UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 40-F

[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE
ACT OF 1934

OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2014

Commission file number: 001-31739

AURICO GOLD INC.
(Exact Name of Registrant as Specified in its Charter)

Ontario, Canada 1040 Not Applicable
(Province or other jurisdiction of (Primary Standard (I.R.S. Employer Identification No.)
incorporation or organization) Industrial Classification  
 Code) 

110 Yonge Street, Suite 1601
Toronto, Ontario M5C 1T4
(647) 260-8880
(Address and Telephone Number of Registrant’s Principal Executive Offices)

CT Corporation
111 Eighth Avenue, 13th Floor
New York, NY 10011
(212) 894-8800
(Name, address (including zip code) and telephone number (including area code) of agent for service in the United
States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class: Name of Each Exchange On Which Registered:
Common shares, no par value New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

For annual reports, indicate by check mark the information filed with this form:

[X] Annual Information Form [X] Audited Annual Financial Statements

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the Annual Report: 249,648,617 common shares

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes                            [_] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[_] Yes                            [X] No

FORM 40-F

Principal Documents

The following documents, filed as Exhibits 99.1, 99.2, and 99.3 to this Annual Report on Form 40-F, are hereby incorporated by reference into this Annual Report on Form 40-F:

  (a)

Annual Information Form for the fiscal year ended December 31, 2014;

     
  (b)

Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2014; and

     
  (c)

Consolidated Audited Financial Statements as at and for the year ended December 31, 2014 and 2013, including the auditors’ report thereon, prepared under International Financial Reporting Standards as issued by the International Accounting Standards Board.

CAUTIONARY NOTE TO UNITED STATES INVESTORS CONCERNING
RESOURCE AND RESERVE ESTIMATES

The Annual Information Form of AuRico Gold Inc. (the “Corporation” or the “Registrant”), filed as Exhibit 99.1 to this Annual Report on Form 40-F, has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities laws. Unless otherwise indicated, all reserve and resource estimates included in this Annual Report on Form 40-F have been prepared in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum Classification System. The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with NI 43-101. These definitions differ from the definitions in the United States Securities and Exchange Commission (“SEC”) Industry Guide 7 (“SEC Industry Guide 7”) under the United States Securities Act of 1933, as amended. Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority.

In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed by NI 43-101. However, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures.

Accordingly, information contained in this report and the documents incorporated by reference herein containing descriptions of our mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.

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CERTIFICATIONS AND DISCLOSURE REGARDING CONTROLS AND PROCEDURES

(a)

Certifications. See Exhibits 99.4 and 99.5 to this Annual Report on Form 40-F.

   
(b)

Disclosure Controls and Procedures.

As of the end of the period covered by this Annual Report on Form 40-F, an evaluation was carried out under the supervision of and with the participation of the Corporation’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the United States Securities Exchange Act of 1934, as amended). Based on that evaluation, the CEO and the CFO have concluded that as of the end of the period covered by this Annual Report on Form 40-F, the Corporation’s disclosure controls and procedures were effective in ensuring that: (i) information required to be disclosed by the Corporation in reports that it files or submits to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in its reports filed under the Exchange Act is accumulated and communicated to its management, including its CEO and CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.

It should be noted that while the CEO and CFO believe that the Corporation’s disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the Corporation’s disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

(c)

Management’s Annual Report on Internal Control Over Financial Reporting.

The Corporation's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Corporation’s internal control over financial reporting is a process designed by, or under the supervision of, the Corporation’s principal executive officer and principal financial officer and effected by the Corporation’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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 conducted an evaluation of the design and operation of the Corporation’s internal control over financial reporting as of December 31, 2014, and the results are disclosed under the heading “Controls and Procedures” in Management's Discussion & Analysis, filed as Exhibit 99.2 to this Annual Report on Form 40-F.

The effectiveness of the Corporation’s internal control over financial reporting as at December 31, 2014 has been audited by KPMG LLP, as stated in their Report of Independent Registered Public Accounting Firm on the Corporation’s internal control over financial reporting that accompanies the Corporation’s Consolidated Audited Financial Statements for the fiscal year ended December 31, 2014, filed as Exhibit 99.3 to this Annual Report on Form 40-F.

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(d)

Attestation Report of the Registered Public Accounting Firm.

The required disclosure is included in the Report of Independent Registered Public Accounting Firm on the Corporation’s internal control over financial reporting that accompanies the Corporation’s Consolidated Audited Financial Statements for the fiscal year ended December 31, 2014, filed as Exhibit 99.3 to this Annual Report on Form 40-F.

(e)

Changes in Internal Control Over Financial Reporting.

During the period covered by this Annual Report on Form 40-F, there have been no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.

NOTICES PURSUANT TO REGULATION BTR

There were no notices required by Rule 104 of Regulation BTR that the Registrant sent during the year ended December 31, 2014 concerning any equity security subject to a blackout period under Rule 101 of Regulation BTR.

AUDIT COMMITTEE FINANCIAL EXPERT

Ronald Smith has been determined by the Corporation’s Board of Directors to qualify as an “audit committee financial expert”, within the meaning of General Instruction B(8)(b) of Form 40-F and is “independent” within the meaning of the rules of the New York Stock Exchange.

The SEC has indicated that the designation or identification of a person as an audit committee financial expert does not make such person an "expert" for any purpose, impose any duties, obligations or liability on such person that are greater than those imposed on members of the audit committee and the board of directors who do not carry this designation or identification, or affect the duties, obligations or liability of any other member of the audit committee or board of directors.

CODE OF ETHICS

The Corporation has adopted a written Code of Conduct and Ethics that constitutes a “code of ethics” as defined in Form 40-F, and by which it and all directors, officers and employees of the Corporation are required to abide. The Corporation’s Code of Conduct and Ethics is available for viewing on the Corporation’s website at http://www.auricogold.com/corporate-profile/governance/corporate-governance/corporate-policies/default.aspx, and is available to any in print to any shareholder who requests a copy from the Corporate Secretary of the Corporation by contacting the Company by phone at 647-260-8880 or e-mail at info@auricogold.com.

If any amendment to the Code of Conduct and Ethics is made, or if any waiver from the provisions thereof is granted with respect to any of the officers of the Corporation, the Corporation may elect to disclose the information about such amendment or waiver required by Form 40-F to be disclosed, by posting such disclosure on the Corporation’s website, which may be accessed at www.auricogold.com.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The required tabular disclosure is included on page 60 of the Company’s Annual Information Form for the fiscal year ended December 31, 2014, filed as Exhibit 99.1 to this Annual Report on Form 40-F and is incorporated herein by reference.

PRE-APPROVAL POLICIES AND PROCEDURES

The Audit Committee must pre-approve all audit and non-audit services to be provided to the Corporation or its subsidiary entities by the Corporation’s independent auditor. The Audit Committee has delegated to the Chair of the Committee the authority to pre-approve the non-audit services, with such pre-approval presented to the Audit Committee at the next scheduled Audit Committee meeting following such pre-approval. For the fiscal year ended

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December 31, 2014, all audit and non-audit services performed by KPMG LLP were pre-approved by the Audit Committee.

OFF-BALANCE SHEET ARRANGEMENTS

The Corporation does not have any off-balance sheet financing arrangements or relationships with unconsolidated special purpose entities that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The required disclosure has been provided under the heading “Contractual Obligations” in Management’s Discussion and Analysis, filed as Exhibit 99.2 to this Annual Report on Form 40-F.

IDENTIFICATION OF THE AUDIT COMMITTEE

The Corporation’s Board of Directors has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the Corporation’s Audit Committee are identified under the heading “Audit Committee – Composition” in the Corporation’s Annual Information Form, attached hereto as Exhibit 99.1

MINE SAFETY DISCLOSURE

Not applicable.

NEW YORK STOCK EXCHANGE DISCLOSURE

The Corporation’s common shares are listed on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”) and the Corporation also complies with the specific corporate governance requirements of the TSX and NYSE, as they relate to the Corporation. The NYSE permits foreign private issuers to elect not to comply with certain of its corporate governance rules, but requires foreign private issuers to post on the issuer’s website, with a cross-reference included in the issuer’s annual report filed with the SEC, a summary of the significant differences between the NYSE Listed Company Manual corporate governance standards and the practices of the applicable issuer under its home jurisdiction rules. The Corporation’s disclosure of significant corporate governance differences is available at http://www.auricogold.com/corporate-profile/governance/corporate-governance/nyse-statement-of-differences/default.aspx.

Presiding Director at Meetings of Non-Management Directors

The Corporation’s Chairman of the Board is independent and runs in camera sessions following each Board meeting with the other independent directors.

Communication with Independent Directors

Shareholders may send communications to the registrant's independent directors by writing to the Chairman of the Board:

  • In Writing to:

    Chairman of the Board
    AuRico Gold Inc.
    110 Yonge Street, Suite 1601
    Toronto, Ontario M5C 1T4 Canada

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  • By Telephone: (647) 260-8880

  • By email: directors@auricogold.com

Communications will be referred to the Chairman of the Board for appropriate action. The status of all outstanding concerns addressed to the Chairman of the Board will be reported to the Board of Directors as appropriate.

BOARD COMMITTEE MANDATES

The Mandates of the Corporation’s audit committee, human resources committee, nominating and corporate governance committee and sustainability committee are each available for viewing on the Corporation’s website at www.auricogold.com, and are available in print to any shareholder who requests them. Requests for copies of these documents should be made by contacting the Corporation at info@auricogold.com.

UNDERTAKING

The Corporation undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities in relation to which the obligation to file an Annual Report on Form 40-F arises or transactions in said securities.

CONSENT TO SERVICE OF PROCESS

The Corporation filed an Appointment of Agent for Service of Process and Undertaking on Form F-X with respect to the class of securities in relation to which the obligation to file the Form 40-F arises. Any change to the name or address of the agent for service of process will be communicated promptly to the Commission by amendment to Form F-X referencing the Corporation’s file number.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.

AURICO GOLD INC.

By: /s/ Scott Perry                                                    
Name: Scott Perry
Title: President and Chief Executive Officer
Date: February 19, 2015

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EXHIBIT INDEX

99.1

Annual Information Form of the Corporation for the year ended December 31, 2014

99.2

Management’s Discussion and Analysis for the year ended December 31, 2014

99.3

Consolidated Audited Financial Statements, as at and for the year ended December 31, 2014 and 2013, including the auditors’ report thereon, and the auditors' report on the effectiveness of internal control over financial reporting as at December 31, 2014

99.4

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13(a)-14(a) or 15(d)-14 of the Securities Exchange Act of 1934

99.5

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.6

Consent of KPMG LLP, Chartered Accountants

99.7

Consent of Chris Bostwick

99.8

Consent of Jeff Volk

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Exhibit 99.1

 

 

 
 
Annual Information Form

For the year ended December 31, 2014

 

 

February 19, 2015

TABLE OF CONTENTS

FORWARD-LOOKING INFORMATION 3
   
CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING MEASURED, INDICATED AND INFERRED RESOURCES 4
   
CURRENCY AND EXCHANGE RATE INFORMATION 4
   
TECHNICAL INFORMATION 5
   
CORPORATE STRUCTURE 5
   
GENERAL DEVELOPMENT OF THE BUSINESS 6
                   Three Year History 6
   
DESCRIPTION OF THE BUSINESS 8
                   General 8
                   Markets, Sales and Refining 9
                   Competitive Conditions 9
                   Operating Results 9
                   Employees and Labour Relations 10
                   Sustainability Practice 10
                   Environmental Protection and Policies 10
                   Social Policies 11
   
MINERAL PROPERTIES 11
                   Mineral Reserve and Mineral Resource Estimates 12
                   Material Mineral Projects 15
                   Young-Davidson Mine 15
                   El Chanate Mine 21
                   Kemess Underground Project 27
                   Other Mineral Properties 34
   
DIVIDENDS 37
   
DESCRIPTION OF CAPITAL STRUCTURE 37
   
MARKET FOR SECURITIES 38
   
RISK FACTORS 39
   
CORPORATE GOVERNANCE 53
                   Directors 53
                   Officers 55
                   Cease Trade Orders, Bankruptcies, Penalties or Sanctions 58
                   Conflicts of Interest 58
                   Interest of Management & Others in Material Transactions 58
   
AUDIT COMMITTEE 59
                   Audit Committee Mandate 59
                   Composition 59
                   Pre-Approval Policies and Procedures 59
                   External Auditor Service Fees 60
   
MATERIAL CONTRACTS 60
   
LEGAL PROCEEDINGS 60
   
TRANSFER AGENT AND REGISTRAR 60
   
INTERESTS OF EXPERTS 60
   
ADDITIONAL INFORMATION 61
   
SCHEDULE “A” MANDATE OF THE AUDIT COMMITTEE 62

In this Annual Information Form (“AIF”), AuRico Gold Inc., together with its subsidiaries (as the context requires) is referred to as “AuRico”, “AuRico Gold” or the “Company”. All information contained in this AIF is as at December 31, 2014, unless otherwise stated.

FORWARD-LOOKING INFORMATION

This AIF contains certain “forward-looking statements” and “forward-looking information” as defined under applicable Canadian and U.S. securities laws. All statements, other than statements of historical fact, are , or may be deemed to be, forward-looking statements. The words "expect", "believe", "anticipate", "will", "intend", "estimate", "forecast", "budget", "schedule" and similar expressions identify forward-looking statements. Forward-looking statements in this AIF include, without limitation: information as to strategy, plans or future financial or operating performance, such as the Company’s expansion plans, project timelines, production plans, projected cash flows or capital expenditures, cost estimates, mining or milling methods, projected exploration results, resource and reserve estimates and other statements that express management’s expectations or estimates of future performance.

Forward-looking statements are necessarily based upon a number of factors and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to: uncertainty of production and cost estimates; fluctuations in the price of gold; changes in foreign exchange rates (particularly the Canadian dollar, Mexican peso and U.S. dollar); the uncertainty of replacing depleted reserves; the risk that the Young-Davidson and El Chanate mine may not perform as planned; changes in national and local government legislation in Canada, Mexico and other jurisdictions in which the Company may carry on business in the future; risks of obtaining necessary licenses, permits, authorizations and/or approvals from the appropriate regulatory authorities for the Kemess Underground project; contests over title to properties; the speculative nature of mineral exploration and development; risks related to aboriginal title claims; compliance risks with respect to current and future environmental laws and regulations; disruptions affecting operations; business opportunities that may be pursued by the Company; employee relations; availability of and increased costs associated with mining inputs and labor; uncertainty with the Company's ability to secure capital to execute its business plans; volatility of the Company’s share price; any decision to declare a quarterly dividend; the effect of future financings; litigation; risk of loss due to sabotage and civil disturbances; the impact of global liquidity and credit availability and the values of assets and liabilities based on projected future cash flows; risks arising from holding derivative instruments; risks arising from the absence of hedging; adequacy of internal control over financial reporting; changes in our credit rating; and the impact of inflation.

Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this AIF. Such statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions about: general business and economic conditions; commodity prices and the price of key inputs such as labour, fuel and electricity; credit market conditions and conditions in financial markets generally; production levels, development rates and the costs for each; our ability to procure equipment and supplies in sufficient quantities and on a timely basis; the timing of the receipt of permits and other regulatory and governmental approvals for our projects and operations; our ability to obtain, comply with and renew permits in a timely manner; our ability to attract and retain skilled employees and contractors for our operations; the accuracy of our mineral reserve and mineral resource estimates and the geological, development and operational decisions that are derived therefrom; the impact of changes in currency exchange rates on our costs and results; interest rates; tax benefits and tax rates; and our ongoing relations with our employees and business partners.

In particular, forward-looking information included in this document includes, but is not limited to: (1) production estimates and production growth rates, which assume accuracy of projected ore grade, mining rates, recovery timing and recovery rate estimates and may be impacted by unscheduled maintenance, labour and contractor availability; (2) capital expenditures and other cash costs, which assume foreign exchange rates and accuracy of production estimates, and may be impacted by unexpected maintenance, the need to hire external resources and accelerated capital plans; (3) profits and free cash flow, which assume production and expenditure estimates and may be impacted by gold prices, production estimates, and the timing of payments, and (4) reserves and resources which are forward looking statements by their nature involving implied assessment, and may be impacted by metal prices, future drilling results, operating costs, mining recoveries and dilution rates.

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Readers are cautioned that forward-looking statements are not guarantees of future performance. All of the forward-looking statements made in this AIF qualified by these cautionary statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING MEASURED, INDICATED AND INFERRED RESOURCES

Unless otherwise indicated, all reserve and resource estimates included in this AIF have been prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) classification system. NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.

Canadian standards, including NI 43-101, differ significantly from the requirements of the Securities and Exchange Commission (“SEC”) and reserve and resource information included herein may not be comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of the foregoing, this document uses the terms “measured resources,” “indicated resources” and “inferred resources”. Investors are advised that, while such terms are recognized and required by Canadian securities laws, the SEC does not recognize them. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves reported by the Company in compliance with NI 43-101 may not qualify as “reserves” under SEC standards. Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. U.S. investors are cautioned not to assume that any part of a “measured resource” or “indicated resource” will ever be converted into a “reserve”. U.S. investors should also understand that “inferred resources” have a great amount of uncertainty as to their existence and as to their economic and legal feasibility. It cannot be assumed that all or any part of “inferred resources exist, are economically or legally mineable or will ever be upgraded to a higher category. Under Canadian rules, estimated “inferred resources” may not form the basis of feasibility or pre-feasibility studies except in rare cases. In addition, disclosure of “contained ounces” in a mineral resource is permitted disclosure under Canadian regulations. However, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade, without reference to unit measures. Accordingly, information concerning mineral deposits set forth in this AIF may not be comparable with information made public by companies that report in accordance with U.S. standards.

CURRENCY AND EXCHANGE RATE INFORMATION

All currency amounts in this AIF for the financial year ended December 31, 2014 are expressed in United States dollars (“USD”), unless otherwise indicated. References to “CAD” are to Canadian dollars, and references to “Pesos” are to Mexican Pesos. For CAD to USD, the average exchange rate for 2014 and the exchange rate at December 31, 2014 were 1.10 and 1.16 CAD per one USD, respectively, calculated at the Bank of Canada daily noon rate. For Pesos to USD, the average exchange rate for 2014 and the exchange rate at December 31, 2014, were 13.30 and 14.75 Pesos per one USD, respectively. The consolidated financial statements of the Company for the financial year ended December 31, 2014 have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. The consolidated financial statements for the financial year ended December 31, 2014 are available electronically from the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and from the U.S. Securities and Exchange Commission’s (the “SEC”) Electronic Document Gathering and Retrieval System at www.sec.gov.

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TECHNICAL INFORMATION

Unless otherwise indicated, scientific or technical information in this AIF relating to mineral reserves or mineral resources is based on information prepared by employees of AuRico or its joint venture partners, as applicable, and the scientific and technical information in this AIF has been reviewed and approved by Chris Bostwick, FAusIMM, Senior Vice President for AuRico Gold Inc. Mr. Bostwick is a Qualified Person under NI 43-101, but he is not “independent” of AuRico within the meaning of the instrument.

CORPORATE STRUCTURE

AuRico Gold Inc. has its registered and executive office located at 110 Yonge Street, Suite 1601, Toronto, Ontario, M5C 1T4. The Company’s common shares are listed on the Toronto Stock Exchange (TSX: AUQ) and the New York Stock Exchange (NYSE: AUQ).

The Company is governed by the Business Corporations Act (Ontario) (the “OBCA”). The Company was incorporated under Part 1A of the Companies Act (Quebec) on February 25, 1986 under the name Golden Rock Explorations Inc. By Articles of Amendment dated April 17, 1998, the Company changed its name to Gammon Lake Resources Inc., and consolidated its common shares on a 15:1 basis. By Articles of Amendment dated June 7, 2007, the Company changed its name to Gammon Gold Inc. By Articles of Amendment dated June 9, 2011, the Company changed its name to its current name, AuRico Gold Inc., and by Articles of Continuance dated August 26, 2011, the Company changed its province of jurisdiction to Ontario. AuRico was amalgamated with Northgate Minerals Corporation (“Northgate”) under the OBCA pursuant to Articles of Amalgamation dated October 31, 2011.

The following chart lists the Company’s material subsidiaries and assets. The percentage ownership is indicated for each entity.

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GENERAL DEVELOPMENT OF THE BUSINESS

Three Year History

The following is a summary of key developments over the past three years:

2012

  • Credit Facility – On April 25, 2012, the Company increased its revolving credit facility to $250 million.

  • Sale of Stawell and Fosterville – In May 2012, the Company completed the sale of the Stawell and Fosterville mines to Crocodile Gold Corporation (“Crocodile”) for consideration consisting of CAD$55 million in cash, CAD$10 million in shares of Crocodile and potential participation in future free cash flows from the mines.

  • Sale of El Cubo – In July 2012, the Company completed the sale of the El Cubo mine and the Guadalupe y Calvo project to Endeavour Silver Corporation (“Endeavour”) for consideration consisting of $100 million in cash, $100 million in shares of Endeavour and up to $50 million in future contingent payments.

  • Commercial Production at Young-Davidson – On September 1, 2012, the Young-Davidson open pit mine declared commercial production, having achieved previously established commissioning thresholds. The commissioning thresholds included a 30-day period whereby the mill throughput averaged at least 5,100 tonnes per day (subsequent to the commissioning of the flotation and gravity circuits) and the open pit averaging 29,750 tonnes per day of ore and waste mining.

  • Litigation Settlement – On October 5, 2012, the Company reached an agreement to settle a class action initiated in 2008 by Edward J. McKenna. The settlement did not contain any admission of wrongdoing and provided for the payment by the Company of $13.3 million which was largely offset by an insurance receivable.

  • Sale of Equity Interests – In October 2012, the Company sold its equity interests in Endeavour Silver Corporation and Crocodile Gold Corporation on a block trade basis for gross proceeds of $104.6 million.

  • Sale of Ocampo – On December 14, 2012, the Company completed the sale of the Ocampo mine and the Venus and Los Jarros exploration properties, as well as a 50% interest in the Orion development project, to Minera Frisco, S.A.B. de C.V. (“Minera Frisco”), for cash consideration of $750 million. The Company retained a 50% interest over the Orion project and is now a joint venture partner with Minera Frisco with respect to this project.

2013

  • Substantial Issuer Bid – On January 29, 2013, the Company announced the successful repurchase and cancellation of 36,144,578 common shares at a price of $8.30 per share under the Company’s ‘modified Dutch auction’ substantial issuer bid, for a total purchase price of $300 million.

  • Credit Facility – On January 31, 2013, the Company completed an amendment to the revolving credit facility, which reduced the borrowing capacity from $250 million to $150 million. The amended credit facility carries the same interest rate and terms as the previous facility.

  • Dividend Policy – On February 21, 2013, the Company announced an inaugural dividend policy, whereby the Company paid a dividend of $0.16 per share in 2013 (payable quarterly). Subsequent to 2013, the Company’s dividend is linked to operating cash flow, whereby the Company pays a total dividend of 20% of the operating cash flow generated in the preceding quarter.

 6

  • Kemess Underground Project – On March 25, 2013, the Company reported a 2012 Mineral Reserve & Mineral Resource update and the results of a feasibility study for the Kemess Underground Project, which added 1.8 million ounces to the Company’s consolidated proven and probable gold reserves. The feasibility study outlined the development of an underground block cave operation with average annual production of 105,000 ounces of gold and 44 million pounds of copper at cash costs of $213 per ounce of gold, net of by-product credits, over a mine-life of approximately 12 years.

  • Dividend Reinvestment Plan – On June 11, 2013, the Company announced that its Board of Directors had approved the introduction of a dividend reinvestment plan, effective June 10, 2013. Common shares issued under this plan are issued at a 5% discount from the average market price of the common shares over the five day period preceding the relevant dividend payment date.

  • Appointment of Non-Executive Chairman – On June 27, 2013, the Company announced that Mr. Alan Edwards had been appointed as non-executive Chairman of the Board of Directors effective July 1, 2013. This appointment followed the resignation, for health reasons, of Mr. Colin Benner as Executive Chairman.

  • Underground Commercial Production at Young-Davidson – On October 31, 2013, the Company announced that the Young-Davidson underground mine had achieved commercial production. Commissioning of the shaft hoisting infrastructure was a key project milestone that unlocked the potential of the Young-Davidson underground mine by supporting increased underground productivities and favourable unit cost efficiencies over the life of the mine.

2014

  • Issuance of Senior Secured Notes – On March 27, 2014, the Company completed an offering of $315 million senior secured notes due in 2020. The notes were issued with a coupon of 7.75% and sold at 96.524% of par, resulting in net proceeds to the Company of $304.1 million. The completion of this offering enabled the Company to extend the maturity date of outstanding debt and provided additional cash for general corporate purposes, which may include funding capital expenditures to support organic growth.

  • Redemption of Convertible Senior Notes – On April 3, 2014, the Company paid $173 million to complete the cash tender offer initially announced on March 6, 2014 to redeem all of the outstanding convertible senior notes. The consideration offered and paid was $1,040 per $1,000 note outstanding plus accrued and unpaid interest to the payment date. The Company received tender offers for $166.4 million of the $167 million principal amount outstanding.

  • Closure of Young-Davidson open pit mine – In June 2014, the Company ceased mining of the Young- Davidson open pit mine upon depletion of the in-situ reserve. While the mining of the open pit has ceased, the Company has established a sizeable stockpile of open pit ore that will be used to augment underground production until the underground mine can provide the entire mill feed.

  • Investment in Carlisle Goldfield Limited – On November 20, 2014, the Company completed a private placement with Carlisle Goldfields Limited (“Carlisle”) in which the Company invested CAD $5.6 million in exchange for 19.9% of the outstanding common shares of Carlisle. In conjunction with the private placement, the Company entered into a joint venture agreement on November 11, 2014 with respect to Carlisle’s Lynn Lake Gold Camp, located in Lynn Lake, Manitoba, pursuant to which the Company acquired a 25% interest in the project for an initial cash contribution of CAD $5.0 million.

 7

2015

  • Amendment of Crocodile Purchase and Sale Agreement – On January 14, 2015, the Company finalized an agreement to terminate the deferred cash payment arrangement included as part of the consideration received upon the sale of the Fosterville and Stawell mines in 2012 to Crocodile. As consideration for this termination, the Company received CAD $20 million in cash and net smelter royalties on future production from the Fosterville and Stawell mines of 2% and 1%, respectively.

  • Kemess East Project – On January 21, 2015, the Company announced an initial NI 43-101 compliant indicated resource of 2.1 million gold equivalent ounces and an inferred resource of 3.4 million gold equivalent ounces at the Kemess East deposit, located one kilometre east of the previously delineated Kemess Underground deposit and 6.5 kilometres north of the Kemess mill facility. The Kemess Property is located in north-central British Columbia, Canada, approximately 430 kilometres northwest of Prince George.

DESCRIPTION OF THE BUSINESS

General

AuRico Gold Inc. is a Canadian gold producer with mines and projects in North America and a head office in Toronto, Ontario. The Company’s core operations include the Young-Davidson mine in Ontario, Canada, and the El Chanate mine in Sonora, Mexico. The Company’s project pipeline also includes advanced exploration opportunities in Mexico and Canada.

AuRico – Property Locations

The profitability and operating cash flow performance of the Company are affected by numerous factors, including the price of gold, foreign exchange rates, production levels, capital expenditures, and operating performance. While the Company attempts to manage these and other risks, many of the factors affecting these risks are beyond the Company’s control. For additional information on factors that may affect the Company, see the Forward-Looking Information disclosure at the beginning of this document and the discussion of risks and uncertainties under the heading entitled “Risk Factors”.

8

Product fabrication and bullion investment are the two principal uses of gold. The introduction of more readily accessible and more liquid gold investment vehicles (such as gold exchange traded funds) has further facilitated investment in gold. Within the fabrication category, there are a wide variety of end uses, the largest of which is the manufacture of jewelry. Other fabrication purposes include coins, electronics, miscellaneous industrial and decorative uses, dentistry, medals, and medallions.

Markets, Sales and Refining

The Company produces doré bars at its mine sites, which are sent to third parties for refining. Gold can be readily sold on markets throughout the world and market price can be easily ascertained at any particular time. The Company is not dependent upon any one customer or group of customers for the sale of gold. During 2014, the price of gold averaged $1,266 per ounce, a 10% decrease from the London PM Fix average of $1,411 during 2013. During 2014, daily London PM Fix prices ranged between $1,142 and $1,385 per ounce.

Competitive Conditions

Competition in the precious metals mining industry is primarily for: (i) mineral properties that can be developed and produced economically; (ii) technical experts that can find, develop, and mine such properties; (iii) labour to operate the properties; and (iv) capital to finance operations.

The Company competes with other mining and exploration companies in the acquisition of mining claims and leases and in connection with the recruitment and retention of qualified employees. There is significant competition for mining claims and leases. Many larger competitors conduct business globally and thus have greater financial and technical resources available to them.

Operating Results

The following table is a summary of the Company’s annual financial and operating results for the fiscal year ended December 31, 2014:

(in thousands, except ounces, per share amounts, total cash costs and total all-in sustaining costs)
    Year Ended  

 

  December 31, 2014  

Gold ounces produced

  224,032  

Gold ounces sold

  227,966  

Revenue from mining operations

$  291,182  

Loss from operations (3)

$  (154,705 )

Net loss (3)

$  (169,648 )

Net loss per share, basic

$  (0.68 )

Total cash

$  89,031  

Operating cash flow

$  60,414  

Net free cash flow(1)

$  (128,415 )

Cash costs per gold ounce sold, net of by-product revenues and NRV adjustments(1)(2)

$  779  

All-in sustaining costs per gold ounce sold, net of by-product revenues and NRV adjustments(1)(2)

$ 1,200  
Notes:
1. See the Non-GAAP Measures section on page 22 of the Management’s Discussion and Analysis for the year ended December 31, 2014.
2. For further discussion on the net realizable value (“NRV”) adjustments recognized on ore in-process inventories at the El Chanate and Young-Davidson mines during the year, refer to pages 7 and 9 of the Management’s Discussion and Analysis for the year ended December 31, 2014.
3. Loss from operations and net loss include a $90 million impairment charge on the El Chanate cash generating unit for the year ended December 31, 2014.

9

Employees and Labour Relations

As at December 31, 2014, the Company had 704 direct full-time employees, and 553 individuals employed on a contract basis.

The nature of the Company’s business requires specialized skills and knowledge. The Company operates large mining operations in Canada and Mexico which requires technical expertise in the areas of geology, engineering, mine planning, metallurgical processing, mine operations, and environmental compliance. Despite generally good labour relations, competition for skilled workers in the resource sector results in employee turnover at the Company’s operations and a need to constantly recruit and train new employees. This competition for qualified employees occasionally results in workforce shortages, which can often be supplemented with more costly contract labour.

Sustainability Practice

The Company has adopted a Sustainability Management System (“SMS”), which is a set of management processes aligned to recognized international standards to help AuRico continuously improve its environmental, economic and social sustainability performance. The purpose of the SMS is to provide a consistent approach to sustainability management across all of the operations.

A central element to SMS is the AuRico Sustainability Charter, which establishes the overarching vision for sustainable management within AuRico and is supported by three core policies:

  1.

Health & Safety Policy
  2.

Environmental Policy
  3.

Corporate Social Responsibility Policy

Sustainable practices are important because they help ensure quality of life for the workforce, the communities in which the Company operates and future generations. AuRico also believes that sustainable business practices are a part of its social license to operate.

Each mine site must develop and implement a SMS that is consistent with these policies and the Sustainability Charter and the principles contained within the framework. Once implemented, compliance with this standard is mandatory. Annual performance reviews take into account the quality of a site’s SMS and steps taken to enhance compliance with both the processes and procedures in the SMS and the spirit of sustainable practices.

The Company’s Board of Directors has established a Technical and Sustainability Committee that, as part of its mandate, is responsible for reviewing sustainability, environmental, health and safety policies and programs of the Company and overseeing AuRico’s performance in these areas. The Technical and Sustainability Committee reports to the Board of Directors on a regular basis.

Having a common set of principles to manage sustainable business practices helps reduce risks to the business. By tailoring these principles to the specific needs and issues facing each operation, the site SMS is flexible enough to meet local requirements relating to health, safety, environment, and the community.

On an annual basis, the Company publishes a Sustainability Report on its website summarizing the Company’s environmental, health, safety, and social programs and performance at its operations, which can be accessed at the following link: http://www.auricogold.com/responsibility/sustainability-reports/default.aspx.

Environmental Protection and Policies

The Company’s mining and exploration activities are subject to various governmental laws and regulations relating to the protection of the environment. Environmental regulations are continually changing, and the Company continues to make the necessary adjustments to comply with such laws and regulations.

10

The Company will be obliged to carry out site reclamation on its current properties at the end of their mine life and expects to be able to finance these activities from the revenue generated by such projects. In addition, as at December 31, 2014, the Company had $16 million in restricted cash in place, relating to site closure and reclamation obligations at the former producing Kemess South property.

Reclamation provisions are recognized at the time an environmental disturbance occurs and are measured at the Company’s best estimate of the expected value of future cash flows required to reclaim the disturbance upon mine closure, which are discounted to their present value for each mine operation.

Social Policies

With a total of 1,257 employees and contractors, the Company and its subsidiaries play an important role in the economic life of its stakeholders. Wages, taxes and royalties have a positive impact on the lives of the Company’s employees and in the communities where the Company operates. AuRico sources goods and services used in operations from the local, regional and national business communities in Mexico and Northern Ontario, Canada, which provides significant economic benefit to the region.

The Company has a significant social impact on the communities adjacent to its operations. AuRico strives to be a good neighbor and corporate citizen by both actively contributing to local community life and by ensuring that local stakeholders have an opportunity for input and dialogue. The Company achieves this through continual community communications and the development of healthy relationships between the site and the community personnel. Each site is responsible for engaging with local stakeholders, identifying areas of concern, and relaying those concerns to management.

The Company entered into Impact Benefit Agreements with the Matachewan First Nation on July 2, 2009 and with the Temagami First Nation / Teme Augama Anishnabai on July 14, 2012, as the Young-Davidson mine is situated in Ontario, Canada within the traditional territory of these two First Nations. On June 22, 2012, the Company signed an Interim Measures Agreement with the Tse Key Nay, a group comprised of three aboriginal groups whose traditional territories overlap the Kemess project location in British Columbia, Canada: the Kwadacha, Tsay Keh Dene, and Takla Lake. Among other things, the agreement addresses project permitting, environmental studies, business opportunities, employment, and training.

MINERAL PROPERTIES

At December 31, 2014, AuRico’s total proven and probable gold mineral reserves were 6.3 million gold ounces, a 0.2 million ounce decrease from 2013. This decrease in proven and probable mineral reserves is attributable to a combination of depletion at the Company’s operating mines and a reduction in slope angles at the El Chanate open pit. Company’s mineral reserve and mineral resource estimates have been estimated as at December 31, 2014 in accordance with definitions adopted by the Canadian Institute of Mining, Metallurgy and Petroleum and incorporated into NI 43-101. U.S. readers should refer to the Cautionary Note to U.S. Investors Concerning Measured, Indicated and Inferred Resources on page 4 of this AIF.

The Company’s normal data verification procedures have been employed in connection with the calculations contained herein. Sampling, analytical and test data underlying the stated mineral resources and reserves have been verified by employees of AuRico or its joint venture partner, as applicable, under the supervision of qualified persons, and/or independent qualified person. Verification procedures include industry standard quality control practices. For details of data verification and quality control practices at each material property please see “Mineral Properties”.

Although the Company has carefully prepared and verified the mineral reserve figures presented below and elsewhere in this AIF, such figures are estimates, which are, in part, based on forward-looking information and certain assumptions, and no assurance can be given that the indicated level of mineral will be produced. Estimated reserves may have to be recalculated based on actual production experience. Market price fluctuations of gold, copper and silver, as well as increased production costs or reduced recovery rates and other factors, may render the present proven and probable reserves unprofitable to develop at a particular site or sites. See “Risk Factors” and “Forward-Looking Information” for additional details concerning factors and risks that could cause actual results to differ from those set out below.

11

Mineral Reserve and Mineral Resource Estimates

The following tables set forth the estimated mineral reserves and mineral resources attributable to interests held by AuRico for each of its material and non-material properties as at December 31, 2014:

Mineral Reserve Estimates - Gold
   

Category

Tonnes Grade Ounces
    (000s) (g/t) (000s)
  Surface Proven 2,501 0.76 61
    Probable - - -
    P&P 2,501 0.76 61
Young-Davidson Underground Proven 12,499 2.83 1,137
    Probable 30,274 2.70 2,626
    P&P 42,773 2.74 3,763
  Total Young-Davidson P&P 45,273 2.63 3,823
    Proven 18,255 0.80 472
El Chanate Probable 8,958 0.60 174

 

 Total El Chanate P&P 27,213 0.74 646
    Proven - - -
Kemess Underground Probable 100,373 0.56 1,805

 

 Total Kemess P&P 100,373 0.56 1,805
AuRico Total P&P 172,860 1.13 6,274

12

Mineral Resource Estimates - Gold
    Category Tonnes Grade Ounces
    (000s) (g/t) (000s)
Young-Davidson Surface Measured 496 1.13 18
Indicated 1,242 1.28 51
M&I 1,739 1.24 69
Underground Measured 7,855 3.28 829
Indicated 6,090 3.07 601
M&I 13,946 3.19 1,430
Total Young-Davidson M&I 15,684 2.97 1,499
Surface Inferred 31 0.99 1
Underground Inferred 3,608 2.76 320
Total Young-Davidson Inferred 3,639 2.75 321
El Chanate   Measured 923 0.58 17
  Indicated 1,842 0.87 52

Total El Chanate

M&I 2,764 0.77 69
Inferred 184 0.38 2
Kemess Underground   Measured - - -
  Indicated 65,432 0.41 854

Total Kemess Underground

M&I 65,432 0.41 854
Inferred 9,969 0.39 125
Kemess East   Measured - - -
  Indicated 55,864 0.52 939

Total Kemess East

M&I 55,864 0.52 939
Inferred 117,152 0.38 1,424
Lynn Lake (25%) MacLellan Measured 3,753 1.99 240
Indicated 4,344 1.75 244
M&I 8,096 1.86 484
Inferred 475 2.01 31
Farley Lake Measured - - -
Indicated 1,479 3.21 153
M&I 1,479 3.21 153
Inferred 1,091 2.87 101
Burnt Timber Measured - - -
Indicated 255 1.40 11
M&I 255 1.40 11
Inferred 5,860 1.04 195
Linkwood Measured - - -
Indicated 246 1.16 9
M&I 246 1.16 9
Inferred 5,251 1.16 196

  Total Lynn Lake

M&I 10,076 2.03 657
Inferred 12,676 1.28 522
Orion (50%)   Measured - - -
  Indicated 554 3.66 65
Total Orion M&I 554 3.65 65
Inferred 91 3.33 10
AuRico Total   M&I 150,373 0.84 4,083
  Inferred 143,711 0.52 2,404

Mineral Reserve and Resource Estimates - Copper and Silver
        Grade Contained Metal
    Tonnes Cu Ag Cu Ag
  Category (000s) (%) (g/t) (000s) lbs (000s) oz
Kemess Underground Probable Reserves 100,373 0.28 2.0 619,151 6,608
Indicated Resources 65,432 0.24 1.8 346,546 3,811
Inferred Resources 9,969 0.21 1.6 46,101 503
Kemess East Indicated Resources 55,864 0.41 2.0 503,663 3,601
Inferred Resources 117,152 0.34 1.8 871,407 6,739
Orion (50%) Indicated Resources 554 - 309 - 5,503
Inferred Resources 91 - 95 - 275

13

Notes to Mineral Reserve and Resource tables:

  •  
    		•

    Mineral Reserves and Resources have been stated as at December 31, 2014.

  •  
    		•

    Mineral Resources are exclusive of Mineral Reserves. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.

  •  
    		•

    El Chanate and Young-Davidson assumed a gold price of $1,250 per ounce for reserves and $1,450 per ounce for resources.

  •  
    		•

    Kemess Underground assumed a gold price of $1,300 per ounce, a silver price of $23.00 per ounce for silver, and a copper price of $3.00 per pound for reserves. Kemess Underground assumed a $13.00 NSR cutoff for resources. Kemess East assumed a $15.00 NSR cutoff for resources.

  •  
    		•

    Lynn Lake assumed a gold price of $1,555 per ounce for resources.

  •  
    		•

    Orion assumed a gold price of $850 per ounce and a silver price of $13.00 per ounce for resources.

  •  
    		•

    Mineral Reserves assume the following cutoff grades and process recoveries:

  •  
    		•

    Young-Davidson: Surface: 0.50 grams per tonne cutoff, 91% mill recovery

  •  
    		•

    Young-Davidson: Underground: 1.90 grams per tonne cutoff, 91% mill recovery

  •  
    		•

    El Chanate: 0.15 grams per tonne cutoff, 30%-65% leach recovery

  •  
    		•

    Kemess Underground: $15 NSR cutoff, mill recovery of 72% for gold and 91% for copper

  •  
    		•

    The Company’s Mineral Reserve and Mineral Resource estimates are classified in accordance with CIM’s “CIM Definition Standards – For Mineral Resources and Mineral Reserves” in accordance with the requirements of NI 43-101, as required by Canadian securities regulatory authorities. In addition, while the terms “Measured”, “Indicated and “Inferred” Mineral Resources are required pursuant to NI 43-101, the SEC does not recognize such terms. Canadian standards differ significantly from the requirements of the SEC, and mineral resource information contained herein is not comparable to similar information regarding mineral reserves disclosed in accordance with the requirements of the SEC. Investors should understand that “Inferred” Mineral Resources have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. In addition, investors are cautioned not to assume that any part or all of AuRico’s Mineral Resources constitute or will be converted into Reserves.

  •  
    		•

    Orion Mineral Resources are reflected on a 50% basis. Minera Frisco, S.A.B. de C.V. has a 50% interest in the Orion project.

  •  
    		•

    Lynn Lake Mineral Resources are reflected on a 25% basis. Carlisle Goldfields Ltd. has a 75% interest in the Lynn Lake project.

  •  
    		•

    Mineral Reserve and Resource tonnage and contained metal have been rounded to reflect the accuracy of the estimate, and numbers may not add due to rounding.

  •  
    		•

    Mineral Resources were prepared under the supervision of Jeffrey Volk, CPG, FAusIMM, the Director of Reserves and Resources, for AuRico Gold Inc. Mineral Reserves were prepared under the supervision of Chris Bostwick, FAusIMM, the Senior Vice President Technical Services, for AuRico Gold Inc. Both Messrs. Volk and Bostwick are “Qualified Persons” as defined by NI 43-101.

    The following table presents a year-over-year reconciliation of Mineral Reserves based on contained metal:

      Mineral       Mineral
      Reserves Processed Increase /  Reserves
      31-Dec-13 in 2014 (Decrease) 31-Dec-14
    Gold (000s ounces)        
    El Chanate 1,023 143 (234) 646
             
    Young-Davidson - Surface 140 51 (29) 61
             
    Young-Davidson - Underground 3,556 127 334 3,763
             
    Kemess Underground 1,805 0 0 1,805
             
    Copper (000s lbs)        
    Kemess Underground 619,151 0 0 619,151

    		14

    Material Mineral Projects

    For the purposes of this AIF, the Company has identified its Young-Davidson mine, El Chanate mine and Kemess Underground Project as material projects. The following is a description of these material projects.

    Young-Davidson Mine

    The Young-Davidson gold mine is located near the town of Matachewan, approximately 60 kilometres west of Kirkland Lake in Northern Ontario. The property consists of contiguous mineral leases and claims totalling 11,000 acres and is situated on the site of two past producing mines that produced almost one million ounces from 1934-1957.

    The Company owns 100% of the mineral rights to all of the mineral resource related claims at the former Young-Davidson mine and the adjoining Matachewan Consolidated Mines Limited Mine (the “MCM Mine”), which together comprise the modern day Young-Davidson Mine. The Company also holds the mineral rights to 200 tenures from mining leases to exploration claims covering 4,734 hectares surrounding and including the Young-Davidson Mine. The contiguous claim block that covers the Young-Davidson Mine, is hereinafter referred to as “Young-Davidson”.

    Property Description and Location

    Young-Davidson is located immediately west of the village of Matachewan, Ontario, and approximately 60 kilometres west of the town of Kirkland Lake, Ontario. Young-Davidson is comprised of 200 tenures related to mining claims, mining leases, patents, and licenses of occupation that were acquired either through staking, application, or option agreements. Collectively, it is subject to nine separate agreements with different obligations and royalties for each agreement. Based on the currently defined mineral reserves and resources, the only royalties to apply are:

      (i)

    a sliding scale royalty held by Matachewan Consolidated Mines Limited that relates to the eastern portion of the open pit and a small portion of the underground resource, which together total approximately 1,000,000 tonnes; and
       
      (ii)

    a per ton royalty held by the Welsh Estate that affects almost 424,000 tonnes.

    Through these agreements the Company controls sufficient surface rights to cover the sites required for all project buildings and fixed installations for the life of mine. AuRico believes it has all of the necessary surface rights to dispose of waste rock and tailings on additional areas of the property. AuRico’s land ownership and mineral tenures are registered with the Government of Ontario. All permits required to operate the mine are currently in place.

    As Young-Davidson was the site of two former producing gold mines there is existing surface disturbance in the form of old workings, building foundations and tailings sites. Although there is no clean up order on these sites, AuRico designed infrastructure to incorporate these sites where possible so that they are remediated as part of the mine closure plan.

    Other than as described above, the Company is not aware of any rights, agreements or encumbrances to which Young-Davidson is subject, which would adversely affect the value of the property or AuRico’s ownership.

    The Company entered into Impact Benefit Agreements with the Matachewan First Nation on July 2, 2009 and with the Temagami First Nation / Teme Augama Anishnabai on July 14, 2012, as the Young-Davidson mine is situated within the traditional territory of these two First Nations.

    		15

    Young-Davidson Property Location

    Accessibility, Climate, Local Resources, Infrastructure and Physiography

    Young-Davidson is located in northern Ontario, Canada, centrally located between Timmins, Kirkland Lake, North Bay and Sudbury, each of which have businesses that service the mining industry. The property is accessed by paved Highway 566, 5 kilometres west of the town of Matachewan.

    The daily average mean temperature in nearby Kirkland Lake, Ontario is 1.7°C. The extreme maximum recorded temperature is 38.9°C and the extreme minimum temperature is -47°C. The average annual precipitation is 884 millimetres, comprising 590 millimetres as rainfall and 294 millimetres as snowfall. Given this climate, exploration and mining development activities can be carried out at all times of the year.

    The surface rights possessed by the Company are sufficient for mining operations, availability of sources of power, water, mining personnel, potential tailings storage areas, potential waste disposal areas and potential processing plant sites. Electricity is provided from the provincial grid through a transmission line that was upgraded by the Company prior to commercial production.

    The property is typical of northern Ontario with forest covered low rolling hills, small lakes and wetlands with numerous gravel roads providing access to all areas of the property. Average elevation on the property is 330 metres above sea level.

    History

    The initial discovery of gold in the project area was made by prospector Jake Davidson in 1916 on what became the former Young-Davidson mine. This sparked a staking rush that resulted in a second discovery by Samuel Otisse on what became the MCM Mine property. Surface prospecting, trenching and outcrop stripping continued intermittently for the next seventeen years on both properties. During this time a joint venture was established between Hollinger Corporation and Young-Davidson Mines Limited and underground mine production was initiated in 1934 and continued until 1957, over which time a total of 5.6 million tonnes were mined producing 585,690 ounces of gold (3.22 g/t recovered grade). Production from the MCM Mine property over the period 1934-1954 totaled 3.2 million tonnes, and 378,101 ounces of gold (3.67 g/t recovered grade). Following closure of the mines, the properties remained dormant until 1980 at which time Pamour Mines concluded option/joint venture agreements on both properties with the aim of establishing an open pit operation. Approximately 96,000 tonnes of ore were mined and trucked to the Pamour mill facility east of Timmins.

    		 16

    In 1995, Royal Oak Mines Inc. (“Royal Oak”), a successor company to Pamour Mines, initiated extensive diamond drilling to define an open pit resource, initiated shaft dewatering with a view to underground exploration, conducted shaft rehabilitation as well as engineering studies and environmental assessment studies with a view to re-opening the mines. Following the bankruptcy of Royal Oak Mines, the property was dormant for several years before being acquired by a private company in 2000. This private company undertook limited exploration and, in 2002, vended the asset into Young-Davidson Mines Limited, the same company that had discovered the property. Young-Davidson Mines Limited re-initiated exploration with 9,312 metres of drilling in 58 diamond drill holes.

    In late 2005, Northgate Minerals Corporation (“Northgate”) amalgamated with Young-Davidson Mines Limited through a Plan of Arrangement, and proceeded with surface exploration, particularly diamond drilling, environmental and engineering studies and underground exploration and development.

    In 2011, AuRico acquired Northgate, which included Young-Davidson.

    Geological Setting and Mineralization

    Young-Davidson is situated within the southwestern part of the Abitibi Greenstone Belt. The Abitibi Greenstone Belt consists of a complex and diverse array of volcanic, sedimentary, and plutonic rocks typically metamorphosed to greenschist facies grade, but locally attaining amphibolite facies grade. Volcanic rocks range in composition from rhyolitic to komatiitic and commonly occur as mafic to felsic volcanic cycles. Sedimentary rocks consist of both chemical and clastic varieties and occur as both intravolcanic sequences and as uncomformably overlying sequences. A wide spectrum of mafic to felsic, pre-tectonic, syn-tectonic and post-tectonic intrusive rocks are present. All lithologies are cut by late, generally northeast-trending proterozoic diabase dikes.

    The Abitibi Greenstone Belt rocks have undergone a complex sequence of deformation events ranging from early folding and faulting through later upright folding, faulting and ductile shearing resulting in the development of large, dominantly east-west trending, crustal-scale structures that form a lozenge-like pattern. The regional Larder Lake-Cadillac Fault Zone (“LLCFZ”) cuts across the Young-Davidson project area. The LLCFZ has a sub-vertical dip and generally strikes east-west. The LLCFZ is characterized by chlorite-talc-carbonate schist and the deformation zone can be followed for over 120 miles from west of Kirkland Lake to Val d’Or.

    There are three important groups of archean sedimentary rocks in the district. The oldest are Pontiac Group quartz greywacke and argillite, which occur as thick assemblages in Québec, while interbedded within the Larder Lake Group volcanic rocks are turbiditic siltstones and greywackes of the Porcupine Group. Uncomformably overlying is Timiskiming Group Conglomerate, turbidite and iron formation with minor interbedded alkalic volcaniclastic units.

    Archean intrusive rocks are numerous in the district but are largely manifested as small stocks, dikes and plugs of augite syenite, syenite and feldspar porphyry occurring in close temporal and spatial association with the distribution of Timiskiming Group sediments. The main syenite mass, which hosts most of the gold mineralization on Young-Davidson, measures almost 3,000 ft. east-west by 1,000 ft. north-south.

    Huronian proterozoic sedimentary rocks onlap and define the southern limit of the Abitibi in Ontario. In the project area these rocks are correlative to the Gowganda Formation tillite. Post-Archean dike rocks include Matachewan diabase and younger Nipissing diabase, which respectively bracket the Huronian unconformity in the project area.

    		17

    Essentially all of the historical production at the former Young-Davidson Mine and approximately 60% of the production from the MCM Mine was from syenite-hosted gold mineralization. Most of the current open pit and underground resources are also related to syenite-hosted gold. The syenite-hosted gold mineralization consists of a stockwork of quartz veinlets and narrow quartz veins, rarely greater than a few inches in thickness, situated within a broader halo of disseminated pyrite and potassic alteration. Visible gold is common in the narrower, glassy-textured quartz veinlets. In general, gold grades increase with quartz veinlet abundance, pyrite abundance, and alteration intensity. Mineralized areas are visually distinctive and are characterized by brick red to pink K-feldspar-rich syenite containing two to three percent disseminated pyrite and several orientations of quartz extension veinlets and veins. The quartz veins and veinlets commonly contain accessory carbonate, pyrite, and feldspar.

    Drilling

    Since the discovery of gold in the project area until October 14, 2008 a total of 293,774 metres of surface and underground diamond drill holes were completed. With the exception of the holes pre-dating 1980 (324 holes, 20,236 metres), all of the drill logs have been preserved. All holes have been plotted on historic records and these hole traces and assays have now been entered into the database. All holes since 1988 have been surveyed for their collar co-ordinates and it is assumed that all pre-1988 underground hole collars were surveyed as per industry practice at the time of production. Since 1980 all holes have been down hole surveyed using a tropari instrument or acid test and since 2006 all drill holes have been surveyed using FLEXIT and/or a gyroscopic instrument in order to measure down hole deviation.

