TOREX GOLD RESOURCES INC. MANAGEMENT S DISCUSSION AND ANALYSIS

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1 TOREX GOLD RESOURCES INC. MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 This management s discussion and analysis of the financial condition and results of operations ( MD&A ) for Torex Gold Resources Inc. ( Torex or the Company ) was prepared as at November 7, 2018 and is intended to supplement and complement the Company s unaudited condensed consolidated interim financial statements and related notes for the three and nine months ended September 30, It should be read in conjunction with the Company s annual audited consolidated financial statements and annual management s discussion and analysis for the year ended December 31, All dollar figures included therein and in the following MD&A are stated in United States dollars ( U.S. dollar ) unless otherwise stated. HIGHLIGHTS Record gold production in the quarter totalled 100,346 ounces in dore, and an additional 1,135 ounces in carbon fines. Gold produced for the nine months totalled 246,309 ounces in dore, and an additional 11,322 ounces in carbon fines. Record mine production in the quarter totalled 11,092 kt, averaged 120,561 tpd. For the nine months, mine production totalled 21,326 kt, averaged 82,658 tpd. Mine ore production in the quarter totalled 1,246 kt, averaged 13,539 tpd. For the nine months, mine ore production totalled 3,095 kt, averaging 11,995 tpd Grade mined in the quarter averaged 2.60 gpt, and 2.66 gpt for the nine months. Plant throughput in the quarter of 1,170 kt, averaged 12,717 tpd. Plant throughput in the nine months of 2,955 kt, averaged 11,453 tpd. Grade processed in the quarter averaged 3.01 gpt and 2.99 gpt for the nine months. Gold recovery averaged 89% in the quarter and 88% in the nine months, higher than design expectations. SART plant construction is complete and has been turned over to the operating team to continue the ramp up to design capacity. In the quarter, cost savings from the SART plant, including by-product revenues, and recovery improvements were $48 per ounce. Principal repayments of $14.1 million in the quarter and $36.3 million in the nine months were made to reduce the Term Loan under the Debt Facility to $263.7 million. Technical Report ( TR ) confirms status as a producer in the lowest cost quartile The Company completed an updated TR including a life of mine plan for its producing El Limón Guajes ( ELG ) Mine Complex, that has increased average annual gold production to 430,000 ounces per year, from 2019 to The TR contains an updated Media Luna Preliminary Economic Assessment ( PEA ), 1 with an after-tax Net Present Value ( NPV ) discounted at 5% of $582.0 million, and an after-tax internal rate of return ( IRR ) of 27%. For purposes of illustration, the TR includes a Media Luna design utilizing a conceptual new underground mining technology that Torex is developing. The new technology, called the Muckahi Mining System ( Muckahi ), 1 shows the potential to increase the Media Luna Project, NPV by $197.0 million and after-tax IRR to 46%. If proven, the Muckahi technology could be applicable to many other underground deposits. 1 A preliminary economic assessment should not be considered a prefeasibility study or feasibility study, as the economics and technical viability of the Media Luna Project have not been demonstrated at this time. The Media Luna s PEA (as defined in this MD&A) is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. It cannot be assumed that all or any part of the inferred mineral resources will ever be upgraded to a higher category. Furthermore, there is no certainty that the conclusions or results as reported in the Media Luna PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability. The Media Luna PEA includes information on Muckahi. It is important to note that Muckahi is experimental in nature and has not been tested in an operating mine. Many aspects of the systems are conceptual, and proof of concept has not been demonstrated.

2 Initial results from the Media Luna in-fill diamond drilling program 2 The Company announced the results from the first 23 holes, of a planned 175 hole in-fill drilling program at its Media Luna Project. Highlighted intercepts from this program include 10.5 gpt Au Eq. over 39.2m in borehole ML18-222A, 7.0 gpt Au Eq. over 49.6m in borehole ML18-215, 7.1 gpt Au Eq. over 45.9m in borehole ML18-219W and 8.3 gpt Au Eq. over 22.6m in borehole ML18-208W. This is consistent with the results from the earlier 100m centers program and bodes well for the potential of the deposit to live up to expectations. There are currently 5 drills active on the Media Luna Project. On average each drill completes two holes per month, which suggests completion of the program at the end of Significant testing of Muckahi is expected to be completed by the end of 2019; land lease negotiations for Media Luna have been completed and permitting baseline work is underway. Financial results Gold sold for the quarter totalled 102,919 ounces for total proceeds of $124.9 million at an average realized gold price 3 of $1,214 per ounce. Gold sold for the nine months ended September 30, 2018 totalled 243,471 ounces for total proceeds of $309.7 million at an average realized gold price 3 of $1,272 per ounce. Revenue totalled $126.4 million and cost of sales totalled $94.7 million, or $920 per ounce of gold sold for the quarter. Revenue totalled $312.2 million and cost of sales totalled $238.2 million, or $978 per ounce of gold sold for the nine months ended September 30, Earnings from mine operations totalled $31.7 million for the quarter, and $74.0 million for the nine months ended September 30, Income before income tax totalled $28.4 million for the quarter, and $40.0 million for the nine months ended September 30, Net income after current and deferred income tax expense totalled $23.9 million or $0.28 per share on a basic and diluted basis for the quarter, and $21.8 million, or $0.26 per share on a basic and diluted basis for the nine months ended September 30, The strengthening of the peso favourably impacted the deferred tax expense calculated for the period. Adjusted net earnings 3, which excludes, amongst other items, unrealized derivative and foreign exchange gains and losses, totalled $7.3 million, or $0.09 per share on a basic and diluted basis for the quarter, and $5.8 million, or $0.07 per share on a basic and diluted basis for the nine months ended September 30, Cash flow from operations totalled $77.8 million for the quarter, and $167.5 million for the nine months ended September 30, Cash balances as at September 30, 2018 totalled $148.2 million (including restricted cash of $26.6 million). Total cash costs 3 of $590 per ounce of gold sold for the quarter, and $655 per ounce of gold sold for the nine months ended September 30, All-in sustaining costs 3 of $967 per ounce of gold sold for the quarter, and $980 per ounce of gold sold for the nine months ended September 30, Ore in stockpile as at September 30, 2018 was 0.9 million tonnes at an average estimated grade of 1.43 gpt. Full year guidance is unchanged from initial release. 2 For more information on the drill results, see the Company s news release titled Torex Reports Initial Results from the Media Luna In-fill Diamond Drilling Program issued on October 25, 2018, and filed on SEDAR at and on the Company s website at 3 Refer to Non-IFRS Financial Performance Measures for further information and a detailed reconciliation. 2

