---



MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Year Ended December 31, 2011

---

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 consolidated
financial statements for the year ended December 31, 2011 which is available on
the SEDAR website at www.sedar.com. The consolidated financial statements
are prepared in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB).
Previously, the Company prepared its annual consolidated financial statements in
accordance with Canadian generally accepted accounting principles (Canadian
GAAP). The Companys 2010 comparatives in this MD&A have been presented in
accordance with IFRS. This MD&A contains forward-looking statements that
are subject to risk factors set out in the cautionary note contained herein. All
figures are in United States dollar unless otherwise noted. This MD&A has
been prepared as of March 19, 2012.

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

Cautionary Statement on Forward-Looking Statements

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

Description of the Business

Augusta and its wholly-owned subsidiary, Rosemont Copper
Company (RCC), are engaged in the exploration and development of mineral
properties in Pima County, Arizona. Augustas main asset is the Rosemont copper
project (Rosemont) which is currently in the final stages of the permitting
process. The U.S. Forest Service (USFS) published the draft Environmental
Impact Statement (DEIS) on October 13, 2011, commencing the 90-day comment
period which concluded in January 2012. The Company expects the Record of
Decision (ROD) to be issued late in the second or third quarter of 2012 with
construction to start in the second half of 2012. Rosemont is expected to be one
of the largest copper mines in the United States, accounting for approximately
10% of total U.S. copper production.

- 1 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

The Rosemont property is comprised of approximately 17,500
acres (7,080 hectares) of patented and unpatented claims and fee land and
surface grazing rights. Rosemont is approximately 50 kilometres southeast of
Tucson, Arizona near a number of large porphyry type producing copper mines
operated by Freeport-McMoRan Copper & Gold Inc. and ASARCO LLC (ASARCO).
Rosemont contains an open-pit mineable copper/molybdenum/silver skarn deposit,
as well as other exploration targets.

Corporate Developments

On February 27, 2012, the Company and RK Mine Finance Fund
(formerly, Red Kite Explorer Trust) signed a term sheet for a one year extension
of the Red Kite loan, subject to due diligence, regulatory approval and final
legal documentation. The terms of the extension include interest payable at
LIBOR plus 4.5% and mature at the earlier of April 14, 2013 or the date of
closing of the senior debt financing for the Rosemont project. In exchange for
the extension, the Company extended the expiry date of the existing 1,791,700
share purchase warrants exercisable at C$3.90 per share to April 23, 2014 and
commit to sell to RK Mine Finance Fund 80% of the annual copper cathode
production at market terms.

The final public hearing on the Rosemont DEIS was held on
January 14, 2012, with a public comment submission deadline scheduled for
January 18, 2012. Due to a technical problem with its computer system which
rejected comments during the last hours available for submission of public
comments the USFS Coronado National Forest has extended this comment submission
period to January 31, 2012. The Company sees no material impact on the projects
schedule from this two week extension.

On October 13, 2011, the USFS published the DEIS for the
Rosemont project and made the DEIS available to the public on their website at
www.fs.fed.us/r3/coronado/RosemontDEISmain.htmor www.rosemonteis.usfor comment.
The formal Notice of Availability (NOA) was issued on October 19, 2011 and the
first public meeting was held on November 12, 2011. The NOA initiated the final
90-day public comment period. A total of six public meetings were held in the
local Tucson and Pima County area between November 12, 2011 and January 14 2012.

On October 7, 2011, the Company filed a Notice of Appeal of the
September 30, 2011 decision by the Pima County Air Quality Control District
(AQCD) to deny the Rosemont air permit application. A hearing with the Pima
County Hearing Board was conducted in November 2011 and a decision to uphold the
denial of the Rosemont air permit application was rendered on December 1, 2011.
At the same time as the appeal was being heard at the County level, Rosemont
submitted a request for the Arizona State environmental agency to take over the
air permit application. This request follows a statement by the County Air
Quality Director that the Rosemont application and subsequent draft air permit
were both in compliance with emission requirements, but in her judgment included
a permit-processing flaw in documentation. The state review of the permit
application has noted no such flaw of documentation, and is expected to be
considered complete and ready for publication and comment.

Rosemont Exploration

A total of 16.6 kilometres of geophysical lines were run at
Rosemont during 2011. Data from the geophysical surveys identified several
anomalies with IP responses similar or better to that of the Rosemont deposit.

Six holes were drilled in the fourth quarter to collect sample
material for further metallurgical test work. The six metallurgical holes were
drilled for a total of 2,331 metres, with 1,387 metres of mineralized core being
logged and sampled for analysis. Most of the laboratory analysis was complete by
the end of December 2011 and was subsequently being used to guide the
preparation of metallurgical composites to be used in an updated economic study
in the second quarter of 2012. The assays will also be incorporated into the
resource database to provide for more comprehensive data coverage in the central
part of the deposit.

The Company staked an additional 112 claims totaling 2,314
acres surrounding the Rosemont property in the fourth quarter. The claims were
placed on the east side to better cover the property over areas of planned
infrastructure needed for mine development. Claims were also placed along the
west and southwest of the property to provide for additional buffer zones for
the planned open pit and rock storage areas.

- 2 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

Following an evaluation of remaining inferred resources within
the planned pit limits, three infill drill hole locations were identified that
could reasonably contribute to the mineable reserves. All three holes were
completed to depths of approximately 450 metres and contain good copper
mineralization. These results will be used in the updated resource estimate
which is scheduled to be completed in the second quarter of 2012.

