---







Consolidated Financial Statements



For The Years Ended December 31, 2013 and
2012

---

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, 2013. In making its
assessment, Management has used the original 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, 2013, 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 27, 2014                                  |                                    
|Vancouver, Canada                               |                                    

- 2 -

---

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 (the Company), which comprise the
consolidated statements of financial position as at December 31, 2013 and 2012,
and the consolidated statements of comprehensive 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, 2013 and 2012, 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 consolidated financial statements which indicates that the Company incurred a net
comprehensive loss of $6.5 million during the year ended December 31, 2013. In
addition, the Companys forecast cash requirements for the next twelve months
require significant expenditures on the Rosemont Project, including the
repayment of the Red Kite loan, and as at December 31, 2013, the Company has a
working capital deficiency. 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 -

---

Other matter

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31,
2013, based on the criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 Framework) and our report dated March 27, 2014, expressed an unqualified opinion
on the Company's internal control over financial
reporting.



|                   |                      
|------------------ | ---------------------
|Vancouver, Canada, |                      
|March 27, 2014     | Chartered Accountants

- 4 -

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Augusta
Resource Corporation

We have audited Augusta Resource Corporations internal
control over financial reporting as of December 31, 2013, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Augusta Resource Corporations management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying Managements 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 Corporation maintained,
in all material respects, effective internal control over financial reporting as
of December 31, 2013, based on the COSO criteria.

We have also  audited, in accordance with  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, 2013 and 2012, and the related
consolidated statements of comprehensive loss, changes in equity and cash flows
for the years then ended and our report dated March 27, 2014, expressed an
unqualified opinion thereon that included an explanatory paragraph regarding
Augusta Resource Corporation's ability to continue as a going concern.



|                  |                      
|----------------- | ---------------------
|Vancouver, Canada |                      
|March 27, 2014    | Chartered Accountants

- 5 -

---

Augusta Resource CorporationConsolidated Statements
of Financial Position(in U.S. dollars)

|                                         |  |       |  |   | December 31, |   |   | December 31, |  
|---------------------------------------- |  | ----- |  | - | ------------ | - | - | ------------ | -
|                                         |  | Notes |  |   | 2013         |   |   | 2012         |  
|ASSETS                                   |  |       |  |   |              |   |   |              |  
|Current assets                           |  |       |  |   |              |   |   |              |  
|Cash and cash equivalents                |  | 3     |  | $ | 2,267,578    |   | $ | 29,050,005   |  
|Short-term investments                   |  | 5     |  |   | 137,209      |   |   | 260,770      |  
|Accounts receivable                      |  | 10b   |  |   | 7,654,640    |   |   | 4,548,032    |  
|Due from related parties                 |  | 11    |  |   | 13,856       |   |   | 18,174       |  
|Current portion of other assets          |  | 5     |  |   | -            |   |   | 750,000      |  
|Prepaids and
      other                 |  | 8     |  |   | 4,270,851    |   |   | 361,802      |  
|                                         |  |       |  |   | 14,344,134   |   |   | 34,988,783   |  
|Non-current assets                       |  |       |  |   |              |   |   |              |  
|Restricted funds                         |  | 5     |  |   | 385,360      |   |   | -            |  
|Deposits on long-lead equipment          |  | 4     |  |   | 11,670,924   |   |   | 11,670,924   |  
|Development costs                        |  | 6, 11 |  |   | 182,222,232  |   |   | 152,708,037  |  
|Property, plant, and equipment           |  | 4     |  |   | 86,392,662   |   |   | 83,302,232   |  
|Mineral properties                       |  | 6     |  |   | 24,592,564   |   |   | 24,592,564   |  
|Other assets                             |  | 5     |  |   | 2,373,583    |   |   | 2,337,902    |  
|                                         |  |       |  | $ | 321,981,459  |   | $ | 309,600,442  |  
|LIABILITIES AND SHAREHOLDERS' EQUITY     |  |       |  |   |              |   |   |              |  
|Current liabilities                      |  |       |  |   |              |   |   |              |  
|Accounts payable and accrued liabilities |  | 7     |  | $ | 4,425,550    |   | $ | 6,220,268    |  
|Other liability                          |  | 6     |  |   | 3,002,801    |   |   | -            |  
|Warrants liability                       |  | 8, 9d |  |   | 1,683,077    |   |   | -            |  
|Current portion of long-term debt        |  | 8     |  |   | 93,515,920   |   |   | -            |  
|                                         |  |       |  |   | 102,627,348  |   |   | 6,220,268    |  
|Non-current liabilities                  |  |       |  |   |              |   |   |              |  
|Deferred income tax liability            |  | 14    |  |   | 3,369,000    |   |   | 3,516,000    |  
|Derivative Liability                     |  | 8     |  |   | 1,935,085    |   |   | -            |  
|Long-term debt                           |  | 8, 11 |  |   | 6,282,445    |   |   | 86,837,755   |  
|Total liabilities                        |  |       |  |   | 114,213,878  |   |   | 96,574,023   |  
|Shareholders' equity                     |  |       |  |   |              |   |   |              |  
|Share capital                            |  | 9     |  |   | 220,976,846  |   |   | 220,339,132  |  
|Reserves                                 |  |       |  |   | 27,015,682   |   |   | 26,416,067   |  
|Deficit                                  |  |       |  |   | (40,224,947  | ) |   | (33,728,780  | )
|                                         |  |       |  |   | 207,767,581  |   |   | 213,026,419  |  
|                                         |  |       |  | $ | 321,981,459  |   | $ | 309,600,442  |  
|Going Concern and Commitments            |  | 1, 13 |  |   |              |   |   |              |  

On Behalf of the Board of Directors

|/S/ Lenard F.
      Boggio |  | /S/
      Gilmour Clausen
|-------------------------- |  | -------------------------
|Director                   |  | Director                 

See accompanying notes to the consolidated financial
statements

- 6 -

---

Augusta Resource CorporationConsolidated Statements
of Comprehensive Loss(in U.S. dollars)

|                                                      |  | Notes |  |   | 2013        |   |   | 2012        |  
|----------------------------------------------------- |  | ----- |  | - | ----------- | - | - | ----------- | -
|                                                      |  |       |  |   |             |   |   |             |  
|EXPENSES                                              |  |       |  |   |             |   |   |             |  
|Salaries and benefits                                 |  | 11    |  | $ | 1,850,893   |   | $ | 1,927,850   |  
|Stock-based compensation                              |  | 9     |  |   | 1,435,112   |   |   | 2,071,353   |  
|Exploration and project investigation                 |  |       |  |   | 1,449,616   |   |   | 1,213,335   |  
|Legal, accounting and audit                           |  |       |  |   | 854,155     |   |   | 671,619     |  
|Travel                                                |  |       |  |   | 187,981     |   |   | 240,452     |  
|Consulting                                            |  |       |  |   | 117,442     |   |   | 92,576      |  
|Filing and regulatory fees                            |  |       |  |   | 136,621     |   |   | 147,744     |  
|Recruiting fees                                       |  |       |  |   | 847         |   |   | 31,867      |  
|Office and administration                             |  | 11    |  |   | 507,775     |   |   | 323,539     |  
|Rent                                                  |  | 11    |  |   | 356,767     |   |   | 247,983     |  
|Investor relations                                    |  |       |  |   | 102,191     |   |   | 132,039     |  
|Directors' fees                                       |  |       |  |   | 193,137     |   |   | 197,746     |  
|Insurance                                             |  |       |  |   | 379,570     |   |   | 354,057     |  
|Membership and conferences                            |  |       |  |   | 17,762      |   |   | 23,623      |  
|Amortization and depreciation                         |  |       |  |   | 371,116     |   |   | 264,290     |  
|Fiscal and advisory services                          |  |       |  |   | 29,988      |   |   | 16,053      |  
|Loss from operations                                  |  |       |  |   | (7,990,973  | ) |   | (7,956,126  | )
|Interest and other income                             |  |       |  |   | 787,778     |   |   | 657,107     |  
|Other expenses                                        |  |       |  |   | (422,126    | ) |   | (507,481    | )
|                                                      |  |       |  |   |             |   |   |             |  
|Gain on shares, warrants and derivatives              |  | 5, 8  |  |   | 1,058,665   |   |   | 364,088     |  
|Foreign exchange gain                                 |  |       |  |   | 165,249     |   |   | 47,001      |  
|Interest and
      finance charges                    |  | 8     |  |   | (241,760    | ) |   | (18,466     | )
|Loss before taxes                                     |  |       |  |   | (6,643,167  | ) |   | (7,413,877  | )
|Deferred income
      tax recovery (expense)          |  | 14    |  |   | 147,000     |   |   | (2,305,000  | )
|Net loss and comprehensive loss for the               |  |       |  |   |             |   |   |             |  
|year                                                  |  |       |  | $ | (6,496,167  | ) | $ | (9,718,877  | )
|                                                      |  |       |  |   |             |   |   |             |  
|Loss per share                                        |  |       |  |   |             |   |   |             |  
|- Basic                                               |  |       |  | $ | (0.05       | ) | $ | (0.07       | )
|- Diluted                                             |  |       |  | $ | (0.05       | ) | $ | (0.07       | )
|Weighted average number of shares
      outstanding - |  |       |  |   |             |   |   |             |  
|- Basic                                               |  |       |  |   | 144,293,033 |   |   | 143,958,525 |  
|- Diluted                                             |  |       |  |   | 144,293,033 |   |   | 143,958,525 |  

