---



MANAGEMENTS DISCUSSION AND ANALYSIS



For the Year Ended

December 31, 2009

---

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) should be read in conjunction with the accompanying audited
consolidated financial statements and annual information form for the year ended
December 31, 2009 which are available at the SEDAR website at
www.sedar.com. This MD&A is current as of March 6, 2010.

All financial information in this MD&A is prepared in
accordance with Canadian generally accepted accounting principles (GAAP) and
presented in U.S. dollars unless otherwise indicated.

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

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, are engaged in the exploration and development of mineral properties in
Pima County, Arizona. Augustas main asset is the Rosemont copper project
(Rosemont) which is currently in the permitting stage with the goal of
receiving the Record of Decision (ROD) in the fourth quarter of 2010 and
construction to commence in the first quarter of 2011. Production of copper
cathode is expected to begin in the first quarter of 2012 and concentrate
production is expected to begin in the third quarter of 2012. Rosemonts copper
production is expected to be the third largest copper mine in the United States,
accounting for approximately 10% of total copper production. Since Rosemont is currently a
non-producing property, it does not generate any operating income or cash flows
from operations and Augusta depends entirely on equity and debt capital to
finance its activities.

|Augusta Resource
      Corporation | 2
|---------------------------------- | -

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

The Rosemont property is comprised of approximately 15,000
acres (6,070 hectares) of patented and unpatented claims and fee land in
addition to approximately 15,000 acres (6,070 hectares) of leased grazing
ranchland. 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

On February 23, 2010 the Company entered into an agreement with
a syndicate of underwriters for the purchase of 11,820,000 common shares, on a
bought deal basis, at a price of Cdn$2.75 per share for gross proceeds of
Cdn$32.51 million ($31.91 million). On March 12, 2010 the Company closed the
financing for net proceeds of Cdn$30.88 million (30.31 million).

On February 11, 2010 the Company signed a definitive agreement
with Silver Wheaton Corporation (Silver Wheaton) for the sale of all of the
Companys silver and gold produced from Rosemont. Silver Wheaton will pay
Augusta upfront cash payments of $230 million and production payments of $3.90
per ounce of silver and $450 per ounce of gold delivered, or the prevailing
market price, if lower, during the mine life. The drawdown of the cash payments
is subject to Augusta receiving the ROD.

On January 4, 2010 the Company signed a term sheet with Red
Kite Explorer Fund LP (Red Kite) for a $40 million loan and copper concentrate
off-take agreement and is subject to regulatory approvals, customary due
diligence and legal documentation.

On November 20, 2009 the Company was advised by the United
States Forest Services (USFS) of the new timeline for completion of the Draft
Environmental Impact Statement (DEIS) and the final ROD for the Rosemont
copper project. The DEIS is expected to be released to the public early in the
second quarter of 2010, followed immediately be a series of public meetings and
a comment period. The ROD is expected in the fourth quarter of 2010.

On October 9, 2009 the Company appointed Endeavour Financial
International Corporation (Endeavour) as financial advisor on project
financing matters for the Rosemont copper project. Endeavour is an integrated
natural resource merchant banking company with a proven record of delivering
successful financial services to clients worldwide. Endeavour will assist the
Company to execute its strategy to finance 65% to 75% of the estimated $897
million capital cost of the Rosemont project through issuance of debt, including
equipment, concentrate off-take and bank financings with the remaining to be
financed through the sale of precious metal by-products.

On August 19, 2009 the Company completed the sale of 14,237,000
common shares at a price of Cdn$2.02 per common share for gross proceeds of
Cdn$28.76 million ($26.2 million). The common shares were issued pursuant to a
prospectus offering conducted by a syndicate of underwriters led by Wellington
West Capital Markets Inc. In connection with the prospectus offering the Company
incurred $2.13 million in share issue expenses, including 427,109 compensation
options issued to the underwriters at an exercise price of Cdn$2.19 per share,
exercisable until August 6, 2010.

On July 21, 2009, Rosemont Copper Company signed an agreement
with Empire Southwest LLC (Empire), a Caterpillar dealership headquartered in
Mesa, Arizona, to purchase 23 Caterpillar 793F haulage trucks and other related
equipment for its 100% owned Rosemont copper project. The trucks and other
mining equipment purchases will be financed through capital lease agreements
with Caterpillar Financial Services Corporation for up to $100 million. The
contract value with Empire is approximately $82.2 million for the 23 trucks,
with delivery to begin in early 2011.

|Augusta Resource
      Corporation | 3
|---------------------------------- | -

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

On April 17, 2009 the Company completed a non-brokered private
placement of 3,350,000 units at a price of Cdn$1.50 per unit for gross proceeds
of Cdn$5.03 million ($3.99 million) with Kestrel Holdings Ltd, a private holding
company 100% held by Vancouver mining entrepreneur Ross Beaty. Each unit
consists of one common share and one non-transferable share purchase warrant
exercisable into one common share at a price of Cdn$2.30 per common share until
April 17, 2010.

On March 15, 2009 the Company received written notification
from the Arizona State Mine Inspector that the Rosemont Copper Mined Land
Reclamation Plan (the Plan) has been approved. The Plan calls for reclamation
to begin after the first year of production and continue concurrently throughout
the life of the project.

On January 15, 2009 the Company released an updated feasibility
study confirming Rosemont as an economically robust open pit copper/molybdenum
mine with low development risk. The updated feasibility study concluded that
Rosemont is technically and economically feasible, there are opportunities for
further optimization, and the project should press forward with development in
anticipation of receiving the necessary permits.

The updated feasibility study and related technical report were
prepared by M3 Engineering & Technology Corporation (M3) of Tucson,
Arizona under the supervision of Dr. Conrad Huss, P.E., an independent Qualified
Person under the standards set forth under NI 43-101.

Financial Highlights (millions of US dollars)

Base Case (60/40 split)
    Case 2 Historical 36 Months
    Case 3 Long-term Metal
      PricesNPV 0%
    4,850.0
    6,999.9
    2,715.0NPV 5%
    2,417.6
    3,628.9
    1,200.3NPV 10%
    1,254.2
    2,006.2
    488.4IRR
    28.5%
    37.5%
    17.8%Payback years
    3.1
    2.3
    5.0Cash costs ($/lb Cu net of by product)
    $0.46
    $0.32
    $0.62


Base Case  60/40 weighted average pricing: M3 uses weighted
average metal prices for NI-43-101 reporting purposes, reflecting 60% on
three-year historical prices and 40% on two-year forward market prices. As of
the end of December 2008, these values were $2.47 per pound (lb) copper (Cu),
$22.70/lb molybdenum (Mo), $12.40 per ounce (oz) silver (Ag), and $784.65/oz
gold (Au).

Case 2  36-month historical pricing: For SEC reporting
requirements, 36-month trailing average pricing was used at $3.14/lb Cu,
$29.05/lb Mo, $13.32/oz Ag, and $723.48/oz Au.