This drilling information will be incorporated into an updated
resource estimate planned for the second quarter of 2012.

Permitting and Environmental Impact Statement
(EIS)

The EIS process is managed by the USFS. The ROD will be issued
by the USFS and Bureau of Land Management for mining activities on public land
and by the U.S. Army Corps of Engineers (ACOE) for mining activities within
jurisdictional waters of the United States.

On January 31, 2012, the USFS concluded the 90-day public
comment period for the DEIS which was published on October 13, 2011.

The ACOE completed their 45-day public comment period for the
draft Clean Water Act 404 permit on January 19, 2012. As part of the comment
process, the EPA, as an advisory agency, submitted a letter to the ACOE
identifying the Rosemont permit as a candidate for review by the EPA and ACOE.
The full EIS of the Rosemont Copper project, already includes an extensive
analysis and reviews conducted and completed by the technical experts and the
numerous Federal and State agencies that addresses the impact of items listed in
the EPA letter. The EPA letter identifies those subject areas that the EPA
wishes to review in detail with ACOE. The Company will continue to work with the
ACOE and EPA team to ensure that the EPAs questions are answered fully and that
the 404 permit meets the Clean Water Act compliance standards. Although the EPA
plays an important advisory role in the 404 permit application process, the
agency does not actually issue the permit, which is reserved for the ACOE.

The Arizona State Line Siting Committee issued its Certificate
of Environmental Compatibility (CEC) to the Tucson Electric Power Company on
December 19, 2011. The CEC specifies the selected route for the transmission
line to the Rosemont Copper project, which runs parallel to the project's water
pipeline.

The Air Permit when issued will establish the standards for air
quality and emissions control for mining operations. On September 30, 2011, the
Control Officer of the AQCD issued a denial of the Rosemont air permit
application just weeks after releasing a draft permit. The Company filed a
Notice of Intent to sue AQCD on June 23, 2011 and AQCD provided a draft permit
for public comment, two days before the deadline to respond to Rosemont's
notice. The draft permit was written by the AQCD with enforceable conditions
that demonstrated compliance with all applicable regulations as a minor source.
On September 2, 2011, Rosemont filed a lawsuit to compel the AQCD to take action
on the permit application following the timelines as stipulated in the law. One
day before the court deadline for the AQCD to respond to the Augustas filing of
the lawsuit, the AQCD issued a permit denial, reversing its prior determination
that Rosemont qualified as a minor source. The Company filed a Notice of Appeal
with the Pima County Air Quality Hearing Board (Pima County AQHB) and on
December 1, 2011, the Pima County AQHB rendered a decision to uphold the denial
of the Rosemont air permit. On November 23, 2011, the Company submitted an
application for permit with the Arizona Department of Environmental Quality
(ADEQ). On January 23, 2012, the application was considered administratively
complete signifying the start of the technical review process for the permit
application. The Company has met with ADEQ to discuss its concerns and the
appropriate process for moving the process forward.

The Company continues working towards obtaining the following
permits:

- The Aquifer Protection Permit when issued by the ADEQ will establish the
  operating standards and controls so that operations do not degrade
  groundwater. The ADEQ published a draft permit and held a public hearing on January 5, 2012. The hearing took place during the 45-day
  public comment period which ended on February 3, 2012. The Company anticipates
  the permit will be issued early in the second quarter; and

- 3 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

- The State Land Department Right of Way valuation and approval process will
    provide a route to get water and power to Rosemont.

Engineering and Ongoing Support Activities

The Company continued with the engineering throughout 2011.
Detailed engineering work has been adjusted to match the revised construction
schedule. Since the commencement of permitting activities, the Company has
maintained an active community relations program which includes maximizing the
economic benefits to the Rosemont region. The program includes support of local
and regional activities and maintaining a community outreach program. During the
year ended December 31, 2011, the Company has added a number of technical and
operating personnel to its project team as the Company prepares for construction
in the second half of 2012.

As at December 31, 2011 and 2010, Augustas capitalized costs
on the Rosemont project and deposits on long-lead equipment were as follows:

Mineral Properties

|As at January 1, 2010      | $ | 26,670,935 |  
|-------------------------- | - | ---------- | -
|Sale of interest           |   | (1,057,978 | )
|Acquisition costs          |   | 63,991     |  
|Capitalized
      interest |   | 16,913     |  
|As at December 31, 2010    | $ | 25,693,861 |  
|                           |   |            |  
|As at December 31, 2010    | $ | 25,693,861 |  
|Sale of interest           |   | (1,101,297 | )
|As at December 31, 2011    | $ | 24,592,564 |  

Development Costs

|As at January 1, 2010                                         | $ | 48,844,541  |  
|------------------------------------------------------------- | - | ----------- | -
|Permitting, engineering and on-going support activities       |   | 31,298,677  |  
|Sale of interest                                              |   | (2,802,972  | )
|Capitalized loan interest and financing charges               |   | 4,782,613   |  
|Capitalized stock-based compensation expense                  |   | 1,406,137   |  
|As at December
      31, 2010                                 | $ | 83,528,996  |  
|                                                              |   |             |  
|As at December 31, 2010                                       | $ | 83,528,996  |  
|Permitting, engineering and on-going
      support activities |   | 30,903,710  |  
|Sale of interest                                              |   | (3,538,517  | )
|Capitalized loan interest and financing
      charges         |   | 4,120,546   |  
|Capitalized
      stock-based compensation expense            |   | 3,999,737   |  
|As at December 31, 2011                                       | $ | 119,014,472 |  

