 million
tons per year with an average stripping ratio of 1.9 tons of waste to ore
moved.

The sulfide ore is to be processed by crushing, grinding and
flotation to produce copper and molybdenum concentrates. Rosemont concentrator
throughput for the first four years of production will average 75,000 tons per
day (tpd) ramping up to 90,000 tpd for the second half of the mine life.
Process equipment will be added and optimized within the concentrator in order
to sustain annual average copper production for the life of mine (LOM) of
approximately 243 million pounds per year. Average annual production for the
first three years is estimated at 255 million pounds of copper.

The Feasibility Study update eliminates the heap leaching of
oxide minerals and associated plant facilities, such as the SX/EW plant, that
were contained in earlier feasibility studies. As a result of the technical
challenges associated with stacking plans for the heap leach in the Barrel
Alternative, and assuming a long term copper price of $2.50/lb, copper cathode
production was eliminated from the Barrel Alternative plan analyzed in this
update. Although the oxide minerals contained in the mineral resource estimate
are potentially economic, it has been removed from mineral reserves and is
included in waste in this update. If the oxide minerals are excluded from waste,
the waste to ore ratio would be 1.7:1.

As a result of additional metallurgical test-work and further
optimizations, the Company has improved LOM copper recoveries from 83% to 87%.
LOM molybdenum and silver recoveries remain comparable at 58% and 76%,
respectively.

Production and processing metrics from the Feasibility Study
update are summarized below.

Production and Processing MetricsFirst 3 Years Average Annual Copper Production (lbs)
    255MFirst 3 Years Average Annual Molybdenum Production (lbs)
    6.9MFirst 3 Years Average Annual Silver Production (oz)
    2.8MLOM Average Annual Copper Production (lbs)
    243MLOM Average Annual Molybdenum Production (lbs)
    5.4MLOM Average Annual Silver Production (oz)
    2.9MLOM Average Copper Grade (%)
    0.44%LOM Average Molybdenum Grade (%)
    0.015%LOM Average Silver Grade (oz per ton)
    0.12 optWaste to Ore Ratio*
    1.9:1LOM Average Copper Recoveries
    87%LOM Average Molybdenum Recoveries
    58%LOM Average Silver Recoveries
    76%


* Waste includes oxide material

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
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Operating Costs

Average cash costs, net of by-product credits, using the 60/40
pricing scenario, for the first three years of production are estimated at $0.87
per pound of copper and $1.02 per pound of copper for the life of mine. In the
Long-term Pricing Scenario, cash costs are reduced to $0.85/lb for the first
three years and $0.99/lb for the life of mine.

Total operating costs are estimated at $10.66 per ton, which
includes mining, processing, general and administration (G&A), treatment and
refining (TC/RCs), transportation and regulatory costs. The reclamation will be
largely concurrent and is included in the mining operating costs. An operating
cost breakdown is provided in the table below.

Operating cost ($ per ton of ore)Mining
    $
    3.37/tonProcessing
    $
    4.27/tonG&A
    $
    0.42/tonTC/RC and Transportation
    $
    2.60/tonTotal operating cost
    $
    10.66/ton


Financial Sensitivity Analysis

Sensitivity analysis was completed on additional key
assumptions such as operating and capital costs and total production under the
60/40 Pricing Scenario. This analysis is summarized below.

After-tax NPV (0%)
    After-tax NPV (5%)
    After-tax NPV (8%)
    After-tax IRR60/40 Pricing Scenario
    $7.26B
    $3.65B
    $2.51B
    37.9%Initial CAPEX (+10%)
    $7.18B
    $3.57B
    $2.43B
    34.1%Initial CAPEX (-10%)
    $7.33B
    $3.72B
    $2.59B
    42.8%OPEX (+10%)
    $6.95B
    $3.47B
    $2.38B
    36.6%OPEX (-10%)
    $7.56B
    $3.81B
    $2.63B
    39.1%Metal Production (+10%)
    $8.35B
    $4.24B
    $2.94B
    42.0%Metal Production (-10%)
    $6.16B
    $3.05B
    $2.07B
    33.5%


Mineral Reserve and Mineral ResourceAnnounced
on July 24, 2012, Rosemonts proven and probable sulfide mineral reserves
increased by 22%, or 121 million tons, to 667 million tons compared to the
previous 2008 mineral reserve, with average grades of 0.44% copper and 0.015%
molybdenum for a total of 5.9 billion lbs of copper and 194 million lbs of
molybdenum. The mineral reserves are included in the measured and indicated
mineral resource announced on July 17, 2012.

Measured and indicated sulfide mineral resources increased by
232 million tons or 34%, when compared to the 2008 mineral resource, to 919
million tons with average grades of 0.41% copper and 0.014% molybdenum for a
total of 7.5 billion pounds of copper and 250 million pounds of molybdenum.
Inferred sulfide mineral resource decreased by 106 million tons or 43%, when
compared to the 2008 mineral resource, to 139 million tons averaging 0.40%
copper and 0.012% molybdenum for an inferred resource of 1.1 billion pounds of
copper and 35 million pounds of molybdenum. This resource increase is a result
of successful drilling and model upgrading of a significant portion of the
inferred resource to measured and indicated.

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
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A summary of the mineral reserve and mineral resource estimate
is provided below. It should be noted that mineral resources that are not
mineral reserves do not have demonstrated economic viability.

Rosemont Proven and Probable Mineral Reserve
      Sulfides ≥ 4.90 $/ton NSR Cut-offTons (Ms)
    NSR $/ton
    Copper (%)
    Molybdenum (%)
    Silver (opt)Proven Mineral Reserves
    308.1
    20.29
    0.46
    0.015
    0.12Probable Mineral Reserves
    359.1
    18.67
    0.42
    0.014
    0.12Total Proven and Probable
    667.2
    19.42
    0.44
    0.015
    0.12


- The mineral reserve excludes potentially economic oxide material,
  therefore waste includes potentially economic material.
- Net Smelter Return (NSR) values are based on metal prices of $2.50/lb
  Cu, $15.00/lb Mo, and $20/oz Ag.
- The mineral reserve has been confined by a pit shell based on $1.88 per
  pound copper.
- Copper equivalency for copper is based on $2.50/lb Cu and 86% recovery for
  sulfide, 40% recovery for mixed sulfide.
- Copper equivalency for molybdenum is based on $15.00/lb Mo and 63%
  recovery for sulfide, 30% recovery for mixed sulfide.
- Copper equivalency for silver is based on $20/oz Ag and 80% recovery for
  sulfide, 38% recovery for mixed sulfide.

|          | Rosemont Measured and Indicated Minreal
      Resources (inclusive of mineral reserves)
|--------- | ---------------------------------------------------------------------------------------
|          | Sulfide Mineral Resources (includes mixed sulfide)                                     
|          | Tonnes (M)                                                                             
|Measured  | 347.7                                                                                  
|Indicated | 571.6                                                                                  
|Total M&I | 919.3                                                                                  

|               | Inferred Mineral Resources                              
|-------------- | --------------------------------------------------------
|               | Sulfide Mineral Resources (includes
      mixed sulfide)
|               | Tonnes (M)                                              
|Total Inferred | 138.6                                                   

- The mineral resource has been confined to a pit shell based on $3.50 per
  pound of copper.
- Cut-off grades were 0.15% CuEq for sulfide, 0.30% CuEq for mixed sulfide
  and 0.10% for oxide.
- Copper equivalency for copper is based on $2.50/Ib Cu and 86% recovery for
  sulfide and 40% recovery for mixed sulfide.
- Copper equivalency for molybdenum is based on $15.00/Ib Mo and 63% recover
  for sulfide and 30% recovery for mixed sulfide
- Copper equivalency for silver is based on $20/oz Ag and 80% recovery for
  sulfide, 38% recovery for mixed sulfide.