Case 3  Long-term metal pricing: Long-term fixed prices of
$1.85/lb Cu, $15.00/lb Mo, and $12.00/oz Ag and $750.00/oz Au was used.

Using long-term metal pricing of $1.85 per pound of copper, $15
per pound of molybdenum, and $12 per ounce of silver, the project would generate
a net present value (NPV) (5%) of approximately $1.2 billion with an internal
rate of return (IRR) of 17.8% and a payback of 5 years on an after-tax basis.

Rosemonts mine life based on the current mineral reserve
estimate is 21 years, with anticipated cathode production commencing in the
first quarter of 2012 and concentrate production anticipated in the third
quarter of 2012. The 75,000-ton per day mining and milling process will be a
conventional modern hard rock open pit operation with a sulfide copper
concentrator plant and a heap leach SX-EW plant for the treatment of oxide ore.
Annual production is expected to total 221 million pounds of copper (for the
first eight years), 4.7 million pounds of molybdenum, 2.4 million ounces of
silver and approximately 15,000 ounces of gold as a by-product credit.

|Augusta Resource
      Corporation | 4
|---------------------------------- | -

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

Direct capital costs are estimated at $712.7 million, with
indirect costs of $184.5 million associated with engineering, procurement and
construction management, commissioning, spare parts, contingency and owners
costs. Total project capital costs are estimated at $897.2 million.

Cash costs are estimated at $0.62 per pound of copper, net of
by-product credits. Average life of mine operating costs for the mining
operation is $0.83 per ton mined. These costs include drilling, blasting,
loading, hauling, road and dump maintenance and general mining. Mill process
operating costs average $3.34 per ton of mill ore, which includes crushing and
conveying, grinding and classification, flotation and regrind, concentrate
thickening, filtration and dewatering, tailings disposal and mill ancillary
services. General and administrative costs are $0.27 per ton of mill ore.

Permitting and Environmental Impact Statement

The Company continues with the Environmental Impact Statement
process (EIS process), which is being managed by the United States Forest
Service (USFS). The EIS process is expected to be completed within the next
year and result in a ROD in the fourth quarter of 2010. The ROD will be issued
by the Forest Service and Bureau of Land Management for mining activities on
public land and by the Army Corps of Engineers for impact of mining activities
on waters of the United States. Other permits to be issued include the
following:

- The Aquifer Protection Permit issued by the Arizona Department of
  Environmental Quality that sets the operating standards and controls so that
  operations do not degrade groundwater;
- The Air Permit issued by the Pima County Department of Environmental
  Quality which will set requirements for dust control and process management;
- The Certificate of Environmental Compliance Process managed by the Arizona
  Corporation Commission. The ultimate power route will be determined by the
  Commission and the permit will be issued to Tucson Electric Power. The timing
  for this process has been set so the Right of Way (below) will be the one
  approved for use by the Commission; and
- The State Land Department Right of Way valuation and approval process that
  will provide a route to get water and power to Rosemont.

In May 2009 the Company received notification from the Arizona
Department of Environmental Quality that the Aquifer Protection Permit was
administratively complete and was in technical review. In the fourth quarter of
2009 the Department issued a preliminary hydrological review letter, which is
one of the two requirements in the technical review process. Meetings are
scheduled in the first quarter of 2010 with the Department to discuss the
results of the technical review.

Also in the fourth quarter of 2009 Rosemont completed
preparation of field test plots for the re-vegetation study being conducted in
conjunction with the University of Arizona. The test plots were designed to
determine which native plants will re-vegetate most quickly to support the
habitat, and to evaluate the planting methods available. The approval
reclamation plan by the Arizona State Mine Inspector was important to moving
these studies forward from the greenhouse testing phase.

Rosemont Project

During 2009 the Company spent $0.09 million on mineral property
expenditures on land carrying costs and monthly option payments for the right to
purchase additional land for the pump and power-substation and $21.30 million on
deferred development costs primarily on basic and design engineering of $8.37
million, $1.70 million on project salaries and benefits, $9.31 million on the
environmental impact study and permitting process and $1.92 million on support
services.

|Augusta Resource
      Corporation | 5
|---------------------------------- | -

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

As at December 31, 2009 Augustas capitalized costs on its
mining assets were as follows:

Mineral properties

|                                                    |   | 2009       |  |   | 2008       |  
|--------------------------------------------------- | - | ---------- |  | - | ---------- | -
|                                                    |   |            |  |   |            |  
|Balance, December 31, 2008 and 2007                 | $ | 25,462,869 |  | $ | 29,145,396 |  
|Acquisition costs                                   |   | 86,358     |  |   | 2,304,097  |  
|Effect from changes in foreign exchange
      rates |   | -          |  |   | (5,986,624 | )
|Interest accretion                                  |   | 116,211    |  |   | -          |  
|Balance, December 31, 2009 and 2008                 | $ | 25,665,438 |  | $ | 25,462,869 |  

|Development costs                             |   |            |  |   |             |  
|--------------------------------------------- | - | ---------- |  | - | ----------- | -
|                                              |   | 2009       |  |   | 2008        |  
|                                              |   |            |  |   |             |  
|Balance, December 31, 2008 and 2007           | $ | 41,717,224 |  | $ | 28,588,056  |  
|Work program expenditures                     |   | 21,303,409 |  |   | 23,919,161  |  
|Capitalized loan interest charges             |   | 935,990    |  |   | 619,986     |  
|Effect from changes in foreign exchange rates |   | -          |  |   | (11,827,533 | )
|Capitalized stock compensation expense        |   | 560,100    |  |   | 417,554     |  
|Balance, December
      31, 2009 and 2008     | $ | 64,516,724 |  | $ | 41,717,224  |  

The Company made deposits totalling $15.0 million for the SAG
mill and two ball mills, three mill drives and three electric mining
shovels.

Financing

On August 19, 2009 the Company completed a prospectus offering
conducted by a syndicate of underwriters led by Wellington West Capital Markets
Inc. (the Underwriters) for the sale of 14,237,000 common shares, including a
15% over-allotment of 1,857,000 common shares, at a price of Cdn$2.02 per common
share for gross proceeds of Cdn$28.76 million. In connection with the prospectus
offering, the Company incurred share issue costs totalling $2.18 million,
including compensation options for the Underwriters to purchase 427,109 common
shares at a price of Cdn$2.19 per common share, exercisable in whole or in part
until August 6, 2010. These compensation options had a fair value of $0.26
million.

On April 17, 2009 the Company completed a private placement
with the issuance of 3,350,000 units at a price of Cdn$1.50 per unit for gross
proceeds of Cdn$5.03 million. Each unit consists of one common share and one
non-transferable share purchase warrant exercisable at Cdn$2.30 per warrant for
a one year period and expires on April 17, 2010. The common shares were subject
to a four-month hold period. A finders fee consisting of cash of $0.21 million
and 67,000 units valued at $0.09 million was paid to Peninsula Merchant
Syndications Corp. In total, the Company incurred $0.35 million of share issue
expenses relating to this private placement, which were charged to share issue
expenses.