See accompanying notes to the consolidated financial
statements

- 7 -

---

Augusta Resource CorporationConsolidated Statements
of Cash Flows(in U.S. dollars)

|                                                                   |  | Notes |  |   | 2013        |   |   | 2012        |  
|------------------------------------------------------------------ |  | ----- |  | - | ----------- | - | - | ----------- | -
|Cash flows used in operating activities                            |  |       |  |   |             |   |   |             |  
|Net loss and comprehensive loss for the year                       |  |       |  | $ | (6,496,167  | ) | $ | (9,718,877  | )
|Items not involving cash                                           |  |       |  |   |             |   |   |             |  
|Amortization and depreciation                                      |  |       |  |   | 371,116     |   |   | 264,290     |  
|Unrealized foreign exchange gain                                   |  |       |  |   | (372,001    | ) |   | (53,582     | )
|Accretion income                                                   |  |       |  |   | (225,874    | ) |   | (311,080    | )
|Stock-based compensation                                           |  |       |  |   | 1,435,112   |   |   | 2,071,353   |  
|Deferred income tax (recovery) expense                             |  |       |  |   | (147,000    | ) |   | 2,305,000   |  
|Gain on shares, warrants, derivative
      liability and other     |  |       |  |   | (1,104,023  | ) |   | (364,088    | )
|Financing
      costs on convertible notes                         |  |       |  |   | 211,781     |   |   | -           |  
|                                                                   |  |       |  |   | (6,327,056  | ) |   | (5,806,984  | )
|Changes in
      non-cash working capital items                    |  | 10a   |  |   | 22,907      |   |   | 475,124     |  
|Cash used in operating activities                                  |  |       |  |   | (6,304,149  | ) |   | (5,331,860  | )
|Financing activities                                               |  |       |  |   |             |   |   |             |  
|Shares issued for cash                                             |  | 9c    |  |   | 180,229     |   |   | 1,689,519   |  
|Proceeds from issuance of long-term debt                           |  | 8     |  |   | 13,717,347  |   |   | 40,000,000  |  
|Prepaid debt issuance costs                                        |  |       |  |   | (3,787,216  | ) |   | (1,103,361  | )
|Cash provided by
      financing activities                        |  |       |  |   | 10,110,360  |   |   | 40,586,158  |  
|                                                                   |  |       |  |   |             |   |   |             |  
|Investing activities                                               |  |       |  |   |             |   |   |             |  
|Deposits on long-lead equipment                                    |  |       |  |   | (738,831    | ) |   | (4,265,941  | )
|Development cost expenditures                                      |  |       |  |   | (22,200,056 | ) |   | (29,090,236 | )
|Property, plant and equipment
      expenditures                   |  |       |  |   | (4,995,015  | ) |   | (2,873,925  | )
|Advances to joint venture                                          |  | 10b   |  |   | (2,946,339  | ) |   | (3,148,497  | )
|Annual payment and final settlement
      of long-term receivable  |  | 5     |  |   | 2,050,000   |   |   | 750,000     |  
|Proceeds from insurance                                            |  |       |  |   | -           |   |   | 2,125,691   |  
|Purchase of other assets                                           |  |       |  |   | (1,364,309  | ) |   | (770,149    | )
|Restricted
      funds contribution                                |  |       |  |   | (385,360    | ) |   | -           |  
|Cash used in investing activities                                  |  |       |  |   | (30,579,910 | ) |   | (37,273,057 | )
|                                                                   |  |       |  |   |             |   |   |             |  
|Effect of exchange rate changes on cash and
      cash equivalents |  |       |  |   | (8,728      | ) |   | 51,982      |  
|Decrease in cash and cash equivalents                              |  |       |  |   | (26,782,427 | ) |   | (1,966,777  | )
|Cash and cash equivalents, beginning of year                       |  |       |  |   | 29,050,005  |   |   | 31,016,782  |  
|Cash and cash
      equivalents, end of year                       |  |       |  | $ | 2,267,578   |   | $ | 29,050,005  |  
|                                                                   |  |       |  |   |             |   |   |             |  
|Supplemental cash flow information on non-cash
      transactions  |  | 10    |  |   |             |   |   |             |  

See accompanying notes to the consolidated financial
statements

- 8 -

---

Augusta Resource CorporationConsolidated Statements
of Changes in Equity(in U.S. dollars except for shares)

Common Shares without
    
    
    
    
    
    
    
    
    TotalPar Value
    
    
    
    
    
    
    
    
    Shareholders'Shares
    
    
    Amount
    
    
    Reserves
    
    
    Deficit
    
    
    EquityBalance at December 31, 2011
    
    143,160,392
    
    $
    217,557,562
    
    $
    22,113,694
    
    $
    (24,009,903
    )
    $
    215,661,353Proceeds from exercise of stock options
    
    790,002
    
    
    2,404,681
    
    
    (715,162
    )
    
    -
    
    
    1,689,519Restricted shares and
      restricted share units issued, net of forfeitures
    
    136,334
    
    
    376,889
    
    
    (376,889
    )
    
    -
    
    
    -Stock-based compensation expense
    
    -
    
    
    -
    
    
    2,071,737
    
    
    -
    
    
    2,071,737Stock-based compensation
      capitalized
    
    -
    
    
    -
    
    
    1,641,942
    
    
    -
    
    
    1,641,942Warrant l iability transferred to reserves
    
    -
    
    
    -
    
    
    1,680,745
    
    
    -
    
    
    1,680,745Net loss and comprehensive loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    (9,718,877
    )
    
    (9,718,877
    )Balance at December 31, 2012
    
    144,086,728
    
    $
    220,339,132
    
    $
    26,416,067
    
    $
    (33,728,780
    )
    $
    213,026,419Proceeds from exercise of
      stock options
    
    317,381
    
    
    288,859
    
    
    (108,630
    )
    
    -
    
    
    180,229Restricted shares and restricted share units
      issued, net of forfeitures
    
    148,667
    
    
    348,855
    
    
    (348,855
    )
    
    -
    
    
    -Stock-based compensation
      expense
    
    -
    
    
    -
    
    
    1,435,268
    
    
    -
    
    
    1,435,268Stock-based compensation capitalized, net of
      forfeitures
    
    -
    
    
    -
    
    
    (378,168
    )
    
    -
    
    
    (378,168
    )Net loss and comprehensive loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    (6,496,167
    )
    
    (6,496,167
    )Balance at December 31, 2013
    
    144,552,776
    
    $
    220,976,846
    
    $
    27,015,682
    
    $
    (40,224,947
    )
    $
    207,767,581


See accompanying notes to the consolidated financial
statements

- 9 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|1. | NATURE OF OPERATIONS AND GOING CONCERN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | 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 555 -
      999 Canada Place, Vancouver, British Columbia V6C 3E1. The Company is
      domiciled in Canada and its common shares are listed on the Toronto Stock
      Exchange and NYSE MKT LLC under the symbol AZC. The Companys most
      significant asset is the Rosemont copper project (Rosemont or Rosemont
      Project) which is located 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
      $6.5 million for the year ended December 31, 2013, and will require
      further drawdown of the Red Kite loan in the near term in order to meet
      its obligations as they come due.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Companys forecast cash requirements for the next
      twelve months require significant expenditures on the Rosemont Project and
      the repayment of the Red Kite loan maturing on July 21, 2014, with an
      option to extend the maturity date an additional three months to October
      21, 2014. Based on the Companys current funding sources and taking into
      account the negative working capital position at December 31, 2013, these
      factors indicate the existence of a material uncertainty that raises
      substantial doubt about the Companys ability to continue as a going
      concern and is dependent on the Company receiving the permits necessary
      for the construction of the Rosemont Project and raising additional debt
      or equity financing. The Company must obtain additional funding in the
      third quarter of 2014 in order to continue development and construction of
      the Rosemont Project. Furthermore, the Company is currently negotiating
      project financing terms with a number of lending institutions, which the
      Company believes 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 additional funding and/or project
      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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|(a) | Statement of compliance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The consolidated financial statements of the Company have
      been prepared in accordance with International Financial Reporting
      Standards (IFRS) as issued by the International Accounting Standards
      Board (IASB). The consolidated financial statements were authorized for
      issue in accordance with a resolution from the Board of Directors on March
      27, 2014.                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(b) | Basis of presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The consolidated financial statements have been prepared
      on the historical cost basis except for certain financial instruments,
      which are measured at fair value, as explained in the accounting policies
      set out in Note 12. In addition, these consolidated financial statements
      have been prepared using the accrual basis of accounting, except for cash flow information. The
      comparative figures presented in these consolidated financial statements
  are in accordance with IFRS.