3 The following table summarizes key operating and financial highlights: Table 1. Nine Months Three Months Ended Ended Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Sep 30, In millions of U.S. dollars, unless otherwise noted Operating Data Mining Ore tonnes mined kt 1,246 1, ,140 3,095 Waste tonnes mined kt 9,846 5,877 2,508 2,319 7,546 18,231 Total tonnes mined kt 11,092 7,155 3,079 2,952 8,686 21,326 Strip ratio 2 waste:ore Average gold grade of ore mined gpt Ore in stockpile mt Processing Average plant throughput tpd 12,717 10,989 10,467 12,588 12,522 11,453 Average gold recovery % Average gold grade of ore processed gpt Production and sales Gold dore produced oz 100,346 78,796 67,167 28,162 67, ,309 Gold sold oz 102,919 77,646 62,906 31,398 78, ,471 Gold from carbon fines produced oz 1,135 1,300 8,887 1,809 3,305 11,322 Financial Data Revenue $ Cost of sales $ Earnings from mine operations $ Net income (loss) $ 23.9 (12.3) 10.2 (25.0) (1.6) 21.8 Per share - Basic $/share 0.28 (0.14) 0.12 (0.31) (0.02) 0.26 Per share - Diluted $/share 0.28 (0.14) 0.12 (0.31) (0.02) 0.26 Adjusted net earnings (loss) 1, 4 $ (12.2) Per share - Basic 1, 4 $/share (0.15) Per share - Diluted 1, 4 $/share (0.15) Cost of sales $/oz 920 1,008 1,036 1,086 1, Total cash costs 1 $/oz All-in sustaining costs 1 $/oz 967 1, ,016 1, Average realized gold price 1 $/oz 1,214 1,302 1,331 1,284 1,277 1,272 Cash and cash equivalents $ Restricted cash $ Working capital $ Total debt $ Total assets $ 1, , , , , ,253.4 Total liabilities $ Adjusted net earnings (loss), total cash costs, all-in sustaining costs, and average realized gold price are financial performance measures with no standard meaning under International Financial Reporting Standards ( IFRS ). Refer to Non-IFRS Financial Performance Measures for further information and a detailed reconciliation. 2. For the three months ended September 30, 2018, ore mined underground from the ELG Underground (defined herein) of 38 kt, is included in ore tonnes mined and excluded from the strip ratio. For the three months ended June 30, 2018, March 31, 2018, December 31, 2017 and September 30, 2017, ore mined from the ELG Underground (defined herein) was 5 kt, 4 kt, 13 kt and 12 kt, respectively. 3. Due to the Blockade, the first quarter of 2018 represents 75 days of partial operations, while the fourth quarter of 2017 represents 34 days of operations. 4. Beginning the second quarter of 2018, the Company updated adjusted net earnings (loss) to include the tax effect of currency translation on tax base. Comparatives have been restated. Refer to Non-IFRS Financial Performance Measures for further information. 5. Sum of the quarters may not add to the year to date amounts due to rounding. 3

4 THIRD QUARTER REPORT This MD&A contains forward-looking statements that are subject to risks and uncertainties, as discussed under Cautionary Note Regarding Forward Looking Statements. The following abbreviations are used throughout this document: $ (United States dollar), C$ (Canadian dollar), AISC (all-in sustaining costs), Au (gold), Ag (silver), Cu (copper), oz (ounce), gpt (grams per tonne), kt (thousand tonnes), mt (million tonnes), m (metres), km (kilometres), and tpd (tonnes per day). TABLE OF CONTENTS HIGHLIGHTS... 1 THIRD QUARTER REPORT... 4 TABLE OF CONTENTS... 4 COMPANY OVERVIEW AND STRATEGY... 5 OBJECTIVES FOR FINANCIAL RESULTS... 6 THIRD QUARTER 2018 FINANCIAL RESULTS... 6 RESULTS OF OPERATIONS EXPLORATION AND DEVELOPMENT ACTIVITIES FINANCIAL CONDITION REVIEW DEBT FINANCING LIQUIDITY AND CAPITAL RESOURCES OUTSTANDING SHARE DATA NON-IFRS FINANCIAL PERFORMANCE MEASURES ADDITIONAL IFRS FINANCIAL MEASURES ECONOMIC TRENDS SUMMARY OF QUARTERLY RESULTS TRANSACTIONS WITH RELATED PARTIES OFF-BALANCE SHEET ARRANGEMENTS CRITICAL ACCOUNTING POLICIES AND ESTIMATES RECENT ACCOUNTING PRONOUNCEMENTS FINANCIAL RISK MANAGEMENT RISKS AND UNCERTAINTIES INTERNAL CONTROL OVER FINANCIAL REPORTING QUALIFIED PERSONS ADDITIONAL INFORMATION CAUTIONARY NOTES