- 4 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

Deposits on Long-lead Equipment

|As at January 1, 2010   | $ | 39,206,559 |  
|----------------------- | - | ---------- | -
|Additions               |   | 26,613,307 |  
|Sale of interest        |   | (2,315,660 | )
|As at December 31, 2010 |   | 63,504,206 |  
|Additions               |   | 17,568,862 |  
|Sale of interest        |   | (2,859,157 | )
|As at December 31, 2011 | $ | 78,213,911 |  

During the year ended December 31, 2011, the Company made
deposits on long-lead equipment totalling $16.9 million (December 31, 2010 -
$26.6 million).

Financing

For the year ended December 31, 2011, the Company received
proceeds of $24.9 million (Cdn$24.5 million) from the exercise of 5,452,795
share purchase warrants at an exercise price of Cdn$3.90 and 1,535,230 stock
options at an average exercise price of Cdn$2.09.

In September 2010, the Company entered into an Earn-In
Agreement with United Copper & Moly LLC (UCM) to earn up to a 20% interest
in Rosemont joint venture by funding $176 million of project expenditures. UCM
will fund a maximum $70 million of Pre-Construction costs and the remaining $106
million for construction once the major permits are issued. During 2011 UCM
contributed the remaining $33.8 million of its $70 million of Pre-Construction
costs to earn a 3.85% interest (Cumulative to-date - 7.95% interest) in the
Rosemont joint venture.

- 5 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

Results of Operations

|                                      |   | Year Ended December 31, |  
|------------------------------------- | - | ----------------------- | -
|                                      |   | 2011                    |  
|EXPENSES                              |   |                         |  
|Salaries and benefits                 | $ | 1,927,387               |  
|Stock-based compensation              |   | 3,450,300               |  
|Exploration and project investigation |   | 1,522,686               |  
|Legal, accounting and audit           |   | 797,540                 |  
|Travel                                |   | 260,437                 |  
|Consulting                            |   | 112,688                 |  
|Filing and regulatory fees            |   | 250,439                 |  
|Recruiting fees                       |   | 38,031                  |  
|Office and administration             |   | 327,679                 |  
|Rent                                  |   | 208,845                 |  
|Investor relations                    |   | 112,204                 |  
|Directors' fees                       |   | 199,600                 |  
|Insurance                             |   | 283,909                 |  
|Membership and conferences            |   | 22,522                  |  
|Amortization                          |   | 257,344                 |  
|Fiscal and advisory services          |   | 18,329                  |  
|Loss from operations                  |   | (9,789,940              | )
|Interest and other income/expenses    |   | 1,023,999               |  
|Other expenses                        |   | (594,512                | )
|Gains (losses) on shares and warrants |   | 2,624,251               |  
|Foreign exchange gains                |   | 26,672                  |  
|Interest and finance charges          |   | (14,168                 | )
|Gain on sale of interest              |   | 23,602,763              |  
|Net profit before taxes               |   | 16,879,065              |  
|Deferred income tax
      expense     |   | (1,211,000              | )
|Net comprehensive profit for the year | $ | 15,668,065              |  

Significant Variances

For the year ended December 31, 2011, the Company reported a
net comprehensive profit of $15.7 million (or $0.11 diluted earnings per share)
compared to a $20.5 million (or $0.16 diluted earnings per share) for the full
year in 2010. The $4.9 million decrease in comprehensive profit compared to 2010
was due primarily to increases of $2.3 million in stock-based compensation
expense, $1.5 million in project investigation costs, $5.9 million decrease in
after-tax gain on the sale of a 3.85% interest in the Rosemont joint venture and
partially offset by a $5.0 million favorable mark-to-market changes in the fair
value of Canadian denominated share purchase warrants and a $0.4 million
increase in interest and other income.

Salaries and benefits increased $0.2 million to $1.9 million
compared to $1.7 million for 2010. The increase was due primarily to the
recognition of full years salaries and benefits of additional personnel hired
in the fourth quarter of 2010 and a higher allocation of salaries and benefits
from a related management services company (Manco) based on increased service
levels in 2011 over 2010.

Stock-based compensation costs increased $2.3 million to $3.5
million in 2011 compared to $1.1 million for 2010. The increase was due to
higher amortization charges from a comprehensive grant of stock options,
restricted shares and restricted share units (RSU) in the first quarter of
2011 compared to no options granted during the same period in 2010. The value
per option and RSU granted during 2011 were significantly higher compared to
2010 due to the Companys higher stock price in 2011 over 2010.

Exploration and project investigation costs incurred on various
project investigation costs totaling $1.5 million in 2011 compared to $Nil for
2010.

- 6 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

Legal, accounting and audit fees decreased $0.7 million to $0.8
million in 2011 compared to $1.5 million for 2010. The decrease was due
primarily to legal fees incurred on certain business development activities in
2010 that did not occur in 2011 and offset by increases in accounting and tax
advisory fees.

Filing and regulatory fees increased $0.1 million to $0.2
million in 2011 compared to $0.1 million for 2010. The increase was due to AMEX
and TSX filing listing fees with respect to the Company's Stock Option Plan.

