---



Consolidated Financial Statements

For the Years Ended December 31, 2012 and 2011

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MANAGEMENT REPORT

Managements Responsibility for Consolidated Financial
Statements

The accompanying consolidated financial statements of Augusta Resource Corporation (the “Company”) are the responsibility of Management. The consolidated financial statements have been prepared by management in United States dollars in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and include certain estimates that reflect management’s best judgments.

The Companys Board of Directors has approved the information
contained in the consolidated financial statements. The Board of Directors
fulfills its responsibilities regarding the financial statements mainly through
its Audit Committee, which has a written mandate that complies with the current
requirements of Canadian securities legislation and the United States
Sarbanes-Oxley Act of 2002 and complies with the Audit Committee requirements of
the NYSE-MKT. The Audit Committee meets at least on a quarterly basis.

Managements Assessment of Internal Control over Financial
Reporting

Management is also responsible for establishing and maintaining
adequate internal control over the Companys financial reporting. The internal
control system was designed to provide reasonable assurance to the Companys
management regarding the preparation and presentation of the consolidated
financial statements.

Internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Companys
internal control over financial reporting as at December 31, 2012. In making its
assessment, Management has used the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) framework in Internal ControlIntegrated
Frameworkto evaluate the effectiveness of the Companys internal control
over financial reporting. Based on our evaluation, management has concluded that
the Companys internal control over financial reporting was effective as at that
date.

Ernst & Young LLP, a registered public accounting firm, was
appointed by a vote of shareholders at the Companys last annual meeting to
audit and provide independent opinions on both the consolidated financial
statements and the Companys internal control over financial reporting as at
December 31, 2012, as stated in their Auditors Report. Ernst & Young LLP
has provided such opinions.

|Joseph Longpré                                  | Gilmour Clausen                    
|----------------------------------------------- | -----------------------------------
|Senior Vice-President & Chief Financial Officer | President & Chief Executive Officer
|                                                |                                    
|March 25, 2013                                  |                                    
|Vancouver, Canada                               |                                    

- 2 -

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INDEPENDENT AUDITORS REPORT OF REGISTERED PUBLIC ACCOUNTING
FIRM

To the Board of Directors and Shareholders of Augusta
Resource Corporation

We have audited the accompanying consolidated financial statements of Augusta Resource Corporation, which comprise the consolidated statements of financial position as at December 31, 2012 and 2011, and the consolidated statements of comprehensive profit (loss), changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

Managements responsibility for the consolidated financial
statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or
error.

Auditors responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditors consider internal control relevant to the entitys
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.

We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Augusta Resource Corporation as at December 31, 2012 and 2011, and its financial performance and its cash flows for the years then ended, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of matter

Without qualifying our opinion, we draw attention to Note 1 in the financial statements which indicates that the Company incurred a net comprehensive loss of $9.72 million during the year ended December 31, 2012.  In addition, the Company’s forecast cash requirements for the next twelve months require significant expenditures on the Rosemont project, which exceed the Company’s working capital.  These conditions, along with other matters set forth in Note 1, indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern.

- 3 -

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Other matter

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Augusta Resource
Corporationsinternal control over financial reporting as of December 31,
2012, based on the criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 25, 2013 expressed an unqualified opinion
on Augusta Resource Corporations internal control over financial
reporting.



|Vancouver, Canada, |                      
|------------------ | ---------------------
|March 25, 2013.    | Chartered Accountants

- 4 -

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INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING UNDER THE STANDARDS OF 
THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (UNITED STATES)

To the Board of Directors and Shareholders of Augusta
Resource Corporation

We have audited Augusta Resource Corporationsinternal
control over financial reporting as of December 31, 2012, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Augusta Resource Corporationsmanagement is responsible for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying Managements Assessment of Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the companys
internal control over financial reporting based on our audit.

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

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

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

In our opinion, Augusta Resource Corporationmaintained,
in all material respects, effective internal control over financial reporting as
of December 31, 2012, based on the COSO criteria.

We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Augusta Resource Corporation, which comprise the consolidated statements of financial position as at December 31, 2012 and 2011, and the related consolidated statements of comprehensive profit (loss), changes in equity and cash flows for the years then ended and our report dated March 25, 2013, expressed an unqualified opinion thereon.



|Vancouver, Canada, |                      
|------------------ | ---------------------
|March 25, 2013.    | Chartered Accountants

- 5 -

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|Augusta Resource Corporation                 
|---------------------------------------------
|Consolidated Statements of Financial Position
|(in U.S. dollars)                            

|                                         |  |       |  |   | December 31, |   |   | December 31, |  
|---------------------------------------- |  | ----- |  | - | ------------ | - | - | ------------ | -
|                                         |  | Notes |  |   | 2012         |   |   | 2011         |  
|ASSETS                                   |  |       |  |   |              |   |   |              |  
|Current assets                           |  |       |  |   |              |   |   |              |  
|Cash and cash equivalents                |  |       |  | $ | 29,050,005   |   | $ | 31,016,782   |  
|Short-term investments                   |  | 5     |  |   | 260,770      |   |   | 286,991      |  
|Accounts receivable                      |  | 10b   |  |   | 4,548,032    |   |   | 1,373,269    |  
|Due from related parties                 |  | 11    |  |   | 18,174       |   |   | 37,898       |  
|Current portion of other assets          |  | 5     |  |   | 750,000      |   |   | 750,000      |  
|Prepaids and
      other                 |  |       |  |   | 361,802      |   |   | 463,862      |  
|                                         |  |       |  |   | 34,988,783   |   |   | 33,928,802   |  
|Non-current assets                       |  |       |  |   |              |   |   |              |  
|Deposits on long-lead equipment          |  | 4     |  |   | 11,670,924   |   |   | 78,213,911   |  
|Development costs                        |  | 6     |  |   | 152,708,037  |   |   | 119,014,472  |  
|Property, plant, and equipment           |  | 4     |  |   | 83,302,232   |   |   | 10,793,397   |  
|Mineral properties                       |  | 6     |  |   | 24,592,564   |   |   | 24,592,564   |  
|Other assets                             |  | 5     |  |   | 2,337,902    |   |   | 1,890,463    |  
|                                         |  |       |  | $ | 309,600,442  |   | $ | 268,433,609  |  
|                                         |  |       |  |   |              |   |   |              |  
|LIABILITIES AND SHAREHOLDERS' EQUITY     |  |       |  |   |              |   |   |              |  
|Current liabilities                      |  |       |  |   |              |   |   |              |  
|Accounts payable and accrued liabilities |  | 7     |  | $ | 6,220,268    |   | $ | 5,466,015    |  
|Warrants liability                       |  | 8, 9d |  |   | -            |   |   | 1,110,481    |  
|Current
      portion of long-term debt  |  | 8     |  |   | -            |   |   | 44,984,760   |  
|                                         |  |       |  |   | 6,220,268    |   |   | 51,561,256   |  
|Non-current liabilities                  |  |       |  |   |              |   |   |              |  
|Deferred income tax liability            |  | 14    |  |   | 3,516,000    |   |   | 1,211,000    |  
|Long-term debt                           |  | 8     |  |   | 86,837,755   |   |   | -            |  
|Total liabilities                        |  |       |  |   | 96,574,023   |   |   | 52,772,256   |  
|Shareholders' equity                     |  |       |  |   |              |   |   |              |  
|Share capital                            |  | 9     |  |   | 220,339,132  |   |   | 217,557,562  |  
|Reserves                                 |  |       |  |   | 26,416,067   |   |   | 22,113,694   |  
|Deficit                                  |  |       |  |   | (33,728,780  | ) |   | (24,009,903  | )
|                                         |  |       |  |   | 213,026,419  |   |   | 215,661,353  |  
|                                         |  |       |  | $ | 309,600,442  |   | $ | 268,433,609  |  
|Commitments                              |  | 13    |  |   |              |   |   |              |  

On Behalf of the Board of Directors

|/S/ Richard W.
      Warke |  | /S/
      Gilmour Clausen
|-------------------------- |  | -------------------------
|                           |  |                          
|Richard W. Warke, Director |  | Gilmour Clausen, Director

- 6 -

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|Augusta Resource Corporation                          
|------------------------------------------------------
|Consolidated Statements of Comprehensive Profit (Loss)
|(in U.S. dollars)                                     