    Underground drill holes were AQ core (27 mm diameter) as was the practice of the day, surface holes pre-dating the Company were, with one exception, BQ core (36.5 mm diameter) and all holes by the Company (and the one exception) have been NQ core (47.6 mm diameter) except where a reduction to BQ (36.5 mm diameter) has been required to complete the hole in problematic ground conditions. Core recovery and rock quality designations have not been noted in historic drill logs, however in all the holes by the Company core recovery has been excellent and the rock quality designation (“RQD”) factor has been very high indicating very competent rock.

    From 2009 to 2014, the Company has drilled a total of 267 surface drill holes for a total of 135,193 metres.

    Sampling Method and Approach

    Drill core is transported directly from the drill rigs to the secure core logging facility. Core is logged with geological information being recorded, including rock type, degree of alteration, estimated percentage of sulfide minerals and vein intensity. Zones of interest are marked out and assigned a sample number and assay tags are stapled into the box as well as being inserted into the sample base. Most of the core has been split with a hydraulic splitter, with a small number of samples cut with a diamond bladed core saw. The majority of the samples are 1.5 metres in core length and most of the historic samples are in five foot lengths. Assay procedures were not well documented prior to 2003, but it is assumed that conventional crushing, pulverizing and classical fire assay techniques were used.

    Sample Preparation, Analyses and Security

    Prior to sample shipment, a number of measures have been implemented which were designed to maintain a high level of security at the core logging facility, at the mine property and while the samples are in transit.

    Upon arrival at the ALS Global laboratory, samples were logged into the laboratory tracking system and weighed. Each core sample was entirely crushed to better than 70% -2 millimetre (minus 10 mesh). A 250 gram split of crushed material was taken and pulverized. Certified reference material and blanks were inserted with samples prior to analysis. Fifty gram aliquots were weighed for fire assay. Fire assay fusion was by lead flux with a silver collector and atomic absorption finish. Each sample was also submitted for a 34 element analysis, by aqua-regia acid digestion and ICP-AES. This process quantitatively dissolves base metals for the majority of geological materials. Major rock forming elements and more resistive metals are only partially dissolved. All sample batches were subjected to the laboratory’s internal quality control procedures.

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    All mine samples, including blasthole, underground channel, and drill core are assayed at the on-site laboratory operated the Company. We have been advised by ALS Global that the laboratory is well-equipped, fully ventilated, and staffed by experienced personnel. Samples are prepared and analyzed as described above. The mine laboratory is externally audited on a periodic basis. A check assay program and participation in an international round robin was initiated in 2014.

    Quality Control and Quality Assurance

    No information has been compiled that describes the quality control (“QC”) and quality assurance (“QA”) procedures for the pre-2003 drilling, however it is unlikely that blanks and CRM’s were used as this did not become standard industry practice until the early 2000’s. The main form of QA/QC would have been periodic re-assaying of anomalous samples with introduction of blanks in the early 1980s and 1990s.

    The QA/QC for the 2006, 2007 and 2008 programs is documented in the technical documents filed on the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedar.com. In essence this amounted to four percent of the entire population of samples submitted for analysis, including blanks, standards, and duplicates. Additionally, about 15-20% of pulp replicates and 2.5% of reject duplicates were analyzed and incorporated into final assay grade to improve overall precision. The QA/QC data is monitored as the samples are being processed at the laboratories and where analytical problems are identified the laboratory is required to reanalyze the samples.

    Based on this work it was concluded that the data is reliable and suitable for supporting mineral resource and mineral reserve estimation work in the opinion of the Qualified Person.

    Data Verification

    The project data base has been subject to verification or audit by Micon International Inc. (2004), Scott Wilson Roscoe Postle Associates Inc. (2006), AMEC plc (2008) and Company geologists (2006, 2007 and 2008) who had no direct involvement with the project. Collar co-ordinates, down hole survey tests and assay intervals were verified against a variety of supporting documentation. Where errors have been identified these were corrected and procedures put in place to prevent re-occurrence and to expedite future data verification programs. In each case the third party audit has concluded that the database is valid and acceptable for supporting resource estimation work on the project.

    Mine Development and Mine Plan

    The Company commenced mining from the open pit in November 2011, and ceased mining in June 2014, upon depletion of the in-situ reserve. While the mining of the open pit has ceased, the Company has established a sizeable stockpile of open pit ore that will be used to augment underground production until the underground mine can provide the entire mill feed. Over the life of the open pit, approximately 20.9 Mt of waste rock was generated by the open pit and placed in the waste dump to the north of the pit.

    The underground deposit is located approximately 210 metres to 1,500 metres below surface. During 2013, the Company completed the sinking of the Northgate shaft down to the mid-shaft loading pocket, which accesses the first eight years of mine production. The Company continues to work on developing vertical access in the underground mine below that of the mid-shaft loading pocket, to an eventual depth of 1,500 metres. The existing MCM #3 shaft is being extended to a depth of 1,500 metres to provide for the hoisting of personnel, materials, ore and waste. The mine will also be accessed by a ramp, which will be extended to the bottom of the mine from the existing exploration ramp, currently at a depth of 900 metres below surface. The mine design has taken into consideration the existing MCM #3 and the Young-Davidson shafts and other existing openings for ventilation.

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    The underground mine has been designed for low operating costs through the use of large modern equipment, gravity movement of ore and waste through raises, shaft hoisting, minimal ore and waste re-handling, high productivity bulk mining methods and paste backfill. The mine operates scooptrams to load, haul and transfer stope production to the ore pass system from where it is hoisted to the surface via 18 tonne skips.

    At the current design production rates of 2.92 million tonnes per year (8,000 tonnes per day) at full production, the underground will have a mine life of approximately 16 years based on the current reserve. Production from the underground mine will be complemented by stockpiled open pit ore until it can provide the entire mill feed. For the last 14 years of the currently projected underground mine life, mill feed will be provided almost exclusively from the underground mine.

    Lateral development of the underground mine will average approximately 12,000 metres per year including capital, operating and ore categories for the first 10 years of the underground mine operation. In the last 8 years of the underground mine life, the development requirements drop off sharply as the mine is close to being fully developed.

    The average underground personnel requirements at 8,000 tonnes per day are estimated to be approximately 300 persons. The mine will operate seven days a week with two 10.5 hour shifts per day working a five days on and four days off followed by four days on five days off schedule. Once in full production, the mine will be owner operated with only diamond drilling and raising being contracted.

    Exploration and Development

    The Young-Davidson open pit mine and mill declared commercial production effective September 1, 2012. Commercial production was declared once the mine achieved previously established commissioning thresholds. The commissioning thresholds included a 30-day period whereby the mill throughput averaged at least 5,100 tonnes per day (subsequent to the commissioning of the flotation and gravity circuits) and the open pit averaged 29,750 tonnes per day of ore and waste mining.

    In October 2013, the Company commissioned the mid-shaft loading pocket and shaft hoisting infrastructure, and began hoisting underground ore to surface. Prior to October 2013, the Company was trucking ore to surface through the exploration ramp. On October 31, 2013, the Company declared commercial production at the Young-Davidson underground mine.

    The 2014 capital budget focused primarily on the continued lateral and vertical development of the underground mine, and the construction and sinking of the MCM shaft. The Company also completed an expansion of its carbon-in-leach circuit in the mill and purchased additional mobile equipment as underground mining rates increased during the year. The carbon-in-leach circuit expansion increased the number of tanks and was designed to increase residence time and aid in increasing overall mill recoveries. Underground lateral development and the sinking of the MCM shaft will continue in 2015. The Company will also add to its underground mobile equipment fleet and complete a raise of its tailings dam. Total lateral and vertical development are expected to be 14,700 metres and 1,100 metres respectively. Lateral development will consist of continuing to establish the levels spaced every 30 metres in the orebody consisting of footwall drives, drawpoints and stope development. Main ramp development will also continue from the 9590 level towards the eventual bottom of the mine at the 8900 level. Vertical development will consist of sinking the MCM shaft to mine bottom and various ventilation raises.

    Milling Operations

    The metallurgical testwork programs considered for feasibility study were completed in 2008 and early 2009 at SGS Lakefield. Results of these tests provided the data used for the design criteria.

    The tests were conducted on samples from 32 holes selected across the mineralization from which five zone composites and a master composite were prepared. Flowsheet optimization was conducted on the master composite. Once the metallurgical parameters were optimized, the five zone composite and 32 individual samples were tested used for variability testing.

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    The grinding characteristics of the design mineralized material, an equal mixture of Upper Boundary Zone, Lower Boundary Zone and Pit Zone material as combined material for pilot plant feed gives an average Bond Work Index of 15.6 kilowatt hours per tonne (“kWh/t”) at 100 mesh (106 micrometer (“µm”)) of grind. The selected six zone samples work index ranged from 14.7 to 18.3 kWh/t or an average of 16.5 kWh/t. Most samples tested fell in the medium to hard range of hardness with respect to impact breakage and Bond rod mill/ball mill grindability work indices while there was one waste sample which fell in the very hard range of hardness. All samples have been classified as abrasive or very abrasive.

    The gravity recoverable gold was determined to be about 25% of the gold contained in the composite sample tested when cleaning of the primary centrifugal concentrator product on a Mozley table was completed to a target 0.05% weight recovery of the initial feed material.

    The metallurgical test programs supported the selection of single stage semi-autogenous grinding circuit with a gravity circuit followed by flotation. The flotation concentrate is further ground and leached in a conventional carbon-in-leach. The flotation tailings are also leached in a carbon-in-leach circuit. The gold is recovered from the carbon followed by electro-winning and pouring doré bars.

    The combined leach tailings were used for the cyanide destruction testwork. The Young-Davidson carbon-in-leach tailings are treated with the SO2/Air cyanide destruction method.

    In January 2014 a paste backfill plant was commissioned and is capable of supplying paste fill to the underground voids at a rate in excess of 8,000 tonnes per day.

    El Chanate Mine

    The El Chanate Mine is located 37 kilometres northeast of Caborca in Sonora State, Mexico. The mine consists of an open pit, crusher, heap leach pads, process plant and supporting infrastructure located on 4,618 hectares encompassed within 22 mineral concessions.

    The Company acquired El Chanate through the acquisition of Capital Gold Corporation in April 2011. Hereinafter, references to work completed by the Company with respect to El Chanate, includes work completed by Capital Gold Corporation.

    Property Description and Location

    El Chanate is located in northern Mexico in the northwest corner of the State of Sonora, Municipality of Altar (see map below). The mine site is 37 kilometres northeast of Caborca, 280 kilometres northwest of Hermosillo, 150 kilometres southeast of Sonoyta, and 170 kilometres southwest of Tucson, Arizona at UTM geographical coordinates of 412,150E, 3,407,880N (Lat 30°48’10”N, Long 111°55’00”W). Caborca, with a population of 100,000, is the largest town in the area. Pitiquito and Altar are smaller nearby towns located off Highway 2 west and east of the El Chanate, respectively. All permits required to operate the mine are currently in place.

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    El Chanate Property Location

    Minimum Investment and Mining Duty

    All concessions are subject to an annual minimum investment and an annual mining tax that must be paid to keep the concessions in good standing. The amount of the minimum investment or assessment work varies based on the size, age and type of the concession, and changes each year with the Department of Mines publishing a new list at the beginning of the year and varies with the consumer price index. The rate of the mining duty depends on the concession type and the age of the concession. The rate changes bi-annually with the Department of Mines publishing the new rates in January and July. The mining duty is due in both January and July. The total mining duty required annually to keep El Chanate’s five titled concessions (4,618 hectares) is approximately 500,000 pesos.

    Accessibility, Climate, Local Resources, Infrastructure and Physiography

    Geographically, El Chanate is on the south-eastern margin of the NW-SE mountain range formed by Sierras La Gloria, El Alamo, Batamote and El Chanate. Locally, El Chanate resides on the Escalante cattle ranch ground.

    The project is located on the north west corner of the state of Sonora, in the Altar desert (a subset of the Sonoran Desert). Topography is typical of the Basin and Range province with Sierra El Batamote and Sierra El Chanate as prominent steep mountain ranges emerging from the flat basin. Elevation at the project area is 500 metres above sea level; the El Chanate Range is 900 metres high and El Batamote 850 metres high.

    The working area lies on the southern pediment of El Chanate Range, a flat plateau covered by thin layers of unconsolidated gravel and dissected by sharp shallow creeks, gently dipping into the gravel filled valley of the Sásabe (dry) and Altar rivers.

    From Hermosillo, the property can be accessed by driving 173 kilometres north to Santa Ana on Highway 15, then approximately 95 kilometres west on Highway 2 to Caborca. The mine access road is approximately 13 kilometres east of Caborca on Highway 2. The project area is easily accessible from Mexican Highway 2 by driving north 11 kilometres on a nearly level dirt road through the Ejido 16 de Septiembre and onto the Escalante cattle ranch where the El Chanate mine is located.

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    Vegetation consists of typical Mexican desert species composed primarily of various cacti, shrubs and brush.

    According to the Köppen climate classification system, the project is described as having a BWh, or desert climate where the coldest month has an average high temperature above 0°C. The average annual temperature is 21.5°C. July is the hottest month with an average maximum temperature of 44.6°C. The hottest month on record was July 1998 with an average temperature of 48.0°C. January is the coldest month with an average low temperature of -2.2°C. The coldest month on record was January 1971 with an average temperature of -11.0°C. The mine operates year round.

    Annual average precipitation as measured at the nearby Pitiquito station (about 15 kilometres away) is 259 millimetres. Rainfall occurs due to the normal “monsoon” rains and the effects of Pacific storms.

    Equipment and infrastructure include: a three stage crushing plant, a leach pad and solution holding ponds, four Adsorption, Desorption, Refinery (“ADR”) processing plants, a refinery, a fleet of haul trucks, loaders and mining support equipment. In addition, there are numerous ancillary support facilities including warehouses, maintenance shops, roadways, administrative offices, power and water supply systems, and a fully equipped assay and metallurgical laboratory. The open pit operations are conducted by a local mining contractor.

    History

    Historical workings suggest the area has been mined for gold since the early 19th century. The current open pit mine has now been developed below the level of those historical small-scale mine workings. The open pit mine plan covers an area approximately 1,700 metres long, 845 metres wide, and 300 metres deep. El Chanate utilizes conventional three stage crushing and heap leaching, with gold bearing solutions being processed in an ADR plant, followed by electro-winning and refining.

    Geological Setting and Mineralization

    El Chanate is located between the northern flank of Sierra El Batamote and the southern flank of Sierra El Chanate. These ranges are tectonic blocks derived from Late Mesozoic compressional events modified by Early Cenozoic extension. The area is underlain by Mesozoic, meta-sedimentary rocks intruded by Late Cretaceous andesites. All of these units are cut by Tertiary felsic to mafic rocks. The post mineral San Jacinto andesite flow located north of the mine is the youngest bedrock unit dated at 51Ma. The dominant controls on gold mineralization are structural channeling along faults and development of veins by dilation and hydraulic fracturing. Gold precipitation is dependent on a chemically favorable environment but is not strongly influenced by rock composition. Relatively deep seated regional structures appear to have been active at the time of mineralization and have played a vital role in the structural preparation of the host rocks and channeling of the mineralizing fluids. The fluids and their contained metals are believed to have been derived either from a deeper magmatic source rock or from deep metamorphic processes associated with the Laramide Orogeny.

    Drilling

    From 2001 to 2009, the Company conducted surface mapping, surface sampling, geophysics, diamond drilling and reverse circulation drilling on the property. The results of this work delineated anomalous gold mineralization along a northwest striking fault zone traceable for 4.5 kilometres on strike and still open at depth. The mineralized zone had been drill tested by 819 holes for a total of 140,224 metres. There are 754 reverse circulation holes and 65 core holes. The deposit remains open in several directions.

    From 2010 to 2014, the Company has drilled 796 reverse circulation holes totaling approximately 124,320 metres and 47 core holes for 16,019 metres.

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    Sampling, Analysis, Quality Control and Quality Assurance

    An analytical quality assurance program has been established for all of the Company’s mineral properties to control and assure the analytical quality of assays in all of the Company’s exploration programs. This program includes the systematic addition of blank samples, duplicate samples and certified standards to each batch of samples sent for analysis to commercial accredited laboratories. Blank samples are used to check for possible contamination in laboratories, duplicate samples quantify overall precision, while certified standards determine the analytical accuracy. The split core samples are sent directly from the project sites within Mexico to ALS Global, an ISO-17025 accredited laboratory with facilities in Hermosillo that performs gold and silver analyses at its laboratory in Vancouver, British Columbia.

    For reverse circulation drill holes one standard and one blank are included in each batch of 20 samples. For core holes, duplicates (1%), blanks (4%) and standards (5%) are inserted into the sample intervals.

    ALS Global performed well on inserted blanks and standards in 2014. We have been advised by ALS Global that there is no evidence of systematic contamination and accuracy is acceptable based on standards in the grade range 0.2 to 2.6 g/t gold.

    Blasthole samples are assayed at the on-site mine laboratory operated by the Company. The laboratory is well-ventilated, procedures are fully documented, and there are 25 employees to cover operations 24 hours a day and analyze 12,000 samples per month. The mine laboratory is externally audited on a periodic basis.

    Samples are crushed to 85% passing ¼ inch and a 250 gram split is pulverized to 80% passing 106 microns.

    Gold is determined by industry-standard fire assay on a 30 gram aliquot with an atomic absorption finish. Silver is analyzed on the same solution and the final silver assays are adjusted for both silver losses in cupellation and for the silver added to improve gold collection. A laboratory review in October 2013 by Analytical Solutions Ltd. recommended changes to the silver assay method to improve precision of the results.

    The onsite mine laboratory includes 15% blanks, standards and duplicates for gold determinations. We have been advised by ALS Global that there is no indication of systematic contamination, and accuracy is acceptable for the mine operations. A check assay program and participation in an international round robin was initiated in 2014.

    Data Verification

    The project database has been subject to verification by independent sources, primarily Independent Mining Consultants (“IMC”) and SRK Consulting (“SRK”). The electronic database was first verified by IMC in 2003. The IMC drill hole database has incorporated substantial verification procedures for the data in most of the critical areas. IMC reported that they found that the assay database was consistent with assay certificates. They also reported that there was no evidence of significant contamination of reverse circulation samples during drilling. In 2007, IMC compared the 2007 drilling database with Chemex assay certificates for about 25% of new holes and noted no significant errors. In 2009, IMC was provided with a database of the Company’s 2008 analytical results and the original Chemex assay certificates. The database was validated to the certificates and no problems were noted.

    In preparation of the feasibility study, SRK also received the electronic database from the Company which included all of the data verification procedures conducted by IMC, as mentioned previously. SRK performed spot checks on the 2009 drill hole assays by comparing them to the original Chemex assay certificates and noted no exceptions.

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    Exploration and Development

    The 2014 exploration program at El Chanate focused on drill testing of magnetic trends identified from an aeromagnetic survey conducted in January as well as targets within and below the current pit. During 2014 the Company completed 20,946 metres of reverse circulation drilling and 4,918 metres of core drilling.

    On June 28, 2013, the Company completed an option/joint venture agreement with Highvista Gold Inc. to explore approximately 11,600 hectares of claims located to the northwest of the open pit that provides access to an additional 15 to 20 kilometres of the El Chanate fault. The agreement grants AuRico the option to earn a 51% undivided interest in the El Chanate Extension by incurring an aggregate of $3 million in exploration expenditures over the next three years. The Company can earn a further 19% interest (bringing its aggregate interest to 70%) by funding the preparation of a feasibility study or prefeasibility study on the property.

    Exploration in 2014 continued with mapping and geochemical sampling along the trend of aeromagnetic trends identified during this survey. Drill targets have been identified and the Company intends to drill test these targets in 2015.

    Mining Operations

    El Chanate is an open pit mining and heap leach processing operation. Ore is hauled, via a mining contractor, by truck from the pit to the crushing plant. The recovery of gold is achieved through the heap leaching process. Under this method, ore is placed on impermeable leach pads where it is treated with an alkaline cyanide bearing solution, which dissolves gold and silver contained within the ore. The resulting “pregnant” solution is further processed in a plant where the gold and silver is recovered. The processing is a closed circuit, zero-discharge operation where solution is continuously re-used. The smaller of the four ADR processing plants was purchased used and refurbished by the Company. Recent mobile equipment additions and all other equipment and infrastructure at El Chanate were new when procured. Management continuously analyzes production results and considers improvements and modernizations as deemed necessary.

    In April 2011, after the acquisition by AuRico, an expansion plan was executed which included the following improvements:

    • Changing the crusher liners from fine to medium coarse resulting in lower power consumption, and higher crushing capacity, while the 3/8” crush size obtained an average P80 of 0.24 to 0.29”. The further installation of programmable logic controls resulted in approximately a 40% increase in the crushed tonnage.

    • Belts were sped up by 20% to allow adequate conveying, while a heavy duty conversion of the entire conveying system resulted in an additional 25% productivity improvement and higher reliability. The newly installed programmable logic controls included an automated start and stop capability which together with a new stacker and its 10 metre high stacking capability greatly reduced the duration of any occurring production interruptions.

    • New leach pads were added as well as a third ADR plant to accommodate the higher productivity rates while pumped solution volume was augmented to ensure that the incremental tonnage deposited on the leach pads could be leached with identical or better cyanide solution to ore ratios ensuring leach kinetics and recovery in 2012.

    • As area and pumped volume increased, an intermediate pond was added to improve cyanide solution to ore ratios and improving the head grade to the ADRs.

    • In order to leach the increased tonnages deposited on the leach pads, the original single 8” water supply piping was replaced with 16” piping in 2012, thus doubling available water volume and reducing power consumption per m3 by 50%. Prior to this, the Company had procured additional water rights that enabled the drilling of another water supply well.

     

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    During 2013, the Company expanded its leach pad capacity, completing phase 7 of its leach pad expansion, while during the fourth quarter, a new set of 5 CIC columns each with 6 tons of carbon were added to the circuit, to reduce the gold in heap solution inventory, improving efficiency and redundancy in the operation and maintenance of the ADR process plant.

    The focus during 2015 will be leach pad recoveries, cost reductions and minimizing capital expenditures. In addition, the site will focus on continuous improvement initiatives relating to ore fragmentation, screening, crushing and conveying reliability and availability, ADR process control, leach pad irrigation management, as well as a number of cost reduction initiatives.

    Leach Pad Process

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    Kemess Underground Project

    The Kemess Underground project is a gold and copper project located in northern British Columbia, Canada. The project is located six kilometres north of the former Kemess South open pit mine, which was in operation from 1998 to 2011. Previously called Kemess North, it has been renamed Kemess Underground to distinguish from the project that was previously proposed. On March 25, 2013, the Company released the results of a feasibility study on the Kemess Underground Project which added 1.8 million gold ounces and 619 million pounds of copper to mineral reserves. Hereinafter, references to work completed by the Company with respect to Kemess includes work completed by Northgate prior to the acquisition by AuRico in October 2011.

    Kemess Property Location

    Property Description and Location

    The Kemess property is situated in north-central British Columbia approximately 430 kilometres northwest of Prince George at 57°02' north latitude, 126°47' west longitude on National Topographic Map 94/E2. The Kemess property consists of four mining leases (Numbers 354991, 410732, 410741 and 524240), 57 cell and legacy mineral claims (located under the Mineral Tenure Act (British Columbia) and regulations relating thereto) and one surface rights license, collectively covering 32,610 hectares (80,580 acres). The Kemess South Mining Lease #354991 is valid until September 15, 2027 at which time it may be renewed for another 15 years. Leases #410732 and #410741 are valid until September 29, 2034 and renewable at that time. Lease #524240 is valid until December 22, 2035, and is renewable at that time. Collectively these surface and mineral rights are sufficient for conducting all mining operations, processing facilities and ancillary infrastructure at Kemess, as evidenced by the history of operations since 1998.

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    The Kemess site is in compliance in all material respects with applicable provincial and federal environmental requirements. With respect to future site reclamation and closure costs, the Company regularly updates its estimates of future expenditures. The exact nature of environmental control concerns, if any, that may be encountered in the future cannot be predicted with certainty, as current environmental regulations and requirements may change. As at December 31, 2014, a $15.6 million accrued reclamation obligation remained.

    Permits

    Most of the permits previously in place for the Kemess South operation are still in good standing including road use, power line, explosives, camp related and mill related such as nuclear gauge and boiler permits. Some of the key permits to be obtained include a new mining permit, and an amendment to the existing permit to deposit tailings into the exhausted open pit, PE 15335, to allow the construction of a tailings dam to increase the tailings capacity. The mining permit covers the operation of the facility during production as well as the eventual closure and reclamation of the site.

    Accessibility, Climate, Local Resources, Infrastructure and Physiography

    The Kemess mining and milling complex is located in the mountains of north-central British Columbia at an elevation of 1,350 metres. Personnel access the mine by plane via Prince George (approximately 430 kilometres to the southeast), Smithers, Williams Lake, Kelowna, Kamloops and Vancouver with flight service available from Monday through Thursday. Road access to the mine is from Mackenzie, BC, and this is the means by which supplies and concentrates were hauled to and from the mine. Power at the site is available directly from the BC Hydro grid, the British Columbia power authority, via a 380 kilometre power line owned by the Company. Adequate water for the mine is available from local surface and ground water.

    The climate is generally moderate, although snow can occur during any month. Temperatures range from -35° to 30°C and average annual precipitation amounts to 890 millimetres. The Kemess mine belongs to the following physiographic subdivision of British Columbia, arranged in ascending hierarchy of units: Swannell Ranges, Omineca Mountains, Central Plateau and Mountain Area, Interior System and Canadian Cordillera. Two biogeoclimatic zones occur in the Kemess mine area, according to biogeoclimatic maps of the Toodoggone River 94E and McConnell Creek 94D map sheets. The mild, cool Spruce-Willow-Birch zone occupies the lower elevations between 1,200 metres and 1,500 metres. Most of the mine is within this zone. The Alpine Tundra parkland subzone occupies the higher elevations in the mine area.

    History

    Pacific Ridge Resources Ltd. (“Pacific Ridge”) staked the area of the Kemess South deposit in 1983. Exploration programs were subsequently carried out by Pacific Ridge and Anaconda Canada Ltd. (“Anaconda”) in 1984; St. Philips Resources Inc. (“St. Philips”) in 1988 and the Kemess South Joint Venture between El Condor Resources Ltd. (“El Condor”) and St. Philips from 1990 to 1993. In 1991, Rio Algom Explorations Inc. (“Rio Algom”) acquired claims adjoining the west and south sides of the Kemess South Joint Venture claim holdings.

    The initial work on the property by Pacific Ridge and Anaconda consisted of a limited diamond drilling program to test a gold-copper-molybdenum soil geochemical anomaly. This drilling identified porphyry style gold-copper-molybdenum mineralization, but grades were considered too low and the property was dropped. St. Philips carried out IP surveys, geochemical surveys and reverse circulation drilling, which marginally expanded the mineralized area. The Kemess South Joint Venture completed a major delineation diamond drilling program and various ancillary works, including IP and geochemical surveys. In 1992, Rio Algom drilled five holes totaling 1,745 metres to further delineate the deeply buried western extension of the Kemess deposit. In late 1993 the Kemess South Joint Venture acquired the claims held by Rio Algom. By the end of 1993 a total of 26,314 metres of diamond drilling in 156 holes had outlined a substantial gold-copper deposit that was amenable to open pit development.

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    In 1994 the Kemess South Joint Venture conducted a 9-hole, 1,867 metres in-filling drilling program. In 1996, Royal Oak Mines Inc. (“Royal Oak”) acquired the Kemess property and drilled 22 due diligence holes totaling 3,316 metres. In 1998 Royal Oak commenced operations from the Kemess ore body. These operations went into receivership in 1999. In 2000, the Company bought the property out of receivership and has operated the property since that time.

    Geological Setting

    Kemess occurs at the southern end of the Toodoggone mining camp, which describes a collection of occurrences and deposits found in Mesozoic volcanic rocks. The area is known for its copper-gold porphyry deposits and low sulphidation epithermal gold-silver vein deposits.

    The oldest rocks in the belt are Permian marine and volcanic rocks, which are disconformably overlain by basalt dominated volcanic rocks of the middle Triassic Takla Group, which are in turn unconformably overlain by lower-middle Jurassic Hazelton Group volcanic rocks.

    Intrusive rocks are prevalent in the area and have been categorized as late Triassic Alaskan type ultramafics such as pyroxene diorite, hornblende gabbro, and pyroxenite. Economically more significant are the early Jurassic intrusives of the Black Lake suite, which are granodiorite, hornblende diorite, pyroxene quartz diorite, quartz monzonite, and quartz monzodiorite.

    The Mesozoic volcanic assemblages form upright, shallowly dipping to flat-lying sequences crosscut by high angle north to northwest trending faults. Significant dextral strike-slip features bound the eastern margin of the belt.

    More local to Kemess Underground are north-northwest normal block fault structures. Thrust faulting is present in the district and is interpreted as Eocene or younger.

    The district represents the results of three superimposed volcanic arc building stages that began in the upper Paleozoic. Marine volcanic and sedimentary successions dominated until the lower-middle Jurassic, when continental, quartz normative volcanism began with the deposition of the Hazelton Group-Toodoggone Formation sequences. The plutonic rocks of the Black Lake suite are coeval with the Toodoggone sequence and are likely co-magmatic. Block faulting has juxtaposed panels of varying depth into the magmatic and volcanic systems.

    The Kemess Underground area is underlain by upper Triassic (Takla Group) andesite/basaltic volcanics and to a lesser extent lower Jurassic (Toodoggone Formation) dacitic fragmental volcanics.

    Stocks, dykes, and possible sills of quartz monzonite/quartz diorite composition have intruded the Takla succession and are also lower Jurassic in age. The deposit area is transected by steeply dipping north to northwest trending normal faults. A laterally extensive, shallow dipping to flat lying, highly fractured, and altered broken zone occurs at or close to the surface in the area of the deposit. The figure below shows the district geology, major intrusive masses, and disposition of the district’s deposits.

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    Kemess Underground Geology

    Exploration

    The early exploration work in the area identified a porphyry target, but it wasn’t until deep drilling in 2001 that significant gold and copper grades were located. Since 2001 exploration has been directed at expanding the resource base in what was historically viewed as an open pit project.

    Because the target is deep, surface geological mapping and surface geochemical techniques add little geological understanding. Since the last work by El Condor in 1992, there were no surface soil or rock sampling or trenching at Kemess Underground. Surface work has been confined to access road and drill site construction.

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    The procedures followed in the field and through the interpretation stage of exploration have met professional standards. From 2001 to the present day, there has been continuity in personnel both in the field, in the laboratories, and with the data interpretation.

    Mineralization

    Gold-copper mineralization forms an inclined tabular zone that is centred on the East Cirque porphyritic monzodiorite, which from structural contours, strikes east-west and dips 20° to the south. The quartz diorite/quartz monzonite intrusive exhibits an irregular upper contact with various peaks and troughs. The general east west strike and shallow south dip geometry is consistent for over 400 m (10660E to 10180E). Between 10260E and 10160E the tabular morphology disappears and the monzonite occurs as wide dykes (10–100 m) within the Takla volcanics. The change in geometry for the monzonite could be due to the effects of cross faulting that have down dropped the tabular upper contact present in the East Cirque, or the rheologic conditions during intrusion changed going towards the west whereby steep fracture infilling was preferred over stopping.

    Alteration and mineralization is associated with and zoned both vertically and laterally from the quartz diorite/quartz monzonite intrusive and its associated dykes intersected at depth beneath the Central and East Cirques.

    Drilling

    Since May 2000, there have been ten summer drill programs completed in the Kemess Underground area. Various diamond drilling contractors based out of Smithers, British Columbia completed this work.

    At peak activity up to four drill rigs were used on the property; three on skids and one helicopter portable. Three Hy-Tech diamond drills completed the most recent program in 2011, which accounted for 19 drill holes and 6,169 m.

    The Kemess Underground project is approximately 1,050 m in an east-west direction and 610 m north-south and over 600 m vertical. For the most part, the drill hole spacing is less than 100 m and became quite well covered with the additional 2010 and 2011 holes.

    The current Kemess Underground resource database contains 146 drill holes for a total of 67,157 metres and an average length of 460 metres, with the majority in the 200–600 metres range. There are a few short holes less than 100 metres, while the deepest hole is 1,206 metres.

    The broken zone, which presents challenging drilling conditions, covers much of the property. Historically, drilling an HQ diameter hole (63.5 mm core) to act as a casing for NQ (47.6 mm core), which usually was used to complete the hole, solved the problem. In rare instances reduction to BQ (36.5 mm core) was necessary to reach target depth. The core recovery is very high with an average of approximately 70% in the broken zone and approximately 100% in the remainder.

    In 2004, a test was conducted to compare assay results from holes with steep angles to holes with shallow angles. At that time, 29 holes were drilled at shallow angles (less than –60º) so that oriented core could be obtained to assist with the geotechnical program. It was found that there is no significant grade variation between the two data sets. Because the shallow angle holes tested various different directions, it appears likely that there is no preferred vein orientation in the deposit that could be missed with steep drilling.

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    Sampling Method and Approach

    Pre-2001 drilling was not deep enough to test the higher-grade zones under consideration for Kemess Underground project. Consequently, since 2001, drilling is the most important exploration activity carried out at Kemess Underground and forms the basis of the mineral resource. More than 75% of the assays have been completed since 2001.

    Samples from the Kemess Underground project are totally drill core based; there are no trench or grab samples in the database.

    A sampling program for the project was developed prior to the 2002 exploration season. The same program was carried forward to the 2003 and 2004 seasons, and continued into the 2010 program. The QA/QC program established in 2002, and continued in subsequent seasons, included at site insertion of blind duplicate, blank, and standard samples.

    Sample intervals were determined by a staff geologist according to lithology, and ranged from 0.3 to 2.0 metres, with the average length of samples being 1.92 metres. Because of the low-grade nature of the mineralization and difficulty determining potential ore from non-ore material, the entire length of the drill hole is sampled. Once in a uniform rock type, sample spacing was generally 2.0 metres. The maximum 2.0 metres sample length was seleceted so that more detail could be gained concerning the local variability of grade. As well, the 2.0 metre core length provides a representative sample weight for NQ core (47.6 mm diameter). For HQ core (63.5 mm diameter), a maximum sample length of 1.5 metres was applied.

    Drill core was logged by a small team of geologists and split using a rock saw or hydraulic splitter. Samples were collected by staff technicians and then passed through a primary crusher. During the 2002 program, a portable sample preparation lab was leased from ALS Minerals, formerly ALS Chemex (“ALS”). For the 2003 program, a sample-bucking facility was built near the camp area and run under supervision of Kemess’ Chief Assayer during the subsequent programs.

    Sample Preparation, Analyses and Security

    Core samples were dried and then crushed to 80% passing 10 mesh at the mine site. Each sample was riffled twice with one split being retained at the mine, and a 250 g sample sent by air and courier to ALS analytical laboratory in North Vancouver. The remainder of the sample was discarded. In 2008 a pulverizer was added to the preparation process at Kemess and pulps were submitted for analysis for both the 2008 and 2010 programs.

    At ALS, the –10 mesh samples (pre-2008) were pulverized to 85% passing 75 µm (PUL-22) prior to assay. Both Kemess and ALS prepared pulps were assayed for a suite of 35 elements including iron using an aqua regia digestion and inductively coupled plasma atomic emission spectroscopy (ICP-AES; ME-ICP61, ME-ICP41) on a one gram sub-sample. Copper analysis was completed by atomic absorption spectrometry, following a triple acid digestion. Gold analysis was completed by standard one assay ton fire assay with atomic absorption finish.

    In total, excluding quality control samples, 32,506 samples comprise the entire Kemess Underground database. Since 2000, 28,498 samples have been submitted to ALS for copper and gold analyses which represent more than 87% of all the analyses. Since 2003, silver has been analyzed for by multi-element Inductively Coupled Plasma (“ICP”) package provided by ALS. There are 16,016 silver assays in the Kemess Underground database.

    The remaining 12% of the assay work was carried out by various labs. Historical records of the sampling, analysis, and security of this earlier work are not available. Most of this work is for shallow drilling and is not particularly relevant to the Kemess Underground project.

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    ALS laboratories are accredited ISO 9001-2008 by QMI and the North Vancouver Laboratory is accredited ISO 17025-2005 by the Standards Council of Canada for a number of specific test procedures, including the method used to assay samples submitted by AuRico. ALS also participates in a number of international proficiency tests, such as those managed by CANMET and Geostats.

    The portion of sample retained at the mine site was kept in a plastic bag with a sample tag and stored in a plastic pail. The portion of the sample sent to the laboratory was placed in a plastic bag with a sample tag, shipped in a plastic pail with two security tags and the pail top was sealed and taped. A submission sheet was sent along with each pail of samples that included the name of the sample preparation person, the date, the sample numbers, the number of samples, and the numbers of the security tags.

    There is a core storage site near Kemess Lake that serves to archive all the drilling on the project. The remaining half cores are still in core boxes and are available for geology reviews as well as check assays. In addition all coarse rejects are stored at the same site in plastic pails while pulps are stored in sea containers near the exploration office above camp.

    Work completed by Kemess employees included core logging, sample layout, sample splitting, and preliminary sample preparation. A professional geologist oversaw all of the work from core logging to sample splitting, while the Chief Assayer at the mine oversaw the preliminary sample preparation and shipping.

    Quality Control and Quality Assurance

    Blank samples, material with very low concentrations of copper and gold, were used to test for contamination of samples. Rocklabs Certified Reference Materials were used as quality control standard samples to monitor accuracy. Duplicate samples were used to monitor and measure preparation and analytical precision. In total, 1,536 samples were submitted for quality control purposes as blind blanks, standards, or duplicates. This represents approximately one in every 26 samples, or 3.9% of the samples collected from 2002 through 2011 from all areas of exploration drilling on the Kemess property. Quality control information was recorded by geologists, core samplers, and sample preparation staff. This triple-redundancy data capture was used to identify and eliminate data entry errors.

    Evaluation of gold and copper analyses of quality control blanks of barren looking Hazelton rocks indicates that no significant or systematic contamination or laboratory error occurred during the course of the 2002–2011 programs.

    Evaluation of 2002-2011 quality control samples indicates that the gold and copper assay results for the Kemess Underground drilling programs are sound and accurate and in the Company’s opinion are therefore suitable for use in resource and reserve estimations.

    Data Verification

    In late June 2011, the Company completed a 5% audit of the Kemess Underground resource database to verify that analytical results have been entered correctly into the drill hole database used to prepare the February 2011 mineral resource estimate. The audit process and results identified no material issues.

    The 5% audit showed no significant errors from the resource area regarding the recording of tabulated analytical data. The analytical database for the 2011 resource has been verified and can be relied upon for resource estimation

    Mine Development and Mine Plan

    There is currently no mine development on site. The 2013 feasibility study undertaken by SRK Consulting (Canada) Inc., determined positive economics for a 9.0 million tonne per annum block cave underground mine. A technical report in compliance with NI 43-101 dated April 1, 2013 has been filed on SEDAR. The envisaged Kemess Underground block cave operation would leverage the existing infrastructure and mill facilities at the Kemess South mine, including a permitted area for tailings storage in the Kemess South open pit.

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    The Kemess Underground Project is currently undergoing a Substituted Environmental Assessment led by the British Columbia Environmental Assessment Office (“EAO”) on behalf of both the province of British Columbia and the Canadian Environmental Assessment Agency (“CEAA”), the latter of which is on behalf of the Federal Government of Canada. This review is currently in the pre-Application stage (second of three phases) of the environmental assessment process and AuRico anticipates receiving the Application Information Requirements (“AIR”) at the end of February 2015, a key milestone in the environmental assessment process.

    The Company continues to pursue strategies at Kemess that enhance intrinsic value, such as permitting and additional exploration outside existing reserves, to further develop the optionality of this asset.

    Mining Operations

    There are currently no mining operations at site and on site activities are restricted to care and maintenance until a time at which a decision is made to proceed with the development and production of the Kemess Underground mine.

    Other Mineral Properties

    The following descriptions relate to the Company’s other non-material properties in Canada and Mexico:

    Kemess East Project

    The Kemess East discovery is an early stage exploration project located one kilometer east of the Kemess Underground deposit and 6.5 kilometers north of the Kemess mill facility. Prior to 2005, regional exploration was restricted to shallow targets on the Kemess Property. In 2005 the discovery of deep mineralization immediately east of the Kemess North deposit, the Offset Zone, led to subsequent geophysical surveys and drilling programs targeting deep mineralization. As AuRico was completing the 2013 Kemess Underground Feasibility Study it decided to recommence an exploration program in the Kemess East area of the Kemess property.

    Kemess East is a large copper-gold-silver-molybdenum porphyry deposit and is typical of calc-alkaline porphyry copper-gold deposits in the western cordillera. The deposit is deeply burried and mineralization starts at an average depth of 900 metres below surface and extends to 1500 metres below surface. The Kemess Underground deposit mineralization starts at 300–550 metres. Unlike Kemess Underground, there is no siginificant low grade mineralization associated with Kemess East. At Kemess East there is siginificant continuity of mineralization within the deposit. Kemess East is mostly hosted by potassic altered Black Lake plutonic rocks. In the eastern portion of the deposit, Kemess East is hosted minorly within potassic altered Takla Volcanics, but still largely within the Black Lake plutonic rocks. From recent whole rock analysis it is evident that the deposit is centered on a mineralized porphyritic diorite pluton. This in contrast to the Kemess Underground deposit which is centered on a mineralized porphyritic monzondiorite/diorite pluton. Due to the present state of drilling it is difficult to gauge the orientation of the host diorite, but presenty it appears to be nearly flat lying and slightly dipping to the south. The alteration within the mineralized zone is mostly characterized by secondary chlorite with lesser secondary biotite and quartz within the plutonic host rocks. Higher grade copper-gold mineralization is characterized by strong secondary biotite alteration in the plutonic rocks.

    Porphyry style copper-gold mineralization occurs within the Takla volcanic rocks and intermediate intrusive rocks associated with weak to pervasive propyllitic, phyllic, and potassic (biotitic) alteration assemblages. The latter is associated with better copper and gold grades. Alteration of Toodoggone assemblages range from fresh to weak propyllitic and are generally barren of significant sulphides and ore grade mineralization.

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    Following up the discovery holes KH-07-04, 10, and 24, the 2013-2014 drilling at Kemess East resulted in extension of the known mineralized zone to the north, east, west, and at depth. Major faults were intersected in several drill holes giving insight into a complex system of horst and graben style faulting leading up to the main NNW trending structure, which defines the eastern boundary of the mineralization. These intercepts provide greater understanding of structural constraints, movement, and controls on the location, shape, and size of the mineralized body. A greater understanding of the copper-gold-silver-molybdenum mineralization habit and the defining characteristics of the porphyry system were also delineated by the drilling programs. To date, 85,505 metres in 131 drill holes have been drilled in the Kemess East area.

    In 2014 AuRico initiated a mineralogical examination and preliminary metallurgical test program at ALS Metallurgy in Kamloops, BC on samples from the Kemess East deposit. Like the Kemess Underground deposit, Kemess East is a potential block caving oportunity. It is expected that resource delineation drilling will continue in 2015.

    Lynn Lake Project

    The Lynn Lake project is a joint venture between AuRico and Carlisle that was formed in November 2014 when the Company acquired a 25% interest in the project for an initial cash contribution of CAD $5 million. The Company has the option to earn up to an additional 35% interest by funding CAD $20 million towards a feasibility study on the project over a three-year period and delivering a feasibility study within that timeframe.

    The project consists of two primary deposits; the MacLellan Mine and the Farley Lake Mine, which were the subject of the preliminary economic assessment released by Carlisle on February 27, 2014. These two mines are situated in the North belt of the Lynn Lake Greenstone Belt within the Churchill Structural Province of the Canadian Shield. The North belt is a north-facing homocline and consists of rhyolites, overlain by andesite and basalt, sedimentary rocks and an upper balaltic unit. Both deposits are located within this belt, which has been termed the “Rainbow Trend”.

    Lynn Lake has an annual average temperature of -3oC. The average summer temperature is 22oC with an average winter temperature of -20oC. Annual precipitation averages 530 millimetres. Exploration can be conducted on a year round basis.

    Access to the MacLellan Mine project is via an all-weather gravel road running to the former mine site from the town of Lynn Lake, located nine kilometres southwest of the project. The MacLellan Mine project comprises 6 claims and 1 mining lease covering an area of 866 hectares. Past production for the MacLellan Mine is reported as 900,000 tonnes grading 5.4 grams per tonne of gold at an average milling rate of 900 tonnes per day in the period from 1986-1989. This material was processed at a facility in Lynn Lake that has since been dismantled.

    The mineralized system is hosted within a unique stratigraphic sequence known as the Agassiz Metallotect within the Wasekwan Group rocks of the North belt. The Agassiz Metallotect comprises interlayered siltstones, basalts, iron formations and minor felsic volcanics. The MacLellan Mine is hosted by an interbedded sequence of biotite-rich to siliceous siltstone and high magnesium basaltic flows and minor tuffs. Overlying and underlying this mine sequence are massive and fragmental mafic volcanic rocks. The mine is subdivided longitudinally into three mineralized deposits, from west to east they are the Rainbow-Dot deposit, the MacLellan deposit and the Nisku deposit. All of these deposits are located south of a major east-west trending fault structure known as the North Shear Zone.

    Access to the Farley Lake Mine project is via the paved Provincial Highway 391 with a 17 kilometre all-weather road north to the mine site. The Farley Lake Mine project comprises 70 claims and 4 mining leases covering an area of 12,915 hectares. The Farley Lake open pit produced 214,800 ounces from 1.7 million tonnes of ore from 1996 to 1997. This material was processed at a facility in Lynn Lake that has since been dismantled.

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    The deposit is hosted in a Pre-Cambrian sedimentary iron formation. The iron formation in the Farley Lake area is 6 kilometres long by 600 metres wide and is predominantly composed of an oxide facies iron formation that is intercalated with clastic sediments. Mineralization is in discordant sulphide lenses within silicified, chloritized and sulphidized oxide facies iron formation. The Farley Lake deposit is thought to be an epigenetic iron-formation hosted gold deposit.

    Orion Project

    The Orion project is a joint venture between AuRico and Minera Frisco S.A. de C.V. (“Minera Frisco”) that was formed in 2012 when AuRico sold the Ocampo mine to Minera Frisco. Prior to this transaction, the property was held on a 100% basis by AuRico, subsequent to the acquisition of Capital Gold.

    The project is located in the Motaje mining district in the Municipality of Acaponeta, Nayarit, Mexico at 22°25’ north latitude; 105°16’ west longitude. Geologically, it lies in the prolific Sierra Madre Occidental, which hosts numerous multi-million ounce gold-silver deposits. With a total area in excess of 110,000 hectares the Project is one of the larger contiguous concessions in the Sierra Madre.

    Orion is well situated having excellent infrastructure including a railroad, major power transmission line and the Pan American Highway crossing through the property. The topography is characterized by moderate relief with a series of northwest trending ridges the elevation of which vary between 100 metres above sea level and 300 metres above sea level. The general climate in the region is warm and sub-humid with a distinct rainy season between June and September, which commonly extends through October. Exploration work can be carried out year round.

    The area has a documented history of exploration and small scale mining that can be traced back to the early 1800’s. Recent work on the property defined a gold and silver mineral resource estimate that is documented in a NI 43-101 Preliminary Economic Assessment dated February 1, 2010 and available on SEDAR. Resources estimated from that report are included in AuRico’s Mineral Reserve and Mineral Resource table under the Mineral Properties section of this AIF.

    The mineralized system is a low sulfidation epithermal vein system that is partially exposed along east-west fracture systems. Mineralized veins form two discrete mineralized corridors separated by about two kilometres. The southern mineralized corridor includes the Animas/Del Norte veins and the Pantaleona, San Francisco and La Estrella veins, which generally dip to the north. The La Estrella structure is a northwest striking splay off the Del Norte vein. The northern corridor includes the El Rey, La Escondida, El Carmen, Bonanza 1 veins, which generally dip to the south and includes the previously producing Bonanza mine, which is in a mining concession internal to the Company’s land package.

    Grassroots Exploration and Corporate Development

    On June 13, 2013, the Company signed an option agreement with Minera Goldzone S.A. de C.V. to acquire a 100% interest in the Las Lajas Project, an 8,145 hectare property consisting of 6 contiguous mining concessions located in southern Sonora State, Mexico. Field work during 2014 consisted of 10 reverse circulation drill holes (1,329 m), an aeromagnetic survey, trenching mapping and geochemical sampling. Additional mapping and sampling is planned for 2015.

    In addition to its operating mines and advanced exploration projects described above, grassroots exploration is an important part of the Company’s growth strategy. As part of its development strategy, the Company will consider staking or acquiring additional mining claims and properties, where such transactions are economically and strategically justified. From time to time, the Company also enters into confidentiality agreements with mining companies or individual prospectors to assess potential business relationships.

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    DIVIDENDS

    The Company’s dividend policy is linked to operating cash flow, whereby the Company pays out 20% of the operating cash flow generated in the preceding quarter. The payment of any dividends will be reviewed periodically by the Company’s directors and will depend upon, among other things, conditions then existing, including earnings, financial condition and capital requirements, restrictions in financing agreements, business opportunities and conditions and other factors.

    On February 19, 2015, the Company’s Board of Directors approved a dividend of $0.023 per share, which will be paid on March 16, 2015 to shareholders of record at the close of business on March 2, 2015.

    On November 6, 2014, the Company’s Board of Directors approved a dividend of $0.00225 per share, which was paid on December 1, 2014 to shareholders of record at the close of business on November 17, 2014.

    On August 7, 2014, the Company’s Board of Directors approved a dividend of $0.00375 per share, which was paid on September 2, 2014 to shareholders of record at the close of business on August 18, 2014.

    On May 8, 2014, the Company’s Board of Directors approved a dividend of $0.02 per share, which was paid on June 3, 2014 to shareholders of record at the close of business on May 20, 2014.

    On January 4, 2014, the Company announced the declaration of a dividend of $0.04 per share, which was paid on January 29, 2014 to shareholders of record at the close of business on January 14, 2014.

    Common shares issued under the Company’s dividend reinvestment plan are issued at a 5% discount from the average market price of the common shares over the five day period preceding the relevant dividend payment date. The discount may be adjusted at a future date, but cannot exceed 5%.

    DESCRIPTION OF CAPITAL STRUCTURE

    Set forth below is a description of the Company’s share capital. The following statements are brief summaries of, and are subject to the provisions of, the articles of amalgamation and by-laws of the Company and the relevant provisions of the OBCA.

    The Company’s authorized capital consists of an unlimited number of common shares without nominal or par value. A total of 249,978,342 common shares are issued and outstanding (264,520,045 common shares on a fully diluted basis) as at the date of this AIF.

    Each common share ranks equally with all other common shares with respect to dissolution, liquidation or winding-up of the Company and payment of dividends. The holders of common shares are entitled to one vote for each share of record on all matters to be voted on by such holders and are entitled to receive pro-rata, such dividends as may be declared by the directors of the Company out of funds legally available therefore and to receive, pro-rata, the remaining property of the Company on dissolution. Common shares do not provide holders pre-emptive or conversion rights. The rights attaching to the common shares can only be modified by the affirmative vote of at least two-thirds of the votes cast at a meeting of shareholders called for that purpose.

    The Company also has stock options, restricted share units, deferred share units, performance share units and convertible senior notes outstanding. See the notes to the Company’s audited consolidated financial statements for the year ended December 31, 2014 for additional information regarding these securities.

    On August 19, 2010, the Company implemented a shareholder rights plan to provide the Board of Directors with more time to consider alternatives in the event of a takeover bid for the common shares of AuRico. Once put in place, Canadian securities law requires that the rights plan be reconfirmed by shareholders every 3 years. On May 13, 2013, shareholders extended this shareholder rights plan for another 3 year term. A copy of the rights plan is available under the Company’s profile on SEDAR at www.sedar.com.

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    MARKET FOR SECURITIES

    The common shares of the Company have been listed and posted for trading on the Toronto Stock Exchange (the “TSX”) since February 18, 2000. The common shares of the Company have been listed and posted for trading on the New York Stock Exchange (the “NYSE”) since October 13, 2008.