Insurance expense increased $0.1 million to $0.3 million in
2011 compared to $0.2 million for 2010 due to increased insurance coverage.

Gain (losses) on shares and warrants consist of mark-to-market
changes in the value of the Companys Canadian dollar denominated share purchase
warrants and investments in held for trading securities. Weakness in the equity
markets and in the Companys share price during 2011, particularly in the last
half of 2011, have resulted in the Company reversing most of the 2010
mark-to-market losses on the warrants.

Selected Annual Financial Information

|                                      |   | Years
      Ended December 31, | 
|------------------------------------- | - | ------------------------------ | 
|(in US dollars)                       |   | 2011                           | 
|Revenue                               | $ | -                              | 
|Profit before taxes                   |   | 16,879,065                     | 
|Net comprehensive profit for the year |   | 15,668,065                     | 
|Basic and diluted earnings per share  |   |                                | 
|Basic earnings per share              |   | 0.11                           | 
|Diluted earnings per share            |   | 0.11                           | 
|Total Assets                          |   | 268,433,609                    | 
|Cash used in operations               |   | 6,731,815                      | 
|Capital expenditures                  |   | 50,018,525                     | 
|Non-current financial liabilities     | $ | -                              | 

Summary of Quarterly Results

Select financial information, in accordance with IFRS, for each
of the eight most recently completed quarters of fiscal 2011 and 2010 are as
follows:

Basic
    
    
    DilutedInterest and
    
    
    Net
    
    
    Earnings
    
    
    EarningsOther
    
    
    Comprehensive
    
    
    (Loss) Per
    
    
    (Loss) PerIncome
    
    
    Profit (Loss)
    
    
    Share
    
    
    ShareQ4 2011
    $
    368,886
    
    $
    (279,009
    )
    $
    -
    
    $
    -Q3 2011
    
    239,247
    
    
    955,601
    
    
    0.01
    
    
    0.01Q2 2011
    
    159,012
    
    
    7,295,459
    
    
    0.05
    
    
    0.05Q1 2011
    
    256,854
    
    
    7,696,014
    
    
    0.05
    
    
    0.05Q4 2010
    
    213,422
    
    
    27,680,399
    
    
    0.23
    
    
    0.22Q3 2010
    
    115,641
    
    
    (6,057,174
    )
    
    (0.05
    )
    
    (0.05
    )Q2 2010
    
    141,484
    
    
    (808,369
    )
    
    (0.01
    )
    
    (0.01
    )Q1 2010
    
    199,171
    
    
    (283,436
    )
    
    -
    
    
    -


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

- 7 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

Liquidity and Capital Resources

The Companys cash position decreased to $31.0 million at
December 31, 2011 compared to $31.5 million at December 31, 2010. The cash
position includes $1.4 million (December 31, 2010 - $6.2 million) which
represents the Companys share of the cash held in the Rosemont joint venture.
Working capital deficiency was $17.6 million at December 31, 2011 and include a
$1.1 million (December 31, 2010 - $9.5 million) carrying value of Canadian
dollar denominated share purchase warrants compared to working capital of $17.8
million at the beginning of the year. Changes to the fair value of the warrants
are reported in the statement of comprehensive profit or loss and will result in
volatility in the Companys working capital and profit or loss until the
warrants are either exercised or allowed to lapse. The working capital
deficiency was primarily due to the reclassification of the Red Kite loan which
is due in April 2012, use of cash for Rosemont permitting, and deposits for
long-lead equipment. On February 27, 2012, the Company signed a term sheet for a
one year extension of the Red Kite loan which is subject to due diligence,
regulatory approval and completion of legal documents. The terms of the
extension include interest payable at LIBOR plus 4.5% and mature at the earlier
of April 14, 2013 or the date of closing of the senior debt financing for the
Rosemont project. In addition, the 1,791,700 warrants previously issued to Red
Kite have been extended for one additional year to April 22, 2014.

During the year ended December 31, 2011, the Companys Rosemont
joint venture partner, UCM made cash contributions totaling $33.8 million (the
Companys share is $31.4 million) and earned an additional 3.84% interest
(cumulative to-date of 7.95% interest) in the Rosemont joint venture. UCM had
completed their commitment to fund the first tranche of up to $70 million of
pre-construction costs in accordance with the Earn-In Agreement between UCM and
the Rosemont joint venture. UCMs $106 million Tranche 2 commitment to fund
construction costs will commence once all of the material permits to start mine
construction have been received. The two tranches form the $176 million equity
earn-in investment by UCM in the Rosemont joint venture. The Company is
currently in negotiations with its joint venture partner and other third parties
on funding Rosemonts ongoing permitting and operating costs until the major
permits have been issued.

The Company used $6.7 million of cash for operating activities
during 2011 compared to $4.6 million used in 2010. The $2.1 million increase was
due primarily to $1.5 million of project investigation expenditures on new
business initiatives.

The Company generated $56.4 million in cash from financing
activities during 2011 compared to $99.9 million in 2010. The 2011 financing
activities consisted of $24.9 million proceeds from the exercise of stock
options and warrants and $31.4 million from the Companys share of UCMs cash
contribution into Rosemont (as discussed above).