The mineral reserve and mineral resource estimate includes
drill and assay information up to March 2012. A total of 266 drill holes
representing 342,700 feet of drilling were used to update the geologic block
model. This included 12 recent holes drilled for infill and metallurgical
purposes, as well as further sampling of five older holes. The mineral reserve
took advantage of geotechnical optimizations of the northeast pit wall due to
recent drill holes encountering more competent rock than was previously
identified.

Permitting and Environmental Impact Statement
(EIS)

Applications for Rosemont operations permits were initiated
after delivery of the Mine Plan of Operations (MPO) to the US Forest Service
(Forest Service). As required under federal law, the acceptance of the MPO by
the Forest Service initiated the process of preparing an Environmental Impact
Statement (EIS). Because the project is located on Forest Service lands, the
Forest Service manages the EIS process and will issue the Final EIS document.
The Forest Service ultimately memorializes its decision in the Record of
Decision for mining activities on public land. A Section 404 Permit will be
issued by the U.S. Army Corps of Engineers (ACOE) for mining activities within
jurisdictional waters of the United States.

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
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Following the release of the draft EIS in the fourth quarter of
2011 a number of public meetings were held between November 12, 2011 and January
14, 2012 for public comments. The Forest Service completed their review of over
25,000 public comments received during the DEIS public comment period in the
first half of 2012. All substantive comments were identified, coded, organized,
and responses were developed. Final impact mitigation has been developed
according to Federal and State guidelines and will also be included in the final
EIS. The staff at the Forest Service (including local, regional, and national
staff) is currently working through production of the final EIS.

During the DEIS public comment period, the ACOE completed its
own 45-day public comment period for the draft Clean Water Act 404 permit on
January 19, 2012. As part of the 404 permit comment process, the U.S.
Environmental Protection Agency (EPA), as an advisory agency, submitted an
interagency comment letter to the ACOE identifying the Rosemont permit as a
candidate project for enhanced level of review by the EPA and ACOE. The EPA
letter identified specific subject areas for the EPA to review in detail with
ACOE. The Company continues to work with the ACOE and EPA teams to ensure that
the EPAs technical questions have been addressed fully, and that the 404 permit
conditions meet the Clean Water Act compliance standards. Although the EPA plays
an important advisory role in the 404 permit development process, the EPA does
not actually issue the permit, which is reserved for the ACOE.

In Arizona, the Arizona Corporation Commission regulates the
location of high voltage power line routes through their Arizona State Line
Siting Committee. The Siting Committee issued its Certificate of Environmental
Compatibility (CEC) to the Tucson Electric Power Company on December 19, 2011
and the Corporation Commission reaffirmed that decision with minor amendments on
June 12, 2012. The CEC specifies the selected route for the transmission line to
the Rosemont Copper project, which runs parallel to the project's water
pipeline.

The Air Quality Permit establishes the conditions for
construction and operation of facilities to ensure compliance with air quality
standards and with emissions controls specified for mining operations. In July
2010, the Company applied for an air permit from the Pima County Air Quality
Control District (AQCD) and in November 2012, the AQCD Control Officer
notified the Company that the application was complete. On June 23, 2011, the
Company filed a Notice of Intent to sue the AQCD for inaction and in August
2011, the AQCD issued a draft permit stating that the Company met the
requirements of the Pima County Department of Environmental Quality as a minor
source and a 90-day public comment period ensued. The draft permit was written
by the AQCD with enforceable conditions that demonstrated compliance with all
applicable regulations as a minor source. On September 2, 2011, Rosemont filed a
lawsuit to compel the AQCD to take action on the permit application following
the timelines as stipulated in the law. One day before the court deadline for
the AQCD to respond to the Augustas filing of the lawsuit, September 29, 2011,
the AQCD issued a permit application denial, reversing its prior determination
that Rosemont qualified as a minor source. On October 7, 2011, the Company filed
a Notice of Appeal with the Pima County Air Quality Hearing Board (Pima County
AQHB). A hearing with the Pima County AQHB was conducted in November 2011 and a
decision to uphold the denial of the Rosemont air permit application was
rendered on December 1, 2011 by the Pima County AQHB. This decision completely
ignored the hearing board legal counsels advice. At this point the Company took
two separate paths for permitting 1) a legal path appealing the Pima County AQHB
and 2) a permitting path with the Arizona Department of Environmental Quality
(ADEQ). On November 23, 2011 the Company submitted an application for air
permit with the On January 25, 2012, the application was considered
administratively complete signifying the start of the technical review process
for the permit application. On July 5, 2012, the Superior Court issued its
ruling declaring the Pima County AQHBs decision as arbitrary and capricious
and contrary to law. By August 6, 2012 ADEQ asserted complete jurisdiction
over Rosemonts Air Quality Permit due to the confusion and uncertainty caused
by the inappropriate denial of the Air Quality Permit application by the Pima
County AQCD resulting in the receipt by Rosemont of the draft Air Quality
Permit. On January 31, 2013, the Rosemont received the Air Quality Permit from
the ADEQ. The Air Quality Permit stipulates the operating, monitoring and
reporting parameters that Rosemont must comply with to meet all federal, state
and local air quality requirements.

On April 10, 2012, the Company announced the issuance of the
Aquifer Protection Permit which establishes the operating standards and controls
so that operations do not degrade groundwater.

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
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In November 2012, the Forest Service indicated that the
permitting process was approximately 90% complete and three major items were
needed to complete the last milestone, the issuance of the final EIS and ROD.
These three items include: the consultation with the U.S. Fish and Wildlife
Service, consultation with Native American Indian tribes and the State Historic
Preservation Office, and an update of air quality models to analyze all project
alternatives. As of March 2013, each of these three items is in its final steps.
Drafts of the US Fish and Wildlife Service documents, historic preservation
agreements, and final air modeling have been developed or are in final
review.

Project utility corridors for power and water have been
analyzed, and the preferred routes parallel existing roads across Arizona state
lands. The State Land Department process to issue Right of Way for utility uses
is in the final stages. The 30-day letters requesting public comment were mailed
out on August 29, 2012. Final resource appraisal and valuation will be followed
by public notice of Land Department intent to issue the formal right of way for
power and water lines.

Rosemont has now received seven major permits with one major
permit remaining, the Clean Water Act Section 404 Permit from the ACOE. There
are several administrative steps to finalize the 404 permit. These steps include
concurrence by the state of Arizona that the 404 permit conditions protect
surface water standards (State 401 certification), completion of the
consultation processes named above to assure compliance with endangered species
and historic site preservation acts, and ability to rely on a Final EIS. The
Company expects to receive its 404 permit in a timely manner, subsequent to the
issuance of the Final EIS and ROD on the Plan of Operations from the USFS.

Construction activities can commence on public lands following
the completion of the 404 permit process, publication of the notice of
availability of a Final EIS and Record of Decision, and a mandated 105-day
period of time after the ROD notice, for the public and agencies to complete an
appeal resolution process, and to allow Rosemont to finalize its MPO in response
to the final conditions included in the ROD.