5 COMPANY OVERVIEW AND STRATEGY The Company is a growth-oriented, Canadian-based resource company engaged in the exploration, development, and operation of the Morelos Gold property (the Morelos Gold Property ). The Morelos Gold Property is located in the prolific Guerrero Gold Belt in southern Mexico, approximately 180 kilometres to the southwest of Mexico City and 50 km southwest of Iguala, and consists of 7 mineral concessions covering a total area of approximately 29,000 hectares. The Company s principal assets are the El Limón Guajes mining complex (the ELG Mine Complex ), comprised of the El Limón, Guajes and El Limón Sur open pits (the ELG Open Pits ), the El Limón Guajes underground mine including zones referred to as Sub-Sill and El Limón Deep (collectively, the ELG Underground ), and the processing plant and related infrastructure, which reached the commercial production stage as of April 1, In addition, the Media Luna deposit (the Media Luna Project ), is an early stage development project (for which the Company issued a Preliminary Economic Assessment (the PEA ) on September 4, 2018). The Company s strategy is to grow production from high quality assets. The Morelos Gold Property provides significant opportunity to implement this strategy. The Media Luna Project provides mid-term growth potential. The developing ELG Underground provides near-term growth opportunity in both the Sub-Sill and the El Limón Deep zone. The many untested exploration targets on this prolific property provide long-term growth opportunities. In addition to realizing the full potential of the Morelos Gold Property, the Company will seek opportunities to acquire assets in the Americas that enable profitable and effective geographic diversification. OBJECTIVES FOR 2018 Production, within constraints: Production - 325,000 to 350,000 gold ounces sold (4,200 kt, 2.95 gpt, 87% recovery) Constraints: o Production will be weighted to the second half of the year o Lost time injury frequency of < 2 per million hours worked (Employees and on-site contractors) o Zero reportable spills of 1,000 litres or more, that reports to the river or reservoir o Cash costs of between $620 to $640 per gold ounce sold o AISC of between $940 to $975 per gold ounce sold o Sustaining capital expenditure of < $84 million o Development capital expenditure of < $37 million Set up 2019 production: Strip 18 million tonnes of waste Plant throughput at an average of 14,000 tonnes per day by year-end 2018 SART plant producing copper precipitate by July 1, 2018 Sub-Sill producing an average of 850 tonnes per day by year-end 2018 Set up for growth: Release the Media Luna PEA by the end of July ,000 metres of Media Luna infill drill program completed by year-end ,000 metres of exploration and infill drilling for the ELG Underground by year-end

6 FINANCIAL RESULTS The following table summarizes the financial results of the Company: Table 2. Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, In millions of U.S. dollars, unless otherwise noted Revenue Gold Silver Copper Cost of sales Earnings from mine operations Exploration and evaluation expenses General and administrative expenses Blockade and other charges Gain on derivative contracts Finance (income) costs, net (0.2) Foreign exchange (gain) loss (1.3) 1.1 (1.2) (6.1) Income tax expense, net Net income (loss) 23.9 (1.6) Per share - Basic ($/share) 0.28 (0.02) Per share - Diluted ($/share) 0.28 (0.02) Adjusted net earnings (loss) 2, (25.1) Per share - Basic ($/share) 2, (0.31) Per share - Diluted ($/share) 2, (0.31) Cost of sales ($/oz) 920 1, ,040 Total cash costs ($/oz) All-in sustaining costs ($/oz) , Average realized gold price ($/oz) 2, 3 1,214 1,277 1,272 1,249 Average realized margin ($/oz) 2, Due to the Blockade, the first nine months of 2018 represent 258 days of operations, including the first quarter when operations were partial. 2. Adjusted net earnings (loss), total cash costs, AISC, average realized gold price and average realized margin are non-ifrs financial performance measures with no standard meaning under IFRS. Refer to Non-IFRS Financial Performance Measures for further information and a detailed reconciliation. 3. Average realized gold price and average realized margin include realized losses from gold derivative contracts of $2 per ounce for the nine months ended September 30, Refer to Non-IFRS Financial Performance Measures for further information and a detailed reconciliation. 4. Beginning in the second quarter of 2018, the Company updated adjusted net earnings (loss) to include the tax effect of currency translation on tax base. Comparatives have been restated. Refer to Non-IFRS Financial Performance Measures for further information. THIRD QUARTER FINANCIAL RESULTS Processed gold grade was 3.01 grams per tonne The processed grade in the quarter was greater than the mined grade due to preferential feeding of higher grades to the mill and the stockpiling of lower grades. The grade estimate for mined material is based on blast hole and diamond drill assays whereas the mill grade is determined by metal balance for the process plant. The net result is a processed gold grade of 3.01 gpt, versus a mined grade of 2.60 gpt. For the nine months ended September 30, 2018, the average grade processed was 2.99 gpt. 6