    The common shares trade under the trading symbol “AUQ”. The following table sets forth the high and low trading prices and trading volume of the common shares as reported by the TSX and NYSE for the periods indicated:

    Trading Price and Volume

      TSX NYSE
      High Low Volume High Low Volume
      Price Price   Price Price  
      (CAD$) (CAD$)   (USD$) (USD$)  
    February 1-13, 2015 4.99 4.46 4,197,861 3.96 3.58 22,141,165
    January, 2015 5.04 3.98 20,739,218 4.19 3.38 78,982,516
    December, 2014 4.32 3.46 22,371,446 3.83 2.98 123,436,132
    November, 2014 4.69 3.37 17,466,030 4.15 2.95 60,474,719
    October, 2014 4.36 3.61 13,200,109 3.88 3.21 41,420,676
    September, 2014 4.71 3.81 7,860,722 4.32 3.45 31,959,568
    August, 2014 4.96 4.42 6,885,991 4.55 3.98 26,751,984
    July, 2014 4.60 4.17 11,101,592 4.32 3.87 29,875,752
    June, 2014 4.81 3.71 10,637,854 4.44 3.40 35,741,077
    May, 2014 4.72 3.75 8,106,093 4.31 3.47 27,825,029
    April, 2014 4.91 4.41 16,614,286 4.48 4.04 41,889,230
    March, 2014 5.75 4.55 13,054,610 5.19 4.12 50,863,613
    February, 2014 5.79 4.97 12,444,420 5.22 4.48 47,237,046
    January, 2014 5.40 3.90 20,021,479 4.83 3.66 64,413,349

    At December 31, 2014, the Company had 833,334 common shares that were subject to a contractual restriction on transfer. These shares were issued as part of a flow-through financing arrangement completed on September 17, 2014. The restriction on transfer of these shares was lifted on January 19, 2015.

    Unlisted securities of the Company that were issued in 2014 were options to purchase common shares in the Company, Deferred Share Units (“DSUs”), Performance Share Units (“PSUs”), and Restricted Share Units (“RSUs”). Each vested unit entitles the holder to one common share of the Company. The number of options, issue dates, and exercise prices were as follows:

    Date of Grant Exercise Price
    per Security
    (CAD$)         		Number of
    Options
    January 2, 2014 3.80 20,000
    August 7, 2014 4.50 15,000
    December 12, 2014 4.03 3,314,645

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    The number of DSUs, PSUs, and RSUs, grant dates, and market price at time of grant were as follows:

    Date of Grant Award Type Market Price
    at Grant
    Date     (CAD$)     		Number of
    Units
    April 4, 2014 Deferred Share Units 4.84 45,495
    September 17, 2014 Deferred Share Units 4.22 7,104
           
    April 4, 2014 Restricted Share Units 4.84 97,189
    September 17, 2014 Restricted Share Units 4.22 16,575
    December 12, 2014 Restricted Share Units 4.03 279,000
           
    January 6, 2014 Performance Share Units 3.97 80,000
    December 12, 2014 Performance Share Units 4.03 190,082

    RISK FACTORS

    You should carefully consider the risks and uncertainties described below as well as the other information contained and incorporated by reference in this AIF. These risks and uncertainties are not the only ones faced by the Company. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of these events actually occur, our business, prospects, financial condition, cash flows and operating results could be materially harmed. Before deciding to invest in securities of the Company, investors should consider carefully such risks and uncertainties.

    Forecasts of future production are estimates based on interpretation and assumptions and actual production may be less than estimated.

    The Company prepares estimates of future production for its operating mines. The Company cannot give any assurance that it will achieve its production estimates. The failure of the Company to achieve its production estimates could have a material and adverse effect on future cash flows, profitability, results of operations and financial condition. These production estimates are dependent on, among other things, the accuracy of mineral reserve estimates, the accuracy of assumptions regarding ore grades and recovery rates, ground conditions, physical characteristics, of ores, such as hardness and the presence or absence of particular metallurgical characteristics and the accuracy of estimated rates and costs of mining and processing.

    The Company’s actual production may vary from its estimates for a variety of reasons, including: actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; short-term operating factors such as the need for sequential development of orebodies and the processing of new or different ore grades from those planned; mine failures, slope failures or equipment failures; industrial accidents; natural phenomena such as inclement weather conditions, floods, droughts, rock slides and earthquakes; encountering unusual or unexpected geological conditions; changes in power costs and potential power shortages; shortages of principal supplies needed for operation, including explosives, fuels, chemical reagents, water, equipment parts and lubricants; labour shortages or strikes; civil disobedience and protests; and restrictions or regulations imposed by government agencies or other changes in the regulatory environments. Such occurrences could result in damage to mineral properties, interruptions in production, injury or death to persons, damage to property of the Company or others, monetary losses and legal liabilities. These factors may cause a mineral deposit that has been mined profitably in the past to become unprofitable, forcing the Company to cease production. It is not unusual in new mining operations to experience unexpected problems during the start-up phase. Depending on the price of gold or other minerals, the Company may determine that it is impractical to commence or, if commenced, to continue commercial production at a particular site.

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    The Company prepares estimates of operating and capital costs for each operation and project and no assurance can be given that such estimates will be achieved.

    The Company prepares estimates of operating costs and/or capital costs for each operation and project. No assurance can be given that such estimates will be achieved. Failure to achieve cost estimates or material increases in costs could have an adverse impact on future cash flows, profitability, results of operations and financial condition.

    AuRico’s actual costs may vary from estimates for a variety of reasons, including: actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; short-term operating factors relating to the ore reserves, such as the need for sequential development of orebodies and the processing of new or different ore grades; revisions to mine plans; risks and hazards associated with mining; natural phenomena, such as inclement weather conditions, water availability, floods, and earthquakes; and unexpected labor shortages or strikes. Costs of production may also be affected by a variety of factors, including: changing waste-to-ore ratios, ore grade metallurgy, labor costs, cost of commodities, general inflationary pressures and currency exchange rates.

    Changes in the market price of gold and, to a lesser extent, silver and copper, which in the past have fluctuated widely, may affect the profitability of the Company’s operations and financial condition.

    The Company’s profitability and long-term viability depend, in large part, upon the market price of gold and other metals that may be produced from its properties. The market price of gold and other metals is volatile and is impacted by numerous factors beyond the Company’s control, including:

    • expectations with respect to the rate of inflation;
    • the relative strength of the U.S. dollar and certain other currencies;
    • interest rates;
    • global or regional political or economic conditions;
    • supply and demand for jewellery and industrial products containing metals;
    • costs of substitutes;
    • changes in global or regional investment or consumption patterns;
    • inventory carrying costs;
    • increased production due to new mine developments and improved mining and production methods;
    • metal stock levels maintained by producers and others; and
    • sales by central banks and other holders, speculators and producers of gold and silver and other metals in response to any of the above factors.

    There can be no assurance that the market price of gold and other metals will remain at current levels or that such prices will improve. A decrease in the market prices could adversely affect the profitability of the Company’s existing mines and projects as well as its ability to finance the exploration and development of additional properties, which would have a material adverse effect on the financial condition and results of operations. If the Company’s exploration activities are curtailed or suspended as a result of a decrease in metal prices, the result will be that depleted reserves are not replaced. A decline in the market prices of gold, silver or copper may require the Company to write-down mineral reserve and resource estimates and revise life-of-mine plans, which could result in material write-downs of investments in mining properties. Any of these factors could result in a material adverse effect on the results of operations and financial condition. Further, if revenue from gold bullion sales declines, the Company may experience liquidity difficulties. The cash flow generated from mining operations may be insufficient to meet the Company’s operating needs, and as a result it could be forced to discontinue production and could lose its interest in, or be forced to sell, some or all of its properties.

    In addition to adversely affecting the Company’s reserve and resource estimates and financial condition, declining metal prices can impact operations by requiring a reassessment of the feasibility of a particular project, and the Company may determine that it is not feasible to continue commercial production at some of all of its current projects. Even if a project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays and/or may interrupt operations until the reassessment can be completed, which may have a material adverse effect on the results of operations and financial condition.

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    From time to time the Company may engage in commodity hedging transactions intended to reduce the risk associated with fluctuations in commodity prices, but there is no assurance that any such commodity-hedging transactions designed to reduce the risk associated with fluctuations in metal prices will be successful. Hedging may not protect adequately against declines in the price of the hedged metal. Furthermore, although hedging may protect the Company from a decline in the price of the metal being hedged, it may also prevent it from benefiting from price increases.

    Fluctuations in foreign currency exchange rates could significantly affect the Company’s business, financial condition, results of operations and liquidity.

    The Company’s operating results and cash flow are significantly affected by changes in the US/Canadian dollar and US/Mexican peso exchange rates. Revenues are denominated in U.S. dollars, while most expenses are currently denominated in Canadian dollars and Mexican pesos. Exchange rate movements can therefore have a significant impact on most of the Company’s costs. The appreciation of non-U.S. dollar currencies against the U.S. dollar can increase the costs of production at AuRico’s mines, making these mines less profitable.

    From time to time the Company may engage in foreign exchange hedging transactions intended to reduce the risk associated with fluctuations in foreign exchange rates, but there is no assurance that any such hedging transactions designed to reduce the risk associated with fluctuations in exchange rates will be successful. Hedging may not protect adequately against the strengthening of the Canadian dollar and Mexican peso and, therefore, operating costs and capital expenditures may be adversely impacted. Furthermore, although hedging may protect the Company from strengthening Canadian dollar and Mexican peso exchange rates, it may also prevent the Company from benefitting from the weakening of these currencies.

    The Company must continually replace and expand mineral reserves and mineral resources.

    The Company must continually replace reserves depleted by production to maintain production levels over the long term. Reserves can be replaced by expanding known orebodies, locating new deposits or making acquisitions. Exploration is highly speculative in nature. AuRico’s exploration projects involve many risks and are frequently unsuccessful. Once a site with mineralization is discovered, it may take several years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish proven and probable reserves and to construct mining and processing facilities. As a result, there is no assurance that current or future exploration programs will be successful. There is a risk that depletion of reserves will not be offset by discoveries or acquisitions. The mineral base of AuRico may decline if reserves are mined without adequate replacement and the Company may not be able to sustain production beyond the current mine lives, based on current production rates.

    Changes in the cost of energy and in the prices of commodities used in operations may adversely affect the profitability of the Company’s operations and financial condition.

    Mining operations and facilities are intensive users of electricity and carbon-based fuels. Energy prices can be affected by numerous factors beyond the Company’s control, including global and regional supply and demand, political and economic conditions, and applicable regulatory regimes. The prices of various sources of energy may increase significantly from current levels. An increase in energy prices for which the Company is not hedged could materially adversely affect the results of operations and financial condition.

    The Company’s production costs are also affected by the prices of commodities consumed or used in operations, such as lime, cyanide and explosives. The prices of such commodities are influenced by supply and demand trends affecting the mining industry in general and other factors outside the Company’s control. Increases in the price for materials consumed in mining and production activities could materially adversely affect the Company’s results of operations and financial condition.

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    The figures for the Company’s reserves and resources are estimates based on interpretation and assumptions and may yield less mineral production under actual conditions than is currently estimated.

    The Company’s mineral reserve and mineral resource estimates are estimates only and no assurance can be given that any particular level of recovery of gold or other minerals from mineral resources or mineral reserves will in fact be realized. There can also be no assurance that an identified mineral deposit will ever qualify as a commercially mineable (or viable) ore body which can be economically exploited. Additionally, no assurance can be given that the anticipated tonnages and grades will be achieved or that the indicated level of recovery will be realized. These estimates may require adjustments or downward revisions based upon further exploration or development work or actual production experience.

    Estimates of mineral resources and mineral reserves can also be affected by such factors as environmental permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions. In addition, the grade of ore ultimately mined may differ dramatically from that indicated by results of drilling, sampling and other similar examinations. Short term factors relating to mineral resources and mineral reserves, such as the need for orderly development of ore bodies or the processing of new or different grades, may also have an adverse effect on mining operations and on the results of operations. Material changes in mineral resources and mineral reserves, grades, stripping ratios or recovery rates may affect the economic viability of projects. Mineral resources and mineral reserves are reported as general indicators of mine life. Mineral resources and mineral reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations. There is a degree of uncertainty attributable to the calculation and estimation of mineral resources and mineral reserves and corresponding grades being mined or dedicated to future production. Until ore is actually mined and processed, mineral reserves and grades must be considered as estimates only.

    In addition, the quantity of mineral resources and mineral reserves may vary depending on mineral prices. Extended declines in market prices for gold, silver and copper may render portions of the Company’s mineralization uneconomic and result in reduced reported mineralization. Any material change in mineral resources and mineral reserves, grades or stripping ratios may affect the economic viability of the Company’s projects.

    Mineral resources that are not mineral reserves do not have demonstrated economic viability. The SEC does not permit mining companies in their filings with the SEC to disclose estimates other than mineral reserves. However, because the Company prepares its reserve and resource estimates in accordance with Canadian disclosure requirements, it contains resource estimates, which are required by NI 43-101. Mineral resource estimates for properties that have not commenced production are based, in many instances, on limited and widely spaced drill hole information, which is not necessarily indicative of the conditions between and around drill holes. Accordingly, such mineral resource estimates may require revision as more drilling information becomes available or as actual production experience is gained. No assurance can be given that any part or all of mineral resources constitute or will be converted into reserves.

    The Company’s operations across different countries subject it to various political, economic and other risks that could negatively impact AuRico’s operations and financial condition.

    The Company’s mining operations are currently conducted in Canada and Mexico. As a result of activities in multiple jurisdictions, the Company is exposed to various levels of political, economic and other risks and uncertainties.

    Some of the Company’s property interests are located in Mexico and are subject to Mexican federal and state laws and regulations. As a result, the Company’s mining investments are subject to the risks normally associated with the conduct of business in foreign countries. The Company believes the current governments of Mexico and the State of Sonora (where El Chanate is located) are favorably inclined towards foreign investment and mining generally, however, investors should assess the political risks of investing in a foreign country. Any significant changes to the current regulatory, economic and political climate could adversely impact the affairs of the Company.

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    The risks of conducting business in a foreign country may include, among others, labor disputes, invalidation of governmental orders and permits, uncertain political and economic environments, sovereign risk, civil disturbances, terrorist actions, war, arbitrary changes in laws or policies, the failure of foreign parties to honor contractual relations, corruption, delays in obtaining or the inability to obtain necessary governmental permits, opposition to mining from environmental or other non-governmental organizations, limitations on foreign ownership, limitations on the repatriation of earnings, limitations on gold exports, instability due to economic uncertainty or inadequate infrastructure, difficulties enforcing judgments obtained in Canadian or United States courts against assets located outside of those jurisdictions, changes to royalty and tax regimes, difficulty complying with the regulatory and legal framework respecting the ownership and maintenance of mineral properties, mines and mining operations, difficulty obtaining key equipment and components for equipment and increased financing costs. In addition, the enforcement of the Company’s legal rights to exploit its properties may not be recognized by a foreign court system. These risks may limit or disrupt the Company’s operations, restrict the movement of funds or result in the deprivation of contractual or property rights. Any variation from the current regulatory, economic and political climate could have an adverse effect on the affairs of the Company.

    The Company is, and expects to continue to be, dependent on two mines for all of its commercial production.

    The Young-Davidson and the El Chanate mines accounted for all of the Company’s commercial production in 2014 and are expected to continue to account for all of its commercial production for the foreseeable future. Any adverse condition affecting mining or processing conditions at Young-Davidson or El Chanate could have a material adverse effect on the Company’s financial performance and results of operations.

    The Company requires licenses, permits and approvals from various governmental authorities to conduct its operations, any loss of which could have a material adverse effect on its business.

    The Company’s business activities, including mining operations, exploration, development and expansions, require numerous permits and licenses from various levels of governmental authorities. The Company may also be required to obtain certain property rights to access or use certain of its properties. There can be no assurance that all required licenses, permits or property rights which the Company requires for its business activities and mining operations will be obtainable on reasonable terms or in a timely manner, or at all, that such terms may not be adversely changed, that required extension will be granted, or that the issuance of such licenses, permits or property rights will not be challenged by third parties. Delays in obtaining or a failure to obtain such licenses, permits, property rights or extensions thereto, challenges to the issuance of such licenses, permits or property rights, whether successful or unsuccessful, changes to the terms of such licenses, permits or property rights, or a failure to comply with the terms of any such licenses, permits or property rights that the Company has obtained, could have a material adverse impact on the Company.

    In order for the Company to carry out its mining activities, the Company's exploitation licences must be kept current. There is no guarantee that the Company's exploitation licences will be extended or that new exploitation licences will be granted. In addition, such exploitation licences could be changed and there can be no assurances that any application to renew any existing licences will be approved. The Company will also have to obtain and comply with permits and licences which may contain specific conditions concerning operating procedures, water use, waste disposal, spills, environmental studies, abandonment and restoration plans and financial assurances. There can be no assurance that the Company will be able to comply with any such conditions.

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    The Company cannot guarantee that title to its properties will not be challenged.

    Title insurance is generally not available for mineral properties and the Company’s ability to ensure that it has obtained secure claim to individual mineral properties or mining concessions may be severely constrained. The Company’s mineral properties may be subject to prior unregistered agreements, transfers or claims, and title may be affected by, among other things, undetected defects. A successful challenge to the precise area and location of these claims could result in the Company being unable to operate on its properties as permitted or being unable to enforce its rights with respect to its properties.

    Exploration and development projects are uncertain and consequently capital cost estimates as well as projected operating costs and economic returns may differ significantly from those estimated for a project.

    Few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish mineral reserves by drilling and to construct mining and processing facilities at a particular site. It is impossible to ensure that the current exploration and development programs of the Company will result in profitable commercial mining operations. The profitability of the Company’s operations will be, in part, directly related to the cost and success of its exploration and development programs which may be affected by a number of factors.

    Mineral resource exploration and development is a highly speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but also from finding mineral deposits that, though present, are insufficient in tonnage, grade or continuity to return a profit from production.

    Development projects are subject to, among other things, the completion of positive economic analyses and environmental assessments, issuance of necessary governmental permits and availability of adequate financing. Development projects typically require several years and significant expenditures during the development phase before production is possible. The economic feasibility of development projects is based on many factors such as:

    • Estimation of mineral reserves;
    • Anticipated metallurgical recoveries;
    • Environmental considerations and permitting;
    • Future commodity prices; and
    • Anticipated capital and operating costs.

    Capital and operating cost estimates are, to a large extent, based upon feasibility studies, which derive estimates from anticipated tonnage and grades of ore to be mined and processed, the configuration of the orebody, expected recovery rates of metals from the ore, estimated operating costs and other factors. As a result, it is possible that actual costs and returns will differ significantly from those initially estimated for a project prior to production.

    Any of the following events, among others, could affect the profitability or economic feasibility of a project:

    • Unanticipated changes in grade and tonnage of ore to be mined and processed;
    • Unanticipated adverse geotechnical conditions;
    • Incorrect data on which engineering assumptions are made;
    • Costs of constructing and operating a mine;
    • Availability and costs of processing facilities;
    • Availability of economic sources of power;
    • Adequacy of water supply;
    • Adequate infrastructure;
    • Government actions and regulations;
    • Title claims, including aboriginal or ejido land claims;
    • Fluctuations in prices of precious metals; and
    • Accidents, labor actions and force majeure events.

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    Anticipated capital and operating costs, production and economic returns, and other estimates contained in technical and economic analyses may differ significantly from the Company’s actual capital and operating costs, production and economic returns and such other estimates. Delays to construction schedules may negatively impact the net present value and internal rates of return of the Company’s mineral properties as set forth in the applicable feasibility studies.

    The costs, timing and complexities of mine construction, development and expansion are magnified by the remote location of some properties. It is not unusual in new mining operations to experience unexpected problems and delays during the construction and development of a mine. In addition, delays in the commencement or expansion of mineral production often occur and once commenced or expanded, production may not meet expectations or estimates set forth in feasibility or other studies. Accordingly, there are no assurances that the Company will successfully develop and expand mining operations or profitably produce precious metals at its properties.

    Aboriginal title claims, rights to consultation/accommodation, and the Company’s relationship with local communities may affect the Company’s existing operations and development projects.

    Governments in many jurisdictions must consult with Aboriginal peoples with respect to grants of mineral rights and the issuance or amendment of project authorizations. Consultation and other rights of Aboriginal people may require accommodations, including undertakings regarding employment, royalty payments and other matters. This may affect the Company’s ability to acquire, within a reasonable time frame, effective mineral titles in these jurisdictions, including in some parts of Canada, in which Aboriginal title is claimed, and may affect the timetable and costs of development of mineral properties in these jurisdictions. The risk of unforeseen Aboriginal title claims also could affect existing operations as well as development projects. These legal requirements may also affect the Company’s ability to expand or transfer existing operations or to develop new projects.

    The Company’s relationship with the communities in which it operates are critical to ensure the future success of its existing operations and the construction and development of its projects. There is an increasing level of public concern relating to the perceived effect of mining activities on the environment and on communities impacted by such activities. Adverse publicity relating to the mining industry generated by non-governmental organizations and others could have an adverse effect on the Company’s reputation or financial condition and may impact its relationship with the communities in which it operates. While the Company is committed to operating in a socially responsible manner, there is no guarantee that the Company’s efforts in this regard will mitigate this potential risk

    Regulatory requirements significantly affect the Company’s mining operations and may have a material adverse impact on its future cash flow, results of operations and financial condition.

    Mining operations, development and exploration activities are subject to extensive laws and regulations governing prospecting, development, production, exports, taxes, labor standards, occupational health and safety, waste disposal, environmental protection and remediation, protection of endangered and protected species, mine safety, toxic substances and other matters. Mining is subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mineral exploration, development and production. The costs of discovering, evaluating, planning, designing, developing, constructing, operating and closing mines and other facilities in compliance with such laws and regulations are significant.

    Failure to comply with applicable laws and regulations may result in enforcement actions thereunder, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in mining operations may be required to compensate those claiming loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for alleged violations of applicable laws or regulations.

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    New laws and regulations, amendments to existing laws and regulations, administrative interpretation of existing laws and regulations, or more stringent enforcement of existing laws and regulations, could have a material adverse impact on the Company’s future cash flow, results of operations and financial condition. In addition, changes in accounting rules or the interpretation of such rules may adversely impact on the presentation of Company’s financial performance.

    The Company’s activities are subject to environmental laws and regulations that may increase its costs of doing business and restrict its operations.

    The Company’s exploration and production activities in Canada and Mexico are subject to regulation by governmental agencies under various environmental laws. These laws address noise, emissions, water discharges, waste management, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. Environmental legislation in many countries is evolving and the trend has been towards stricter standards and enforcement, increased fines, penalties and potential for facilities to be shut-down for non-compliance, more stringent environmental assessments of proposed projects and increasing responsibility for companies and their officers, directors and employees. Compliance with environmental laws and regulations may require significant capital outlays on behalf of the Company and may cause material changes or delays in the Company’s intended activities. There can be no assurance that future changes in environmental regulations will not adversely affect the Company’s business, and it is possible that future changes in these laws or regulations could have a significant adverse impact on some portion of the Company’s business, causing the Company to re-evaluate those activities at that time.

    Failure to comply with such laws and regulations can have serious consequences, including damage to the Company’s reputation, stopping the Company from proceeding with the development of a project, negatively impacting the operation or further development of a mine, increasing the cost of development or production and litigation and regulatory actions against the Company. The Company cannot give any assurance that, notwithstanding its precautions, breaches of environmental laws (whether inadvertent or not) or environmental pollution will not materially and adversely affect its financial condition and its results from operations. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s operations. Environmental hazards may exist on the properties on which the Company holds interests which are unknown to the Company at present and which have been caused by previous or existing owners or operators of the properties. The Company may also acquire properties with known or undiscovered environmental risks. Any indemnification from the entity from which the Company has acquired such properties may not be adequate to pay all the fines, penalties and costs (such as clean-up and restoration costs) incurred related to such properties. Some of the Company’s properties also have been used for mining and related operations for many years before acquisition and were acquired as is or with assumed environmental liabilities from previous owners or operators.

    The Company’s failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. The Company may be required to compensate those suffering loss or damage by reason of its operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.

    Production at certain of the Company’s mines involves the use of various chemicals, including cyanide, which is a toxic material. Should cyanide or other toxic chemicals leak or otherwise be discharged from the containment system, the Company may become subject to liability for cleanup work that may not be insured. While appropriate steps will be taken to prevent discharges of pollutants into the ground water and the environment, the Company may become subject to liability for hazards that it may not be insured against and such liability could be material.

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    Actual costs of reclamation are uncertain, and higher than expected costs could negatively impact the results of operations and financial position.

    Land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long term effects of land disturbance, and the Company is subject to such requirements at its mineral properties. Reclamation obligations include requirements to:

    • Control dispersion of potentially deleterious effluents; and

    • Reasonably re-establish pre-disturbance land forms and vegetation.

    In order to carry out reclamation obligations arising from exploration and potential development activities, the Company must allocate financial resources that might otherwise be spent on further exploration and development programs. Reclamation costs are uncertain and planned expenditures may differ from the actual expenditures required. If the Company is required to carry out unanticipated reclamation work, its financial position could be adversely affected.

    The Company may not be able to obtain the external financing necessary to continue its exploration and development activities on its mineral properties.

    The ability of the Company to continue the exploration and development of its property interests will be dependent upon its ability to increase revenues from its existing production and planned expansions, and potentially raise significant additional financing thereafter. The sources of external financing that the Company may use for these purposes may include project debt, corporate debt or equity offerings. There is no assurance that the financing alternative chosen by the Company will be available to the Company, on favourable terms or at all. Depending on the alternative chosen, the Company may have less control over the management of its projects. There is no assurance that the Company will successfully increase revenues from existing and expanded production. Should the Company not be able to obtain such financing and increase its revenues, it may become unable to acquire and retain its exploration properties and carry out exploration and development on such properties, and its title interests in such properties may be adversely affected or lost entirely.

    In order to finance future operations, the Company may raise funds through the issuance of shares or the issuance of debt instruments or other securities convertible into shares.

    The Company cannot predict the potential need or size of future issuances of common shares or the issuance of debt instruments or other securities convertible into shares or the effect, if any, that this would have on the market price of the Company’s common shares. Any transaction involving the issuance of shares, or securities convertible into shares, could result in dilution, possibly substantial, to present and prospective security holders.

    The Company’s level of indebtedness could have material and adverse consequences to the Company’s security holders.

    The Company has a significant amount of secured indebtedness. The Company’s high level of indebtedness, including the secured notes issued on March 27, 2014, could have material and adverse consequences to the Company and the Company’s securityholders, including:

    • making it more difficult for the Company to satisfy its obligations to pay interest and to pay principal when due;

    • limiting the Company’s ability to obtain additional financing to repay existing indebtedness, fund future working capital, capital expenditures, acquisitions or other general corporate requirements, or requiring the Company to make non-strategic divestitures;

    • requiring a substantial portion of the Company’s cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for payment of cash dividends, working capital, capital expenditures, acquisitions and other general corporate purposes;

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    • increasing the Company’s vulnerability to general adverse economic and industry conditions;

    • limiting the Company’s flexibility in planning for and reacting to changes in the industry in which it competes;

    • placing the Company at a disadvantage compared to other, less leveraged competitors; and

    • increasing the Company’s cost of borrowing.

    The Company may not be able to generate sufficient cash to service all of its indebtedness, including the secured notes, and may be forced to take other actions to satisfy its obligations under such indebtedness, which may not be successful. The Company’s ability to make scheduled payments on or refinance its debt obligations depends on its financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond its control. The Company may be unable to maintain a level of cash flows from operating activities sufficient to permit it to pay the principal, premium, if any, and interest on the Company’s indebtedness.

    If the Company’s cash flows and capital resources are insufficient to fund its debt service obligations, it could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance its indebtedness. The Company may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternatives may not allow the Company to meet its scheduled debt service obligations. The Company’s revolving credit facility and the indenture governing the secured notes will restrict its ability to dispose of assets and use the proceeds from those dispositions and may also restrict its ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. The Company may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

    Should the Company incur additional debt, this could increase the risks to its financial condition described above.

    The Company’s revolving credit facility and the indenture governing the secured notes contain a number of restrictive covenants that impose significant operating and financial restrictions on the Company and may limit its ability to engage in acts that may be in the Company’s long-term best interest.

    The Company’s failure to comply with covenants in its revolving credit facility and senior secured notes indenture could result in an event of default which, if not cured or waived, could result in a cross-default under other debt instruments and the acceleration of all its debt. The restrictions include, without limitation, restrictions on its ability to:

    • incur additional indebtedness;
    • pay dividends or make other distributions or repurchase or redeem its capital stock;
    • prepay, redeem or repurchase certain debt;
    • make loans and investments;
    • sell, transfer or otherwise dispose of assets;
    • incur or permit to exist certain liens;
    • enter into transactions with affiliates;
    • enter into agreements restricting its subsidiaries’ ability to pay dividends; and
    • consolidate, amalgamate, merge or sell all or substantially all of the Company’s assets.

    The Company’s ability to raise funds through the issuance of debt instruments could be adversely impacted by the credit rating of the Company’s existing debt.

    The Company’s debt currently has a non-investment grade rating, and any rating assigned could be lowered or withdrawn entirely by a rating agency, if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Any future lowering of the Company’s ratings likely would make it more difficult or more expensive for it to obtain additional debt financing.

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    The Company depends on key management and qualified operating personnel and may not be able to attract and retain such persons in the future.

    The Company’s success is heavily dependent on its key personnel and on the ability to motivate, retain and attract highly skilled persons. The competition for qualified personnel in the mining industry is currently intense.

    In addition, the Company anticipates that as it expands its existing production and brings additional properties into production, and as the Company acquires additional mineral rights, the Company may experience significant growth in its operations. This growth may create new positions and responsibilities for management personnel and increase demands on its operating and financial systems, as well as require the hiring of a significant number of additional operations personnel. There can be no assurance that the Company will successfully meet these demands and effectively attract and retain any such additional qualified personnel. The failure to attract and retain such qualified personnel to manage growth effectively could have a material adverse effect on the Company’s business, financial condition or results of operations.

    Exploration, development and production at the Company’s mining operations are dependent upon the efforts of its employees and its relations with the employees and any labor unions that represent employees.

    Relations between the Company and its employees may be affected by changes in the scheme of labour relations that may be introduced by Mexican or Canadian governmental authorities in whose jurisdictions the Company carries on business. Changes in such legislation or in the relationship between the Company and its employees may have a material adverse effect on the Company’s business, results of operations and financial condition.

    The Company may be unable to compete successfully with other mining companies.

    Competition in the mining industry is intense and could adversely affect the Company’s ability to acquire suitable producing properties or prospects for mineral exploration in the future. The international mining industry is highly competitive. The Company’s ability to acquire properties and add mineral reserves in the future will depend not only on its ability to develop its present properties, but also on its ability to select and acquire suitable producing properties or prospects for mineral exploration. The Company may be at a competitive disadvantage in acquiring additional mining properties because it must compete with companies that have greater financial resources, operational experience and technical capabilities. Increased competition could also adversely affect the Company’s ability to attract necessary capital funding in the future.

    Over the past several years there have been increases in mining exploration, development and construction activities, which have resulted in increased demand for, and cost of, exploration, development and construction services and equipment. Increased demand for services and equipment could cause project costs to increase materially, resulting in delays if services or equipment cannot be obtained in a timely or cost-effective manner due to inadequate availability or unreasonable costs. Potential scheduling difficulties and additional costs may also arise due to the need to coordinate the availability of services and/or equipment. If any of the foregoing were to occur, it could materially increase project exploration, development or construction costs, result in project delays or both.

    The Company’s directors and officers may have interests that conflict with the Company’s interests.

    Certain of the Company’s directors and officers serve as directors or officers of other public companies and as such it is possible that a conflict may arise between their duties as the Company’s directors or officers and their duties as a directors or officers of these other companies.

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    The trading price of the Company’s common shares may be subject to large fluctuations and may increase or decrease in response to a number of events and factors.

    These factors may include:

    • The price of gold and other metals;
    • The Company’s operating performance and the performance of competitors and other similar companies;
    • The public’s reaction to the Company’s press releases, other public announcements and the Company’s filings with the various securities regulatory authorities;
    • Changes in earnings estimates or recommendations by research analysts who track the Company’s common shares or the shares of other companies in the resource sector;
    • Changes in general economic conditions;
    • The number of the Company’s common shares to be publicly traded after an offering;
    • The arrival or departure of key personnel; and
    • Acquisitions, strategic alliances or joint ventures involving the Company or its competitors.

    In addition, the market price of the Company’s shares are affected by many variables not directly related to the Company’s success and are therefore not within the Company’s control, including other developments that affect the market for all resource sector shares, the breadth of the public market for the Company’s shares, and the attractiveness of alternative investments. In addition, securities markets have recently experienced an extreme level of price and volume volatility, and the market price of securities of many companies has experienced wide fluctuations which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. The effect of these and other factors on the market price of the common shares on the exchanges in which the Company trades has historically made the Company’s share price volatile and suggests that the Company’s share price will continue to be volatile in the future.

    Mining is inherently dangerous and subject to conditions or events beyond the Company’s control, which could have a material adverse effect on its business and which conditions and events may not be insurable.

    Mining involves various types of risks and hazards, including, but not limited to:

    • Environmental hazards;
    • Industrial accidents;
    • Metallurgical and other processing problems;
    • Unusual or unexpected rock formations;
    • Rock falls, pit wall failures and cave-ins;
    • Seismic activity;
    • Flooding;
    • Fires;
    • Periodic interruptions due to inclement or hazardous weather conditions;
    • Variations in grade, deposit size, continuity and other geological problems;
    • Mechanical equipment performance problems;
    • Unavailability of materials and equipment;
    • Theft of equipment, supplies and bullion;
    • Labour force disruptions;
    • Civil strife; and
    • Unanticipated or significant changes in the costs of supplies.

    Most of these risks are beyond the Company’s control and could result in damage to, or destruction of, mineral properties, production facilities or other properties, personal injury or death, loss of key employees, environmental damage, delays in mining, increased production costs, monetary losses and possible legal liability.

    		50

    Some risks facing the Company are uninsured and/or uninsurable. Where considered practical to do so, the Company maintains insurance to cover insurable risks in the operation of its business in amounts which it believes to be reasonable in the circumstances. Such insurance, however, contains exclusions and limitations on coverage. There can be no assurance that such insurance will continue to be available, will be available at economically acceptable premiums or will be adequate to cover any resulting liability. Insurance against certain environmental risks, including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from production, is not generally available to the Company or to other companies within the mining industry. The Company may suffer a material adverse effect on its business if it incurs losses related to any significant events that are not covered by its insurance policies. Payment of such liabilities would reduce funds available for acquisition of mineral prospects or exploration and development and would have a material adverse effect on the financial position of the Company.

    Litigation could be brought against the Company and the resolution of legal proceedings or disputes may have a material adverse effect on the Company’s future cash flows, results of operations or financial condition.

    The Company could be subject to legal claims and/or complaints and disputes with other parties that result in litigation, including unexpected environmental remediation costs, arising out of the normal course of business. The results of litigation cannot be predicted with certainty. The costs of defending and settling litigation can be significant, even for claims that have no merit. There is a risk that if such claims are determined adversely to the Company, they could have a material adverse effect on the Company’s financial performance, cash flow and results of operations.

    The Company may fail to maintain the adequacy of internal control over financial reporting as per the requirements of the Sarbanes-Oxley Act of 2002 (“SOX”).

    The Company has documented and tested, during its most recent fiscal year, its internal control procedures in order to satisfy the requirements of Section 404 of SOX. Both SOX and Canadian legislation require an annual assessment by management of the effectiveness of the Company’s internal control over financial reporting.

    The Company may fail to maintain the adequacy of its internal control over financial reporting as such standards are modified, supplemented, or amended from time to time, and the Company may not be able to ensure that it can conclude on an ongoing basis that it has effective internal controls over financial reporting. The Company’s failure to satisfy the requirements of Section 404 of SOX and equivalent Canadian legislation on an ongoing, timely basis could result in the loss of investor confidence in the reliability of its financial statements, which in turn could harm the Company’s business and negatively impact the trading price of the Company’s common shares or market value of its other securities. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results or cause it to fail to meet its reporting obligations.

    The Company is subject to taxation in multiple jurisdictions and adverse changes to the taxation laws of such jurisdictions could have a material adverse effect on its profitability.

    The Company has operations and conducts business in multiple jurisdictions and it is subject to the taxation laws of each such jurisdiction. These taxation laws are complicated and subject to change, as well the Company may be subject to review and assessment in the ordinary course. Any such changes in taxation law or reviews and assessments could result in higher taxes being payable, which could adversely affect the Company’s profitability. Taxes may also adversely affect the Company’s ability to repatriate earnings and otherwise deploy its assets.

    		51

    The Company may be unable to identify opportunities to grow its business or replace depleted reserves, and it may be unsuccessful in integrating new businesses and assets that it may acquire in the future.

    As part of the Company’s business strategy, it has sought and will continue to seek new operating, development and exploration opportunities in the mining industry. In pursuit of such opportunities, the Company may fail to select appropriate acquisition candidates or negotiate acceptable arrangements, including arrangements to finance acquisitions or integrate the acquired businesses into its business. The Company cannot provide assurance that it can complete any acquisition or business arrangement that it pursues, or are pursuing, on favorable terms, if at all, or that any acquisitions or business arrangements completed will ultimately benefit its business. Further, any acquisition the Company makes will require a significant amount of time and attention of its management, as well as resources that otherwise could be spent on the operation and development of its existing business.

    Any future acquisitions would be accompanied by risks, such as a significant decline in the relevant metal price after the Company commits to complete an acquisition on certain terms; the quality of the mineral deposit acquired proving to be lower than expected; the difficulty of assimilating the operations and personnel of any acquired companies; the potential disruption of its ongoing business; the inability of management to realize anticipated synergies and maximize its financial and strategic position; the failure to maintain uniform standards, controls, procedures and policies; and the potential for unknown or unanticipated liabilities associated with acquired assets and businesses, including tax, environmental or other liabilities. There can be no assurance that any business or assets acquired in the future will prove to be profitable, that the Company will be able to integrate the acquired businesses or assets successfully or that the Company will identify all potential liabilities during the course of due diligence. Any of these factors could have a material adverse effect on its business, expansion, results of operations and financial condition.

    The Company may be impacted by Anti-Bribery laws.

    The Canadian Corruption of Foreign Public Officials Act and the U.S. Foreign Corrupt Practices Act and anti-bribery laws in other jurisdictions, generally prohibit companies and their intermediaries from making improper payments for the purposes of obtaining or retaining business or other commercial advantage. The Company’s policies mandate compliance with these anti-bribery laws, which often carry substantial penalties. The Company operates in jurisdictions that have experienced governmental and private sector corruption to some degree, and, in certain circumstances, strict compliance with anti-bribery laws may conflict with certain local customs and practices. There can be no assurances that the Company’s internal control policies and procedures will always protect it from reckless or other inappropriate acts committed by the Company’s affiliates, employees or agents. Violations of these laws, or allegations of such violations, could have a material adverse effect on the Company’s business, financial position and results of operations.

    The Company may be impacted by the actions of Joint Venture participants

    Certain of the properties in which the Company has an interest are operated through joint ventures with other mining companies. Any failure of such other mining companies to meet their obligations to the Company or to third parties, or any disputes with respect to the parties’ respective rights and obligations, could have a material adverse effect on the joint ventures or their properties and/or could result in additional liabilities or claims against the Company.

    The Company may be adversely affected by global economic conditions

    In recent years financial conditions have been characterized by volatility, which in turn has resulted in volatility in commodity prices and foreign exchange rates, tightening of the credit market, increased counterparty risk, and volatility in the prices of publicly traded entities. The volatility in commodity prices and foreign exchange rates directly impacts the Company’s revenues, earnings and cash flow. Global economic conditions may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. Additionally, access to financing may be negatively impacted by global economic conditions and this may impact the Company’s ability to obtain equity or debt financing in the future on terms favourable to the Company.

    		52

    CORPORATE GOVERNANCE

    Directors

    Each of the Company’s directors holds office until the next annual meeting of shareholders or until a successor is appointed. The following are the directors of the Company as at February 19, 2015:

    RICHARD M. COLTERJOHN
    Ontario, Canada
    Director (Independent) since 2010

    Member of:

    • Audit Committee

    • Nominating & Corporate Governance Committee

    Mr. Richard Colterjohn is an independent director with more than 20 years of experience in the mining sector, as an investment banker, director, and operator. Mr. Colterjohn is currently a Managing Partner of Glencoban Capital Management Inc. He was founder and CEO of Centenario Copper Corporation and previously served as a Managing Director of UBS Warburg and UBS Bunting Warburg. Mr. Colterjohn holds a Bachelor of Commerce degree and an MBA.

    MARK J. DANIEL
    Ontario, Canada
    Director (Independent) since 2011

    Member of:

    • Human Resources Committee

    • Nominating & Corporate Governance Committee

    Mr. Mark Daniel is an independent director with more than 35 years of international experience. Most recently, Mr. Daniel was Vice President, Human Resources for Vale Canada (formerly Inco Limited). Prior to that, he worked with the Bank of Canada and a number of other federal agencies before joining the Conference Board of Canada. Mr. Daniel holds a PhD in Economics.

    PATRICK D. DOWNEY
    Ontario, Canada
    Director (Independent) since 2011

    Member of:

    • Audit Committee

    • Human Resources Committee

    Mr. Patrick Downey, CPA, is a corporate director who has been involved in the copper and gold mining industry throughout most of his 35 year career. Mr. Downey was an executive and director for several public resource companies and the Chief Financial Officer of Northgate Minerals Corporation for four years, retiring as President and CEO in 1994. He is certified by the Institute of Corporate Directors and a member of the Ontario Chapter of the Canadian Institute of Chartered Accountants. Mr. Downey holds an Honours Bachelor of Commerce degree from Laurentian University.


    		53

    ALAN R. EDWARDS
    Arizona, USA
    Director (Independent) since 2010, Chairman since 2013

    Member of:

    • Technical & Sustainability Committee

    Mr. Alan Edwards has over 30 years of international mining experience. Mr. Edwards was formerly the CEO of Oracle Mining Corporation and was President and Chief Executive Officer and Director of Copper One Inc. Prior to that, he held positions as Chief Executive Officer and Director of Frontera Copper Corporation, and Executive Vice President and Chief Operating Officer of Apex Silver Mines Corporation. Mr. Edwards holds a Bachelor of Science degree in Mining Engineering and an MBA.

    SCOTT G. PERRY
    Ontario, Canada
    Director since 2012

    Member of:

    • Technical & Sustainability Committee

    Mr. Scott Perry is the President and Chief Executive Officer and a Director of AuRico. Mr. Perry has held increasingly senior financial positions in the mining industry over the past 15 years. Most recently, he served as the Company’s Executive Vice President and Chief Financial Officer for over four years. Prior to joining the Company, Mr. Perry was the Chief Financial Officer (seconded from Barrick Gold) for Highland Gold Mining, where he managed the company’s financial reporting and compliance commitments, as well as the execution of its short and long-term financial and operational strategies. He also led Highland Gold’s business and corporate development initiatives. Before being seconded to Highland Gold, he held increasingly senior financial roles with Barrick in Australia, the United States, and in Russia, Central Asia where he was instrumental in establishing Barrick’s presence in Russia and assembling a strong financial team. Mr. Perry holds a Bachelor of Commerce degree from Curtin University, a post-graduate diploma in applied finance and investment, as well as a CPA designation.

    RONALD E. SMITH
    Nova Scotia, Canada
    Director (Independent) since 2009

    Member of:

    • Audit Committee

    • Human Resources Committee

    Mr. Ronald Smith, BBA, FCA, ICD.D, is an independent director with over 40 years of experience in the financial, telecommunications and energy sectors. Most recently, Mr. Smith was Senior Vice President and Chief Financial Officer of Emera Incorporated. Prior to that, he was Chief Financial Officer with Maritime Tel and Tel Limited. Mr. Smith was formerly a Partner of Ernst & Young and holds a CA designation.


    		 54

    JOSEPH G. SPITERI
    Ontario, Canada
    Director (Independent) from May 2010 to October 2011, and since 2012

    Member of:

    • Technical & Sustainability Committee

    • Nominating & Corporate Governance Committee (resigned effective February 19, 2015)

    Mr. Joseph Spiteri is an independent director with over 35 years of international mining experience. Mr. Spiteri is an independent mining consultant focused on advanced-stage exploration, feasibility, construction, operations management and acquisitions. Prior to that, he held senior management and executive positions with Placer Dome Incorporated, Northgate Explorations Limited, Lac Minerals Limited, and Campbell Resources Incorporated. Mr. Spiteri holds a Bachelor of Science degree from the University of Toronto. He is a member of The Canadian Institute of Mining and The Association of Professional Geoscientists of Ontario.

    JANICE STAIRS
    Nova Scotia, Canada
    Director (Independent) since 2014

    Member of:

    • Nominating & Corporate Governance Committee (appointed effective February 19, 2015)

    Ms. Janice Stairs, LLB, MBA, has over 25 years of experience in senior management and senior advisory roles with public and private companies involved in the natural resource and other sectors. Ms. Stairs is also a director of NovaCopper Inc., where she serves as a member of the Corporate Governance and Compensation Committees and is a director and Chair of Nova Scotia Business Inc. where she serves on the Investment Committee. Previously, Ms. Stairs served as General Counsel to Endeavour Mining Corporation, was Vice President and Corporate Counsel for Etruscan Resources Inc. and prior to 2004 was a partner with the law firm of McInnes Cooper where she continues to act as counsel to the firm. Ms. Stairs practiced law in private practise for 19 years specializing in corporate finance, securities and resource-related issues for private and public companies. Ms. Stairs graduated from Dalhousie Law School and holds a Masters of Business Administration degree from Queen’s University.

    Officers

    In addition to Scott G. Perry, as set out above, the following are the officers of the Company as at February 19, 2015:

    CHRIS J. BOSTWICK
    Ontario, Canada
    Senior Vice President, Technical Services

    Mr. Chris Bostwick was appointed Senior Vice President, Technical Services in January 2009. He holds over 25 years of experience in the global mining industry, 19 of which were spent with Barrick Gold in various roles. Mr. Bostwick has mining experience in operations, engineering, maintenance, strategic planning, and project evaluation and development gained in North and South America, Africa, and Russia. Prior to AuRico, he had been seconded from Barrick to Highland Gold Mining, where he led the Capital Projects and Technical Services groups for their development projects and one operating mine in Russia. Prior to that, Mr. Bostwick served as Barrick's Director of Evaluations and Capital Projects, working in the corporate development and technical services groups on M&A and feasibility studies. He also spent nine years at Barrick's flagship Goldstrike operation in Nevada. Mr. Bostwick has a Bachelor of Science degree in Mining Engineering from Queen’s University.


    		55

    ROBERT J. CHAUSSE
    Ontario, Canada
    Executive Vice President and Chief Financial Officer

    Mr. Robert Chausse joined the Company in January 2013. He brings with him more than 20 years of international finance and mining experience. Most recently, Mr. Chausse was the Vice President of Finance, Operations and Projects for Kinross Gold Corporation, a position he held since 2009. Prior to that, he was Chief Financial Officer for Baffinland Iron Mines Corporation from 2006 to 2009, and held increasingly senior positions with Barrick Gold from 1998 to 2006. Mr. Chausse received his Chartered Accountant designation in 1990.

    LUIS M. CHAVEZ
    San Luis Potosi, Mexico
    Senior Vice President, Mexico

    Dr. Luis Chavez is the Senior Vice President, Mexico. Prior to this, he served as the Company’s Director, Mexican Operations for over five years and as a member of the Company’s Board of Directors. Dr. Chavez has considerable experience in all mining related areas. He served as General Director of the Mexican Geological Survey (1994-2000), authored the National Mapping Program, and created the largest geology and mining databank currently in use by mining companies doing business in Mexico. In 2001, he was invited by the Governor of Coahuila State to become Energy and Mines Director to design sustainable development policies and strategies to maximize energy and mineral resources value. From 2002 to 2006, Dr. Chavez was Secretary General for the Mexican Mining Directors and was also President of the Mexican Institute for Environmental Management. He holds a Master of Science degree in Mineral Economics (1978) from Penn State University, a PhD degree in Energy and Mineral Economics (1982) from the University of Arizona, and a Business Administration degree (1989) from the Pan-American Business Institute in Monterrey, Mexico.

    ANNE L. DAY
    Ontario, Canada
    Vice President, Investor Relations and Communications

    Ms. Anne Day is AuRico’s Vice President of Investor Relations and Communications. She brings over 17 years of experience in investor relations, primarily in the mining sector. As part of the senior executive team, Ms. Day leads the development and implementation of AuRico’s global investor relations strategies as well as internal and external communications programs of the Company. Prior to joining AuRico, Ms. Day held senior IR roles with Nexient Learning and Etruscan Resources. Ms. Day holds a BComm degree (Marketing) and an MBA (Finance) from Saint Mary’s University.

    PETER K. MACPHAIL
    Ontario, Canada
    Executive Vice President and Chief Operating Officer

    Mr. Peter MacPhail joined the AuRico team through the Northgate transaction, where he was Chief Operating Officer for eight years. Mr. MacPhail holds over 25 years of solid operational experience in both Canada and Australia. While at Northgate, he had overall operations management responsibility for the Kemess, Fosterville and Stawell mines, as well as the Young-Davidson mine project. Prior to Northgate, Mr. MacPhail held increasingly senior roles at Noranda, Teck Resources, Homestake Resource, and Barrick Gold. He holds a Bachelor of Applied Science degree in Mineral Engineering from the University of Toronto, and is a licensed professional engineer in Ontario.

    		56

    CHARLENE K. MILNER
    Nova Scotia, Canada
    Senior Vice President, Finance

    Ms. Charlene Milner joined the Company in January 2008 as the Director, Financial Reporting. Since then, she held progressively senior positions with the Company, namely Senior Director, Finance, followed by Vice President, Finance in 2011. In 2012, she was appointed Senior Vice President, Finance. Ms. Milner is responsible for internal and external financial reporting, and the operations of the company-wide finance group. Prior to joining AuRico, Ms. Milner worked for eight years at Grant Thornton LLP, where she obtained her CA designation. Ms. Milner also holds a Bachelor of Commerce degree from Dalhousie University.

    CHRIS H. RICHTER
    Ontario, Canada
    Senior Vice President, Corporate Development

    Mr. Chris Richter joined AuRico in May 2010 as Vice President, Corporate Development, and has over 11 years of experience in the mining industry leading M&A, strategy, and capital allocation efforts. Prior to joining the Company, he spent seven years working at Barrick Gold. As part of the Corporate Development team at Barrick, Mr. Richter advanced numerous acquisitions, including the $10.4 billion acquisition of Placer Dome, and in 2009, he contributed to the design of their newly created Capital Allocation, Strategy and Risk Group. At AuRico, he has played a key role in the acquisitions of Capital Gold and Northgate Minerals, as well as the divestitures of the El Cubo, Fosterville, Stawell, and Ocampo mines. Mr. Richter holds a Master of Arts degree in Economics from the University of Toronto and a Bachelor of Arts degree in Economics and Political Science from the University of Waterloo. He is also a CFA charter holder.

    CHRIS J. ROCKINGHAM
    Ontario, Canada
    Vice President, Exploration and Business Development

    Mr. Chris Rockingham brings over 30 years of extensive exploration experience, focused on precious and base-metal deposits in various geological, geographic and cultural settings in North and South America. He held the position of Vice President of Exploration and Business Development with Northgate Minerals for eight years prior to its amalgamation with AuRico. In this role, Mr. Rockingham identified Young-Davidson as a site with considerable exploration potential, negotiated the terms of the acquisition, and assembled the team that developed the project into one of the largest underground gold reserves in Canada. He has a Master of Science degree in Geology from the University of Western Ontario and an MBA (with distinction) from the Richard Ivey School of Business.

    As at the date of this AIF, the directors and executive officers of the Company, as a group, beneficially own, directly or indirectly, or exercise control or direction over an aggregate of 892,714 common shares (7,995,050 common shares if all options, restricted share units, performance share units and deferred share units held by them are exercised), representing 0.36% of the currently outstanding common shares (3.20% current outstanding common shares if all options, performance share units and deferred share units held by them are exercised) and 0.34% of the common shares on a fully diluted basis (3.02% current outstanding common shares on a fully diluted basis if all options, performance share units and deferred share units held by them are exercised).

