Largest exploration budget in Company history. Over 130,000 metres drilled. Initial NI compliant mineral resource announced at Hardrock.

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4 Over 130,000 metres drilled. Initial NI compliant mineral resource announced at Hardrock. Successfully completed three financings. Red Lake Gold Mines began construction of a high speed tram to pass through the Rahill-Bonanza joint venture. New gold discoveries at PQ North. New gold discoveries in Red Lake. Extended our core portfolio of projects to include the Saddle Project located in the heart of Nevada's prolific Carlin Trend. Largest exploration budget in Company history Updated NI compliant mineral resource announced at Hardrock. Preliminary Economic Assessment at Hardrock Begin dewatering and exploration ramp construction at Hardrock. High speed tram anticipated to reach our property boundary by the end of the year. Significant exploration program at Saddle. Largest exploration program to date at PQ North 2

5 We can reflect on 2010 as a banner year for Premier, with the Company s share price reaching record highs throughout the year. Our promise of remaining one of the mining industry s most aggressive explorers was critical to this success and our never-ending focus on growth resulted in a strategic move into Nevada, with a key acquisition along the prolific Carlin Trend. Major drill programs on several company projects provided unparalleled exploration successes highlighted by new discoveries in Red Lake and culminating in the tripling of our total gold resources at Hardrock. We expect to deliver value to our shareholders in 2011 by generating positive results and continuing to exceed expectations. Management strongly believes the long term success of the Company can only be secured by attracting and developing an industry best team of professionals. To-date, this team has delivered exceptional results while also building a most lucrative project pipeline located in the heart of proven gold camps with strong existing infrastructure. Premier is positioned to participate in the rising gold cycle by providing investors with exposure to multiple, high-grade, secure projects, located in world class mining jurisdictions. Red Lake Gold Camp - Ontario Ewan Downie The Red Lake joint venture projects remain the cornerstone assets in the Company. Widely regarded as the world s premier high-grade gold camp, Red Lake continues to yield phenomenal discoveries that auger well for the future and make it one of the most recognized gold regions - period. As demonstrated on multiple occasions in the past, one significant discovery in this camp can change the face of a company. In 2010, our Red Lake projects upheld this tradition with a host of important developments and discoveries. We are also participating in what might one day be considered the camp s most exciting development a high speed underground tram and exploration platform that will become a backbone of infrastructure through several kilometres of fertile, unexplored territory deep in the heart of this prolific gold district. Saddle Gold Carlin Trend Nevada Your Company s management team regards the acquisition of Saddle Gold as potentially our most important transaction completed to date with the potential to elevate Premier into a whole new league. Not only is it a phenomenal growth platform, Saddle provides our shareholders exposure to what might well be the world s most productive gold district, the Carlin Trend. Major discoveries in the Carlin have played an important role in the creation of major gold companies such as Barrick and Newmont. Early 2011 drill results confirm our belief that this move would become important in the Company s future growth. Hardrock Project Ontario Building on the momentum created when the Hardrock acquisition was made, our talented exploration team has carried out an aggressive two year program that has exceeded even our most optimistic expectations. With up to eleven drills active at Hardrock during the 2010 drill campaign, our results confirmed the presence of a significant gold deposit. Hardrock remains one of Canada s fastest growing gold resources. We are proud of our past achievements, but cognisant of the need to exceed them. In last year s letter, we made several promises and I would like to take this opportunity to highlight our track record of delivering on these expectations: Year over year share price increase of 79 percent. Completed more than 130,000 metres of drilling resulting in the tripling of our company-wide NI gold resources. Confirmed the PG70 Zone and Wilmar targets, suggesting multi-million ounce potential in Red Lake. Acquired a significant high-grade gold deposit on the Carlin Trend. It is with the support of our shareholders that we have been able to create a dynamic company having the financial wherewithal to pursue growth opportunities and quickly build value through the relentless pursuit of gold. We are also proud that our efforts have a positive impact on the communities in which we work and grateful for the support these same communities have shown Premier. I would like to close by recognizing the unbelievable efforts of our employees. Without their dedication and shared vision, day-in and day-out, we could not implement our plan to grow your Company. Ewan S. Downie President & Chief Executive Officer May 8,