Engineering and Ongoing Support Activities

In the third quarter of 2012, the Company updated its capital
cost estimate, the feasibility study and the financial model for the Rosemont
project and released the Feasibility Study update on July 24, 2012. Detailed
engineering work has been adjusted to match the revised ROD and construction
schedule. Since the commencement of permitting activities, the Company has
maintained an active community relations program which includes maximizing the
economic benefits to the Rosemont region. The program includes support of local
and regional activities and maintaining a community outreach program.

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
|-------------------------------------------------------------------------------

As at December 31, 2011 and 2012, Augustas capitalized costs
on the Rosemont project and deposits on long-lead equipment were as follows:

Mineral Properties

|As at January 1, 2011            | $ | 25,693,861 |  
|-------------------------------- | - | ---------- | -
|Sale of interest                 |   | (1,101,297 | )
|As at December 31, 2011 and 2012 | $ | 24,592,564 |  

Development Costs

|As at January 1, 2011                                         | $ | 83,528,996  |  
|------------------------------------------------------------- | - | ----------- | -
|Permitting, engineering and on-going support activities       |   | 30,903,710  |  
|Sale of interest                                              |   | (3,538,517  | )
|Capitalized loan interest and financing charges               |   | 4,120,546   |  
|Capitalized stock-based compensation expense                  |   | 3,999,737   |  
|As at December 31,
      2011                                 | $ | 119,014,472 |  
|                                                              |   |             |  
|As at December 31, 2011                                       | $ | 119,014,472 |  
|Permitting, engineering and on-going
      support activities |   | 28,239,085  |  
|Capitalized loan interest and financing charges               |   | 3,926,948   |  
|Capitalized stock-based compensation expense                  |   | 1,527,532   |  
|As at December 31,
      2012                                 | $ | 152,708,037 |  

Deposits on Long-lead Equipment

|As at January 1, 2011                                   | $ | 63,504,206  |  
|------------------------------------------------------- | - | ----------- | -
|Additions                                               |   | 17,568,862  |  
|Sale of interest                                        |   | (2,859,157  | )
|As at December
      31, 2011                           | $ | 78,213,911  |  
|                                                        |   |             |  
|As at December 31, 2011                                 | $ | 78,213,911  |  
|Additions                                               |   | 3,900,225   |  
|Reclassification
      to property, plant and equipment |   | (70,443,212 | )
|As at December 31, 2012                                 | $ | 11,670,924  |  

The reclassification of $70.4 million to property, plant and
equipment was due to the delivery and title transfer of certain long-lead
equipment.

Financing

For the year ended December 31, 2012, the Company received
proceeds of Cdn$1.68 million from the exercise of 790,002 stock options at an
average exercise price of Cdn$2.12 per share. The weighted average share price
when the stock options were exercised was Cdn$3.07. There were no equity
financings during the year ended December 31, 2012.

On October 5, 2012, the Company received the final tranche of
the $40 million increase to the Expanded Loan with Red Kite. The terms of the
Expanded Loan include interest payable at LIBOR plus 4.5% and extended the
maturity date by an additional fifteen months to July 21, 2014. The Expanded
Loan will have to be repaid prior to the closing of project debt financing. In
addition, the Company changed the exercise price of the existing 1,791,700 Red
Kite share purchase warrants from Cdn$3.90 to US$3.85 per common share and
extended the expiry date on 1,374,951 warrants to July 22, 2015. The expiry date
of the remaining 416,749 warrants remains unchanged at April 22, 2014. The $40
million increase to the Expanded Loan was subject to a 2.2925% loan origination
fee. In conjunction with the Expanded Loan, Rosemont amended the Red Kite Copper
Concentrate Off-Take Sales Agreement whereby Red Kite can purchase 20%, up from
16.125%, of Rosemonts gross annual copper concentrate production until a cumulative 1.5 million tonnes have been delivered. The
previously announced Copper Cathode Purchases and Sales Agreement and the $10
million working capital facility were both cancelled.

- 9 -

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
|-------------------------------------------------------------------------------

In September 2010, the Company entered into an Earn-In
Agreement with United Copper & Moly LLC (UCM) to earn up to a 20% interest
in Rosemont joint venture by funding $176 million of project expenditures. UCM
will fund a maximum $70 million of Pre-Construction costs and the remaining $106
million for construction once the major permits are issued. During the fourth
quarter of 2011, UCM completed its $70 million funding of Pre-Construction costs
and had earned a 7.95% interest in the Rosemont joint venture.

Results of Operations

|                                             |   | Year Ended December 31, |  
|-------------------------------------------- | - | ----------------------- | -
|                                             |   | 2012                    |  
|EXPENSES                                     |   |                         |  
|Salaries and benefits                        | $ | 1,927,850               |  
|Stock-based compensation                     |   | 2,071,353               |  
|Exploration and project investigation        |   | 1,213,335               |  
|Legal, accounting and audit                  |   | 671,619                 |  
|Travel                                       |   | 240,452                 |  
|Consulting                                   |   | 92,576                  |  
|Filing and regulatory fees                   |   | 147,744                 |  
|Recruiting fees                              |   | 31,867                  |  
|Office and administration                    |   | 323,539                 |  
|Rent                                         |   | 247,983                 |  
|Investor relations                           |   | 132,039                 |  
|Directors' fees                              |   | 197,746                 |  
|Insurance                                    |   | 354,057                 |  
|Membership and conferences                   |   | 23,623                  |  
|Amortization                                 |   | 264,290                 |  
|Fiscal and advisory services                 |   | 16,053                  |  
|Loss from operations                         |   | (7,956,126              | )
|Interest and other income                    |   | 657,107                 |  
|Other expenses                               |   | (507,481                | )
|Gains on shares and warrants                 |   | 364,088                 |  
|Foreign exchange gain                        |   | 47,001                  |  
|Interest and finance charges                 |   | (18,466                 | )
|Gain on sale of
      interest               |   | -                       |  
|Net profit (loss) before taxes               |   | (7,413,877              | )
|Deferred income
      tax expense            |   | (2,305,000              | )
|Net comprehensive profit (loss) for the year | $ | (9,718,877              | )

Significant Variances

For the year ended December 31, 2012, the Company had $9.72 million net comprehensive loss (or $0.07 loss per share) compared to a $15.67 million net comprehensive profit (or $0.11 earnings per share for 2011).  The $25.39 million decrease in comprehensive profit was due primarily to a $22.39 million after-tax gain from the sale of a 3.85% interest in the Rosemont joint venture in 2011 and a $2.26 million decrease in mark-to-market gain on shares and Canadian dollar denominated share purchase warrants compared to 2011. This was partially offset by decreases in expenses incurred for stock-based compensation, exploration and project investigation, professional services, and filings/regulatory.

Stock-based compensation costs decreased $1.38 million to $2.07
million in 2012 compared to $3.45 million for 2011. The decrease was due to
lower amortization charges from a comprehensive grant of stock options,
restricted shares and restricted share units (RSU) in 2012 compared to 2011.
The fair value per option, restricted share and RSU granted during 2012 were relatively lower compared to 2011
due primarily to the Companys lower stock price in 2012 over 2011.

- 10 -

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
|-------------------------------------------------------------------------------

Exploration and project investigation costs decreased $0.31
million to $1.21 million in 2012 compared to $1.52 million for 2011. The
decrease was the result of completion of certain projects that were carried over
from the prior year.