    		57

    Cease Trade Orders, Bankruptcies, Penalties or Sanctions

    To the knowledge of the Company, no director or executive officer of the Company is, or within the ten years prior to the date hereof has been, a director or executive officer of any company (including the Company) that, while that person was acting in that capacity, was subject to:

    (a)

    a cease trade order or similar order or an order that denied the relevant company access to any exemptions under securities legislation for a period of more than 30 consecutive days; or

       
    (b)

    an event that resulted, after the director or executive officer ceased to be a director or executive officer, in the company being the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation for a period of more than 30 consecutive days.

    To the knowledge of the Company, no director or executive officer of the Company, and no shareholder holding a sufficient number of securities of the Company to affect materially the control of AuRico, has been subject to:

    (a)

    any penalties or sanctions imposed by a court relating to Canadian securities legislation or by a Canadian securities regulatory authority or has entered into a settlement agreement with a Canadian securities regulatory authority; or
      
    (b)

    any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor making an investment decision.

    To the knowledge of the Company, no director or officer of the Company, and no shareholder holding a sufficient number of securities of the Company to affect materially the control of AuRico:

    (a)

    is, as at the date hereof, or has been within the 10 years before the date hereof, a director or executive officer of any company (including AuRico) that, while such person was acting in that capacity or within a year of such person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or was subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold its assets; or
      
    (b)

    has, within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder.

    Conflicts of Interest

    Certain of AuRico’s directors and officers serve as directors and/or officers of other natural resource companies and, consequently, there exists the possibility for such directors and officers to have interests that conflict with the Company’s interests. The individuals concerned are governed in any conflict or potential conflict by applicable law and by AuRico’s Code of Conduct. To the best of AuRico’s knowledge, there are no known existing or potential material conflicts of interest among directors or officers and AuRico or its subsidiaries.

    Interest of Management & Others in Material Transactions

    Other than noted below, no director or executive officer of the Company, or holder of securities of more than 10% of any class of outstanding voting securities or any associate or affiliate thereof of the Company has any interest, directly or indirectly, in any material transaction with the Company or any of its direct or indirect wholly-owned subsidiaries.

    		58

    The Company utilizes a Mexican corporation, Caborca Industrial S.A. de C.V. (“Caborca Industrial”), for mining support services at the El Chanate mine, including the payment of mining salaries and related costs. Caborca Industrial is 100% owned by the Company’s Chief Executive Officer and Executive Vice President and Chief Operating Officer. The Company’s Chief Executive Officer and Executive Vice President and Chief Operating Officer receive no financial benefits as a result of their ownership of this entity.

    AUDIT COMMITTEE

    Audit Committee Mandate

    The full text of the Audit Committee’s mandate is included as Schedule “A” to this AIF.

    Composition

    All of the members of the Audit Committee are independent and financially literate. The name, relevant education and experience of each Audit Committee member are as follows:

    Ronald Smith (Chairman)
    Mr. Smith is a Chartered Accountant with over 30 years of practical financial and management experience, primarily in the financial, telecommunications and energy sectors.

    Patrick Downey
    Mr. Downey is a member of the Canadian Institute of Chartered Accountants, the Ontario Institute of Chartered Accountants and the Ontario Chapter of the Institute of Corporate Directors. He has been involved in the gold and copper mining industry throughout most of his career.

    Richard Colterjohn
    Mr. Colterjohn is a former investment banker with over 20 years of corporate finance experience in the mining sector and other industries.

    There were five meetings of the Audit Committee in 2014. All of the members of the Committee attended all of the meetings held in 2014.

    Pre-Approval Policies and Procedures

    AuRico’s Audit Committee has adopted pre-approval policies and procedures with respect to permitted non-audit services. Specifically, the Audit Committee must pre-approve all permitted non-audit services to be provided to the Company or its subsidiaries by the Company’s external auditor. The Audit Committee has delegated to the Chair of the Committee the authority to pre-approve permitted non-audit services, with such pre-approval presented to the Audit Committee at the next scheduled Audit Committee meeting.
     

    		 59

    External Auditor Service Fees

    KPMG LLP are the auditors of AuRico’s Consolidated Financial Statements. The following KPMG LLP fees (reported in Canadian dollars) were incurred in each of the years ended December 31, 2014 and 2013 for professional services rendered to AuRico:

    Financial Year Ending Audit Fees (1) Audit Related
    Fees     (2)     		Tax Fees (3) All Other Fees
    December 31, 2014(4) $584,950 $135,000  $121,000 $Nil
    December 31, 2013(4) $630,250 $42,500  $132,450 $Nil

    Notes:

    1.

    The aggregate fees billed for audit services, including fees relating to the completion of the year-end audit, review of interim financial statements, and statutory audits of the Company’s Mexican subsidiaries.

    2.

    The aggregate fees billed for assurance and related services are related to the performance of the audit of other supplemental schedules, involvement in securities offerings, and other accounting consultations.

    3.

    The aggregate fees billed for transfer pricing services, analysis of new tax law, and other tax compliance services in Mexico.

      4.

    For the years ended December 31, 2014 and 2013, none of the Corporation’s audit-related fees, tax fees or all other fees described in the table above made use of the de minimis exception to pre-approval provisions contained in Rule 2-01 (c)(7)(i)(C) of SEC Regulation S-X or Section 2.4 of NI 52-110.

    MATERIAL CONTRACTS

    Except as otherwise disclosed in this AIF, and for contracts entered into in the ordinary course of business, the Company has not entered into any material contracts since the beginning of the financial year ended December 31, 2014 and to the date of this AIF.

    LEGAL PROCEEDINGS

    From time to time, the Company is involved in other litigation, investigations or proceedings related to claims arising out of its operations in the ordinary course of business. In the opinion of the Company’s management, these claims and lawsuits individually and in the aggregate, even if adversely settled, would not be expected to have a material effect on the results of operations or financial condition of the Company and would not exceed ten percent of the current assets of the Company.

    TRANSFER AGENT AND REGISTRAR

    The Company’s transfer agent and registrar is Computershare Investor Services Inc. Computershare’s register of transfers for the Company’s common shares is located at 100 University Avenue, 8th Floor, North Tower, Toronto, Ontario, M5J 2Y1.

    INTERESTS OF EXPERTS

    The following persons and firms are named as having prepared or certified a report, valuation, statement or opinion described or included in a filing, or referred to in a filing, made under NI 51-102 by the Company during, or related to, the Company’s most recently completed financial year:

    • Chris Bostwick, FAusIMM, Senior Vice President, Technical Services, AuRico Gold Inc.;
    • Jeff Volk, CPG, FAusIMM, Director Reserves and Resources, AuRico Gold Inc.;

    Other than as set out below, to the best of the Company’s knowledge, the aforementioned persons and firms, and any designated professional, director, officer or employee of such firms, each hold less than 1% of any outstanding securities of the Company or of any associate or affiliate of the Company.

    		 60

    None of the aforementioned persons or firms, nor any designated professionals, directors, officers or employees of such firms, is currently expected to be elected, appointed or employed as a director, officer or employee of the Company or of any associate or affiliate of the Company, except as disclosed above.

    The Company’s auditors, KPMG LLP, confirmed that they are independent within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulation.

    ADDITIONAL INFORMATION

    Additional information about AuRico may be found on SEDAR at www.sedar.com.

    Further additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of AuRico’s securities and securities authorized for issuance under equity compensation plans is contained in AuRico’s most recent management information circular, which is filed on SEDAR at www.sedar.com.

    Additional financial information can be found in AuRico’s financial statements and Management’s Discussion and Analysis for the year ended December 31, 2014, which are filed on SEDAR at www.sedar.com.

    A copy of such documents may be obtained, upon request, from the Company. The Company may require the payment of a reasonable charge from a person or corporation who is not a holder of securities of the Company.

    For additional copies of this AIF please contact:

    Corporate Secretary Tel:647-260-8880
    AuRico Gold Inc. Fax: 647-260-8881
    110 Yonge Street, Suite 1601 Email: info@auricogold.com
    Toronto, Ontario M5C 1T4 Canada Website: www.auricogold.com

    		61

    SCHEDULE “A”
    MANDATE OF THE AUDIT COMMITTEE

    PURPOSE

    The Audit Committee (the “Committee”) is a committee of the Board of Directors (the “Board”) charged with oversight of financial reporting as well as related disclosure, internal controls, regulatory compliance and risk management functions.

    COMPOSITION

    The members of the Committee shall be appointed annually by the Board on the recommendation of the Nominating & Corporate Governance Committee. The Chair shall be elected by the members of the Committee. The Committee shall consist of a minimum of three directors of the Company, all of whom must be independent directors. Independence is defined by applicable Canadian and U.S. laws and regulations as well as the rules of relevant stock exchanges (the “Applicable Laws”). At a minimum, each Committee member shall have no direct or indirect relationship with the Company that could, in the opinion of the Board, reasonably interfere with the exercise of a Committee member’s independent judgment (except as otherwise permitted by Applicable Laws).

    QUALIFICATIONS & EXPERIENCE

    Each member of the Committee must be financially literate, meaning that the director has the ability to read and understand a set of financial statements that present the breadth and level of complexity of accounting issues that can reasonably be expected to be raised by the Company’s financial statements.

    At least one member of the Committee shall be a ‘financial expert’ within the meaning of Applicable Laws. The financial expert should have the following competencies:

    • An understanding of financial statements and accounting principles used by the Company to prepare its financial statements;

    • The ability to assess the general application of such accounting principles in connection with the accounting for estimates, accruals and reserves;

    • Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity comparable to the Company’s financial statements, or experience actively supervising one or more persons engaged in such activities;

    • An understanding of internal controls and procedures for financial reporting; and

    • An understanding of audit committee functions.

    RISK OVERSIGHT

    In addition to the specific responsibilities enumerated below, the Committee shall be responsible for reviewing financial risks of the business and overseeing the implementation and evaluation of appropriate risk management practices. This will involve inquiring with management regarding how financial risks are managed and seeking opinions from management and the independent auditor regarding the adequacy of risk mitigation strategies.

    COMMITTEE RESPONSIBILITIES

    In addition to such other duties as may be delegated by the Board, the Committee shall:

    1.

    Financial Statements: Review the Company’s interim and annual financial statements, MD&A and related press releases and recommend Board approval of such documents.


    		 62

    2.

    Variances: Obtain explanations from management for significant variances between comparative reporting periods and question management and the independent auditor regarding any significant financial reporting issues raised during the fiscal period and the method of resolution.
       
    3.

    Internal Controls: Inquire as to the adequacy of the Company’s system of internal controls and review periodic reports from management regarding internal controls, which should include an assessment of risk with respect to financial reporting.
       
    4.

    Auditor: Recommend Board approval for the appointment of the Company’s independent auditor. Oversee the work of the independent auditor; ensure that the independent auditor reports directly to the Committee; and ensure that any disagreements between management and the independent auditor regarding financial reporting are resolved.
       
    5.

    Non-audit Services: Approve all audit and non-audit services to be provided to the Company and its subsidiaries by the independent auditor. The Chair of the Committee may pre-approve such services on behalf of the Committee provided that such approvals are presented at the Committee meeting following such pre-approval. In order to obtain pre-approval, management should detail the work to be performed by the independent auditor and obtain the assurance from the independent auditor that the proposed work will not impair their independence.
       

    Certain de minimis non-audit services will satisfy the pre-approval requirement provided:
       
  •  
    		•

    the aggregate amount of all these non-audit services that were not pre-approved is reasonably expected to constitute no more that 5% of the total audit fees paid by the Company and its subsidiaries to the independent auditor during the fiscal year in which the services are provided;
       
  •  
    		•

    the Company or its subsidiaries, did not recognize the services as non-audit services at the time of the engagement; and
       
  •  
    		•

    the services are promptly brought to the attention of the Committee and approved prior to the completion of the annual audit.
       
    6.

    Whistleblower: Oversee a Company whistleblower program that provides an opportunity for confidential and anonymous submissions of concerns regarding questionable accounting or auditing matters and other potential violations of the Company’s Code of Conduct.
       
    7.

    Internal Audit: Review and approve the annual internal audit plan as presented by the internal audit function to ensure that it is appropriate, risk-based and addresses all prioritized auditable entities. Review progress towards completion of the annual plan and performance of the head of the internal audit function.
       
    8.

    Hiring: Review and approve the Company’s policies regarding the hiring of current and past partners and employees of the Company’s present or former independent auditor.
       
    9.

    Reporting: Report to the Board on a quarterly basis on the proceedings of Committee meetings.
       
    10.

    Mandate: Annually review the Committee’s mandate and assess the Committee’s functioning and performance relative to the requirements set out within this mandate.

    CHAIRMAN RESPONSIBILITIES

    The Chairman of the Committee shall:

    1.

    Convene and preside over Committee meetings and ensure they are conducted in an efficient, effective and focused manner.
      
    2.

    Assist management with the preparation of an agenda and ensure that meeting materials are prepared and disseminated in a timely manner.
      
    3.

    Ensure that the Committee has sufficient time and information to make informed decisions.
      
    4.

    Provide leadership to the Committee and management with respect to matters covered by this mandate.

    		63

    AUTHORITY

    The Committee has authority to:

    1.

    Appoint, compensate, and oversee the work of any registered public accounting firm retained by the Company.
      
    2.

    Conduct or authorize investigations into any matters within its scope of responsibility, including with respect to whistleblower submissions.
      
    3.

    Retain, at the Company’s expense, independent legal, accounting or other advisors to assist the Committee in carrying out its duties or to assist in the conduct of an investigation.
      
    4.

    Meet with management, the independent auditor and other advisors, as necessary.
      
    5.

    Obtain full access to the books, records, facilities and personnel of the Company and its subsidiaries.
      
    6.

    Call a meeting of the Board to consider any matter of concern to the Committee.

    MEETINGS

    The Committee shall meet as often as it deems necessary, but not less frequently than quarterly. A quorum for the transaction of business at all meetings shall be a majority of members. Decisions shall be made by an affirmative vote of the majority of members in attendance and the Committee Chair shall not have a deciding or casting vote.

    An in-camera session of independent directors shall take place at least quarterly. The Committee may also request to meet separately with management, internal auditors, independent auditors or other advisors. Meeting minutes shall be recorded and maintained, as directed by the Chair of the Committee.

    		64


    Exhibit 99.2

     


     
     
    Management’s Discussion and Analysis
    (in United States Dollars, unless otherwise stated)

    For the year ended December 31, 2014

     


    MANAGEMENT’S DISCUSSION AND ANALYSIS
    FOR THE YEAR ENDED DECEMBER 31, 2014

    TABLE OF CONTENTS

    OVERVIEW OF THE BUSINESS 3
    HIGHLIGHTS 4
    OUTLOOK AND STRATEGY 5
    YOUNG-DAVIDSON 6
    EL CHANATE 8
    EXPLORATION REVIEW 10
    SUMMARIZED FINANCIAL AND OPERATING RESULTS 11
    SUMMARY OF QUARTERLY FINANCIAL AND OPERATING RESULTS 15
    CONSOLIDATED EXPENSES 16
    CONSOLIDATED INCOME TAX EXPENSE 17
    FINANCIAL CONDITION 18
    LIQUIDITY AND CAPITAL RESOURCES 19
    CONTRACTUAL OBLIGATIONS 21
    OUTSTANDING SHARE DATA 21
    OFF-BALANCE SHEET ARRANGEMENTS 21
    FINANCIAL INSTRUMENTS 21
    TRANSACTIONS WITH RELATED PARTIES 22
    EVENTS AFTER THE REPORTING PERIOD 22
    NON-GAAP MEASURES 22
    RISKS AND UNCERTAINTIES 25
    CRITICAL ACCOUNTING ESTIMATES, POLICIES AND CHANGES 29
    CONTROLS AND PROCEDURES 32
    CAUTIONARY NOTE TO U.S. INVESTORS 33
    CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 33

    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    This Management’s Discussion and Analysis (“MD&A”), dated February 19, 2015, relates to the financial condition and results of the consolidated operations of AuRico Gold Inc. (the “Company”), and should be read in conjunction with the Company’s consolidated financial statements for the years ended December 31, 2014 and 2013, and notes thereto. The consolidated financial statements for the years ended December 31, 2014 and 2013 have been prepared in accordance with International Financial Reporting Standards (“IFRS” or “GAAP”). All results are presented in United States dollars (“US dollar” or “$”), unless otherwise stated.

    The first, second, third and fourth quarters of the Company’s fiscal year are referred to as “Q1”, “Q2”, “Q3” and “Q4”, respectively.

    Statements are subject to the risks and uncertainties identified in the Risks and Uncertainties and Cautionary Note regarding Forward-Looking Statements sections of this document. U.S. investors are also advised to refer to the section entitled Cautionary Note to U.S. Investors on page 33.

    OVERVIEW OF THE BUSINESS

    AuRico Gold Inc. is a Canadian gold producer with mines and projects in North America. The Company’s operations include the Young-Davidson mine in Ontario, Canada and the El Chanate mine in Sonora, Mexico. The Company’s project pipeline also includes exploration and development opportunities in Canada and Mexico.

    The Company’s common shares are listed on the Toronto Stock Exchange (TSX: AUQ) and the New York Stock Exchange (NYSE: AUQ). Further information about AuRico Gold Inc. can be found in the Company’s regulatory filings, including the Annual Information Form for the year ended December 31, 2014, available on SEDAR at www.sedar.com, on EDGAR at www.sec.gov, and on the Company’s website at www.auricogold.com.

    The Company’s performance is largely dependent on the price of gold, which directly affects the Company’s profitability and cash flow. The price of gold is subject to volatile price movements during short periods of time and is affected by numerous factors, such as the strength of the US dollar, supply and demand, interest rates, and inflation rates, all of which are beyond the Company’s control. During 2014, the London PM Fix price of gold averaged $1,266 per ounce, a 10% decrease from the London PM Fix average of $1,411 during 2013. During 2014, daily London PM Fix prices ranged between $1,142 and $1,385 per ounce.

    At the Company’s mine sites, a significant portion of the operating costs and capital expenditures are denominated in foreign currencies, including Mexican pesos and Canadian dollars. Therefore, fluctuations in these foreign currencies against the US dollar can significantly impact the Company’s costs and cash flow. The Mexican peso and Canadian dollar averaged approximately 13.3 to 1.0 US dollar and 1.1 to 1.0 US dollar, respectively, in 2014, compared to average rates of 12.8 to 1.0 US dollar and 1.03 to 1.0 US dollar, respectively, in 2013.

    For additional information on the factors that affect the Company, see the discussion of Risks and Uncertainties on page 25.

    3
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    HIGHLIGHTS

    (in thousands, except ounces, all-in sustaining costs and total cash costs)  
        Year Ended     Year Ended              
        December 31     December 31     Change     Change  
        2014     2013              

    Gold ounces produced(1)

    		  224,032     161,100     62,932     39%  

    Pre-production gold ounces produced(1)

    		  -     31,502     (31,502 )   -100%  

    Total gold ounces produced

    		  224,032     192,602     31,430     16%  

    Revenue from mining operations

    		$  291,182   $  227,631   $  63,551     28%  

    Loss from operations

    		$  (154,705 ) $  (178,087 ) $  23,382     13%  

    Net loss from operations

    		$  (169,648 ) $  (176,770 ) $ 7,122     4%  

    Operating cash flow

    		$  60,414   $  63,266   $  (2,852 )   -5%  

    Cash costs per gold ounce, net of by-product revenues and NRV adjustments(1)(2)(3)(4)

    		$  779   $  676   $  103     15%  

    All-in sustaining costs per gold ounce sold, net of by-product revenues and NRV adjustments(1)(2)(4)

    		$  1,200   $  1,181   $  19     2%  
    (1)

    The Young-Davidson underground mine declared commercial production on October 31, 2013, and therefore, all underground ounces are excluded from consolidated cash costs and consolidated all-in sustaining costs prior to this date. Pre-production ounces produced and sold are excluded from consolidated ounces produced and sold as the revenue from these ounces was credited against capitalized project costs.

    (2)

    See the Non-GAAP Measures section on page 22.

    (3)

    For 2014, cash costs per gold ounce are calculated using gold ounces sold at the El Chanate and Young-Davidson mines. For 2013, cash costs per gold ounce were calculated using gold ounces sold at the El Chanate mine and ounces produced at the Young-Davidson mine.

    (4)

    For further discussion on the net realizable value ("NRV") adjustments recognized on ore inventories at the Young-Davidson and El Chanate mines during the quarter and annual periods, refer to pages 7 and 9, respectively.

    ANNUAL DEVELOPMENTS

    -

    On February 19, 2015, the Company reported proven and probable reserves of 6.3 million gold ounces, a 0.2 million ounce decrease from the 6.5 million gold ounces reported in 2013. The decrease is due to mining depletion at all operating mines and a reduction in overall slope angles at El Chanate, partially offset by an increase in underground ounces at Young- Davidson.

     

    -

    On February 19, 2015, the Company’s Board of Directors approved a dividend of $0.023 per share, payable to shareholders of record on March 2, 2015.

     

    -

    On January 21, 2015, the Company announced an initial National Instrument 43-101 compliant indicated resource of 2.1 million gold equivalent ounces and an inferred resource of 3.4 million gold equivalent ounces at the Kemess East deposit, located one kilometre east of the previously delineated Kemess Underground deposit and 6.5 kilometres north of the Kemess mill facility. The Kemess Property is located in north-central British Columbia, Canada, approximately 430 kilometres northwest of Prince George.

     

    -

    On January 14, 2015, the Company finalized the agreement to terminate the deferred cash payment arrangement (“retained interest royalty”) with Crocodile Gold Corporation. As consideration for this termination, the Company received $20 million Canadian dollars (“CAD”) in cash and net smelter royalties on future production from the Fosterville and Stawell mines of 2% and 1%, respectively.

     

    - On November 20, 2014, the Company completed a private placement with Carlisle Goldfields Limited (“Carlisle”) in which the Company invested CAD $5.6 million in exchange for 19.9% of the outstanding common shares of Carlisle. In conjunction with the private placement, the Company entered into an agreement on November 11, 2014 with respect to Carlisle’s Lynn Lake Gold Camp (“Lynn Lake Project”), located in Lynn Lake, Manitoba, pursuant to which the Company acquired a 25% interest in the Lynn Lake Project for an initial cash contribution of CAD $5.0 million.
     

    -

    On November 6, 2014, the Company’s Board of Directors approved a dividend of $0.00225 per share, payable to shareholders of record on November 17, 2014, and paid on December 1, 2014. On August 7, 2014, the Company’s Board of Directors approved a dividend of $0.00375 per share, payable to shareholders of record on August 18, 2014, and paid on September 2, 2014. On May 8, 2014, the Company’s Board of Directors approved a dividend of $0.02 per share, payable to shareholders of record on May 20, 2014, and paid on June 3, 2014.

     

    -

    On April 3, 2014, the Company paid $173.0 million, including $0.03 million of accrued interest, to complete the cash tender offer initially announced on March 6, 2014 to redeem the outstanding convertible senior notes. The consideration offered and paid was $1,040 per $1,000 note outstanding plus accrued and unpaid interest to the payment date. The Company received tender offers for $166.4 million of the $167.0 million principal amount outstanding.

     

    -

    On March 27, 2014, the Company completed an offering of $315.0 million senior secured notes due 2020. The notes were issued with a coupon of 7.75% and sold at 96.524% of par, resulting in net proceeds to the Company of $304.1 million. The Company repaid the $75.0 million drawn against the credit facility on March 28, 2014 after the completion of the senior secured notes offering. The completion of this offering enabled the Company to extend the maturity date of outstanding debt and provides additional cash for general corporate purposes, which may include funding capital expenditures to support organic growth.

       
    4
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    OUTLOOK AND STRATEGY

    AuRico Gold Inc. is committed to being a leading low cost gold producer focused on growth in North America. The Company’s mission is to deliver superior shareholder value by building a culture of excellence in every aspect of what we do, through organic growth, exploration, accretive industry consolidation, and commitment to socially responsible practices within the communities in which we work. The Company will continue to optimize its operations to deliver reliable, consistent and sustainable performance over the life of its mining operations. The Company’s focus is on the production of high margin ounces combined with a disciplined approach to cost containment and capital spending along with a commitment to shareholder value creation.

    In 2014, the Company continued to advance underground development at Young-Davidson to optimize the exploitation of ore reserves, which is expected to position the mine for sustainable, period-over-period, productivity increases in 2015 and beyond. The shaft hoisting system has, and will continue to, facilitate significant increases in underground activities and corresponding cost efficiencies. During the year, accelerated capital investment initiatives supported higher than expected productivity throughout the underground operation and resulted in Young-Davidson exceeding the year-end target of 4,000 tonnes per day (“TPD”). With productivity remaining ahead of schedule, the operation is well positioned to achieve the 2015 year-end target of 6,000 TPD and an ultimate productivity level of 8,000 TPD at the end of 2016. During 2015, Young-Davidson is anticipated to produce between 160,000 and 180,000 ounces, a 2% to 15% increase over 2014 production. Capital expenditures are expected to decrease by up to 37% in 2015, and will continue to focus on advancing underground development.

    Young-Davidson open pit mining operations ceased during the second quarter of 2014 as the short-life open pit was fully depleted. As of December 31, 2014, approximately 2.5 million tonnes of open pit ore, at an average grade of 0.75 grams per tonne, was stockpiled ahead of the mill facility for future processing. Going forward, mill feed from the underground mine will be supplemented by the stockpiled ore while underground mining levels ramp up to mill capacity.

    Production from the El Chanate mine is expected to be between 65,000 and 75,000 ounces in 2015, consistent with production in 2014. Capital expenditures are anticipated to decrease by up to 33% in 2015, reflecting reduced year-over-year open pit stripping requirements.

    During 2015, the Company expects to produce 225,000 to 255,000 ounces of gold on a consolidated basis at all-in sustaining costs of approximately $1,000 to $1,100 per gold ounce, representing up to a 14% increase over 2014 production. Mine site capital expenditures for 2015 are forecasted to be approximately $102.5 million to $115.0 million, a decline of up to 36% from 2014. Consolidated operating cash flows are expected to improve in 2015, mainly driven by forecasted margin improvements at Young-Davidson due to the ramp up of the underground mine and a weak Canadian dollar.

    The Company expects to spend approximately $12.0 million to $23.0 million on exploration during 2015. The exploration program will focus on upgrading and increasing mineral resources at the Company’s Kemess and Lynn Lake projects, in addition to the Company’s existing operations.

    During 2014, the London PM Fix price of gold averaged $1,266 per ounce, a 10% decrease from the London PM Fix average of $1,411 during 2013. At current gold prices, operating cash flow from the Company’s operating mines is forecasted to be sufficient to fund all capital expenditures and mine site exploration. The Company has the ability to fund any shortfall with cash on hand, and also has the full capacity available under its $150.0 million credit facility.

    On February 19, 2015, the Company provided 2015 guidance for the El Chanate and Young-Davidson mines. The press release is available on SEDAR at www.sedar.com, on EDGAR at www.sec.gov, and on the Company’s website at www.auricogold.com.

    5
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    YOUNG-DAVIDSON

    The Company owns the Young-Davidson mine, located near the town of Matachewan in Northern Ontario, Canada. The property consists of contiguous mineral leases and claims totaling 4,733 hectares and is situated on the site of two past producing mines that produced one million ounces during the 1930s – 1950s. The Young-Davidson open pit mine achieved commercial production on September 1, 2012, upon the completion of construction activities associated with surface infrastructure and the processing plant, and upon achieving sustained targeted daily tonnage rates in both the open pit and mill. On October 31, 2013, the Company declared commercial production at the Young-Davidson underground mine following the commissioning of the shaft hoisting system.

    In January 2014, the Young-Davidson paste backfill plant was commissioned and completed its first pour. In 2012, the mine plan was re-engineered to utilize paste backfill to allow for significantly improved mining recovery and reduced dilution.

    In February 2014, the Company received the necessary permits to increase the daily processing limit of the Young-Davidson mill facility to 10,000 TPD from the previous 8,000 TPD. While the mill facility is expected to average approximately 8,000 TPD in 2015, this future increase in throughput capacity will provide considerable flexibility as the underground mine continues ramping up to its target of 8,000 TPD at the end of 2016. This productivity upgrade provides organic growth optionality that could permit early treatment of the longer term stockpile inventory, and potentially enhance the Company’s future cash flow profile.

    YOUNG-DAVIDSON OPERATIONAL REVIEW

     

    		  Quarter Ended     Quarter Ended     Year Ended     Year Ended  

     

    		  December 31     December 31     December 31     December 31  

     

    		  2014     2013     2014     2013  

    Underground Operations

    		                       

       Tonnes of ore mined

    		  380,922     238,321     1,288,295     616,961  

       Average grade of gold(1)

    		  3.05     3.10     3.07     2.83  

       Metres developed

    		  3,438     2,986     14,024     9,992  

    Open Pit Operations

    		                       

       Total tonnes mined

    		  -     3,247,496     3,392,509     12,220,056  

       Tonnes of ore mined

    		  -     730,677     1,343,083     3,202,358  

       Average grade of gold(1)

    		  -     1.04     0.99     1.16  

       Tonnes stockpiled ahead of the mill

    		  2,495,739     2,734,347     2,495,739     2,734,347  

       Average grade of gold(1)

    		  0.75     0.81     0.75     0.81  

    Mill Operations

    		                       

       Tonnes of ore processed

    		  713,676     641,114     2,812,954     2,482,305  

       Average grade of gold(1)

    		  1.97     2.04     1.97     1.79  

       Average gold recovery rate

    		  88%     88%     88%     87%  

    Gold ounces produced

    		  40,945     29,597     156,753     89,236  

    Pre-production gold ounces produced(2)

    		  -     3,509     -     31,502  

    Total gold ounces produced

    		  40,945     33,106     156,753     120,738  

    Gold ounces sold

    		  42,143     24,831     161,591     88,878  

    Pre-production gold ounces sold(2)

    		  -     3,416     -     31,839  

    Total gold ounces sold

    		  42,143     28,247     161,591     120,717  
    (1)

    Grams per tonne.

    (2)

    Includes all underground ounces produced and sold prior to declaration of commercial production on October 31, 2013.

    The Company mined 380,922 ore tonnes, or 4,140 TPD, from the Young-Davidson underground mine during Q4 2014, at a grade of 3.05 gold grams per tonne, exceeding the year-end target of 4,000 TPD. During the year ended December 31, 2014, the Company mined 1,288,295 ore tonnes, or 3,530 TPD, at a grade of 3.07 gold grams per tonne. Mining rates increased significantly from the 2,590 TPD and 1,690 TPD realized during the quarter and year ended December 31, 2013, respectively, due to the commissioning of the mid-shaft crushing and hoisting system and the declaration of commercial production in the fourth quarter of 2013, in addition to planned productivity improvements. Further productivity improvements in 2015 are anticipated to position the Company to achieve targets of 6,000 TPD by the end of 2015 and 8,000 TPD by the end of 2016.

    The Young-Davidson open pit mine ceased operations in early June 2014 when it reached the end of its planned life. Prior to ceasing operations, the Company mined 1,343,083 ore tonnes in the open pit in 2014 at a grade of 0.99 gold grams per tonne. At the end of Q4 2014, the Company had 2,495,739 tonnes of low grade open pit ore stockpiled ahead of the mill at an average grade of 0.75 gold grams per tonne.

    During Q4 2014, the Company processed 713,676 tonnes, or 7,757 TPD, at the Young-Davidson mill facility, with gold grades averaging 1.97 grams per tonne, representing an 11% increase over the 641,114 tonnes processed in Q4 2013. The increased throughput resulted from continued operating efficiencies, and was also enabled by the receipt of the 10,000 TPD permit. Mill recoveries during the fourth quarter were 88%, consistent with the same period in the prior year. During the year ended December 31, 2014, the Company processed 2,812,954 tonnes, or 7,707 TPD, at the Young-Davidson mill facility, with gold grades averaging 1.97 grams per tonne. This represents a 13% increase over the 2,482,305 tonnes processed in the same period of the prior year.

    6
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    Young-Davidson produced 40,945 gold ounces during Q4 2014 compared to 33,106 total ounces produced in Q4 2013. This significant increase in production was due to the higher mill throughput as described above. The benefit of increased high grade underground ore processed was partially offset by a decrease in the grade of open pit stockpiled ore processed. Q4 2014 represents the eleventh consecutive quarterly increase in gold production at Young-Davidson. During the year ended December 31, 2014, Young-Davidson produced 156,753 gold ounces compared to 120,738 produced during the prior year. This result was consistent with the Company’s 2014 guidance for Young-Davidson of 140,000 to 160,000 gold ounces produced during the year.

    YOUNG-DAVIDSON FINANCIAL REVIEW

    (in thousands, except total cash costs)

    		 

     

    		  Quarter Ended     Quarter Ended     Year Ended     Year Ended  

     

    		  December 31     December 31     December 31     December 31  

     

    		  2014     2013     2014     2013  

    Revenue from mining operations

    		$  51,057   $  31,420   $  204,923   $  124,439  

    Production costs

    		$  30,517   $  30,679   $  138,159   $  76,356  

    Refining costs

    		$  73   $  52   $  195   $  159  

    Amortization and depletion

    		$  20,153   $  22,133   $  97,820   $  47,385  

    Earnings / (loss) from operations

    		$  79   $  (24,393 ) $  (31,486 ) $  (2,410 )

    Cash flow from operations

    		$  32,038   $  10,063   $  63,062   $  56,442  

    Capital expenditures

    		$  (22,913 ) $  (48,737 ) $  (137,174 ) $  (195,233 )

    Net free cash flow(1)

    		$  9,125   $  (38,674 ) $  (74,112 ) $  (138,791 )

    Cash costs per gold ounce, net of by-product revenues and NRV adjustments(1)(2)

    		$  719   $  850   $  825   $  744  

    Cash costs per gold ounce, net of by-product revenues(1)(2)

    		$  719   $  1,179   $  845   $  857  
    (1)

    See the Non-GAAP Measures section on page 22.

    (2)

    For 2014, cash costs per gold ounce are calculated based on ounces sold. For 2013, cash cost per gold ounces are calculated based on ounces produced.

    During Q4 2014, Young-Davidson recognized revenue of $51.1 million and earnings from operations of $0.1 million compared to revenues of $31.4 million and a loss from operations of $24.4 million in Q4 2013. Revenues increased in Q4 2014 as a result of increased gold ounces sold, partially offset by lower realized gold prices. In addition, in Q4 2013, revenue associated with underground pre-production ounces sold prior to the declaration of commercial production on October 31, 2013 was credited against capitalized costs. In 2014, Young-Davidson recognized revenue of $204.9 million and a loss from operations of $31.5 million.

    Q4 2014 production costs were $30.5 million compared to $30.7 million in the fourth quarter of 2013. In addition, Q4 2014 cash costs per gold ounce, net of by-product revenues and NRV adjustments, were $719, representing a 15% decrease from the same period in 2013. The decreased cost per ounce was due primarily to the increase in the underground contribution to overall site production, and the favourable weakening of the Canadian dollar in the current quarter as compared to the prior year.

    Production costs for the year ended December 31, 2014 were $138.2 million compared to $76.4 million in 2013. Production costs increased due to the addition of underground costs subsequent to the declaration of commercial production on October 31, 2013. Prior to that date, production costs related to underground ounces produced were capitalized. In 2014, cash costs per gold ounce, net of by-product revenues and NRV adjustments, were $825; an 11% increase from 2013 and 3% higher than the Company’s 2014 guidance of $800 per ounce. The increased cost per ounce was due primarily to a higher open pit operating strip ratio, higher open pit mining cost per tonne and lower grade of open pit ore processed, partially offset by the weakened Canadian dollar during the year.

    During the year, the Company recognized net non-cash NRV adjustments of $5.5 million on low grade long-term stockpile inventory due to a decline in the price of gold. Of this amount, $3.3 million was recognized in production costs and $2.2 million was recognized in amortization and depletion. During 2013, as a result of a decrease in the gold price and higher estimated future processing costs, the Company recognized an NRV adjustment of $16.6 million, of which $10.0 million was recognized in production costs and $6.6 million was recognized in amortization and depletion.

    The loss from operations in the year ended December 31, 2014 resulted from higher production costs and amortization and depletion expense as compared to the same period in 2013. Amortization and depletion expense increased due to the addition of depletion expense from the underground mine, and the depletion of stripping costs capitalized in prior periods as the open pit approached the end of its mine life. Amortization and depletion expense per ounce declined in the second half of 2014, subsequent to the cessation of mining in the open pit.

    The Company reported a $21.9 million quarter-over-quarter increase in operating cash flow driven by the increased production noted previously, and a decline in operating costs per ounce. During Q4 2014, the Young-Davidson mine also generated net free cash flow of $9.1 million. Capital expenditures in Q4 2014 included $9.6 million in site infrastructure, and $13.3 million in underground development. During the year ended December 31, 2014, capital expenditures at Young-Davidson of $137.2 million exceeded operating cash flow of $63.1 million resulting in negative net free cash flow of $74.1 million. Capital expenditures in the year ended December 31, 2014 included $56.5 million in site infrastructure, $78.6 million in underground development, and $2.1 million in capitalized borrowing costs. During 2014, $17.7 million of construction-related accounts payable balances from 2013 were paid and included in capital expenditures.

    As a result of accelerated capital investment during the first nine months of the year the Company increased its 2014 capital expenditure forecast at Young-Davidson on August 7, 2014, from approximately $110 million to approximately $135 million. Accelerated capital investment initiatives included underground development rates exceeding plan and the sinking of the MCM shaft being ahead of schedule. Full year capital expenditures, after adjusting for $2.1 million of capitalized borrowing costs, were consistent with the revised guidance.

    7
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    EL CHANATE

    The Company owns the El Chanate mine, located 37 kilometres northeast of the town of Caborca in the state of Sonora, Mexico. El Chanate consists of an open pit mine with heap leach processing facilities.

    EL CHANATE OPERATIONAL REVIEW

     

    		  Quarter Ended     Quarter Ended     Year Ended     Year Ended  

     

    		  December 31     December 31     December 31     December 31  

     

    		  2014     2013     2014     2013  

    Open Pit Operations

    		                       

       Total tonnes mined

    		  8,243,372     9,060,830     34,073,324     35,666,946  

       Tonnes of ore mined

    		  1,765,835     2,213,858     8,683,292     9,111,448  

       Capitalized stripping tonnes

    		  4,752,524     4,348,728     14,582,767     17,297,066  

       Average grade of gold(1)

    		  0.59     0.56     0.50     0.56  

       Tonnes stockpiled ahead of the heap leach pad

    		  31,466     194,688     31,466     194,688  

       Average grade of gold(1)

    		  0.70     0.60     0.70     0.60  

    Crushing and Heap Leach Operations

    		                       

       Tonnes of ore crushed and placed on the heap leach pad

    		  1,532,859     1,623,098     6,788,223     6,725,081  

       Average grade of gold processed(1)

    		  0.64     0.69     0.60     0.70  

       Tonnes of low grade ore placed on the heap leach pad

    		  231,836     566,193     2,058,289     2,342,861  

       Average grade of gold processed(1)

    		  0.20     0.19     0.20     0.19  

       Total tonnes of ore processed

    		  1,764,695     2,189,291     8,846,512     9,067,942  

       Average grade of gold processed(1)

    		  0.58     0.56     0.50     0.57  

    Gold ounces produced

    		  15,638     16,420     67,279     71,864  

    Gold ounces sold

    		  16,506     15,024     66,375     72,035  
    (1)

    Grams per tonne.

    During Q4 2014, the Company mined 8,243,372 tonnes at the El Chanate open pit, including 1,765,835 ore tonnes, at an average grade of 0.59 gold grams per tonne. During 2014, the Company mined 34,073,324 tonnes, including 8,683,292 ore tonnes, at an average grade of 0.50 gold grams per tonne. While ore tonnes mined remained relatively consistent year-over-year, the decrease in average grades during 2014 compared to the prior year was due to mine sequencing.

    Capitalized stripping activities totaled 4,752,524 and 14,582,767 tonnes during Q4 2014 and the year ended December 31, 2014, respectively, compared to 4,348,728 and 17,297,066 tonnes during the same periods in 2013, respectively. The decrease during 2014 was due to the completion of the southeast push-back of the pit in 2013. Stripping activities at El Chanate represented a capital investment of $7.6 million during the fourth quarter of 2014, compared to an investment of $6.3 million in Q4 2013.

    The Company crushed and placed 1,532,859 tonnes of open pit ore on the heap leach pad in Q4 2014, at an average rate of 16,662 TPD, compared to the average rate during Q4 2013 of 17,642 TPD. During Q4 2014, the Company also placed 231,836 tonnes of low grade run-of-mine material on the heap leach pad. Total tonnes processed in Q4 2014 of 1,764,695 tonnes, or 19,181 TPD, were lower than total tonnes processed in Q4 2013 of 2,189,291, primarily due to the decrease in low grade run-of-mine ore. During 2014, the Company crushed and placed 6,788,223 tonnes of ore at an average rate of 18,598 TPD, consistent with the 18,425 TPD stacking rate in 2013.

    The grade of ore crushed and placed averaged 0.64 gold grams per tonne during Q4 2014 compared to an average grade of 0.69 gold grams per tonne in Q4 2013. Annual grades crushed and placed in 2014 averaged 0.60 gold grams per tonne compared to an average grade of 0.70 gold grams per tonne in 2013. The variances in grades in the current year periods versus prior year periods were largely due to the effects of mine sequencing. During Q4 2014, the grade of all material processed, including run-of-mine material, averaged 0.58 grams per tonne placed compared to 0.56 grams per tonne placed in Q4 2013.

    During the quarter and year-to-date, El Chanate produced 15,638 and 67,279 gold ounces, respectively, compared to production of 16,420 and 71,864 gold ounces in the same periods of the prior year. The decrease period-over-period is primarily a result of the lower grade of crushed ore placed in 2014 as compared to the prior year. Total 2014 production was slightly below the lower end of the Company’s 2014 guidance of 70,000 ounces produced.

    8
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    EL CHANATE FINANCIAL REVIEW

    (in thousands, except total cash costs)

    		 

     

    		  Quarter Ended     Quarter Ended     Year Ended     Year Ended  

     

    		  December 31     December 31     December 31     December 31  

     

    		  2014     2013     2014     2013  

    Revenue from mining operations

    		$  20,137   $  19,362   $  86,259   $  103,192  

    Production costs

    		$  26,745   $  29,293   $  61,150   $  71,625  

    Refining costs

    		$  107   $  87   $  400   $  367  

    Amortization and depletion

    		$  9,868   $  5,451   $  23,262   $  17,836  

    Loss from operations(1)

    		$  (107,523 ) $  (91,343 ) $  (90,243 ) $  (143,632 )

    Cash flow from operations

    		$  3,176   $  4,794   $  15,737   $  33,425  

    Capital expenditures(2)

    		$  (8,689 ) $  (10,282 ) $  (29,611 ) $  (44,088 )

    Net free cash flow(3)

    		$  (5,513 ) $  (5,488 ) $  (13,874 ) $  (10,663 )

    Cash costs per gold ounce, net of by-product revenues and NRV adjustments(3)

    		$  816   $  615   $  669   $  592  

    Cash costs per gold ounce, net of by-product revenues(3)

    		$  1,486   $  1,491   $  852   $  813  
    (1)

    Earnings from operations includes general and administrative expenses and impairment charges.

    (2)

    Capital expenditures include $3.4 million and $5.1 million in exploration expenditures for the years ended December 31, 2014 and 2013, respectively.

    (3)

    See the Non-GAAP Measures section on page 22.

    The Company recognized revenue at El Chanate of $20.1 million during Q4 2014, compared to revenue of $19.4 million in Q4 2013. During the year ended December 31, 2014, the Company recognized revenue at El Chanate of $86.3 million, compared to revenue of $103.2 million during the year ended December 31, 2013. This annual decrease in revenue was due to a decline in ounces sold in 2014 and a lower average realized gold price.

    The Company recognized a loss from operations at El Chanate of $107.5 million during Q4 2014, compared to a loss from operations of $91.3 million in Q4 2013. Included in the loss from operations in Q4 2014 was an impairment charge of $90.0 million that arose primarily from a decrease in gold reserve estimates, an increase in strip ratio, which indicates an increase in the amount of waste tonnes required to access a tonne of ore, and an increase in future processing costs on a per ounce basis. Reserve estimates decreased and the strip ratio increased primarily due to a reduction in overall slope angles. The reduction in planned slope angles came after an external geotechnical review of geotechnical drilling, mapping, and slope performance. The Company also recorded an impairment charge in Q4 2013 of $74.0 million. The loss from operations in Q4 2014 also included a non-cash NRV adjustment on ore inventory of $16.4 million at December 31, 2014, of which $12.7 million was recognized in production costs and $3.7 million was included in amortization and depletion. The NRV adjustment was caused by a decrease in estimated future gold prices and an increase in future estimated processing costs. In Q4 2013, El Chanate recorded an NRV adjustment of $21.0 million, of which $19.3 million was recognized in production costs and $1.7 million was included in amortization and depletion.

    Losses from operations in the year ended December 31, 2014 were $90.2 million, compared to prior year losses from operations of $143.6 million. This reduction in losses resulted primarily from larger impairment charges and NRV adjustments in 2013, offset by lower revenue and production costs. During the year ended December 31, 2013, the Company recorded total impairment charges of $154.0 million at El Chanate. During the year ended December 31, 2014, the Company recorded total NRV adjustments at El Chanate of $18.0 million, compared to total NRV adjustments of $25.5 million recorded during the year ended December 31, 2013. Earnings from operations before impairment charges and NRV adjustments were $18.6 million in 2014 compared to $37.5 million in 2013. This year-over-year decline is due to a decrease in gold ounces sold, a lower average realized gold price, and an increase in amortization and depletion recorded during 2014.

    Cash costs per gold ounce, net of by-product revenues and NRV adjustments, were $816 in the fourth quarter of 2014, an increase of 33% over cash costs per gold ounce, net of by-product revenues and NRV adjustments, of $615 in the fourth quarter of 2013. The quarter-over-quarter increase was due to an increase in the average cost of ore inventories, which resulted from lower grades stacked in the first half of the year and an increase in the operating strip ratio. Cash costs per gold ounce, net of by-product revenues and NRV adjustments, were $669 in 2014, an increase of 13% over cash costs per gold ounce, net of by-product revenues and NRV adjustments, of $592 in the same period of prior year. El Chanate’s cash costs were consistent with the Company’s 2014 guidance of between $625 and $725 per ounce.

    During Q4 2014, capital expenditures of $8.7 million at El Chanate exceeded operating cash flows of $3.2 million, resulting in negative net free cash flow of $5.5 million. Capital expenditures in Q4 2014 included $7.6 million in capitalized stripping activities, $0.4 million in other sustaining capital and optimization initiatives, and $0.7 million in exploration expenditures. During the year ended December 31, 2014, capital expenditures at El Chanate of $29.6 million exceeded operating cash flows of $15.7 million, resulting in negative free cash flow of $13.9 million. Operating cash flow in 2014 was impacted by a delay in the collection of $3.3 million related to 2013 income taxes receivable. Capital expenditures at El Chanate in 2014 included $23.5 million in capitalized stripping activities, $2.7 million in other sustaining capital and optimization initiatives, and $3.4 million in exploration expenditures. Excluding $3.4 million of exploration expenditures, total capital expenditures at El Chanate were $26.2 million, 5% higher than the Company’s 2014 guidance of approximately $25 million.

    9
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    EXPLORATION REVIEW

    On February 19, 2015, the Company reported updated reserves and resources as at December 31, 2014. Further details on the updated reserves and resources by category can be found in the Company’s February 19, 2015 press release or in the Company’s Annual Information Form, both of which can be found on the Company’s website at www.auricogold.com.

    KEMESS

    During Q4 2014, the Company continued an exploration program at Kemess East (located approximately one kilometre from the Kemess Underground Project). In Q4 2014, the Company completed 251 metres of drilling and an airborne geophysical survey totaling 1,111 line kilometres.

    On January 21, 2015, the Company announced an initial National Instrument 43-101 compliant indicated resource of 2.1 million gold equivalent ounces and an inferred resource of 3.4 million gold equivalent ounces at the Kemess East deposit. Further details can be found in the Company’s January 21, 2015 and February 19, 2015 press releases, or in the Company’s Annual Information Form, all of which can be found on the Company’s website at www.auricogold.com.

    EL CHANATE

    During Q4 2014, the Company completed 13 holes consisting of 1,836 metres of reverse circulation drilling, and 6 core holes consisting of 1,663 metres of drilling northwest and southeast of the open pit along the trend of the El Chanate deposit.

    During Q4 2014, geological field work continued on the El Chanate extension. This work was conducted in connection with the Company’s option to earn a 70% interest in claims along the Chanate Fault to the northwest of the mine.

    LYNN LAKE

    On November 11, 2014, the Company announced a strategic partnership with Carlisle in the Lynn Lake Gold Camp (“Lynn Lake Project”). Under the agreement the Company has acquired a 25% interest in the Lynn Lake Project for an initial cash contribution of CAD $5.0 million and can earn up to a 60% interest by funding CAD $20.0 million on the project over a three-year period and delivering a feasibility study within that time period.

    LAS LAJAS PROJECT

    During Q4 2014, the Company continued geological mapping and trenching.

    SANTA FE PROJECT

    During Q4 2014, the Company drilled 12 diamond drill holes consisting of 1,983 metres. The target on this property is low sulfidation epithermal gold and silver mineralization typical of this deposit type in the Sierra Madre region of Mexico.

    10
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    SUMMARIZED FINANCIAL AND OPERATING RESULTS

    (in thousands, except ounces, per share amounts, average realized prices, all-in sustaining costs and total cash costs)

    		 

     

    		  Year Ended     Year Ended     Year Ended  

     

    		  December 31     December 31     December 31  

     

    		  2014     2013     2012  

    Continuing operations - Young-Davidson mine, El Chanate mine, and Corporate and other

    		 

       Gold ounces produced(1)

    		  224,032     161,100     100,284  

       Gold ounces sold(1)

    		  227,966     160,913     94,422  

       Pre-production gold ounces produced(1)

    		  -     31,502     26,999  

       Pre-production gold ounces sold(1)

    		  -     31,839     17,505  

       Cash costs per gold ounce, net of by-product revenues and NRV adjustments(1)(2)(3)(4)

    		$  779   $  676   $  536  

       Cash costs per gold ounce, net of by-product revenues(1)(2)(3)(4)

    		$  847   $  837   $  536  

       All-in sustaining costs per gold ounce sold, net of by-product revenues and NRV adjustments(1)(3)(4)

    		$  1,200   $  1,181   $  1,259  

       All-in sustaining costs per gold ounce sold, net of by-product revenues(1)(3)(4)

    		$  1,268   $  1,342   $  1,259  

       Revenue from mining operations

    		$  291,182   $  227,631   $  163,622  

       Production costs(2)(5)

    		$  199,309   $  147,981   $  61,599  

       Loss from operations(2)

    		$  (154,705 ) $  (178,087 ) $  (96,884 )

       Net loss(2)

    		$  (169,648 ) $  (176,770 ) $  (99,779 )

       Net loss per share, basic(2)

    		$  (0.68 ) $  (0.71 ) $  (0.35 )

       Net loss per share, diluted(2)

    		$  (0.68 ) $  (0.72 ) $  (0.35 )

       Earnings before interest, taxes, depreciation, and amortization(3)

    		$  (43,960 ) $  (109,213 ) $  (80,043 )

       Operating cash flow(2)

    		$  60,414   $  63,266   $  (7,231 )

       Net free cash flow(3)

    		$  (128,415 ) $  (186,156 ) $  (368,731 )

    Discontinued operations - Ocampo mine, El Cubo mine, and Australian Operations(6)

    		 

       Gold ounces produced

    		  -     -     123,201  

       Silver ounces produced

    		  -     -     2,983,924  

       Gold ounces sold

    		  -     -     123,313  

       Silver ounces sold

    		  -     -     2,807,754  

       Cash costs per gold ounce, net of by-product revenues, co-product revenues and NRV adjustments(3)

    		$  -   $  -   $  478  

       Cash costs per gold ounce, net of by-product and co-product revenues(3)

    		$  -   $  -   $  563  

       Revenue from mining operations

    		$  -   $  -   $  293,745  

       Production costs(5)

    		$  -   $  -   $  155,920  

       Earnings from operations

    		$  -   $  -   $  56,320  

       Net earnings

    		$  -   $  -   $  131,052  

       Net earnings per share, basic

    		$  -   $  -   $  0.46  

       Net earnings per share, diluted

    		$  -   $  -   $  0.46  

       Operating cash flow

    		$  -   $  -   $  79,071  

       Net free cash flow(3)

    		$  -   $  -   $  (64,449 )

    11
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

     

    		  Year Ended     Year Ended     Year Ended  

     

    		  December 31     December 31     December 31  

     

    		  2014     2013     2012  

    Total

    		 

       Gold ounces produced(1)

    		  224,032     161,100     223,485  

       Silver ounces produced

    		  -     -     2,983,924  

       Gold ounces sold(1)

    		  227,966     160,913     217,735  

       Silver ounces sold

    		  -     -     2,807,754  

       Pre-production gold ounces produced(1)

    		  -     31,502     26,999  

       Pre-production gold ounces sold(1)

    		  -     31,839     17,505  

       Average realized gold price per ounce

    		$  1,265   $  1,395   $  1,678  

       Average realized silver price per ounce

    		$  -   $  -   $  31.16  

       Cash costs per gold ounce, net of by-product revenues and NRV adjustments(1)(2)(3)(4)

    		$  779   $  676   $  503  

       Cash costs per gold ounce, net of by-product revenues(1)(2)(3)(4)

    		$  847   $  837   $  551  

       Revenue from mining operations

    		$  291,182   $  227,631   $  457,367  

       Production costs(2)(5)

    		$  199,309   $  147,981   $  217,519  

       Loss from operations(2)

    		$  (154,705 ) $  (178,087 ) $  (40,564 )

       Net (loss) / earnings(2)

    		$  (169,648 ) $  (176,770 ) $  31,273  

       Net (loss) / earnings per share, basic(2)

    		$  (0.68 ) $  (0.71 ) $  0.11  

       Net (loss) / earnings per share, diluted(2)

    		$  (0.68 ) $  (0.72 ) $  0.11  

       Operating cash flow(2)

    		$  60,414   $  63,266   $  71,840  

       Net free cash flow(3)

    		$  (128,415 ) $  (186,156 ) $  (433,180 )

       Total cash

    		$  89,031   $  142,652   $  603,401  

       Cash dividends per share, declared

    		$  0.026   $  0.16   $  Nil  
    (1)

    The Young-Davidson open pit mine declared commercial production on September 1, 2012, and is therefore excluded from consolidated cash costs and consolidated all-in sustaining costs prior to this date. The Young-Davidson underground mine declared commercial production on October 31, 2013, and therefore, all underground ounces are excluded from consolidated cash costs and consolidated all-in sustaining costs prior to this date. Pre-production ounces produced and sold are excluded from consolidated ounces produced and sold as revenue from these ounces was credited against capitalized project costs.