7 Processed average daily tonnage of 12,717 tpd Processing plant throughput rates were consistent throughout the quarter. Throughput rates for the third quarter averaged 12,717 tpd or 91% of design capacity, and throughput rates for the nine months ended September 30, 2018 averaged 11,453 tpd or 82% of design capacity. Revenue totalled $126.4 million During the third quarter of 2018, the Company recognized $126.4 million in revenue compared to $100.5 million for the third quarter of The Company sold 102,919 ounces of gold at an average realized price of $1,214 per ounce in the third quarter of 2018, compared to 78,254 ounces of gold at an average realized price of $1,277 in the third quarter of The increase in ounces sold is linked to a 28% increase in grades processed, which together with higher average recoveries and consistent throughput, led to more ounces produced which more than offset the decrease in the average realized price in the third quarter of 2018 compared to the third quarter of In the third quarter of 2018, the Company settled and recognized revenues pertaining to 1,992 ounces of gold from carbon fines. In addition, the Company produced 1,135 ounces from carbon fines in the third quarter of 2018, which were not settled as at September 30, 2018, and for which revenue has not been recognized. As at September 30, 2018, the Company has 8,200 ounces from carbon fines in inventory at the external refinery and in the queue for processing awaiting settlement, for which revenues have not yet been recognized, and for which the associated production costs and depreciation remain in inventory. During the nine months ended September 30, 2018, the Company recognized $312.2 million in revenue compared to $274.1 million in the nine months ended September 30, The increase is a result of a higher number of ounces of gold sold combined with a higher average realized price per ounce. The Company sold 243,471 ounces of gold at an average realized price of $1,272 per ounce in the nine months ended September 30, 2018, compared to 217,399 ounces of gold at an average realized price of $1,249 per ounce in the nine months ended September 30, Despite operating under constrained arrangements in the first four months of 2018 as a result of the Blockade (further details are provided in the Community section of this MD&A), and processing 10% fewer total tonnes of ore, the Company produced and sold more ounces of gold in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 due to a 25% increase in the average grade processed. Revenue from the sale of gold is recognized based on the actual price realized on the sale, unless the gold is used to settle a commitment under derivative contracts. Where gold is delivered to settle derivative contracts, revenues are recorded based on the spot market price at the time of the settlement, and any difference between the spot price and the sales price received under the contract, is recognized as a realized gain or loss on derivative contracts. Realized gains and losses on gold derivative contracts ( Gold Contracts ) are presented separately from revenue but included in the calculation of average realized gold price. The average realized gold price per ounce sold does not have any standardized meaning prescribed by IFRS. Refer to Non-IFRS Financial Performance Measures for further information and a detailed reconciliation. The Company s Gold Contracts were extinguished in 2017, and therefore there were no realized gains or losses on Gold Contracts for the three months ended September 30, 2018 and 2017, and the nine months ended September 30, 2018 compared to realized losses on Gold Contracts of $0.5 million for the nine months ended September 30, Of the total 217,399 ounces of gold sold in the nine months ended September 30, 2017, 76,113 ounces were delivered into the Gold Contracts. The SART plant began operation late in the second quarter of Sales of copper precipitate commenced in the third quarter of 2018, contributing $0.5 million from copper sales and an additional $0.2 million from silver recovered. In the three and nine months ended September 30, 2018, the Company also sold $0.8 million and $1.8 million in silver not from copper precipitate. 7

8 Cost of sales was $94.7 million or $920 per ounce Cost of sales for the third quarter of 2018 was $94.7 million compared to $83.4 million in the third quarter of Production costs increased to $58.5 million for the third quarter of 2018 compared to $54.6 million for the third quarter of The increase in production costs reflects increased costs from a new bonus structure for Mexican employees introduced by the Company in 2018, higher mining costs related to the Sub-Sill, and higher electricity costs, partially offset by the impact of higher grades processed. Cost of sales for the nine months ended September 30, 2018 was $238.2 million compared to $226.1 million for the nine months ended September 30, This increase reflects increased costs for the new bonus structure introduced by the Company, plus higher Sub-Sill mining costs and higher electricity costs, partially offset by lower throughput due to the suspension of operations in connection with the Blockade in the first 15 days of January 2018 and the subsequent ramp-up, and ounces of carbon fines produced and shipped that have not settled as at September 30, 2018, for which the associated production costs remain in inventory. In the nine months ended September 30, 2018, there is an additional $2.8 million of production costs (excluding $1.3 million of depreciation) included in Blockade and other charges, which appear as a separate expense line in the Condensed Consolidated Interim Statements of Operations and Comprehensive Income (Loss). Depreciation and amortization expense amounted to $32.5 million for the third quarter of 2018 compared to $25.8 million for the same period in The increase in depreciation from the third quarter of 2017 is primarily driven by an increase in gold ounces recovered, which drives the basis of depreciation for most of the Company s property, plant and equipment, as well as increased depreciation of capitalized deferred stripping costs, which are being amortized in conjunction with the mining of the corresponding ore from the El Limón B open pit. Depreciation and amortization expense amounted to $76.3 million for the nine months ended September 30, 2018 compared to $71.3 million for the nine months ended September 30, The increase in depreciation is primarily driven by an increase in both gold ounces recovered and the depreciation of capitalized deferred stripping costs. In the nine months ended September 30, 2018, there is $1.3 million of depreciation included in Blockade and other charges. Royalties were $3.7 million and $9.5 million for the three and nine months ended September 30, 2018 compared to $3.0 million and $8.3 million for the three and nine months ended September 30, 2017, representing 3% of proceeds from gold and silver sales. Of the 3% royalty expense, 2.5% is payable to the Mexican Geological Survey agency and 0.5% is payable to the Ministry of Finance. Total cash costs were $590 per ounce sold Total cash costs (net of by-product sales) for the third quarter of 2018 were $590 per ounce of gold sold, a decrease of 19% or $138 per ounce of gold sold compared to the third quarter of 2017 at $728 per ounce of gold sold. Total cash costs (net of by-product sales) for the nine months ended September 30, 2018 were $655 per ounce of gold sold, a decrease of 7% or $48 per ounce of gold sold from the nine months ended September 30, 2017 of $703 per ounce of gold sold. While tonnes processed remained relatively consistent at 1.2 million tonnes, the Company mined 11.1 million tonnes in the third quarter of 2018 compared to 8.7 million tonnes in the third quarter of Despite mining more tonnes, higher operating costs stemming from the new bonus structure, higher electricity costs and higher Sub-Sill mining costs, total cash costs per ounce of gold sold were reduced primarily due to the processing of higher-grade ore and higher recoveries in the three months ended September 30, 2018 compared to three months ended September 30, In the nine months ended September 30, 2018, the Company mined 21.3 million tonnes and processed 3.0 million tonnes, compared to 23.5 million tonnes mined and 3.3 million tonnes processed in the nine months ended September 30, Despite higher costs emanating from the new bonus structure, higher electricity costs and higher Sub-Sill mining costs, total cash costs per ounce of gold sold were reduced primarily due to the processing of highergrade ore, higher recoveries, and reduced mining and processing activities during the ramp-up subsequent to the Blockade in the nine months ended September 30, 2018 compared to the nine months ended September 30,