- 10 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(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
      derivative liability, long-term debt and stock-based compensation
      expense.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | 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:                                                                                                                                                                                                                                                                                                                                                              

Place
      of
    PercentageName of Subsidiary
    Incorporation
    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 accounts for its
      rights to the assets, liabilities, income and expense of its 92.05%
      interest in the Rosemont Project, which is held by Rosemont Copper Company
      (RCC) and its 82.17% interest (December 31, 2012 - 63.08%) in JPAR LLC,
      which is held by Cobre Verde Development Corporation (Note 3). 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) | Restricted cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Restricted cash includes cash and cash equivalents for
      which the use is restricted for specific purposes under certain
      arrangements. Restricted cash that is not expected to become unrestricted
      within the next twelve months is included in Restricted Cash, a
      non-current asset.                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(f) | 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.                                                                                                                                         

- 11 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|(g) | 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/A               
| | --------------------------------- | ------------------
| | Water rights and mining equipment | Unit-of-production
| | Buildings                         | 25 years          
| | Computer hardware                 | 5 years           
| | Furniture and equipment           | 3 to 5 years      
| | Vehicles                          | 3 to 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 consolidated statement of
      comprehensive 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(h) | Impairment of assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | At the end of each reporting period, the Company reviews
      its mineral properties, property, plant and equipment at the cash
      generating unit (CGU) to determine whether there is any indication that
      those assets are impaired. A CGU is the smallest identifiable group of
      assets that generates cash inflows that are largely dependent of the cash
      inflows from other assets or group of assets. 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
      the consolidated statements of comprehensive loss.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | 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 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 the consolidated statements of comprehensive
      loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

- 12 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|(i) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(j) | 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, if any, are recorded as operating
      activities. In subsequent periods, the carrying amount of the liability is
      accreted by a charge to the consolidated statements of comprehensive 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.                                                                                                                                                                                                                                                                                       

- 13 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|(k) | 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.                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(l) | 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 loss.                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | 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, the statements of comprehensive 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.                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | On consolidation, exchange differences arising from the
      translation of any net investment in foreign entities with a functional
      currency other than U.S. dollars 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 consolidated statements of comprehensive loss. For the periods
      presented, each of the Companys subsidiaries had a U.S. dollar functional
      currency.                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(m) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                

- 14 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|(n) | Interest in joint arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company conducts JPAR LLC and its business relating
      to the Rosemont property through joint operations where the joint
      arrangement participants are bound by a contractual agreement establishing
      joint control over the assets of the joint arrangement. As joint
      operations, each party recognizes its rights to the assets, liabilities,
      revenues and expenses of the arrangement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(o) | 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
      (Stock-Based Awards) issued to employees are recorded at their estimated
      fair value on the grant date and are charged either to the consolidated
      statements of comprehensive loss or capitalized to development costs over
      the vesting period or condition with a corresponding credit to reserves.
      In the event the vesting condition is not met, the Stock-Based Awards are
      forfeited and the amortized amounts are reversed. 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 and are fair valued at the date of grant. The fair
      value is either charged to the consolidated statements of comprehensive
      loss or capitalized to development costs over the vesting period. If the
      vesting condition is not met, the restricted shares are forfeited and
      returned to treasury and the corresponding amortized amounts are reversed.
      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 fair value of the award on a straight-line basis
      over the vesting period. The forfeiture rate is reviewed on a quarterly
      basis to determine the appropriate forfeiture rate based on past, present
      and expected forfeitures.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(p) | 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 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|(q) | 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 short-term investments are
      classified as FVTPL and are measured at fair value with unrealized gains
      and losses recognized in the consolidated statements of comprehensive
      loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | 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 income
      except for losses in value that are considered other than temporary which
      are recognized in profit or loss. At December 31, 2013 and 2012, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(r) | 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 embedded derivatives
      separated from a host contract are also classified as FVTPL and recognized
      at fair value with changes in fair value recognized in profit or loss
      unless they are designated as effective hedging instruments. Fair value
      changes on financial liabilities classified as FVTPL are recognized in
      profit or loss.                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(s) | Adoption of New or Amended IFRS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | On January 1, 2013, the Company adopted the following new
      accounting standards that were previously issued by the IASB:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | IFRS 10, Consolidated Financial Statements,
      replaces the guidance on control and consolidation in IAS 27, Consolidated and Separate Financial Statements,
      and SIC-12, Consolidation  Special Purpose Entities. IFRS 10
      requires consolidation of an investee only if the investor possesses power
      over the investee, has exposure to variable returns from its involvement
      with the investee and has the ability to use its power over the investee
      to affect its returns. Detailed guidance is provided on applying the
      definition of control. The accounting requirements for consolidation have
      remained largely consistent with IAS 27. The
Company applied IFRS 10 at January 1, 2013, and this did not have
    an impact on the consolidated financial statements.                              

- 16 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|   | Joint Arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | IFRS 11, Joint Arrangements, replaces IAS 31,
      Interests in Joint Venturesand SIC-13, Jointly Controlled
      Entities  Non-Monetary Contributions by Venturers. IFRS 11 provides
      for a principles-based approach to the accounting for joint arrangements
      that requires an entity to recognize its contractual rights and
      obligations arising from its involvement in joint arrangements. A joint
      arrangement is an arrangement in which two or more parties have joint
      control. Under IFRS 11, joint arrangements are classified as either a
      joint operation or a joint venture, whereas under IAS 31, they were
      classified as a jointly controlled asset, jointly controlled operation or
      a jointly controlled entity. IFRS 11 requires the use of the equity method
      of accounting for interests in joint ventures, whereas IAS 31 permitted a
      choice of the equity method or proportionate consolidation for jointly
      controlled entities. Under IFRS 11, for joint operations, each party
      recognizes its rights to and obligations for the assets, liabilities,
      revenues and expenses of the arrangement. The Company applied IFRS 11
      retrospectively by reassessing the type of, and accounting for, each joint
      arrangement in existence at January 1, 2013. No significant impacts
      resulted to the consolidated financial statements.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Disclosure of Interest in Other Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | IFRS 12, Disclosure of Interest in Other Entities,establishes disclosure requirements for interests in other entities,
      such as joint arrangements, associates, structured entities, 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 and the effects of those interests on its financial
      statements. Disclosures arising from the adoption of IFRS 12 can be found
      in Note 3 in the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Fair Value Measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | IFRS 13, Fair Value Measurement, sets out a single
      IFRS framework for measuring fair value, clarifies the definition of fair
      value, and enhances disclosures about fair value measurements. The Company
      applied IFRS 13 prospectively at January 1, 2013, and this did not have a
      significant impact on the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Future Accounting Changes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | IFRS 9, Financial Instrumentsreplaces IAS 39,
      Financial Instruments: Recognition and Measurement. The IASB
      recently suspended the original planned effective date of January 1, 2015,
      and at present the effective date has not been determined. The Company is
      currently evaluating the impact the final standard will have on its
      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3. | INTERESTS IN JOINT
ARRANGEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|a) | Rosemont Project                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On September 16, 2010, RCC and United Copper & Moly
      LLC (UCM or Partner), a company formed by Korea Resources Corporation
      and LG International Corp. to hold their interest in the Rosemont joint
      venture, executed an Earn-In Agreement (the EI Agreement) whereby UCM
      can acquire up to a 20% interest in the Rosemont joint venture by funding
      $176 million of Rosemont expenditures. Under the terms of the EI
      Agreement, UCM will contribute cash into the Rosemont Project 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); and once the material permits are
      issued Tranche 2 - $106 million for construction costs
can be released. Once UCM has earned its 20% interest in the Rosemont joint
venture, 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 and
earned a 7.95% interest in the Rosemont joint venture. The Company is currently
funding the Pre-Construction Costs until such time the final Record of Decision
(ROD) has been issued and project financing is in place.

- 17 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

The following is a summary of selected
financial information of the Rosemont Project which is considered to be a joint
operation at December 31, 2013 and December 31, 2012, on a 92.05% basis:

| |                                       |   | December 31, |   |   | December 31, |  
| | ------------------------------------- | - | ------------ | - | - | ------------ | -
| | Statement of
      Financial Position |   | 2013         |   |   | 2012         |  
| | Cash and cash equivalents             | $ | 249,131      |   | $ | 224,709      |  
| | Other current assets                  |   | 4,039,477    |   |   | 197,745      |  
| | Non-current assets                    |   | 278,762,282  |   |   | 262,543,496  |  
| | Current liabilities                   |   | (3,255,535   | ) |   | (5,338,015   | )
| | Other current liability               |   | (3,002,802   | ) |   | -            |  
| | Deficit                               |   | 2,967,072    |   |   | 2,183,260    |  

| |                                                |   | Year Ended December 31, |  
| | ---------------------------------------------- | - | ----------------------- | -
| | Statement of
      Cash Flows                  |   | 2013                    |  
| | Cash used in operating activities              | $ | (301,072                | )
| | Cash provided by financing activities          |   | 30,236,932              |  
| | Cash used in investing activites               |   | (29,911,438             | )
| | Decrease in cash and cash equivalents          |   | 24,422                  |  
| | Cash and cash equivalents, beginning of period |   | 224,709                 |  
| | Cash and cash
      equivalents, end of period | $ | 249,131                 |  

|   | For the year ended December 31, 2013, the Rosemont
      Project incurred incidental ranching income and related expenses that
      resulted in an operating loss of $0.8 million (2012 - $0.9
  million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | UCM did not acquire any additional interest in the
      Rosemont Project during the year ended December 31, 2013 and 2012, and
      accordingly the Company did not recognize any gain or loss on sales of
      interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | In the fourth quarter of 2011, the Company and UCM
      entered into a funding arrangement whereby the Company would provide
      funding for the Rosemont Project for Pre-Construction Costs and is
      repayable after the final ROD is received. During the year ended December
      31, 2013, the Company advanced $32.9 million (Cumulative to-date - $82.9
      million) to the Rosemont Project, of which 7.95% is due from UCM (See Note
      10b).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|b) | JPAR LLC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | 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 arrangement
      (JPAR) to construct and operate the CWCGV Central Arizona Project 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.