Legal, accounting and audit fees decreased $0.13 million to
$0.67 million in 2012 compared to $0.80 million for 2011. The decrease was due
to lower accounting and audit fees, partially offset by increased legal fees for
general corporate purposes. The 2011 accounting and audit fees included costs
for IFRS transition and the audit of the Rosemont joint venture.

Filing and regulatory fees decreased $0.10 million to $0.15
million in 2012 compared to $0.25 million for 2011. The decrease was due to NYSE
MKT and TSX filing and listing fees incurred in 2011 with respect to the
Company's Stock Option Plan.

Insurance expense increased $0.07 million to $0.35 million in
2012 compared to $0.28 million for 2011 due to increased directors and
officers insurance coverage and related premiums.

Foreign exchange gains increased $0.02 million to $0.05 million
in 2012 compared to $0.03 million for 2011. The gain was due to the
strengthening of both the Canadian dollar and Mexican peso against the U.S.
dollar and the favourable impact on the Canadian dollar and Mexican peso
denominated working capital holdings.

Gains on shares and warrants consist of mark-to-market changes
in the value of the Companys Canadian dollar denominated share purchase
warrants and investments in held for trading securities. Gains on shares and
warrants decreased $2.3 million during the year to $0.4 million compared to $2.6
million for the same period in 2011 due primarily to weakness in the equity
markets and the Companys share price which resulted in the Company reversing a
significant portion of the previous years losses on the share purchase
warrants.

Deferred income tax expense of $2.31 million for the year ended Decemeber 31, 2012, was due primarily to the impact of expiry of Arizona income tax loss carry forwards and a reduction in the applicable Arizona income tax rates.

Selected Annual Financial Information

|                                             |   | Years Ended December 31, |  
|-------------------------------------------- | - | ------------------------ | -
|(in US dollars)                              |   | 2012                     |  
|Revenue                                      | $ | -                        |  
|Profit (loss) before taxes                   |   | (7,413,877               | )
|Net comprehensive profit (loss) for the year |   | (9,718,877               | )
|Basic and diluted earnings (loss) per share  |   |                          |  
|Basic earnings (loss) per share              |   | (0.07                    | )
|Diluted earnings (loss) per share            |   | (0.07                    | )
|Total Assets                                 |   | 309,600,442              |  
|Cash used in operations                      |   | 5,331,860                |  
|Capital expenditures                         |   | 39,378,599               |  
|Non-current financial liabilities            | $ | 86,837,755               |  

- 11 -

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
|-------------------------------------------------------------------------------

Summary of Quarterly Results

Select financial information, in accordance with IFRS, for each
of the eight most recently completed quarters of fiscal 2012 and 2011 are as
follows:

Interest and Other Income
    Net Comprehensive Profit (Loss)
    Basic Earnings (Loss) Per Share
    Diluted Earnings (Loss) Per ShareQ4 2012
    $ 193,860
    $ (4,909,395)
    $ (0.04)
    $ (0.04)Q3 2012
    149,915
    (2,116,696)
    (0.01)
    (0.01)Q2 2012
    140,070
    (1,225,287)
    (0.01)
    (0.01)Q1 2012
    173,262
    (1,467,499)
    (0.01)
    (0.01)Q4 2011
    368,886
    (279,009)
    -
    -Q3 2011
    239,247
    955,601
    0.01
    0.01Q2 2011
    159,012
    7,295,459
    0.05
    0.05Q1 2011
    256,854
    7,696,014
    0.05
    0.05


Factors that can cause fluctuations in the Companys quarterly
results include the timing of stock option grants, gains from sale of the
Companys interest in Rosemont and foreign exchange gains or losses related to
the Companys holding of Canadian dollar denominated working capital items.
Since the Rosemont project is not currently in production, the Company believes
that its losses and loss per share is not a primary concern to investors in the
Company.

Liquidity and Capital Resources

The Companys cash position at December 31, 2012 was $29.1
million compared with $31.0 million at December 31, 2011 which included $0.2
million (December 31, 2011 - $1.4 million) for its share of the cash held in the
Rosemont joint venture. The Company had working capital of $28.8 million at
December 31, 2012, compared to a working capital deficit of $17.6 million at
December 31, 2011. The $46.4 million increase in working capital was due
primarily to the reclassification of both the non-cash warrants liability to
equity from changing the warrants exercise price to the Companys US dollar
functional currency and the Red Kite loan to non-current liabilities.

On August 24, 2012, Cobre Verde Development Corporation, the
Companys wholly-owned subsidiary, and SICAN Inc. entered into a joint venture
through the formation of JPAR LLC, an Arizona Limited Liability Company, to fund
the construction and operate the Community Water Company of Green Valley CAP
Water Delivery System (CAP WDS), which is estimated to cost approximately $24
million. The purpose of the CAP WDS is to replenish 105% of Rosemonts use of
groundwater from within the Town of Sahuarita and the community of Green Valley
for its future mining operations. The joint venture is governed by an Operating
Agreement which outlines the roles and responsibilities for each member, dispute
resolution and dissolution, and actions that require unanimous consent. The
Company is responsible for funding 100% of the construction of the CAP WDS and
SICAN is responsible for project management. In conjunction with the JPAR
Operating Agreement, there are a number of agreements connected to purchase of
Land Use Entitlements and the sharing of the pipeline capacity. As at December
31, 2012, the Company has made cash contributions totaling $0.6 million into the
joint venture and has recognized its proportionate share of JPARs assets and
liabilities.

On September 12, 2012, the Company received $5 million from a
$40 million loan increase to the existing $43 million Red Kite loan facility,
and on satisfying certain conditions the remaining $35 million balance was
received on October 5, 2012. The terms of the Expanded Loan include interest
payable at LIBOR plus 4.5% and extended the maturity date an additional fifteen
months to July 21, 2014. The Expanded Loan will have to be repaid prior to the
first drawdown of project debt financing. In addition, the exercise price on the
existing 1,791,700 Red Kite share purchase warrants was changed from Cdn$3.90 to
US$3.85 and the expiry date on 1,374,951 warrants was extended to July 22, 2015.
The expiry date of the remaining 416,749 warrants remains unchanged at April 22,
2014. The Company paid a 2.2925% loan origination fee on the $40 million loan
increase. In conjunction with the Expanded Loan, Rosemont amended Red Kite Copper Concentrate
Off-Take Sales Agreement whereby Red Kite can purchase up to 20%, up from
16.125%, of Rosemonts gross annual copper concentrate production until a
cumulative 1.5 million tonnes have been delivered. The $10 million unsecured
working capital facility and copper cathode offtake agreement were cancelled as
part of the Expanded Loan.

- 12 -

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
|-------------------------------------------------------------------------------

With the exercise price on the Red Kite share purchase warrants
now denominated in the Companys US dollar functional currency, the warrants are
characterized as an equity instrument and have been reclassified to reserves, a
component of shareholders equity. The classification of the warrants as an
equity instrument will no longer have any effect on the volatility of the
Companys working capital and comprehensive profit (loss).

During the fourth quarter of 2011, Rosemonts joint venture
partner completed its commitment of funding $70 million of Pre-Construction
Costs, thereby, earning a 7.95% equity interest in the Rosemont joint venture.
The remaining $106 million of the $176 million investment will be released on a
pro-rata basis with Silver Wheatons $230 million which will be used for
construction only once the major permits have been issued. The Company does not
expect to draw on these funds until the third or fourth quarter of 2013.