|                                                |   | Notes |  |   | 2012        |   |   | 2011        |  
|----------------------------------------------- | - | ----- |  | - | ----------- | - | - | ----------- | -
|                                                |   |       |  |   |             |   |   |             |  
|EXPENSES                                        |   |       |  |   |             |   |   |             |  
|Salaries and benefits                           | $ | 11    |  | $ | 1,927,850   |   | $ | 1,927,387   |  
|Stock-based compensation                        |   | 9     |  |   | 2,071,353   |   |   | 3,450,300   |  
|Exploration and project investigation           |   |       |  |   | 1,213,335   |   |   | 1,522,686   |  
|Legal, accounting and audit                     |   |       |  |   | 671,619     |   |   | 797,540     |  
|Travel                                          |   |       |  |   | 240,452     |   |   | 260,437     |  
|Consulting                                      |   |       |  |   | 92,576      |   |   | 112,688     |  
|Filing and regulatory fees                      |   |       |  |   | 147,744     |   |   | 250,439     |  
|Recruiting fees                                 |   |       |  |   | 31,867      |   |   | 38,031      |  
|Office and administration                       |   | 11    |  |   | 323,539     |   |   | 327,679     |  
|Rent                                            |   | 11    |  |   | 247,983     |   |   | 208,845     |  
|Investor relations                              |   |       |  |   | 132,039     |   |   | 112,204     |  
|Directors' fees                                 |   |       |  |   | 197,746     |   |   | 199,600     |  
|Insurance                                       |   |       |  |   | 354,057     |   |   | 283,909     |  
|Membership and conferences                      |   |       |  |   | 23,623      |   |   | 22,522      |  
|Amortization and depreciation                   |   |       |  |   | 264,290     |   |   | 257,344     |  
|Fiscal and advisory services                    |   |       |  |   | 16,053      |   |   | 18,329      |  
|Loss from operations                            |   |       |  |   | (7,956,126  | ) |   | (9,789,940  | )
|Interest and other income                       |   |       |  |   | 657,107     |   |   | 1,023,999   |  
|Other expenses                                  |   |       |  |   | (507,481    | ) |   | (594,512    | )
|Gains on shares and warrants                    |   |       |  |   | 364,088     |   |   | 2,624,251   |  
|Foreign exchange gain                           |   |       |  |   | 47,001      |   |   | 26,672      |  
|Interest and finance charges                    |   |       |  |   | (18,466     | ) |   | (14,168     | )
|Gain on sale of
      interest in joint venture |   | 3a    |  |   | -           |   |   | 23,602,763  |  
|Profit (loss) before taxes                      |   |       |  |   | (7,413,877  | ) |   | 16,879,065  |  
|Deferred income
      tax expense               |   | 14a   |  |   | (2,305,000  | ) |   | (1,211,000  | )
|Net comprehensive profit (loss) for the year    |   |       |  | $ | (9,718,877  | ) | $ | 15,668,065  |  
|                                                |   |       |  |   |             |   |   |             |  
|Earnings (loss) per share                       |   |       |  |   |             |   |   |             |  
|- Basic                                         |   |       |  | $ | (0.07       | ) | $ | 0.11        |  
|- Diluted                                       |   |       |  | $ | (0.07       | ) | $ | 0.11        |  
|Weighted average number of shares outstanding - |   |       |  |   |             |   |   |             |  
|- Basic                                         |   |       |  |   | 143,958,525 |   |   | 141,422,942 |  
|- Diluted                                       |   |       |  |   | 143,958,525 |   |   | 145,227,236 |  

See accompanying notes to the consolidated financial
statements

- 7 -

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|Augusta Resource Corporation         
|-------------------------------------
|Consolidated Statements of Cash Flows
|(in U.S. dollars)                    

|                                                                   |  | Notes |  |   | 2012        |   |   | 2011        |  
|------------------------------------------------------------------ |  | ----- |  | - | ----------- | - | - | ----------- | -
|Cash flows used in operating activities                            |  |       |  |   |             |   |   |             |  
|Net comprehensive profit (loss) for the year                       |  |       |  | $ | (9,718,877  | ) | $ | 15,668,065  |  
|Items not involving cash                                           |  |       |  |   |             |   |   |             |  
|Amortization and depreciation                                      |  |       |  |   | 264,290     |   |   | 257,344     |  
|Unrealized foreign exchange loss
      (gain)                      |  |       |  |   | (53,582     | ) |   | 185,411     |  
|Accretion income                                                   |  |       |  |   | (311,080    | ) |   | (352,075    | )
|Stock-based compensation                                           |  |       |  |   | 2,071,353   |   |   | 3,450,300   |  
|Deferred income tax expense                                        |  | 14a   |  |   | 2,305,000   |   |   | 1,211,000   |  
|Gains on shares and warrants                                       |  |       |  |   | (364,088    | ) |   | (2,624,251  | )
|Gain on sale of interest in joint venture                          |  | 3     |  |   | -           |   |   | (23,602,763 | )
|Other                                                              |  |       |  |   | -           |   |   | 722         |  
|                                                                   |  |       |  |   | (5,806,984  | ) |   | (5,806,247  | )
|Changes in non-cash working capital items                          |  | 10a   |  |   | 475,124     |   |   | (925,568    | )
|Cash used in
      operating activities                            |  |       |  |   | (5,331,860  | ) |   | (6,731,815  | )
|Financing activities                                               |  |       |  |   |             |   |   |             |  
|Shares issued for cash                                             |  | 9c    |  |   | 1,689,519   |   |   | 24,949,124  |  
|Share issue costs                                                  |  |       |  |   |             |   |   | (115        | )
|Financing costs                                                    |  |       |  |   | (1,103,361  | ) |   | -           |  
|Joint venture partner's contribution                               |  | 3     |  |   | -           |   |   | 31,409,649  |  
|Proceeds
      from long-term debt                                 |  | 8     |  |   | 40,000,000  |   |   | -           |  
|Cash provided by financing activities                              |  |       |  |   | 40,586,158  |   |   | 56,358,658  |  
|                                                                   |  |       |  |   |             |   |   |             |  
|Investing activities                                               |  |       |  |   |             |   |   |             |  
|Deposits on long-lead equipment                                    |  |       |  |   | (4,265,941  | ) |   | (16,360,396 | )
|Development cost expenditures                                      |  |       |  |   | (29,090,236 | ) |   | (31,110,944 | )
|Property, plant and equipment expenditures                         |  |       |  |   | (2,873,925  | ) |   | (1,217,732  | )
|Advances to joint venture                                          |  | 10b   |  |   | (3,148,497  | ) |   | (1,329,453  | )
|Proceeds from insurance claim                                      |  |       |  |   | 2,125,691   |   |   | -           |  
|Proceeds from long-term receivable                                 |  |       |  |   | 750,000     |   |   | 500,000     |  
|Purchase of other assets                                           |  |       |  |   | (770,149    | ) |   | (152,900    | )
|Proceeds from sale of short-term
      investments                 |  |       |  |   | -           |   |   | 133,852     |  
|Proceeds from sale of fixed assets                                 |  |       |  |   | -           |   |   | 8,000       |  
|Purchases of short-term investments                                |  |       |  |   | -           |   |   | (514,986    | )
|Cash used in
      investing activities                            |  |       |  |   | (37,273,057 | ) |   | (50,044,559 | )
|                                                                   |  |       |  |   |             |   |   |             |  
|Effect of exchange rate changes on cash and cash
      equivalents |  |       |  |   | 51,982      |   |   | (70,843     | )
|Decrease in cash and cash equivalents                              |  |       |  |   | (1,966,777  | ) |   | (488,559    | )
|Cash and cash
      equivalents, beginning of year                 |  |       |  |   | 31,016,782  |   |   | 31,505,341  |  
|Cash and cash equivalents, end of year                             |  |       |  | $ | 29,050,005  |   | $ | 31,016,782  |  
|                                                                   |  |       |  |   |             |   |   |             |  
|Supplemental cash flow information on
      non-cash transactions  |  | 10    |  |   |             |   |   |             |  

See accompanying notes to consolidated financial
statements

- 8 -

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|Augusta Resource Corporation                
|--------------------------------------------
|Consolidated Statements of Changes in Equity
|(in U.S. dollars except for shares)         

|                                                                              |  | Common Shares without |  |   |             |   |   |            |   |   | Total         |  
|----------------------------------------------------------------------------- |  | --------------------- |  | - | ----------- | - | - | ---------- | - | - | ------------- | -
|                                                                              |  | Par Value             |  |   |             |   |   |            |   |   | Shareholders' |  
|                                                                              |  | Shares                |  |   | Amount      |   |   | Reserves   |   |   | Deficit       |  
|                                                                              |  |                       |  |   |             |   |   |            |   |   |               |  
|Balance at December 31, 2010                                                  |  | 135,595,702           |  | $ | 183,663,391 |   | $ | 17,958,798 |   | $ | (39,677,968   | )
|Share issue costs                                                             |  | -                     |  |   | (115        | ) |   | -          |   |   | -             |  
|Shares issued on vesting of restricted
      share units                      |  | 111,665               |  |   | 408,818     |   |   | (408,818   | ) |   | -             |  
|Proceeds from exercise of stock options                                       |  | 1,535,230             |  |   | 5,178,020   |   |   | (1,831,800 | ) |   | -             |  
|Proceeds from exercise of warrants                                            |  | 5,452,795             |  |   | 27,252,895  |   |   | -          |   |   | -             |  
|Restricted shares issued                                                      |  | 465,000               |  |   | 1,054,553   |   |   | (514,553   | ) |   | -             |  
|Stock-based compensation expense                                              |  | -                     |  |   | -           |   |   | 3,450,300  |   |   | -             |  
|Stock-based compensation capitalized                                          |  | -                     |  |   | -           |   |   | 3,459,767  |   |   | -             |  
|Net comprehensive profit for the year                                         |  | -                     |  |   | -           |   |   | -          |   |   | 15,668,065    |  
|Balance at December 31, 2011                                                  |  | 143,160,392           |  | $ | 217,557,562 |   | $ | 22,113,694 |   | $ | (24,009,903   | )
|Proceeds from exercise of stock options                                       |  | 790,002               |  |   | 2,404,681   |   |   | (715,162   | ) |   | -             |  
|Restricted shares and restricted share units issued, net of
      forfeitures |  | 136,334               |  |   | 376,889     |   |   | (376,889   | ) |   | -             |  
|Stock-based compensation expense                                              |  | -                     |  |   | -           |   |   | 2,071,737  |   |   | -             |  
|Stock-based compensation capitalized                                          |  | -                     |  |   | -           |   |   | 1,641,942  |   |   | -             |  
|Warrant liability transferred to reserves -
      Note 9d                     |  | -                     |  |   | -           |   |   | 1,680,745  |   |   | -             |  
|Net comprehensive
      loss for the year                                     |  | -                     |  |   | -           |   |   | -          |   |   | (9,718,877    | )
|Balance at December 31, 2012                                                  |  | 144,086,728           |  | $ | 220,339,132 |   | $ | 26,416,067 |   | $ | (33,728,780   | )