- 18 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

JPAR is accounted for as a joint
operation and as at December 31, 2013, the assets were accounted for on an
82.17% basis (December 31, 2012  63.08%), except for accounts payables which
are accounted for at 100%:

| |                                       |   | December 31, |   |   | December 31, |  
| | ------------------------------------- | - | ------------ | - | - | ------------ | -
| | Statement of
      Financial Position |   | 2013         |   |   | 2012         |  
| | Cash and cash equivalents             | $ | 75,618       |   | $ | 73,151       |  
| | Non-current assets                    |   | 1,590,904    |   |   | 551,941      |  
| | Current liabilities                   |   | (101,787     | ) |   | (44,825      | )

| |                                              |   | Year Ended December 31, |  
| | -------------------------------------------- | - | ----------------------- | -
| | Statement of
      Cash Flows                |   | 2013                    |  
| | Cash used in operating activities            | $ | -                       |  
| | Cash provided by financing activities        |   | 808,899                 |  
| | Cash used in investing activites             |   | (806,432                | )
| | Increase in cash and cash equivalents        |   | 2,467                   |  
| | Cash and cash equivalents, beginning of year |   | 73,151                  |  
| | Cash and cash
      equivalents, end of year | $ | 75,618                  |  

- 19 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

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

| |                               |   |           |  |   |                    |  |   |          |   |   |           |  |   |               |  |   | Long-lead     |   |   |            |  
| | ----------------------------- | - | --------- |  | - | ------------------ |  | - | -------- | - | - | --------- |  | - | ------------- |  | - | ------------- | - | - | ---------- | -
| |                               |   |           |  |   |                    |  |   |          |   |   |           |  |   | Furniture and |  |   | Equipment and |   |   |            |  
| | Cost                          |   | Land      |  |   | Water
      Rights |  |   | Vehicles |   |   | Buildings |  |   | Equipment     |  |   | Other         |   |   | Total      |  
| |                               |   |           |  |   |                    |  |   |          |   |   |           |  |   |               |  |   |               |   |   |            |  
| | As at January 1, 2012         | $ | 5,679,640 |  | $ | 3,806,144          |  | $ | 412,331  |   | $ | 767,687   |  | $ | 602,956       |  | $ | -             |   | $ | 11,268,758 |  
| | Additions                     |   | -         |  |   | -                  |  |   | 52,149   |   |   | 15,052    |  |   | 176,586       |  |   | 4,196,803     |   |   | 4,440,590  |  
| | Disposals                     |   | -         |  |   | -                  |  |   | -        |   |   | -         |  |   | -             |  |   | (2,125,691    | ) |   | (2,125,691 | )
| | Reclassification              |   | -         |  |   | -                  |  |   | -        |   |   | -         |  |   | -             |  |   | 70,443,212    |   |   | 70,443,212 |  
| | As at December 31, 2012       | $ | 5,679,640 |  | $ | 3,806,144          |  | $ | 464,480  |   | $ | 782,739   |  | $ | 779,542       |  | $ | 72,514,324    |   | $ | 84,026,869 |  
| |                               |   |           |  |   |                    |  |   |          |   |   |           |  |   |               |  |   |               |   |   |            |  
| | As at January 1, 2013         | $ | 5,679,640 |  | $ | 3,806,144          |  | $ | 464,480  |   | $ | 782,739   |  | $ | 779,542       |  | $ | 72,514,324    |   | $ | 84,026,869 |  
| | Additions                     |   | 590,184   |  |   | -                  |  |   | 4,602    |   |   | 8,443     |  |   | 528           |  |   | 2,761,686     |   |   | 3,365,443  |  
| | Dispoals                      |   | -         |  |   | -                  |  |   | (14,451  | ) |   | -         |  |   | -             |  |   | -             |   |   | (14,451    | )
| | As
      at December 31, 2013 | $ | 6,269,824 |  | $ | 3,806,144          |  | $ | 454,631  |   | $ | 791,182   |  | $ | 780,070       |  | $ | 75,276,010    |   | $ | 87,377,861 |  

| |                               |   |           |  |   |                    |  |   |          |   |   |           |  |   |               |  |   | Long-lead     |  |   |            |  
| | ----------------------------- | - | --------- |  | - | ------------------ |  | - | -------- | - | - | --------- |  | - | ------------- |  | - | ------------- |  | - | ---------- | -
| |                               |   |           |  |   |                    |  |   |          |   |   |           |  |   | Furniture and |  |   | Equipment and |  |   |            |  
| | Accumulated Depreciation      |   | Land      |  |   | Water
      Rights |  |   | Vehicles |   |   | Buildings |  |   | Equipment     |  |   | Other         |  |   | Total      |  
| |                               |   |           |  |   |                    |  |   |          |   |   |           |  |   |               |  |   |               |  |   |            |  
| | As at January 1, 2012         | $ | -         |  | $ | -                  |  | $ | 187,813  |   | $ | 56,541    |  | $ | 231,007       |  | $ | -             |  | $ | 475,361    |  
| | Depreciation                  |   | -         |  |   | -                  |  |   | 101,731  |   |   | 24,736    |  |   | 122,809       |  |   | -             |  |   | 249,276    |  
| | As at December 31, 2012       | $ | -         |  | $ | -                  |  | $ | 289,544  |   | $ | 81,277    |  | $ | 353,816       |  | $ | -             |  | $ | 724,637    |  
| |                               |   |           |  |   |                    |  |   |          |   |   |           |  |   |               |  |   |               |  |   |            |  
| | As at January 1, 2013         | $ | -         |  | $ | -                  |  | $ | 289,544  |   | $ | 81,277    |  | $ | 353,816       |  | $ | -             |  | $ | 724,637    |  
| | Depreciation                  |   | -         |  |   | -                  |  |   | 72,883   |   |   | 37,402    |  |   | 164,728       |  |   | -             |  |   | 275,013    |  
| | Disposals                     |   | -         |  |   | -                  |  |   | (14,451  | ) |   | -         |  |   | -             |  |   | -             |  |   | (14,451    | )
| | As
      at December 31, 2013 | $ | -         |  | $ | -                  |  | $ | 347,976  |   | $ | 118,679   |  | $ | 518,544       |  | $ | -             |  | $ | 985,199    |  
| |                               |   |           |  |   |                    |  |   |          |   |   |           |  |   |               |  |   |               |  |   |            |  
| | Net Book Value:               |   |           |  |   |                    |  |   |          |   |   |           |  |   |               |  |   |               |  |   |            |  
| | As at December 31, 2012       | $ | 5,679,640 |  | $ | 3,806,144          |  | $ | 174,936  |   | $ | 701,462   |  | $ | 425,726       |  | $ | 72,514,324    |  | $ | 83,302,232 |  
| | As at December 31, 2013       | $ | 6,269,824 |  | $ | 3,806,144          |  | $ | 106,655  |   | $ | 672,503   |  | $ | 261,526       |  | $ | 75,276,010    |  | $ | 86,392,662 |  

As at December 31, 2013, the long-lead
equipment has not been placed into service; hence, the Company has not
recognized any depreciation on such long-lead equipment.