9 As the Blockade led to partial operations in the first four months of 2018, total cash costs exclude of $2.8 million of costs during the 15 days of the Blockade, during which time no operating activity could take place. Refer to Non-IFRS Financial Performance Measures for further information and a detailed reconciliation. All-in sustaining costs were $967 per ounce AISC for the third quarter of 2018 were $967 per ounce of gold sold compared to $1,035 per ounce of gold sold for the third quarter of Sustaining capital expenditures in the third quarter of 2018 amounted to $33.3 million, compared to $18.4 million spent in the third quarter of Sustaining capital expenditures were $23.8 million for capitalized stripping activities, and $9.5 million for sustaining equipment and infrastructure. AISC for the nine months ended September 30, 2018 were $980 per ounce of gold sold compared to $985 per ounce of gold sold for the nine months ended September 30, Sustaining capital expenditures in the nine months ended September 30, 2018 amounted to $60.6 million, compared to $45.4 million spent in the nine months ended September 30, Sustaining capital expenditures were $41.6 million for capitalized stripping activities, and $19.0 million for sustaining equipment and infrastructure. Refer to Non-IFRS Financial Performance Measures for further information and a detailed reconciliation. Exploration and evaluation expenses of $1.2 million Exploration and evaluation expenditures were $1.2 million and $3.7 million in three and nine months ended September 30, 2018, compared to $1.9 million and $6.0 million in the three and nine months ended September 30, In the third quarter and the nine months of 2018, exploration and evaluation activities were mainly related to evaluation work on Muckahi. In 2017, exploration activities were largely focused on phase two of the Sub-Sill diamond drill program. A maiden underground resource for the Sub-Sill deposit was announced in the first quarter of 2017, and on January 16, 2018, the Company declared the maiden ELG Underground mineral reserve and mine plan (mining of the Sub-Sill Resource). The ELG Underground mine plan is expected to generate 480 kt at gpt, containing 180,000 gold ounces, during 29 months of production. The total capital required is $23.0 million, of which $22.0 million is expected to be incurred in General and administrative expenses of $4.6 million General and administrative expenses were $4.6 million and $16.2 million in the three and nine months ended September 30, 2018 compared to $5.2 million and $14.9 million in the three and nine months ended September 30, The fluctuations in the three and nine months September 30, 2018 compared to the three and nine months ended September 30, 2017 are due to the timing of certain salaries and benefits, and severance costs. Blockade and other charges of $4.1 million In the nine months ended September 30, 2018, the Company recognized an expense of $4.1 million in relation to the Blockade and other charges consisting mainly of idle contractor and labour costs, employment contract suspensions and terminations of $2.8 million, and depreciation and amortization of $1.3 million. 9