See accompanying notes to consolidated financial
statements

- 9 -

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|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|1. | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Augusta Resource Corporation (the “Company”) is a development stage enterprise engaged in the exploration and development of mineral properties in North America. The Company is incorporated under the Canada Business Corporations Act and its registered office is Suite 600, 837 West Hastings Street, Vancouver, British Columbia V6C 3N6. The Company is domiciled in Canada and its shares are listed on the Toronto Stock Exchange and NYSE Amex Equities. The Company’s most significant asset is the Rosemont copper project (“Rosemont”) near Tucson, Arizona. The realization of the Company’s investment in Rosemont is dependent upon various factors, including, but not limited to, the ability to obtain the necessary financing to complete the development of Rosemont, future profitable operations, or, alternatively, the ability to dispose of the property at amounts sufficient to recover capitalized expenditures.                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business for the foreseeable future. The Company incurred a net comprehensive loss of $9.72 million for the year ended December 31, 2012 and had a working capital of $28.77 million as at December 31, 2012 (December 31, 2011 - $17.63 million working capital deficit). The net comprehensive profit realized during the year ended December 31, 2011 was due primarily to non-cash gains from the sale of a 3.84% interest in the Rosemont project to Rosemont’s joint venture partner.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Companys forecast cash requirements for the next
      twelve months require significant expenditures on the Rosemont project,
      which exceeds the working capital. This factor indicates the existence of
      a material uncertainty that raises substantial doubt about the Companys
      ability to continue as a going concern and the Companys ability to
      continue is dependent on the Company raising additional debt or equity
      financing. The Company is currently discussing project financing with a
      number of lending institutions and believes that such discussions will
      result in the Company obtaining the project financing required to fund the
      construction of the Rosemont project. However there is no assurance that
      such financing will be obtained or obtained on commercially favourable
      terms. These consolidated financial statements do not give effect to any
      adjustment which would be necessary should the Company be unable to
      continue as a going concern and, therefore, be required to realize its
      assets and discharge its liabilities in other than the normal course of
      business and at amounts different from those reflected in the consolidated
      financial statements.
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|2. | SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
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|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| |     | The preparation of financial statements in conformity
      with IFRS requires management to make judgments, estimates and assumptions
      that affect the application of policies and reported amounts of assets and
      liabilities, income and expenses. Actual results may differ from these
      estimates. The Company used estimates in determining the fair value of its
      Ely receivable, warrant liability, and stock-based compensation expense.
      The most significant judgements in preparing the consolidated financial
      statements related to the determination of the Companys functional
      currency and the determination that the Rosemont project is in the
      development stage.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The accounting policies set out below have been applied
      consistently to all periods presented in these consolidated financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (c) | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The consolidated financial statements of the Company
      include the following significant
subsidiaries:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Name
      of Subsidiary
    Place
      of
    PercentageIncorporation
    OwnershipRosemont Copper Company
    USA
    100%Cobre Verde Development Corporation
    USA
    100%


| |     | The Company consolidates all of its subsidiaries on the
      basis that it controls these subsidiaries through its ability to govern
      their financial and operating policies. The Company also proportionally
      consolidates its 92.05% interest in the Rosemont joint venture, which is
      held by Rosemont Copper Company (RCC) and its 63.08% in JPAR LLC, which
      is held by Cobre Verde Development Corporation. All intercompany
      transactions and balances are eliminated on consolidation.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (d) | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Cash and cash equivalents consist of deposits in banks
      and guaranteed investment certificates (GIC) with an original maturity
      of three months or less, when purchased. The Companys cash and cash
      equivalents are invested with major financial institutions and are not
      invested in any asset-backed deposits or investments.                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (e) | Related party transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Parties are considered to be related if one party has the
      ability, directly or indirectly, to control the other party or exercise
      significant influence over the other party in making financial and
      operating decisions. Related parties may be individuals or corporate
      entities. A transaction is considered to be a related party transaction
      when there is a transfer of resources, services or obligations between
      related parties.                                             

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|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| | (f) | Property, plant, and equipment                                                                                                                                                              
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                             
| |     | Property, plant, and equipment (PPE) is stated at cost,
      less accumulated depreciation. Depreciation is primarily calculated on a
      straight line basis over the following terms:

Land
    N/AWater rights and mining equipment
    Unit-of-productionBuildings
    10 yearsComputer hardware
    5 yearsFurniture and equipment
    5 yearsVehicles
    5 years


| |     | Water rights and mining equipment are amortized on a
      unit-of-production basis over the estimated proven and probable ore
      reserves upon commencement of commercial production. Furniture and
      equipment is amortized on a straight-line basis. When debt is incurred to
      finance the purchase of plant and equipment, the interest and financing
      costs associated with such debt are capitalized. Upon commencement of
      commercial production, the interest and financing costs are amortized on a
      units-of-production basis over the useful life of the related
  asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | An item of PPE is derecognized upon disposal or when no
      future economic benefits are expected to arise from the continued use of
      the asset. Any gain or loss arising on disposal of the asset, determined
      as the difference between the net disposal proceeds and the carrying
      amount of the asset, is recognized in profit or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Where an item of plant and equipment comprises major
      components with different useful lives, the components are accounted for
      as separate items of plant and equipment. Expenditures incurred to replace
      a component of an item of plant and equipment that is accounted for
      separately, including major inspection and overhaul expenditures are
      capitalized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (g) | Impairment of assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | At the end of each reporting period, the Company assesses
      each cash generating unit to determine whether there is any indication
      that those assets are impaired. If any such indication exists, the
      recoverable amount of the asset is estimated in order to determine the
      extent of the impairment, if any. The recoverable amount is the higher of
      fair value less costs to sell and value in use. Fair value is determined
      as the amount that would be obtained from the sale of the asset in an
      arms length transaction between knowledgeable and willing parties. In
      assessing value in use, the estimated future cash flows are discounted to
      their present value using a discount rate that reflects current market
      assessments of the time value of money and the risks specific to the
      asset. If the recoverable amount of an asset is estimated to be less than
      its carrying amount, the carrying amount of the asset is reduced to its
      recoverable amount and the impairment loss is recognized in profit or loss
      for the period. For an asset that does not generate largely independent
      cash inflows, the recoverable amount is determined for the cash generating
      unit to which the asset belongs.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Where an impairment subsequently reverses, the carrying
      amount of the asset (or cash generating unit) is increased to the revised
      estimate and its recoverable amount, but to an amount that does not exceed
      the carrying amount that would have been determined had no impairment loss
      been recognized for the asset (or cash generating unit) in prior years. A
      reversal of an impairment loss is recognized immediately in profit or
      loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| | (h) | 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 exceeds 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 reserves are expensed as
      incurred.                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company reviews the carrying values of mineral
      properties and development costs regularly with a view to assessing
      whether there has been any impairment in value, or whenever events or
      changes in circumstances that 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (i) | Decommissioning, restoration and similar
      liabilities (asset retirement obligation)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company records the present value of estimated costs
      of legal and constructive obligations required to restore the site in the
      period in which the obligation is incurred. The nature of these
      restoration activities include dismantling and removing structures,
      rehabilitating mines and tailings dam, dismantling facilities, closure of
      plant and waste sites and restoration, reclamation and re-vegetation of
      affected areas.                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The future obligations for mine closure activities are
      estimated by the Company using mine closure plans or other similar studies
      which outline the requirements that will be carried out to meet the
      obligations. Since the obligations are dependent on the laws and
      regulations of the countries in which the mines operate, the requirements
      could change as a result of amendments in the laws and regulations
      relating to environmental protection and other legislation affecting
      resource companies.                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | As the estimate of the obligations is based on future
      expectations, a number of assumptions and judgments are made by management
      in the determination of closure provisions. The closure provisions are
      more uncertain the further into the future the mine closure activities are
      to be carried out.                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The present value of decommissioning and site restoration
      costs are recorded as a long-term liability. The provision is discounted
      using a nominal, risk free pre-tax discount rate. Charges for accretion
      and restoration expenditures are recorded as operating activities. In
      subsequent periods, the carrying amount of the liability is accreted by a
      charge to the statement of comprehensive profit or loss to reflect the
      passage of time and the liability is adjusted to reflect any changes in
      the timing of the underlying future cash flows.                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Changes to the obligation resulting from any revisions to
      the timing or amount of the original estimate of undiscounted cash flows
      are recognized as an increase or decrease in the decommissioning
      provision, and a corresponding change in the carrying amount of the
      related long-lived asset. Where rehabilitation is conducted systematically
      over the life of the operation, rather than at the time of closure, or
      provision is made for the estimated outstanding continuous rehabilitation
      work at each balance sheet date and the cost is charged to the statement
      of comprehensive profit or loss.