    (2)

    Certain 2012 information has been restated as a result of the adoption of IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, which was applied prospectively to production stripping costs incurred on or after January 1, 2012. For further details, refer to note 3(a) to the consolidated financial statements for the year ended December 31, 2013.

    (3)

    See the Non-GAAP Measures section on page 22.

    (4)

    For the year ended December 31, 2014, cash costs per gold ounce are calculated using gold ounces sold at the El Chanate and Young-Davidson mines. For the year ended December 31, 2013, cash costs per gold ounce are calculated using gold ounces sold at the El Chanate mine and gold ounces produced at the Young-Davidson mine. For the year ended December 31, 2012, cash costs per gold ounce are calculated using ounces sold at the El Chanate, Ocampo, El Cubo, Fosterville and Stawell mines and ounces produced at the Young-Davidson mine.

    (5)

    Production costs do not include amortization and depletion or refining costs.

    (6)

    The Company disposed of the Ocampo, El Cubo, Fosterville and Stawell mines in 2012, and reclassified the results from these operations as discontinued operations.


    12
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    REVIEW OF ANNUAL FINANCIAL RESULTS

    2014 versus 2013

    During 2014, the Company sold 227,966 gold ounces at Young-Davidson and El Chanate, compared to sales of 160,913 gold ounces in 2013. Revenue during 2014 increased to $291.2 million, as compared to $227.6 million in 2013. This $63.6 million increase in revenue was due to an increase in ounces sold at the Young-Davidson mine, and was partially offset by lower realized gold prices in 2014. The Company also sold 31,839 pre-production ounces at Young-Davidson during 2013, however, the related revenue was credited against capitalized costs.

    The Company recognized a loss from operations of $154.7 million in 2014, compared to a loss from operations of $178.1 million in 2013. During the year ended December 31, 2014, the Company recorded an impairment charge of $90.0 million on property, plant and equipment and mining interests at the El Chanate mine. During the year ended December 31, 2013, the Company recorded impairment charges of $154.0 million on goodwill, property, plant and equipment and mining interests at the El Chanate mine. In addition, the Company recognized NRV adjustments of $23.5 million during the year ended December 31, 2014 compared to total NRV adjustments of $42.1 million during the year ended December 31, 2013.

    Before impairment charges and NRV adjustments, losses from operations were $39.5 million in 2014, compared to earnings from operations of $22.6 million in the same period of 2013. The year-over-year reduction in earnings from operations resulted from increased cash costs, as discussed below, and increased amortization and depletion expense during 2014. Amortization and depletion expense increased due to the addition of depletion expense from the Young-Davidson underground mine and the depletion of stripping costs capitalized in prior periods as the Young-Davidson open pit approached the end of its mine life.

    During 2014, consolidated cash costs per gold ounce, net of by-product revenues and NRV adjustments, were $779, representing a 15% increase over cash costs per gold ounce of $676 in 2013. This year-over-year increase was primarily due to a higher open pit operating strip ratio, higher open pit mining cost per tonne, and lower grade of open pit ore processed at Young-Davidson. In addition, an increase in the average cost of ore inventories at El Chanate also contributed to the increased cash costs.

    The Company reported a net loss of $169.6 million in 2014, compared to a net loss from operations of $176.8 million in 2013. Included in net loss for 2014 was a $28.1 million increase in income tax recovery compared to 2013. This was offset by a $27.4 million increase in other losses, a $2.4 million increase in foreign exchange losses, and a $17.0 million increase in finance costs due to interest on the senior secured notes issued in March 2014. Other losses increased primarily due to a $15.6 million loss on the modification of the Company’s convertible senior notes, which resulted from the cash tender offer announced during Q1 2014, and amortization on the retained interest royalty of $13.3 million.

    During 2014, consolidated all-in sustaining costs per gold ounce, net of by-product revenues and NRV adjustments, were $1,200, representing a 2% increase over all-in sustaining costs per gold ounce, net of by-product revenues and NRV adjustments, of $1,181 in 2013. The increase was due to higher Young-Davidson open pit cash costs noted above, partially offset by an increase in gold ounces sold in 2014. The Company’s consolidated all-in sustaining costs per ounce were consistent with 2014 guidance.

    In 2014, the Company reported EBITDA of negative $44.0 million, compared to EBITDA of negative $109.2 million in 2013. This increase was primarily due to lower impairment charges recorded in 2014, as discussed previously, and a $63.6 million increase in revenue recorded in the current year resulting from increased ounces sold at the Young-Davidson mine. These items were offset by increased production costs at Young-Davidson and El Chanate in 2014, as discussed previously.

    The Company reported operating cash flow of $60.4 million during 2014, a decrease of $2.9 million from operating cash flow of $63.3 million in the same period in prior year. This decrease in operating cash flow arose primarily as a result of a reduction in the operating cash flow contribution from El Chanate. After deducting capital expenditures of $188.8 million, the Company’s net free cash flow from operations for 2014 was an outflow of $128.4 million.

    13
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    2013 versus 2012

    During 2013, the Company sold 160,913 gold ounces at Young-Davidson and El Chanate, compared to sales of 94,422 gold ounces in 2012 when the Young-Davidson open pit mine contributed four months of sales subsequent to the declaration of commercial production on September 1, 2012. Revenues from continuing operations during 2013 increased to $227.6 million, as compared to revenues from continuing operations of $163.6 million in 2012. This $64.0 million increase in revenue was due to an increase in ounces sold at the Young-Davidson mine, and was partially offset by lower realized gold prices in 2013. The Company sold 31,839 pre-production ounces at Young-Davidson during 2013, compared to 17,505 pre-production ounces sold during 2012. The related revenues from pre-production ounces were credited against capitalized costs.

    The Company recognized a loss from continuing operations of $178.1 million in 2013, compared to a loss from continuing operations of $96.9 million in 2012. During 2013, primarily as a result of the impact of lower gold prices, the Company recorded impairment charges of $154.0 million on goodwill, property, plant and equipment and mining interests at the El Chanate mine. In addition, the Company recognized NRV adjustments on ore inventories at El Chanate and Young-Davidson of $25.5 million and $16.6 million, respectively. In 2012, the Company recorded an impairment charge related to the El Chanate mine of $127.0 million. Before these impairment charges and NRV adjustments, earnings from continuing operations were $18.0 million, a 40% decrease compared to 2012. This decrease was primarily due to reduced realized gold prices during the year, offset by earnings from a full year of operations at the Young-Davidson open pit mine, which achieved commercial production on September 1, 2012, and two months of commercial production from the underground mine which achieved commercial production on October 31, 2013.

    The Company reported a net loss from continuing operations of $176.8 million in 2013, compared to a net loss from continuing operations of $99.8 million in 2012. The increase in net loss was due to the higher losses from continuing operations mentioned above and a $4.1 million increase in foreign exchange losses, offset by a $10.2 million increase in income tax recoveries. Foreign exchange gains resulted from the weakening of the Canadian dollar and Mexican peso relative to the US dollar.

    During 2013, consolidated cash costs per gold ounce from continuing operations, net of by-product revenues and NRV adjustments were $676, representing a 26% increase over 2012 cash costs per gold ounce of $536. This year-over-year increase resulted from the addition of cash costs at the Young-Davidson open pit mine for a full year and higher average ore inventory costs at El Chanate. The higher costs at El Chanate were due to higher quantities of solution applied to the leach pad and a reduction in capitalized stripping costs associated with the adoption of a new accounting standard. In 2012, cash costs per gold ounce included cash costs from the Young-Davison open pit mine subsequent to the declaration of commercial production on September 1, 2012.

    During 2013, all-in sustaining costs per gold ounce from continuing operations, net of by-product revenues and NRV adjustments, were $1,181, representing a 6% decrease over 2012 all-in sustaining costs per gold ounce of $1,259. The decrease is primarily due to decreased general and administration expenditures per gold ounce sold, offset by the addition of cash costs from the Young-Davidson open pit mine and increased cash costs at the El Chanate mine.

    In 2013, the Company reported EBITDA of negative $109.2 million compared to EBITDA of negative $80.0 million in 2012. The decline in EBITDA is primarily due to the increase in production costs, amortization and depletion expense, and impairment charges mentioned above. These decreases in EBITDA were partially offset by an increase in revenues that resulted from a full year of operations at the Young-Davidson open pit mine.

    The Company reported operating cash flow from continuing operations of $63.3 million during 2013, an increase of $70.5 million from the prior year cash outflow of $7.2 million. This increase in operating cash flow arose primarily as a result of additional operating cash flow contributed from the Young-Davidson mine, partially offset by lower operating cash flow at the El Chanate mine due to lower realized prices and higher cash costs per ounce. After deducting capital expenditures of $249.4 million, primarily related to Young-Davidson, the Company’s 2013 net free cash flow from continuing operations was an outflow of $186.2 million.

    14
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    SUMMARY OF QUARTERLY FINANCIAL AND OPERATING RESULTS

    (in thousands, except ounces, per share amounts, average realized prices, all-in sustaining costs and total cash costs)  
        Q4 2014     Q3 2014     Q2 2014     Q1 2014     Q4 2013     Q3 2013     Q2 2013     Q1 2013  

    Gold ounces produced

    		  56,583     57,037     56,198     54,214     46,017     38,456     38,186     38,441  

    Gold ounces sold

    		  58,649     56,970     58,277     54,070     39,855     40,185     41,540     39,333  

    Average realized gold price

    		$  1,202   $  1,280   $  1,283   $  1,297   $  1,257   $  1,332   $  1,369   $  1,627  

    Cash costs per gold ounce, net of by-product revenues and NRV adjustments(1)(3)

    		$  746   $  706   $  801   $  870   $  771   $  628   $  655   $  635  

    Cash costs per gold ounce, net of by-product revenues(1)(3)

    		$  935   $  784   $  801   $  870   $  1,284   $  497   $  848   $  635  

    All-in sustaining costs per gold ounce, sold, net of by-product revenues and NRV adjustments(1)

    		$  1,129   $  1,101   $  1,191   $  1,390   $  1,232   $  1,210   $  1,189   $  1,090  

    All-in sustaining costs per gold ounce, sold, net of by-product revenues(1)

    		$  1,317   $  1,179   $  1,191   $  1,390   $  1,807   $  1,087   $  1,382   $  1,090  

    Revenue from mining operations

    		$  71,194   $  73,505   $  75,530   $  70,953   $  50,782   $  54,304   $  57,660   $  64,885  

    Production costs(2)

    		$  57,262   $  45,463   $  48,691   $  47,893   $  59,972   $  21,079   $  39,055   $  27,875  

    (Loss) / earnings from operations

    		$  (115,011 ) $  (7,337 ) $  (16,293 ) $  (16,064 ) $  (104,158 ) $  12,230   $  (103,674 ) $  17,515  

    Net (loss) / earnings

    		$  (108,259 ) $  (15,722 ) $  (16,776 ) $  (28,891 ) $  (106,412 ) $  14,859   $  (103,491 ) $  18,274  

    Net (loss) / earnings per share

    		$  (0.43 ) $  (0.06 ) $  (0.07 ) $  (0.12 ) $  (0.43 ) $  0.06   $  (0.42 ) $  0.07  

    Net (loss) / earnings per share, diluted

    		$  (0.43 ) $  (0.06 ) $  (0.07 ) $  (0.12 ) $  (0.43 ) $  0.04   $  (0.42 ) $  0.04  

    Earnings before interest, taxes, depreciation and amortization

    		$  (87,309 ) $  22,344   $  22,904   $  (1,899 ) $  (80,069 ) $  28,637   $  (91,432 ) $  33,651  

    Operating cash flow

    		$  28,486   $  2,788   $  4,649   $  24,491   $  11,954   $  24,338   $  13,875   $  13,099  

    Net free cash flow(1)

    		$  (12,938 ) $  (47,889 ) $  (36,467 ) $  (31,121 ) $  (51,618 ) $  (55,734 ) $  (46,399 ) $  (32,405 )
    (1)

    See the Non-GAAP Measures section on page 22.

    (2)

    Production costs do not include amortization and depletion or refining costs.

    (3)

    Gold ounces includes ounces sold at the El Chanate. For the Young-Davidson mine, gold ounces includes ounces sold in 2014 and ounces produced in 2013.


    REVIEW OF FOURTH QUARTER FINANCIAL RESULTS

    During the fourth quarter of 2014, the Company sold 58,649 gold ounces at the El Chanate and Young-Davidson mines, a 47% increase over 39,855 gold ounces sold in Q4 2013. Revenue increased from $50.8 million in Q4 2013 to $71.2 million in the fourth quarter of 2014. This $20.4 million increase in revenue was largely due to the increase in gold ounces sold during Q4 2014, partially offset by lower realized gold prices. The Company also sold 3,416 underground pre-production ounces at Young-Davidson during the fourth quarter of 2013, however, the related revenue from pre-production ounces sold was credited against capitalized costs.

    The Company recognized a loss from operations of $115.0 million in the fourth quarter of 2014, compared to a loss from operations of $104.2 million in the same period of 2013. The increase in loss from operations in 2014 was due to impairment charges on the El Chanate mine of $90.0 million compared to impairment charges of $74.0 million in Q4 2013. During the fourth quarter of 2014, the Company also recognized NRV adjustments on ore in process heap leach inventory at El Chanate of $16.4 million. Comparatively, in Q4 2013 the Company recognized NRV adjustments totaling $16.2 million on the low grade long-term stockpile inventory at Young-Davidson and $21.0 million on the heap leach inventory at El Chanate. In addition, the increase in loss from operations was due to increased amortization and depletion costs which were higher in Q4 2014 as compared to Q4 2013 due to the addition of depletion expense from the Young-Davidson underground mine.

    Q4 2014 cash costs per gold ounce, net of by-product revenues and NRV adjustments, were $746, a 3% decrease from Q4 2013. This quarter-over-quarter decrease was primarily due to increased underground contribution to overall site production at Young-Davidson and a weaker Canadian dollar compared to prior year, partially offset by an increase in average cost of ore inventories at El Chanate.

    The Company reported a net loss of $108.3 million in the fourth quarter of 2014, compared to a net loss of $106.4 million in Q4 2013. Net loss increased in the current quarter as a result of the higher loss from operations discussed previously. This increase was offset by a $14.7 million increase in income tax recovery as discussed on page 17. In addition, contributing to net loss in 2014 was a $3.8 million increase in financing costs due to interest incurred on the senior secured notes issued in March 2014, and a $1.0 million increase in foreign exchange loss quarter-over-quarter, primarily due to a weaker Canadian dollar.

    In the fourth quarter of 2014, all-in sustaining costs per gold ounce, net of by-product revenues and NRV adjustments, decreased by 8% to $1,129, as compared to all-in sustaining costs per gold ounce, net of by-product revenues and NRV adjustments, of $1,232 in Q4 2013. This decrease was due to lower general and administrative expenditures and increased gold ounces sold, partially offset by the higher Young-Davidson open pit cash costs noted previously.

    15
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    The Company reported EBITDA of negative $87.3 million in Q4 2014, compared to EBITDA of negative $80.1 million in Q4 2013. This quarter-over-quarter decrease in EBITDA is primarily due to higher impairment charges recorded in Q4 2014, compared to Q4 2013, as discussed previously. These items are offset by a $20.4 million quarter-over-quarter increase in revenue largely due to the increase in gold ounces sold in Q4 2014.

    The Company reported operating cash flow of $28.5 million during the fourth quarter, an increase of $16.5 million over operating cash flow of $12.0 million in Q4 2013. This increase in operating cash flow was primarily due to increased gold ounces sold at Young-Davidson resulting in higher revenues during the current quarter as compared to the prior year. After deducting capital expenditures of $41.4 million, the Company’s Q4 2014 net free cash flow was negative $12.9 million.

    CONSOLIDATED EXPENSES

    (in thousands)

    		 

     

    		  Year Ended     Year Ended     Year Ended  

     

    		  December 31     December 31     December 31  

     

    		  2014     2013     2012 (1)

    Reclamation, care and maintenance costs

    		$  5,971   $  4,417   $  14,066  

    General and administrative(2)

    		$  25,921   $  27,677   $  35,730  

    Exploration and business development

    		$  1,001   $  1,014   $  1,385  

    Impairment charges

    		$ 91,622   $  158,574   $  128,537  

    Finance costs

    		$  19,910   $  2,928   $  2,237  

    Foreign exchange loss(3)

    		$  6,639   $  4,289   $  179  

    Other loss / (income)

    		$  17,201   $  (10,167 ) $  (8,762 )

    Equity in loss / (earnings) of associate and jointly-controlled entity

    		$  171   $  2,533   $  (83 )
    (1)

    Exclusive of discontinued operations as expenses relating to discontinued operations are presented separately in the Company's Consolidated Statements of Operations for the year ended December 31, 2012.

    (2)

    General and administrative expense includes share-based compensation expense.

    (3)

    Foreign exchange losses in 2013 and 2012 have been restated as a result of the retrospective application of a voluntary change in accounting policy related to the presentation of foreign exchange gains and losses on deferred tax assets and liabilities. For further details, refer to note 3 of the consolidated financial statements for the year ended December 31, 2014.

    Reclamation, care and maintenance costs in 2014 and 2013 were comprised of site overhead and other costs relating to activities at Kemess South, a mine in the decommissioning stage. Facilities at the Kemess site are being kept on care and maintenance pending the outcome of the Kemess Underground Project and Kemess East.

    General and administrative costs include expenses relating to the overall management of the business that are not part of direct mine operating costs. These costs are generally incurred at the corporate offices located in Canada, but also include share-based compensation costs for key employees at all locations. Share-based compensation costs for 2014 were $7.2 million, compared to $7.4 million in 2013. Overall, general and administrative costs for 2014 decreased by $1.8 million over 2013, as the costs incurred in Q1 2014 related to the corporate restructuring were more than offset by lower travel expenses and professional fees in 2014. After excluding share-based compensation costs of $7.2 million and corporate restructuring costs of $2.0 million, general administrative costs were $16.8 million, lower than the 2014 guidance of $20.0 million, primarily due to lower travel costs and professional fees than planned.

    Exploration and business development costs in 2014 were largely consistent with the same period in 2013.

    During 2014, the Company recognized $91.6 million in impairment charges, including the $90.0 million impairment charge on the El Chanate mine, that was previously discussed, and a $1.6 million impairment charge on exploration properties due to discontinuation of activity at these properties. During 2013, the Company recognized $158.6 million in impairment charges, including a $154.0 million impairment charge on the El Chanate mine, and a $4.6 million impairment charge related to various exploration properties due to discontinuation of exploration at these properties.

    Finance costs increased by $17.0 million in 2014 as compared to 2013 primarily as a result of additional interest incurred by the Company on the senior secured notes issued in March 2014, and lower capitalized interest due to fewer ongoing capital projects in 2014.

    During 2014, foreign exchange losses increased by $2.4 million compared to 2013, primarily as a result of a weakening in the Canadian dollar and Mexican peso during the year. The Company will continue to experience non-cash foreign currency gains or losses on monetary assets and liabilities, primarily as a result of fluctuations between the US dollar, and both the Canadian dollar and Mexican peso.

    During 2014, the Company recorded other losses of $17.2 million compared to other income of $10.2 million in 2013. Other losses in the current year are primarily due to a $15.6 million loss recognized in Q1 2014 on the modification of convertible senior notes, amortization of $13.3 million on the retained interest royalty, and a $2.5 million reclassification of accumulated losses on available-for-sale investments from other comprehensive income to earnings. These amounts were partially offset by $6.6 million in unrealized and realized gains on investments, royalty income of $2.5 million from Crocodile Gold Corporation, and $3.2 million in net proceeds received on the transfer of a litigation claim. In 2013, other income was comprised of a $15.6 million unrealized gain on the fair value of the option component of convertible notes, offset by a $7.4 million unrealized loss on the fair value of contingent consideration.

    16
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    During 2014, the Company recognized its share of losses relating to the Lynn Lake and Orion exploration projects, which are accounted for as an associate and jointly-controlled entity, respectively, using the equity method.

    CONSOLIDATED INCOME TAX EXPENSE

    The Company is subject to tax in various jurisdictions, including Mexico and Canada. There are a number of factors that can significantly impact the Company’s effective tax rate including the geographic distribution of income, varying rates in different jurisdictions, the non-recognition of tax assets, mining allowances, foreign currency exchange rate movements, changes in tax laws and the impact of specific transactions and assessments. Due to the number of factors that can potentially impact the effective tax rate and the sensitivity of the tax provision to these factors, as discussed above, it is expected that the Company’s effective tax rate will fluctuate in future periods.

    During Q4 2014, the Company recognized a current tax recovery of $3.1 million and a deferred tax recovery of $14.3 million, compared to a current tax recovery of $3.7 million and a deferred tax expense of $1.1 million in Q4 2013. The increase in deferred tax recovery during the quarter is due primarily to a larger deferred tax recovery on impairment charges.

    For the year ended December 31, 2014, the Company recognized a current tax recovery of $2.7 million and a deferred tax recovery of $26.3 million, compared to a current tax recovery of $0.1 million and a deferred tax recovery of $0.8 million in 2013. The current year tax recovery is due to the reversal of a reserve in the current year. The increase in deferred tax recovery is due to a larger deferred tax recovery on impairment charges, foreign exchange gains on translation of Canadian dollar and Mexican peso denominated deferred income tax liabilities, and the accounting amortization of property, plant and equipment and mining interests exceeding the amortization recognized in the determination of net income for tax purposes. These increases were offset by the weakening of the Canadian dollar relative to the US dollar, which caused an increase in taxable temporary differences.

    17
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    FINANCIAL CONDITION

    (in thousands)  
        As at     As at     As at    
        December 31     December 31     December 31    
        2014     2013     2012   2014 versus 2013
    Current assets $  183,954   $  291,939   $  743,654  

    Current assets decreased during 2014, primarily due to the reduction in accounts receivable of $15.2 million, the collection of $21.7 million in income taxes receivable, and a net decrease in cash of $53.6 million.

                       

     

    Long-term assets   2,097,872     2,170,469     2,151,587  

    Long-term assets decreased due to impairment charges at El Chanate, the sale of investments, and amortization of property, plant, and equipment and intangible assets. These declines were offset by capital expenditures incurred in 2014.

                       

     

    Total assets $  2,281,826   $  2,462,408   $  2,895,241  

     

                       

     

    Current liabilities $  52,121   $  114,159   $  95,381  

    Current liabilities have decreased due to a $34.9 million decline in accounts payable and accrued liabilities outstanding at period end, as well as the payment of dividends payable at December 31, 2013 and the settlement of the McKenna lawsuit in April 2014.

                       

     

    Long-term financial liabilities   308,064     244,607     183,532  

    Long-term financial liabilities increased primarily due to the completion of the senior secured notes offering, partially offset by the repayment of amounts outstanding under the Company's credit facility and convertible senior notes.

                       

     

    Other long-term liabilities   290,431     315,760     320,491  

    Other long-term liabilities decreased due to a decline in deferred income tax liabilities at December 31, 2014.

                       

     

    Total liabilities $  650,616   $  674,526   $  599,404  

     

                       

     

    Shareholders’ equity $ 1,631,210   $  1,787,882   $  2,295,837  

    Shareholders' equity decreased primarily as a result of the net loss recognized in 2014, and dividends declared in 2014.


    18
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    LIQUIDITY AND CAPITAL RESOURCES

    The Company’s strategy for managing liquidity is based on achieving positive cash flows from operations to internally fund operating and capital requirements. Material increases or decreases in the Company’s liquidity and capital resources will be substantially determined by the success or failure of the Company’s operations, exploration, and development programs, the ability to obtain equity or other sources of financing, the price of gold, and currency exchange rates. The declaration and payment of dividends is at the discretion of the Board of Directors and will depend on the Company’s financial results, cash requirements, future prospects, and other factors deemed relevant by the Board. Refer to the Outlook and Strategy section on page 5 for near term factors that could influence the Company’s cash balance. Future commitments that could impact the Company’s liquidity are disclosed in the Contractual Obligations section on page 21. Management believes that the working capital at December 31, 2014, together with future cash flows from operations and the available credit facility, is sufficient to support the Company’s planned and foreseeable commitments, and dividends, if declared.

    CASH FLOW

    (in thousands)

    		 

     

    		  Year Ended     Year Ended     Year Ended  

     

    		  December 31     December 31     December 31  

     

    		  2014     2013     2012  

    Cash flow from / (used in) operating activities(1)(2)

    		$  60,414   $  63,266   $  (7,231 )

    Cash flow (used in) / from investing activities(1)(2)

    		  (150,801 )   (272,380 )   554,287  

    Cash flow from / (used in) financing activities(1)

    		  38,126     (250,745 )   (53,198 )

    Effect of foreign exchange rates on cash(1)

    		  (1,360 )   (890 )   (1,109 )

    (Decrease) / increase in cash and cash equivalents from continuing operations

    		  (53,621 )   (460,749 )   492,749  

    Decrease in cash from discontinued operations

    		  -     -     (68,792 )

    Total cash and cash equivalents, beginning of period

    		  142,652     603,401     179,444  

    Total cash and cash equivalents, end of period

    		$  89,031   $  142,652   $  603,401  
    (1)

    Exclusive of discontinued operations as cash flows from discontinued operations is presented separately in the Company's Consolidated Statement of Cash Flows for the year ended December 31, 2012.

    (2)

    Certain comparative information has been restated as a result of the adoption of IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, which was applied prospectively to production stripping costs incurred on or after January 1, 2012. For further details, refer to note 3(a) to the consolidated financial statements for the year ended December 31, 2013.

    In 2014, operating activities contributed cash flows of $60.4 million, as compared to 2013 when operating activities contributed cash of $63.3 million. Operating cash flow decreased in the 2014 primarily as a result of higher cash costs, interest payments made on the Company’s senior secured notes, the payment of accounts payable at Young-Davidson, and lower operating cash flow at El Chanate, as discussed previously. These amounts were largely offset by increased revenues due to higher production in 2014 as compared to the same period in the prior year and collection of $21.7 million in income taxes receivable in Q1 2014.

    In 2014, investing activities used cash of $150.8 million compared to $272.4 million used in 2013. Year-to-date, cash flow used in investing activities was comprised of capital expenditures of $188.8 million, which was partially offset by a $14.8 million decrease in restricted cash and $23.3 million in proceeds received from the sale of investments. Cash flow used in investing activities in 2013 included capital expenditures of $249.4 million and the purchase of investments of $21.3 million.

    In 2014, cash flow contributed by financing activities included $304.1 million in proceeds from the senior secured notes offering, offset by $14.4 million in dividend payments and $254.1 million in repayments of long term debt and equipment financing leases, which included repayments of $75.0 million on the outstanding credit facility and $173.0 million on the convertible senior notes. Cash flow used in financing activities in 2013 was largely comprised of $301.1 million paid to complete a substantial issuer bid and the payment of $27.7 million in dividends. This was partially offset by proceeds of $75.0 million received on the Company’s credit facility.

    FLOW-THROUGH SHARES

    On September 17, 2014, the Company completed a flow-through share issuance for gross proceeds of $4.6 million (CAD $5.0 million). As a result, the Company issued 833,334 common shares at a price of CAD $6.00 per share. Pursuant to the terms of the flow-through share agreement, the Company is required to incur and renounce these expenditures to subscribers by December 31, 2015. All proceeds will be used to fund exploration expenditures at the Company’s Kemess property.

    SENIOR SECURED NOTES

    On March 27, 2014, the Company completed an offering of $315.0 million senior secured notes (the “secured notes”), secured against the assets of the Company. Proceeds from this offering were used to repay $166.4 million of the Company’s outstanding convertible senior notes, to repay $75.0 million drawn under the Company’s credit facility and for general corporate purposes. These secured notes were sold at 96.524% of par, resulting in total proceeds of $304.1 million. The secured notes pay interest in semi-annual installments on April 1 and October 1 of each year, commencing on October 1, 2014, at a rate of 7.75% per annum, and mature on April 1, 2020. No principal payments are due until the maturity date. These notes contain transaction-based restrictive covenants that limit the Company’s ability to incur additional indebtedness in certain circumstances. There are no covenants that are based on the Company’s historical financial performance.

    19
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    The senior secured notes indenture grants the Company the option to prepay the notes prior to the maturity of the instruments, and specifies a premium during each applicable time period. These prepayment options have been accounted for as embedded derivatives, and are outlined below:

    − Subsequent to April 1, 2017, the secured notes may be repurchased at 103.875% of par value
    − Subsequent to April 1, 2018, the secured notes may be repurchased at 101.938% of par value
    − Subsequent to April 1, 2019, the secured notes may be repurchased at 100% of par value

    The fair value of the prepayment option embedded derivative was $6.7 million at December 31, 2014, and was offset against the carrying amount of the secured notes.

    CREDIT FACILITY

    The Company has access to a $150.0 million revolving credit facility, which carries an interest rate of LIBOR plus 2.25% to 3.50%, depending on the net leverage ratio of the Company, and matures on April 25, 2016. No principal payments are due until the maturity date, which may be extended upon mutual agreement by all parties. During 2014, the Company repaid the $75.0 million drawn under this facility and, as a result, had no amounts drawn under this revolving facility at December 31, 2014. The Company was in compliance with all loan covenants at December 31, 2014.

    CONVERTIBLE DEBT

    On March 6, 2014, the Company announced a cash tender offer to redeem all of the outstanding convertible senior notes. The consideration offered was $1,040 per $1,000 note plus accrued and unpaid interest to the payment date. On April 3, 2014, the Company paid $173.0 million to complete this offer, resulting in the redemption of $166.4 million convertible senior notes. The remaining $0.6 million of convertible senior notes remain outstanding.

    At the end of 2014, the Company had $0.6 million in convertible senior notes which pay interest semi-annually at a rate of 3.50% per annum, and mature on October 1, 2016. The holders of the notes may, within specified time periods, convert their notes prior to July 1, 2016 under the following circumstances: (1) the closing sale price of the Company’s shares exceeds 130% of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding quarter; (2) the trading price per $1,000 principal amount of the convertible note is equal to or less than 97% of the product of the closing sale price of the Company’s common shares and the applicable conversion rate; (3) the convertible notes are called for redemption by the Company; (4) upon the occurrence of specified corporate transactions; and (5) a “delisted event” occurs and is continuing. In addition, the notes will be unconditionally convertible at the option of the holder from July 1, 2016 to the business day immediately preceding the maturity date of the notes. Following the payment of dividends on December 1, 2014, the conversion rate is 94.3882 common shares per $1,000 principal amount of notes, which represents a conversion price of approximately $10.59 per common share.

    INVESTMENTS

    At December 31, 2014, the Company held investments with a fair market value of $0.2 million, which consisted primarily of common shares of publicly traded companies. Investments in common shares of publicly traded companies are classified as available-for-sale investments. Realized and unrealized gains on available-for-sale investments totaled $9.1 million for the year ended December 31, 2014 (year ended December 31, 2013 - unrealized losses of $5.3 million).

    During the year ended December 31, 2014, the Company sold shares in various publicly listed entities for total proceeds of $23.3 million.

    20
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    CONTRACTUAL OBLIGATIONS

    A summary of the Company’s contractual obligations at December 31, 2014 is as follows:

    (in thousands)

    		 


    		   Total     Less than
    1 year     		    1 – 3 years     3 – 4 years     4 – 5 years     Greater than
    5 years     		 

    Trade payables and accrued liabilities

    		$  42,046   $  42,046   $  -   $  -   $  -   $  -  

    Debt

    		  450,429     24,685     49,712     24,413     24,413     327,206  

    Equipment financing obligations

    		  17,662     6,597     7,876     2,262     927     -  

    Future purchase commitments

    		  9,189     9,189     -     -     -     -  

    Total

    		$  519,326   $  82,517   $  57,588   $  26,675   $  25,340   $  327,206  

    OUTSTANDING SHARE DATA

    The Company’s share capital was comprised of the following as at December 31, 2014:

        December 31, 2014     December 31, 2013  
    Authorized:            
    Unlimited number of common shares            
    Issued:            
    Common shares   249,648,617     247,569,811  

    The following table sets out the common shares, stock options, deferred share units, performance share units, and restricted share units outstanding as at the date of this MD&A:

      February 19, 2015    
    Common shares  

     249,978,342

    		  
    Stock options  

     13,094,101

    		  
    Deferred share units  

     253,210

    		  
    Performance share units  

     565,216

    		  
    Restricted share units  

     629,176

    		  
       

    264,520,045

    		  

    In addition, the Company had outstanding convertible notes with an implied conversion price of $10.59 per share that could result in the issuance of up to 60,974 common shares.

    OFF-BALANCE SHEET ARRANGEMENTS

    The Company does not have any off-balance sheet arrangements.

    FINANCIAL INSTRUMENTS

    During the year ended December 31, 2014, the Company issued $315.0 million of secured notes, redeemed $166.4 million of convertible notes and sold investments for total proceeds of $23.3 million. Refer to the Liquidity and Capital Resources section on page 19 for further information on these financial instruments.

    The Company seeks to manage its exposure to fluctuations in commodity prices, interest rates and foreign exchange rates by entering into derivative financial instruments from time to time.

    As at December 31, 2014, the Company held option contracts to protect against the risk of an increase in the value of the Canadian dollar and Mexican peso versus the US dollar. Details of these option contracts for the purchase of local currencies and sale of US dollars, which settle on a monthly basis, are summarized in the table below.

              Local     Local currency     Local currency     Call option     Put option  
    Period covered   Contract     Currency     per month     total     per USD     per USD  
    30-Jan-15    31-Dec-15   Collar     CAD     7,500     90,000     1.1111     1.2246  
    30-Jan-15    31-Dec-15   Collar     MXN     30,000     360,000     14.00     15.71  

    21
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    These contracts had a negative fair value of $0.4 million at December 31, 2014, all of which has been recognized in other (loss) / income within the Consolidated Statements of Operations for the year ended December 31, 2014.

    During 2013, the Company held forward contracts to protect against the risk of an increase in the value of the Mexican peso versus the US dollar. During the year ended December 31, 2013, a gain of $0.1 million was recognized in net loss on settlement of these forward contracts.

    TRANSACTIONS WITH RELATED PARTIES

    The Company utilizes a Mexican corporation, Caborca Industrial S.A. de C.V. (“Caborca Industrial”), for mining support services at the El Chanate mine, including the payment of mining salaries and related costs. Caborca Industrial is 100% owned by the Company’s Chief Executive Officer and Chief Operating Officer, and is consolidated in accordance with IFRS 10, Consolidated Financial Statements. The Company’s Chief Executive Officer and Chief Operating Officer receive no financial benefits as a result of their ownership of this entity.

    Other than as discussed in the paragraph above, no director, senior officer, principal holder of securities or any associate or affiliate thereof of the Company has any interest, directly or indirectly, in material transactions with the Company or any of its direct or indirect wholly-owned subsidiaries.

    The Company has a joint venture interest in the Orion exploration project, located in Nayarit, Mexico. Nayarit Gold de Mexico, S.A. de C.V., a company with ownership of this project, is 50% owned by the Company and 50% owned by Minera Frisco, S.A.B. de C.V., and is accounted for as a jointly-controlled entity. The Company provides management services and may, from time to time, contribute cash or other assets to the jointly-controlled entity. At December 31, 2014, the Company had a receivable from the jointly-controlled entity of $2.1 million (December 31, 2013 - $1.4 million).

    As discussed previously, the Company completed a private placement with Carlisle in which the Company invested CAD $5.6 million in exchange for 19.9% of the outstanding common shares of Carlisle. In conjunction with the private placement, the Company entered into an agreement on November 11, 2014 with respect to Carlisle’s Lynn Lake Gold Camp. Under the agreement, the Company has acquired a 25% interest in the Lynn Lake Project and can earn up to a 60% interest by funding CAD $20.0 million on the project over a three-year period and delivering a feasibility study within that time period. The Company will be managing exploration and technical work related to a future feasibility study on the Lynn Lake Project. At December 31, 2014, the Company has included an advance of $0.8 million in other long-term assets which relates to ongoing work on the Lynn Lake Project.

    EVENTS AFTER THE REPORTING PERIOD

    (a)    Termination of retained interest royalty

    On January 14, 2015, the Company finalized the agreement to terminate the retained interest royalty from Crocodile Gold and received CAD $20.0 million in cash consideration, along with net smelter royalties on future production from the Fosterville and Stawell mines of 2% and 1%, respectively.

    (b)    Declaration of dividend

    On February 19, 2015, the Company’s Board of Directors approved a dividend of $0.023 per share, payable to shareholders of record on March 2, 2015.

    NON-GAAP MEASURES

    The Company has included various non-GAAP measures throughout this document. The Company believes that, in addition to conventional measures prepared in accordance with GAAP, management, analysts and investors use this information to evaluate the Company’s operating and economic performance. However, these non-GAAP measures do not have any standardized meaning, and should not be considered in isolation from or as a substitute for performance measures prepared in accordance with GAAP. Other companies may calculate these measures differently.

    CASH COST PER OUNCE CALCULATION

    Cash cost per ounce is a non-GAAP performance measure that management uses to better assess the Company’s performance for the current period and its expected performance in the future. The Company believes that, in addition to conventional measures prepared in accordance with GAAP, certain investors use this measure to evaluate the Company’s performance and cash generating capabilities. This measure is calculated by adjusting production and refining costs as recorded in the Company’s consolidated financial statements for by-product revenues and NRV adjustments, production costs associated with unsold ounces, production costs unrelated to current period ounces sold, production costs associated with acquisition-date fair value adjustments, and production costs associated with NRV adjustments. The calculation of cash costs per gold ounce measures the benefit of any by-product silver that is produced in conjunction with gold as a credit against the cost of producing gold. A number of other gold producers present their costs net of the contribution from silver and other non-gold by-product sales. The Company believes that presenting this measure on this basis allows management, analysts and investors to better assess performance against other gold producers, and to better understand the importance of non-gold revenue on the Company’s cost structure.

    22
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    The following provides a reconciliation of cash cost per ounce to the consolidated financial statements:

    (in thousands, except ounces and cash cost per gold ounce)

    		 

     

    		  Quarter Ended     Quarter Ended     Year Ended     Year Ended  

     

    		  December 31     December 31     December 31     December 31  

     

    		  2014     2013     2014     2013  

    Production costs

    		$  57,262   $  59,972   $  199,309   $  147,981  

    Refining costs

    		$  180   $  139   $  595   $  526  

    Inventory and other adjustments(1)

    		$  (1,893 ) $  (2,135 ) $  (3,798 ) $  (10,216 )

    Total cash costs

    		$  55,549   $  57,976   $  196,106   $  138,291  

    Divided by gold equivalent ounces(2)

    		  59,244     45,150     230,270     163,599  

    Total cash cost per gold equivalent ounce

    		$  938   $  1,284   $  852   $  845  

    Total cash costs (per above)

    		$  55,549   $  57,976   $  196,106   $  138,291  

    By-product revenues(3)

    		$  (715 ) $  (665 ) $  (2,915 ) $  (3,272 )

    Total cash costs, net of by-product revenues

    		$  54,834   $  57,311   $  193,191   $  135,019  

    Divided by gold ounces(4)

    		  58,649     44,621     227,966     161,271  

    Total cash cost per gold ounce, net of by-product revenues

    		$  935   $  1,284   $  847   $  837  

    Total cash costs, net of by-product revenues (per above)

    		$  54,834   $  57,311   $  193,191   $  135,019  

    NRV adjustments(5)

    		$  (11,067 ) $  (22,907 ) $  (15,500 ) $  (25,969 )

    Total cash costs, net of by-product revenues and NRV adjustments

    		$  43,767   $  34,404   $  177,691   $  109,050  

    Divided by gold ounces

    		  58,649     44,621     227,966     161,271  

    Total cash cost per gold ounce, net of by-product revenues and NRV adjustments

    		$  746   $  771   $  $779   $  $676  
    (1)

    Inventory and other adjustments include amortization of the inventory fair value adjustments relating to the El Chanate purchase price allocations, costs unrelated to current period ounces sold, as well as the movement in costs associated with unsold gold ounces at Young-Davidson. The total of these adjustments for the three months and years ended December 31, 2014 and 2013 were as follows:

         El Chanate $  (1,893 ) $  (6,415 ) $  (2,720 ) $  (10,560 )
         Young-Davidson $  -   $  4,280   $  (1,078 ) $  344  
        $  (1,893 ) $  (2,135 ) $  (3,798 ) $  (10,216 )
    (2)

    Gold equivalent ounces include silver ounces produced / sold converted to gold equivalent based on the ratio of the realized sales prices of the commodities.

    (3)

    By-product revenue is defined as the revenue from a secondary metal or mineral that is recovered during processing, and is included in revenue from mining operations in the Company's financial statements. The total by-product silver revenues adjustments for the three months and years ended December 31, 2014 and 2013 were as follows:

         El Chanate $  (430 ) $  (562 ) $  (2,248 ) $  (2,881 )
         Young-Davidson $  (285 ) $  (103 ) $  (667 ) $  (391 )
        $  (715 ) $  (665 ) $  (2,915 ) $  (3,272 )
    (4)

    For the three months and year ended December 31, 2014, cash costs per gold ounce are calculated using gold ounces sold at the El Chanate and Young-Davidson mines. For the three months and year ended December 31, 2013, cash costs per gold ounce are calculated using gold ounces sold at the El Chanate mine and gold ounces produced at the Young-Davidson mine.

    (5)

    The total NRV adjustments recognized during the three months and years ended December 31, 2014 and 2013 were as follows:

         El Chanate $  (11,067 ) $  (13,156 ) $  (12,160 ) $  (15,919 )
         Young-Davidson $  -   $  (9,751 ) $  (3,339 ) $  (10,050 )
        $  (11,067 ) $  (22,907 ) $  (15,500 ) $  (25,969 )

    ALL-IN SUSTAINING COST PER OUNCE CALCULATION

    All-in sustaining cost per ounce is a non-GAAP performance measure developed by the World Gold Council that reflects all of the expenditures that are required to produce an ounce of gold from current operations. The World Gold Council is a non-regulatory, non-profit, market development organization that was established in 1987 whose members include global senior mining companies. The Company is not a member of the World Gold Council, and was not involved in the development of the all-in sustaining cost measure. However, the Company believes that this measure will be useful to external users in assessing operating performance and the ability to generate free cash flow from current operations. This measure uses cash costs per ounce as its basis, and also includes sustaining capital expenditures, general and administrative expenses, sustaining exploration and evaluation costs, and accretion and depletion of reclamation provisions at operating sites. As this measure seeks to reflect the full cost of producing gold at current operations, it excludes capital expenditures to develop new operations and to materially enhance production or reserves at existing operations. Certain other cash expenditures, including tax payments, increases in inventory, dividends and other financing costs, are also excluded.

    23
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    The following provides a reconciliation of all-in sustaining cost per ounce to the consolidated financial statements:

    (in thousands, except ounces and all-in sustaining cost per gold ounce)

    		 

     

    		  Quarter Ended     Quarter Ended     Year ended     Year ended  

     

    		  December 31     December 31     December 31     December 31  

     

    		  2014     2013     2014     2013  

    Total cash costs, net of by-product revenues (see above)

    		$  54,834   $  57,311   $  193,191   $  135,019  

    General and administrative

    		$  5,338   $  6,909   $  25,921   $  27,677  

    Young-Davidson inventory adjustments

    		$  -   $  (4,280 ) $  -   $  (344 )

    Sustaining capital expenditures(1)

    		$  16,799   $  11,799   $  68,649   $  52,697  

    Accretion and depletion of reclamation provisions

    		$  294   $  260   $  1,200   $  891  

    Total all-in sustaining costs, net of by-product revenues

    		$  77,265   $  71,999   $  288,961   $  215,940  

    Divided by gold ounces sold

    		  58,649     39,855     227,966     160,913  

    All-in sustaining cost per gold ounce sold, net of by-product revenues

    		$  1,317   $  1,807   $  1,268   $  1,342  

    Total all-in sustaining costs, net of by-product revenues (per above)

    		$  77,265   $  71,999   $  288,961   $  215,940  

    NRV adjustments

    		$  (11,067 ) $  (22,907 ) $  (15,500 ) $  (25,969 )

    Total all-in sustaining costs, net of by-product revenues and NRV adjustments

    		$  66,198   $  49,092   $  273,461   $  189,971  

    Divided by gold ounces sold

    		  58,649     39,855     227,966     160,913  

    All-in sustaining cost per gold ounce sold, net of by-product revenues and NRV adjustments

    		$  1,129   $  1,232   $  1,200   $  1,181  
    (1)

    Sustaining capital expenditures are defined as those expenditures which do not increase annual gold ounce production at a mine site and exclude all expenditures at growth projects and certain expenditures at operating sites which are deemed expansionary in nature. Total sustaining capital for the three months and years ended December 31, 2014 and 2013 is calculated as follows:

     

       Capital expenditures per cash flow statement

    		$  41,424   $  63,572   $  188,829   $  249,422  
     

       Less: Young-Davidson non-sustaining capital

    		$  (14,900 ) $  (38,195 ) $  (97,282 ) $  (151,917 )
     

       Less: El Chanate non-sustaining capital

    		$  -   $  (9,025 ) $  (1,271 ) $  (34,707 )
     

       Less: Corporate and other non-sustaining capital

    		$  (9,725 ) $  (4,553 ) $  (21,627 ) $  (10,101 )
        $  16,799   $  11,799   $  68,649   $  52,697  

    Non-sustaining capital expenditures include Young-Davidson mine development that is considered to be growth, expenditures associated with sinking the MCM shaft, additional equipment and infrastructure as the Company continues to ramp up production at Young-Davidson, and exploration expenditures at El Chanate.

    24
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (“EBITDA”)

    EBITDA represents net earnings before interest, taxes, depreciation, and amortization. EBITDA is an indicator of the Company’s ability to generate liquidity by producing operating cash flow to fund working capital needs, service debt obligations, and fund capital expenditures.

    The following is a reconciliation of EBITDA to the consolidated financial statements:

    (in thousands)

    		 

     

    		  Quarter Ended     Quarter Ended     Year Ended     Year Ended  

     

    		  December 31     December 31     December 31     December 31  

     

    		  2014     2013     2014     2013  

    Net loss

    		$  (108,259 ) $  (106,412 ) $  (169,648 ) $  (176,770 )

    Add back:

    		                       

       Finance costs

    		$  5,175   $  1,352   $  19,910   $  2,928  

       Amortization and depletion

    		$  30,092   $  27,649   $  121,468   $  65,529  

       Amortization included in other (loss) / income

    		$  3,033   $  -   $  13,288   $  -  

       Deferred income tax (recovery) / expense

    		$  (14,263 ) $  1,071   $ (26,278 ) $  (760 )

       Current income tax recovery

    		 $  (3,087 ) $  (3,729 ) $  (2,700 ) $  (140 )

    EBITDA

    		$  (87,309 ) $  (80,069 ) $  (43,960 ) $  (109,213 )

    NET FREE CASH FLOW

    Net free cash flow represents an indication of the Company’s continuing capacity to generate cash flow from operations, comprising cash flows from operating activities net of total capital expenditures. It does not necessarily represent the cash flow in the period available for management to use at its discretion, which may be affected by other sources and non-discretionary uses of cash.

    The following is a reconciliation of net free cash flow to the consolidated financial statements:

    (in thousands)

    		 

     

    		  Quarter Ended     Quarter Ended     Year Ended     Year Ended  

     

    		  December 31     December 31     December 31     December 31  

     

    		  2014     2013     2014     2013  

    Operating cash flow

    		$  28,486   $  11,954   $  60,414   $  63,266  

    Less: Capital expenditures

    		$  (41,424 ) $  (63,572 ) $  (188,829 ) $  (249,422 )

    Net free cash flow

    		$  (12,938 ) $  (51,618 ) $  (128,415 ) $  (186,156 )

    RISKS AND UNCERTAINTIES

    The Company’s business contains significant risk due to the nature of mining, exploration, and development activities. Certain risk factors listed below are related to the mining industry in general, while others are specific to the Company. Included in the risk factors below are details on how management seeks to mitigate these risks wherever possible. For additional discussion of these and other risk factors, please refer to the Company’s Annual Information Form, which is available on the Company’s website at www.auricogold.com, on SEDAR at www.sedar.com, and on EDGAR at www.sec.gov.

    NATURE OF MINERAL EXPLORATION AND MINING

    Because mines have limited lives based on proven and probable mineral reserves, the Company will be required to continually replace and expand its mineral reserves as its mines produce gold and silver. The Company’s ability to maintain or increase its annual production of gold and silver in the future will be dependent in significant part on its ability to identify and acquire additional commercially viable mineral properties, bring new mines into production, and expand mineral reserves at existing mines.

    Mineral resource exploration and development is a highly speculative business, characterized by a number of significant risks including, among others, unprofitable efforts resulting not only from the failure to discover mineral deposits but also from finding mineral deposits that, though present, are insufficient in quantity and quality to return a profit from production. There can be no assurance that the Company will successfully acquire additional mineral rights. While the discovery of additional ore-bearing structures may result in substantial rewards, few properties that are explored are ultimately developed into producing mines. Major expenses may be required to establish reserves by drilling and to construct mining and processing facilities at a particular site. It is impossible to ensure that the current exploration and development programs of the Company will result in profitable commercial mining operations. The profitability of the Company’s operations will be, in part, directly related to the cost and success of its exploration and development programs, which may be affected by a number of factors.

    25
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    Mining is inherently dangerous and subject to conditions or events beyond the Company’s control, which could have a material adverse effect on the Company’s business. Mining involves various types of risks and hazards, including, but not limited to: environmental hazards; industrial accidents; metallurgical and other processing problems; unusual or unexpected rock formations; structural cave-ins or slides; seismic activity; flooding; fires; periodic interruptions due to inclement or hazardous weather conditions; variations in grade, deposit size, density and other geological problems; mechanical equipment performance problems; unavailability of materials and equipment; labour force disruptions; unanticipated or significant changes in the costs of supplies; and unanticipated transportation costs. Where considered practical to do so, the Company maintains insurance against risks in the operation of its business in amounts which it believes to be reasonable. Such insurance, however, contains exclusions and limitations on coverage. The Company may suffer a material adverse effect on its business if it incurs losses related to any significant events that are not covered by its insurance policies.