10 Finance income, net of finance costs, of $0.2 million Finance income, net of finance costs, amounted to $0.2 million in the three months ended September 30, 2018 and $13.1 million in finance costs, net of finance income, in the nine months ended September 30, In the three and nine months ended September 30, 2018, the Company collected $7.3 million and $8.2 million in interest pertaining to VAT receivables, which partially offset $7.8 million and $23.6 million in finance costs in the three and nine months ended September 30, The Company recognized finance costs, net of finance income, of $6.6 million and $21.6 million in the three and nine months ended September 30, Finance income primarily relates to the interest received on the VAT receivable whereas finance costs largely reflect the interest expense on the Debt Facility, Equipment Loan, Finance Lease Arrangement and VAT Loan (as all such terms are defined herein). The Company fully repaid the VAT Loan in 2017 and therefore interest on the VAT Loan is included in the nine months ended September 30, 2017, and not included in the nine months ended September 30, No remaining settlements under the Gold Contracts The final outstanding ounces under the Gold Contracts were delivered in early July 2017 and, therefore, the Company did not recognize any unrealized gains or losses for the three and nine months ended September 30, 2018 and the third quarter of 2017, compared to an unrealized loss of $8.6 million for the nine months ended September 30, Gain on currency derivative contracts of $1.0 million due to the appreciation of the Mexican peso Based on forward prices for Mexican pesos at September 30, 2018, the Company recognized an unrealized gain of $1.1 million for the three months ended September 30, 2018 compared to no unrealized gain or loss recognized for the three months ended September 30, In the third quarter of 2018, the average exchange rate of the Mexican peso relative to the U.S. dollar was higher than the average contract forward prices. As such, the Company realized a loss of $0.1 million on the contracts it settled during the quarter, compared to a gain of $0.2 million for the third quarter of Based on forward prices for Mexican pesos as at September 30, 2018, the Company recognized an unrealized gain of $2.0 million for the nine months ended compared to an unrealized gain of $9.7 million for the nine months ended September 30, In the nine months ended September 30, 2018, the average exchange rate of the Mexican peso relative to the U.S. dollar was higher than the average contract forward prices. As such, the Company realized a loss of $0.1 million on the contracts it settled during the nine months ended September 30, 2018, compared to a gain of $0.2 million for the comparable period in Foreign exchange gain of $1.3 million due to the appreciation of the Mexican peso The Company recognized a foreign exchange gain of $1.3 million for the quarter ended September 30, 2018, compared to a loss of $1.1 million for the quarter ended September 30, Based on closing exchange rates, the Mexico peso appreciated by 5.3% in the third quarter of 2018 compared to the second quarter of The Company recognized a foreign exchange gain of $1.2 million for the nine months ended September 30, 2018, compared to a gain of $6.1 million for the nine months ended September 30, Based on closing exchange rates, the Mexico peso appreciated by 4.7% in the nine months ended September 30, 2018 compared to December 31, Current income and mining tax expense of $3.2 million The Company recognized a current income tax expense of $3.2 million in the three months ended September 30, 2018 primarily related to the 7.5% Mexican mining royalty, compared to a current tax expense of $1.5 million in the three months ended September 30, The increase is due to an increase in the Company s taxable earnings used to calculate the 7.5% Mexican mining royalty. The Company recognized a current income tax expense of $8.8 million in the nine months ended September 30, 2018 primarily related to the 7.5% Mexican mining royalty, compared to a current tax expense of $6.7 million in the nine months ended September 30, In the nine months ended September 30, 2018, the Company paid $3.9 million in relation to the 7.5% Mexican mining royalty for 2017, which is considered an income tax for IFRS purposes. 10

11 Deferred income tax expense of $1.3 million The Company recognized a deferred income tax expense of $1.3 million in the three months ended September 30, 2018, compared to a deferred income tax expense of $2.6 million for the three months ended September 30, The Company recognized a deferred income tax expense of $9.4 million in the nine months ended September 30, 2018, compared to a deferred income tax recovery of $6.7 million for the nine months ended September 30, The Company s deferred tax estimate is sensitive to the foreign exchange fluctuations of the Mexican peso relative to the United States Dollar ( U.S. Dollar ) because the tax reporting currency of its Mexican subsidiaries is the Mexican peso while the accounting functional currency is the U.S. Dollar. Therefore, the U.S. Dollar value of Mexican tax attributes available for future deduction will change as the value of the Mexican peso changes relative to the U.S. Dollar. Generally, a decline in the value of the Mexican peso relative to the U.S. Dollar will increase deferred tax expense (or decrease deferred tax recovery), while an increase in the value of the Mexican peso relative to the U.S. dollar will reduce deferred tax expense (or increase deferred tax recovery). For the three months ended September 30, 2018 and based on the closing foreign exchange rates, the Mexican peso appreciated by 5.3% to 18.8 relative to the USD which created an estimated recovery of $8.2 million of foreign exchange included in deferred tax expense, while for the three months ended September 30, 2017, the Mexican peso depreciated by 1.7% to 18.2 relative to the USD, which created an estimated expense of $1.4 million of foreign exchange included in deferred tax expense. The remaining fluctuation is caused by higher income and other temporary differences. For the nine months ended September 30, 2018, the Mexican peso appreciated by 4.7% to 18.8 relative to the USD which created an estimated recovery of $7.8 million of foreign exchange included in deferred tax expense, while for the nine months ended September 30, 2017, the Mexican peso appreciated 11.9% to 18.2 relative to the U.S. dollar, which created an estimated recovery of $18.4 million of foreign exchange included in deferred tax recovery. Net income of $23.9 million Net income for the third quarter of 2018 totalled $23.9 million, or $0.28 per share on a basic and diluted basis, while adjusted net earnings amounted to $7.3 million, or $0.09 per share on a basic and diluted basis. In the third quarter of 2017, net loss was $1.6 million, or $0.02 per share, on both a basic and diluted basis while adjusted net earnings amounted to $2.3 million, or $0.03 per share on a basic and diluted basis. Net income increased compared to the third quarter of 2017, largely due to higher earnings from mine operations stemming from higher grades processed, and interest income collected on the VAT receivables. Net income for the nine months ended September 30, 2018 totalled $21.8 million, or $0.26 per share on a basic and diluted basis, while adjusted net earnings amounted to $5.8 million, or $0.07 per share on a basic and diluted basis. In the nine months ended September 30, 2017, the Company had net income of $12.4 million, or $0.16 per share on a basic and $0.15 per share on a diluted basis while adjusted net loss amounted to $25.1 million, or $0.31 per share, both on a basic and diluted basis. Net income in the nine months of September 30, 2018 compared to the nine months ended September 30, 2017 increased largely due to higher earnings from mine operations stemming from higher grades processed and interest income collected on the VAT receivables, partially offset by higher income tax expense in the nine months ended September 30, Refer to the section Non-IFRS Financial Performance Measures for a reconciliation of net income (loss) to adjusted net earnings (loss). 11