Project financing negotiations are currently underway and are
expected to be in place by mid-2013.

The Company used $5.3 million of cash for operating activities
during 2012 compared to $6.7 million in 2011. The $1.4 million decrease was due
primarily to the timing of vendor payments.

The Company received $40.6 million in cash from financing
activities during 2012 which included $38.9 million net proceeds from Red Kite
Loan Facility and $1.7 million from the exercise of stock options.
Comparatively, during 2011, the Company received $56.4 million in cash from
financing activities, including $31.4 million contributed by the Rosemont joint
venture partner and $25.0 million from the exercise of stock options and share
purchase warrants. The Company does not expect to generate any significant
revenue from its operations until Rosemont commences commercial production.

The Company used $37.3 million of cash in investing activities
during 2012, compared to $50.0 million in 2011. The $12.7 million decrease was
due primarily to lower spending on long-lead equipment purchases as the Company
adjusted its Rosemont spending in accordance with the revised ROD schedule. The
2012 investing activities include $29.1 million (2011 - $31.1 million) spent on
permitting, engineering and ongoing support activities, $4.3 million (2011 -
$16.4 million) in deposits on long-lead equipment and $0.8 million (2011 - $1.2
million) spent on capital asset additions. The 2012 capital asset additions were
net of a$2.1 million insurance settlement for equipment damaged during delivery
from the manufacturer.

Forecasted cash requirements for the next twelve months require
significant expenditures on the Rosemont project, which exceeds the working
capital after giving effect to the additional loan from Red Kite. This factor
indicates the existence of a material uncertainty that raises substantial doubt
about the Companys ability to continue as a going concern and the Companys
ability to continue is dependent on the Company raising additional debt or
equity financing. The Company is currently discussing project financing with a
number of lending institutions and believes that such discussions will result in
the Company obtaining the project financing required to fund the construction of
the Rosemont project. However there is no assurance that such financing will be
obtained or obtained on commercially favourable terms.

The Company has an off-balance sheet arrangement with Silver
Wheaton Corp. (Silver Wheaton) whereby the Company has agreed to sell to
Silver Wheaton all of its silver and gold ounces produced at the lower of $3.90
per ounce of silver and $450 per ounce of gold delivered, or prevailing market
price, in exchange for $230 million to fund construction and can only be drawn
after the major project permits have been issued and the arrangement of project
financing.

The consolidated financial statements are prepared on a going
concern basis, which assumes the Company will be able to meet its obligations as
they become due for the next twelve months.

- 13 -

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
|-------------------------------------------------------------------------------

Commitments

The Company had the following known commitments and contractual
obligations as at December 31, 2012 and 2011:

|                                            |   | December 31, |  |   | December 31, | 
|------------------------------------------- | - | ------------ |  | - | ------------ | 
|(in
      thousands)                        |   | 2012         |  |   | 2011         | 
|Operating leases                            |   |              |  |   |              | 
|Within one year                             | $ | 250          |  | $ | 208          | 
|After one year but no more than five years  |   | 607          |  |   | 716          | 
|                                            |   | 857          |  |   | 924          | 
|Deposits on long-lead equipment             |   |              |  |   |              | 
|Within one year                             |   | -            |  |   | 59,463       | 
|After one year but no more than three years |   | 60,795       |  |   | 4,316        | 
|                                            |   | 60,795       |  |   | 63,779       | 
|CAP Water Delivery System                   |   |              |  |   |              | 
|Within one
      year                       |   | 2,215        |  |   | -            | 
|Total                                       | $ | 63,867       |  | $ | 64,703       | 

Outlook

The Company continues with the permitting process with the goal
of receiving the ROD in the second quarter of 2013. Detailed engineering,
including earthwork, civil and structural design, have been adjusted to the
revised ROD schedule. Ongoing discussions with vendors are being held with
respect to transportation, storage, off-loading facilities, and smelters for the
copper and molybdenum concentrates as well as freight being delivered during the
construction phase of the project.

With Rosemonts Feasibility Study update and new capital cost
estimates, the Company will continue with project financing activities with the
goal of completing project financing by mid-2013. Initial funding for
construction will be provided by the $106 million Tranche 2 investment from our
joint venture partner to earn its 20% interest in Rosemont and Silver Wheatons
$230 million to purchase life-of-mine silver and gold ounces produced from the
Rosemont mine at $3.90/ounce and $450/ounce, respectively. The Company will also
be evaluating various financing alternatives to ensure that the Company
continues to operate as a going concern and settle its obligations as they
become due.

The Companys community relations campaign of meeting with
community leaders, neighbourhood groups and public tours of the Rosemont project
site will continue in 2013 to promote the economic benefits of the project and
the Companys plans on alleviating the impact of mining activities on the
environment.

Forecast of operating and capital expenditures for the next
twelve months of approximately $112.4 million is based on the ROD being issued
in the second quarter of 2013 followed by a 105-day ROD appeal period before
construction on-site can commence. These forecast expenditures includes among
other things approximately $40.1 million for land mitigation, plant and mining
equipment purchases, $33.9 million for construction and infrastructure spending
and engineering and construction management, and $38.4 million for exploration,
environmental, ongoing operations support, community relations, and corporate
administration. Included in the forecast for ongoing operations and support is
the hiring of additional project and operations personnel as the Company
prepares for construction in the second half of 2013. Funding for the forecast
expenditures will come from its existing cash, contributions from the joint
venture partner and the $230 million from Silver Wheaton. Any delays in the
permitting process or any unplanned expenditures may require the Company to
raise additional funds. Unforeseen market events and conditions could impede
access to capital or increase the cost of capital. These events could have an
adverse effect on Augustas ability to fund its working capital and other
capital requirements and hence, there is no assurance that these initiatives
will be successful.

- 14 -

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
|-------------------------------------------------------------------------------

Transactions with Related Parties

The Company shares rent, salaries and administrative services
with companies related by common directors and officers (the Related
Companies). As at December 31, 2012 and 2011, included in due from related
parties were $0.02 million and $0.04 million, respectively.

On July 1, 2010, the Company and the related companies formed a
management services company (ManCo) to share personnel costs, office rent and
other administration costs to each of the companies under a management services
agreement. Each company holds an equal share in ManCo. For the years ended
December 31, 2012 and 2011, ManCo charged the Company $1.25 million and $1.20
million, respectively for its share of salaries, rent and other administrative
expenses.

The Company has identified its directors and certain senior
officers as its key management personnel. The compensation costs for key
management personnel for the years ended December 31, 2012 and 2011 are as
follows:

|                               |   | Year Ended December 31, | 
|------------------------------ | - | ----------------------- | 
|                               |   | 2012                    | 
|Salaries and benefits          | $ | 2,156,950               | 
|Stock-based
      compensation |   | 2,462,304               | 
|                               | $ | 4,619,254               | 

Proposed Transactions

There are no undisclosed proposed transactions that will
materially affect the performance of the Company.

Outstanding Share Data

The following table summarizes the outstanding share information as at March 25, 2013.

Number of Shares
    Weighted Average
      Exercise Price (Cdn$)Issued and outstanding common shares
    144,140,396
    $ -Restricted share units
    211,667
    -Incentive stock options
    6,408,668
    3.10Share purchase warrants
    1,791,700
    USD$ 3.85152,552,431


FINANCIAL INSTRUMENTS

IFRS 7, Financial Instruments: Disclosures, establishes
a fair value hierarchy that reflects the significance of the inputs used in
making the measurements. The fair value hierarchy has the following levels:

Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities;

Level 2 - inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and

Level 3 - inputs for the asset or liability that are not based
on observable market data (unobservable inputs).