Subsequent to December 31, 2009:

|(a) | On January 4, 2010 the Company signed a credit approved
      term sheet with Red Kite to provide Augusta with a $40 million senior
      secured loan (the Loan) and copper concentrate off-take agreement for
      the Rosemont copper project. Red Kite has issued a commitment letter
      subject to any required regulatory approvals and customary due diligence
      and legal documentation.                                                                                                                                                                                                                                                                                                        
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Upon completion of the loan documentation and due diligence, the Loan
      proceeds will be used to repay the $40 million Sumitomo debt due on June
      17, 2010. The Loan bears interest at LIBOR plus 4.5% and is expected to
      close in March 2010 and will mature on the earlier of: (1) two years from
      the closing date; or (2) the date of closing of the Rosemont project
      senior debt financing facility. The Company retains maximum flexibility as
      the Loan is pre-payable without penalty at any time
prior to maturity and has a one-time option to declare no later
      than 18 months after closing of the Loan to extend the maturity date by
  one year for a fee of 2%.

|Augusta Resource
      Corporation | 6
|---------------------------------- | -

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

|    | Under the terms of the off-take agreement, Red Kite will
      purchase up to 15% or 45,000 dry metric tonnes per year of copper
      concentrates from Rosemont for a 10-year period. The off-take agreement
      includes market pricing and competitive payables for metals including
      benchmarked treatment and refining charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | As part of the loan agreement, the Company will pay an
      origination fee of 2% and also issue 1,666,666 warrants exercisable at
      Cdn$3.90 per share for a three-year period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(b) | On February 11, 2010 Augusta signed a definitive
      agreement with Silver Wheaton under which the Company has agreed to
      provide Silver Wheaton with silver and gold in an amount equal to 100% of
      the payable silver and gold to be produced from Rosemont.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Silver Wheaton will pay Augusta upfront cash payments
      totaling $230 million and production payments of $3.90 per ounce of silver
      and $450 per ounce of gold delivered during the mine life, or the
      prevailing market price, if lower. The production payments are subject to
      an inflationary adjustment. The upfront cash payments will provide a
      portion of the project funding for the construction of Rosemont and will
      be drawn post permitting for construction. The ROD is expected to be in
      the fourth quarter of 2010 and construction is planned for early 2011. The
      January 2009 Rosemont updated feasibility study details precious metals
      production averaging 2.4 million ounces of silver and up to 15,000 ounces
      of gold per year over a projected twenty-two year mine life.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The investment by Silver Wheaton is subject to receipt of
      all necessary permits to construct and operate Rosemont and Augusta having
      entered into committed arrangements for sufficient additional financings
      to construct and operate the mine.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(c) | On February 23, 2010 Augusta entered into an agreement
      with a syndicate of underwriters for the issuance of 11,820,000 common
      shares of the Company, on a bought deal basis, at a price of Cdn$2.75 per
      share for gross proceeds of Cdn$32.51 million ($31.91 million). On March
      12, 2010, the Company closed the financing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The common shares will be offered by way of a short form
      prospectus to be filed in certain of the provinces of Canada, other than
      Quebec, pursuant to National Instrument 44-101 Short Form Prospectus
      Distribution and in the United States on a private placement basis
      pursuant to exemptions from the registration requirements of the United
      States Securities Act of 1933, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Company plans to use the net proceeds from this
      financing to advance the development of the Rosemont copper property and
      for general working capital purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|Augusta Resource
      Corporation | 7
|---------------------------------- | -

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

Results of operations

|                                           |   | 2009       |   |   | 2008        |   |   | 2007       |  
|------------------------------------------ | - | ---------- | - | - | ----------- | - | - | ---------- | -
|EXPENSES                                   |   |            |   |   |             |   |   |            |  
|Salaries and benefits                      | $ | 1,913,506  |   | $ | 2,738,718   |   | $ | 1,804,875  |  
|Stock-based compensation                   |   | 1,120,555  |   |   | 2,378,054   |   |   | 1,638,728  |  
|Exploration                                |   | -          |   |   | -           |   |   | 321,712    |  
|Legal, Accounting and Audit                |   | 822,650    |   |   | 3,397,442   |   |   | 939,579    |  
|Travel                                     |   | 148,907    |   |   | 447,766     |   |   | 292,366    |  
|Consulting and Advisory
      services     |   | 76,947     |   |   | 636,892     |   |   | 255,119    |  
|Filing and Regulatory fees                 |   | 80,834     |   |   | 151,813     |   |   | 174,839    |  
|Recruiting fees and relocation
      costs |   | 53,405     |   |   | 161,622     |   |   | 34,096     |  
|Office and Administration                  |   | 250,933    |   |   | 309,069     |   |   | 133,175    |  
|Rent                                       |   | 161,194    |   |   | 150,018     |   |   | 48,907     |  
|Investor Relations                         |   | 157,171    |   |   | 152,483     |   |   | 259,956    |  
|Directors' fees                            |   | 109,296    |   |   | 134,823     |   |   | 59,184     |  
|Insurance                                  |   | 170,133    |   |   | 159,175     |   |   | 100,944    |  
|Memberships and Conferences                |   | 25,191     |   |   | 34,009      |   |   | 7,602      |  
|Amortization                               |   | 154,854    |   |   | 87,894      |   |   | 33,311     |  
|Fiscal and Advisory services               |   | 12,968     |   |   | 12,169      |   |   | 14,764     |  
|Loss from operations                       |   | (5,258,544 | ) |   | (10,951,947 | ) |   | (6,119,157 | )
|Interest and other income, net             |   | 242,664    |   |   | 148,201     |   |   | 808,188    |  
|Other expenses                             |   | (502,244   | ) |   | (575,302    | ) |   | (267,380   | )
|Litigation settlement                      |   | -          |   |   | (2,626,004  | ) |   | -          |  
|Foreign exchange gains                     |   | 596,880    |   |   | (2,985,504  | ) |   | (240,479   | )
|Interest and finance charges               |   | (98,312    | ) |   | (239,005    | ) |   | (169,742   | )
|Loss from continuing operations            |   | (5,019,556 | ) |   | (17,229,561 | ) |   | (5,988,570 | )
|Gain (loss) from discontinued operations   |   | (508,385   | ) |   | 543,177     |   |   | (1,664,213 | )
|Net loss for the
      year                | $ | (5,527,941 | ) | $ | (16,686,384 | ) |   | (7,652,783 | )
|                                           |   |            |   |   |             |   |   |            |  
|Basic and fully diluted loss per share     |   |            |   |   |             |   |   |            |  
|Continuing operations                      | $ | (0.05      | ) | $ | (0.19       | ) | $ | (0.07      | )
|Discontinued operations                    | $ | (0.01      | ) | $ | 0.01        |   | $ | (0.02      | )
|Basic and fully diluted loss per share     | $ | (0.06      | ) | $ | (0.18       | ) | $ | (0.09      | )

Years ended December 31, 2009 and 2008 comparison

For the year ended December 31, 2009 the Company reported a net
loss of $5.53 million or $0.06 per share compared to a net loss of $16.69
million or $0.18 per share for the previous year. The $11.16 million decrease in
net loss for the year was due to the following:

Salaries and benefits decreased $0.83 million to $1.91 million
compared to $2.74 million for 2009 due primarily to two vacant executive
positions that were filled internally in the beginning of 2009 and higher
recovery of salary and benefits charged to two companies related by common
officers and directors.