6 Since its inception in 2006, Premier has been able to aggressively position itself as a leader in the Junior Exploration space, with core projects that are all potential company-makers in their own right. These projects have been acquired by focusing on a business model that is designed to shorten the pathway to exploration success, while reducing shareholder exposure to risk. To accomplish this, Premier focuses on the following: PROVEN Mining Districts ACCESSIBLE Regions HIGH GRADE Deposits SAFE Jurisdictions With these principles, Premier seeks and acquires land packages that are located in the heart of prolific gold camps. The Company believes the best place to look for a mine is in the shadow of a headframe. So far, this strategy is proving to be true was a pinnacle year for the Company with a $17 million, 130,000 metre drill program carried out on 4 projects. Furthermore, Premier expanded its project portfolio by acquiring Saddle Gold Mines and its Saddle Project located in the heart of Nevada s prolific Carlin trend will be no different, with the largest budget in Company history allotted to be spent on exploration with 17 drills on 4 projects throughout the year. Highlights for 2011 include: More than 120,000 metres of planned drilling. Premier has begun a new chapter in its growth with three drill rigs activated at Saddle. Additional projects have also been acquired in Nevada. An updated NI resource estimate for the Hardrock Project. Drilling in Red Lake will focus on delineating new high-grade gold discoveries made at the Rahill-Bonanza and East Bay joint venture projects in Goldcorp's high-speed tram could reach the Rahill-Bonanza Joint Venture ground by late 2011, with drilling expected mid-year. PQ North drilling will test for mineralization along strike from the new Lynx Zone discovery at Goldcorp's Musselwhite Gold Mine. Premier enters 2011 with more than $50 million in cash. 4

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8 Red Lake is quite simply the high grade gold capital of the world and the #1 address in Canada for high grade gold discoveries. Since 1995, there have been five significant gold discoveries in the Red Lake area, four of which are high grade. Within Red Lake, more than 30 million ounces of gold have been discovered along the prestigious "Mine Trend." Premier's marquis property in Red Lake is a 49% interest in the Rahill-Bonanza Project, a joint venture with Red Lake Gold Mines (RLGM), an affiliate of Goldcorp Inc. Some key aspects of the property include: It occurs along the least explored portion of the prolific Mine Trend It resides immediately west of Goldcorp's world class RLGM mining complex and east of Goldcorp's newest high grade deposit, the Bruce Channel Deposit. It contains one recently discovered gold deposit and two historic deposits, each of which could host much sought after "high grade gold" at depth. Goldcorp has begun construction of a high-speed tram to connect the Red Lake Gold Mines complex and the Cochenour (Bruce Channel) Mine complex to develop its new deposit. A portion of this tram is expected to pass through, or come in close proximity to, the joint venture project, providing an excellent exploration platform. This tram will intersect several kilometres of some of the highest potential and untested geology along the main Red Lake "Mine Trend". The Red Lake Gold Mine is considered to be one of the world's richest gold mines with production of more than 18 million ounces of gold and nearly 10 million ounces of resources. Premier believes the Rahill-Bonanza Project simply represents the "best positioned gold property anywhere", making Premier a compelling investment opportunity and significantly undervalued compared to other junior explorers in the district. Premier also has two other properties in Red Lake, East Bay, and Newman-Madsen. The East Bay Project is a 35% Premier and 65% RLGM joint venture located northeast of Rubicon's recently discovered "F2 Zone" at East Bay. Newman-Madsen is a 50% Premier and 50% Sabina Silver Corporation joint venture located southwest of the Red Lake Gold Mines. Numerous gold deposits and mines are located proximal to this property, including the nearby past producing Madsen Gold Mine that produced approximately 2.8 Million ounces of gold - the third largest mine in the Red Lake camp. In 2011, Premier will have active exploration programs on the Rahill-Bonanza and East Bay joint venture projects with RLGM in addition to the Redgold and the Newman-Madsen Projects. Budget: $4M 2011 Plans Metres to be drilled: 26,000 6