The Companys financial instruments include: cash and
equivalents, accounts receivable, short-term investments, due from related
parties, long-term receivable, accounts payable, and long-term debt and
approximates their fair values. The cash and cash equivalents, accounts
receivable, short-term investments, and accounts payable are classified as Level 1 on the fair value hierarchy. The
long-term receivable and long-term debt is classified as Level 3 on the fair
value hierarchy.

- 15 -

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
|-------------------------------------------------------------------------------

Risks arising from financial instruments and risk
management

The Companys activities expose it to a variety of financial
risks, market risk (including foreign exchange risk), credit risk, and liquidity
risk. Reflecting the current stage of development of Rosemont, the Companys
overall risk management program focuses on facilitating the Companys ability to
continue as a going concern and seeks to minimize potential adverse effects on
the Companys ability to execute its business plan.

Risk management is the responsibility of the corporate finance
function. Material risks are identified and monitored and are discussed by
senior management and with the audit committee of the Board of Directors.

Foreign exchange risk

The Company is exposed to currency risks on its Canadian dollar
and Mexican peso denominated working capital balances due to changes in the
USD/CAD and USD/MXP exchange rates and the functional currency of the
Company.

The Company issues equity in Canadian dollars but the majority
of its expenditures are in U.S. dollars. The Company purchases U.S. dollars
based on its near term forecast expenditures and does not hedge its exposure to
currency fluctuations.

The Company is exposed to currency risk through the following
assets and liabilities denominated in Canadian dollars:

|                                         |   | December 31, |   |   | December 31, |  
|---------------------------------------- | - | ------------ | - | - | ------------ | -
|                                         |   | 2012         |   |   | 2011         |  
|Cash and cash equivalents                | $ | 371,288      |   | $ | 6,808,660    |  
|Accounts receivable                      |   | 55,475       |   |   | 52,975       |  
|Short-term investments                   |   | 259,440      |   |   | 286,991      |  
|Prepaid expenses                         |   | 22,449       |   |   | -            |  
|Accounts payable and accrued liabilities |   | (575,752     | ) |   | (400,084     | )
|                                         | $ | 132,900      |   | $ | 6,748,542    |  

Based on the net Canadian dollar denominated asset and
liability exposures as at December 31, 2012, a 10% change in the USD/CAD
exchange rate will impact the Companys earnings by approximately $0.01 million
(2011 -$0.66 million).

Credit risk

Credit risk arises from cash and cash equivalents held with
banks and financial institutions and receivable from joint venture partner, as
well as credit exposure on outstanding receivables. The maximum exposure to
credit risk is equal to the carrying value of the financial assets.

The Companys excess cash and cash equivalents are currently
held with a large Canadian chartered bank and a US bank and are invested in
either short-term GICs or high interest saving accounts. Management believes the
risk of loss is remote.

The other asset relates primarily to an Ely Gold & Mineral
Inc. (Ely) receivable from the sale certain mineral and exploration properties
held by the Companys US subsidiary, DHI Minerals Inc. to Ely in 2007. This
receivable had a carrying value of $2.03 million at December 31, 2012 and an
annual payment is due on the June 1 anniversary date of each year with the last
payment on June 1, 2015. In the event that Ely does not make the required
payments, the Company can take back the common shares of DHI Minerals and DHI
Minerals US or the properties in question. Should the Company reacquire the DHI
shares or properties, an asset impairment assessment may be required

- 16 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
|-------------------------------------------------------------------------------

Liquidity risk

Liquidity risk arises through excess of financial obligations
over available financial assets due at any point in time. The Companys
objective in managing liquidity risk is to maintain sufficient readily available
reserves in order to meet its liquidity requirements as they become due. This is
achieved through the management of its capital structure and debt leverage.

Based on the Companys planned expenditures on permitting,
engineering and on-going support activities at the Rosemont project for the next
twelve months, the Company will require additional debt or equity financings to
meet its obligations as they become due. Recent upheavals in the financial
markets worldwide, particularly within Europe, could make it very difficult for
the Company to raise funds. Such funding may not be available on commercially
acceptable terms or at all. The Companys failure to meet its ongoing
obligations on a timely basis or raise additional funds that may be required
could result in a delay or indefinite postponement of further exploration and
development of the Companys property or the loss or substantial dilution of any
of its property interests.

Equity price risk

The Company is exposed to price risk with respect to equity
prices. Equity price risk is defined as the potential adverse impact on the
Companys earnings due to movements in individual equity prices or general
movements in the level of the stock market. The Companys equity price risk also
arises from the impact the share purchase warrants with a Canadian dollar strike
price will have on the statement of comprehensive profit (loss) based on the
volatility of Companys share price.

Capital risk management

The Companys objectives in managing capital are to safeguard
the Companys ability to continue as a going concern in order to pursue the
development of the Rosemont property and to maintain a flexible capital
structure which optimizes the costs of capital at an acceptable risk level.

Similar to other mining companies in the development stage, the
Company may enter into discussions with certain parties to provide funding for
the Company to execute its business plan. On September 16, 2010, the Company
entered into an EI Agreement with UCM to earn up to a 20% interest in the
Rosemont joint venture by contributing cash of up to $176 million into the joint
venture to fund permitting, engineering and ongoing Rosemont expenditures
through to construction. The 2012 Feasibility Study update estimated the capital
cost of the mill and mining equipment and all related construction costs
including mine pre-development costs at $1.23 billion. Funding for the project
could come from a number of sources, including project financing, off-take
agreements, sale of future metal streams and from capital markets.

There are no externally imposed capital requirements. In the
management of capital, the Company includes the components of shareholders
equity, long-term debt and current liabilities. The Company manages the capital
structure and makes adjustments in light of changes in economic and market
conditions (including receptivity of the capital markets to new equity or debt
issuances) and the risk characteristics of the underlying assets. To maintain or
adjust the capital structure, the Company may issue new shares, issue new debt
or dispose of assets and/or consider strategic alliances including joint venture
partners.

In order to facilitate the management of its capital, the
Company prepares an annual budget that is updated periodically to account for
changes in the timing of expenditures and market conditions. The annual budget
is approved by the Board of Directors.

The Companys investment policy is to invest its excess cash in
highly-liquid, short-term interest-bearing investments. The investments are
selected based on the expected timing of expenditures from continuing
operations. In order to maximize ongoing development efforts, the Company does
not pay out dividends.

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      Discussion and Analysis for the Year Ended December 31, 2012
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The capital requirements for the next twelve months will
include scheduled deposits for long-lead equipment purchases, the ongoing cost
of permitting, engineering and on-going support activities at the Rosemont
project as well as for administration expenses. Rosemont expenditures will be
funded from the Companys existing cash reserves and proceeds from potential
future financings to meet its ongoing commitments and capital purchases.

CRITICAL ACCOUNTING ESTIMATES

The most critical accounting estimates that may affect the
Companys financial position are those requiring estimates of the recoverability
of its capitalized mineral property expenditures, development costs and the
determination of the fair value of stock-based compensation and share purchase
warrants issued with strike price that is denominated in a currency other than
the issuers functional currency. Management believes the estimates used are
reasonable; however, actual results could differ materially from those estimates
and, if so, would impact future results of operations and cash flows.