Stock compensation expense decreased $1.26 million to $1.12
million in 2009 compared to $2.38 million. The lower exercise price and fewer
number of incentive stock options granted during 2009 compared to in 2008 both
contributed to lower stock-based compensation expense.

|Augusta Resource
      Corporation | 8
|---------------------------------- | -

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

Legal, accounting and audit expenses decreased $2.58 million to
$0.82 million in 2009 compared to $3.40 million in 2008 due primarily to a
decrease in legal fees stemming from the Company not having to defend against
the Asarco lawsuit compared to in 2008. The Company reached a settlement with
the Asarco creditors in January of 2009.

Consulting and Advisory services decreased $0.56 million to
$0.08 million in 2009 compared to $0.64 million in 2008 due to increased
transaction related advisory activities in 2008 that were either nonexistent or
minimal in 2009.

Interest and other income increased $0.09 million to $0.24
million in 2009 compared to $0.15 million in 2008 due primarily to higher
ranching revenue from the sale of livestock.

Foreign exchange gains increased $3.58 million to $0.60 million
in 2009 compared to a $2.99 million foreign exchange loss in 2008 due to changes
in foreign exchange rates during the year. The 2009 foreign exchange gain was
due to a strong Canadian dollar against the U.S. dollar on our Canadian dollar
denominated working capital balances. The 2008 foreign exchange loss was due
primarily to a Cdn$5.71 million foreign exchange loss on the translation of the
$40 million Sumitomo loan into Canadian dollars. From the first drawdown of the
loan on June 23, 2008 to the end of the year, the Canadian dollar weakened from $0.9840 USD/CAD
to $0.8166 at December 31, 2008.

Gain (loss) from discontinued operations is comprised of Mount
Hamilton, Shell and Monte Cristo (collectively, the DHI Properties) operating
expenses and adjustments to the fair value adjustments to the sale price of the
DHI Properties to Ely Gold & Minerals Inc. (formerly, Ivana Ventures Inc.).
The operations expenses and subsequent loss on the February 28, 2008 sale of the
DHI Properties were reclassified to discontinued operations. Refer to notes 4
and 6 of the December 31, 2009 financial statements for details of the sale of
DHI Properties to Ely Gold & Minerals Inc. (formerly, Ivana Ventures Inc.).
Due to market conditions, on November 16, 2009, the Company had agreed to extend
the payment terms to Ely for an additional two years on the $4 million still
owing on the original $6.63 million sale price. As a result, the Company had to
write down the value of the unpaid receivable by $1.0 million to reflect the new
fair value of the Ely receivable.

Years ended December 31, 2008 and 2007 comparison

The net loss for the year ended December 31, 2008 was $16.69
million or $0.18 loss per share compared to $7.65 million or $0.09 loss per
share for the same period in 2007. The $9.03 million increase in the net loss
during 2008 was due to the following:

Salaries and benefits increased $0.93 million to $2.74 million
in 2008 compared to $1.80 million in 2007 due primarily to increased corporate
activity. Augusta provides accounting and administrative support to two related
companies and personnel costs are allocated among the group on an as-used basis.
Due to increased activity, Augusta was charged a higher allocation of personnel
costs.

Stock-based compensation increased $0.74 million to $2.38
million in 2008 compared to $1.64 million in 2007 due primarily to the immediate
vesting of 360,000 of the 2,170,000 options granted in 2008. Compared to 2007,
there were no immediate vesting of the 1,185,000 options granted in the year.
Immediate vesting results in a direct charge of the fair value of the vested
options to stock based compensation on the date of the grant.

Legal, accounting and audit expenses increased $2.46 million in
2008 to $3.40 million compared to $0.94 million in 2007 due primarily to legal
fees incurred to defend its Rosemont property ownership which was challenged by
the Asarco creditors. Audit and accounting fees increased $0.17 million in 2008
to $0.25 million due primarily to SOX compliance costs as additional work was
required to test the internal controls over financial reporting.

Travel expenses increased $0.16 million to $0.45 million in
2008 compared to $0.29 million in 2007 due to increased travel to the Rosemont
property and fund raising efforts.

|Augusta Resource
      Corporation | 9
|---------------------------------- | -

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

Consulting and advisory services increased $0.38 million to
$0.64 million in 2008 compared to $0.26 million in 2007 due primarily to
consulting services rendered in connection with the on-going SOX 404 process,
tax and transaction related services.

Other expenses consisting of ranch operating expenses increased
$0.31 million to $0.58 million in 2008 compared to $0.27 million in 2007 due
primarily to purchases of livestock for the new ranch property operation which
was purchased late in 2007.

The Asarco litigation over the Rosemont property ownership was
settled in January 2009 and the estimated liability can be measured at December
31, 2008, the Company had recorded a provision for the Rosemont litigation
settlement of $2.63 million.

Foreign exchange loss increased by $2.75 million to $2.99
million in 2008 compared to $0.24 million in 2007 was due to the strong U.S.
dollar against the Canadian dollar. The Company had recorded a $5.2 million
unrealized foreign exchange loss on the revaluation of the U.S. dollar Sumitomo
loan facility to Canadian dollars. This was partially offset by a $1.3 million
realized foreign exchange gain on US dollar cash and cash equivalents and a $1.3
million unrealized foreign exchange gain on the translation of US dollar net
assets. The foreign exchange loss of $0.24 million in 2007 was realized on US
dollar marketable investments and partially offset by exchange gains on U.S.
dollar denominated promissory note.

Gain on discontinued operations was $0.54 million in 2008
compared to a $1.66 million loss in 2007 due primarily to a $1.20 million
impairment charge on the sale of the Companys interest in the Mount Hamilton,
Shell and Monte Cristo properties in 2007.