- 13 -

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|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| |     | The Company had no asset retirement obligations as of
      December 31, 2012 and 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (j) | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The Company presents basic and diluted earnings per share
      data for its common shares, calculated by dividing the earnings (loss)
      attributable to common shareholders of the Company by the weighted average
      number of common shares outstanding during the period.                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (k) | Foreign currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The financial statements for each the Companys
      subsidiaries are measured using the currency of the primary economic
      environment in which the subsidiary operates (the functional currency).
      The consolidated financial statements are presented in U.S. dollars, which
      is the Companys presentation currency.                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Foreign currency transactions are translated into the
      functional currency using the exchange rates prevailing at the dates of
      the transactions. Foreign exchange gains and losses resulting from the
      settlement of such transactions and from the translation of monetary
      assets and liabilities denominated in foreign currencies at exchange rates
      prevailing on the balance sheet date are recognized in the statement of
      comprehensive profit or unless they are attributable to the net investment
      in a foreign operation.                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Translation differences on assets and liabilities carried
      at fair value are reported as part of the fair value gain or loss.
      Translation differences on non-monetary assets and liabilities such as
      equities held at fair value through profit or loss are recognized in
      profit or loss as part of the fair value gain or loss. Translation
      differences on non-monetary assets such as equities classified as
      available-for-sale financial assets are included in accumulated other
      comprehensive income or loss (AOCI), a component of equity.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | On consolidation, statement of comprehensive profit or
      loss items are translated from the functional currency into U.S. dollars
      at average exchange rates. Balance sheet items are translated into U.S.
      dollars at the exchange rate prevailing at the balance sheet date.
      Exchange gains and losses on translation are recorded in the statement of
      comprehensive profit.                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | On consolidation, exchange differences arising from the
      translation of any net investment in foreign entities are taken into AOCI.
      When the foreign operation is sold or any borrowings forming part of the
      net investment is repaid, a proportionate share of such exchange
      differences is recognized in the statement of comprehensive
  profit.                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (l) | Borrowing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Interest and financing costs on debt or other liabilities
      that are directly attributable to the acquisition, construction and
      development of a qualifying asset are capitalized to the asset. Where the
      funds used to finance a project are from general borrowings, the amount
      capitalized is calculated using a weighted average of rates applicable to
      the relevant general borrowings during the period. All other borrowing
      costs are expensed as incurred.                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | On commencement of commercial production, the interest
      and financing costs are amortized over the life of the
  mine.                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| | (m) | Interest in joint ventures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | The Company conducts JPAR LLC and its business relating
      to the Rosemont property through a joint venture which the joint venture
      participants are bound by a contractual agreement establishing joint
      control over the assets of the joint venture. The Company records its
      proportionate share of the jointly controlled assets, liabilities, revenue
      and operating expenses of the joint venture.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (n) | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | The fair value method of accounting is used for
      stock-based awards issued to employees and non- employees. Under this
      method, stock options, restricted shares and restricted share units issued
      to employees are recorded at their estimated fair value on the grant date
      and are charged either to the statement of comprehensive profit or loss or
      capitalized to development costs over the vesting period with a
      corresponding credit to reserves. For stock-based awards issued to
      non-employees, the awards are measured at the date on which the services
      are provided. 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 either charged to the statement of comprehensive
      profit or loss or capitalized to development costs 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. The forfeiture
      rate is reviewed on a quarterly basis to determine the appropriate
      forfeiture rate based on past, present and expected forfeitures.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (o) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | Current income taxes is the expected tax payable or
      receivable on the local taxable income or loss for the year, using local
      tax rates enacted or substantively enacted at the balance sheet date, and
      includes any adjustments to taxes payable or receivable in respect of
      previous years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | Deferred income taxes are recorded using the balance
      sheet method whereby deferred tax is recognized in respect of temporary
      differences between the carrying amounts of assets and liabilities for
      financial reporting purposes and the amounts used for taxation purposes.
      Deferred income tax is measured at the tax rates that are expected to be
      applied to temporary differences when they are realized or settled, based
      on the laws that have been enacted or substantively enacted by the balance
      sheet date. Deferred income tax is not recognized for temporary
      differences which arise on the initial recognition of assets or
      liabilities in a transaction that is not a business combination and that
      affects neither accounting, nor taxable profit or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | A deferred income tax asset is recognized for unused tax
      losses, tax credits and deductible temporary differences, to the extent
      that it is probable that future taxable profits will be available against
      which they can be utilized. Deferred income tax assets are reviewed at
      each reporting date and are reduced to the extent that it is no longer
      probable that the related tax benefit will be
realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

- 15 -

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|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| | (p) | Financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | All financial assets are initially recorded at fair value
      and designated upon inception into one of the following four categories:
      held to maturity, available for sale, loans and receivables or at fair
      value through profit or loss (FVTPL).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Financial assets such as the warrants recorded in other
      assets are classified as FVTPL are measured at fair value with unrealized
      gains and losses recognized through earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Financial assets classified as loans and receivables and
      held to maturity assets are measured at amortized cost. The Companys
      accounts receivable are classified as loans and receivables. Financial
      assets classified as available for sale are measured at fair value with
      unrealized gains and losses recognized in other comprehensive profit
      except for losses in value that are considered other than temporary which
      are recognized in earnings. At December 31, 2012 and 2011, the Company has
      not classified any financial assets as available for sale.                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Transactions costs associated with FVTPL financial assets
      are expensed as incurred, while transaction costs associated with all
      other financial assets are included in the initial carrying amount of the
      asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (q) | Financial liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | All financial liabilities are initially recorded at fair
      value and designated upon inception as FVTPL or other financial
      liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Financial liabilities classified as other financial
      liabilities are initially recognized at fair value less directly
      attributable transaction costs. After initial recognition, other financial
      liabilities are subsequently measured at amortized cost using the
      effective interest rate method. The effective interest rate method is a
      method of calculating the amortized cost of a financial liability and of
      allocating interest expense over the relevant period. The effective
      interest rate is the rate that discounts estimated future cash payments
      through the expected life of the financial liability, or, where
      appropriate, a shorter period. The Companys accounts payable and accrued
      liabilities and long-term debt are classified as other financial
      liabilities.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Financial liabilities classified as FVTPL include
      warrants with an exercise price denominated in a currency other than the
      issuers functional currency. Derivatives, including separated embedded
      derivatives are also classified as FVTPL and recognized at fair value with
      changes in fair value recognized in earnings unless they are designated as
      effective hedging instruments. Fair value changes on financial liabilities
      classified as FVTPL are recognized in statement of comprehensive
      profit.                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (r) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                   

- 16 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

Accounting standards 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
requires such entities to be accounted for using the equity method and proposes
to establish a principles-based approach to the accounting for joint
arrangements which focuses on the nature, extent and financial effects of the
activities that an entity carries out through joint arrangements and its
contractual rights and obligations to assets and liabilities, respectively, of
the joint arrangements. The Company is currently evaluating the impact IFRS 11
is expected to have on its consolidated financial statements.

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

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

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

Accounting standards anticipated to
be effective January 1, 2014 or later

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

- 17 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|3. | INTERESTS IN JOINT
VENTURE
|-- | --------------------------

| | a) | Rosemont Joint Venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | On September 16, 2010, RCC and United Copper & Moly
      LLC (UCM or Joint Venture Partner) executed an Earn-In Agreement (EI
      Agreement) whereby UCM can earn up to a 20% interest in the
      unincorporated Rosemont joint venture (Rosemont JV) by funding $176
      million of Rosemont expenditures. Under the terms of the EI Agreement, UCM
      will contribute cash into the Rosemont JV as follows: Tranche 1 - a
      maximum $70 million for permitting, engineering, deposits on long-lead
      equipment purchases and on-going support activities (collectively
      Pre-Construction Costs) until such time as the material permits are
      granted and Tranche 2 - $106 million for construction costs. Once UCM has
      earned its 20% interest in the Rosemont JV, Rosemont expenditures will be
      shared pro-rata 80/20. In the third quarter of 2011 UCM completed its
      Tranche 1 cash investment of $70 million into the Rosemont JV and has
      earned a 7.95% interest in the Rosemont JV. The Company is currently
      funding the Pre-Construction Costs until such time the Record of Decision
      (ROD) and project financing is in place.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Under the EI Agreement, the Company will contribute the
      Rosemont property to the Rosemont JV at $704 million and UCM will
      contribute up to $176 million in cash to earn its respective interest in
      the joint venture.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The following is a summary of selected financial
      information of the Rosemont JV at December 31, 2012 and December 31, 2011
      on a 92.05% basis:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                              |   | December 31, |   |   | December 31, |  
| | -------------------------------------------- | - | ------------ | - | - | ------------ | -
| | Statement of
      Financial Position        |   | 2012         |   |   | 2011         |  
| | Cash and cash equivalents                    | $ | 224,709      |   | $ | 1,435,479    |  
| | Other current assets                         |   | 197,745      |   |   | 299,086      |  
| | Non-current assets                           |   | 262,543,496  |   |   | 225,220,065  |  
| | Liabilities                                  |   | (5,338,015   | ) |   | (4,834,501   | )
| | Deficit                                      |   | 2,183,260    |   |   | 1,253,378    |  
| |                                              | $ | 259,811,195  |   | $ | 223,373,507  |  
| |                                              |   |              |   |   |              |  
| | Statement of Cash Flows                      |   |              |   |   |              |  
| | Cash used in operating activities            | $ | (684,985     | ) | $ | (846,166     | )
| | Cash provided by financing activities        |   | 34,056,818   |   |   | 31,846,749   |  
| | Cash used in investing activites             |   | (34,582,603  | ) |   | (35,711,908  | )
| | Decrease in cash and cash equivalents        |   | (1,210,770   | ) |   | (4,711,325   | )
| | Cash and cash equivalents, beginning of year |   | 1,435,479    |   |   | 6,146,804    |  
| | Cash and cash
      equivalents, end of year | $ | 224,709      |   | $ | 1,435,479    |  

The Rosemont JV incurred an operating loss of $0.9 million for each of the years ended December 31, 2012 and 2011.

UCM did not acquire any interest in
the Rosemont JV during the year ended December 31, 2012 and accordingly, the
Company did not recognize any gain on sale of interest in the joint venture.
During the year ended December 31, 2011, UCM acquired a 3.84% interest in the
joint venture and the Company recognized a $23.6 million gain on sale of
interest in the joint venture.