    RESERVE ESTIMATES

    Mineral resource and reserve figures are based upon estimates made by Company personnel and independent geologists. These estimates are imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may prove to be unreliable. There can be no assurance that these estimates will be accurate; that reserves, resources or other mineralization figures will be accurate; or that this mineralization can be mined or processed profitably. Mineralization estimates for the Company’s properties may require adjustments or downward revisions based upon further exploration or development work or actual production experience. In addition, the grade of ore ultimately mined, if any, may differ from that indicated by drilling results. There can be no assurance that minerals recovered in small scale tests will be duplicated in large scale tests under on-site conditions or in-production scale. The reserve and resource estimates have been determined and valued based on assumed future prices, cut-off grades and operating costs that may prove to be inaccurate. Extended declines in market prices for gold and silver may render portions of the Company’s mineralization uneconomic and result in reduced reported mineralization. Any material reductions in estimates of mineralization, or of the Company’s ability to extract this mineralization, could have a material adverse effect on the Company’s results of operations or financial condition.

    EFFECT OF INDEBTEDNESS ON FINANCIAL CONDITION

    The Company has a significant amount of secured indebtedness. The Company’s level of indebtedness, including the secured notes issued on March 27, 2014, could have material and adverse consequences to the Company and the Company’s securityholders, including:

    -

    making it more difficult for the Company to satisfy its obligations to pay interest and to pay principal when due;

       
    -

    limiting the Company’s ability to obtain additional financing to repay existing indebtedness, fund future working capital, capital expenditures, acquisitions or other general corporate requirements, or requiring the Company to make non- strategic divestitures;

       
    -

    requiring a substantial portion of the Company’s cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for payment of cash dividends, working capital, capital expenditures, acquisitions and other general corporate purposes;

       
    -

    increasing the Company’s vulnerability to general adverse economic and industry conditions;

       
    -

    limiting the Company’s flexibility in planning for and reacting to changes in the industry in which it competes;

       
    -

    placing the Company at a disadvantage compared to other, less leveraged competitors; and

       
    -

    increasing the Company’s cost of borrowing.

    The Company may not be able to generate sufficient cash to service all of its indebtedness, including the secured notes, and may be forced to take other actions to satisfy its obligations under such indebtedness, which may not be successful. The Company’s ability to make scheduled payments on or refinance its debt obligations depends on its financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond its control. The Company may be unable to maintain a level of cash flows from operating activities sufficient to permit it to pay the principal, premium, if any, and interest on the Company’s indebtedness.

    If the Company’s cash flows and capital resources are insufficient to fund its debt service obligations, it could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance its indebtedness. The Company may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternatives may not allow the Company to meet its scheduled debt service obligations. The Company’s revolving credit facility and the indenture governing the secured notes will restrict its ability to dispose of assets and use the proceeds from those dispositions and may also restrict its ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. The Company may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

    26
    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    Should the Company incur additional debt, this could increase the risks to its financial condition described above.

    EFFECT OF INDEBTEDNESS ON THE COMPANY’S CURRENT AND FUTURE OPERATIONS

    The Company’s revolving credit facility and the indenture governing the secured notes contain a number of restrictive covenants that impose significant operating and financial restrictions on the Company and may limit its ability to engage in acts that may be in the Company’s long-term best interest. The Company’s failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in a cross-default under other debt instruments and the acceleration of all its debt. The restrictions include, without limitation, restrictions on its ability to:

    - incur additional indebtedness;
       
    - pay dividends or make other distributions or repurchase or redeem its capital stock;
       
    - prepay, redeem or repurchase certain debt;
       
    - make loans and investments;
       
    - sell, transfer or otherwise dispose of assets;
       
    - incur or permit to exist certain liens;
       
    - enter into transactions with affiliates;
       
    - enter into agreements restricting its subsidiaries’ ability to pay dividends; and
       
    - consolidate, amalgamate, merge or sell all or substantially all of the Company’s assets.

    RATING OF THE COMPANY’S DEBT SECURITIES

    The Company’s debt currently has a non-investment grade rating, and any rating assigned could be lowered or withdrawn entirely by a rating agency, if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Any future lowering of the Company’s ratings likely would make it more difficult or more expensive to obtain additional debt financing.

    FOREIGN OPERATIONS

    The Company has foreign property interests located in Mexico are subject to the laws and regulations of that country. As a result, the Company’s mining investments are subject to the risks normally associated with the conduct of business in foreign countries. The Company believes the present attitude of the governments of the country and states in which the property interests are located to foreign investment and mining to be favourable; however, any variation from the current regulatory, economic and political climate could have an adverse effect on the affairs of the Company.

    The risks of conducting business in a foreign country may include, among others, invalidation of governmental orders and permits, corruption, uncertain political and economic environments, sovereign risk, war (including in neighbouring states), civil disturbances and terrorist acts, arbitrary changes in laws or policies of particular countries, the failure of foreign parties to honour contractual relations, corruption, foreign taxation, delays in obtaining or the inability to obtain necessary governmental permits, opposition to mining from environmental or other non-governmental organizations, limitations on foreign ownership, limitations on the repatriation of earnings, limitations on gold exports, instability due to economic under-development, inadequate infrastructure and increased financing costs. In addition, the enforcement of the Company’s legal rights to exploit its properties may not be recognized by the government of Mexico by its court systems. These risks may limit or disrupt the Company’s operations, restrict the movement of funds or result in the deprivation of contractual rights or the taking of property by nationalization or expropriation without fair compensation.

    ENVIRONMENTAL LAWS AND REGULATIONS

    The Company’s exploration and production activities in Mexico and Canada are subject to regulation by governmental agencies under various environmental laws. These laws address emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. Environmental legislation in many countries is evolving and the trend has been towards stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and increasing responsibility for companies and their officers, directors and employees. Compliance with environmental laws and regulations may require significant capital outlays on behalf of the Company and may cause material changes or delays in the Company’s intended activities. There can be no assurance that future changes in environmental regulations will not adversely affect the Company’s business.

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    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    PROPERTY RIGHTS, PERMITS AND LICENSING

    The Company’s current and anticipated future operations, including further exploration, development activities and expansion or commencement of production on the Company’s properties, require certain permits and licenses from various levels of governmental authorities. The Company may also be required to obtain certain property rights to access, or use, certain of its properties in order to proceed to development. There can be no assurance that all licenses, permits or property rights required for the expansion and construction of mining facilities and the conduct of mining operations will be obtainable on reasonable terms or in a timely manner, or at all, that such terms may not be adversely changed, that required extension will be granted, or that the issuance of such licenses, permits or property rights will not be challenged by third parties. Delays in obtaining or a failure to obtain such licenses, permits or property rights or extension thereto; challenges to the issuance of such licenses, permits or property rights, whether successful or unsuccessful; changes to the terms of such licenses, permits or property rights; or a failure to comply with the terms of any such licenses, permits or property rights obtained; could have a material adverse impact on the Company.

    UNCERTAINTIES OF TITLE

    The Company cannot guarantee that title to its properties will not be challenged. Title insurance is generally not available for mineral properties and the Company’s ability to ensure that it has obtained secure claim to individual mineral properties or mining concessions may be severely constrained. The Company’s mineral properties may be subject to prior unregistered agreements, transfers or claims, and title may be affected by, among other things, undetected defects. A successful challenge to the precise area and location of these claims could result in the Company being unable to operate on its properties as permitted or being unable to enforce its rights with respect to its properties.

    COMMODITY PRICE RISK

    The profitability of the Company’s gold mining operations will be significantly affected by changes in the market prices for gold. Gold prices fluctuate on a daily basis and are affected by numerous factors beyond the Company’s control. The supply and demand for gold, the level of interest rates, the rate of inflation, investment decisions by large holders of gold, including governmental reserves, and stability of exchange rates can all cause significant fluctuations in gold prices. Such external economic factors are in turn influenced by changes in international investment patterns and monetary systems, and political developments. The prices of gold have fluctuated widely and future serious price declines could cause continued commercial production to be impractical. Depending on the prices of gold, cash flow from mining operations may not be sufficient to cover costs of production and capital expenditures. If, as a result of a decline in gold prices, revenues from metal sales were to fall below operating costs, production may be discontinued.

    INTEREST RATE RISK

    At December 31, 2014, the Company did not have any amount drawn on its credit facility. If an amount is drawn, the Company is exposed to interest rate risk on its variable rate debt. The applicable interest rate may change depending on the Company’s leverage ratio during the period, but would range between LIBOR plus 2.25% to 3.50% for LIBOR loans. The Company has not entered into any agreements to hedge against unfavourable changes in interest rates, but may actively manage any exposure to interest rate risk in the future.

    FOREIGN CURRENCY EXCHANGE RATE RISK

    Metal sales revenues for the Company are denominated in US dollars. The Company is primarily exposed to currency fluctuations relative to expenditures that are denominated in Canadian dollars and Mexican pesos, such as payments for labour, operating supplies and property, plant and equipment. These potential currency fluctuations could have a significant impact on production costs and capital expenditures and thereby, the net free cash flow of the Company. The Company is also exposed to the impact of currency fluctuations on its monetary assets and liabilities.

    CREDIT RISK

    Credit risk relates to accounts receivable and other contracts, and arises from the possibility that any counterparty to an instrument fails to perform. The Company only transacts with highly-rated counterparties and a limit on contingent exposure has been established for each counterparty based on the counterparty’s credit rating.

    DERIVATIVE FINANCIAL INSTRUMENTS

    The Company may from time to time employ derivative products in respect of commodities, interest rates and/or currencies. Derivative products are generally used to manage the risks associated with, among other things, changes in commodity prices and foreign currency exchange rates.

    The use of derivative instruments involves certain inherent risk including credit risk, market risk and liquidity risk. For derivatives, credit risk is created when the fair value is positive. When the fair value of a derivative is negative, no credit risk is assumed. The Company mitigates credit risk by entering into derivatives with high quality counterparties, limiting the amount of exposure to each counterparty, and monitoring the financial condition of the counterparties. Market risk is the risk that the fair value of a derivative might be adversely affected by a change in underlying commodity prices or currency exchange rates, and that this in turn affects the Company’s financial condition. The Company manages market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. The Company generally mitigates liquidity risk by spreading out the maturity or its derivatives over time.

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    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    CRITICAL ACCOUNTING ESTIMATES, POLICIES AND CHANGES

    ACCOUNTING ESTIMATES

    The preparation of the Company’s consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The following is a list of the accounting policies that the Company believes are critical, due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported.

    (i)

    Ore inventories

    Finished goods, work-in-process, heap leach ore and stockpile ore are valued at the lower of the average cost or NRV. NRV is the difference between the estimated future realizable gold prices based on prevailing and long-term prices, less estimated costs to complete production into a saleable form. The assumptions used in the valuation of work-in-process inventories include estimates of gold ounces contained in the ore stacked on leach pads, assumptions of the amount of gold ounces stacked that is expected to be recovered from the leach pads, the amount of gold ounces in mill circuits and in stockpiles, the costs to complete the processing of ore inventory, and an assumption of the gold prices expected to be realized when the gold ounces are recovered. Write-downs of ore in stockpiles, ore on leach pads, in-process and finished metal inventories resulting from NRV impairments are reported as a component of current period costs. The primary factors that influence the need to record write-downs include prevailing and long-term gold prices and prevailing costs for production inputs such as labour, fuel and energy, and materials and supplies, as well as realized ore grades and actual production levels. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in NRV because of changed economic circumstances, the amount of the write-down or a portion thereof is reversed so that the new carrying amount is the lower of the cost and the revised NRV. The reversal is limited to the amount of the original write-down for inventory still on hand.

    Ore on leach pads is ore that is placed on pads where it is saturated with a chemical solution that dissolves the gold contained in the ore. Costs are attributed to the leach pads based on current mining costs, including applicable depletion and amortization relating to mining operations, incurred up to the point of placing the ore on the pad. Costs are removed from the leach pad based on the average cost per recoverable ounce of gold on the leach pad as the gold is recovered. Estimates of recoverable gold ounces on the leach pads are calculated from the quantities of ore placed on the pads, the grade of ore placed on the leach pads and an estimated percentage of recovery. Timing and ultimate recovery of gold ounces contained on leach pads can vary significantly from the estimates. The ounces of recoverable gold placed on the leach pads are reconciled to the balance of gold actually recovered (metallurgical balancing), by comparing the grades of ore placed on the leach pads to actual ounces recovered. The nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and the engineering estimates are refined based on actual results over time. The ultimate recovery of gold ounces from a pad will not be known until the leaching process is completed.

    The allocation of costs to ore in stockpiles, ore on leach pads and in-process inventories and the determination of NRV involve the use of estimates. There is a high degree of judgement in estimating future costs, future production levels, proven and probable mineral reserve estimates, gold prices, and the ultimate estimated recovery of ore on leach pads. There can be no assurance that actual results will not differ significantly from estimates used in the determination of the carrying value of inventories.

    (ii)

    Mineral reserves and resources used to measure depletion and amortization

    The Company records depletion and amortization expense based on the estimated useful economic lives of long-lived assets. Property, plant and equipment are amortized on a straight-line basis over their estimated useful lives. Mining interests are amortized using the units of production method over proven and probable reserves of the mine and the portion of mineralization expected to be classified as reserves. Changes in reserves and resources estimates are generally calculated at the end of each year and cause amortization expense to increase or decrease prospectively. The estimation of quantities of reserves and resources is complex, requiring significant subjective assumptions that arise from the evaluation of geological, geophysical, engineering and economic data for a given ore body. This data could change over time as a result of numerous factors, including new information gained from development activities, evolving production history and a reassessment of the viability of production under different economic conditions. Changes in data and/or assumptions could cause reserves and resources estimates to substantially change from period to period. Actual production could differ from amounts expected based on reserves and resources, and an adverse change in gold prices could make a reserve or resource uneconomic to mine. Variations from estimates could also occur in actual ore grades and gold recovery rates. A key trend that could reasonably impact reserves and resources estimates is rising market mineral prices, because the mineral price assumption is closely related to the trailing three-year average market price. As this assumption rises, it could result in an upward revision to reserves and resources estimates as mineralization not previously classified as a reserve or resource becomes economic at higher gold prices.

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    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    (iii)

    Goodwill and non-financial assets

    Goodwill and other non-financial assets are assessed for impairment at the cash-generating unit level, on at least an annual basis, by comparing the calculated recoverable amount to the cash-generating unit’s carrying amount. If the recoverable amount of the cash-generating unit exceeds its carrying amount, goodwill is considered not to be impaired. If the carrying amount of a cash-generating unit exceeds its recoverable amount, a potential impairment exists. Significant estimates are made in calculating the recoverable amount of a cash-generating unit, including estimates of future costs to produce proven and probable reserves, future gold prices, foreign exchange rates, recovery rates, and discount rates.

    (iv)

    Amortization of property, plant and equipment

    The Company amortizes property, plant and equipment, net of residual value, over the estimated useful life of each asset, not to exceed the life of the mine at which the asset is utilized. The physical life of these assets, and related components, may differ from the Company’s estimate.

    (v)

    Deferred income taxes and valuation allowances

    The Company is periodically required to estimate the tax basis of assets and liabilities. Where applicable tax laws and regulations are either unclear or subject to varying interpretations, it is possible that changes in these estimates could occur that materially affect the amounts of deferred income tax assets and liabilities recorded in the financial statements. Changes in deferred tax assets and liabilities generally have a direct impact on earnings in the period of the changes.

    Each period, the Company evaluates the likelihood of whether or not some portion or all of each deferred income tax asset and investment tax credits will be realized. This evaluation is based on historic and future expected levels of taxable income, the pattern and timing of reversals of taxable temporary timing differences that give rise to deferred tax liabilities, and tax planning initiatives. Levels of future taxable income are affected by, among other things, market gold prices, production costs, quantities of proven and probable gold reserves, interest rates and foreign currency exchange rates.

    (vi)

    Reclamation provisions

    Reclamation provisions arise from the acquisition, development, construction and normal operation of mining property, plant and equipment, due to government controls and regulations that protect the environment and public safety on the closure and reclamation of mining properties. The Company records the value of a reclamation obligation in the financial statements when it is incurred, and either capitalizes this amount as an increase in the carrying amount of the related asset or, if the mine is in the decommissioning stage, records the amount as an expense. The fair values are measured by discounting the best estimate of the expected value of future cash flows required to reclaim the property upon mine closure, which are discounted to their present value for each mine operation. The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money specific to the country in which the mine is located. Significant estimates are involved in forming expectations of future activities and the amount and timing of the associated cash flows. The Company prepares estimates of the timing and expected value of future cash flows when the liability is incurred, which are updated to reflect changes in facts and circumstances. Future changes in regulations, laws or enforcement could adversely affect operations; and any instances of non-compliance with laws or regulations that result in fines or injunctions or delays in projects, or any unforeseen environmental contamination at, or related to, the mining properties could result in significant costs.

    The principal factors that can cause the expected value of future cash flows to change are: the construction of new processing facilities; changes in the quantities of material in reserves and a corresponding change in the life of mine plan; changing ore characteristics that ultimately impact the environment; changes in water quality that impact the extent of water treatment required; and changes in laws and regulations governing the protection of the environment. In general, as the end of the mine life nears, the reliability of estimates of expected cash flows increases, but earlier in the mine life, the estimation of a reclamation provision is inherently more subjective. Significant estimates are made in calculating the fair value of reclamation provisions. Expected cash flows relating to reclamation provisions could occur over periods up to twenty years and the assessment of the extent of any necessary environmental remediation work is highly subjective. Considering all of these factors that go into the determination of a reclamation provision, the fair value of reclamation provisions can materially change over time.

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    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    (vii)

    Retained interest royalty

    The Company makes estimates of amounts receivable in order to value the retained interest royalty. Future amounts receivable under these arrangements will be impacted by future gold prices, future production from the Fosterville and Stawell mines in Victoria, Australia, future foreign exchange rates, as well as related operating and capital expenditures required to sustain that production.

    ACCOUNTING POLICIES AND CHANGES

    The accounting policies applied in the consolidated financial statements for the year ended December 31, 2014 are consistent with those used in the Company’s Consolidated Financial Statements for the year ended December 31, 2013, with the exception of the following accounting policies adopted on January 1, 2014:

    Foreign exchange gains and losses on deferred tax assets and liabilities

    The consolidated financial statements reflect the retrospective application of a voluntary change in accounting policy adopted in 2014 to classify, in the Consolidated Statements of Operations, foreign exchange gains and losses arising on the translation of deferred income tax assets and liabilities within deferred income tax recovery instead of within foreign exchange losses, as previously reported. The change in accounting policy has been adopted in accordance with IAS 12, Income Taxes, which provides a policy choice to classify exchange differences arising from translation of deferred income tax assets and liabilities within deferred income tax expense / (recovery). The Company considers the classification of these exchange differences within deferred income tax recovery in the Consolidated Statements of Operations to be the most useful to financial statement users and, consequently, that this presentation results in reliable and more relevant information.

    The following table outlines the effect of this accounting policy change for the years ended December 31, 2014 and 2013:

     

    		  Prior to     Restatement     Subsequent to  

    For the year ended December 31, 2014 (in millions):

    		  restatement     Impact     Restatement  

    Foreign exchange gains / (losses)

    		$  18.7   $  (25.4 ) $  (6.6 )

    Deferred income tax recovery

    		  0.9     25.4     26.3  

    Net loss

    		  (169.6 )   -     (169.6 )

    For the year ended December 31, 2013 (in millions):

    		  Reported     Restatement     Restated  

    Foreign exchange gains / (losses)

    		$  10.9   $  (15.2 ) $  (4.3 )

    Deferred income tax (expense) / recovery

    		  (14.5 )   15.2     0.8  

    Net loss

    		  (176.8 )   -     (176.8 )

    Flow-through share financing

    The Company may issue flow-through common shares to finance a portion of its Canadian exploration program. Pursuant to the Canadian Income Tax Act and the terms of the flow-through share agreements, these shares transfer the tax deductibility of qualifying resource expenditures to investors. Proceeds received from flow-through share agreements are separated into a liability and share capital. The liability, which represents the obligation to renounce flow-through exploration expenditures, is calculated as the excess of cash consideration received over the market price of the Company’s shares on the agreement’s closing date. Upon qualifying exploration expenditures being incurred, the Company derecognizes the liability and recognizes it as other income. The related deferred tax expense is also recognized at the time the expenditures are incurred.

    The Company may also be subject to a Part XII.6 tax on flow-through proceeds renounced, in accordance with the Canadian Income Tax Act flow-through regulations. When applicable, the estimated tax payable is accrued until paid.

    Other changes in accounting policy

    IFRIC 21, Levies, sets out criteria for the recognition of liabilities for levies imposed by governments. IFRIC 21 identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation. There was no impact on the Company’s consolidated financial statements upon the adoption of this interpretation.

    Amendments to IAS 32, Financial Instruments: Presentation, clarify situations in which an entity has a legally enforceable right to set-off a financial liability and financial asset. The amendments to IAS 32 also clarify when a settlement mechanism provides for net settlement or gross settlement that is equivalent to net settlement. There was no impact on the Company’s consolidated financial statements upon the adoption of these amendments.

    Amendments to IAS 36, Impairment of assets, address the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, clarify the disclosures required, and introduce a requirement to disclose the discount rate used in determining impairment (or reversals) where the recoverable amount (based on fair value less costs of disposal) is determined using a present value technique. There was no impact on the Company’s consolidated financial statements upon the adoption of these amendments.

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    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    STANDARDS ISSUED BUT NOT YET ADOPTED

    For the purposes of preparing and presenting the Company’s consolidated financial statements, the Company has adopted all standards and interpretations issued other than those discussed below. These standards have not been adopted because they are not effective for the Company until subsequent to December 31, 2014. Standards and interpretations issued, but not yet adopted, include:

     

    		Effective for the Company

    Amendments to IAS 19, Employee Benefits

    		January 1, 2015

    Amendments to IAS 16, Property, Plant and Equipment

    		January 1, 2016

    Amendments to IAS 28, Investments in Associates and Joint Ventures

    		January 1, 2016

    Amendments to IAS 38, Intangibles

    		January 1, 2016

    Amendments to IFRS 10, Consolidated Financial Statements

    		January 1, 2016

    Amendments to IFRS 11, Joint Arrangements

    		January 1, 2016

    IFRS 15, Revenue from Contracts with Customers

    		January 1, 2017

    IFRS 9, Financial Instruments

    		January 1, 2018

    In November 2013, the IASB issued amendments to IAS 19, Employee Benefits, which clarify benefit and medical cost actuarial assumptions used in calculation of the present value of defined benefit obligations and current service cost. These amendments are effective for annual periods beginning on or after July 1, 2014. This amendment is not anticipated to impact the Company’s consolidated financial statements as there are no defined benefit obligations.

    In May 2014, the IASB issued amendments to IAS 16, Property, Plant and Equipment and IAS 38, Intangibles. These amendments prohibit the use of revenue-based depreciation methods for property, plant and equipment and limit the use of revenue-based amortization for intangible assets. These amendments are effective for annual periods beginning on or after January 1, 2016 and are to be applied prospectively. These amendments are not anticipated to impact the Company’s consolidated financial statements as revenue-based depreciation or amortization methods are not used.

    In September 2014, the IASB issued amendments to IAS 28, Investments in Associates and Joint Ventures, and IFRS 10, Consolidated Financial Statements. These amendments address a conflict between IAS 28 and IFRS 10 and clarify that in a transaction involving an associate or joint venture the extent of gain or loss recognition depends on whether the assets sold or contributed constitute a business. These amendments are effective for annual periods beginning on or after January 1, 2016. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

    In May 2014, the IAS issued amendments to IFRS 11, Joint Arrangements. The amendments clarify the accounting for acquisitions of an interest in a joint operation when the operation constitutes a business. The amendments are effective for annual periods beginning on or after January 1, 2016, with earlier application being permitted. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

    In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. The standard replaces IAS 11, Construction Contracts; IAS 18, Revenue; IFRIC 13, Customer Loyalty Programmes; IFRIC 15, Agreements for the Construction of Real Estate; IFRIC 18, Transfer of Assets from Customers; and SIC 31, Revenue – Barter Transactions Involving Advertising Services. This standard establishes principles for reporting the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contract with customers. This standard is effective for annual periods beginning on or after January 1, 2017, and permits early adoption. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

    In July 2014, the IASB issued IFRS 9, Financial Instruments, which will replace IAS 39, Financial Instruments: Recognition and Measurement. The replacement standard provides a new model for the classification and measurement of financial instruments. The IASB has determined the revised effective date for IFRS 9 will be for annual periods beginning on or after January 1, 2018. The Company will evaluate the impact of the change to the consolidated financial statements based on the characteristics of financial instruments outstanding at the time of adoption.

    CONTROLS AND PROCEDURES

    (i)    Evaluation of Disclosure Controls and Procedures

    The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in annual filings, interim filings or other reports filed or submitted under provincial and territorial securities legislation or reports filed or submitted under the U.S. Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the applicable time periods, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. As of December 31, 2014, an evaluation was carried out, under the supervision of and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of disclosure controls and procedures as defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934 and in National Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim Filings under the Canadian Securities Administrators Rules and Policies. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as at December 31, 2014, the Company’s disclosure controls and procedures were effective in providing reasonable assurance that the information required to be disclosed in reports filed or submitted by the Company under United States and Canadian securities legislation was recorded, processed, summarized and reported within the time periods specified by the legislation.

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    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    (ii)    Management’s Report on Internal Control Over Financial Reporting

    Management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, and used the 2013 Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Company’s internal controls over financial reporting for the year ended December 31, 2014. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as at December 31, 2014, and provided reasonable assurance of the reliability of the Company’s financial reporting and preparation of the financial statements. The 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 IFRS. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

    There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended December 31, 2014, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

    KPMG LLP, an independent registered public accounting firm, has audited management’s assessment of the effectiveness of internal control over financial reporting, and have expressed their opinion in their report included with the Company’s annual consolidated financial statements.

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    2014 ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS

    CAUTIONARY NOTE TO U.S. INVESTORS

    Cautionary Note to U.S. Investors Concerning Measured, Indicated and Inferred Resources: This MD&A uses the terms "measured", "indicated" or "inferred” resources. We advise investors that while those terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted into mineral reserves. United States investors are also cautioned not to assume that all or any part of an inferred mineral resource exists, or is economically or legally mineable.

    Cautionary Note to U.S. Investors Concerning International Financial Reporting Standards: The consolidated financial statements of the Company have been prepared by management in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board (see note 2 to the consolidated financial statements for the year ended December 31, 2014). These accounting principles differ in certain material respects from accounting principles generally accepted in the United States of America. The Company’s reporting currency is the United States dollar unless otherwise noted.

    CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    This MD&A contains forward-looking statements and forward-looking information as defined under Canadian and U.S. securities laws. All statements, other than statements of historical fact, are, or may be deemed to be, forward-looking statements. The words "expect", "believe", "anticipate", "will", "intend", "estimate", "forecast", "budget" and similar expressions identify forward-looking statements. Forward-looking statements include information as to strategy, plans or future financial or operating performance, such as the Company’s expansion plans, project timelines, production plans and expected sustainable productivity increases, expected increases in underground activities and corresponding cost efficiencies, expected drilling targets, expected sustaining costs, expected improvements in cashflows and margins, expectations of changes in capital expenditures, forecasted cash shortfalls and the Company’s ability to fund them, cost estimates, projected exploration results, reserve and resource estimates, expected mill production rates and use of the stockpile inventory, expected mill recoveries, sufficiency of working capital for future commitments and other statements that express management’s expectations or estimates of future performance.

    Forward-looking statements are necessarily based upon a number of factors and assumptions that, while considered reasonable by management at the time of making such statements, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors and assumptions underlying the forward-looking statements in this document include, but are not limited to: changes to current estimates of mineral reserves and resources; fluctuations in the price of gold; changes in foreign exchange rates (particularly the Canadian dollar, Mexican peso and U.S. dollar); the impact of inflation; changes in our credit rating; any decision to declare a quarterly dividend; employee relations; litigation; disruptions affecting operations; availability of and increased costs associated with mining inputs and labor; development delays at the Young-Davidson mine; operating or technical difficulties in connection with mining or development activities; inherent risks associated with mining and mineral processing; the risk that the Young-Davidson and El Chanate mines may not perform as planned; uncertainty with the Company’s ability to secure capital to execute its business plans; the speculative nature of mineral exploration and development, including the risks of obtaining necessary licenses and permits, including the necessary licenses, permits, authorizations and/or approvals from the appropriate regulatory authorities for the Kemess Underground project; contests over title to properties; changes in national and local government legislation in Canada, Mexico and other jurisdictions in which the Company does or may carry on business in the future; risk of loss due to sabotage and civil disturbances; the impact of global liquidity and credit availability and the values of assets and liabilities based on projected future cash flows; risks arising from holding derivative instruments; business opportunities that may be pursued by the Company, as well as those factors discussed under “Risk Factors” in the Company’s most recent Annual Information Form.

    Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained herein. Such statements are based on a number of assumptions which may prove to be incorrect, including assumptions about: business and economic conditions; commodity prices and the price of key inputs such as labour, fuel and electricity; credit market conditions and conditions in financial markets generally; revenue and cash flow estimates, production levels, development schedules and the associated costs; ability to procure equipment and supplies and on a timely basis; the timing of the receipt of permits and other approvals for projects and operations; the ability to attract and retain skilled employees and contractors for the operations; the accuracy of reserve and resource estimates; the impact of changes in currency exchange rates on costs and results; interest rates; taxation; and ongoing relations with employees and business partners.

    In particular, forward-looking information included in this document includes, but is not limited to: (1) production estimates and production growth rates, which assume accuracy of projected ore grade, mining rates, recovery timing and recovery rate estimates and may be impacted by unscheduled maintenance, labour and contractor availability; (2) capital expenditures and other cash costs, which assume foreign exchange rates and accuracy of production estimates, and may be impacted by unexpected maintenance, the need to hire external resources and accelerated capital plans; (3) profits and free cash flow, which assume production and expenditure estimates and may be impacted by gold prices, production estimates, and the timing of payments, and (4) reserves and resources which are forward looking statements by their nature involving implied assessment, and may be impacted by metal prices, future drilling results, operating costs, mining recoveries and dilution rates.

    The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law. For additional detail regarding risk factors affecting the Company, refer to the Company’s Annual Information Form for the year ended December 31, 2014.

    34


    Exhibit 99.3

    Consolidated Financial Statements
    (in thousands of United States Dollars, unless otherwise stated)

     

     

    December 31, 2014

    Management’s Responsibility for Financial Reporting
    The accompanying consolidated financial statements of AuRico Gold Inc. (the “Company”) and the information in this annual report are the responsibility of management and have been reviewed and approved by the Company’s board of directors (the “Board of Directors”). The consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. In preparation of these consolidated financial statements, estimates are sometimes necessary when transactions affecting the current accounting period cannot be finalized with certainty until future periods. Management believes that such estimates, which have been properly reflected in the accompanying consolidated financial statements, are based on the best estimates and judgements of management. Management has prepared the financial information presented elsewhere in the annual report and has ensured that it is consistent with that in the consolidated financial statements.

    To discharge its responsibilities for financial reporting and safeguarding of assets, management depends on the Company’s systems of internal control over financial reporting. These systems are designed to provide reasonable assurance that the financial records are reliable and form a proper basis for the timely and accurate preparation of financial statements. The Chief Executive Officer and Chief Financial Officer have assessed and concluded on the design and operating effectiveness of internal control over financial reporting.

    The Board of Directors oversees management’s responsibilities for the consolidated financial statements primarily through the activities of its Audit Committee, which is composed solely of directors who are neither officers nor employees of the Company. This Committee meets with management and the Company’s independent auditors, KPMG LLP, to ensure that management is properly fulfilling its financial reporting responsibilities, review the consolidated financial statements, and recommend approval by the Board of Directors. The Audit Committee provides full and unrestricted access to the independent auditors and also meets with the independent auditors, without the presence of management, to discuss the scope and results of their audit, the adequacy of internal control over financial reporting, and the quality of financial reporting.

    The consolidated financial statements have been audited by KPMG LLP, an independent registered public accounting firm, in accordance with Canadian generally accepted auditing standards and in accordance with the standards of the Public Company Accounting Oversight Board (United States).

    Scott Perry Robert Chausse
    President and Chief Executive Officer Executive Vice President and Chief Financial Officer
       
    February 19, 2015  


       
      KPMG LLP Telephone (416) 777-8500
      Bay Adelaide Centre Fax (416) 777-8818
      333 Bay Street Suite 4600 Internet www.kpmg.ca
      Toronto ON M5H 2S5  
      Canada  

    INDEPENDENT AUDITORS’ REPORT OF
    REGISTERED PUBLIC ACCOUNTING FIRM

    To the Shareholders of AuRico Gold Inc.

    We have audited the accompanying consolidated financial statements of AuRico Gold Inc., which comprise the consolidated balance sheets as at December 31, 2014 and December 31, 2013, the consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for the years then ended, and notes, comprising 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 our 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, we 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 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.

    KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
    network of independent member firms affiliated with KPMG International Cooperative
    (“KPMG International”), a Swiss entity.
    KPMG Canada provides services to KPMG LLP.


    Page 2

    Opinion

    In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of AuRico Gold Inc. as at December 31, 2014 and December 31, 2013, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

    Comparative Information

    Without modifying our opinion, we draw attention to Note 3 to the consolidated financial statements which indicates that the comparative information presented for the year ended December 31, 2013 has been restated.

    Other Matter

    We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), AuRico Gold Inc.’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 19, 2015 expressed an unqualified opinion on the effectiveness of AuRico Gold Inc.’s internal control over financial reporting.


    Chartered Professional Accountants, Licensed Public Accountants

    Toronto, Canada
    February 19, 2015


       
      KPMG LLP Telephone (416) 777-8500
      Bay Adelaide Centre Fax (416) 777-8818
      333 Bay Street Suite 4600 Internet www.kpmg.ca
      Toronto ON M5H 2S5  
      Canada  

    REPORT OF INDEPENDENT REGISTERED
    PUBLIC ACCOUNTING FIRM

    The Board of Directors and Shareholders of AuRico Gold Inc.

    We have audited AuRico Gold Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). AuRico Gold Inc.’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, appearing under the heading Controls and Procedures in Management’s Discussion and Analysis for the year ended December 31, 2014. 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, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included 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 generally accepted accounting principles. 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 generally accepted accounting principles, 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.

    KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
    network of independent member firms affiliated with KPMG International Cooperative
    (“KPMG International”), a Swiss entity.
    KPMG Canada provides services to KPMG LLP.


    Page 2

    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, AuRico Gold Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

    We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of AuRico Gold Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2014, and our report dated February 19, 2015 expressed an unqualified opinion on those consolidated financial statements.


    Chartered Professional Accountants, Licensed Public Accountants

    Toronto, Canada
    February 19, 2015


               
    CONSOLIDATED BALANCE SHEETS            
    (in thousands of United States dollars)            
        December 31     December 31  
    As at   2014     2013  

     

    		           

    ASSETS

    		           

    Current assets

    		           

       Cash and cash equivalents (Note 25)

    		$  89,031   $  142,652  

       Restricted cash (Note 16(b))

    		  -     2,204  

       Receivables (Note 6)

    		  14,076     29,254  

       Current income tax receivable

    		  5,166     27,936  

       Inventories (Note 7)

    		  73,116     84,643  

       Prepaids and deposits

    		  2,565     5,250  

     

    		  183,954     291,939  

     

    		           

    Non-current assets

    		           

       Investments (Note 8)

    		  184     15,551  

       Long-term inventories (Note 7)

    		  103,156     93,696  

       Investments in associate and joint venture (Note 9)

    		  23,434     17,930  

       Other long-term assets (Note 10)

    		  51,042     71,988  

       Property, plant and equipment & mining interests (Notes 11 and 13)

    		  1,638,730     1,675,955  

       Intangible assets (Notes 12 and 13)

    		  39,633     53,656  

       Goodwill (Notes 12 and 13)

    		  241,693     241,693  

     

    		$ 2,281,826   $  2,462,408  

     

    		           

    LIABILITIES

    		           

    Current liabilities

    		           

       Trade payables and accrued liabilities

    		$  42,046   $  76,923  

       Dividend payable (Note 18(b))

    		  -     9,960  

       Current income tax liability

    		  407     3,966  

       Derivative liabilities (Note 25)

    		  447     -  

       Current portion of debt and equipment financing obligations (Note 14)

    		  6,308     7,355  

       Obligation to renounce flow-through exploration expenditures (Note 15)

    		  857     -  

       Current portion of provisions (Note 16)

    		  2,056     15,955  

     

    		  52,121     114,159  

     

    		           

    Non-current liabilities

    		           

       Debt and equipment financing obligations (Note 14)

    		  308,064     244,194  

       Option component of convertible senior notes (Note 14)

    		  -     413  

       Provisions (Note 16)

    		  29,529     28,580  

       Deferred income tax liability (Note 17)

    		  260,902     287,180  

     

    		  650,616     674,526  

     

    		           

    SHAREHOLDERS' EQUITY

    		           

    Capital stock (Note 18)

    		  2,029,991     2,021,837  

    Contributed surplus

    		  62,316     55,945  

    Deficit

    		  (460,848 )   (284,632 )

    Accumulated other comprehensive loss

    		  (249 )   (5,268 )

     

    		  1,631,210     1,787,882  
      $ 2,281,826   $  2,462,408  
                 

    Commitments and contingencies (Notes 11 and 24)
    Events after the reporting period (Note 28)

    Signed on behalf of the Board: /s/ Scott Perry   /s/ Ronald Smith  
    Scott Perry, Director   Ronald Smith, Director  

    See accompanying notes to the consolidated financial statements 1


               
    CONSOLIDATED STATEMENTS OF OPERATIONS            
    (in thousands of United States dollars, except per share amounts)            
        2014     2013  
              Restated  
    For the years ended December 31         (Note 3 )
                 

    Revenue from mining operations

    		$  291,182   $  227,631  

     

    		           

    Cost of sales:

    		           

       Production costs (Note 7)

    		  199,309     147,981  

       Refining costs

    		  595     526  

       Amortization and depletion (Note 7)

    		  121,468     65,529  

       Reclamation, care and maintenance costs

    		  5,971     4,417  

    Total cost of sales

    		  327,343     218,453  

     

    		           

    General and administrative

    		  25,921     27,677  

    Exploration and business development

    		  1,001     1,014  

    Impairment charges (Note 13)

    		    91,622     158,574  

    Loss from operations (Note 19)

    		  (154,705 )   (178,087 )

     

    		           

    Finance costs

    		  (19,910 )   (2,928 )

    Foreign exchange loss

    		  (6,639 )   (4,289 )

    Other (loss) / income (Note 20)

    		  (17,201 )   10,167  

    Equity in loss of associate and joint venture (Note 9)

    		  (171 )   (2,533 )

    Loss before income taxes

    		  (198,626 )   (177,670 )

     

    		           

    Deferred income tax recovery (Note 17)

    		  (26,278 )   (760 )

    Current income tax recovery (Note 17)

    		  (2,700 )   (140 )

     

    		  (28,978 )   (900 )

     

    		           

    Net loss

    		$  (169,648 ) $  (176,770 )

     

    		            

     

    		           

    Loss per share (Note 21)

    		           

       Basic loss per share

    		$  (0.68 ) $  (0.71 )

       Diluted loss per share

    		$  (0.68 ) $  (0.72 )

    Weighted average shares outstanding (Note 21)

    		           

       Basic

    		  248,889,636     250,398,043  

       Diluted

    		  248,889,636     265,729,061  
                 

    See accompanying notes to the consolidated financial statements 2


               
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME            
    (in thousands of United States dollars)            

    For the years ended December 31

    		  2014     2013  

    Net loss

    		$  (169,648 ) $  (176,770 )

    Items that may be reclassified subsequently to net loss:

    		           

       Unrealized gain / (loss) on investments (Note 8)

    		  2,512     (5,331 )

    Reclassification of accumulated losses on investments to net loss (Note 8)

    		  2,507     168  

    Total other comprehensive income / (loss)

    		  5,019     (5,163 )

    Comprehensive loss

    		$  (164,629 ) $  (181,933 )

     

    		            

    See accompanying notes to the consolidated financial statements 3


               
    CONSOLIDATED STATEMENTS OF CASH FLOWS            
    (in thousands of United States dollars)            
    For the years ended December 31   2014     2013  
                 

    OPERATING ACTIVITIES

    		           

       Net loss

    		$  (169,648 ) $  (176,770 )

       Proceeds from settlement of derivative liabilities

    		  -     (528 )

       Payments to settle other liabilities

    		  -     (2,750 )

       Payments to settle provisions

    		  (3,924 )   (3,628 )

       Non-cash adjustments to reconcile net loss to operating cash flows (Note 22)

    		  238,281     261,755  

       Change in non-cash operating working capital (Note 22)

    		  (4,295 )   (14,813 )

       Operating cash flows

    		  60,414     63,266  

     

    		           

    INVESTING ACTIVITIES

    		           

       Expenditures on property, plant and equipment, mining interests & intangible assets

    		  (188,829 )   (249,422 )

       Proceeds from retained interest royalty (Note 12)

    		  2,463     -  

       Decrease / (increase) in restricted cash

    		  14,778     (1,686 )

       Purchase of investments (Note 8)

    		  -     (21,272 )

       Sale of investments (Note 8)

    		  23,284     -  

       Investment in associate (Note 9(b))

    		  (5,674 )   -  

       Proceeds received on transfer of litigation claim (Note 20(a))

    		  3,177     -  

       Investing cash flows

    		  (150,801 )   (272,380 )

     

    		           

    FINANCING ACTIVITIES

    		           

       Repayment of debt and equipment financing obligations (Note 14)

    		  (254,143 )   (4,866 )

       Proceeds from debt and equipment financing obligations (Note 14)

    		  309,982     79,813  

       Payment of financing fees on debt

    		  (7,838 )   -  

       Payment of dividends (Note 18(b))

    		  (14,443 )   (27,720 )

       Proceeds from exercise of stock options

    		  2     3,094  

       Shares repurchased and cancelled (Note 18(a))

    		  -     (301,066 )

       Proceeds from issuance of flow-through shares (Note 15)

    		  4,566     -  

       Financing cash flows

    		  38,126     (250,745 )

    Impact of foreign exchange on cash

    		  (1,360 )   (890 )

     

    		           

    Net decrease in cash

    		  (53,621 )   (460,749 )

     

    		           

    Cash and cash equivalents, beginning of period

    		  142,652     603,401  

    Cash and cash equivalents, end of period

    		$  89,031   $  142,652  
                 

    See accompanying notes to the consolidated financial statements 4


               
    CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY            
    (in thousands of United States dollars)            
    For the years ended December 31   2014     2013  
                 

    Capital stock

    		           

       Balance, beginning of period

    		$  2,021,837   $  2,307,978  

       Shares repurchased and cancelled (Note 18(a))

    		  -     (295,536 )

       Shares issued through dividend reinvestment plan

    		  1,924     1,969  

       Shares issued on redemption of restricted share units

    		  445     -  

       Shares issued through employee share purchase plan

    		  2,323     2,008  

       Shares issued on redemption of deferred share units

    		  359     499  

       Shares issued for cash pursuant to exercise of stock options

    		  2     3,094  

       Fair value of share-based compensation on stock options exercised

    		  4     1,825  

       Shares issued through flow-through share agreement (Note 15)

    		  3,097     -  

       Balance, end of period

    		$  2,029,991   $  2,021,837  

     

    		            

     

    		           

    Contributed surplus

    		           

       Balance, beginning of period

    		$  55,945   $  50,881  

       Fair value of restricted share units redeemed

    		  (445 )   -  

       Fair value of deferred share units redeemed

    		  (359 )   (499 )

       Fair value of share-based compensation on stock options exercised

    		  (4 )   (1,825 )

       Share-based compensation

    		  7,179     7,388  

       Balance, end of period

    		$  62,316   $  55,945  

     

    		            

     

    		           

    Deficit

    		           

       Balance, beginning of period

    		$  (284,632 ) $  (62,917 )

       Dividends declared (Note 18(b))

    		  (6,568 )   (39,592 )

       Premium on shares repurchased and cancelled (Note 18(a))

    		  -     (5,353 )

       Net loss

    		  (169,648 )   (176,770 )

       Balance, end of period

    		$  (460,848 ) $  (284,632 )

     

    		            

     

    		           

    Accumulated other comprehensive loss from available-for-sale investments

    		           

       Balance, beginning of period

    		$  (5,268 ) $  (105 )

       Other comprehensive income / (loss)

    		  5,019     (5,163 )

       Balance, end of period

    		$  (249 ) $  (5,268 )

     

    		            

     

    		           

    Total shareholders' equity

    		$ 1,631,210   $  1,787,882  

     

    		            

    See accompanying notes to the consolidated financial statements 5


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    1.

    Corporate information

    AuRico Gold Inc. and its subsidiaries (collectively, the “Company” or “AuRico Gold”) are engaged in the mining, development and exploration of resource properties. AuRico Gold Inc. is a publicly traded company with common shares listed on the Toronto Stock Exchange (TSX: AUQ) and the New York Stock Exchange (NYSE: AUQ). The Company is incorporated and domiciled in Canada and its head office and registered office is located at 110 Yonge Street, Suite 1601, Toronto, Ontario, M5C 1T4.

    The consolidated financial statements of the Company and its subsidiaries were authorized for issue in accordance with a resolution of the Board of Directors dated February 19, 2015.

       
    2.

    Basis of preparation and statement of compliance

    These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), effective for the year ended December 31, 2014.

    These consolidated financial statements have been prepared using the historical cost convention, other than for certain financial instruments, which are measured in accordance with the policy disclosed in note 4(t).

       
    3.

    Change in accounting policy and retrospective restatement

    The consolidated financial statements reflect the retrospective application of a voluntary change in accounting policy adopted in 2014 to classify, in the Consolidated Statements of Operations, foreign exchange gains and losses arising on the translation of deferred income tax assets and liabilities within deferred income tax recovery instead of within foreign exchange losses, as previously reported. The change in accounting policy has been adopted in accordance with IAS 12, Income Taxes, which provides a policy choice to classify exchange differences arising from translation of deferred income tax assets and liabilities within deferred income tax expense / (recovery). The Company considers the classification of these exchange differences within deferred income tax recovery in the Consolidated Statements of Operations to be the most useful to financial statement users and, consequently, that this presentation results in reliable and more relevant information.

    The following table outlines the effect of this accounting policy change for the years ended December 31, 2014 and 2013:

        Prior to     Restatement     Subsequent to  
    For the year ended December 31, 2014:   restatement     Impact     Restatement  
    Foreign exchange gains / (losses) $

      18,729

    		   $

     (25, 368

    		 ) $

     (6,639

    		 )
    Deferred income tax recovery  

      910

    		    

     25, 368

    		    

      26,278

    		  
    Net loss  

      (169,648

    		 )   -    

      (169,648

    		 )
                       
    For the year ended December 31, 2013:   Reported     Restatement     Restated  
    Foreign exchange gains / (losses) $  10,927   $  (15,216 ) $  (4,289 )
    Deferred income tax (expense) / recovery   (14,456 )   15,216     760  
    Net loss   (176,770 )   -     (176,770 )
                       

    4. Summary of significant accounting policies
       
    (a) Adoption of new accounting standards

    The Company adopted the following accounting standards and amendments to accounting standards, effective January 1, 2014:

    IFRIC 21, Levies, sets out criteria for the recognition of liabilities for levies imposed by governments. IFR IC 21 identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation. There was no impact on the Company’s consolidated financial statements upon the adoption of this interpretation.

    Amendments to IAS 32, Financial Instruments: Presentation, clarify situations in which an entity has a legally enforceable right to set-off a financial liability and financial asset. The amendments to IAS 32 also clarify when a settlement mechanism provides for net settlement or gross settlement that is equivalent to net settlement. There was no impact on the Company’s consolidated financial statements upon the adoption of these amendments.

    6


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    Amendments to IAS 36, Impairment of assets, address the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, clarify the disclosures required, and introduce a requirement to disclose the discount rate used in determining impairment (or reversals) where the recoverable amount (based on fair value less costs of disposal) is determined using a present value technique. There was no impact on the Company’s consolidated financial statements upon the adoption of these amendments.

    (b)

    Basis of consolidation

    These consolidated financial statements include the accounts of the Company and the following subsidiaries:

    Company   Principal activity     Country of incorporation
    AuRicoGold Chihuahua, S.A. de C.V., SOFOM E.N.R.   Administrative services     Mexico
    AuRico Gold Holdings Inc.   Holding company     Canada
    AuRico Gold Nova Scotia Ltd.   Administrative services     Canada
    AuRico Gold (USA), Inc.   Administrative services     United States of America
    Capital Gold Corporation   Holding company     United States of America
    Leadville Mining & Milling Holding Corporation   Holding company     United States of America
    Minera Santa Rita, S. de R.L. de C.V.   Gold and silver mining     Mexico
    Nayarit Gold Inc.   Holding company     Canada
    Oro de Altar, S.A. de C.V.   Holding company     Mexico

    These subsidiaries are controlled by the Company, and are wholly-owned. Control exists when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

    The Company also consolidates the accounts of Caborca Industrial S.A. de C.V., a Mexican corporation wholly-owned by two senior officers of the Company, which provides mining support services to the Company’s El Chanate mine. This entity is consolidated in accordance with IFRS 10, Consolidated Financial Statements.

    All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

    (c)

    Investments in associates and joint ventures

    The Company accounts for investments in associates and joint ventures using the equity method of accounting. The carrying value of the Company’s investments in associates and joint ventures represents the cost of the investment, including the Company’s share of retained earnings and losses subsequent to formation. At the end of each reporting period, the Company assesses its investments for any indicators of impairment.

    (d)

    Foreign currency

    Functional and presentation currency

    These consolidated financial statements are expressed in United States dollars (“US dollars”), which is the functional currency of the Company and the presentation currency of the consolidated financial statements. The functional currency of all of the Company’s subsidiaries is also the US dollar.

    Translation of transactions and balances into the functional currency

    Transactions in currencies other than an entity’s functional currency (“foreign currencies”) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the rates prevailing at that date. Foreign currency non-monetary items that are measured in terms of historical cost are not retranslated.

    Exchange differences are recognized in net loss in the period in which they arise. Exchange differences on deferred foreign tax assets and liabilities are presented as deferred tax expense / (recovery) on the Consolidated Statements of Operations. Unrealized gains and losses due to movements in exchange rates on cash and cash equivalents held in foreign currencies are shown separately on the Consolidated Statements of Cash Flows.

    (e)

    Revenue recognition

    Revenue from the sale of gold, silver and doré, including by-product revenue, is recognized when persuasive evidence of a sale arrangement exists, the risks and rewards of ownership pass to the purchaser, including title risk, the selling price is measurable, and collectability is probable. The risks and rewards of ownership are considered to have been transferred when title passes to the customer. Revenue from the sale of gold, silver and doré is measured at the fair value of the consideration received or receivable, and may be subject to adjustment once final weights and assays are determined.

    7


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    (f)

    Cash and cash equivalents

    The Company considers deposits in banks, certificates of deposits, and short-term investments with original maturities of three months or less from the acquisition date as cash and cash equivalents.

    (g)

    Inventories

    Supplies inventory

    Supplies inventory consists of mining supplies and consumables used in the operation of the mines, and is valued at the lower of average cost and net realizable value.

    Ore stockpiles inventory

    Stockpiles represent ore that has been mined and is available for further processing. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of contained ounces (based on assay data) and the estimated metallurgical recovery rates (based on the expected processing method). Stockpile ore tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on the current mining cost per tonne incurred up to the point of stockpiling the ore, including applicable overhead, depletion and amortization relating to mining operations, to the extent determined recoverable, and are removed at the average cost per tonne. Ore stockpiles inventory is measured at the lower of cost and net realizable value.

    Ore in process inventory

    The recovery of gold and silver is achieved through milling and heap leaching processes. Costs are added to ore on leach pads and in the mill based on the current stockpiled mining cost and current processing cost, including applicable overhead, depletion and amortization relating to mining and processing operations. Costs are removed from ore on leach pads and in the mill as ounces are recovered, based on the average cost per recoverable ounce of gold and silver in ore in process inventory. Ore in process inventory is measured at the lower of cost and net realizable value.

    Finished goods inventory

    Finished goods inventory consists of gold, silver and doré bars, and is valued at the lower of cost and net realizable value.

    For all classes of ore inventory, net realizable value is calculated as the difference between the estimated future metal revenue based on prevailing and / or long-term metal prices as appropriate, and estimated costs to complete production into a saleable form.

    (h)

    Long-lived assets

    Property, plant and equipment

    Property, plant and equipment is recorded at cost less accumulated amortization and accumulated impairment losses. The initial cost of an asset is comprised of its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of any reclamation obligation, and for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. The capitalized value of a finance lease is also included within property, plant and equipment, and is measured at the lower of the present value of the minimum lease payments and the fair value of the leased asset.