Summary of Quarterly Results

Select financial information for each of the eight most
recently completed quarters of fiscal 2009 and 2008 are as follows:

Net Loss andInterest and other
    
    
    Comprehensive
    
    
    Net loss per shareincome, net
    
    
    Loss
    
    
    basic & dilutedQ4 2009
    $
    62,673
    
    $
    (2,139,179
    )
    $
    (0.02
    )Q3 2009
    
    25,619
    
    
    (943,401
    )
    
    (0.01
    )Q2 2009
    
    9,241
    
    
    (892,178
    )
    
    (0.01
    )Q1 2009
    
    145,131
    
    
    (1,553,183
    )
    
    (0.02
    )Q4 2008
    
    (367,416
    )
    
    (8,528,725
    )
    
    (0.08
    )Q3 2008
    
    12,027
    
    
    (3,094,093
    )
    
    (0.03
    )Q2 2008
    
    (82,270
    )
    
    (2,752,498
    )
    
    (0.03
    )Q1 2008
    $
    585,861
    
    $
    (2,311,068
    )
    $
    (0.03
    )


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

Liquidity and capital resources

At December 31, 2009, the Company had $6.25 million in cash and
cash equivalents compared to $7.56 million at the beginning of the year. At
December 31, 2009, the Company had a working capital deficit of $47.48 million
compared to a working capital surplus of $5.06 million at the beginning of the
year. The significant increase in the working capital deficit relates to the
$41.62 million Sumitomo loan and accrued interest that became a current
liability. The Sumitomo loan is due on June 17, 2010. Subsequent to December 31,
2009, the Company entered into a $40 million senior secured loan and copper
off-take agreement with Red Kite, which upon completion, the proceeds
will be used to repay the Sumitomo loan. The Company spent $4.34 million in
operating activities during the year ended December 31, 2009 compared to $7.47
million spent during the same period in 2008.

|Augusta Resource
      Corporation | 10
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

The Company generated $37.0 million in net cash from financing
activities in 2009 compared with $30.73 million for the same period in 2008.
During 2009, the Company received gross proceeds of $30.81 million from two
equity offerings and exercise of warrants and stock options. The Company also
drew down the $8.94 million remaining balance of the $40 million Sumitomo credit
facility. For 2009, the Company has accrued approximately $0.98 million of
interest on the loan facility which will be repaid upon closing of the Red Kite
loan agreement. In April, the Company completed a $4.0 million (Cdn$5.03
million) private placement for 3,350,000 units at a price of Cdn$1.50 per unit.
Each unit consists of one common share and one share purchase warrant
exercisable into one common share at a price of Cdn$2.30 per share and expires
on April 17, 2010. In August, the Company completed its second equity issue
pursuant to a prospectus offering for the sale of 14,237,000 common shares at a
price of Cdn$2.02 per share for gross proceeds of $26.22 million (Cdn$28.76
million). Commissions, broker warrants and other share issue related costs
totaled $2.55 million for the year, of which $0.33 million was non-cash cost
relating to the fair value of the broker options and warrants and has been
charged to deficit. The Company made its annual $0.56 million installment
payment pursuant to a promissory note issued for the purchase of land used for a
water-well field and pump station.

During 2009 the Company spent $35.60 million on investing
activities compared with $41.60 million spent in 2008. A total of $14.99 million
of deposits were made to the suppliers of the SAG and two ball mills, three mill
drives and three electric mining shovels. Development expenditures totaled
$17.67 million primarily on basic engineering and design, environmental impact
study and permitting activities. Capital asset additions totaled $2.85 million
for the year and relate primarily to the purchase of land used for water rights
and power line right of ways, water storage and transportation.

The Company has no material off-balance sheet arrangements and
no material capital lease agreements.

The Company has no revenue from operations and does not expect
to generate any revenue from its operations until construction of the Rosemont
project is complete and commencement of commercial production in early 2012. The
Company will require additional capital to execute its business plan.

To fund its planned 2010 capital expenditures program, the
Company will continue to rely on equity financings, external debt and potential
joint venture partners to meets its ongoing obligations. The Company is
currently in discussions with various financial intermediaries with the
objective of securing the required funding to cover expenditures through to
construction startup. Project financing is expected to be in place by the four
quarter of 2010 in order to begin construction in early 2011. In the meantime,
the Company will continue to monitor its cash flows and operate in a manner to
preserve cash while the Company secures its funding for the Rosemont
project.

|Augusta Resource
      Corporation | 11
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

As at December 31, 2009, the contractual obligated cash flow
requirements are as follows:

|in thousands of
      dollars            |   | < 1 year |  |   | 1 - 2 years |  |   | 2 - 3 years |  |   | > 3 years |  |   | Total   | 
|---------------------------------------- | - | -------- |  | - | ----------- |  | - | ----------- |  | - | --------- |  | - | ------- | 
|                                         |   |          |  |   |             |  |   |             |  |   |           |  |   |         | 
|Accounts payable and accrued liabilities | $ | 12,386   |  | $ | -           |  | $ | -           |  | $ | -         |  | $ | 12,386  | 
|Current portion
      long-term debt     |   | 41,621   |  |   | -           |  |   | -           |  |   | -         |  |   | 41,621  | 
|Note
      payable                       |   | 557      |  |   | 557         |  |   | 557         |  |   | -         |  |   | 1,671   | 
|Long-lead equipment
      purchases      |   | 36,753   |  |   | 68,293      |  |   | -           |  |   | -         |  |   | 105,046 | 
|Land
      purchases                     |   | 112      |  |   | 69          |  |   | 69          |  |   | 1,146     |  |   | 1,397   | 
|Operating lease obligations              |   | 186      |  |   | 172         |  |   | 88          |  |   | 177       |  |   | 624     | 
|                                         | $ | 91,615   |  | $ | 69,092      |  | $ | 715         |  | $ | 1,323     |  | $ | 162,744 | 

On December 19, 2007 the Company announced that it had signed
an agreement valued at approximately $28.4 million with Polysius Corp.
(Polysius) for the purchase and delivery of a SAG mill and two ball mills
needed for the construction of the Rosemont mine. The payments are spread out
over two and a half year period starting in January 2008. Payments required in
2008 totalled $10.1 million, $11.0 million for 2009, and $7.3 million for 2010.
To December 31, 2009 all of the 2009 required payments had been made.

On April 8, 2008 the Company announced the signing of a Letter
Award with a subsidiary of  ABB  Ltd. for the supply of three gearless mill drives for
$40.6 million (€28.3 million). Payments required in 2008 totaled $4.1 million
(€2.7 million), $9.1 million (€6.4 million) for 2009, $16.7 million (€11.7
million) for 2010 and $10.7 million (€7.5 million) for 2011. To December 31,
2009, all of the 2009 payment requirements had been made except for $5.3 million
(€3.7 million) which was paid on January 22, 2010.

On June 6 and June 26, 2008 the Company signed Letters of
Awards for the purchase of a gyratory crusher and for three electric mining
shovels. The gyratory crusher is being purchased from Sandvik Mining for total
commitments of $8.4 million with payments in 2008 totaling $0.6 million, $0.5
million for 2009, $2.5 million for 2010 and $4.8 million for 2011. The 3 shovels
are being purchased from Bucyrus International Inc. for total commitments of
$63.8 million with payments in 2008 totaling $3.0 million, $11.7 million for
2010 and $49.1 million for 2011. On December 18, 2008 a contract amendment for
the three shovels was completed that delayed the 2009 payments until 2010. On
February 27, 2010 a second contract amendment was signed to delay shovel
payments until the fourth quarter of 2010, at which time the $11.7 million plus
a delay charge of $0.4 million is due.