- 18 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| |    | In the fourth quarter of 2011, the Company and UCM
      entered into a funding arrangement whereby the Company would provide
      funding for the joint venture for Pre-Construction Costs and repayable to
      the Company after the ROD have been received. During the year ended
      December 31, 2012, the Company advanced $37.0 million (Cumulative to-date
      - $50.0 million) to the joint venture (See Note 10b).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | b) | JPAR Joint Venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | On August 24, 2012, Cobre Verde Development Corporation
      (CVDC) and SICAN Inc., a wholly-owned subsidiary of Community Water
      Company of Green Valley (CWCGV) entered into a joint venture (JPAR) to
      construct and operate the CWCGV CAP Water Delivery System (the CAP WDS)
      in order to replenish the groundwater used for the Rosemont mining
      operation. JPAR is governed by an Operating Agreement which outlines the
      roles and responsibilities of each partner, dispute resolution and
      dissolution, and actions that require unanimous consent. The Company is
      responsible for funding the construction of the CAP WDS which is estimated
      to cost $24 million and SICAN is responsible for project management. On
      August 24, 2012, JPAR entered into a right of way lease with the Community
      Water Company Right of Way Trust for a 20-year lease on land used for the
      construction of CAP WDS at an annual base rent of $0.02 million.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The following is a summary of selected financial
      information of JPAR at December 31, 2012 on a 63.08% basis:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| |                                       |   | December 31, |  
| | ------------------------------------- | - | ------------ | -
| | Statement of
      Financial Position |   | 2012         |  
| | Cash and cash equivalents             | $ | 73,151       |  
| | Non-current assets                    |   | 551,941      |  
| | Liabilities                           |   | (44,825      | )
| |                                       | $ | 580,267      |  

| |                                              |   | Year ended   |  
| | -------------------------------------------- | - | ------------ | -
| |                                              |   | December 31, |  
| | Statement of
      Cash Flows                |   | 2012         |  
| | Cash used in operating activities            | $ | -            |  
| | Cash provided by financing activities        |   | 580,267      |  
| | Cash used in investing activites             |   | (507,116     | )
| | Increase in cash and cash equivalents        |   | 73,151       |  
| | Cash and cash equivalents, beginning of year |   | -            |  
| | Cash and cash
      equivalents, end of year | $ | 73,151       |  

- 19 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|4. | PROPERTY, PLANT, AND EQUIPMENT AND DEPOSITS ON
      LONG-LEAD EQUIPMENT
|-- | ------------------------------------------------------------------------

Water
    
    
    
    
    
    
    
    
    Furniture and
    
    
    Long-leadCost
    
    Land
    
    
    Rights
    
    
    Vehicles
    
    
    Buildings
    
    
    Equipment
    
    
    Equipment
    
    
    TotalAs at January 1, 2011
    $
    5,295,945
    
    $
    3,986,431
    
    $
    371,024
    
    $
    454,132
    
    $
    227,964
    
    $
    -
    
    $
    10,335,496Additions
    
    510,923
    
    
    (48,684
    )
    
    67,059
    
    
    331,815
    
    
    385,440
    
    
    -
    
    
    1,246,553Disposals
    
    -
    
    
    -
    
    
    (12,980
    )
    
    -
    
    
    -
    
    
    -
    
    
    (12,980
    )Sale of interest
    
    (127,228
    )
    
    (131,603
    )
    
    (12,772
    )
    
    (18,260
    )
    
    (10,448
    )
    
    -
    
    
    (300,311
    )As at December 31, 2011
    $
    5,679,640
    
    $
    3,806,144
    
    $
    412,331
    
    $
    767,687
    
    $
    602,956
    
    $
    -
    
    $
    11,268,758As at December 31, 2011
    $
    5,679,640
    
    $
    3,806,144
    
    $
    412,331
    
    $
    767,687
    
    $
    602,956
    
    $
    -
    
    $
    11,268,758Additions
    
    -
    
    
    -
    
    
    52,149
    
    
    15,052
    
    
    176,586
    
    
    4,196,803
    
    
    4,440,590Disposals
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,125,691
    )
    
    (2,125,691
    )Reclassification
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    70,443,212
    
    
    70,443,212As at December 31, 2012
    $
    5,679,640
    
    $
    3,806,144
    
    $
    464,480
    
    $
    782,739
    
    $
    779,542
    
    $
    72,514,324
    
    $
    84,026,869


Water
    
    
    
    
    
    
    
    
    Furniture and
    
    
    Long-leadAccumulated Depreciation
    
    Land
    
    
    Rights
    
    
    Vehicles
    
    
    Buildings
    
    
    Equipment
    
    
    Equipment
    
    
    TotalAs at January 1, 2011
    $
    -
    
    $
    -
    
    $
    136,549
    
    $
    41,255
    
    $
    104,603
    
    $
    -
    
    $
    282,407Depreciation
    
    -
    
    
    -
    
    
    60,265
    
    
    16,706
    
    
    130,353
    
    
    -
    
    
    207,324Disposals
    
    -
    
    
    -
    
    
    (4,289
    )
    
    -
    
    
    -
    
    
    -
    
    
    (4,289
    )Sale of interest
    
    -
    
    
    -
    
    
    (4,712
    )
    
    (1,420
    )
    
    (3,949
    )
    
    -
    
    
    (10,081
    )As at December 31, 2011
    $
    -
    
    $
    -
    
    $
    187,813
    
    $
    56,541
    
    $
    231,007
    
    $
    -
    
    $
    475,361As at December 31, 2011
    $
    -
    
    $
    -
    
    $
    187,813
    
    $
    56,541
    
    $
    231,007
    
    $
    -
    
    $
    475,361Depreciation
    
    -
    
    
    -
    
    
    101,731
    
    
    24,736
    
    
    122,809
    
    
    -
    
    
    249,276As at December 31, 2012
    $
    -
    
    $
    -
    
    $
    289,544
    
    $
    81,277
    
    $
    353,816
    
    $
    -
    
    $
    724,637Net Book Value:As at December 31, 2011
    
    5,679,640
    
    
    3,806,144
    
    
    224,518
    
    
    711,146
    
    
    371,949
    
    
    -
    
    
    10,793,397As at December 30, 2012
    $
    5,679,640
    
    $
    3,806,144
    
    $
    174,936
    
    $
    701,462
    
    $
    425,726
    
    $
    72,514,324
    
    $
    83,302,232


During the year ended December 31,
2012, the Company took title to certain long-lead equipment which resulted in
the reclassification of its carry values from deposit on long-lead equipment.
Long-lead equipment is not being depreciated as it is not currently in use.

- 20 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

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

|5. | OTHER ASSETS
|-- | ------------

| |                                                     |   |            |   |   |         |   |   |            |   |   | Computer Software, |   |   |           |  
| | --------------------------------------------------- | - | ---------- | - | - | ------- | - | - | ---------- | - | - | ------------------ | - | - | --------- | -
| |                                                     |   | Long-term  |   |   | Other   |   |   | FVTPL      |   |   | Net of             |   |   |           |  
| |                                                     |   | Receivable |   |   | Assets  |   |   | Securities |   |   | Amortization       |   |   | Total     |  
| | As at January 1, 2011                               | $ | 2,617,821  |   | $ | -       |   | $ | 126,793    |   | $ | 117,255            |   | $ | 2,861,869 |  
| | Annual Payment                                      |   | (500,000   | ) |   | -       |   |   | -          |   |   | -                  |   |   | (500,000  | )
| | Interest accretion                                  |   | 352,074    |   |   | -       |   |   | -          |   |   | -                  |   |   | 352,074   |  
| | Amortization                                        |   | -          |   |   | -       |   |   | -          |   |   | (97,730            | ) |   | (97,730   | )
| | Additions (disposals)                               |   | -          |   |   | 135,830 |   |   | (126,793   | ) |   | 15,213             |   |   | 24,250    |  
| | As at December 31, 2011                             |   | 2,469,895  |   |   | 135,830 |   |   | -          |   |   | 34,738             |   |   | 2,640,463 |  
| | Less: current portion of long-term receivable       |   |            |   |   |         |   |   |            |   |   |                    |   |   | (750,000  | )
| | As at December
      31, 2011                       |   |            |   |   |         |   |   |            |   |   |                    |   | $ | 1,890,463 |  
| |                                                     |   |            |   |   |         |   |   |            |   |   |                    |   |   |           |  
| | As at December 31, 2011                             | $ | 2,469,895  |   | $ | 135,830 |   | $ | -          |   | $ | 34,738             |   | $ | 2,640,463 |  
| | Annual Payment                                      |   | (750,000   | ) |   | -       |   |   | -          |   |   | -                  |   |   | (750,000  | )
| | Interest accretion                                  |   | 311,080    |   |   | -       |   |   | -          |   |   | -                  |   |   | 311,080   |  
| | Amortization and other                              |   | -          |   |   | (27,644 | ) |   | -          |   |   | (15,014            | ) |   | (42,658   | )
| | Additions                                           |   | -          |   |   | -       |   |   | -          |   |   | 929,017            |   |   | 929,017   |  
| | Total other assets at December 31, 2012             |   | 2,030,975  |   |   | 108,186 |   |   | -          |   |   | 948,741            |   |   | 3,087,902 |  
| | Less: current
      portion of long-term receivable |   |            |   |   |         |   |   |            |   |   |                    |   |   | (750,000  | )
| | As at December 31, 2012                             |   |            |   |   |         |   |   |            |   |   |                    |   | $ | 2,337,902 |  

Long-term receivable

On February 28, 2008, the Company
completed the sale of its interest in the Mount Hamilton, Shell and Monte Cristo
properties to Ely Gold & Minerals Inc. (Ely) for consideration of $6.6
million of which $1.6 million was paid on closing and the remaining $5 million
(Ely Receivable) was payable in annual instalments of $1 million (Annual
Payment) over a five year period.

- 21 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

On November 16, 2009, the Company
extended the Annual Payment for two additional years and revised the annual
payment schedule as follows:

Due Date
    
    AmountJune 1, 2010 (Paid)
    $
    250,000June 1, 2011 (Paid)
    
    500,000June 1, 2012 (Paid)
    
    750,000June 1, 2013
    
    750,000June 1, 2014
    
    750,000June 1, 2015
    
    1,000,000Total receivable
    
    4,000,000Annual payments received
    
    (1,500,000
    )Current portion
    
    (750,000
    )Long-term portion
    $
    1,750,000


The fair value of the long-term portion
of the receivable at December 31, 2012 was $1.3 million (December 31, 2011 -
$1.7 million).