The Company used $50.0 million of cash in investing activities
in 2011 compared to $70.9 million in 2010 due to lower spending on long-lead
equipment purchases and engineering, permitting and ongoing support expenditures
as the Company adjusted its expenditures in accordance with the revised ROD
schedule. The 2011 investing activities were primarily for deposits on long-lead
equipment of $16.4 million (2010 - $31.9 million) and $31.1 million (2010 -
$36.9 million) on permitting, engineering and ongoing support activities.

The Company adjusted its planned 2012 capital expenditures
program based on the revised ROD schedule. Project financing is also expected to
be in place by the time the ROD is issued. The Company will continue to monitor
its cash flows and operate in a manner to preserve cash until the Company
secures its project financing.

The Company has an off-balance sheet arrangement with Silver
Wheaton Corp. (Silver Wheaton) whereby the Company has agreed to sell to
Silver Wheaton all of its silver and gold ounces produced at the lower of $3.90
per ounce of silver and $450 per ounce of gold delivered, or prevailing market
price, in exchange for deposits of $230 million, which will be drawn after the
major project permits have been issued and the arrangement of project financing.
The deposits will be used to fund construction at Rosemont. In addition, there
are contracts in place for purchases of long-lead equipment.

The Company does not expect to generate any significant revenue
from its operations until Rosemont commences commercial production.

- 8 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

Commitments

The Company had the following known commitments and contractual
obligations as at December 31, 2011 and 2010:

|                                            |   | December 31, |  |   | December 31, | 
|------------------------------------------- | - | ------------ |  | - | ------------ | 
|(in
      thousands)                        |   | 2011         |  |   | 2010         | 
|Operating leases                            |   |              |  |   |              | 
|Within one year                             | $ | 208          |  | $ | 174          | 
|After one year but no more than five years  |   | 716          |  |   | 202          | 
|                                            |   | 924          |  |   | 376          | 
|Deposits on long-lead equipment             |   |              |  |   |              | 
|Within one year                             |   | 59,463       |  |   | 50,978       | 
|After one year but no more than three years |   | 4,316        |  |   | 61,461       | 
|                                            |   | 63,779       |  |   | 112,439      | 
|Land purchases                              |   |              |  |   |              | 
|Within one
      year                       |   | -            |  |   | 360          | 
|Total                                       | $ | 64,703       |  | $ | 113,175      | 

Transition to IFRS

On January 1, 2011, the Canadian Accounting Standards Board
replaced Canadian GAAP with IFRS for publicly accountable enterprises, with a
transition date of January 1, 2010. IFRS represents standards and
interpretations approved by the IASB and are comprised of IFRSs, IASs, and
interpretations issued by the IFRIC or the former SIC.

As previously discussed in the Companys MD&A for the year
ended December 31, 2010, the Company implemented its conversion from Canadian
GAAP to IFRS through a four-phase transition plan: scoping and planning (phase
1); detailed assessment (phase 2); operations implementation (phase 3); and
post implementation (phase 4). Phases 1, 2 and 3 were carried out in 2009 and
2010 and phase 4, which involves the maintenance of sustainable IFRS compliant
data and processes for fiscal year 2011 and beyond, was carried out throughout
2011. Management did not encounter any significant issues with completing phase
4 of its transition plan.

The consolidated financial statements for the year ended
December 31, 2011 have been prepared in accordance with existing IFRS standards
and restatements of the comparative statements of financial position as at
December 31, 2010 and January 1, 2010 and the statements of comprehensive profit
for the year ended December 31, 2010 as previously reported and prepared in
accordance with Canadian GAAP.

The following table summarizes the impact the transition to
IFRS had on the Companys selected financial information for the year ended
December 31, 2010:

|                                                  |   |             |   |   | Capitalized |   |   |            |  |   |              |  |   | Gain on
      sale |   |   |              |   |   |             | 
|------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ---------- |  | - | ------------ |  | - | ------------------ | - | - | ------------ | - | - | ----------- | 
|                                                  |   |             |   |   | Exploration |   |   |            |  |   |              |  |   | of interest        |   |   | Marked-to-   |   |   |             | 
|                                                  |   |             |   |   | and         |   |   | Change in  |  |   |              |  |   | and                |   |   | Market       |   |   |             | 
|                                                  |   | Canadian    |   |   | Evaluation  |   |   | Functional |  |   | Stock-based  |  |   | capitalized        |   |   | Valuation of |   |   |             | 
|                                                  |   | GAAP        |   |   | Costs       |   |   | Currency   |  |   | Compensation |  |   | interest           |   |   | Warrants     |   |   | IFRS        | 
|                                                  |   |             |   |   |             |   |   |            |  |   |              |  |   |                    |   |   |              |   |   |             | 
|Net Comprehensive (Loss) 
    Income for the Year | $ | (5,439,180  | ) | $ | -           |   | $ | -          |  | $ | 90,458       |  | $ | 28,338,172         |   | $ | (2,458,029   | ) | $ | 20,531,421  | 
|Total
      Assets                                |   | 226,616,900 |   |   | (21,448,188 | ) |   | 10,863,409 |  |   | 236,915      |  |   | 1,130,105          |   |   | -            |   |   | 217,399,141 | 
|Total Liabilities                                 |   | 75,000,524  |   |   | -           |   |   | -          |  |   | -            |  |   | (27,350,392        | ) |   | 7,804,788    |   |   | 55,454,920  | 
|Shareholders' Equity                              |   | 151,616,376 |   |   | (21,448,188 | ) |   | 10,863,409 |  |   | 236,915      |  |   | 28,480,497         |   |   | (7,804,788   | ) |   | 161,944,221 | 
|Basic aEarnings (Loss) Per Share                  | $ | (0.04       | ) | $ | -           |   | $ | -          |  | $ | 0.00         |  | $ | 0.23               |   | $ | (0.02        | ) | $ | 0.17        | 