12 RESULTS OF OPERATIONS The following table summarizes the operating results for the Company s ELG Mine Complex: Table 3. Nine Months Three Months Ended Ended Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Sep 30, Mining Guajes Ore tonnes mined kt Waste tonnes mined kt 2,635 1,484 1, ,820 6,077 Total tonnes mined kt 2,635 1,511 2,455 1,049 2,160 6,601 Strip ratio 1 waste:ore Average gold grade of ore mined gpt El Limón Ore tonnes mined kt 1,208 1, ,524 Waste tonnes mined kt 7,211 4, ,472 5,726 12,154 Total tonnes mined kt 8,419 5, ,890 6,514 14,678 Strip ratio waste:ore Average gold grade of ore mined gpt Total ELG Open Pits Ore tonnes mined kt 1,208 1, ,128 3,048 Waste tonnes mined kt 9,846 5,877 2,508 2,319 7,546 18,231 Total tonnes mined kt 11,054 7,150 3,075 2,939 8,674 21,279 Strip ratio waste:ore Average gold grade of ore mined gpt ELG Underground Ore tonnes mined kt Average gold grade of ore mined 2 gpt Processing Total tonnes processed kt 1,170 1, ,152 2,955 Average plant throughput tpd 12,717 10,989 10,467 12,588 12,522 11,453 Average gold recovery % Average gold grade of ore processed gpt Production and sales Gold dore produced oz 100,346 78,796 67,167 28,162 67, ,309 Gold sold oz 102,919 77,646 62,906 31,398 78, ,471 Gold from carbon fines produced oz 1,135 1,300 8,887 1,809 3,305 11, The strip ratio for Guajes is nil for the three months ended September 30, 2018 and high in the three months ended June 30, 2018 because the activities within Guajes are focused on the stripping Guajes West with Guajes East being mined out. 2. In the three months ended March 31, 2018, the average gold grade of ore mined in the ELG Underground was below the cut-off grade and represents incremental ore. For the ELG Underground, the Company s operational cut-off grade is 4.47 gpt and the Company s incremental cutoff grade is 0.74 gpt. 12

13 Gold Production and Sales In the third quarter of 2018, 100,346 ounces of dore gold were produced and 102,919 ounces of gold were sold, for a total of 246,309 dore ounces produced and 243,471 ounces of gold sold year-todate in In addition, 1,135 and 11,322 gold ounces from carbon fines were produced and shipped in the third quarter and nine months ended September 30, 2018, respectively. Plant Ramp-Up The ramp up of all operations, post the Blockade, has gone smoothly with steadily increasing production. The debottlenecking of the SAG Mill has also advanced as technical solutions have been implemented. Throughout the third quarter, the Company sustained average throughput levels in excess of 90% of design capacity. Consistency achieving an average throughput rate of 14,000 tpd is expected by the end of the year. SART Plant The construction of the SART plant was completed on schedule in the second quarter of The plant has been transferred from the construction team to the operations team and the ramp up to design rates is progressing. In the third quarter of 2018, the Company recognized $0.5 million of copper revenues and $0.2 million of silver revenues in relation to copper precipitate facilitated by the SART plant. In aggregate, the Company benefitted from savings of $48 per ounce from the SART plant from decreased utilization of reagents and by-product revenues. 13

14 Mining A total of 11,092 kt were mined in the third quarter of 2018, including 38 kt from the Sub-Sill zone, at an average waste to ore strip ratio of 8.2. Approximately 76% of the tonnes mined in the third quarter were from El Limón with the remaining 24% from Guajes. At September 30, 2018, there were 0.9 mt of ore in stockpiles at an average grade of 1.43 gpt. Safety At the end of the third quarter of 2018, the lost time injury frequency rate ( LTIFR ) was 1.3 per million hours worked. There were no lost time injuries in the quarter. The total hours worked in 2018 year to date (Company employees and contractors) was approximately 3.6 million. Community Following the disruption of the Blockade, the establishment of a new normal relationship with the local communities is ongoing. We continue to strengthen our bond with our stakeholder communities through various initiatives that link the success of the mine to the success of the communities. We are gradually changing the perception that the ELG Mine is the solution to all problems we are working to be one of the partners contributing to local development with a variety of partners that address local needs as required. Our community development agreements allow an opportunity for communities to determine which projects we will support within the total funds made available to them. This process also allows the individual communities the opportunity to seek funding from other agencies and the Mining Fund (to which we contribute through taxes). To further our links to the communities, we have refined several initiatives including: maintaining some of our team members in the community of Nuevo Balsas, integrating the local communities along the old access road into our programs, developing improved links with the Municipality of Cocula, refining the local hiring policy to make it more transparent, developing a more focused local procurement policy, and providing an opportunity to local vendors to provide food services for the operational teams. The Blockade resulted in divisions within the community. While most are trying to move past these divisions, there are still tensions, particularly from those that lost their employment with the Company as a result of their Blockade activities. The Company and its contractors and suppliers are the source of most paid employment in the area. Considerations are underway to find opportunities to reintegrate these individuals into paid employment. 14