In consideration for the extension, Ely
paid the Company $0.04 million and granted 2 million warrants exercisable into 2
million Ely common shares at a price of Cdn$0.25 per common share and expires on
May 16, 2011. On May 13, 2011, the Company exercised the 2 million warrants. The
Ely common shares are accounted for as held for trading and any changes in the
fair value of the common shares are recognized in the statement of comprehensive
profit (loss). As at December 31, 2012, the Ely common shares have a fair value
of $0.26 million (December 31, 2011 - $0.29 million) and are recorded in
short-term investments.

|6. | MINERAL PROPERTIES AND DEVELOPMENT
  COSTS
|-- | ------------------------------------------

| | Mineral properties consist of:                    |   |            |  
| | ------------------------------------------------- | - | ---------- | -
| | As at January 1, 2011                             | $ | 25,693,861 |  
| | Sale of interest
      in joint venture - Note 3a |   | (1,101,297 | )
| | As at December 31, 2011 and 2012                  | $ | 24,592,564 |  

The Company purchased 100% of Rosemont
in Pima County, Arizona located approximately 50 kilometres southeast of Tucson
and near a number of large porphyry type producing copper mines. The property
remains subject to a 3% net smelter royalty. The Rosemont property comprises
30,000 acres (12,140 hectares) of patented and unpatented claims, fee land and
surface grazing rights. On September 16, 2010, the Company entered into the EI
Agreement with UCM, whereby UCM can earn up to a 20% interest in Rosemont by
funding up to $176 million of pre-construction and construction costs (Note
3a).

- 22 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

Development costs consist of:

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

|7. | ACCOUNTS PAYABLE AND ACCRUED
  LIABILITIES
|-- | ------------------------------------------

| |                                        |   | December 31, |  |   | December 31, | 
| | -------------------------------------- | - | ------------ |  | - | ------------ | 
| | Due within the year                    |   | 2012         |  |   | 2011         | 
| | Trade payables and accrued liabilities | $ | 882,253      |  | $ | 636,596      | 
| | Project related payables               |   | 5,338,015    |  |   | 4,829,419    | 
| |                                        | $ | 6,220,268    |  | $ | 5,466,015    | 

|8. | LONG-TERM DEBT
|-- | --------------

| |                   |   | December 31, |  |   | December 31, |  
| | ----------------- | - | ------------ |  | - | ------------ | -
| |                   |   | 2012         |  |   | 2011         |  
| | Red Kite loan     | $ | 86,837,755   |  | $ | 44,984,760   |  
| | Less:             |   |              |  |   |              |  
| | Current portion   |   | -            |  |   | (44,984,760  | )
| | Long-term portion | $ | 86,837,755   |  | $ | -            |  

On April 21, 2010, the Company
completed a $43 million senior secured loan (the Loan) and copper concentrate
off-take agreement with Red Kite Explorer Trust (Red Kite). The Loan bears
interest at 3-month LIBOR plus 4.50% (December 31, 2012  4.84% and December 31,
2011  4.87%) compounded quarterly and matured on the earlier of April 21, 2012
or the date of closing of a Rosemont senior debt financing facility. The Loan
could be repaid without penalty at any time prior to maturity. As part of the
loan agreement, the Company issued to Red Kite 1,791,700 warrants (RK
Warrants) exercisable at Cdn$3.90 per share and expires on April 22, 2013.
Until September 12, 2012, the warrants were a derivative instrument under IAS 32
and were fair valued at each balance sheet date with any changes in the fair
value reported in the statement of comprehensive profit or loss. As discussed
below, on September 12, 2012, the Company changed the exercise price of the
warrants from Canadian to US dollars, its functional currency, which resulted in
a classification change to the warrants as an equity instrument (Note 9d).

Under the terms of the off-take
agreement, the Company will supply Red Kite with 16.125% of Rosemonts copper
concentrates production per year when Rosemont commences commercial production
and ends when 483,750 dry metric tonnes have been delivered to Red Kite. The
off-take agreement includes market pricing. The Loan is collateralized against
the Companys assets, including the shares of the Companys subsidiary which
holds the Rosemont assets.

- 23 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

On April 17, 2012, the Company and RK
Mine Finance Trust I (formerly, Red Kite Explorer Trust) extended the Loans
maturity date to the earlier of April 21, 2013 or the date of closing of the
senior debt financing. In exchange for the extension, the Company extended the
expiry date on the RK Warrants to April 22, 2014. The Company also entered into
an off-take agreement to sell to EXP2 LLC, an affiliate of Red Kite, 80% of the
annual copper cathode production and arranged a $10 million unsecured working
capital facility which will become available once the permits have been issued.
The facility matures eight years from the date of initial production of copper
cathode and bears interest at LIBOR plus 5.5% per annum.

On September 12, 2012, the Company
negotiated a $40 million increase (Additional Loan) to the existing Loan
(collectively, the Expanded Loan) comprising of two tranches - Tranche A for
$5 million, which was received on September 12, 2012, and Tranche B for $35
million which was subject to certain conditions and was received on October 5,
2012. The terms of the Expanded Loan include interest payable at LIBOR plus
4.50%, a 2.2925% loan origination fee on the Additional Loan an extension of the
maturity date to July 21, 2014. As part of the Additional Loan, the Company:

- changed the exercise price on the 1,790,700 RK
  Warrants from Cdn$3.90 to USD$3.85 and changed the expiry date on 1,374,951 RK
  Warrants from April 22, 2014 to July 22, 2015. The expiry date on the
  remaining 416,749 RK Warrants remained the same at April 22, 2014;
- amended the Red Kite copper concentrate off-take
  agreement whereby Red Kite will purchase 20% of Rosemonts annual copper
  concentrate production until a cumulative 1.5 million tonnes have been
  delivered subject to the receipt of the Tranche B funds. Under the previous
  copper concentrate agreement Red Kite would have purchased 16.125% of
  Rosemonts annual copper concentrate production until 483,750 tonnes have been
  delivered; and
- cancelled the copper cathode off-take agreement
  between Rosemont and an affiliate of Red Kite and the $10 million unsecured
  working capital facility between Augusta and Red Kite.

Under IAS 39 Financial Instruments:
Recognition and Measurement" the Company concluded that there were no
substantial alterations to the terms of the April 17, 2012 loan extension and
the September 12, 2012 Expanded Loan and are therefore treated as modifications.
Financing costs were deducted from the loan and is accreted to its estimated
cash outflow using the effective interest method. Total financing costs of $2.07
million were incurred during 2012 ($0.53 million for the April 17, 2012 loan
extension and $1.54 million for the September 12, 2012 Expanded Loan).

For the year ended December 31, 2012
and 2011, the Company recorded interest of $3.93 million and $4.13 million,
respectively, which were calculated based on an effective interest rate of 6.02%
(December 31, 2011  9.62%) and have been capitalized to development costs.

|9. | SHARE CAPITAL
|-- | -------------

| | a) | Authorized: | Unlimited number of common shares without par
      value
| | -- | ----------- | ---------------------------------------------------------
| |    |             |                                                          
| | b) | Issued:     | See Consolidated Statements of Changes in
      Equity   

- 24 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| | c) | Stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The Company has a stock option plan providing for the
      issuance of options that, combined with the RSU Plan (as defined below),
      shall not at any time exceed 10% of the total number of issued and
      outstanding common shares of the Company on grant date. The Company may
      grant options to directors, officers, employees, consultants and other
      personnel of the Company or its subsidiaries. The exercise price of each
      option cannot be lower than the market price of the shares on the closing
      price of the Companys common shares on the Toronto Stock Exchange the day
      before the grant date. Options generally vest ratably over periods of up
      to three years and may expire within 5 years but no later than 10 years
      from the date of grant as determined by the Board of Directors.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The following table summarizes the Companys stock
      options outstanding as at December 31, 2012 and
2011:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |                                           |  |            |   |   | Weighted       | 
| | ----------------------------------------- |  | ---------- | - | - | -------------- | 
| |                                           |  |            |   |   | Average        | 
| |                                           |  | Number of  |   |   | Exercise Price | 
| |                                           |  | Shares     |   |   | (Cdn$)         | 
| | Outstanding as at January 1, 2011         |  | 6,003,568  |   | $ | 2.41           | 
| | Granted                                   |  | 2,558,500  |   |   | 4.24           | 
| | Exercised                                 |  | (1,535,230 | ) |   | 2.09           | 
| | Forfeited                                 |  | (363,334   | ) |   | 3.98           | 
| | Outstanding as at December 31, 2011       |  | 6,663,504  |   |   | 2.41           | 
| | Granted                                   |  | 1,183,500  |   |   | 2.85           | 
| | Exercised                                 |  | (790,002   | ) |   | 2.12           | 
| | Forfeited                                 |  | (131,667   | ) |   | 3.87           | 
| | Expired                                   |  | (150,000   | ) |   | 3.61           | 
| | Outstanding as at
      December 31, 2012 |  | 6,775,335  |   | $ | 3.14           | 

During the year ended December 31,
2012, a total of 790,002 stock options were exercised at a weighted average
exercise price of Cdn$2.12. The weighted average share price when the stock
options were exercised was Cdn$3.07.

The following assumptions were used in
the Black-Scholes Option Pricing Model to determine the fair value of the stock
options granted during the years ended December 31, 2012 and 2011:

| |                                            |   | 2012          |  |   | 2011          | 
| | ------------------------------------------ | - | ------------- |  | - | ------------- | 
| | Expected life in years                     |   | 4.50          |  |   | 2.22 to 4.50  | 
| | Expected volatility                        |   | 87% - 90%     |  |   | 85%  96%     | 
| | Expected dividend yield                    |   | 0%            |  |   | 0%            | 
| | Risk-free interest rate                    |   | 1.22% - 1.48% |  |   | 1.27% - 2.80% | 
| | Weighted average fair value of each option | $ | 1.87          |  | $ | 2.72          | 

The Company estimates the forfeiture
rate at less than 1.0% . The expected volatility reflects the assumption that
the historical volatility over a period similar to the life of the option is
indicative of future trends, which may or may not necessarily be the actual
outcome.