Deposits on long-lead
equipment

| | As at January 1, 2012                             | $ | 78,213,911  |  
| | ------------------------------------------------- | - | ----------- | -
| | Additions                                         |   | 3,900,225   |  
| | Reclassification to property, plant and equipment |   | (70,443,212 | )
| | As at December
      31, 2012 and 2013            | $ | 11,670,924  |  

- 20 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

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

| |                                                    |   | Long-term  |   |   | Intangible |  |   | Other   |   |   | Computer  |   |   |            |  
| | -------------------------------------------------- | - | ---------- | - | - | ---------- |  | - | ------- | - | - | --------- | - | - | ---------- | -
| |                                                    |   | Receivable |   |   | Assets     |  |   | Assets  |   |   | Software  |   |   | Total      |  
| | As at January 1, 2012                              | $ | 2,469,895  |   | $ | -          |  | $ | 135,830 |   | $ | 34,738    |   | $ | 2,640,463  |  
| | Annual payment                                     |   | (750,000   | ) |   | -          |  |   | -       |   |   | -         |   |   | (750,000   | )
| | Interest accretion                                 |   | 311,080    |   |   | -          |  |   | -       |   |   | -         |   |   | 311,080    |  
| | Amortization                                       |   | -          |   |   | -          |  |   | (27,644 | ) |   | (15,014   | ) |   | (42,658    | )
| | Additions                                          |   | -          |   |   | -          |  |   | -       |   |   | 929,017   |   |   | 929,017    |  
| |                                                    |   | 2,030,975  |   |   | -          |  |   | 108,186 |   |   | 948,741   |   |   | 3,087,902  |  
| | Less: current portion of long-term receivable      |   | (750,000   | ) |   | -          |  |   | -       |   |   | -         |   |   | (750,000   | )
| | As at December
      31, 2012                      | $ | 1,280,975  |   | $ | -          |  | $ | 108,186 |   | $ | 948,741   |   | $ | 2,337,902  |  
| |                                                    |   |            |   |   |            |  |   |         |   |   |           |   |   |            |  
| | As at December 31, 2012                            | $ | 2,030,975  |   | $ | -          |  | $ | 108,186 |   | $ | 948,741   |   | $ | 3,087,902  |  
| | Annual payment and final settlement
      proceeds |   | (2,050,000 | ) |   | -          |  |   | -       |   |   | -         |   |   | (2,050,000 | )
| | Loss on final settlement                           |   | (206,849   | ) |   | -          |  |   | -       |   |   | -         |   |   | (206,849   | )
| | Interest accretion                                 |   | 225,874    |   |   | -          |  |   | -       |   |   | -         |   |   | 225,874    |  
| | Amortization                                       |   | -          |   |   | -          |  |   | (49,779 | ) |   | (79,578   | ) |   | (129,357   | )
| | Additions                                          |   | -          |   |   | 678,846    |  |   | 240,021 |   |   | 527,146   |   |   | 1,446,013  |  
| | As at December
      31, 2013                      | $ | -          |   | $ | 678,846    |  | $ | 298,428 |   | $ | 1,396,309 |   | $ | 2,373,583  |  

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.

On November 28, 2013, the Company and
Ely agreed to an early settlement of the remaining receivable for $1.3 million.
At the date of settlement, the carrying value of the Ely receivable was $1.5
million (December 31, 2012 - $2.0 million) which resulted in a loss on
settlement of $0.2 million and is recognized in the Consolidated Statement of
Comprehensive Loss.

The Company holds 1.62 million Ely
common shares which are accounted for as held for trading securities. Changes to
the fair value of the Ely common shares are recognized in the Consolidated
Statements of Comprehensive Loss. As at December 31, 2013, the Ely common shares
have a fair value of $0.1 million (December 31, 2012 - $0.3 million) and are
recorded in short-term investments.

Leasehold Improvements

On August 8, 2013, the Companys
wholly-owned subsidiary, Cobre Verde de Mexico, S.A. de C.V. (Cobre Verde) was
awarded a 25-year concession by the Administración  Portuaria Integral de Topolobampo, S.A. de C.V. (API) to build and operate a concentrate export
facility at the Port of Topolobampo, Sinaloa, Mexico, with an option to extend
the concession. At the end of the concession, the facility and related
infrastructure assets will be transferred to API at no cost. The facility, which
will be built on a 54,500 square meter site at the Port of Topolobampo, will
manage bulk concentrate receiving, storage, and reclaim for load-out onto
transport ships. The concession payments are accounted as operating leases under
IAS 17, Leases, and the costs for the design, engineering and construction of the
      export facility are accounted as leasehold improvements. The Company had
      also provided an irrevocable $0.4 million standby letter of credit to API
and is classified as restricted funds.

- 21 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|6. | MINERAL PROPERTIES AND DEVELOPMENT COSTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The Company owns 92.05% of the Rosemont Project, which is
      in Pima County, Arizona, located approximately 50 kilometres southeast of
      City of Tucson, Arizona, and near a number of large porphyry type
      producing copper mines. The Rosemont property remains subject to a 3% net
      smelter royalty. The Rosemont property consists of 30,000 acres (12,140
      hectares) of patented and unpatented claims, fee land and surface grazing
      leases. 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).

| | Mineral properties costs:                                      |   |             |  
| | -------------------------------------------------------------- | - | ----------- | -
| | As at December
      31, 2013 and 2012                         | $ | 24,592,564  |  
| |                                                                |   |             |  
| |                                                                |   |             |  
| | Development costs:                                             |   |             |  
| | As at January 1, 2012                                          | $ | 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, net of forfeitures       |   | 1,527,532   |  
| | As at December 31, 2012                                        |   | 152,708,037 |  
| | Permitting, engineering and on-going
      support activities  |   | 20,784,999  |  
| | Capitalized loan interest and financing charges                |   | 5,696,451   |  
| | Purchase of mitigation land                                    |   | 3,463,029   |  
| | Capitalized
      stock-based compensation, net of forfeitures |   | (430,284    | )
| | As at December 31, 2013                                        | $ | 182,222,232 |  

On September 30, 2013, the Company
exercised its option under a land purchase option agreement to purchase land for
$5.3 million of which $1.8 million of option payments have already been paid.
The land will become part of Rosemonts land conservation program to protect
wildlife and vegetation. A promissory note in the amount of $3.5 million was
issued to the seller. The promissory note bears interest at 3% per annum and is
payable in three payments of: $125,000 on March 31, 2014, $375,000 on May 30,
2014 and $3,030,000 on the earlier of 90 days following receipt of the final ROD
or September 24, 2014, plus accrued interest. The fair value of the promissory
note was estimated at $3.3 million which was calculated based on an effective
interest rate of 19.5% and is recognized in other liability. Upon closing of the
transaction, which is due on the earlier of 90 days following receipt of the
final ROD or September 24, 2014, title of the land will then be transferred to
the Company.

- 22 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

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

| |                                        |   | December 31, |  |   | December 31, | 
| | -------------------------------------- | - | ------------ |  | - | ------------ | 
| | Due within the
      year              |   | 2013         |  |   | 2012         | 
| | Trade payables and accrued liabilities | $ | 1,045,107    |  | $ | 882,253      | 
| | Project related
      payables         |   | 3,380,443    |  |   | 5,338,015    | 
| |                                        | $ | 4,425,550    |  | $ | 6,220,268    | 

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

| |                                   |   | December 31, |   |   | December 31, | 
| | --------------------------------- | - | ------------ | - | - | ------------ | 
| |                                   |   | 2013         |   |   | 2012         | 
| | Red Kite Loan                     | $ | 93,515,920   |   | $ | 86,837,755   | 
| | Convertible
      Unsecured Notes |   | 6,282,445    |   |   | -            | 
| | Long-term debt                    |   | 99,798,365   |   |   | 86,837,755   | 
| | Less:                             |   |              |   |   |              | 
| | Current portion of long-term debt |   | (93,515,920  | ) |   | -            | 
| | Long-term portion                 | $ | 6,282,445    |   | $ | 86,837,755   | 

Red Kite Loan

On December 12, 2013, the Company
closed a $26.6 million increase ("Additional Commitment") to the existing $83
million loan facility ("Existing Loan") with RK Mine Finance Trust I (Red
Kite). The Additional Commitment and the Existing Loan total $109.6 million and
are hereinafter referred to collectively as the Expanded Loan. In connection
with the Expanded Loan, the Company paid an arrangement fee of $1.1 million and
issued 3.3 million common share purchase warrants to Red Kite with an exercise
price of $2.12 per common share. These warrants will expire on December 12,
2016. The terms for the Additional commitment are substantially the same as the
Existing Loan, including a copper concentrate off-take agreement and interest
payable at LIBOR plus 4.50% (December 31, 2013  4.75% and December 31, 2012 
4.84%) compounded quarterly, except the Company has the option to extend the
maturity date of the entire loan amount by up to three months to no later than
October 21, 2014, by making an extension fee payment to Red Kite. The extension
fee is equal to 1.5% of the principal amount of the Existing Loan outstanding
for each monthly period extended.

Under IAS 32, Financial Instruments
Presentation, the warrants have an exercise price that may be subject to
adjustment under certain conditions. As a result, the warrants, which had a fair
value of $1.6 million on the date of issue, were classified as a warrants
liability. The warrants liability is fair valued at each balance sheet date with
changes in the fair value being recognized in the Consolidated Statements of
Comprehensive Loss. For the year ended December 31, 2013, the Company recorded a
$0.1 million loss from changes in the fair value of the warrants liability.

- 23 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

The 3.3 million common share purchase
warrants issued on the Additional Commitment had a fair value of $1.7 million as
at December 31, 2013, based on the following assumptions using the Black-Scholes
Option Pricing Model:

| |                                       | December 31,
| | ------------------------------------- | ------------
| |                                       | 2013        
| | Expected life in years                | 2.9         
| | Expected volatility                   | 70%         
| | Expected dividend yield               | 0%          
| | Risk-free interest rate               | 1.21%       
| | Weighted average fair value of option | $0.51       

The drawdown of the Additional
Commitment will be separated into four tranches. The first tranche of $4.1
million was drawn on December 16, 2013, upon completion and signing of final
documentation. The second tranche of $10 million was drawn on January 13, 2014,
following the publication of Rosemont's final Environmental Impact Statement
(FEIS) and draft ROD by the United States Forest Service (USFS). The third
tranche of $7.5 million will be available for drawdown upon publication of
Rosemont's final ROD by the USFS. The fourth tranche of $5 million will be
available for drawdown upon issuance of the final Clean Water Action Section 404
Permit by the Army Corps of Engineers (ACOE).