- 9 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

| | a) | The Company applied IFRS 2, Share-Based
      Payments, on all share-based payments. Under Canadian GAAP, the
      Company valued each share-based grant using the Black-Scholes option
      pricing model and amortized the total cost over the vesting period. Under
      IFRS 2, each vesting period is recognized as a separate grant, resulting
      in changing the amortization schedules. Further, under Canadian GAAP,
      forfeitures are recorded as they occur whereas under IFRS, expected
      forfeitures are estimated and recorded. The estimated forfeitures are
      trued-up to actual forfeitures at each reporting period. As a result, the
      amounts recorded in reserves for share-based payments as at December 31,
      2010 decreased by $693,694.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | For the year ended December 31, 2010, the amount credited
      to stock-based compensation was $90,458.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | b) | In accordance with IAS 32, share purchase warrants with
      an exercise price denominated in a currency other than the issuers
      functional currency are considered a derivative instrument and classified
      as a liability. Warrants are fair valued at each balance sheet date with
      the corresponding change in value reported in statement of comprehensive
      profit and loss. The amounts reclassified to liabilities were $7,804,788
      with a corresponding charge to equity.                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | For the year ended December 31, 2010, the amounts charged
      to gain (losses) on shares and warrants were $2,458,029.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | c) | In accordance with IFRS 6, the Company has elected to
      expense all exploration costs incurred prior to the determination of the
      commercial viability of its exploration and evaluation projects. These
      amounts were previously capitalized under Canadian GAAP and have been
      re-classified to deficit in the period presented. The total amount
      re-classified was $21,448,188 at December 31, 2010.                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | d) | In accordance with IAS 21, each entity determines its
      functional currency. The entity which holds the Rosemont project had
      previously been Canadian dollar functional currency has changed its
      functional currency to U.S. dollars. As a result, the carrying value of
      the Rosemonts non-current assets increased by $10,863,409 with a
      corresponding credit to accumulated other comprehensive income
    (loss).                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | e) | IAS 23 requires that borrowing costs be capitalized if
      they are directly attributable to the acquisition, development or
      construction of a qualifying asset. A portion of the borrowing costs with
      respect to the Sumitomo loan had previously been expensed under Canadian
      GAAP had been capitalized to development costs under IFRS with a
      corresponding credit to deficit.                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | For the year ended December 31, 2010, the amount credited
      to interest and financing charges was $36,265.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Outlook

The Company will continue with the permitting process with the
goal of receiving the ROD by late second quarter or third quarter of 2012.
Detailed engineering, including earthwork, civil and structural design, have
been adjusted to the revised ROD schedule. Ongoing discussions with vendors are
being held with respect to transportation, storage, off-loading facilities, and
smelters for the copper and molybdenum concentrates as well as freight being
delivered during the construction phase of the project.

The Company is currently in discussions with third parties on
financing alternatives to fund Rosemonts permitting and ongoing support
activities until the major permits have been issued.

The Company expects to complete an updated resource estimate
and initial capital and operating costs estimates in the second quarter of 2012.
The Company is currently working towards securing project debt by the time the
ROD is issued in order to prepare for construction in the second half of
2012.

The Companys community relations campaign of meeting with
community leaders, neighbourhood groups and public tours of the Rosemont project
site will continue in 2012 to promote the economic benefits and the Companys
plans on alleviating the impact of mining activities on the environment.

- 10 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

The Company has updated its forecast expenditures for 2012 of
approximately $368 million based on the ROD being issued in late second or third
quarter of 2012. Of the total forecast expenditures, Rosemonts share of these
expenditures are approximately $357 million, which includes $19 million for
engineering, $11 million for environmental impact study and permitting, $193
million for the purchase of mining, plant and equipment, $117 million for mine
site preparation, operations and construction and $17 million for ranch and
on-going support activities. Included in the forecast for ongoing operations and
support is the hiring of additional project and operations personnel as the
Company prepares for construction in the second half of 2012.

Forecast expenditures for the first half of 2012 will be funded
from the Companys existing cash reserves. Assuming the ROD is received as
scheduled, the second half of 2012 expenditures will be funded from project
financing, UCMs $106 million and Silver Wheatons $230 million. However, delays
in the permitting process or any unplanned expenditures may require the Company
to raise additional funds from debt and/or equity to cover Rosemonts permitting
and ongoing support activities. Unforeseen market events and conditions could
impede access to capital or increase the cost of capital. These events could
have an adverse effect on Augustas ability to fund its working capital and
other capital requirements and hence, there is no assurance that these
initiatives will be successful.

Under IFRS, future net profits and losses will be impacted by
changes to the fair value of the Companys share purchase warrants that have an
exercise price denominated in Canadian dollars. Changes in the fair value of the
share purchase warrants are primarily influenced by the Companys share price,
the volatility of the share price and the Canadian to US dollar exchange rate.
Increases in any of these factors will increase the fair value of the share
purchase warrants and result in a non-cash expense to the Company in future
periods. In addition, these changes in the valuation of the share purchase
warrants will create a permanent difference for tax purposes and may result in
significant volatility to the Companys effective tax rate.