For purchase agreements related to long lead time equipment the
Company has included or intends to include in such agreements provisions which
will allow it under certain circumstances and conditions to assign/transfer/or
sell the contracts to third parties. In the event that the Company does not make
the necessary progress payments through to completion of the contract, amounts
paid to date are not refundable.

These equipment orders will help ensure that mine development
and metal production occurs on a timely basis upon the anticipated receipt of
the ROD expected in late 2010.

Outlook

The main focus in 2010 will be to finalize the majority of the
basic engineering design drawings. This will allow detailed engineering to start
on earthwork, civil and structural design. 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.

The Company continues with the federal, state, and local
regulatory approval process. The process relies on completion of an
Environmental Impact Statement (EIS) which is being managed by the USFS. Due
to the large number of Cooperating Agencies participating in the EIS process has
resulted in an unpredicted lag in deliveries. However, the EIS process is still expected
to be completed within the next year and result in a ROD in the last quarter of
2010, a slight delay from the original expected July 2010.

|Augusta Resource
      Corporation | 12
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

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

With the appointment of Endeavour as the Companys Project
Finance Advisor, Endeavour will assist the project finance team in the
evaluation of various sources of financing for the development and construction
of the Rosemont project.

During 2010 the Company anticipates major expenditures to
include: the completion of the engineering and design of the Rosemont mine at a
cost of approximately $16.4 million, $9.3 million for environmental impact study
and permitting, $36.8 million for deposits on long-lead equipment purchases. The
Company plans to hire additional project and operations personnel as the Company
gears up for the start of construction in early 2011.

Based on anticipated expenditures on the Rosemont project, the
Company will require financing in the coming year to complete the permitting
process and meet its expected ongoing expenditures. To fund these expenditures
and repay the Sumitomo loan facility, the Company has arranged a bought deal
financing with a syndicate of underwriters for the sale of 11,820,000 common
shares for gross proceeds of Cdn$32.51 million and a $40 million loan from Red
Kite Future financings for the construction of the Rosemont project are expected
to be obtained by a combination of potential joint ventures, debt and equity
financings, production-sharing arrangements or other means. However, unforeseen
market events and conditions worldwide could impede access to capital or
increase the cost of capital, which would have an adverse effect on Augustas
ability to fund its working capital and other capital requirements. There is no
assurance that these initiatives will be successful.

Transactions with Related Parties

The Company shares rent, salaries and administrative services
with two companies, related by common directors and officers. During the twelve
months ended December 31, 2009, the Company charged $0.57 million (2008 - $0.45
million) to these companies for their share of the rent, salaries and
administrative expenses. As at December 31, 2009, $0.24 million (December 31,
2008 - $0.24 million) of accounts receivable was due from these two related
companies.

As at December 31, 2009 accounts receivable included $0.01
million (December 31, 2008 - $0.06 million) due from an Officer of the Company
and companies related to the Officer.

Included in accounts payable and accrued liabilities at
December 31, 2009 was $0.27 million (December 31, 2008 - $0.08 million) due to
an Officer of the Company for accrued salary.

All related party transactions are recorded at fair value.

Proposed Transactions

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

|Augusta Resource
      Corporation | 13
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

Share Capital

|                                           |  |                  |  |   | Weighted average | 
|------------------------------------------ |  | ---------------- |  | - | ---------------- | 
|                                           |  |                  |  |   | exercise price   | 
|                                           |  | Number of shares |  |   | (Cdn$)           | 
|Issued and outstanding common shares ( a ) |  | 106,768,816      |  | $ | -                | 
|Options ( b )                              |  | 8,475,800        |  | $ | 2.14             | 
|Warrants                                   |  | 3,563,554        |  | $ | 2.29             | 
|Fully diluted                              |  | 118,808,170      |  |   |                  | 

|(a) | As at March 6, 2010 the Company had 107,188,813 common
      shares issued and outstanding                                                      
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                 
|(b) | As at December 31, 2009 the Company had 2,029,746 shares
      available for granting stock options under the Companys Stock Option
      Plan.

FINANCIAL INSTRUMENTS

Under Canadian GAAP, financial instruments are classified into
one of the following five categories: held-for-trading, held to maturity
investments, loans and receivables, available-for-sale financial assets and
other financial liabilities.

The carrying values of the Companys financial instruments are
classified into the following categories:

|                                |   | 2009        |   |   | 2008        |  
|------------------------------- | - | ----------- | - | - | ----------- | -
|Cash and cash equivalents       | $ | 6,247,217   |   | $ | 7,563,190   |  
|Loans and receivables           |   | 2,665,584   |   |   | 4,320,691   |  
|Other financial liabilities (1) | $ | (58,154,125 | ) | $ | (40,023,579 | )

(1) Includes accounts payable, accrued liabilities and
long-term debt.

The Company has estimated the fair values of its financial
instruments based on appropriate valuation methodologies. These fair values are
not materially different from their carrying value.

RISKS ARISING FROM FINANCIAL INSTRUMENTS AND RISK
MANAGEMENT

The Companys activities expose itself to a variety of
financial risks; market risk (including foreign exchange), credit risk and
liquidity risk. Reflecting the current stage of development of the Companys
Rosemont project, 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, Audit Committee and the Board of Directors.

Foreign exchange risk

The Company incurs expenditures in Canada and in the United
States. Foreign exchange risk arises because the amount of the Canadian dollar
cash and cash equivalents, receivable or payable will vary in U.S. dollar terms
due to changes in exchange rates.

The Company has exposure to significant Euro denominated
commitments totaling €19.2 million for the purchase of three gearless mill
drives for the next two years.

|Augusta Resource
      Corporation | 14
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

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

As at December 31, 2009, the Company is exposed to currency
risk through the following assets and liabilities denominated in Canadian
dollars:

|Cash and cash equivalents                      | $ | 4,942,433 |  
|---------------------------------------------- | - | --------- | -
|Accounts receivable                            |   | 253,350   |  
|Prepaid expenses                               |   | 9,966     |  
|Accounts payable
      and accrued liabilities |   | (512,029  | )
|                                               | $ | 4,693,720 |  

Based on the net Canadian dollar denominated asset and
liability exposures as at December 31, 2009, a 10% change in the USD/CAD
exchange rate will impact the Companys earnings by approximately $0.41 million
(2008 - $0.25 million).

Credit risk

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

The Companys cash and cash equivalents are held in short-term
GICs or high interest savings account held with a large Canadian chartered bank
and a large financial institution. Management believes the risk of loss is
remote.