- 25 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

The following table summarizes the
stock options outstanding as at December 31, 2012:

Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    WeightedWeighted
    
    
    Average
    
    
    
    
    
    Weighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    
    
    
    Average
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    Number of
    
    
    Exercise
    
    
    ContractualOutstanding
    
    
    Price
    
    
    Life
    
    
    Exercisable
    
    
    Price
    
    
    LifeExercise Prices
      (Cdn$)
    
    Options
    
    
    (Cdn$)
    
    
    (Years)
    
    
    Options
    
    
    (Cdn$)
    
    
    (Years)$0.68 - $1.13
    
    1,525,001
    
    $
    0.71
    
    
    1.38
    
    
    1,525,001
    
    $
    0.71
    
    
    1.38$1.14 - $1.92
    
    25,000
    
    
    1.92
    
    
    2.38
    
    
    16,666
    
    
    1.92
    
    
    2.38$1.93 - $2.30
    
    86,000
    
    
    2.02
    
    
    4.45
    
    
    -
    
    
    -
    
    
    -$2.31 - $3.61
    
    1,575,834
    
    
    3.00
    
    
    3.47
    
    
    534,164
    
    
    3.16
    
    
    2.43$3.62 - $4.97
    
    3,563,500
    
    
    4.27
    
    
    3.72
    
    
    2,061,849
    
    
    4.29
    
    
    4.186,775,335
    
    $
    3.14
    
    
    3.14
    
    
    4,137,680
    
    $
    2.82
    
    
    2.91


| | d) | Share Purchase Warrants                                                                                                  
| | -- | -------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                          
| |    | The following table summarizes the outstanding share
      purchase warrants as at December 31, 2011 and 2012 (Note
  8):

Exercise
    
    
    
    
    
    December 31,
    
    
    
    
    
    
    
    
    Modification/
    
    
    December 31,Price
    
    
    Expiry Date
    
    
    2011
    
    
    Issued
    
    
    Exercised
    
    
    Expired
    
    
    2012Warrants
    
    Cdn$3.90
    
    
    April 22, 2014
    
    
    1,791,700
    
    
    -
    
    
    -
    
    
    (1,791,700
    )
    
    -Warrants
    $
    3.85
    
    
    April 22, 2014
    
    
    -
    
    
    -
    
    
    -
    
    
    416,749
    
    
    416,749Warrants
    $
    3.85
    
    
    July 22, 2015
    
    
    -
    
    
    -
    
    
    -
    
    
    1,374,951
    
    
    1,374,9511,791,700
    
    
    -
    
    
    -
    
    
    -
    
    
    1,791,700


Under IAS 32, Financial Instruments
Presentation, warrants having a strike price other than the functional
currency of the issuer are classified as a derivative liability and are fair
valued at each balance sheet date. On September 12, 2012, the Company changed
the exercise price of the warrants from Canadian to US dollars, which is the
Companys functional currency (Note 8). This resulted in a classification change
to the warrants as an equity instrument. The warrants had a new fair value of
$1.68 million at September 12, 2012 after the modifications to the terms and
have been reclassified to reserves, a component of shareholders equity.

Prior to the modifications the
warrants liability at September 12, 2012 had a fair value of $1.22 million
(December 31, 2011 - $1.11 million), which was based on the following
assumptions used in the Black-Scholes Option Pricing Model:

| |                                       |   | September 12, |  |   | December 31, | 
| | ------------------------------------- | - | ------------- |  | - | ------------ | 
| |                                       |   | 2012          |  |   | 2011         | 
| | Expected life in years                |   | 1.61          |  |   | 1.31         | 
| | Expected volatility                   |   | 73.60%        |  |   | 59.38%       | 
| | Expected dividend yield               |   | 0%            |  |   | 0%           | 
| | Risk-free interest rate               |   | 1.19%         |  |   | 0.95%        | 
| | Weighted average fair value of option | $ | 0.68          |  | $ | 0.62         | 

- 26 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| |    | The Company recognized a $0.39 million gain (year ended
      December 31, 2011 - $2.82 million gain) prior to the reclassification to
      reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | e) | Restricted Share Units and Restricted Shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The Restricted Share Units Plan (RSU Plan) and
      Restricted Shares was created to align the directors, employees, and
      consultants (collectively the Participants) interest with the
      shareholders interest. The fair value of the shares issued under the RSU
      Plan can either be paid out in cash or in common shares at the sole
      discretion of the Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The Companys policy is to payout in common shares. The
      RSU Plan, combined with the stock option plan, shall not at any time
      exceed 10% of the total number of issued and outstanding common shares of
      the Company on grant date. The restricted shares are issued from treasury
      with vesting conditions, as determined by the Board, on grant date and the
      shares underlying the restricted share units are issued on the date
      vesting conditions are met. The fair value of the restricted shares and
      restricted share units is charged to the statement of comprehensive profit
      (loss) over its vesting period with a corresponding credit to reserves.
      The fair value of restricted shares issued to project Participants is
      capitalized to development costs. Upon vesting and the Companys issue of
      shares, the fair value is transferred to share capital.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | During the year ended December 31, 2012, the following
      transactions occurred:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | On January 30, 2012, the Company issued 190,000
      restricted shares and restricted share units to its officers at a price of
      $3.10 (Cdn$3.11) per share and vest over three years and also issued
      90,000 restricted shares and restricted share units to its directors which
      vested immediately.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | On February 4, 2012, 125,998 restricted shares and 40,000
      restricted share units relating to the February 10, 2010 grant, were
      forfeited as the specified vesting condition was not met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | On May 7, 2012, the Company issued 40,000 restricted
      share units to an officer at a price of $2.31 (Cdn$2.30) per share, with
      50% vesting equally over three years and the remainder to vest on the
      first anniversary of the grant date subject to satisfying a specified
      vesting condition. On December 31, 2012, 20,000 restricted share units
      were forfeited as the specified vesting condition was not met. The
      forfeiture of the units resulted in the Company reversing the
      capitalization of $0.03 million against stock-based compensation expense
      and development costs.                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The following table summarizes the number of unvested
      restricted shares and restricted share units as at December 31, 2011 and
      December 31, 2012:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

- 27 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| |                        |  | December 31, |  |  |         |  |  |           |   |  |          |   |  | December 31, | 
| | ---------------------- |  | ------------ |  |  | ------- |  |  | --------- | - |  | -------- | - |  | ------------ | 
| | Issue dates            |  | 2011         |  |  | Issued  |  |  | Forfeited |   |  | Vested   |   |  | 2012         | 
| | Restricted shares      |  |              |  |  |         |  |  |           |   |  |          |   |  |              | 
| | February 4, 2010       |  | 252,004      |  |  | -       |  |  | (125,998  | ) |  | (62,994  | ) |  | 63,012       | 
| | February 10, 2011      |  | 260,000      |  |  | -       |  |  | -         |   |  | -        |   |  | 260,000      | 
| | February 25, 2011      |  | 100,000      |  |  | -       |  |  | -         |   |  | -        |   |  | 100,000      | 
| | March 29, 2011         |  | 5,000        |  |  | -       |  |  | -         |   |  | (5,000   | ) |  | -            | 
| | January 30,
      2012 |  | -            |  |  | 150,000 |  |  | -         |   |  | (15,000  | ) |  | 135,000      | 
| |                        |  | 617,004      |  |  | 150,000 |  |  | (125,998  | ) |  | (82,994  | ) |  | 558,012      | 
| | Restricted share units |  |              |  |  |         |  |  |           |   |  |          |   |  |              | 
| | February 4, 2010       |  | 97,335       |  |  | -       |  |  | (41,336   | ) |  | (37,332  | ) |  | 18,667       | 
| | February 10, 2011      |  | 155,000      |  |  | -       |  |  | -         |   |  | -        |   |  | 155,000      | 
| | January 30, 2012       |  | -            |  |  | 130,000 |  |  | -         |   |  | (75,000  | ) |  | 55,000       | 
| | May 7, 2012            |  | -            |  |  | 40,000  |  |  | (20,000   | ) |  | -        |   |  | 20,000       | 
| |                        |  | 252,335      |  |  | 170,000 |  |  | (61,336   | ) |  | (112,332 | ) |  | 248,667      | 
| | Total                  |  | 869,339      |  |  | 320,000 |  |  | (187,334  | ) |  | (195,326 | ) |  | 806,679      | 

|10. | SUPPLEMENTAL CASH FLOW
  INFORMATION
|--- | ------------------------------------

| | a) | Changes in working capital
items
| | -- | --------------------------------

| |                                                |   | Year ended   |  
| | ---------------------------------------------- | - | ------------ | -
| |                                                |   | December 31, |  
| |                                                |   | 2012         |  
| | Accounts receivable                            | $ | (24,520      | )
| | Due from related parties                       |   | 48,830       |  
| | Prepaids and other                             |   | 204,101      |  
| | Accounts payable
      and accrued liabilities |   | 246,713      |  
| |                                                | $ | 475,124      |  
| |                                                |   |              |  
| | Interest received                              | $ | 76,332       |  
| | Interest paid                                  |   | -            |  

| | b) | Accounts receivable
| | -- | -------------------

| |                |   | December 31, |  |   | December 31, | 
| | -------------- | - | ------------ |  | - | ------------ | 
| |                |   | 2012         |  |   | 2011         | 
| | UCM receivable | $ | 4,477,950    |  | $ | 1,329,453    | 
| | Other          |   | 70,082       |  |   | 43,816       | 
| |                | $ | 4,548,032    |  | $ | 1,373,269    | 

Included in accounts receivable as at
December 31, 2012, is a $4.5 million (December 31, 2011 - $1.3 million)
receivable from UCM for their share of advances made by the Company to the joint
venture (Note 3a). The Company holds no collateral for any receivable amounts
outstanding as at December 31, 2012 and anticipates full recovery of these
amounts.