Mineral Properties and Development Costs

Mineral properties consist of payments to acquire property
rights and leases. Mineral properties are assessed for impairment if (i)
sufficient data exists to determine technical feasibility and commercial
viability, and (ii) facts and circumstances suggest that the carrying amount
exceed the recoverable amount.

Development costs incurred on a mineral property are deferred
once management has determined that, based on a feasibility study, a property is
capable of economical commercial production as a result of having established
proven and probable reserves. Development costs are carried at cost less
accumulated depletion and accumulated impairment charges. Exploration
expenditures incurred prior to determining that a property has economically
recoverable resources are expensed as incurred.

The Company reviews the carrying values of mineral properties
and development costs regularly with a view to assessing whether there has been
any impairment in value, or whenever events or changes in circumstances might
indicate the carrying value may not be recoverable. In the event the estimated
discounted cash flows expected from its use or eventual disposition is
determined to be insufficient to recover the carrying value of the property, the
carrying value is written-down to the estimated recoverable amount.

Once a mine has achieved commercial production, mineral
properties and development costs are depleted on a units-of-production basis
over the life of the mine.

Stock-based Compensation

The Company grants stock options to employees, directors and
consultants under its stock option plan. The fair value method of accounting is
used for stock-based awards. Under this method, stock options and restricted
share units are recorded at their estimated fair value on the grant date and are
charged either to earnings or capitalized to development costs over the vesting
period with a corresponding credit to reserves. If the stock options are
exercised, the proceeds are credited to share capital and the fair value of the
options exercised is reclassified from reserves to share capital. Restricted
shares are issued from treasury at date on the grant and are fair valued at the
date of grant. The fair value is charged to either earnings or capitalized over
the vesting period. On the vesting date, the fair value is transferred from
reserves to share capital. For options subject to vesting, the Company
calculates the fair value of each vesting period as separate awards with
individual expected lives and amortizes the calculated expense for the award on
a straight-line basis over the vesting period of the award.

Financial Instruments

The Company may issue share purchase warrants with a Canadian
dollar strike price to subscribers pursuant to debt or equity financings by the
Company. Share purchase warrants are initially recorded at its estimated fair
value on the date of issue and charged to either share issue costs on an equity
issue or netted against the proceeds from a debt issue with a corresponding
credit to warrants liability only if the underlying strike price is denominated
in a currency that is not the same as the functional currency of the
issuer. The share purchase warrants are fair valued at each balance sheet date
and any changes to the fair value are charged or credited to the statement of
comprehensive profit (loss). On the date of exercise, the warrants are fair
valued and transferred from warrants liability to share capital.

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
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NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS NOT YET
EFFECTIVE

Certain new standards, interpretations and amendments to
existing standards have been issued by the IASB or International Financial
Reporting Interpretations Committee (IFRIC) that are mandatory for accounting
periods beginning after January 1, 2010, or later periods. Some updates that are
not applicable or are not consequential to the Company may have been excluded
from the list below.

Accounting standards effective January 1, 2013 or
later

Financial instrumentsIFRS 9, Financial
Instruments: Classification and Measurement, effective for annual periods
beginning on or after January 1, 2015, with early adoption permitted, introduces
new requirements for the classification and measurement of financial
instruments. Management anticipates that this standard will be adopted in the
Company's financial statements for the period beginning January 1, 2015, and has
not yet considered the potential impact of the adoption of IFRS 9.

ConsolidationIFRS 10, Consolidated Financial
Statementsrequires an entity to consolidate an investee when it is exposed,
or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee.
Under existing IFRS, consolidation is required when an entity has the power to
govern the financial and operating policies of an entity so as to obtain
benefits from its activities. IFRS 10 replaces SIC-12, ConsolidationSpecial
Purpose Entitiesand parts of IAS 27, Consolidated and Separate Financial
Statements.

Joint venturesOn May 12, 2011, the IASB issued IFRS
11, Joint Arrangements. IFRS 11 eliminates the Companys choice to
proportionately consolidate jointly controlled entities and required such
entities to be accounted for using the equity method and proposes to establish a
principles-based approach to the accounting for joint arrangements which focuses
on the nature, extent and financial effects of the activities that an entity
carries out through joint arrangements and its contractual rights and
obligations to assets and liabilities, respectively, of the joint arrangements.
The Company is currently evaluating the impact IFRS 11 is expected to have on
its consolidated financial statements.

Disclosure of interest in other entitiesIFRS 12, Disclosure of Interest in Other Entities, establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles, and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities. Management anticipates that this standard will be adopted in the Company's financial statements for the period beginning January 1, 2013, and is currently evaluating the impact IFRS 12 is expected to have on its consolidated financial statements.

Fair value measurementIFRS 13, Fair Value Measurement, effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, sets out a single IFRS framework for measuring fair value and new required disclosures about fair value measurements. Management anticipates that this standard will be adopted in the Company's financial statements for the period beginning January 1, 2013, and is currently evaluating the impact IFRS 13 is expected to have on its consolidated financial statements.

Presentation of financial statementsIAS 1, Presentation of Financial Statements, effective for annual periods beginning on or after July 1, 2012, was amended to require entities to group items within other comprehensive income that may be reclassified to profit or loss. Management anticipates that this standard will be adopted in the Company's financial statements for the period beginning January 1, 2013, and is currently evaluating the impact IAS 1 is expected to have on its consolidated financial statements.

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      Discussion and Analysis for the Year Ended December 31, 2012
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CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Companys management, with participation of its Chief
Executive Officer and Senior Vice-President and Chief Financial Officer, has
evaluated the effectiveness of the Companys disclosure controls and procedures.
Based on this assessment, the Chief Executive Officer and Senior Vice-President
and Chief Financial Officer have concluded that as of the end of the period
covered under this report, the Companys disclosure controls and procedures were
effective to provide reasonable assurance that the information required to be
disclosed by the Company in reports it files is recorded, processed, summarized
and reported, within the appropriate time periods and is accumulated and
communicated to management, including the Chief Executive Officer and Senior
Vice-President and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.

Internal Control over Financial Reporting

The Companys management is responsible for establishing and
maintaining adequate internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and
preparation of financial statements for external purposes in accordance with
IFRS. However, due to inherent limitations, internal control over financial
reporting may not prevent or detect all misstatements and fraud. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by unauthorized override of the control.

The financial reporting changes that resulted from the
application of IFRS accounting policies were implemented during the year ended
December 31, 2012, has not materially affected, or is not reasonably likely to
materially affect, the Companys internal control over financial reporting.

RISKS AND UNCERTAINTIES

The Company and its current and future business and financial
condition are subject to various risks and uncertainties due to the nature of
the business and the present stage of development of the Rosemont project.
Certain of these risks and uncertainties are set out below and a comprehensive
list can be found under the heading Risk Factors in the Companys Annual
Information Form for the year ended December 31, 2012, which is available on
SEDAR at www.sedar.comand EDGAR at www.sec.gov.

Augusta will require additional capital to fund future
business plans.

As of December 31, 2012, Augusta had a working capital of $28.8
million. Augusta has minimal revenue from its operations and does not expect to
generate any significant revenue until Rosemont is placed into commercial
production. Augusta will require project financing to be in place in by
mid-2013. Augusta may raise additional capital through debt or equity financing,
and possibly production sharing arrangements or other means. Recent upheavals in
the financial markets worldwide, particularly within Europe, could make it very
difficult for Augusta to raise funds. Such funding may not be available on
commercially acceptable terms or at all. The Companys failure to meet its
ongoing obligations on a timely basis or raise additional funds that may be
required could result in delay or indefinite postponement of further exploration
and development of the Companys property or the loss or substantial dilution of
any of its property interests.