9 The Hardrock Project, located in the Beardmore - Geraldton Greenstone Belt of Northwestern Ontario, is Budget: $11M consistent with all the hallmarks of Metres to be drilled: 70,000 Premier's business model and is a core holding in its exploration portfolio. Premier owns a 70% interest in the project. Many past-producing sites in Canada are undergoing a renaissance and today are being recognized for their exceptional potential to host future world class discoveries. Recent discoveries in Red Lake (Red Lake Gold Mines, Bruce Channel) and at Malartic underscore the importance of exploration in such historic camps. The Hardrock Project is comprised of an approximately 15-kilometre long property package that overlies more than 3.0 million ounces of past gold production in a district that has historic production in excess of 4.0 million ounces. The property lies only a few kilometers south of the Town of Geraldton, which is serviced by the Trans- Canada Highway, Trans-Canada Pipeline, and Ontario Power Generation Hydroline. Exploration is conducted year round. On April 6, 2011 the Company announced that it had received an updated National Instrument (NI) compliant Mineral Resource for the Hardrock Project. This resource included near surface mineralization, including that contained in the original open pit resource estimate completed in 2010, and deeper mineralization identified in the 114,000m of drilling that was completed in Highlights of the Hardrock Resource include: 2011 Plans A 269% increase in Measured and Indicated resources to 2.5 million ounces. A 164% increase in Inferred resources to 1.1 million ounces. A 30% increase in the potential open pit Measured and Indicated resource grade to 2.37 grams per tonne gold (g/t Au). A 37% increase in the potential open pit Inferred resource grade to 2.48 g/t Au. Some 40% of the Measured and Indicated resource ounces are categorized as Measured. A Whittle-Pit analysis suggesting a strip ratio on potential open pit mineral resources of 2.1 to 1. The Kailey ( potential open pit ) Deposit resource is included and contains 127,000 ounces of Measured and Indicated Resources at 1.57 g/t Au and 10,000 ounces of Inferred resources at 1.48 g/t Au. In 2011, eight drills will be active, further delineating resources at Hardrock. Six will be focused on the existing resource area and two will search for the next mine on the property. 7

10 The PQ North Project, located in the Musselwhite District of Northwestern Ontario, some 300 kilometres northeast of Red Lake, is a very strategic property within Premier's property portfolio, owing to it's location proximal to Goldcorp's Musselwhite Mine and to the strong potential for discoveries to be made early in the exploration cycle. The property is within 10 kilometres of the Musselwhite Mine surface infrastructure and is accessed by road in winter and by road and lake in summer. Exploration can be conducted year round at PQ North. The Musselwhite Mine has operated continuously since As of December 31, 2010, total reserves and resources exceeded 3.1 million ounces. The ore zones that make up the Musselwhite deposit (256,700 ounces produced in 2010) occur within an iron formation unit that is known to also occur on the PQ North property. The location of PQ-North, potentially down-plunge from Musselwhite, is particularly important when considering the following facts: The apparent mine grade at the Musselwhite Mine is increasing as mineralized zones are mined down-plunge to the north (toward PQ-North). The frequency of new discoveries (some closer to surface than current mining) at Musselwhite is increasing as exploration migrates to the north (toward PQ-North), increasing the number of ounces per kilometer. Historic diamond drilling at PQ-North includes an intercept of g/t Au across 5.3 metres within a Musselwhite-style host rock. The 2007 Goldcorp Annual Report confirmed, "Drilling on the North Shore [in close proximity to PQ-North]...indicate high potential for resource expansion. This strong potential has led to a study to test the economics of constructing a new shaft at Musselwhite.". In 2010, Goldcorp announced a new discovery at Musselwhite (the Lynx Zone) where early indications suggest that it could be the largest and highest grade deposit discovered at Musselwhite. To date, Premier has discovered several gold zones in a geological setting nearly identical to that at Musselwhite but has yet to test the deeper portions of the host iron formation where the more significant gold deposits are located at Musselwhite. In 2011, two drills will be active at PQ North further delineating existing zones and focusing on testing the deeper portions of the host iron formation. Premier strongly believes that PQ-North may host a gold deposit similar to the multi-million ounce deposit characteristic of the Musselwhite Mine Plans Budget: $6M Metres to be drilled: 25,500 8