- 28 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|11. | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company shares rent, salaries and administrative
      services with companies related by common directors and officers (the
      Related Companies). As at December 31, 2012, included in due from
      related parties was $0.02 million (December 31, 2011 - $0.04
    million).                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | 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 under a management services
      agreement. Each company holds an equal share in ManCo. For the years ended
      December 31, 2012 and 2011, ManCo charged the Company $1.25 million and
      $1.20 million, respectively for its share of salaries, rent and other
      administrative expenses.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company has identified its directors and certain
      senior officers as its key management personnel. The compensation costs
      for key management personnel for the years ended December 31, 2012 and
      2011 are as follows:                                                                                                                                                                                                                                                  

| |                                |   | 2012      |  |   | 2011      | 
| | ------------------------------ | - | --------- |  | - | --------- | 
| | Salaries and benefits          | $ | 2,156,950 |  | $ | 2,137,313 | 
| | Stock-based
      compensation |   | 2,462,304 |  |   | 4,205,072 | 
| |                                | $ | 4,619,254 |  | $ | 6,342,385 | 

|12. | FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | IFRS 7, Financial Instruments: Disclosures,
      establishes a fair value hierarchy that reflects the significance of the
      inputs used in making the measurements. The fair value hierarchy has the
      following levels:                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Level 1 - quoted prices (unadjusted) in active markets
      for identical assets or liabilities;                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Level 2 - inputs other than quoted prices included in
      Level 1 that are observable for the asset or liability, either directly
      (i.e. as prices) or indirectly (i.e. derived from prices); and                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Level 3 - inputs for the asset or liability that are not
      based on observable market data (unobservable inputs).                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Companys financial instruments include: cash and
      equivalents, accounts receivable, short-term investments, due from related
      parties, long-term receivable, accounts payable, and long-term debt and
      approximates their fair values. The cash and cash equivalents, accounts
      receivable, short-term investments, and accounts payable are classified as
      Level 1 on the fair value hierarchy. The long-term receivable and
      long-term debt is classified as Level 3 on the fair value
  hierarchy.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | 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.                                                      

- 29 -

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|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

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

Foreign exchange risk

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

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

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

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

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

Credit risk

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

The Companys excess cash and cash
equivalents are 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 relates to an Ely
receivable, which has a carrying value of $2.03 million and is payable over the
next three years to June 1, 2015. In the event that Ely does not make the
required payments (Note 5), 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 requirements as they become due. This is achieved through the management of its capital structure and debt leverage.

- 30 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

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

Equity price risk

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

Capital risk management

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

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

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

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

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

- 31 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

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

|13. | COMMITMENTS
|--- | -----------

The following table lists the known
contractual obligations at December 31, 2012:

in thousands of
      U.S. dollars
    
    2013
    
    
    2014
    
    
    2015
    
    
    2016
    
    
    After 2016
    
    
    TotalAccounts payable and accrued liabilities
    $
    6,220,268
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    6,220,268Long-term debt (Note
      8)
    
    -
    
    
    86,837,755
    
    
    -
    
    
    -
    
    
    -
    
    
    86,837,755JPAR
      and right of way
    
    2,215,345
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,215,345Deposits on
      long-lead equipment purchases
    
    -
    
    
    60,795,405
    
    
    -
    
    
    -
    
    
    -
    
    
    60,795,405Operating lease obligations
    
    249,913
    
    
    227,376
    
    
    229,827
    
    
    150,230
    
    
    -
    
    
    857,346$
    8,685,526
    
    $
    147,860,536
    
    $
    229,827
    
    $
    150,230
    
    $
    -
    
    $
    156,926,119


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.

In February 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 the Company 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 the Company receiving the ROD and
the arrangement of project financing.

In September 2010, the Company,
pursuant to earn-in agreement with UCM to earn a 20% interest in Rosemont,
entered into an off-take agreement with the Korean consortium for the sale of
30% of copper concentrate and molybdenum concentrate produced annually from
Rosemont.

The Company signed off-take agreements
with Red Kite for the sale of 20% of Rosemonts copper concentrate production to
a maximum of 1.5 million dry metric tonnes are delivered to Red Kite.

- 32 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|14. | INCOME TAXES
|--- | ------------

| | a) | Income tax expense                                                                                                                                                                                                           
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                              
| |    | The provision for income taxes reported differs from the
      amount computed by applying cumulative Canadian federal and provincial
      income tax rates to the loss before the tax provision due to the
      following:

| |                                                                      |   | 2012       |   |   | 2011       |  
| | -------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
| | Net comprehensive profit (loss)                                      | $ | (7,413,877 | ) | $ | 16,879,065 |  
| | Statutory tax rate                                                   |   | 25.0%      |   |   | 26.5%      |  
| | Provision for (recovery of) income taxes computed at statutory rates |   | (1,853,000 | ) |   | 4,473,000  |  
| | Difference in foreign tax rates                                      |   | (315,000   | ) |   | 2,619,000  |  
| | Current year tax losses not recognized                               |   | 2,363,000  |   |   | (41,000    | )
| | Recognition of previously unrecognized tax attributes                |   | -          |   |   | (4,956,000 | )
| | Foreign exchange gain                                                |   | 118,000    |   |   | 293,000    |  
| | Stock-based compensation                                             |   | 1,000,000  |   |   | 91,000     |  
| | Other permanent differences                                          |   | 992,000    |   |   | (1,268,000 | )
| | Deferred income
      tax expense                                    | $ | 2,305,000  |   | $ | 1,211,000  |  

| | b) | The significant components of the Company's deferred tax
      assets and liabilities are as follows:
| | -- | -----------------------------------------------------------------------------------------------------

| |                                                                   |   | December 31, |   |   | Recognized in |   |   | December 31, |  
| | ----------------------------------------------------------------- | - | ------------ | - | - | ------------- | - | - | ------------ | -
| |                                                                   |   | 2011         |   |   | Profit (Loss) |   |   | 2012         |  
| |                                                                   |   |              |   |   |               |   |   |              |  
| | Non-capital losses and other future tax
      deductions          | $ | 21,906,000   |   | $ | 3,460,000     |   | $ | 25,366,000   |  
| | Working capital balances attributable to Joint Venture            |   | 1,223,000    |   |   | (1,223,000    | ) |   | -            |  
| | Long-term debt                                                    |   | -            |   |   | (245,000      | ) |   | (245,000     | )
| | Mineral
      properties, deferred development and capital assets |   | (24,340,000  | ) |   | (4,297,000    | ) |   | (28,637,000  | )
| | Deferred income tax liability                                     | $ | (1,211,000   | ) | $ | (2,305,000    | ) | $ | (3,516,000   | )

- 33 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| | c) | Deferred tax assets have not been recognized in respect
      of the following items:
| | -- | -------------------------------------------------------------------------------------

| |                                                             |   | 2012       |  |   | 2011      | 
| | ----------------------------------------------------------- | - | ---------- |  | - | --------- | 
| | Non-capital losses and other future tax
      deductions    | $ | 10,946,000 |  | $ | 7,538,000 | 
| | Mineral properties, deferred development and capital assets |   | 74,000     |  |   | 50,000    | 
| | Other assets                                                |   | 93,000     |  |   | 118,000   | 
| |                                                             | $ | 11,113,000 |  | $ | 7,706,000 | 

As at December 31, 2012, the Company
had deductible temporary differences for which deferred tax assets have not been
recognized because it is not probable that future profit will be available
against which the Company can utilize the benefits.

As of December 31, 2012, the Company has Canadian loss carry forwards of approximately $33.1 million (2011 - $25.4 million) and US loss carry forwards of approximately $67.7 million (2011 - $53.6 million) and Mexican losses of $0.1 million (2011 – nil) available to reduce future years’ income for tax purposes. The Company recognizes the benefit of tax losses only to the extent of anticipated future taxable income in relevant jurisdictions. The tax loss carry forwards expire as follows:

| | Expiry of Tax
      Losses |   |             | 
| | -------------------------- | - | ----------- | 
| | December 31, 2015          | $ | 2,449,000   | 
| | December 31, 2017          |   | 129,000     | 
| | December 31, 2026          |   | 3,028,000   | 
| | December 31, 2027          |   | 8,646,000   | 
| | December 31, 2028          |   | 19,213,000  | 
| | December 31, 2029          |   | 14,925,000  | 
| | December 31, 2030          |   | 18,958,000  | 
| | December 31, 2031          |   | 14,163,000  | 
| | December 31, 2032          |   | 19,418,000  | 
| |                            | $ | 100,929,000 | 

| | d) | Unrecognized deferred tax liabilities                                                                                                                                                                                                                                                                                                 
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                       
| |    | At December 31, 2012, the Company had no taxable
      temporary difference (2011 - $6,200,000) relating to investments in
      subsidiaries that has not been recognized because the Company controls
      whether the liability will be incurred and it is satisfied that it will
      not be incurred in the foreseeable future.

|15. | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Company operates in one industry  mineral resource
      and development. The Company does not generate any significant revenue
      from its operations and the majority of non-current assets are in Canada
      and the U.S. As at December 31, 2012, the Companys non-current assets in
      Canada were $1.39 million (December 31, 2011 - $1.87 million) and in the
      U.S. were $273.22 million (December 31, 2011 - $232.64 million).
      Non-current assets for this purpose consist of deposits on long-lead
      equipment, development costs, property, plant and equipment, mineral
      properties and other assets.

- 34 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|For the years ended December 31, 2012 and 2011                
|(All amounts are
      in U.S. dollars unless otherwise noted)

The following table summarizes the net
comprehensive profit (loss) by geographic location at December 31, 2012 and
2011:

| |                                 |   | 2012       |   |   | 2011       |  
| | ------------------------------- | - | ---------- | - | - | ---------- | -
| | Canada                          | $ | (5,009,682 | ) | $ | (2,852,597 | )
| | U.S.                            |   | (5,009,682 | ) |   | 18,520,662 |  
| | Net comprehensive profit (loss) | $ | (9,718,877 | ) | $ | 15,668,065 |  

|16. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On January 31, 2013, the Company received the Air Quality
      Permit for its Rosemont Copper project from the Arizona Department of
      Environmental Quality. The Air Quality Permit stipulates the operating,
      monitoring and reporting parameters that Rosemont must comply with to meet
      all federal, state and local air quality requirements. Rosemont has
      received seven major permits required to commence construction with one
      major permit remaining, the Clean Water Act Section 404 Permit from the US
      Army Corp of Engineers, which the Company expects to receive upon the
      issuance of the Record of Decision on the Plan of Operations from the U.S.
      Forest Service.

- 35 -

---