The Company has the option to repay the
Expanded Loan without penalty at any time prior to the July 21, 2014 maturity
and the Expanded Loan is collateralized against the Companys assets, including
all shares of RCC, the Companys wholly-owned subsidiary that holds the Rosemont
assets. The Expanded Loan includes specified loan covenants which are assessed
regularly and the Company is in compliance with these covenants.

Under the terms of the off-take
agreement, the Company will supply Red Kite with 20% of Rosemonts copper
concentrates production per year when Rosemont commences commercial production
and ends when cumulative 1.5 million dry metric tonnes have been delivered to
Red Kite. The off-take agreement includes market pricing.

The Company incurred $2.9 million of
financing costs, including $1.6 million fair value of the 3.3 million common
share purchase warrants, relating to the Additional Commitment and were deducted
from the Tranche 1 proceeds. The carrying value of the Additional Commitment is
accreted to its estimated cash outflow using the effective interest method. For
the years ended December 31, 2013 and 2012, the Company recorded interest
expense of $5.5 million and $3.9 million, respectively, which was calculated
based on an effective interest rate of 5.98% to 11.09% (December 31, 2012 
6.02%) and has been capitalized to development costs.

Convertible Unsecured Notes

On August 14, 2013, the Company entered
into a Notes Purchase Agreement with two major shareholders (Note Holders),
including Richard W. Warke, the Company's Executive Chairman providing for the
issuance by the Company of an aggregate of Cdn$10 million in Notes. The Notes
mature 5 years from the effective date of each of the Notes and bear interest at
7% rate per annum. The Company may at its option redeem the Notes after 3 years
assuming the Companys stock price is trading at least at 125% of the conversion
price for 20 consecutive trading days ending 5 trading days prior to the date on
which a written notice of redemption is provided. The Notes also provide the
Note Holders thereof with an option to convert the principal into Common Shares
at a conversion price equal to a 30% premium over the volume weighted average
trading price on the TSX for the 5 trading days prior to the last business day
before the closing date of each tranche of the Notes. A total commitment fee of
$0.1 million was paid to each of the Note Holders pursuant to the Notes Purchase
Agreement. The Company issued the Notes for the full Cdn$10 million in four
tranches between September 4 and October 25, 2013. The Note Holders each hold a
Cdn$5 million aggregate principal amount of Notes. Had the Notes Holders
exercised their option on December 31, 2013, to settle the Notes in full in
Common Shares, the Company would have issued 3,699,520 Common Shares at a
weighted average conversion price of $2.70 per Common Share.

- 24 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

The Company incurred financing costs of
$0.4 million on the Notes which have been apportioned to the Notes and the
conversion option of $0.3 million and $0.1 million, respectively. The financing
costs relating to the Notes were deducted from the Notes proceeds and the
carrying value of the Notes will be accreted up to the estimated cash outflow
using the effective interest rate method. The financing costs relating to the
conversion option were expensed as part of interest and financing charges. For
the year ended December 31, 2013, the Company has recognized interest expense of
$0.3 million of which $0.2 million have been capitalized to the Rosemont Project
and $0.1 million have been expensed. The effective interest rate on the Notes
was between 18.7% and 22.1% per annum.

The Notes includes specified loan
covenants which are assessed regularly and the Company is in compliance with
these covenants.

Under IAS 32, Financial Instruments
Presentation, the common share conversion option on the Notes has a Canadian
dollar denominated conversion price which is different than the Companys US
dollar functional currency. As a result, the common share conversion option,
which had a fair value of $3.2 million on the date of issue, is classified as a
derivative liability. The conversion option is fair valued at each balance sheet
date with changes in the fair value being recognized in the Consolidated
Statements of Comprehensive Loss. For the year ended December 31, 2013, the
Company recorded a $1.2 million gain from changes in the fair value of the
derivative liability.

As at December 31, 2013, the common
share conversion option had a fair value of $1.9 million based on the following
assumptions used in the Black-Scholes Option Pricing Model:

| |                                       | December 31,  
| | ------------------------------------- | --------------
| |                                       | 2013          
| | Expected life in years                | 3.7 to 3.8    
| | Expected volatility                   | 69% to 70%    
| | Expected dividend yield               | 0%            
| | Risk-free interest rate               | 1.58%         
| | Weighted average fair value of option | $0.49 to $0.53

|   | Project Financing Costs                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The Company is in the process of arranging project
      financing for the Rosemont Project and has incurred project financing
      related transaction costs of $3.4 million as at December 31, 2013. These
      transaction costs are included in prepaids and other on the Consolidated
      Statements of Financial Position until project financing has been obtained
      at which time the transactions costs are deducted from the loan
      proceeds.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|9. | SHARE CAPITAL                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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

- 25 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(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 the 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The following table summarizes the Companys stock
      options outstanding as at December 31, 2012 and December 31,
  2013:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| |                                     |  |           |   |   | Weighted       | 
| | ----------------------------------- |  | --------- | - | - | -------------- | 
| |                                     |  |           |   |   | Average        | 
| |                                     |  | Number of |   |   | Exercise Price | 
| |                                     |  | Options   |   |   | (Cdn$)         | 
| | Outstanding as at January 1, 2012   |  | 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           | 
| | Granted                             |  | 1,525,000 |   |   | 2.59           | 
| | Exercised                           |  | (341,667  | ) |   | 0.68           | 
| | Forfeited                           |  | (600,500  | ) |   | 3.79           | 
| | Expired                             |  | (425,000  | ) |   | 4.04           | 
| | Outstanding as at December 31, 2013 |  | 6,933,168 |   | $ | 3.03           | 

During the year ended December 31,
2013, a total of 341,667 stock options were exercised at a weighted average
exercise price of Cdn$0.68. The weighted average share price when the stock
options were exercised was Cdn$1.77. During the year ended December 31, 2013, a
total of 600,500 stock options were forfeited as a result of employee
terminations and not meeting a vesting condition on a certain option grant.

The following assumptions were used in
the Black-Scholes Option Pricing Model to determine the fair value of the stock
options granted during the year ended December 31, 2013 and 2012:

| |                                             | 2013          | 2012         
| | ------------------------------------------- | ------------- | -------------
| | Expected life in years                      | 4.5           | 4.5          
| | Expected weighted average annual volatility | 81% - 92%     | 87% - 89%    
| | Expected weighted average dividend yield    | 0%            | 0%           
| | Weighted average risk-free interest rate    | 1.27% - 1.71% | 1.22% - 1.48%
| | Weighted average fair value of each option  | $1.71         | $1.87        

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.

- 26 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

The following table summarizes the
stock options outstanding as at December 31, 2013:

Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    WeightedWeighted
    
    
    Average
    
    
    
    
    
    Weighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    
    
    
    Average
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    Number of
    
    
    Exercise
    
    
    ContractualExercise Prices
    
    Outstanding
    
    
    Price
    
    
    Life
    
    
    Exercisable
    
    
    Price
    
    
    Life(Cdn$)
    
    Options
    
    
    (Cdn$)
    
    
    (Years)
    
    
    Options
    
    
    (Cdn$)
    
    
    (Years)$0.68 - $1.13
    
    1,183,334
    
    $
    0.74
    
    
    0.47
    
    
    1,183,334
    
    $
    0.74
    
    
    0.47$1.14 - $1.92
    
    25,000
    
    
    1.92
    
    
    1.38
    
    
    25,000
    
    
    1.92
    
    
    1.38$1.93 - $2.30
    
    181,000
    
    
    2.10
    
    
    4.02
    
    
    76,998
    
    
    2.11
    
    
    4.12$2.31 - $3.61
    
    2,813,334
    
    
    2.78
    
    
    3.54
    
    
    998,342
    
    
    2.93
    
    
    2.83$3.62 - $4.97
    
    2,730,500
    
    
    4.35
    
    
    3.13
    
    
    1,963,338
    
    
    4.31
    
    
    3.536,933,168
    
    $
    3.03
    
    
    2.86
    
    
    4,247,012
    
    $
    2.94
    
    
    2.51


|d) | Share Purchase Warrants                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                  
|   | The following table summarizes the outstanding common
      share purchase warrants as at December 31, 2012 and December 31, 2013
      (Note 8):

Exercise
    
    
    
    December 31,
    
    
    
    
    
    
    
    
    
    
    
    December 31,Price
    
    Expiry Date
    
    2012
    
    
    Issued
    
    
    Exercised
    
    
    Expired
    
    
    2013Warrants
    $
    3.85
    
    April 22, 2014
    
    416,749
    
    
    -
    
    
    -
    
    
    -
    
    
    416,749Warrants
    $
    3.85
    
    July 22, 2015
    
    1,374,951
    
    
    -
    
    
    -
    
    
    -
    
    
    1,374,951Warrants
    $
    2.12
    
    December 12, 2016
    
    -
    
    
    3,300,000
    
    
    -
    
    
    -
    
    
    3,300,0001,791,700
    
    
    3,300,000
    
    
    -
    
    
    -
    
    
    5,091,700


|   | Under IAS 32, Financial Instruments Presentation,
      warrants having a strike price denominated in a currency 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. This modification
      resulted in a classification change from a derivative liability to an
      equity instrument. Prior to the modification, the Company had recognized a
      $0.4 million gain from changes in the fair value of the warrants for the
      year ended December 31, 2012.                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|e) | Restricted Share Units and Restricted Shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The restricted share units and restricted share plan
      (RSU Plan) was created to align the directors, employees and
      consultants (collectively the Participants) interests with the
      shareholders interests. The fair value of the restricted share units
      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 practice 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
      common 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 loss
      over the vesting period with a corresponding credit to reserves. The fair
      value of restricted shares issued to the Rosemont Project Participants is
      capitalized to development costs over the vesting period. Upon vesting and
the Companys issue of common shares, the fair value is transferred to share
capital.