The other assets and significant portion of the accounts
receivable relate to the Ely receivable, which has a fair value of $2.39 million
and is payable over a five year period and Ely warrants that are exercisable
into 2,000,000 Ely common shares at a price of Cdn$0.25 per share through to May
16, 2011. The Ely warrants were issued to the Company pursuant to the Company
agreeing to extend the terms for payment of the remaining $4.0 million owing
from the original selling price of DHI Properties for an additional two years to
2015. In the event that Ely does not make the required payments (see Note 7 of
December 31, 2009 financial statements) Augusta can take back the common shares
of DHI Minerals and DHI Minerals US or the properties in question. Should
Augusta reacquire the DHI shares or properties, an asset impairment assessment
may be required.

Liquidity risk

Liquidity risk arises through excess of financial obligations
over available financial assets due at any point in time and the Company manages
this risk by maintaining sufficient readily available cash reserve to meet its
liquidity requirements.

Based on current obligations for the next three quarters, the
Company has secured or will secure sufficient funding to complete the permitting
through to the ROD. Augusta will require project financing to be in place for
the construction of the Rosemont project. The Company is currently in
discussions with a number of financial institutions and other intermediaries
regarding project financing for Rosemont. While the Company continues to seek
project financing arrangements it is not possible to predict whether these
efforts will be successful.

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, deferred development costs, impairment of long-lived assets and the
determination of the fair value of stock-based compensation. 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.

|Augusta Resource
      Corporation | 15
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

Mineral properties and deferred development costs

When it has been established that a mineral deposit is
commercially mineable and an economic analysis has been completed, the costs
incurred subsequently to develop a mine on the property are capitalized and
amortized against future production following commencement of commercial
production, or written off if the property is sold, allowed to lapse or
abandoned. The carrying value of mineral properties and deferred development
costs represent costs incurred to date less write-downs, and are not intended to
reflect present or future values.

Stock-based compensation

The Company grants stock options to employees, directors and
consultants under its stock option plan. The Company uses the fair value method
of accounting for all stock based compensation awards. Under this method, the
Company determines the fair value of the compensation expense for all awards on
the date of the grant using the Black-Scholes pricing model. The fair value is
expensed over the vesting period of the awards. In estimating the fair value,
management is required to make certain assumptions regarding such items as the
expected life of the options and forfeiture rates and expected volatility.
Changes in the assumptions used to estimate fair value could result in
materially different results.

ADOPTION OF NEW ACCOUNTING STANDARDS

The Companys accounting policies have been consistently
followed except that the Company has adopted the following Canadian Institute of
Chartered Accountants (the CICA) standards effective January 1, 2009, none of
which had a material impact on the Companys consolidated financial
statements.

|a) | Goodwill and Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In February 2008 the CICA issued Section 3064, Goodwill
      and Intangible Assets, which replaces Section 3062, Goodwill and Other
      Intangible Assets. This new standard provides guidance on the
      recognition, measurement, presentation and disclosures of goodwill and
      intangible assets. Concurrent with the adoption of this standard, CICA
      Emerging Issues Committee Abstract 27, Revenues and Expenditures in the
      Pre-operating Period was withdrawn.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The standard was effective for our fiscal year beginning
      on January 1, 2009. Adoption of this standard did not have any effect on
      the Companys financial statements.                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|b) | Credit Risk and Fair Value of Financial Assets and
      Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In January 2009 the CICA issued EIC-173, Credit Risk and
      the Fair Value of Financial Assets and Financial Liabilities. EIC-173
      provides guidance on how to take into account credit risk of an entity and
      counterparty when determining fair value of financial assets and financial
      liabilities.                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The standard is effective for our fiscal year beginning
      on January 1, 2009 and adoption of EIC-173 did not have any effect on the
      Companys financial statements.                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|c) | Mining Exploration Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In March 2009 the CICA issued EIC-174, Mining
      Exploration Costs. EIC-174 provides guidance on the accounting and
      impairment review of exploration costs. This standard is effective for our
      fiscal year beginning on January 1, 2009. The application of EIC-174 did
      not have any effect on the Companys financial
  statements.                                                                                                                                     

|Augusta Resource
      Corporation | 16
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

|d) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In June 2009 the CICA amended Section 3862, Financial
      Instrument  Disclosures, to provide additional disclosure requirements
      about fair value measurements of financial instruments and to enhance
      liquidity risk disclosure requirements for publicly accountable
      enterprises. The additional disclosures are applicable to annual financial
      statements commencing with the Companys annual consolidated financial
      statements for its year ending December 31, 2009.

FUTURE CANADIAN PRONOUNCEMENTS

In January 2009 the CICA issued CICA Handbook Section 1582,
Business Combinations, which replaces former guidance on business
combinations. Section 1582 establishes principles and requirements of the
acquisition method and related disclosures. In addition, the CICA issued Section
1601, Consolidated Financial Statements, and Section 1602, Non-controlling
interests, which replaces the existing guidance. Section 1601 establishes
standards for the preparation of consolidated financial statements and Section
1602 provides guidance on accounting for non-controlling interest in a
subsidiary in consolidated financial statements subsequent to a business
combination. These standards apply 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 January 1, 2011, with earlier application
permitted. The Company is currently evaluating these new standards to determine
the potential impact on its consolidated financial statements.

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 IFRS over an expected five year
transitional period. In February 2008, the AcSB announced that 2011 is the
changeover date for publicly-listed companies to use IFRS, replacing Canadian
GAAP. The changeover date is for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2011.

The Companys transition date is January 1, 2010 and will
require the restatement for comparative purposes of amounts reported by the
Company for each of the quarter beginning in January 1, 2011. The Company has
commenced the process to transition from Canadian GAAP to IFRS. As part of the
transition process, the Company has provided or will provide IFRS specific
training to senior financial reporting personnel and directors. The transition
process consists of three primary phases: scoping and diagnostic phase; impact
analysis, evaluation and design phase; and implementation and review phase.

- Scoping and diagnostic phase  A preliminary diagnostic review was
  completed by an external consultant which included the determination, at a
  high level, of the financial reporting differences under IFRS and the key
  areas that may be impacted.
- The areas with the highest potential impact were identified to include the
  basis of consolidation, impairment of assets, financial instruments and
  initial adoption of IFRS under the provisions of IFRS 1.
- Analysis, quantification and evaluation phase  In this phase, each area
  identified from the scoping and diagnostic phase will be addressed in order of
  descending priority. This phase involves specification of changes required to
  existing accounting policies, information systems and business processes,
  together with an analysis of policy alternatives allowed under IFRS and
  development of draft IFRS financial statement content. The Company anticipates
  that there will be changes in accounting policies and that these changes may
  materially impact the financial statements. The full impact on future
  financial reporting is not reasonably determinable or estimable at this time.
- Implementation and review phase  This phase includes the execution of any
  changes to information systems and business processes and completing formal
  authorization processes to approve recommended accounting policy changes. It
  will also include the collection of financial information necessary to compile
IFRS-compliant financial statements and audit committee approval of IFRS
financial statements.

|Augusta Resource
      Corporation | 17
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------