Transactions with Related Parties

The Company shares rent, salaries and administrative services
with companies related by common directors and officers (the related
companies). As at December 31, 2011 and 2010, included in due from related
parties were $0.04 million and $0.01 million, respectively, due from related
companies.

On July 1, 2010, the Company and the related companies formed a
management services company (ManCo) to share personnel costs, office rent and
other administration costs to each of the companies under a management services
agreement. Each company holds an equal share in ManCo. For the years ended
December 31, 2011 and 2010, ManCo charged the Company $1.20 million and $0.44
million, respectively, for its share of salaries, rent and other administrative
expenses.

Included in accounts receivable as at December 31, 2011 was
$Nil (December 31, 2010 - $0.07 million) receivable from an officer and other
companies related to the officer for reimbursement of expenses.

The Company has identified its directors and certain senior
officers as its key management personnel. The compensation costs for key
management personnel for the years ended December 31, 2011 and 2010 are as
follows:

|                               |   | Year Ended December 31, | 
|------------------------------ | - | ----------------------- | 
|                               |   | 2011                    | 
|Salaries and benefits          | $ | 2,137,313               | 
|Stock-based
      compensation |   | 4,205,072               | 
|                               | $ | 6,342,385               | 

Proposed Transactions

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

- 11 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

Outstanding Share Data

The following table summarizes the outstanding share
information as at March 19, 2012.

|                                     |  |                  |  |   | Weighted       | 
|------------------------------------ |  | ---------------- |  | - | -------------- | 
|                                     |  |                  |  |   | Average        | 
|                                     |  | Number of Shares |  |   | Exercise Price | 
|                                     |  |                  |  |   | (Cdn$)         | 
|Issued and outstanding common shares |  | 144,196,058      |  | $ | -              | 
|Restricted share units               |  | 230,003          |  |   | -              | 
|Incentive stock options              |  | 6,681,003        |  |   | 3.19           | 
|Share purchase warrants              |  | 1,791,700        |  | $ | 3.90           | 
|                                     |  | 152,898,764      |  |   |                | 

FINANCIAL INSTRUMENTS

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

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

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

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

The Companys financial instruments include: cash and
equivalents, accounts receivable, due from related parties, long-term
receivable, derivative assets, accounts payable, warrants liability and
long-term debt. The carrying value of cash and equivalents, accounts receivable,
derivative assets, accounts payable and warrants liability approximates their
fair values. The cash and cash equivalents, accounts receivable and accounts
payable are classified as level 1 on the fair value hierarchy. The derivative
assets and warrants liability are classified as level 3 on the fair value
hierarchy.

Risks arising from financial instruments and risk
management

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

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

Foreign exchange risk

The Company is exposed to currency risks on its Canadian dollar
denominated working capital balances due to changes in the USD/CAD exchange rate
and the functional currency of the parent company.

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

- 12 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

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

|                                         |   | December 31, |   |   | December 31, |  
|---------------------------------------- | - | ------------ | - | - | ------------ | -
|                                         |   | 2011         |   |   | 2010         |  
|Cash and cash equivalents                | $ | 6,808,660    |   | $ | 9,391,768    |  
|Accounts receivable                      |   | 52,975       |   |   | 88,580       |  
|Short-term investments                   |   | 286,991      |   |   | -            |  
|Prepaid expenses                         |   | -            |   |   | 53,336       |  
|Accounts payable and accrued liabilities |   | (400,084     | ) |   | (1,004,191   | )
|                                         | $ | 6,748,542    |   | $ | 8,529,493    |  

Based on the net Canadian dollar denominated asset and
liability exposures as at December 31, 2011, a 10% change in the USD/CAD
exchange rate will impact the Companys earnings by approximately $0.6 million
(2010 -$0.8 million).

Credit risk

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

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

The other asset and significant portion of the accounts
receivable relates to an Ely Gold & Mineral Inc. (Ely) receivable, which
has a carrying value of $2.5 million and is payable over the next four years to
2015. In the event that Ely does not make the required payments, the Company can
take back the common shares of DHI Minerals and DHI Minerals US or the
properties in question. Should the Company reacquire the DHI shares or
properties, an asset impairment assessment may be required.

Liquidity risk

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

Based on our 2012 planned expenditures on permitting,
engineering and on-going support activities at the Rosemont project, the Company
will require additional debt or equity financings to meet its current
obligations as they become due. The Red Kite loan, along with the accrued
interest, which would have been due on April 21, 2012 have now been extended to
the earlier of April 14, 2013 or the closing of senior debt financing. This extension is subject to due diligence, regulatory approval and final legal documentation.

Equity price risk

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

- 13 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

Capital risk management

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

Similar to other mining companies in the development stage, the
Company is in discussions with certain parties to provide funding for the
Company to execute its business plan. On September 16, 2010, the Company entered
into an EI Agreement with UCM to earn up to a 20% interest in the Rosemont joint
venture by contributing cash of up to $176 million into the joint venture to
fund permitting, engineering and ongoing Rosemont expenditures through to
construction. The Updated 2009 Feasibility Study estimated the capital cost of
the mill and mining equipment and all related construction costs at $897
million. Funding for the project could come from a number of sources, including
project financing, off-take agreements, sale of future metal streams and from
capital markets.