    Subsequent costs are included in the asset’s carrying amount when it is probable that future economic benefits associated with the asset will flow to the Company, and the costs can be measured reliably. This would include costs related to the refurbishment or replacement of major components of an asset, when the refurbishment results in a significant extension in the physical life of the component. All other repairs and maintenance costs are recognized in net loss as incurred.

    8


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The cost of property, plant and equipment, less any applicable residual value, is allocated over the estimated useful life of the asset on a straight-line basis, or on a unit-of-production basis if that method is more reflective of the allocation of benefits among periods. Amortization commences on an asset when it has been fully commissioned and is available for use. Amortization rates applicable to each category of property, plant and equipment, with the exception of land, are as follows:

    Asset   Useful life
    Leasehold improvements   3 years
    Mobile equipment   2-10 years
    Other equipment   2-20 years
    Processing plant   2-20 years
    Shaft and underground infrastructure   Unit-of-production
    Vehicles   3-6 years
    Buildings   7-20 years
    Office equipment   2-8 years

    When components of an item of property, plant and equipment have different useful lives than those noted above, they are accounted for as separate items of property, plant and equipment. Each asset or component’s estimated useful life is determined considering its physical life limitations; however this physical life cannot exceed the remaining life of the mine at which the asset is utilized. Estimates of remaining useful lives and residual values are reviewed annually. Any changes in estimates of useful lives are accounted for prospectively from the date of the change.

    Exploration and evaluation assets

    Expenditures incurred prior to the Company obtaining the right to explore are expensed in the period in which they are incurred.

    Exploration and evaluation expenditures include costs such as exploratory drilling, sample testing, costs of pre-feasibility studies, and for qualifying assets, borrowing costs. Subsequent to obtaining the legal right to explore, these costs are capitalized on a project-by-project basis pending determination of the technical feasibility and commercial viability of the project. All capitalized exploration and evaluation expenditures are monitored for indications of impairment, to ensure that exploration activities related to the property are continuing and/or planned for the future. If an exploration property does not prove viable, all unrecoverable costs associated with the project are expensed in the period in which that determination is made.

    Exploration and evaluation assets are not depleted. These amounts are reclassified from exploration and evaluation assets to mining interests once the work completed to date supports the future development of the property and management intends to develop the property. Prior to being reclassified to mining interests, exploration and evaluation assets are assessed for impairment.

    Mining interests

    All expenditures to ready the property for production are capitalized within mining interests, other than those costs related to the construction of related property, plant and equipment, which are capitalized within construction in progress. Expenditures capitalized to mining interests include all costs directly related to development activity and a proportion of overhead costs related to development activity. Any proceeds from the sale of metals during the development and commissioning phase of a project are netted against the expenditures being capitalized. The development and commissioning phase ceases upon the commencement of commercial production.

    Subsequent to the commencement of commercial production, further development expenditures incurred with respect to a mining interest are capitalized as part of the mining interest, when it is probable that additional future economic benefits associated with the expenditure will flow to the Company. Otherwise, such expenditures are classified as a cost of production.

    Upon commencement of commercial production, mining interests are depleted over the life of the mine using the unit-of-production method based on estimated proven and probable reserves of the mine and the portion of mineralization from measured, indicated and inferred resources expected to be classified as reserves. The Company determines the portion of mineralization expected to be classified as reserves by considering the degree of confidence in the economic extraction of the resource, which is affected by long-term metal price assumptions, cut-off grade assumptions, and drilling results. These assessments are made on a mine-by-mine basis.

    9


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The expected useful lives used in depletion calculations are determined based on the facts and circumstances associated with the mining interest. Any changes in estimates of useful lives are accounted for prospectively from the date of the change.

    Commercial production

    Commercial production is reached when an open pit or underground mine is in the condition necessary for it to be capable of operating in the manner intended by management. The Company considers a range of factors when determining whether commercial production has been reached, which may include the completion of all required major capital expenditures, the demonstration of continuous production near the level required by the design capacity of the processing facilities, and the demonstration of continuous throughput levels at or above a target percentage of the design capacity. The Company assesses the ability to sustain production and throughput over a period of approximately one to three months, depending on the complexity of the operation, prior to declaring that commercial production has been reached.

    Capitalized stripping costs

    Pre-production stripping costs are capitalized as part of the cost of constructing a mine.

    Mining costs associated with stripping activities during the production phase of a mine are capitalized only if the Company can identify the component of the ore body for which access is obtained, the costs associated with the related stripping activities can be measured reliably, and the activities represent a future benefit to the mining interest, in that access is gained to sources of reserves and resources that will be produced in future periods that would otherwise not have been accessible. Production stripping costs are allocated between inventory and capital based on the expected volume of waste extracted for a given volume of ore production. The expected volume of waste to be allocated to inventory is determined with reference to the life of mine stripping ratio of a particular mine or deposit, with the remaining amount allocated to capital. The amount of waste capitalized is calculated by multiplying the stripping tonnes mined during the period by the current mining cost per tonne in the open pit.

    Capitalized stripping costs are depleted over the expected reserves and resources benefiting from the stripping activity using the unit-of-production method based on estimated proven and probable reserves, and the portion of mineralization expected to be classified as reserves.

    Investment tax credits

    Investment tax credits are earned as a result of incurring eligible exploration and development expenses prior to commercial production. Investment tax credits are accounted for as a reduction to property, plant and equipment or mining interests. Investment tax credits also arise as a result of incurring eligible research and development expenses and these credits are recorded as a reduction to the related expenses.

    Derecognition

    Upon replacement of a major component, or upon disposal or abandonment of a long-lived asset, the carrying amounts of the assets are derecognized with any associated gains or losses recognized in net loss.

    (i)

    Intangible assets

    Identifiable intangible assets are recorded at fair value on the date of acquisition. Subsequent to initial recognition, they are recorded at cost less accumulated amortization and accumulated impairment losses. Identifiable intangible assets with a finite useful life are amortized on a straight-line basis over their expected useful life, unless another method represents a more accurate allocation of the expense over their useful life. Amortization of the retained interest royalty is determined using the unit-of-production method based on the ounces of production that are expected to generate the cash flows that will be attributable to the Company, and commenced once the Company became entitled to receive cash flows. Amortization expense resulting from intangible assets, other than the retained interest royalty, is included in amortization and depletion expense on the Consolidated Statements of Operations. Amortization and depletion for the retained interest royalty is included in other (loss) / income on the Consolidated Statements of Operations. The estimated useful lives of the Company’s intangible assets with a finite useful life are as follows:

    Asset   Useful life
    Transmission rights   7-20 years
    Software   1-3 years
    Retained interest royalty   Units of production

    10


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    (j)

    Goodwill

    Goodwill represents the difference between the consideration transferred in a business combination and the fair value of the identifiable net assets acquired, and is not amortized. Goodwill, upon acquisition, is allocated to the cash-generating unit (“CGU”) or group of CGUs expected to benefit from the related business combination for the purposes of impairment testing. A CGU is defined as the smallest identifiable group of assets that generates cash inflows, which are largely independent of the cash inflows from other assets. Each of the Company’s operating mines is a CGU for purposes of goodwill impairment testing.

    (k)

    Impairment of non-financial assets and goodwill

    The carrying amounts of non-financial assets, excluding inventories and deferred income tax assets, are reviewed for impairment at each reporting date, or whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. If there are indicators of impairment, a review is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. Reviews are undertaken on an asset-by-asset basis, except where the recoverable amount for an individual asset cannot be determined, in which case the review is undertaken at the CGU level.

    On an annual basis, the Company evaluates the carrying amount of CGUs to which goodwill has been allocated to determine whether such carrying amount may be impaired. To accomplish this, the Company compares the recoverable amount of a CGU to its carrying amount. This evaluation is performed more frequently if there is an indication that a CGU may be impaired.

    If the carrying amount of a CGU or non-financial asset exceeds the recoverable amount, being the higher of its fair value less costs to sell and its value-in-use, an impairment loss is recognized in net loss as the excess of the carrying amount over the recoverable amount. With respect to CGUs, impairment losses are allocated first to reduce the carrying amount of any goodwill allocated to the CGUs, and then to reduce the carrying amounts of the other assets in the CGU on a pro-rata basis.

    Where the recoverable amount is assessed using discounted cash flow techniques, the estimates are based on detailed mine or production plans. The mine plan is the basis for forecasting production output in each future year and for forecasting production costs. For value-in-use calculations, production costs and output in the mine plan may be revised to reflect the continued use of the asset in its present form.

    Non-financial assets that have previously been impaired are tested for a possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed, or may have partially reversed. In these instances, the impairment loss is reversed to the recoverable amount but not beyond the carrying amount, net of amortization, that would have arisen if the prior impairment loss had not been recognized. Goodwill impairments are not reversed.

    (l)

    Impairment of financial assets

    At each reporting date, the Company assesses whether there is any objective evidence that a financial asset or a group of financial assets, other than those classified as fair value through profit or loss, is impaired. Financial assets include receivables and investments. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset that negatively impact the estimated future cash flows of the financial asset or the group of financial assets.

    (m)

    Impairment of investments in associate and joint venture

    The carrying amounts of investments in associate and joint venture are reviewed for impairment at each reporting date, or whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. If there are indicators of impairment, a review is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. Indicators of impairment include observable data suggesting a measurable decrease in the estimated future cash flows of the joint venture or associate operations. If the carrying amount of an associate or joint venture exceeds the recoverable amount, being the higher of its fair value less costs to sell and its value-in-use, an impairment loss is recognized in net loss as the excess of the carrying amount over the recoverable amount.

    (n)

    Flow-through shares

    The Company may issue flow-through common shares to finance its Canadian exploration program. Pursuant to the Canadian Income Tax Act and the terms of the flow-through share agreements, these shares transfer the tax deductibility of qualifying resource expenditures to investors. Proceeds received from flow-through share agreements are separated into a liability and share capital. The liability, which represents the obligation to renounce flow-through exploration expenditures, is calculated as the excess of cash consideration received over the market price of the Company’s shares on the agreement’s closing date. Upon qualifying exploration expenditures being incurred, the Company derecognizes the liability and recognizes it as other income. The related deferred tax expense is also recognized at the time the expenditures are incurred.

    The Company may also be subject to a Part XII.6 tax on flow-through proceeds renounced, in accordance with the Canadian Income Tax Act flow-through regulations. When applicable, the estimated tax payable is accrued until paid.

    11


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    (o)

    Provisions

    Reclamation provisions

    The Company’s mining and exploration activities are subject to various governmental laws and regulations relating to the protection of the environment. These environmental regulations are continually changing, and the Company has made, and intends to make in the future, expenditures to comply with such laws and regulations. The timing of these expenditures is dependent upon a number of factors including the life of the mine, the operating licence conditions, and the laws, regulations, and environment in which the mine operates.

    Reclamation provisions are recognized at the time an environmental disturbance occurs and are measured at the Company’s best estimate of the expected future cash flows required to reclaim the disturbance for each mine operation, which are adjusted to reflect inflation, and discounted to their present value. The inflation rate used is determined based on external forecasts for inflation in the country in which the related mine operates. Expected future cash flows reflect the risks and probabilities that alternative estimates of cash flows could be required to settle the obligation. The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money specific to the currency in which the cash flows are expected to be paid. The discount rate does not reflect risks for which the cash flows have been adjusted. Significant estimates are involved in forming expectations of future activities and the amount and timing of the associated cash flows. Those expectations are based on existing environmental and regulatory requirements or, if more stringent, Company policies that give rise to a constructive obligation.

    Upon initial recognition of a reclamation provision, the corresponding cost is capitalized as an asset, representing part of the cost of acquiring the future economic benefits of the operation. The capitalized cost of reclamation and rehabilitation activities is recognized in mining interests and depreciated in accordance with the Company's policy for the related asset. The provision is progressively increased over the life of the operation as the effect of discounting unwinds, creating an expense included in finance costs on the Consolidated Statements of Operations.

    Reclamation provisions are adjusted for changes in estimates. Such adjustments, which are not the result of the current production of inventory, are accounted for as a change in the corresponding capitalized cost, except where a reduction in the provision is greater than the unamortized capitalized cost of the related assets. In instances where the capitalized cost of the related assets is nil, or will be reduced to nil, the remaining adjustment is recognized as a gain or loss in reclamation, care and maintenance costs on the Consolidated Statements of Operations. If reclamation and restoration costs are incurred as a consequence of the production of inventory, the costs are recognized as a cost of that inventory. Factors influencing such changes in estimates include revisions to estimated reserves, resources and lives of mines; developments in technologies; regulatory requirements and environmental management strategies; changes in estimated costs of anticipated activities, including the effects of inflation and movements in foreign exchange rates; and movements in interest rates affecting the discount rate applied.

    Other provisions

    Provisions are recognized when the Company has a present obligation (legal or constructive), as a result of past events, and it is probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as interest expense and included in finance costs on the Consolidated Statements of Operations.

    (p)

    Employee benefits

    Short-term employee benefits

    The Company accrues liabilities for short-term employee benefits such as wages, salaries, bonuses, paid vacation, and other benefits expected to be settled within 12 months from the end of the reporting period. The liabilities for short-term benefits are measured on an undiscounted basis at the amounts expected to be paid when the liabilities are settled. These amounts are recognized in trade payables and accrued liabilities, with offsetting charges to cost of sales (production costs) or general and administrative expense.

    12


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    Termination benefits

    The Company accrues liabilities for involuntary termination and severance benefits when the termination has been communicated to the employee, and the employee acknowledges receipt. The liabilities for termination benefits are measured on an undiscounted basis at the amounts expected to be paid when the liabilities are settled.

    (q)

    Share-based compensation

    The Company measures all equity-settled share-based awards made to employees and others providing similar services (collectively, “employees”) based on the fair value of the options or units on the date of grant.

    The grant date fair value of options is estimated using an option pricing model and is recognized as compensation expense over the vesting period, based on the number of options that are expected to vest. A corresponding increase is recognized in equity. The fair values of the Company’s deferred share units, performance share units, and equity-settled restricted share units are determined based on the market value of the Company’s shares on the date of grant, and is expensed over the vesting period based on the estimated number of awards that are expected to vest.

    The Company awards cash-settled share-based compensation to certain employees in the form of restricted share units. In accounting for these awards, the Company recognizes the fair value of the amount payable to employees as compensation expense as they are earned, based on the estimated number of units that are expected to vest. The corresponding liability is re-measured at fair value on each reporting date and upon settlement, with changes in fair value recognized in net loss for the period. The fair value of restricted share units is determined by reference to the Company’s share price when the units are awarded or re-measured.

    The Company also maintains an employee share purchase plan. Under this plan, contributions by the Company’s employees are matched to a specific percentage by the Company and are recognized as an expense when the Company’s obligation to contribute arises.

    Share-based arrangements in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions regardless of how the equity instruments are obtained by the Company. These share-based arrangements are measured at the fair value of goods or services received unless the fair value of the goods or services cannot be reliably measured, in which case they are measured at the fair value of the equity instruments issued.

    (r)

    Income taxes

    Income tax expense is comprised of current and deferred income tax. Current and deferred income taxes are recognized in net loss except to the extent that they relate to a business combination, or to items recognized directly in equity or other comprehensive income.

    Current income taxes

    Current income tax expense represents the income tax expected to be payable on the Company’s taxable earnings for the year using rates that are enacted or substantively enacted at the balance sheet date. Taxable earnings differ from accounting earnings reported in the Consolidated Statements of Operations due to differences in timing of amounts deductible or taxable for tax purposes and due to exclusions of items that are not taxable or deductible. Current income tax includes adjustments for tax expense expected to be payable or recoverable in respect of previous periods.

    Deferred income taxes

    Deferred income tax assets and liabilities represent income taxes expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the Company’s consolidated financial statements and the corresponding tax basis used in the computation of taxable earnings. Deferred income tax assets also represent income taxes expected to be recoverable on unused tax losses and tax credits carried forward. Deferred income tax is calculated using the liability method on temporary differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

    Deferred income taxes are measured using the enacted or substantively enacted tax rates at the balance sheet date that are expected to be in effect when the differences reverse or when unclaimed losses are utilized. Deferred income tax liabilities are generally recognized for all taxable temporary differences, with some exceptions described below. Deferred income tax assets are recognized to the extent that it is probable that taxable earnings will be available against which deductible temporary differences, unused tax losses and tax credits can be used. Neither deferred income tax liabilities, nor deferred income tax assets, are recognized as a result of temporary differences that arise from (a) the initial recognition of goodwill, (b) a transaction, other than a business combination, that affects neither accounting earnings nor taxable earnings, or (c) differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset to the extent there is a legally enforceable right to offset current income tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but the entity intends to settle current income tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

    13


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and adjusted to the extent that it is no longer probable that sufficient taxable earnings will be available to allow the benefit, or all or part of the asset, to be utilized. To the extent that an asset not previously recognized fulfils the criteria for asset recognition, a deferred income tax asset is recognized.

    (s)

    Loss per share

    Basic loss per share is calculated based on the weighted average number of common shares and common share equivalents outstanding for the period. Diluted loss per share is calculated using the treasury method, except when assessing the dilution impact of convertible senior notes, restricted share units and performance shares units, where the if-converted method is used. The treasury method assumes that outstanding stock options and warrants with an average exercise price below the market price of the underlying shares, are exercised and the assumed proceeds are used to repurchase common shares of the Company at the average market price of the common shares for the period. The if-converted method assumes that all convertible senior notes, restricted share units, and performance share units have been converted in determining fully diluted loss per share if they are in-the-money, except where such conversion would be anti-dilutive.

    (t)

    Financial instruments

    Financial instruments are measured at fair value on initial recognition of the instrument. Measurement in subsequent periods depends on whether the financial instrument has been classified as “financial assets at fair value through profit or loss”, “available-for-sale financial assets”, “held-to-maturity investments”, “loans and receivables”, “financial liabilities at fair value through profit or loss”, or “other financial liabilities”.

    The Company’s financial instruments are classified and subsequently measured as follows:

    Asset / Liability   Classification   Subsequent Measurement
    Cash and cash equivalents   Fair value through profit or loss   Fair value
    Receivables   Loans and receivables   Amortized cost
    Prepayment option embedded derivative   Fair value through profit or loss   Fair value
    Contingent consideration   Fair value through profit or loss   Fair value
    Investments   Available-for-sale   Fair value
    Warrants held   Fair value through profit or loss   Fair value
    Payables, provisions and other liabilities   Other financial liabilities   Amortized cost
    Debt and equipment financing obligations   Other financial liabilities   Amortized cost
    Option component of convertible senior notes   Fair value through profit or loss   Fair value
    Derivatives   Fair value through profit or loss   Fair value

    Financial assets and financial liabilities classified as fair value through profit or loss are measured at fair value with changes in those fair values recognized in net loss. Financial assets classified as available-for-sale are measured at fair value, with changes in those fair values recognized in other comprehensive income (“OCI”).

    Investments in equity securities classified as available-for-sale financial assets are accounted for at their fair value, which is determined based on the last quoted market price. Changes in the market value of available-for-sale equity securities as well as the related foreign exchange and tax impact, if any, are accounted for in accumulated other comprehensive income until the equity securities are sold or are determined to be other-than-temporarily impaired. When available-for-sale equity securities are sold or are determined to be other-than-temporarily impaired, the related accumulated change in accumulated other comprehensive income is reclassified to net loss.

    The senior secured notes represent a financial liability with an embedded derivative. The debt component of the senior secured notes is presented within debt and equipment financing obligations on the Consolidated Balance Sheets. The embedded derivative, which is an option that represents a derivative asset to the Company, will be recognized as an offset to debt and equipment financing obligations on the Consolidated Balance Sheets. The debt component is initially recognized as the difference between the fair value of the financial instrument as a whole and the fair value of the embedded derivative. Subsequently, the debt component is recognized at amortized cost using the effective interest rate method. The embedded derivative represents the prepayment option and is classified as a financial asset at fair value through profit or loss. The embedded derivative is subsequently recognized at fair value with changes in fair value recognized in net loss. Interest expense relating to the debt component is also recognized in net loss, with the exception of interest expense capitalized as borrowing costs in accordance with note 4(h).

    14


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    Convertible senior notes, under the terms of which the Company has the right to settle all or part of the instrument in cash on the conversion date, represent a financial liability with an embedded derivative. The debt component of the convertible senior notes is presented within debt and equipment financing obligations on the Consolidated Balance Sheets, and is initially recognized as the difference between the fair value of the financial instrument as a whole and the fair value of the embedded derivative. The debt component is subsequently recognized at amortized cost using the effective interest rate method. The embedded derivative represents the conversion feature and is classified as a financial liability at fair value through profit or loss. The embedded derivative is subsequently recognized at fair value with changes in fair value recognized in net loss. Interest expense relating to the debt component is also recognized in net loss, with the exception of interest expense capitalized as borrowing costs in accordance with note 4(h).

    Fair values are based on quoted market prices where available, or where no active market exists, fair values are estimated using a variety of valuation techniques and models. These valuation techniques and models include recent arm’s length market transactions for similar instruments, reference to current market value of another instrument which is substantially the same, discounted cash flow analysis, and option pricing models.

    Transaction costs, other than those related to financial instruments classified as fair value through profit or loss, which are expensed as incurred, are combined with the fair value of the financial asset or financial liability on initial recognition and amortized using the effective interest rate method. If modifications are made to a financial liability that are not considered to be substantial, the transaction costs related to this modification are combined with the carrying amount, and amortized over the life of the instrument using the effective interest rate method. If modifications are made that are considered to be substantial, the transaction costs related to the modification are expensed.

    All derivative instruments, including embedded derivatives, are recorded on the balance sheet at fair value unless exempted from derivative treatment as an own-use instrument. All changes in fair value are recorded in net loss unless they are designated in a valid cash flow hedging relationship (note 4(u)), in which case changes in fair value are recorded in accumulated other comprehensive income.

    Financial assets are derecognized when the rights to receive cash flows from the asset have expired or have been transferred and the Company has transferred substantially all of the risks and rewards of ownership. Financial liabilities are derecognized when they have been settled by the Company, or when an obligation expires. In instances where a financial liability is replaced by another from the same lender on substantially different terms, or the terms of the existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, with any difference recognized in the Consolidated Statements of Operations.

    Financial assets and financial liabilities are offset and the net amount reported in the Consolidated Balance Sheets only if there is an enforceable legal right to offset the recognized amounts and the intention is to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

    (u)

    Hedges

    Hedging relationships that meet documentation requirements, and that can be proven to be effective both at the inception and over the term of the relationship qualify for hedge accounting. At the inception of the transaction, the Company documents the relationship between hedging instruments and hedged items, the method for assessing effectiveness, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company makes an assessment, both at the inception of the hedge and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

    The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized as other comprehensive income and are presented within equity as accumulated other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in net loss. Amounts accumulated in equity are recycled to net loss in the period in when the hedged item will affect net loss. However, when the forecasted transaction that is hedged results in the recognition of a non-financial asset or liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the related asset or liability.

    When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecasted transaction is ultimately recognized in net loss. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss existing in accumulated other comprehensive income is immediately charged to net loss.

    15


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    (v)

    Segment reporting

    Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. The Company’s operating segments, before aggregation, have been identified as the Company’s individual operating and development stage mines. Aggregation of one or more operating segments into a single operating segment is permitted if aggregation is consistent with the core principle of the standard, the operating segments have similar economic characteristics, and the operating segments have a number of other similarities, including similarities in the nature of their products, production processes, and regulatory environment. The Company’s reportable segments are consistent with the identified operating segments and consist of the geographical regions in which the Company operates.

    (w)

    Standards issued but not yet adopted

    For the purposes of preparing and presenting the Company’s consolidated financial statements, the Company has adopted all applicable standards and interpretations issued other than those discussed below. These standards have not been adopted because they are not effective for the Company until subsequent to December 31, 2014. Standards and interpretations issued, but not yet adopted include:

      Effective for the Company
    Amendments to IAS 19, Employee Benefits January 1, 2015
    Amendments to IAS 16, Property, Plant and Equipment January 1, 2016
    Amendments to IAS 28, Investments in Associates and Joint Ventures January 1, 2016
    Amendments to IAS 38, Intangibles January 1, 2016
    Amendments to IFRS 10, Consolidated Financial Statements January 1, 2016
    Amendments to IFRS 11, Joint Arrangements January 1, 2016
    IFRS 15, Revenue from Contracts with Customers January 1, 2017
    IFRS 9, Financial Instruments January 1, 2018

    In November 2013, the IASB issued amendments to IAS 19, Employee Benefits, which clarify benefit and medical cost actuarial assumptions used in calculation of the present value of defined benefit obligations and current service cost. These amendments are effective for annual periods beginning on or after July 1, 2014. This amendment is not anticipated to impact the Company’s consolidated financial statements as there are no defined benefit obligations.

    In May 2014, the IASB issued amendments to IAS 16, Property, Plant and Equipment and IAS 38, Intangibles. These amendments prohibit the use of revenue-based depreciation methods for property, plant and equipment and limit the use of revenue-based amortization for intangible assets. These amendments are effective for annual periods beginning on or after January 1, 2016 and are to be applied prospectively. These amendments are not anticipated to impact the Company’s consolidated financial statements as revenue-based depreciation or amortization methods are not used.

    In September 2014, the IASB issued amendments to IAS 28, Investments in Associates and Joint Ventures, and IFRS 10, Consolidated Financial Statements. These amendments address a conflict between IAS 28 and IFRS 10 and clarify that in a transaction involving an associate or joint venture the extent of gain or loss recognition depends on whether the assets sold or contributed constitute a business. These amendments are effective for annual periods beginning on or after January 1, 2016. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

    In May 2014, the IAS issued amendments to IFRS 11, Joint Arrangements. The amendments clarify the accounting for acquisitions of an interest in a joint operation when the operation constitutes a business. The amendments are effective for annual periods beginning on or after January 1, 2016, with earlier application being permitted. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

    In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. The standard replaces IAS 11, Construction Contracts; IAS 18, Revenue; IFRIC 13, Customer Loyalty Programmes; IFRIC 15, Agreements for the Construction of Real Estate; IFRIC 18, Transfer of Assets from Customers; and SIC 31, Revenue – Barter Transactions Involving Advertising Services. This standard establishes principles for reporting the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contract with customers. This standard is effective for annual periods beginning on or after January 1, 2017, and permits early adoption. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

    In July 2014, the IASB issued IFRS 9, Financial Instruments, which will replace IAS 39, Financial Instruments: Recognition and Measurement. The replacement standard provides a new model for the classification and measurement of financial instruments. The IASB has determined the revised effective date for IFRS 9 will be for annual periods beginning on or after January 1, 2018. The Company will evaluate the impact of the change to the consolidated financial statements based on the characteristics of financial instruments outstanding at the time of adoption.

     16


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)
       
    5.

    Critical accounting estimates and judgements

    Many of the amounts included in the Consolidated Balance Sheets require management to make estimates and judgements. Accounting estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised.

    Critical accounting estimates

    The following is a list of the accounting estimates that the Company believes are critical, due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liabilities, revenue or expense being reported. Actual results may differ from these estimates.

    −

    The Company makes estimates of gold and silver recoverable from ore stacked on leach pads in the determination of ore in process inventory. The quantities of recoverable gold and silver placed on the leach pads are reconciled to the quantities of gold and silver actually recovered (metallurgical balancing), by comparing the estimate of contained ounces placed on the leach pads to actual ounces recovered. The nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and the engineering estimates are refined based on actual results over time. The ultimate recovery of gold and silver from a pad will not be known until the leaching process is completed. Leach pad recovery estimates are used in the determination of the Company’s inventories.

       

    −

    The Company values inventory at the lower of cost and net realizable value. The calculation of net realizable value relies on forecasted gold prices, estimated grades of ore on stockpiles and heap leach pads, forecasted exchange rates, and estimated costs to complete the processing of ore inventory.

       

    −

    The Company makes estimates of the quantities of proven and probable reserves of the mine and the portion of mineralization expected to be classified as reserves. The estimation of quantities of reserves and resources is complex, requiring significant subjective assumptions that arise from the evaluation of geological, geophysical, engineering and economic data for a given ore body. This data could change over time as a result of numerous factors, including new information gained from development activities, evolving production history and a reassessment of the viability of production under different economic conditions. Reserve estimates are used in the calculation of depletion expense and to calculate the recoverable amount of a CGU, and to forecast the life of the mine. The Company has forecasted a mine life of 9 years for El Chanate and 20 years for Young-Davidson.

       

    −

    The Company forecasts prices of commodities, exchange rates, production costs, discount rates, and recovery rates. These estimates may change the economic status of reserves and may result in reserves and resources being revised. In addition, these estimates are used to calculate the recoverable amount of a CGU for the purpose of impairment testing.

       

    −

    The Company amortizes its property, plant and equipment, net of residual value, over the estimated useful life of each asset, not to exceed the life of the mine at which the asset is utilized. The physical life of these assets, and related components, may differ from the Company’s estimate, which would impact amortization and depletion expense.

       

    −

    The Company makes estimates of the likelihood of whether or not all or some portion of each deferred income tax asset and investment tax credits will be realized, which is impacted by interpretation of tax laws and regulations, historic and future expected levels of taxable income, timing of reversals of taxable temporary timing differences, and tax planning initiatives. Levels of future taxable income are affected by, among other things, market gold prices, production costs, quantities of proven and probable gold reserves, interest rates, and foreign currency exchange rates.

       

    −

    The Company makes estimates of the timing and amount of expenditures required to settle the Company’s reclamation provisions. The principal factors that can cause expected future expenditures to change are: the construction of new processing facilities; changes in the quantities of material in reserves and a corresponding change in the life of mine plan; changing ore characteristics that ultimately impact the environment; changes in water quality that impact the extent of water treatment required; and changes in laws and regulations governing the protection of the environment. In general, as the end of the mine life nears, the reliability of expected cash flows increases, but earlier in the mine life, the estimation of a reclamation provision is inherently more subjective.

       

    −

    The Company makes estimates of future cash flows in order to calculate the recoverable amount of the retained interest royalty for the purpose of impairment testing. Future cash flows are impacted by future gold prices, future production from the Fosterville and Stawell mines in Victoria, Australia, future foreign exchange rates, as well as related operating and capital expenditures required to sustain that production.

    17


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    Critical accounting judgements

    The following are critical judgements that management has made in the process of applying accounting policies that may have a significant impact on the amounts recognized in the consolidated financial statements.

    −

    The Company makes judgements about whether or not indicators of impairment, or indicators of a reversal of impairment, exist at each reporting period. For all assets, this determination impacts whether or not a detailed impairment assessment is performed at December 31, 2014 and 2013. These judgements did not impact cash generating units that contain goodwill at December 31, 2014, or 2013, as these are required to be tested for impairment regardless of whether or not an indicator exists.

     

    −

    The Company is subject to income taxes in different jurisdictions. Significant judgment is required in determining the provision for income taxes, due to the complexity of legislation.

     

    −

    The Company makes judgements about which indicators to consider when evaluating whether a mine has reached commercial production, which may impact the timing and amount of depreciation and depletion, the amount of revenue recognized in the Consolidated Statements of Operations, and the amount of costs capitalized to mine development during 2013.


       
    6.

    Receivables


        December 31     December 31  
        2014     2013  
    Trade receivables $  396   $  1,012  
    Value-added tax receivable   10,814     14,888  
    Advances   767     1,658  
    Other   2,099     11,696  
      $  14,076   $  29,254  

    Included in value-added tax receivable was $3,535 and $7,279 collectible from the Government of Canada and Government of Mexico, respectively, at December 31, 2014 (December 31, 2013 - $7,340 and $7,548, respectively).

    Included in other receivables at December 31, 2014 is a receivable from the Company’s joint venture (see note 9) of $2,099 (December 31, 2013 - $1,442). In the prior year, other receivables also included an insurance receivable of $10,254 relating to the settlement of a lawsuit (see note 16(b)).

    The Company has not recorded a provision for doubtful trade receivables as there is no indication that the debtors will not meet their payment obligations.

       
    7.

    Inventories


        December 31     December 31  
        2014     2013  
    Supplies $  20,286   $  17,391  
    Ore stockpiles   22,025     35,122  
    Ore in process   132,035     117,984  
    Finished goods   1,926     7,842  
        176,272     178,339  
    Less: Long-term inventories   (103,156 )   (93,696 )
      $  73,116   $  84,643  

    During the years ended December 31, 2014 and 2013, the carrying value of the El Chanate ore in process heap leach inventory and the Young-Davidson low grade stockpile inventory exceeded their net realizable values. As a result, the Company recognized net realizable value adjustments, which impacted production costs and amortization and depletion. Ore stockpile and ore in process inventories include mining and processing costs, along with amortization and depletion related to mining and processing operations. The net realizable value adjustments totaling $23,534 for the year ended December 31, 2014 (2013 - $42,069) have been allocated on a pro-rata basis between production costs and amortization and depletion based on their relative values at December 31, 2014 and 2013.

    18


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The impact on production costs and amortization and depletion is as follows:

        Year ended  
        December 31     December 31  
        2014     2013  
    Operating production costs $  182,085   $  114,555  
    Net realizable value adjustment            
       El Chanate   13,885     23,376  
       Young-Davidson   3,339     10,050  
    Production costs $  199,309   $  147,981  
                 
    Operating amortization and depletion $  115,158   $  56,886  
    Net realizable value adjustment            
       El Chanate   4,139     2,083  
       Young-Davidson   2,171     6,560  
    Amortization and depletion $  121,468   $  65,529  

    Ore inventories carried at net realizable value totalled $141,038 at December 31, 2014 (December 31, 2013 - $74,074).

    Ore in process inventory at December 31, 2014 included $3,383 (December 31, 2013 - $6,095) related to the excess of the fair value of El Chanate inventory over its carrying value at the acquisition date, which is being charged to net loss as the related inventory is sold.

     

    19


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    8.

    Investments


                          Year ended  
                    December 31, 2014  
                          Realized &  
                    Unrealized     unrealized  
                    gains/(losses)     gains/(losses)  
        December 31, 2014     included in     included in  
        Cost     Fair value     OCI     net loss  
    Securities - available for sale $  1,964   $  184   $  2,512   $  6,631  
    Reclassification to net loss   -     -     2,507     (2,507 )
      $  1,964   $  184   $  5,019   $  4,124  
    Securities - fair value through profit or loss   235     -     -     -  
    Warrants - fair value through profit or loss   494     -     -     (42 )
      $  2,693   $  184   $  5,019   $  4,082  
                             
                             
                          Year ended  
                    December 31, 2013  
                          Realized &  
                    Unrealized     unrealized  
                    gains/(losses)     gains/(losses)  
        December 31, 2013     included in     included in  
        Cost     Fair value     OCI     net loss  
    Securities - available for sale $  20,948   $  15,510   $  (5,331 ) $  -  
    Reclassification to net loss   -     -     168     (168 )
      $  20,948   $  15,510   $  (5,163 ) $  (168 )
    Securities - fair value through profit or loss   235     -     -     (47 )
    Warrants - fair value through profit or loss   494     41     -     (450 )
      $  21,677   $  15,551   $  (5,163 ) $  (665 )

    During the year ended December 31, 2014, the Company sold shares in various publicly listed entities for total proceeds of $23,284.

    During the year ended December 31, 2013, the Company purchased shares and warrants with a total cost of $21,272. The cost of the shares and warrants were determined based on their fair value on the date of acquisition.

     

    20


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    9. Investments in associate and joint venture
       
    (a) Orion development project

    The Company and Minera Frisco S.A. de C.V. (“Minera Frisco”) each own shares representing a 50% ownership interest in Nayarit Gold de Mexico, S.A. de C.V., an entity with ownership of the Orion development project. The Company and Minera Frisco have joint control over the joint venture company.

    The following table contains selected financial information for a 100% interest in the joint venture at December 31, 2014 and 2013:

        December 31     December  
        2014     2013  
    Current assets   338     308  
    Property, plant and equipment & mining interests   55,828     54,836  
    Total assets $  56,166   $  55,144  
                 
    Current liabilities   2,343     1,467  
    Deferred income tax liability   18,219     17,817  
    Total liabilities $  20,562   $  19,284  
                 
    Net assets of joint venture $  35,604   $  35,860  
    Ownership interest   50%     50%  
    Net investment in joint venture $  17,802   $  17,930  
                 
    Net investment, beginning of year $  17,930   $  20,463  
    Share of net loss during the period   (128 )   (2,533 )
    Net investment, end of year $  17,802   $  17,930  

    Included in current liabilities of the joint venture at December 31, 2014 was a payable due to the Company of $2,099 (December 31, 2013 - $1,442). The Company has included a corresponding amount in receivables on the Consolidated Balance Sheets at December 31, 2014 and 2013.

    At December 31, 2014, the Company did not have any significant commitments or contingent liabilities related to this joint venture.

    (b)

    Investment in Carlisle Goldfields Limited (“Carlisle”)

    On November 11, 2014, the Company announced that it had formed a strategic partnership with Carlisle on properties within the Lynn Lake Gold Camp in northern Manitoba, Canada. As part of this partnership, the Company subscribed to 70,600,000 common shares of Carlisle, representing approximately 19.9% of the issued and outstanding common shares, for total consideration of $4,993 (CAD $5,648). After including transaction fees, the total opening cost base of the investment was $5,674. In addition, the Company entered into a separate agreement with respect to the Lynn Lake development project, and acquired a 25% interest in the project for $4,415 (CAD $5,000). These amounts have been recognized within property, plant and equipment & mining interests on the Consolidated Balance Sheets. The Company has the option to earn up to an additional 35% interest by funding CAD $20,000 on the development of the project and delivering a feasibility study within a three-year time period.

    21


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The Company has concluded that it has significant influence over the financial and operating policy decisions of Carlisle and, therefore, has used the equity method of accounting for this investment in associate. The following table contains the continuity of the Company’s investment in Carlisle at December 31, 2014:

        December 31  
        2014  
    Net investment, beginning of year   -  
    Investment in associate during period   5,674  
    Share of net loss during the period   (42 )
    Net investment, end of year $  5,632  
           

    10.

    Other long-term assets


        December 31     December 31  
        2014     2013  
    Restricted cash in closure bonds $  16,007   $  26,249  
    Other restricted cash   717     5,230  
    Investment tax credits recoverable   33,347     36,508  
    Deposits on property, plant and equipment, and mining interests   971     4,001  
      $  51,042   $  71,988  

    Restricted cash in closure bonds consists of cash and short-term deposits pledged by the Company relating to site closure and reclamation obligations at Kemess South, a mine in the decommissioning stage. At December 31, 2013, restricted cash in closure bonds also included an amount related to reclamation obligations at Young-Davidson (note 24).

    At December 31, 2014, other restricted cash included amounts relating to the repayment of the convertible senior notes (note 14(c)). At December 31, 2013, other restricted cash consisted of letters of credit issued against certain of the Company’s bank accounts relating to site infrastructure, site closure, and other mine activities. During the year ended December 31, 2014, the Company provided other forms of security against these letters of credit.

    The Company’s investment tax credits (“ITC”) recoverable relate to ITCs earned primarily on expenditures at Young-Davidson. These ITCs will be used to reduce income taxes payable in the future and have been netted against the cost of the related items of property, plant and equipment.

    Included in deposits on property, plant, and equipment, and mining interests at December 31, 2014 is an advance of $788 (December 31, 2013 - $nil) to Carlisle relating to ongoing work on the Lynn Lake development project (see note 9).

     

    22


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    11.

    Property, plant and equipment & mining interests


     

    		        Mining interests              

     

    		  Plant                 Exploration        

     

    		  and           Non-     and        

     

    		  equipment     Depletable     depletable     evaluation     Total  

    Cost

    		                             

    At December 31, 2012

    		$  543,825   $  197,168   $  806,025   $  66,410   $  1,613,428  

       Additions

    		  123,133     62,516     71,238     6,237     263,124  

       Reclassifications

    		  -     853,408     (853,408 )   -     -  

       Disposals

    		  (5,792 )   -     -     -     (5,792 )

    At December 31, 2013

    		$  661,166   $  1,113,092   $  23,855   $  72,647   $  1,870,760  

       Additions

    		  64,328     85,706     7,271     20,252     177,557  

       Reclassifications

    		  -     11,775     (11,775 )   -     -  

       Disposals

    		  (7,758 )   -     -     -     (7,758 )

    At December 31, 2014

    		$  717,736   $  1,210,573   $  19,351   $  92,899   $  2,040,559  

    Accumulated amortization and depletion and impairment charges

    		 

    At December 31, 2012

    		$  (18,462 ) $  (36,260 ) $  -   $  -   $  (54,722 )

       Amortization and depletion

    		  (27,789 )   (62,441 )   -     -     (90,230 )

       Impairment charges

    		  (12,279 )   (35,200 )   (4,574 )   -     (52,053 )

       Disposals

    		  2,200     -     -     -     2,200  

    At December 31, 2013

    		$  (56,330 ) $  (133,901 ) $  (4,574 ) $  -   $  (194,805 )

       Amortization and depletion

    		  (32,798 )   (86,808 )   -     -     (119,606 )

       Impairment charges

    		  (22,316 )   (67,684 )   (1,006 )   (616 )   (91,622 )

       Disposals

    		  4,204     -     -     -     4,204  

    At December 31, 2014

    		$  (107,240 ) $  (288,393 ) $  (5,580 ) $  (616 ) $  (401,829 )

    Carrying value

    		                             

    At December 31, 2013

    		$  604,836   $  979,191   $  19,281   $  72,647   $  1,675,955  

    At December 31, 2014

    		$ 610,496   $ 922,180   $  13,771   $  92,283   $  1,638,730  

    The carrying values by component are as follows:

              Mining interests              
        Plant                 Exploration        
        and           Non-     and        
        equipment     Depletable     depletable     evaluation     Total  
    El Chanate $   9,403   $ 29,173   $  1,304   $  -   $  39,880  
    Young-Davidson   573,485     893,007     12,467     -     1,478,959  
    Corporate and other   27,608     -     -     92,283     119,891  
    At December 31, 2014 $   610,496   $   922,180   $  13,771   $  92,283   $  1, 638,730  
                                   
    El Chanate $  35,307   $  84,975   $  10,945   $  -   $  131,227  
    Young-Davidson   540,537     894,216     8,336     -     1,443,089  
    Corporate and other   28,992     -     -     72,647     101,639  
    At December 31, 2013 $  604,836   $  979,191   $  19,281   $  72,647   $  1,675,955  

    During the year ended December 31, 2014, $5,286 (year ended December 31, 2013 - $8,409) of borrowing costs associated with capital projects were capitalized within property, plant and equipment & mining interests on the Consolidated Balance Sheets. The applicable capitalization rate for general borrowings was 8.09% (year ended December 31, 2013 - 5.82%) .

    23


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The carrying value of equipment pledged as security for related equipment financing obligations at December 31, 2014 was $23,945 (December 31, 2013 - $22,175).

    The carrying value of construction in progress at December 31, 2014 was $57,057 (December 31, 2013 - $70,025).

    The Company has made commitments to acquire property, plant and equipment totaling $9,189 at December 31, 2014 (December 31, 2013 - $10,981).

       
    12.

    Intangible assets and goodwill

    Included in intangible assets are the rights to use the capacity of power lines connecting the El Chanate and Young-Davidson mines to national / provincial electricity grids (“transmission rights”), software assets, and the retained interest royalty.

     

    		        Intangible assets        

     

    		        Retained                 Total        

     

    		        interest     Transmission           intangible        

     

    		  Goodwill     royalty     rights     Software     assets     Total  

    Cost

    		                                   

    At December 31, 2012

    		$  475,214   $  34,004   $  21,018   $  2,239   $  57,261   $  532,475  

       Additions

    		  -     -     -     370     370     370  

    At December 31, 2013

    		  475,214     34,004     21,018     2,609     57,631     532,845  

       Additions

    		  -     -     254     321     575     575  

    At December 31, 2014

    		$  475,214   $  34,004   $  21,272   $  2,930   $  58,206   $  533,420  

    Accumulated amortization and impairment charges

    		                         

    At December 31, 2012

    		$  (127,000 ) $  -   $  (1,110 ) $  (1,326 ) $  (2,436 ) $  (129,436 )

       Amortization

    		  -     -     (847 )   (692 )   (1,539 )   (1,539 )

       Impairment charges

    		  (106,521 )   -     -     -     -     (106,521 )

    At December 31, 2013

    		  (233,521 )   -     (1,957 )   (2,018 )   (3,975 )   (237,496 )

       Amortization

    		  -     (13,288 )   (1,044 )   (266 )   (14,598 )   (14,598 )

    At December 31, 2014

    		$  (233,521 ) $  (13,288 ) $  (3,001 ) $  (2,284 ) $  (18,573 ) $  (252,094 )

    Carrying value

    		                                   

    At December 31, 2013

    		$  241,693   $  34,004   $  19,061   $  591   $  53,656   $  295,349  

    At December 31, 2014

    		$  241,693   $  20,716   $  18,271   $  646   $  39,633   $  281,326  

    As part of the consideration received from the sale of the Fosterville and Stawell mines (collectively, the “Australian Operations”) on May 4, 2012 to Crocodile Gold Corporation (“Crocodile Gold”), the Company received a retained interest royalty. Per the agreement, once the cumulative free cash flow generated by the mines subsequent to closing reached CAD $60 million, the Company would receive 100% of the next CAD $30 million of cumulative free cash flow in excess of CAD $60 million, and 50% of the next CAD $30 million of cumulative free cash flow in excess of CAD $90 million. In addition, the Company would receive 20% of any cumulative free cash flow in excess of CAD $120 million.

    During 2014, the Company was notified that the Australian Operations had generated in excess of CAD $60 million and, as a result, received proceeds of $2,463 from Crocodile Gold (year ended December 31, 2013 - $nil). Consistent with the Company’s accounting policy, amortization of the retained interest royalty commenced once the Company became entitled to receive cash flows under this arrangement. During the year ended December 31, 2014, the Company recognized amortization expense of $13,288 on the retained interest royalty, which reduced the carrying value of this asset to $20,716.

    24


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    On December 22, 2014, the Company announced that it had entered into an agreement with Crocodile Gold to amend the original purchase and sale agreement, subject to regulatory approvals, such that the retained interest royalty intangible asset would be terminated. As consideration for the termination of the retained interest royalty, the Company will receive a CAD $20 million payment in cash upon closing and will be granted a net smelter return royalty of 2% from the Fosterville mine and 1% from the Stawell mine. The Fosterville royalty will commence upon closing and the Stawell mine royalty will commence on the earlier of January 1, 2016 or the date immediately following the production of 10,000 ounces from the Big Hill Project. The agreement was finalized on January 14, 2015 following the receipt of regulatory approval (see note 28).

       
    13.

    Impairment

    Non-financial assets and CGUs are tested for impairment or a reversal of impairment whenever there are indicators that an impairment has occurred or should be reversed. CGUs containing goodwill are tested for impairment each year at December 31. For the purpose of testing for impairment, or a reversal of impairment, the recoverable amounts for non-financial assets and CGUs are based on fair value less costs of disposal (“FVLCD”) calculations. When observable market prices are not available for the asset, FVLCD is calculated using a discounted cash flow methodology taking into account the assumptions that would be made by market participants. Management projects cash flows over the remaining life of each mine using forecasted production and costs per the Company’s life of mine plans and the long-term forecasted price of gold to project future revenues. The Company does not use growth rates in determining cash flow projections. The fair value of these non-financial assets are based on unobservable inputs (level 3 of fair value hierarchy, refer to note 25).

    The key assumptions used in determining FVLCD at December 31, 2014 were gold prices, discount rates, operating costs, capital expenditures, foreign exchange rates and net asset value (“NAV”) multiples. Of these assumptions, reasonably possible changes in gold prices, discount rates, operating costs, and NAV multiples could have caused the carrying value of the Company’s Young-Davidson CGU to exceed their recoverable amounts, as outlined below in (b).

    The Company develops long-term gold price forecasts by reference to numerous external analyst forecasts. The long-term gold pricing used in the impairment tests approximated the mean of these forecasts, after adjusting for outliers. The Company used a gold price range of $1,250 to $1,300 per ounce for all future production in its impairment tests (December 31, 2013 - $1,300 per ounce).

    The Company forecasts production, operating costs and capital expenditures based on expected life of mine plans developed from technical reports and historical experience.

    The discount rates used by the Company in calculating FVLCD were based on the weighted average cost of capital applicable to each property. The rates chosen reflect a market participant’s view of the risk inherent in the cash flows associated with each property.

    The discount rates used for each test are summarized as follows:

        December 31     December 31  
        2014     2013  
    El Chanate CGU   6.75%     6.50%  
    Young-Davidson CGU   5.50%     5.25%  

    Gold companies can trade at a market capitalization greater than their estimated discounted cash flows. This “NAV multiple” represents the multiple applied to the estimated discounted cash flows to arrive at the trading price. The NAV multiple is generally understood to take into account a variety of additional value factors such as the exploration potential of the mineral property, namely the ability to find and produce more metal than what is currently included in the life of mine plan, and the benefit of gold price optionality. A NAV multiple of 1.0 and 1.05 (December 31, 2013 – 1.0 and 1.05) was applied to the estimated discounted cash flows for El Chanate and Young-Davidson, respectively.

    The results of impairment evaluations conducted are summarized as follows:

    (a)

    El Chanate CGU

    The El Chanate CGU is comprised of all assets and liabilities related to the El Chanate mine.  At December 31, 2014, the Company updated its mine plan at El Chanate. The revised mine plan contained a decrease in gold reserve estimates, an increase in strip ratio, which indicates an increase in the amount of waste tonnes required to access a tonne of ore, and an increase in future processing costs on a per ounce basis. Reserve estimates decreased and the strip ratio increased primarily due to a reduction in overall slope angles. The reduction in planned slope angles came after an external geotechnical review of geotechnical drilling, mapping, and slope performance. This change was considered an indicator of impairment and resulted in the Company performing an impairment test at December 31, 2014. At December 31, 2014, the carrying value of the El Chanate CGU exceeded its recoverable amount by $90,000, which resulted in an impairment charge. This charge consisted of a reduction in property, plant and equipment and mining interests of $90,000. The related income tax impact was a deferred tax recovery of $28,647.

     

    25


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    At December 31, 2013, the carrying value of the El Chanate CGU exceeded its recoverable amount by $74,000, which resulted in an impairment charge. This charge consisted of a reduction of goodwill of $26,521 and a reduction in property, plant and equipment and mining interests of $47,479. The related income tax impact was a deferred tax recovery of $15,373.

    At June 30, 2013, the carrying value of the El Chanate CGU exceeded its recoverable amount by $80,000, which resulted in recognizing an impairment charge related entirely to goodwill. The primary contributors to the impairment charges in 2013 were the revised short-term and long-term gold price assumptions.

    The total impairment charge recorded for the year ended December 31, 2013 was $154,000.

    (b)

    Young-Davidson CGU

    The carrying value of goodwill resulting from the acquisition of Northgate Minerals Corporation has been allocated to the Young-Davidson CGU, which is comprised of all assets and liabilities related to the Young-Davidson mine. At December 31, 2014, the recoverable amount of the Young-Davidson CGU exceeded its carrying value by $194,793 (December 31, 2013 - $140,695).

    It is estimated that the following reasonably possible changes in key assumptions would cause the carrying value of the Young-Davidson CGU to exceed its recoverable amount:

    − Increase in discount rate to 6.96%
    − 6.89% decline in gold price assumptions
    − 14.68% strengthening of the Canadian dollar
    − 19.67% increase in operating costs
    − Decrease in NAV multiple to 0.93

    (c)

    Retained interest royalty

    At December 31, 2014, there were no indicators of impairment of the retained interest royalty held by the Company, and therefore, no impairment test was performed.

    At June 30, 2013, the carrying value of the retained interest royalty exceeded its recoverable amount of $15,316 by $18,688, which resulted in an impairment charge. As a result of the impairment charge, the Company also recorded a deferred tax recovery of $2,186. The primary contributors to this impairment charge were the revised short-term and long-term gold price assumptions used in the June 30, 2013 test.

    At December 31, 2013, due to the receipt of an updated life of mine plan from Crocodile Gold, the Company determined that an indicator of impairment reversal existed and conducted an impairment test at that date. Utilizing the updated life of mine plan, adjusted for the Company’s gold price and foreign exchange rate assumptions, it was determined that the recoverable amount of this asset exceeded its original carrying value of $34,004 and, as a result, an impairment reversal of $18,688 was recorded. The Company also recorded a deferred tax expense of $2,103 related to this reversal.