Augusta could lose its only material property upon an
event of default under the loan agreement with Red Kite.

The Companys obligations under the Red Kite loan Agreement are
secured by the common shares and assets of Rosemont Copper Company, which holds
the Companys only material property. In the event of a default in which the
Company is unable to immediately pay all accrued and unpaid interest and
principal debt, Red Kite is entitled to take possession of the common shares and
assets of Rosemont Copper Company and sell, lease, or dispose of such collateral
including the Rosemont property and apply the proceeds to the Companys debt. If
such an event occurs, the Company could lose its only material property and the
Companys shareholders could lose their entire investment.

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      Discussion and Analysis for the Year Ended December 31, 2012
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Exploration, development and mining involve a high degree
of risk.

The Companys operations will be subject to all the hazards and
risks normally encountered in the exploration, development and production of
copper and other base or precious metals, including, without limitation,
encountering unusual or unexpected geologic formations or other geological or
grade problems, unanticipated changes in metallurgical characteristics and metal
recovery, periodic interruptions due to inclement or hazardous weather
conditions, seismic activity, rock bursts, pit-wall failures, cave-ins,
encountering unanticipated ground or water conditions, flooding, fire, and other
conditions involved in the drilling, removal of material, environmental hazards,
discharge of pollutants or hazardous chemicals, industrial accidents, failure of
processing and mining equipment, labour disputes, supply problems and delays and
changes in the regulatory environment any of which could result in damage to, or
destruction of, mineral properties, mines and other producing facilities, damage
to life or property, personal injury or death, loss of key employees,
environmental damage, delays in the Companys exploration and development
activities, monetary losses and legal liabilities. Satisfying such liabilities
may be very costly and could have a material adverse effect on the Companys
future cash flow, results of operations and financial condition.

Price volatility - copper, molybdenum, silver, gold and
other metal prices.

The value and price of the Companys common shares, its
financial results, and its exploration, development and mining activities, if
any, may be adversely affected by declines in the price of copper, molybdenum,
silver, gold and other metals. Metal prices fluctuate widely and are affected by
numerous factors beyond Augustas control such as interest rates, exchange
rates, inflation or deflation, fluctuation in the value of the United States
dollar and foreign currencies, global and regional supply and demand, and the
political and general economic conditions throughout the world. Metal prices
fluctuate in response to these and many factors that cannot be predicted. The
prices used in making the resource estimates are disclosed and differ from daily
prices quoted in the news media. The percentage change in the price of a metal
cannot be directly related to the estimated resource quantities, which are
affected by a number of additional factors. For example, a 10% change in price
may have little impact on the estimated resource quantities and affect only the
resultant cash flow, or it may result in a significant change in the amount of
resources. Because mining occurs over a number of years, it may be prudent to
continue mining for some periods during which cash flows are temporarily
negative for a variety of reasons including a belief that the low price is
temporary and/or the greater expense incurred in permanently closing a
property.

Mineralized material calculations and life-of-mine plans using
significantly lower metal prices could result in material write-down of
Augustas investment in Rosemont and increased amortization, reclamation and
closure charges.

In addition to adversely affecting Augustas mineralized
material estimates and financial condition, declining metal prices may impact
operations by requiring a reassessment of the commercial feasibility of a
particular project. Such a reassessment may be the result of a management
decision related to a particular project. Even if the project is ultimately
determined to be economically viable, the need to conduct such a reassessment
may cause substantial delays in development or may interrupt operations, if any,
until the reassessment can be completed.

Insurance risk.

The Companys insurance will not cover all the potential risks
associated with mining operations such as environmental pollution and other
hazards as a result of production which may not be insured against or which the
Company does not elect to insure against due to high insurance premiums. Losses
from these events may cause the Company to incur significant costs that could
have a material adverse effect on its financial condition and results of
operations.

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
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Title to Augustas properties may be subject to other
claims.

Although Augusta believes it has exercised commercially
reasonable due diligence with respect to determining title to properties it
owns, control or has the right to acquire by option, there is no guarantee that
title to such properties will not be challenged or impugned. The Companys
mineral property interests may be subject to prior unrecorded agreements or
transfers or native land claims and title may be affected by undetected defects.
There may be valid challenges to the title of Augustas properties, which, if
successful, could impair development and/or operations. This may be exacerbated
due to the large number of title transfers historically involved with some of
the properties.

Mineral resources and proven and probable reserves are
estimates.

Although the mineralized material and proven and probable
reserve figures included in this document have been carefully prepared by
independent engineers, these amounts are estimates only, and Augusta cannot be
certain that specific quantities of copper, molybdenum, silver, gold or other
mineral will in fact be realized. Any material change in the quantity of
mineralization, grade or stripping ratio, or mineral prices may affect the
economic viability of the Companys properties. In addition, Augusta cannot be
certain that metal recoveries in small-scale laboratory tests can be duplicated
in larger scale tests under on-site conditions or during production. Until an
unmined deposit is actually mined and processed the quantity of mineral
resources and reserves and grades must be considered as estimates only.

Government regulation may adversely affect Augustas
business and planned operations.

Augusta believes its exploration projects comply with existing
environmental and mining laws and regulations affecting its operations. The
Companys mining, processing, development and mineral exploration activities, if
any, are subject to various laws governing prospecting, mining, development,
production, taxes, labor standards and occupational health, mine safety, toxic
substances, land use, water use, land claims of local people and other matters.
Augusta cannot guarantee that new rules and regulations will not be enacted or
that existing rules and regulations will not be applied in a manner which could
limit or curtail production or development.

A portion of the present Rosemont land position is located on
unpatented mine and millsite claims located on US federal public lands. The
right to use such claims is granted under the General Mining Law of 1872.
Unpatented mining claims are unique property interests in the United States, and
are generally considered to be subject to greater title risk than other real
property interests because the validity of unpatented mining claims is often
uncertain. This uncertainty arises, in part, out of the complex federal and
state laws and regulations under the General Mining Law and the interaction of
the General Mining Law and other federal and state laws, such as those enacted
for the protection of the environment. Unpatented mining claims are subject to
possible challenges of third parties or contests by the federal government. The
validity of an unpatented mining claim, in terms of both its location and
maintenance, is dependent on strict compliance with a complex body of federal
and state statutory or decisional law. In addition, there are few public records
that definitively control the issues of validity and ownership of unpatentable
mining claims. In recent years, the U.S. Congress has considered a number of
proposed amendments to the General Mining Law. If adopted, such legislation
could, among other things:

- impose a royalty on the production of metals or minerals from unpatented
  mining claims;
- reduce or prohibit the ability of a mining company to expand its
  operations; and
- require a material change in the method of exploiting the reserves located
  on unpatented mining claims.

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|Managements
      Discussion and Analysis for the Year Ended December 31, 2012
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All of the foregoing could adversely affect the economic and
financial viability of mining operations at the Rosemont property.

Amendments to current laws, regulations and permits governing
  operations and activities of mining and exploration companies, or more stringent
  implementation thereof, could have a material adverse impact on Augustas
  business and cause increases in exploration expenses, capital expenditures or
  production costs or reduction in levels of production at producing properties or
  require abandonment or delays in development of new mining properties.

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