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

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

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

The 2012 capital requirements will include scheduled deposits
for long-lead equipment purchases, the ongoing cost of permitting, engineering
and on-going support activities at the Rosemont project as well as for
administration expenses. A portion of the Rosemont expenditures will be funded
from the Companys existing cash reserves and if necessary, additional equity
issues to meet its ongoing commitments and capital purchases.

CRITICAL ACCOUNTING ESTIMATES

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

Mineral Properties and Development Costs

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

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

- 14 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

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

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

Stock-based Compensation

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

Financial Instruments

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

NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS NOT YET
EFFECTIVE

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

Accounting standards effective January 1, 2012

Financial instruments disclosureIn October 2010, the
IASB issued amendments to IFRS 7  Financial Instruments: Disclosuresthat improves the disclosure requirements in relation to transferred
financial assets. The amendments are effective for annual periods beginning on
or after July 1, 2011, with earlier adoption permitted. The Company does not
anticipate this amendment to have a significant impact on its consolidated
financial statements.

Income taxesIn December 2010, the IASB issued an
amendment to IAS 12  Income taxesthat provide a practical solution to
determining the recovery of investment properties as it relates to the
accounting for deferred income taxes. This amendment is effective for annual
periods beginning on or after July 1, 2011, with earlier adoption permitted. The
Company does not anticipate this amendment to have a significant impact on its
consolidated financial statements.

- 15 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

Accounting standards anticipated to be effective January 1,
2013

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

Disclosure of interest in other entitiesIFRS 12,
Disclosure of Interest in Other Entities,establishes disclosure
requirements for interests in other entities, such as joint arrangements,
associates, special purpose vehicles, and off balance sheet vehicles. The
standard carries forward existing disclosures and also introduces significant
additional disclosure requirements that address the nature of, and risks
associated with, an entitys interests in other entities. Management anticipates
that this standard will be adopted in the Company's financial statements for the
period beginning January 1, 2013, and has not yet considered the potential
impact of the adoption of IFRS 12.

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

Financial instrumentsIFRS 9, Financial
Instruments: Classification and Measurement, effective for annual periods
beginning on or after January 1, 2013, with early adoption permitted, introduces
new requirements for the classification and measurement of financial
instruments. Management anticipates that this standard will be adopted in the
Company's financial statements for the period beginning January 1, 2013, and has
not yet considered the potential impact of the adoption of IFRS 9.

Fair value measurementIFRS 13, Fair Value
Measurement, effective for annual periods beginning on or after January 1,
2013, with early adoption permitted, sets out a single IFRS framework for
measuring fair value and new required disclosures about fair value measurements.
Management anticipates that this standard will be adopted in the Company's
financial statements for the period beginning January 1, 2013, and has not yet
considered the potential impact of the adoption of IFRS 13.

Presentation of financial statementsIAS 1,
Presentation of Financial Statements, effective for annual periods
beginning on or after July 1, 2012, was amended to require entities to group
items within other comprehensive income that may be reclassified to profit or
loss. Management anticipates that this standard will be adopted in the Company's
financial statements for the period beginning January 1, 2013, and has not yet
considered the potential impact of the adoption of IAS 1.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

- 16 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

Internal Control over Financial Reporting

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

The financial reporting changes that resulted from the
application of IFRS accounting policies were implemented during the year ended
December 31, 2011, has not materially affected, or is not reasonably likely to
materially affect, the Companys internal control over financial reporting.

RISKS AND UNCERTAINTIES

The Company and its current and future business and financial
condition are subject to various risks and uncertainties due to the nature of
the business and the present stage of development of the Rosemont project.
Certain of these risks and uncertainties are set out below and a comprehensive
list can be found under the heading Risk Factors in the Companys Annual
Information Form for the year ended December 31, 2011, which is available on
SEDAR at www.sedar.comand EDGAR at www.sec.gov.

Augusta will require additional capital to fund future
business plans.

As of December 31, 2011, Augusta had a working capital
deficiency of $17.6 million, including the $45.0 million Red Kite loan due on
April 21, 2012. On February 27, 2012, the Company extended the maturity of the
loan to the earlier of April 14, 2013 or the closing of the senior debt
financing. Augusta has minimal revenue from its operations and does not expect
to generate any significant revenue until Rosemont is placed into commercial
production. Augusta will require project financing to be in place by the time
the ROD is issued which is anticipated to be late in the second or third quarter
of 2012. Augusta may raise additional capital through debt or equity financing,
and possibly production sharing arrangements or other means. Recent upheavals in
the financial markets worldwide, particularly within Europe, could make it very
difficult for Augusta to raise funds. Such funding may not be available on
commercially acceptable terms or at all. The Companys failure to meet its
ongoing obligations on a timely basis or raise additional funds that may be
required could result in delay or indefinite postponement of further exploration
and development of the Companys property or the loss or substantial dilution of
any of its property interests.

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

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

Exploration, development and mining involve a high degree
of risk.

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

- 17 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

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

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

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

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

Insurance risk.

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

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.

- 18 -

---

|Managements
      Discussion and Analysis for the Year Ended December 31, 2011
|-------------------------------------------------------------------------------

Mineral resources and proven and probable reserves are
estimates.

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

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

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

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

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

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.

- 19 -

---