    During the year ended December 31, 2013, the impairment charge recognized on June 30, 2013 and its subsequent reversal did not have an impact on net loss, other than the difference in deferred tax expense/recovery noted above.

    (d)

    Other

    During the year ended December 31, 2014, the Company discontinued various brownfield exploration programs, and recognized an impairment charge of $1,622 and a deferred tax recovery of $475.

    During the year ended December 31, 2013, the Company impaired various brownfield exploration assets due to unsuccessful drilling results during the year. As a result, the Company recognized an impairment charge of $4,574 in the Consolidated Statements of Operations, which also impacted the carrying value of non-depletable mining interests at December 31, 2013.    

    26


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    14.

    Debt and equipment financing obligations


          December 31     December 31  
          2014     2013  
    (a) Revolving credit facility $  -   $  75,000  
    (b) Senior secured notes   296,755     -  
    (c) Convertible senior notes   624     157,133  
    (d) Equipment financing obligations   16,525     17,522  
    (e) Other   468     1,894  
          314,372     251,549  
      Less: Current portion of debt and equipment financing obligations   (6,308 )   (7,355 )
        $  308,064   $  244,194  

    The estimated future minimum payments under debt and equipment financing obligations are as follows:

    2015 $  31,282  
    2016 $  29,649  
    2017 $  27,939  
    2018 $  26,675  
    2019 $  25,339  
    2020 and thereafter $  327,206  

    (a)

    Revolving credit facility

    The Company has access to a $150,000 revolving credit facility that carries an interest rate of LIBOR plus 2.25% to 3.50%, depending on the leverage ratio of the Company. The facility matures on April 25, 2016 and may be extended upon mutual agreement by all parties. No payments under the facility are due until the maturity date.

    The credit facility contains various covenants that include (a) an interest coverage ratio of at least 3:1, (b) a leverage ratio of no more than 3:1, (c) a minimum tangible net worth, and (d) proven and probable reserves of at least 2,000,000 ounces. The facility is secured by a first-ranking lien on all present and future assets, property and undertaking of the Company. At December 31, 2014, the Company was in compliance with all covenants.

    During the year ended December 31, 2014, the Company made a repayment of $75,000 (year ended December 31, 2013 - $nil).

    (b)

    Senior secured notes

    On March 27, 2014, the Company completed an offering of $315,000 senior secured notes (the “secured notes”), secured by a second-ranking lien on all present and future assets, property and undertaking of the Company. These secured notes were sold at 96.524% of par, resulting in total proceeds of $304,051. The secured notes pay interest in semi-annual installments on April 1 and October 1 of each year, commencing on October 1, 2014, at a rate of 7.75% per annum, and mature on April 1, 2020. The Company incurred transaction costs of $7,838, which have been offset against the carrying amount of the secured notes and are amortized using the effective interest rate method. These notes contain transaction-based restrictive covenants that limit the Company’s ability to incur additional indebtedness in certain circumstances. There are no covenants that are based on the Company’s historical financial performance.

    The senior secured notes indenture grants the Company the option to prepay the notes prior to the maturity of the instruments, and specifies a premium during each applicable time period. These prepayment options have been accounted for as embedded derivatives, and are outlined below:

    − Subsequent to April 1, 2017, the secured notes may be repurchased at 103.875% of par value
    − Subsequent to April 1, 2018, the secured notes may be repurchased at 101.938% of par value
    − Subsequent to April 1, 2019, the secured notes may be repurchased at 100% of par value

    27


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The fair value of the prepayment option embedded derivative was $5,954 at March 27, 2014, and was offset against the carrying amount of the secured notes. The model used to calculate this fair value is described in note 25. The initial fair value was calculated using the following assumptions:

        March 27  
        2014  
    Volatility   32%  
    Credit spreads   5.54%  

    Changes in these assumptions would have the following impact on net loss for the year ended December 31, 2014:

        March 27  
        2014  
    2% increase in volatility $  567  
    2% decrease in volatility $  (567 )
    0.5% increase in credit spreads $  (756 )
    0.5% decrease in credit spreads $  851  

    At December 31, 2014, the fair value of the prepayment option embedded derivatives of $6,741 (refer to note 25) was offset against the carrying amount of the secured notes. The difference between the fair value at December 31, 2014 and March 27, 2014 is recognized in in other (loss) / income (refer to note 20).

    (c)

    Convertible senior notes

    On March 6, 2014, the Company announced a cash tender offer to redeem all of the outstanding convertible senior notes (“convertible notes”). The consideration offered was $1.04 per $1.00 note plus accrued and unpaid interest to the payment date. The Company received tender offers for $166,354 of the $167,000 principal amount outstanding. This was considered a substantial modification of the existing arrangement with the holders of the Company’s convertible notes. As a result, the Company de-recognized the convertible notes on the date of substantial modification. The convertible notes were re-recognized at their fair value on the same date. This resulted in a loss on modification of $15,645, which has been included in other (loss) / income on the Consolidated Statement of Operations for the year ended December 31, 2014 (refer to note 20). On April 3, 2014, the Company paid $173,041 including $32 of accrued interest, to complete the cash tender offer to redeem the outstanding convertible notes tendered.

    At December 31, 2014, convertible notes with a principal amount of $646 (December 31, 2013 - $167,000) remained outstanding at a carrying value of $624 (December 31, 2013 - $157,133) for the debt component and $nil (December 31, 2013 - $413) for the option component. These notes pay interest semi-annually at a rate of 3.5% per annum, and mature on October 1, 2016.

    The holders of the notes may, within specified time periods, convert their notes prior to July 1, 2016 under the following circumstances: (1) the closing sale price of the Company’s shares exceeds 130% of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding quarter; (2) the trading price per $1,000 principal amount of the convertible note is equal to or less than 97% of the product of the closing sale price of the Company’s common shares and the applicable conversion rate; (3) the convertible notes are called for redemption by the Company; (4) upon the occurrence of specified corporate transactions; and (5) a “delisted event” occurs and is continuing. In addition, the notes will be unconditionally convertible at the option of the holder from July 1, 2016 to the business day immediately preceding the maturity date of the notes. Following the payment of dividends on December 1, 2014, the conversion rate is 94.3882 common shares per $1,000 principal amount of notes, which represents a conversion price of approximately $10.59 per share. Upon conversion, the Company may settle the obligation either in common shares, or in cash at an equivalent value.

    As required by conditions surrounding the completion of the secured notes offering, at December 31, 2014, the Company has restricted $680 of proceeds from the secured notes offering for repayment of all principal and interest relating to any convertible notes that were not tendered. These restricted proceeds are included within other long-term assets on the Consolidated Balance Sheets at December 31, 2014.

    (d)

    Equipment financing obligations


    The Company has entered into financing obligations for equipment, which expire at various dates between 2015 and 2019 and that are secured by the financed assets. Interest payable on the various obligations ranges from fixed rates of 2.71% to 5.77%. During the year ended December 31, 2014, the Company received proceeds of $5,931 (year ended December 31, 2013 - $4,813) from equipment financing arrangements.

     

    28


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    (e)

    Other

    During 2013, the Company purchased land near the El Chanate mine and entered into loan agreements as part of the consideration. During the year ended December 31, 2014, the Company made repayments of $1,426 on these loan agreements (year ended December 31, 2013 - $nil).

       
    15.

    Flow-through shares

    On September 17, 2014, the Company completed a flow-through financing for gross proceeds of $4,566 ($5,000 CAD). As a result, the Company issued 833,334 common shares at a price of CAD $6.00 per share.

    Pursuant to the terms of the flow-through agreement, the Company is required to incur and renounce $5,000 CAD in qualifying Canadian Exploration Expenses to subscribers by December 31, 2015. As at December 31, 2014, $3,091 CAD in exploration expenses are remaining to be incurred.

    Of the $4,566 in proceeds received, $3,097 was recorded as share capital and $1,469 was recorded as an obligation to renounce flow-through exploration expenditures on the Consolidated Balance Sheets. The following is a continuity schedule of the liability portion of the flow-through share issuance:

        December 31, 2014  
    Obligation to renounce flow-through exploration expenditures $  1,469  
    Reduction of obligation upon incurring expenses   (612 )
    Balance, end of year $  857  
           

    16.

    Provisions


          December 31     December 31  
          2014     2013  
    (a) Reclamation provisions $  29,178   $  28,245  
    (b) Provision for lawsuit   -     12,458  
      Other   2,407     3,832  
          31,585     44,535  
      Less: Current portion of provisions   (2,056 )   (15,955 )
        $  29,529   $  28,580  

    (a)

    Reclamation provisions

    The Company’s reclamation provisions consist of reclamation and rehabilitation costs for each of the Company’s operating mines and Kemess South. The present value of the combined provision is currently estimated at $29,178 (December 31, 2013 - $28,245), reflecting ongoing payments relating to Kemess South, and future payments that will commence in 9 - 20 years for the Company’s operating mines. The undiscounted value of the reclamation provision at December 31, 2014 is $38,903 (December 31, 2013 - $42,263). Significant reclamation activities include land rehabilitation, demolition and decontamination of mine facilities, monitoring, and other costs.

    The Company estimates the costs to conduct significant reclamation activities based on the most recent experience and cost data available for the applicable mine. These expected expenditures are then risk-adjusted by considering the time remaining until reclamation activities commence, recent industry experience in the region, and other relevant factors. This current cost estimate is then inflated to the estimated date of settlement using the rate disclosed below, and then discounted to present value.

    29


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The discount and inflation rates used are summarized as follows:

        December 31     December 31  
        2014     2013  
    Discount rates            
       El Chanate   5.90%     6.33%  
       Young-Davidson   2.41%     3.24%  
       Kemess South   1.34%     1.95%  
                 
    Inflation rates            
       El Chanate   3.25%     3.10%  
       Young-Davidson   2.00%     2.00%  
       Kemess South   2.00%     2.00%  

    Changes to the reclamation and closure cost obligation balance during the year were as follows:

        December 31  
        2014  
    Reclamation provisions, beginning of period $  28,245  
    Obligations incurred and revisions to estimates   570  
    Accretion expense   851  
    Reclamation expenditures   (488 )
    Reclamation provisions, end of period   29,178  
    Less: Current portion   (424 )
      $  28,754  

    Of the $570 of adjustments made to reclamation provisions during the year, $1,175 was capitalized and included in property, plant and equipment & mining interests on the Consolidated Balance Sheets and $605 was recognized as a recovery in reclamation, care and maintenance costs on the Consolidated Statements of Operations.

    (b)

    Provision for lawsuit


    The Company was named as a defendant in a claim originally filed by Ed J. McKenna, which was certified as a class action lawsuit with damages sought ranging from $80 million to $160 million. On October 5, 2012, the Company reached an agreement to settle this class action lawsuit, subject to approval of the court and the right of the Company to terminate the agreement under certain circumstances. At December 31, 2013, the net settlement amount was held in escrow pending settlement of the lawsuit, and was included in restricted cash on the Consolidated Balance Sheets. Following the completion of the claims administration process which was conducted pursuant to a court-approved settlement agreement, funds related to this lawsuit were distributed by an administrator to eligible class members in April 2014. At the settlement payment date, the Company reduced the current portion of provisions on the Consolidated Balance Sheets by $12,016, which was partially offset by a corresponding decrease in receivables of $9,890 and restricted cash of $2,126, the latter of which represents the net settlement amount paid by the Company.

     

    30


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    17.

    Income taxes

    The following table represents the major components of income tax recovery recognized in the Consolidated Statements of Operations for the years ended December 31, 2014 and 2013:

              December 31  
              2013  
        December 31     Restated  
        2014     (Note 3 )
    Current income tax recovery $  (2,700 ) $  (140 )
    Deferred income tax recovery   (26,278 )   (760 )
    Provision for income taxes $  (28,978 ) $  (900 )

    Included within deferred income tax recovery for the year ended December 31, 2014 is a foreign exchange gain of $25,368 (year ended December 31, 2013 – foreign exchange gain of $15,216) that arose on the translation of deferred tax assets and liabilities.

    The following table reconciles the expected income tax recovery at the statutory income tax rate to the amounts recognized in the Consolidated Statements of Operations for the years ended December 31, 2014 and 2013:

     

    		        December 31  

     

    		        2013  

     

    		  December 31     Restated  

     

    		  2014     (Note 3 )

    Loss before income taxes

    		$  (198,626 ) $  (177,670 )

    Income tax rate

    		  25.21%     25.20%  

    Expected income tax recovery based on above rates

    		  (50,074 )   (44,773 )

    Effect of higher tax rates in foreign jurisdictions

    		  (5,413 )   (14,643 )

    Non-deductible stock option expense

    		  1,470     1,583  

    Non-deductible loss on settlement of debt

    		  2,251     -  

    Effect of non-deductible goodwill impairment

    		  -     37,513  

    Impact of local mining taxes

    		  (2,242 )   7,037  

    Impact of changes in tax rates applicable to temporary differences

    		  -     3,207  

    Permanent differences

    		  (399 )   (1,185 )

    Change in unrecognized temporary differences

    		  959     -  

    Impact of foreign exchange

    		  24,470     10,361  

    Provision for income taxes

    		$  (28,978 ) $  (900 )

    The statutory tax rate for 2014 was 25.21% (2013 – 25.20%), which is consistent with the prior year.

    The following reflects the deferred income tax liability at December 31, 2014 and December 31, 2013:

     

    		  December 31     December 31  

     

    		  2014     2013  

    Accounting value of mineral properties and capital assets in excess of tax value

    		$

      251,49

    		   $  281,457  

    Accounting value of inventories in excess of tax value

    		 

     38,147

    		     34,670  

    Unrealized foreign exchange loss

    		  -     (619 )

    Other taxable temporary differences

    		 

     2,974

    		     883  

    Non-capital losses carried forward

    		 

    (31,368

    		 )   (29,211 )

    Deferred income tax liability

    		$   260,902   $  287,180  

    31


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The change in deferred income tax liability is explained as follows:

     

    		        December 31  

     

    		        2013  

     

    		  December 31     Restated  

     

    		  2014     (Note 3 )

    Balance, beginning of year

    		$  287,180   $  288,131  

    Deferred income tax recovery recognized in net loss

    		  (26,278 )   (760 )

    Deferred income tax liability recognized in retained earnings

    		  -     (191 )

    Deferred income tax liability

    		$ 260,902   $  287,180  

    The Company has tax loss carryforwards expiring in the following years:

        Canada     Mexico     United States     Total  
    2023   -     5,514     -     5,514  
    2024   862     13,367     -     14,229  
    2025   6,679     -     -     6,679  
    2026   14,388     -     -     14,388  
    2027   5,474     -     1,448     6,922  
    2028   25,242     -     5,760     31,002  
    2029   11,858     -     7,831     19,689  
    2030   5,223     -     5,248     10,471  
    2031   12,940     -     -     12,940  
    2032   26,417     -     -     26,417  
    At December 31, 2014 $  109,083   $  18,881   $  20,287   $  148,251  

    The Company has unrecognized deferred income tax assets in respect of aggregate loss carryforwards, deductible temporary differences and unused tax credits of $60,743 (December 31, 2013 - $28,649).

    At December 31, 2014, the Company has unrecognized deferred income tax liabilities on taxable temporary differences of $167,919 (December 31, 2013 - $174,485) for taxes that would be payable on the unremitted earnings of certain subsidiaries of the Company.

     

    32


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    18. Shareholders’ equity
       
    (a) Capital stock

    Authorized:

    Unlimited number of common shares.
    The Company’s shares have no par value.

    Issued and outstanding:

     

    		  December 31, 2014     December 31, 2013  

     

    		  Number of           Number of        

     

    		  common     Ascribed     common     Ascribed  

     

    		  shares     value     shares     value  

    Balance, beginning of period

    		  247,569,811   $  2,021,837     282,326,547   $  2,307,978  

    Shares repurchased and cancelled

    		  -     -     (36,144,578 )   (295,536 )

    Shares issued through dividend reinvestment plan

    		  488,253     1,924     467,797     1,969  

    Shares issued through employee share purchase plan

    		  594,690     2,323     390,032     2,008  

    Shares issued on redemption of restricted share units

    		  109,916     445     -     -  

    Shares issued on redemption of deferred share units

    		  52,065     359     71,845     499  

    Shares issued on exercise of stock options

    		  548     2     458,168     3,094  

    Fair value of share-based compensation on stock options exercised

    		  -     4     -     1,825  

    Shares issued through flow-through financing (Note 15)

    		  833,334     3,097     -     -  

    Balance, end of period

    		  249,648,617   $  2,029,991     247,569,811   $  2,021,837  

    During the year ended December 31, 2013, the Company repurchased and cancelled 36,144,578 common shares under a “modified Dutch auction” substantial issuer bid, for a total purchase price of $301,066, including transaction costs. Of the $301,066 paid, $295,536 was recognized in capital stock to reduce the book value of the shares repurchased, the premium paid, including transaction costs, of $5,353 was recognized in deficit, and $177 was recognized as deferred tax.

    (b)

    Dividends

    Commencing in 2014, quarterly dividends representing 20% of operating cash flow generated in the preceding quarter were declared and paid as follows:

    - On May 8, 2014, the Company’s Board of Directors approved a dividend of $0.02 per share, payable to shareholders of record on May 20, 2014, and paid on June 3, 2014.
       
    - On August 7, 2014, the Company’s Board of Directors approved a dividend of $0.00375 per share, payable to shareholders of record on August 18, 2014, and paid on September 2, 2014.
       
    - On November 6, 2014, the Company’s Board of Directors approved a dividend of $0.00225 per share, payable to shareholders of record on November 17, 2014, and paid on December 1, 2014.

    The fourth quarter dividend was declared on February 19, 2015 (refer to note 28).

    In 2013, the Company declared an annual dividend of $0.16 per share ($0.04 paid quarterly).

    (c)

    Stock options (in Canadian dollars)

    The Company has a long-term incentive plan under which share-based compensation, including stock options, deferred share units, performance share units, and restricted share units may be granted to directors, officers, employees, and consultants of the Company. The maximum number of common shares that may be reserved and set aside for issuance under the plan is 6.5% of the common shares outstanding at the time of granting the award (on a non-diluted basis). Stock options are generally exercisable for a maximum period of five to seven years from the grant date, and have vesting periods of three to four years or as determined by the Company’s Board of Directors.

    Stock option disclosures are in Canadian dollars as the Canadian dollar is the source currency of the Company’s stock option grants.

    33


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The fair value of the options granted during the years ended December 31, 2014 and 2013 were calculated using the Black-Scholes option-pricing model with the following weighted average assumptions:

        December 31     December 31  
        2014     2013  
    Dividend yield   2.57%     2.27%  
    Expected volatility   56.13%     55.06%  
    Risk free interest rate   1.04%     1.25%  
    Expected life   2.76 years     2.98 years  
    Exercise price $  4.03   $  4.90  
    Share price $  3.83   $  4.92  
    Grant date fair value $  1.14   $  1.62  

    Expected volatility was determined based on historical share price volatility over the expected life of the option granted.

        December 31, 2014     December 31, 2013  
              Weighted           Weighted  
        Options     average price     Options     average price  
    Outstanding, beginning of period   11,313,300   $  7.29     10,239,564   $  8.24  
    Granted   3,349,645   $  4.03     3,251,179   $  4.90  
    Forfeited   (117,917 ) $  7.02     (167,500 ) $  9.87  
    Expired   (770,795 ) $  10.73     (1,551,775 ) $  8.39  
    Exercised   (548 ) $  2.85     (458,168 ) $  6.76  
    Outstanding, end of period   13,773,685   $  6.42     11,313,300   $  7.29  
    Options exercisable, end of period   7,144,059   $  7.61     5,171,118   $  8.19  

    During the year ended December 31, 2014, employees, consultants, officers and directors of the Company exercised 548 options (year ended December 31, 2013 - 458,168) for total proceeds of $2 (year ended December 31, 2013 - $3,091). The weighted average share price at the date of exercise for stock options exercised during the year ended December 31, 2014 was $5.05 (year ended December 31, 2013 - $7.39) .

    Set forth below is a summary of the outstanding options to purchase common shares as at December 31, 2014:

          Options outstanding     Options exercisable  
          Number Weighted average     Average life     Number     Weighted average  
      Option Price   outstanding     exercise price     (yrs)     exercisable     exercise price  
    $  2.51 - 4.00   325,136   $  3.01     1.47     285,136   $  2.88  
    $  4.01 - 6.00   5,689,523   $  4.04     4.51     819,731   $  4.10  
    $  6.01 - 7.00   1,491,500   $  6.70     2.87     1,251,500   $  6.69  
    $  7.01 - 7.50   888,226   $  7.15     3.01     501,466   $  7.20  
    $  7.51 - 9.00   3,235,507   $  8.11     3.01     2,454,592   $  8.10  
    $  9.01 - 9.50   722,500   $  9.29     3.84     554,375   $  9.29  
    $ 9.51 - 10.00   771,543   $  9.74     2.12     730,009   $  9.75  
    $ 10.01 - 10.50   150,000   $  10.09     3.30     112,500   $  10.09  
    $  10.51 - 11.00   250,000   $  10.95     3.87     187,500   $  10.95  
    $  11.01 - 12.50   249,750   $  11.61     2.43     247,250   $  11.61  
      Total   13,773,685                 7,144,059        

    (d)

    Employee share purchase plan

    The Company has an Employee Share Purchase Plan which enables employees to purchase Company shares through payroll deduction. Employees can contribute up to 10% of their annual base salary, and the Company will match 75% of the employees’ contributions. The common shares are purchased based on the volume weighted average closing price of the last five days prior to the end of the quarter. During the year ended December 31, 2014, the Company recognized $1,061 as an expense (year ended December 31, 2013 - $781) related to this plan. At December 31, 2014, $278 of the expense was payable by the Company (December 31, 2013 - $217).

    34


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The following is a summary of the Deferred Share Units (“DSUs”), Performance Share Units (“PSUs”), and share-settled Restricted Share Units (“RSUs”) outstanding during the years ended December 31, 2014 and 2013:

        Year ended  
        December 31     December 31  
        2014     2013  
    Deferred Share Units (e)            
       Granted   52,599     61,683  
       Grant date fair value $  228   $  337  
       Dividend-equivalent units granted   4,080     6,112  
       Dividend-equivalent units grant date fair value $  28   $  29  
       Redeemed   52,065     71,845  
    Performance Share Units (f)            
       Granted   270,082     345,089  
       Grant date fair value $  959   $  559  
       Dividend-equivalent units granted   7,107     2,951  
       Dividend-equivalent units grant date fair value $  28   $  14  
       Expense $  546   $  44  
       Redeemed   -     -  
    Restricted Share Units (g)            
       Granted   392,764     353,580  
       Grant date fair value $  1,349   $  1,553  
       Dividend-equivalent units granted   6,590     2,575  
       Dividend-equivalent units grant date fair value $  29   $  12  
       Expense $  1,076   $  472  
       Redeemed   109,916     -  

    (e)

    Deferred share unit plan

    The Company awards Deferred Share Units as an alternative form of compensation for employees, officers, consultants, and members of the Company’s Board of Directors. Each unit entitles the participant to receive one common share of the Company from treasury upon redemption. DSUs are measured on the grant date using the volume weighed average closing share price of the last five days prior to that date. At December 31, 2014, 253,210 DSUs were vested and outstanding (December 31, 2013 - 248,596).

    (f)

    Performance share unit plan

    The Company awards Performance Share Units as an alternative form of compensation for employees, officers, consultants, and members of the Company’s Board of Directors. Each unit entitles the participant to receive a cash payment equal to the market price of one share as of the PSU vesting date, one share, or any combination of cash and shares equal to the market price of one share as of the PSU vesting date, assuming certain performance conditions are met. PSUs are measured using the volume weighted average closing share price of the last five days prior to granting of the units. At December 31, 2014, 625,223 PSUs were outstanding (December 31, 2013 - 348,040). At December 31, 2014, no outstanding PSUs had vested (December 31, 2013 - nil).

    (g)

    Restricted share unit plan


    The Company awards Restricted Share Units as an alternative form of compensation for employees, officers, consultants, and members of the Company’s Board of Directors. Each unit entitles the participant to receive a cash payment equal to the market price of one share as of the RSU vesting date, one share, or any combination of cash and shares equal to the market price of one share as of the RSU vesting date. The Company records RSUs that will be cash-settled as liabilities and RSUs that will be share-settled within shareholders’ equity. RSUs are measured using the volume weighted average closing share price of the last five days prior to granting of the units. At December 31, 2014, 636,769 RSUs were outstanding (December 31, 2013 - 356,155). At December 31, 2014, 82,395 of the outstanding RSUs had vested (December 31, 2013 - 35,843).
     

    35


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    19.

    Loss from operations

    The Company’s loss from operations includes the following expenses presented by function:

        Year ended  
        December 31     December 31  
        2014     2013  
    Cost of sales $  417,343   $  372,453  
    General and administrative   25,921     27,677  
    Exploration and business development   2,623     5,588  
      $  445,887   $  405,718  

    Cost of sales for the year ended December 31, 2014 includes impairment charges of $90,000 relating to the El Chanate mine (year ended December 31, 2013 - $154,000). These impairment charges are discussed further in note 13.

    Included in general and administrative expense for the year ended December 31, 2014 is $7,179 of share-based compensation expense (year ended December 31, 2013 - $7,388).

    Included in exploration and business development for the year ended December 31, 2014 are impairment charges of $1,622 related to exploration properties. Included in exploration and business development for the year ended December 31, 2013 are impairment charges of $4,574 related to brownfield exploration properties included in non-depletable mining interests. These impairment charges are discussed further in note 13.

    The following employee benefits expenses are included in cost of sales, general and administrative, and exploration and business development expenses:

        Year ended  
        December 31     December 31  
        2014     2013  
    Salaries and benefits $  42,021   $  26,821  
    Share-based compensation   8,151     7,946  
    Other   173     180  
      $  50,345   $  34,947  

    36


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    20.

    Other (loss) / income


        Year ended  
        December 31     December 31  
        2014     2013  

    Loss on modification of convertible notes (Note 14(c))

    		$  (15,645 ) $  -  

    Amortization expense from retained interest royalty (Note 12)

    		  (13,288 )   -  

    Income from retained interest royalty (Note 12)

    		  2,463     -  

    Unrealized and realized gains / (losses) on investments (Note 8)

    		  6,589     (497 )

    Reclassification of accumulated losses on available-for-sale investments (Note 8)

    		  (2,507 )   (168 )

    Income from transfer of litigation claim (a)

    		  3,177     -  

    Interest income

    		  1,063     951  

    Fair value adjustment on option component of convertible senior notes (Note 25)

    		  413     15,622  

    Unrealized loss on contingent consideration

    		  -     (7,395 )

    Unrealized and realized losses / (gains) on derivative assets and liabilities (Note 25)

    		  (447 )   2,183  

    Reduction of obligation to renounce flow-through exploration expenditures (Note 15)

    		  612     -  

    Fair value adjustment on prepayment option embedded derivative (Note 25)

    		  788     -  

    Other

    		  (419 )   (529 )

     

    		$  (17,201 ) $  10,167  

    (a)

    Income from transfer of litigation claim

    During the year ended December 31, 2014, the Company transferred its claim in bankruptcy proceedings that resulted from past losses on auction-rate securities for net proceeds of $3,177.

       
    21.

    Loss per share

    Net loss and basic weighted average shares outstanding are reconciled to diluted net loss and diluted weighted average shares outstanding, respectively, as follows:

        Year ended  
        December 31     December 31  
        2014     2013  
    Net loss $  (169,648 ) $  (176,770 )
    Dilution adjustments:            
       Convertible senior notes   -     (14,730 )
                 
    Diluted net loss $  (169,648 ) $  (191,500 )
                 
    Basic weighted average shares outstanding   248,889,636     250,398,043  
    Dilution adjustments:            
       Convertible senior notes   -     15,331,018  
    Diluted weighted average shares outstanding   248,889,636     265,729,061  

    The following items were excluded from the computation of diluted weighted average shares outstanding for the years ended December 31, 2014 and 2013 because their effect would have been anti-dilutive:

        Year ended  
        December 31     December 31  
        2014     2013  
    Stock options   13,773,685     11,007,616  
    Convertible senior notes   60,974     -  
    Restricted share units   554,374     55,749  
    Performance share units   625,223     6,328  
                 

    37


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    22.

    Supplemental cash flow information


        Year ended  
              December 31  
              2013  
        December 31     Restated  
    Non-cash adjustments to reconcile net loss to operating cash flows:   2014     (Note 3 )
           Impairment charges $ 91,622   $  158,574  
           Amortization and depletion   121,468     65,529  
           Loss on modification of convertible notes   15,645     -  
           Amortization of retained interest royalty   13,288     -  
           Unrealized foreign exchange loss   5,238     3,406  
           Unrealized and realized (gains) / losses on investments   (6,589 )   497  
           Share-based compensation, net of forfeitures   7,179     7,388  
           Net realizable value adjustments   17,224     33,425  
           Reclassification of accumulated losses on available-for-sale investments   2,507     168  
           Income from retained interest royalty   (2,463 )   -  
           Deferred income tax recovery   (26,278 )   (760 )
           Fair value adjustment on option component of convertible senior notes   (413 )   (15,622 )
           Reduction of obligation to renounce flow-through exploration expenditures   (612 )   -  
           Equity in loss of associate and joint venture   171     2,533  
           Unrealized loss on contingent consideration   -     7,395  
           Unrealized and realized losses / (gains) on derivative assets and liabilities   447     (2,183 )
           Fair value adjustment on prepayment option embedded derivative   (788 )   -  
           Other non-cash items   635     1,405  
      $  238,281   $  261,755  
    Change in non-cash operating working capital:            
       Receivables $  2,176   $  (1,800 )
       Current income tax receivable   22,014     8,507  
       Prepaids and deposits   2,359     (380 )
       Inventories   (15,090 )   (35,806 )
       Trade payables and accrued liabilities   (12,515 )   19,696  
       Current income tax liability   (3,239 )   (5,030 )
      $  (4,295 ) $  (14,813 )
                 
    Supplemental information:            
       Interest paid $  17,048   $  7,104  
       Interest received $  870   $  994  
       Income taxes paid $  1,999   $  4,728  
    .            

    23.

    Related party disclosures

    Related party transactions in 2014 included the compensation of the Company’s key management personnel, a receivable from the joint venture that holds the Orion development project, and an advance to the associate entity that holds the Lynn Lake development project, as disclosed in notes 9 and 10.

    Related party transactions in 2013 included the compensation of the Company’s key management personnel and a receivable from the joint venture that holds the Orion development project.

    38


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The Company’s key management personnel include the Company’s executives and members of the Board of Directors. The compensation of key management personnel was as follows:

        Year ended  
        December 31     December 31  
        2014     2013  
    Short-term employee benefits $  5,349   $  6,047  
    Long-term benefits   101     39  
    Termination benefits   1,306     -  
    Share-based compensation   4,746     4,497  
      $  11,502   $  10,583  
    .            

    24.

    Commitments and contingencies

    Commitments

    Young-Davidson royalty agreements

    The Company is subject to two royalty agreements on certain claims on the Young-Davidson property. The first royalty agreement requires the Company to pay a minimum of $1.50 per tonne of ore mined and processed. The second royalty agreement requires the Company to pay $1.00 per tonne of ore mined and processed, as well as an additional royalty of 5% of the increase in gold price per ounce recovered above the base price of gold of $270.00 per ounce for each ounce recovered. The Company recognized $1,377 and $870 relating to these arrangements in the years ended December 31, 2014 and 2013. Total royalties recognized during 2014 were based upon 400,886 ore tonnes processed.

    Surety bond

    The Company has indemnified a third-party company providing a surety bond required as security for closure plans at Young-Davidson. The Company is obligated to replace this security in an event of default, and is obligated to repay any reclamation or closure costs due. The Company’s guarantee under the surety bond expires on completion of these closure obligations, which is estimated to be in 20 years, consistent with the estimated remaining life of the Young-Davidson mine.

    Contingencies

    The Company is also involved in legal proceedings arising in the ordinary course of its business. In the opinion of management, the ultimate liability with respect to these actions will not materially affect the Company’s financial position, results of operations or cash flows.
     

    39


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    25.

    Financial instruments and risk management

    Fair values of financial instruments

    The following table sets forth the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy. The Company does not have any non-recurring fair value measurements other than those disclosed in note 13. Levels 1 to 3 are defined based on the degree to which fair value inputs are observable or unobservable, as follows:

    - Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
    - Level 2 inputs are based on inputs which have a significant effect on fair value that are observable, either directly or indirectly from market data; and
    - Level 3 inputs are unobservable (supported by little or no market activity).

     

    		  December 31, 2014     December 31, 2013  

     

    		  Level 1     Level 2     Level 1     Level 2  

    Cash

    		$  89,031   $  -   $  141,125   $  -  

    Short term deposits

    		  -     -     1,527     -  

    Financial assets at fair value through profit or loss

    		                       

       Warrants held (a)

    		  -     -     -     41  

       Prepayment option embedded derivative (b)

    		  -     6,741     -     -  

    Available-for-sale financial assets

    		                       

       Equity investments (c)

    		  184     -     15,510     -  

    Financial liabilities at fair value through profit or loss

    		                       

       Option component of convertible senior notes (d)

    		  -     -     -     (413 )

       Currency options (e)

    		  -     (447 )   -     -  

     

    		$  89,215   $  6,294   $  158,162   $  (372 )

    The methods of measuring each of these financial assets and liabilities have not changed during 2014. The Company does not have any financial assets or liabilities measured at fair value based on unobservable inputs (Level 3).

    The fair values of financial instruments measured at amortized cost, except for the senior secured notes, approximate their carrying amounts at December 31, 2014. The fair value of the senior secured notes was $289,800 at December 31, 2014 compared to a carrying value of $296,755, which includes the value of the prepayment option embedded derivative included in the table above. The fair value of this liability was determined using a market approach with reference to observable market prices for identical assets traded in an active market.

    (a)

    Warrants held

    The fair value of warrants held that are not traded on an active market is determined using a Black-Scholes pricing model based on assumptions that are supported by observable current market conditions and as such are classified within Level 2 of the fair value hierarchy.

    (b)

    Prepayment option embedded derivative

    The secured notes (as discussed in note 14) contain prepayment options which represent embedded derivatives that require bifurcation from the host contract. The prepayment options are measured at fair value and offset against the carrying value of the secured notes on the Consolidated Balance Sheets, with changes in the fair value recognized as unrealized gains / (losses) in other (loss) / income on the Consolidated Statements of Operations (note 20).

    40


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The Company measures the fair value of the secured note embedded derivative using the Black-Karasinski model of interest rate uncertainty within a FinCAD callable / puttable bond model. Because the valuation is dependent on inputs derived from observable market data, the embedded derivative component of the secured notes is classified within Level 2 of the fair value hierarchy. The fair value was calculated using the following assumptions:

        December 31  
        2014  
    Volatility   41%  
    Credit spreads   6.78%  

    Changes in these assumptions would have the following impact on net loss for the year ended December 31, 2014:

        December 31  
        2014  
    2% increase in volatility $  473  
    2% decrease in volatility $  (473 )
    0.5% increase in credit spreads $  (693 )
    0.5% decrease in credit spreads $  788  

    (c)

    Equity investments

    The Company’s available-for-sale equity investments are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of investment securities is calculated as the closing market price of the investment equity security multiplied by the quantity of shares held by the Company.

    (d)

    Option component of convertible senior notes

    The Company calculates the fair value of the option component of convertible senior notes using a convertible bond valuation model, which uses inputs, including the Company’s share price, volatility of the notes, and credit spreads. Because the valuation is dependent on inputs derived from observable market data, the option component of the convertible senior notes is classified within Level 2 of the fair value hierarchy. The fair value of the option component of convertible senior notes at December 31, 2014 is $nil. The fair value at December 31, 2013 was calculated using the following assumptions:

        December 31  
        2013  
    Volatility   30%  
    Credit spreads   4.70%  

    For the year ended December 31, 2013, changes in these assumptions would have the following impact on net loss:

        December 31  
        2013  
    5% increase in volatility $  (557 )
    5% decrease in volatility $  298  
    0.5% increase in credit spreads $  (29 )
    0.5% decrease in credit spreads $  27  

    (e)

    Currency options

    The fair value of option contracts is determined using a market approach with reference to observable market prices for identical assets traded in an active market. These are classified within Level 2 of the fair value hierarchy. The use of reasonably possible alternative assumptions would not significantly affect the Company’s results.

    Risks

    In the normal course of operations, the Company is exposed to credit risk, liquidity risk and the following market risks: commodity price, market price, interest rate and foreign currency exchange rate. The Company has developed a risk management process to identify, analyze and assess these and other risks, and has formed a Risk Committee to monitor all significant risks to the Company. The Board of Directors has overall responsibility for the oversight of the Company’s risk management framework, and receives regular reports from the Risk Committee.

    41


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    Commodity price risk

    The profitability of the Company’s mining operations will be significantly affected by changes in the market price for gold. Gold prices fluctuate on a daily basis and are affected by numerous factors beyond the Company’s control. The supply and demand for gold, the level of interest rates, the rate of inflation, investment decisions by large holders of gold, including governmental reserves, and the stability of exchange rates can all cause significant fluctuations in gold prices. Such external economic factors are in turn influenced by changes in international investment patterns and monetary systems, and political developments. From time to time, the Company will enter into zero cost collars or other financial instruments to manage short term commodity price fluctuations. At December 31, 2014 and 2013, the Company did not have any commodity-related financial instruments outstanding.

    Market price risk

    The Company is exposed to fluctuations in the fair value of investments made in equity securities and warrants. A 10% increase or reduction in each company’s share price at December 31, 2014 would have increased or reduced other comprehensive loss by $18 (December 31, 2013 - $1,555).

    Interest rate risk

    When amounts are drawn under its credit facility, the Company is exposed to interest rate risk on this variable rate debt. At December 31, 2014, the Company had no variable rate debt outstanding. If interest rates had been 0.5% higher during the year ended December 31, 2013, net loss would have increased by $44. This analysis assumes that other variables remain constant (a 50 basis points decrease in interest rates would have had the equal but opposite effect) and that none of the additional interest is capitalized to capital projects.

    The fair value of the prepayment option embedded derivative is also impacted by fluctuations in interest rates. Refer to the previous discussion on the fair value of these options for a sensitivity of the fair value of these notes to changes in significant assumptions.

    Foreign currency exchange rate risk

    Metal sales revenues for the Company are denominated in US dollars. The Company is exposed to currency fluctuations relative to the US dollar on expenditures that are denominated in Canadian dollars and Mexican pesos. These potential currency fluctuations could have a significant impact on production costs and thereby, the profitability of the Company. The Company is also exposed to the impact of currency fluctuations on its monetary assets and liabilities.

    At December 31, 2014, the Company’s balance sheet exposure to foreign currency exchange rate risk in Canadian dollars (“CAD”) and Mexican pesos (“MXN”) was as follows:

        CAD     MXN  
    Cash and cash equivalents $  29,135   $  3,862  
    Receivables   4,559     112,067  
    Current income tax receivable   815     65,839  
    Investments   213     -  
    Other long-term assets   59,184     -  
    Payables and accrued liabilities   (33,760 )   (39,990 )
    Current income tax liability   (86 )   (4,907 )
    Debt and equipment financing obligations   (2,072 )   (2,760 )
    Provisions   (2,734 )   (754 )
    Deferred income tax liability   (266,493 )   (460,091 )
    Net balance sheet exposure $  (211,239 ) $  (326,734 )

    42


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    At December 31, 2013, the Company’s balance sheet exposure to foreign currency exchange rate risk in Canadian dollars (“CAD”), Mexican pesos (“MXN”) was as follows:

        CAD     MXN  
    Cash and cash equivalents $  23,118   $  24,932  
    Restricted cash   2,345     -  
    Receivables   18,954     101,094  
    Current income tax receivable   25,899     46,977  
    Investments   16,540     -  
    Other long-term assets   72,328     -  
    Payables and accrued liabilities   (72,787 )   (34,063 )
    Dividend payable   (2,236 )   -  
    Current income tax liability   (3,351 )   (5,549 )
    Debt and equipment financing obligations   (13,519 )   -  
    Provisions   (17,266 )   (754 )
    Deferred income tax liability   (242,720 )   (772,525 )
    Net balance sheet exposure $  (192,695 ) $  (639,888 )

    A 10% strengthening of these currencies against the US dollar at each balance sheet date would have impacted net losses by the amounts shown below. This analysis assumes that other variables, in particular interest rates, remain constant.

        December 31     December 31  
        2014     2013  
    Translation of net CAD exposure $  (18,209 ) $  (18,117 )
    Translation of net MXN exposure   (2,215 )   (4,885 )

    As at December 31, 2014, the Company held option contracts to protect against the risk of an increase in the value of the Canadian dollar and Mexican peso versus the US dollar. Details of these option contracts for the purchase of local currencies and sale of US dollars, which settle on a monthly basis, are summarized in the table below.

              Local     Local currency     Local currency     Call option     Put option  
    Period covered   Contract     Currency     per month     total     per USD     per USD  
    30-Jan-15         31-Dec-15   Collar     CAD     7,500     90,000     1.1111     1.2246  
    30-Jan-15         31-Dec-15   Collar     MXN     30,000     360,000     14.00     15.71  

    These contracts had a negative fair value of $447 at December 31, 2014, all of which has been recognized in other (loss) / income within the Consolidated Statements of Operations (note 20).

    During 2013, the Company held forward contracts to protect against the risk of an increase in the value of the Mexican peso versus the US dollar. During the year ended December 31, 2013, a gain of $112 was recognized in net loss on settlement of these forward contracts.

    Credit risk

    Credit risk relates to receivables and other contracts, and arises from the possibility that any counterparty to an instrument fails to perform. For cash and cash equivalents, restricted cash, and receivables, the Company’s credit risk is limited to the carrying amount on the balance sheet. The Company manages credit risk by transacting with highly-rated counterparties and establishing a limit on contingent exposure for each counterparty based on the counterparty’s credit rating. Exposure on receivables is limited as the Company sells its products to a small number of organizations, on which the historical level of defaults is minimal.

    Liquidity risk

    Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Company manages this risk through regular monitoring of its cash flow requirements to support ongoing operations and expansionary plans. The Company ensures that there are sufficient committed loan facilities to meet its business requirements, taking into account anticipated cash flows from operations and holdings of cash and cash equivalents.

    43


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

    The contractual maturities of financial liabilities are outlined in note 14.

       
    26.

    Capital management

    The primary objective of managing the Company’s capital is to ensure that there is sufficient available capital to support the long-term growth strategy of the Company in a way that optimizes the cost of capital and shareholder returns, and ensures that the Company remains in a sound financial position. There were no changes to the Company’s overall capital management approach during the current year.

    The capital of the Company consists of items included in shareholders’ equity and debt and equipment financing obligations. The Company manages and makes adjustments to the capital structure as opportunities arise in the market place, as and when borrowings mature, or when funding is required. This may take the form of raising equity or debt, or may result in the Company repurchasing equity or debt.

    The Company monitors capital through the gross debt to total equity ratio, and targets a ratio of less than 25%. As at December 31, 2014, the ratio of gross debt to total equity was 19.27% (December 31, 2013 - 14.07%), calculated as follows:

     

    		  December 31     December 31  

     

    		  2014     2013  

    Current portion of debt and equipment financing obligations

    		$  6,308   $  7,355  

    Debt and equipment financing obligations

    		  308,064     244,194  

    Gross debt

    		  314,372     251,549  

    Shareholders' equity

    		$ 1,631,210   $  1,787,882  

    Gross debt / Shareholders' equity

    		  19.27%     14.07%  

    .

    		           

    27.

    Segmented information

    The Company’s reportable segments are consistent with the Company’s operating segments and consist of the geographical regions in which the Company operates. In determining the Company’s segment structure, the Company considered the basis on which management, including the chief operating decision maker, reviews the financial and operational performance of the Company, and whether any of the Company’s mining operations share similar economic, operational and regulatory characteristics. The Company has two reportable segments, as follows:

    − Mexico: El Chanate mine
    − Canada: Young-Davidson mine

    Corporate and other consists of the Company’s corporate offices and exploration properties.

    The following are the operating results by reportable segment:

     

    		  Year ended December 31, 2014  

     

    		              Corporate        

     

    		  Mexico     Canada     and other     Total  

     

    		                       

    Revenue from mining operations

    		$  86,259   $  204,923   $  -   $  291,182  

     

    		                       

    Production costs

    		  61,150     138,159     -     199,309  

    Refining costs

    		  400     195     -     595  

    Amortization and depletion

    		  23,262     97,820     386     121,468  

    Reclamation, care and maintenance costs

    		  -     -     5,971     5,971  

    General and administrative

    		  919     -     25,002     25,921  

    Exploration and business development

    		  -     -     1,001     1,001  

    Impairment charges

    		  90,771     235     616     91,622  

     

    		  176,502     236,409     32,976     445,887  

    Loss from operations

    		$ (90,243 ) $  (31,486 ) $  (32,976 ) $  (154,705 )

    Expenditures on property, plant and equipment, mining interests & intangible assets

    		$  29,611   $  137,174   $  22,044   $  188,829  

    44


    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of United States dollars unless otherwise stated)

     

    		  Year ended December 31, 2013  

     

    		              Corporate        

     

    		  Mexico     Canada     and other     Total  

     

    		                       

    Revenue from mining operations

    		$  103,192   $  124,439   $  -   $  227,631  

     

    		                       

    Production costs

    		  71,625     76,356     -     147,981  

    Refining costs

    		  367     159     -     526  

    Amortization and depletion

    		  17,836     47,385     308     65,529  

    Reclamation, care and maintenance costs

    		  -     -     4,417     4,417  

    General and administrative

    		  1,371     -     26,306     27,677  

    Exploration and business development

    		  -     -     1,014     1,014  

    Impairment charges

    		  155,625     2,949     -     158,574  

     

    		  246,824     126,849     32,045     405,718  

    Loss from operations

    		$  (143,632 ) $  (2,410 ) $  (32,045 ) $  (178,087 )

    Expenditures on property, plant and equipment, mining interests & intangible assets

    		$  44,088   $  195,233   $  10,101   $  249,422  

    The following are total assets by reportable segment:

                    Corporate        
        Mexico     Canada     and other     Total  
    Total assets at December 31, 2014 $ 183,075   $  1,833,404   $  265,347   $  2,281,826  
    Total assets at December 31, 2013 $  265,028   $  1,822,533   $  374,847   $  2,462,408  

    Total non-current assets, excluding long-term financial assets, by geographical region, are as follows:

        December 31     December 31  
        2014     2013  
    Mexico $  151,774   $  217,294  
    Canada   1,889,240     1,865,636  
      $  2,041,014   $  2,082,930  

    Goodwill recognized in the Canada reportable segment totalled $241,693 at December 31, 2014, and relates to the Young-Davidson CGU.

    The Company’s revenue is derived from the sale of gold and silver in Mexico and Canada, as disclosed above. The Company sells all gold and silver produced to two customers. The Company is not economically dependent on these customers for the sale of its product because gold and silver can be sold through numerous commodity market traders worldwide.

       
    28. Events after the reporting period
       
    (a) Termination of retained interest royalty

    On January 14, 2015, the Company finalized the agreement to terminate the retained interest royalty from Crocodile Gold and received CAD $20 million in cash consideration, along with net smelter royalties on future production from the Fosterville and Stawell mines. Refer to note 12 for further information.

    (b)

    Declaration of dividend


    On February 19, 2015, the Company’s Board of Directors approved a dividend of $0.023 per share, payable to shareholders of record on March 2, 2015.

     

    45



    CERTIFICATION

    I, Scott Perry, certify that:

    1.

    I have reviewed this annual report on Form 40-F of AuRico Gold Inc.;

       
    2.

    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

       
    3.

    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

       
    4.

    The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the issuer and have:


      (a)

    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

         
      (b)

    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

         
      (c)

    Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

         
      (d)

    Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting.


    5.

    The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):


      (a)

    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

         
      (b)

    Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.


    Date: February 19, 2015 By: /s/ Scott Perry                     
             Scott Perry
             Chief Executive Officer

    CERTIFICATION

    I, Robert Chausse, certify that:

    1.

    I have reviewed this annual report on Form 40-F of AuRico Gold Inc.;

       
    2.

    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

       
    3.

    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

       
    4.

    The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the issuer and have:


      (a)

    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

         
      (b)

    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

         
      (c)

    Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

         
      (d)

    Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting.


    5.

    The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):


      (a)

    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

         
      (b)

    Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.


    Date: February 19, 2015 By: /s/ Robert Chausse                       
             Robert Chausse
             Chief Financial Officer

    2



    CERTIFICATION PURSUANT TO
    18 U.S.C. §1350,
    AS ADOPTED PURSUANT TO
    SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

    In connection with the annual report of AuRico Gold Inc. (the “Company”) on Form 40-F for the period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott Perry, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

      (1)

    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

         
      (2)

    The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


    February 19, 2015 /s/ Scott Perry                           
      Scott Perry
      Chief Executive Officer

    A signed original of this written statement required by Section 906 has been provided to AuRico Gold Inc. and will be retained by AuRico Gold Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

    CERTIFICATION PURSUANT TO
    18 U.S.C. §1350,
    AS ADOPTED PURSUANT TO
    SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

    In connection with the annual report of AuRico Gold Inc. (the “Company”) on Form 40-F for the period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert Chausse, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

      (1)

    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

         
      (2)

    The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


    February 19, 2015 /s/ Robert Chausse                      
      Robert Chausse
      Chief Financial Officer

    A signed original of this written statement required by Section 906 has been provided to AuRico Gold Inc. and will be retained by AuRico Gold Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

    2




       
      KPMG LLP Telephone (416) 777-8500
      Bay Adelaide Centre Fax (416) 777-8818
      333 Bay Street Suite 4600 Internet www.kpmg.ca
      Toronto ON M5H 2S5  
      Canada  

    Consent of Independent Registered Public Accounting Firm

    To the Board of Directors of AuRico Gold Inc.

    We consent to the use in this annual report on Form 40-F of:

    • our Independent Auditors’ Report of Registered Public Accounting Firm, dated February 19, 2015, on the consolidated financial statements of AuRico Gold Inc. (the “Company”), comprising the consolidated balance sheets of the Company as at December 31, 2014 and December 31, 2013, the consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information,
    • our Report of Independent Registered Public Accounting Firm, dated February 19, 2015, on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014,

    each of which is incorporated by reference in this annual report on Form 40-F of the Company for the fiscal year ended December 31, 2014.

    Our report indicates that the comparative information presented for the year ended December 31, 2013 has been restated.

    We also consent to the incorporation by reference of such reports in the Registration Statements No. 333-173458, 333-175079 and No. 333-177638 on Form S-8 and the Registration Statement No. 333-189227 on Form F-3D of the Company.


    Chartered Professional Accountants, Licensed Public Accountants

    Toronto, Canada
    February 19, 2015

    KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
    network of independent member firms affiliated with KPMG International Cooperative
    (“KPMG International”), a Swiss entity.
    KPMG Canada provides services to KPMG LLP.



    CONSENT OF EXPERT

    I, Chris Bostwick, do hereby consent to the filing of the scientific and technical information in the Annual Information Form (the “AIF”) of AuRico Gold Inc. (the “Company”) for the year ended December 31, 2014 and the use of my name in the Annual Information Form and Annual Report on Form 40-F of the Company for the year ended December 31, 2014, filed with the United States Securities and Exchange Commission, and any amendments thereto, and the incorporation by reference into the Form F-3 (File No. 333-189227) of the Company and any Registration Statement on Form S-8 of the Company filed with the United States Securities and Exchange Commission, of the Company’s AIF and Annual Report on Form 40-F.

    Dated: February 19, 2015 By: /s/ Chris J. Bostwick                                       
             Chris J. Bostwick
             AuRico Gold Inc.
             Senior Vice President, Technical Services



    CONSENT OF EXPERT

    I, Jeffrey Volk, do hereby consent to the filing of the resources information in the Annual Information Form (the “AIF”) of AuRico Gold Inc. (the “Company”) for the year ended December 31, 2014 and the use of my name in the Annual Information Form and Annual Report on Form 40-F of the Company for the year ended December 31, 2014, filed with the United States Securities and Exchange Commission, and any amendments thereto, and the incorporation by reference into the Form F-3 (File No. 333-189227) of the Company and any Registration Statement on Form S-8 of the Company filed with the United States Securities and Exchange Commission, of the Company’s AIF and Annual Report on Form 40-F.

    Dated: February 19, 2015 By: /s/ Jeffrey Volk                                    
             Jeffrey Volk
             AuRico Gold Inc.
             Director Reserves and Resources