- 27 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

On March 26, 2013, the Company issued
an aggregate of 235,000 restricted shares and restricted share units to its
officers at a price of $2.62 (Cdn$2.66) . The restricted shares and restricted
share units vest over two years with a vesting condition tied to the
construction of the Rosemont Project by a specified date. The Company also
issued 100,000 restricted shares and restricted share units to its directors, of
which one half vested immediately with the remainder to vest on the first year
anniversary of the grant date.

The Company had previously issued a
number of restricted shares and restricted share units with a vesting condition
that was tied to the issuance of the final ROD and construction of the Rosemont
Project by a specified date. In December 2013, the Company had determined that
the condition would not be met resulting in forfeiture of the restricted shares
and reversal of the related compensation expense.

The following table summarizes the
number of unvested restricted shares and restricted share units as at December
31, 2012 and 2013:

December 31,
    
    
    
    
    
    
    
    
    
    
    
    December 31,Issue dates
    
    2012
    
    
    Issued
    
    
    Forfeited
    
    
    Vested
    
    
    2013Restricted sharesFebruary 4, 2010
    
    63,012
    
    
    -
    
    
    -
    
    
    (63,012
    )
    
    -February 10, 2011
    
    260,000
    
    
    -
    
    
    -
    
    
    -
    
    
    260,000February 25, 2011
    
    100,000
    
    
    -
    
    
    (100,000
    )
    
    -
    
    
    -January 30, 2012
    
    135,000
    
    
    -
    
    
    -
    
    
    (44,999
    )
    
    90,001March 26, 2013
    
    -
    
    
    165,000
    
    
    -
    
    
    (10,000
    )
    
    155,000558,012
    
    
    165,000
    
    
    (100,000
    )
    
    (118,011
    )
    
    505,001Restricted share unitsFebruary 4, 2010
    
    18,667
    
    
    -
    
    
    -
    
    
    (18,667
    )
    
    -February 10, 2011
    
    155,000
    
    
    -
    
    
    (20,000
    )
    
    -
    
    
    135,000January 30, 2012
    
    55,000
    
    
    -
    
    
    -
    
    
    (18,333
    )
    
    36,667May 7, 2012
    
    20,000
    
    
    -
    
    
    -
    
    
    (6,666
    )
    
    13,334March 26, 2013
    
    -
    
    
    170,000
    
    
    -
    
    
    (40,000
    )
    
    130,000248,667
    
    
    170,000
    
    
    (20,000
    )
    
    (83,666
    )
    
    315,001Total
    
    806,679
    
    
    335,000
    
    
    (120,000
    )
    
    (201,677
    )
    
    820,002


- 28 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

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

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

| |                                                |   | 2013     |   |   | 2012    |  
| | ---------------------------------------------- | - | -------- | - | - | ------- | -
| | Accounts receivable                            | $ | (123,139 | ) | $ | (24,520 | )
| | Due from related parties                       |   | (193,141 | ) |   | 48,830  |  
| | Prepaids and other                             |   | (112,607 | ) |   | 204,101 |  
| | Accounts payable
      and accrued liabilities |   | 451,794  |   |   | 246,713 |  
| |                                                | $ | 22,907   |   | $ | 475,124 |  
| |                                                |   |          |   |   |         |  
| | Interest received                              | $ | 18,926   |   | $ | 76,332  |  
| | Interest paid                                  | $ | -        |   | $ | -       |  
| | Income taxes paid                              | $ | -        |   | $ | -       |  

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

| |                |   | December 31, |  |   | December 31, | 
| | -------------- | - | ------------ |  | - | ------------ | 
| |                |   | 2013         |  |   | 2012         | 
| | UCM receivable | $ | 7,424,289    |  | $ | 4,477,950    | 
| | Other          |   | 230,351      |  |   | 70,082       | 
| |                | $ | 7,654,640    |  | $ | 4,548,032    | 

|    | Included in accounts receivable as at December 31, 2013,
      is a $7.4 million (December 31, 2012 - $4.5 million) receivable from UCM
      for their share of advances and loans made by the Company to the Rosemont
      Project (Note 3a). The Company holds no collateral for any receivable
      outstanding as at December 31, 2013 and anticipates full recovery of these
      amounts.                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|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, 2013, included in due from
      related parties was $0.01 million (December 31, 2012 - $0.02
    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. Costs incurred by ManCo are allocated between the Related
      Companies based on time incurred and use of services and are charged at
      cost. Each company holds an equal share in ManCo. For the year ended
      December 31, 2013, ManCo charged the Company $1.3 million (2012 - $1.3
      million) for its share of salaries, rent and other administrative
      expenses.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | As discussed in Note 8, the Company entered into a Notes
      Purchase Agreement with Richard W. Warke, the Executive Chairman of the
      Company. The Company issued an aggregate of Cdn$5 million in Notes to Mr.
      Warke and paid him a 2% commitment fee in accordance with the terms of the
      Notes Purchase Agreements                                                                                                                                                                                                                                                                                    

- 29 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

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,
2013 and 2012, are as follows:

| |                                |   | 2013      |  |   | 2012      | 
| | ------------------------------ | - | --------- |  | - | --------- | 
| | Salaries and benefits          | $ | 2,205,769 |  | $ | 2,156,950 | 
| | Stock-based
      compensation |   | 2,198,925 |  |   | 2,462,304 | 
| |                                | $ | 4,404,694 |  | $ | 4,619,254 | 

|12. | FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | IFRS 13, Fair Value Measurements,
      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, restricted funds, accounts payable and
      accrued liabilities, other liability, long-term debt, warrants liability,
      and derivative liability. The cash and cash equivalents, short-term
      investments and restricted funds are classified as Level 1 on the fair
      value hierarchy. Warrants liability and derivative liability are
      classified as Level 3 on the fair value hierarchy.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Risks arising from financial instruments and risk
      management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Companys activities expose it to a variety of
      financial risks, market risk (including foreign exchange risk), credit
      risk, and liquidity risk. Reflecting the current stage of development of
      Rosemont, the Companys overall risk management program focuses on
      facilitating the Companys ability to continue as a going concern and
      seeks to minimize potential adverse effects on the Companys ability to
      execute its business plan.                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Risk management is the responsibility of the corporate
      finance function. Material risks are identified and monitored and are
      discussed by senior management and with the audit committee of the
      Board.                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | 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 is in U.S. dollars. The Company purchases
      U.S. dollars based on its near term forecast expenditures and does not
      hedge its exposure to currency fluctuations.                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Company is primarily exposed to currency risk through
      the following assets and liabilities denominated in Canadian
    dollars:                                                                                                                                                                                                                                                                                                                                                                                                                                                

- 30 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

| |                                          |   | December 31, |   |   | December 31, |  
| | ---------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                          |   | 2013         |   |   | 2012         |  
| | Cash and cash equivalents                | $ | 460,252      |   | $ | 371,288      |  
| | Accounts receivable                      |   | 334,205      |   |   | 55,475       |  
| | Short-term investments                   |   | 145,935      |   |   | 259,440      |  
| | Accounts payable and accrued liabilities |   | (658,661     | ) |   | (575,752     | )
| | Derivative liability                     |   | (2,058,157   | ) |   | -            |  
| | Long-term
      liability                |   | (6,682,008   | ) |   | -            |  
| |                                          | $ | (8,458,434   | ) | $ | 110,451      |  

Based on the net Canadian dollar
denominated asset and liability exposures as at December 31, 2013, a 10% change
in the USD/CAD exchange rate will impact the Companys earnings by approximately
$0.8 million (2012 - $0.01 million).

Credit risk

Credit risk arises from cash and cash
equivalents and restricted funds held with banks and financial institutions and
receivable from our 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 U.S. bank
and are invested in either short-term GICs or high interest saving accounts. The
partner receivable is with UCM, a company formed by Korea Resources Corporation
(KORES) and LG International Corp. (LGI). KORES is wholly-owned and
supported by the Korean government and LGI is part of the LG Group, one of the
largest conglomerates of South Korea. Management believes the risk of loss is
remote.