Based on the review undertaken under Phase One and the work
completed to date under Phase Two, the impact that
management expects IFRS will have on the Companys financial position are summarized in the
following table.  IFRS will also have more extensive disclosure and analysis of
balances and transactions in the notes to the financial statements. The Company
is focused on specific areas that have the greatest impact to the Company
financial position is outlined below:

Key areas
    Canadian GAAP
    IFRS
    Preliminary AnalysisCapital assets
    Capital assets are recorded at cost.
      Each capital asset’s residual value is depreciated over its estimated    useful life.
    As permitted under IFRS 1, capital assets can be recorded at    historical cost or at fair value, which requires an annual assessment or when    events or circumstances occur which that impair the asset’s carrying value.
      Depreciation is based on the estimated useful life of each major    component of each asset.
    The Company will continue to record the capital assets at cost due to    the complexity and the resources required to fair value the capital assets.Mineral properties and deferred development costs
    Exploration, evaluation and development costs are capitalized when    incurred.
        They are amortized on a unit-of-production basis or written down to    its estimated fair value if the property was abandoned or disposed.
    There is limited guidance on this topic and currently allows for    exploration and evaluation costs to be either capitalized or expensed.
    The existing capitalization policy will be maintained.Impairment of long-lived assets
    Mineral properties, capital assets and deferred development costs are    tested for impairment on an annual basis or when there are indicators of    impairments.
        Impairment test is a two step process whereby asset’s carrying value    is compared against its undiscounted future cash flows. If the latter is less    than the carrying value, the asset is written down to its discounted future cash    flows.
    Mineral properties, capital assets and deferred development costs are    tested for impairment on an annual basis or when there are indicators of    impairments.
        Impairment test is a one step process whereby the asset’s carrying    value is compared to its discounted future cash flows. The asset is written    down to its future estimated discounted cash flows.
      Write downs to net realizable values can be reversed if indicators of    impairment cease to exist.
    The use of discounted future cash flows as an indicator of impairment may    likely lead to write downs in the future and may result in increased    volatility of the Company’s stock price.


|Augusta Resource
      Corporation | 18
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

Foreign currencies
      Financial statements of foreign operations are translated into the    functional currency using either temporal method for integrated operations or    current rate method for self sustaining operations
      Each foreign entity determines its own functional currency.  The financial statements are translated    into the presentation currency using the current rate method with resulting    exchange differences recorded in Other Comprehensive Income.  There may also be other differences not yet identified.
      The translation of Rosemont’s January 1, 2011 opening balance sheet, the    carrying value of capital assets, mineral properties and deferred development    costs is expected to increase due to restating the carrying values to historical cost.Stock-based compensation
      Stock-based compensation is determined using the Black Scholes Option    Pricing Model.  Allows the option to    use straight-line method or attribution method to account for graded vesting    features.
          Forfeitures can be estimated at time of grant date or record    forfeitures as they occur.
      Stock-based compensation is determined using the Black Scholes Option    Pricing Model.  For graded-vesting    features, each instalment is to be treated as a separate share option grant    because each instalment has a different vesting period, and hence, the fair    value of each instalment will differ.
          Forfeiture rate is included into the calculation of the fair value of    stock option grants.
      The determination of the value of stock-based compensation will change    and likely to be more volatile as the fair value is re-calculated for each    vesting period.


The International Accounting Standard Board currently has
projects underway that are expected to result in new pronouncements and as a
result, IFRS as at the transition date is expected to differ from its current
form. The final impact of IFRS on the financial statements will only be
determined once all applicable standards at the conversion date are known.

Disclosure Controls and Procedures

Management has designed disclosure controls and procedures, or
has caused them to be designed under its supervision, to provide reasonable
assurance that material information related to Augusta is gathered and reported to senior management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to
permit timely decisions regarding public disclosure.

|Augusta Resource
      Corporation | 19
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

Management, including the CEO and CFO, has evaluated the
effectiveness of Augustas disclosure controls and procedures, as defined in the
rules of the US Securities and Exchange Commission and Canadian Securities
Administration, as at December 31, 2009. Based on this evaluation, the CEO and
CFO have concluded that the Companys disclosure controls and procedures were
effective to a reasonable assurance standard to ensure that information required
to be disclosed in reports filed or submitted by Augusta under US and Canadian
securities legislation is recorded, processed, summarized and reported within
the time periods specified in those rules.

Managements Report on Internal Control over Financial
Reporting

Management has designed internal control over financial
reporting, or caused it to be designed under its supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements. Management has used the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) framework to
evaluate the effectiveness of Augustas internal control over financial
reporting. Based on this assessment, management has concluded that as at
December 31, 2009, the Companys internal control over financial reporting was
effective. Managements assessment of the effectiveness of the Companys
internal control over financial reporting as of December 31, 2009 has been
audited by Ernst & Young LLP, an independent registered public accounting
firm, as stated in their report.

Changes in Internal Control over Financial Reporting

Internal control over financial reporting is a process designed
to provide reasonable assurance regarding reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
Canadian GAAP. The Chief Executive Officer and Chief Financial Officer have
concluded that there has been no change in the Companys internal control over
financial reporting during the year ending December 31, 2009 that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.

RISKS AND UNCERTAINTIES

Risks and uncertainties the Company considers material are
described below. The Company is also exposed to other inherent risks that are
fully described in the Companys Annual Information Form for its year ended
December 31, 2009.

Augusta will require additional capital to fund future
business plans.

As of December 31, 2009, Augusta had a working capital deficit
of $47.48 million. In early 2010, the Company had secured or will secure
sufficient capital to cover its working capital deficit and ongoing expenditures
until the end of third quarter 2010. Augusta has no revenue from operations and
does not expect to generate any revenue until 2012 when the Rosemont project is
placed into commercial production. Augusta will require project financing to be
in place by the fourth quarter as the Company begins the construction phase in
order to remain on schedule with the permitting plan. Augusta may raise
additional capital through debt or equity financing, and possibly through joint
ventures, production sharing arrangements or other means. Recent upheavals in
the financial markets worldwide 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 Resource
      Corporation | 20
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

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

The Companys obligations under the Sumitomo 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 under the
Sumitomo Loan Agreement, if the Company is unable to immediately pay all accrued
and unpaid interest and principal debt, Sumitomo 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. If the transaction with Red Kite is completed, the Sumitomo
loan will be repaid from the Red Kite loan proceeds and security to Rosemont
Copper Companys common shares and assets will be transferred from Sumitomo to
Red Kite.

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
condition, 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, if any,
activities may be adversely affected by declines in the price of copper,
molybdenum, silver, gold` and other metals. Mineral 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 economic conditions of mineral producing countries
throughout the world. Metal prices fluctuate in response to many factors and
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
closing a property permanently.

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.

|Augusta Resource
      Corporation | 21
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

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 US 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.

|Augusta Resource
      Corporation | 22
|---------------------------------- | --

---

|Managements
      Discussion and Analysis for the year ending December 31, 2009
|--------------------------------------------------------------------------------

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.

|Augusta Resource
      Corporation | 23
|---------------------------------- | --

---