15 EXPLORATION AND DEVELOPMENT ACTIVITIES Media Luna Project Update The Company s plan for the Media Luna Project is to advance the project from early stage development to production. Work towards this goal includes infill drilling with the goal of upgrading approximately 25% of the inferred resource to the measured and indicated confidence categories, which are suitable for inclusion in a feasibility study. The total budget for this undertaking is estimated at $15.0 million with completion targeted for late 2019 with an updated resource estimate planned for two months after the completion of the drill program. As at September 30, 2018, the Company capitalized $10.5 million, including $7.5 million in the nine months ended September 30, 2018 in relation to development activities at the Media Luna Project. Key trade-off studies prior to the commencement of a feasibility study are targeted for completion by mid-2019 and are budgeted at $1.0 million. A feasibility study with a budget of $9.0 million is planned to start in mid-2019 with completion aimed for late 2020 or early Early work will be determined by drilling results and a feasibility study, with a timeline of 2020 to 2021 based on financing. Subject to the results of the feasibility study, commercial production is expected in 2023 or At the Media Luna Project, the Company is subject to various environmental, exploration, land use, water and infrastructure construction permits. Pre-commercial capital expenditures, net of pre-commercial revenues, are estimated at $411.4 million. The Company intends to fund these expenditures from cash flows generated from the existing ELG Open Pits and ELG Underground. An updated PEA for the Media Luna Project was included as part of the updated technical report released on September 4, 2018, entitled NI Technical Report ELG Mine Complex Life of Mine Plan and Media Luna Preliminary Economic Assessment, which has an effective date of March 31, 2018 and is available on the Company s website at and filed on SEDAR at Morelos Gold Property Exploration Update The Morelos property has many highly prospective targets that are untested. From amongst the targets that have been tested, large zones of mineralization and resources have been discovered. At this time, the exploration teams are primarily focused on advancing known mineralization and resources towards production. This takes the form of in-fill diamond drilling programs in Media Luna, Sub-Sill and El Limón Deep, with a purpose of upgrading the confidence class of the known mineralization and resources. In Media Luna, the in-fill drill program has an objective of upgrading 25% of the Inferred 7.4 million ounce gold-equivalent resource to the indicated confidence class. Opportunistically, untested targets will be drilled when this can be done efficiently in conjunction with one of the in-fill drill programs. One, such opportunity is a porphyry target that is close to the Media Luna area. This target is scheduled to be drilled prior to mid-year There are similar opportunities that are underway to leverage the drills from the Sub-Sill, to test for mineralization similar to the Sub-Sill, in the vicinity of the Guajes pit. There are currently 11 diamond drills operating on the Morelos property. Results will be released as they come available and are analyzed. 15

16 FINANCIAL CONDITION REVIEW The Company s Debt Facility (defined below and discussed in the Debt Financing section of this MD&A) has financial covenants, which, if not met, could result in an event of default. The Company s Debt Facility also contains cross-default provisions with the Company s Finance Lease Arrangement and Equipment Loan (both terms defined below and discussed in the Debt Financing section of this MD&A). As at September 30, 2018, the Company is in compliance with all financial and operating covenants. During the Blockade, the Company undertook several actions to reduce cash outflows, suspended employment contracts in Mexico, managed its debt and working capital, and continued to monitor all elements of corporate expenditure closely. The Blockade was lifted in April 2018 and full operations resumed. The Company continues to monitor expenditures closely. On January 29, 2018, the Company announced the offering, which closed on February 7, 2018 and resulted in aggregate net proceeds of C$58.5 million to the Company (the Offering ). As part of the Offering, the underwriters partially exercised their over-allotment option and purchased an additional 12% of the Offering with the remainder of the over-allotment option being exercised and closing on February 16, 2018, for aggregate net proceeds of C$60.0 million to the Company pursuant to the Offering. Summary Balance Sheet The following table summarizes key balance sheet items at September 30, 2018: Table 4. In millions of U.S. dollars September 30, 2018 December 31, 2017 Cash and cash equivalents $ $ 44.9 Restricted cash Value-added tax receivables Inventory Property, plant and equipment Other assets Total assets $ 1,253.4 $ 1,168.1 Accounts payable and accrued liabilities $ 86.0 $ 50.9 Debt Deferred income tax liabilities Other liabilities Total liabilities $ $ Total shareholders' equity $ $ Cash and cash equivalents and restricted cash The Company ended the third quarter of 2018 with cash on hand of $121.6 million, with an additional $26.6 million in restricted cash. The Company holds cash balances in both Canadian dollars and Mexican pesos, as well as U.S. dollar holdings. Pursuant to the Debt Facility, the Company maintains restricted cash of $26.6 million in respect of reserve funds for estimated reclamation obligations. Each year the Company completes an updated progressive mine closure plan to assess the estimated costs to remediate disturbed areas and if necessary, sets aside additional funds. On April 2, 2018, the Company transferred an additional $12.6 million to restricted cash for potential reclamation obligations pursuant to the Debt Facility. 16