Liquidity risk

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

Based on the Companys planned
expenditures on permitting, engineering and on-going support activities at the
Rosemont Project for the next twelve months, the Company will require additional
debt or equity financings to meet its obligations as they become due. Recent
upheavals in the financial markets worldwide, particularly for publicly-traded
mining companies, could make it 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.

- 31 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

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 with
advanced stage projects, 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 the EI Agreement with UCM that
enables UCM to earn up to a 20% interest in the Rosemont Project by contributing
cash of up to $176 million 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
additional Common 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 of the
Company.

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

The capital requirements for the next
twelve months will include repayment or financing of the Extended Loan with Red
Kite, 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.

- 32 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|13. | COMMITMENTS                                                                            
|--- | ---------------------------------------------------------------------------------------
|    |                                                                                        
|    | The following table lists the known contractual
      obligations at December 31, 2013:

Less
      than 1
    
    
    
    
    
    
    
    
    More
      than 5year
    
    
    1-3
      years
    
    
    3-5
      years
    
    
    years
    
    
    TotalAccounts payable and accruedliabilities
    $
    4,425,550
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    4,425,550Other liability (Note 6)
    
    3,615,125
    
    
    
    
    
    
    
    
    
    
    
    3,615,125Long-term debt (Note 8)
    
    100,062,301
    
    
    1,316,284
    
    
    10,067,852
    
    
    -
    
    
    111,446,437JPAR and right of way
    
    15,081,570
    
    
    -
    
    
    -
    
    
    -
    
    
    15,081,570Property, plant and equipment
    
    1,851,100
    
    
    -
    
    
    -
    
    
    -
    
    
    1,851,100Deposits on long-lead equipment purchases
    
    -
    
    
    60,795,405
    
    
    -
    
    
    -
    
    
    60,795,405Operating lease obligations
    
    1,254,529
    
    
    2,964,301
    
    
    2,723,944
    
    
    33,077,942
    
    
    40,020,716$
    126,290,175
    
    $
    65,075,990
    
    $
    12,791,796
    
    $
    33,077,942
    
    $
    237,235,903


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 deposits of $230 million and
production payments of $3.90 per ounce of silver and $450 per ounce of gold
delivered (escalated at 1% per annum commencing after 3 years of production), or
the prevailing market price, if lower, during the mine life. The drawdown of the
cash deposits is subject to the Company receiving the final required permits and
the arrangement of project financing.

In September 2010, the Company, in
connection with formation of the Rosemont joint arrangement and the EI
Agreement, provided UCM with the right to enter into off-take agreements with
Rosemont for the purchase of 30% of copper concentrate and 20% of molybdenum
concentrate produced annually from Rosemont at market terms. These offtake
contracts have not yet been executed.

In the event of a change in control,
the Cdn$ 10 million Notes, along with accrued and unpaid interest, is subject to
an accelerated conversion (the Change of Control Payment) concurrent with the
closing of the change of control transaction. The Change of Control Payment is
payable in either cash or common shares of the Company at the option of the Note
Holders.

The Company has also signed an off-take
agreement with Red Kite for the sale of 20% of Rosemonts annual copper
concentrate production until such time as a cumulative total of 1.5 million dry
metric tonnes of copper concentrate have been delivered to Red Kite.

- 33 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(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 combined Canadian federal and provincial
      income tax rates to the loss before taxes due to the
  following:

| |                                                            |   | 2013       |   |   | 2012       |  
| | ---------------------------------------------------------- | - | ---------- | - | - | ---------- | -
| | Loss before taxes                                          | $ | (6,643,167 | ) | $ | (7,413,877 | )
| | Statutory tax rate                                         |   | 25.75%     |   |   | 25.00%     |  
| | Recovery of income taxes computed at
      statutory rates |   | (1,711,000 | ) |   | (1,853,000 | )
| | Difference in foreign tax rates                            |   | (273,000   | ) |   | (315,000   | )
| | Current year tax losses not recognized                     |   | 1,192,000  |   |   | 2,363,000  |  
| | Foreign exchange gain (loss)                               |   | (506,000   | ) |   | 118,000    |  
| | Stock-based compensation                                   |   | 1,555,000  |   |   | 1,000,000  |  
| | Other permanent
      differences                          |   | (404,000   | ) |   | 992,000    |  
| | Deferred income tax expense (recovery)                     | $ | (147,000   | ) | $ | 2,305,000  |  

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

| |                                                                   |   | December 31, |   |   | Recognized in |   |   | December 31, |  
| | ----------------------------------------------------------------- | - | ------------ | - | - | ------------- | - | - | ------------ | -
| |                                                                   |   | 2012         |   |   | Profit (Loss) |   |   | 2013         |  
| |                                                                   |   |              |   |   |               |   |   |              |  
| | Non-capital losses and other future tax
      deductions          | $ | 25,366,000   |   | $ | 1,625,000     |   | $ | 26,991,000   |  
| | Other assets and liabilities                                      |   | -            |   |   | 378,000       |   |   | 378,000      |  
| | Long-term debt                                                    |   | (245,000     | ) |   | 245,000       |   |   | -            |  
| | Mineral
      properties, deferred development and capital assets |   | (28,637,000  | ) |   | (2,101,000    | ) |   | (30,738,000  | )
| | Deferred income tax asset (liability)                             | $ | (3,516,000   | ) | $ | 147,000       |   | $ | (3,369,000   | )

- 34 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|c) | Deductible temporary differences have not been recognized in respect
      of the following items:
|-- | --------------------------------------------------------------------------------------------------

| |                                                           |   | 2013       |  |   | 2012       | 
| | --------------------------------------------------------- | - | ---------- |  | - | ---------- | 
| | Non-capital losses and other future tax
      deductions  | $ | 85,729,000 |  | $ | 77,882,000 | 
| | Mineral properties, development costs, and capital assets |   | 229,000    |  |   | 298,000    | 
| | Other assets                                              |   | 3,555,000  |  |   | 743,000    | 
| |                                                           | $ | 89,513,000 |  | $ | 78,923,000 | 

|   | As at December 31, 2013, 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, 2013, the Company has U.S. loss carry
      forwards of approximately $74.5 million (2012 - $67.7 million), Canadian
      loss carry forwards of approximately $39.5 million (2012 - $33.1 million),
      Mexican tax losses of $1.1 million (2012  $0.1 million) and Barbados tax
      losses of $0.1 million (2012  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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|d) | Expiry of non-capital losses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The non-capital loss carry forwards expire as
  follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | Expiry of Tax
      Losses |   | Canada     |  |   | Mexico    |  |   | Barbados | 
| | -------------------------- | - | ---------- |  | - | --------- |  | - | -------- | 
| | December 31, 2015          | $ | 2,334,000  |  | $ | -         |  | $ | -        | 
| | December 31, 2022          |   | -          |  |   | 447,000   |  |   | -        | 
| | December 31, 2023          |   | -          |  |   | 633,000   |  |   | -        | 
| | December 31, 2025          |   | -          |  |   | -         |  |   | -        | 
| | December 31, 2026          |   | 2,673,000  |  |   | -         |  |   | -        | 
| | December 31, 2027          |   | 3,232,000  |  |   | -         |  |   | -        | 
| | December 31, 2028          |   | 2,226,000  |  |   | -         |  |   | 6,000    | 
| | December 31, 2029          |   | 3,867,000  |  |   | -         |  |   | 12,000   | 
| | December 31, 2030          |   | 5,501,000  |  |   | -         |  |   | 13,000   | 
| | December 31, 2031          |   | 4,526,000  |  |   | -         |  |   | 21,000   | 
| | December 31, 2032          |   | 6,586,000  |  |   | -         |  |   | 12,000   | 
| | December 31, 2033          |   | 8,530,000  |  |   | -         |  |   | 12,000   | 
| |                            | $ | 39,475,000 |  | $ | 1,080,000 |  | $ | 76,000   | 

|e) | Unrecognized deferred tax liabilities:                                                                                                                                                                                                                                                                                            
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                   
|   | As at December 31, 2013, the Company had no taxable
      temporary difference (2012  nil) 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.

- 35 -

---

|Augusta Resource Corporation                                  
|--------------------------------------------------------------
|Notes to the Consolidated Financial Statements                
|For the years ended December 31, 2013 and 2012                
|(All amounts are
      in U.S. dollars unless otherwise noted)

|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, 2013, the Companys non-current assets in
      Canada were $0.3 million (December 31, 2012 - $1.4 million) and in the
      U.S. were $307.3 million (December 31, 2012 - $273.2 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The following table summarizes the net comprehensive loss
      by geographic location for the years ended December 31, 2013 and
    2012:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                        |   | 2013       |   |   | 2012       |  
| | ---------------------- | - | ---------- | - | - | ---------- | -
| | Canada                 | $ | (4,034,675 | ) | $ | (4,709,195 | )
| | U.S.                   |   | (2,461,492 | ) |   | (5,009,682 | )
| | Net comprehensive loss | $ | (6,496,167 | ) | $ | (9,718,877 | )

- 36 -

---