11 On June 15, 2010 Premier closed the acquisition of Saddle Gold Inc. Saddle Gold owned, among other things, the mineral rights in respect of a majority portion of the Saddle Gold Deposit and a 1.5% production royalty on the Emigrant Springs Deposit, both located in Elko County, Nevada on the prolific Carlin Trend. The Carlin Trend in northeastern Nevada forms one of the largest and most productive accumulation of gold deposits in North America and boasts +110 M ounces of production, reserves, resources and mineral inventory. Budget: $3M 2011 Plans Metres to be drilled: 13,000 The Saddle Property is host to the extension of the Rain Mine ("Rain") orebody that was previously mined by Newmont Mining Corporation ("Newmont") by open pit and underground methods. Up to 80% of the Saddle Deposit is located on the property in which Saddle Gold has a 100% mineral interest. The Saddle Deposit is one of several deposits discovered by Newmont during the 1990's to the northwest of, and down plunge from Rain. The acquisition of Saddle Gold represents a new chapter in Premier's strategy to build a significant presence in proven, accessible and low-risk jurisdictions that offer opportunities for the discovery of high grade gold deposits. Premier was attracted to the Saddle Gold opportunity for a number of reasons including: Premier would be the only company with core land packages and existing gold deposits, within Nevada's "Carlin Trend" and Red Lake's "Mine Trend", two of the world's most prolific and high grade gold mining districts. The Saddle Deposit ranks as a potentially significant high-grade gold deposit that remains open for expansion and is located proximal to existing surface and underground infrastructure. There is potential for additional discoveries to be made, similar to the Saddle Deposit. Through the royalty in the Emigrant Springs Deposit, Premier would participate in one of Newmont's potential future mine development projects. US-based assets would be beneficial to Premier if the price of gold rises as a result of a relative decrease in the value of the US dollar. With the acquisition of Saddle Gold, Premier is poised to benefit from, and possibly consolidate, the high-grade underground potential in the area. The Saddle Deposit is not subject to any "NSR" royalty obligations. The Emigrant Springs royalty consists of a 1.5% production royalty in Newmont's Emigrant Springs Deposit. Emigrant Springs is an advanced-stage project host to 1.2 million ounces (Source: Newmont Mining Corporation 2009 Annual Report, page 33, footnote (4)) of undeveloped reserves that represent a portion of Newmont's potential future production within its Carlin operations and is located only 1.5 miles east of Saddle. The Emigrant Springs royalty, when coupled with Premier's existing royalty in PC Gold's Pickle Crow Project, provides the opportunity for Premier to consider growing a "Royalty Division" with potential multiple income streams. 9

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13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2010 The following Management's Discussion and Analysis ( MD&A ) of (the Corporation or Premier or PG ) should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010, with a comparative period for the year ending December 31, 2009, and the notes thereto. The Corporation s consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ( GAAP ). Unless otherwise stated, all amounts discussed herein are denominated in Canadian dollars. This MD&A was prepared as of March 24, 2011, and all information is current as of such date. Readers are encouraged to read the Corporation s public information filings on SEDAR at This discussion provides management's analysis of Premier s historical financial and operating results and provides estimates of Premier s future financial and operating performance based on information currently available. Actual results will vary from estimates and the variances may be significant. Readers should be aware that historical results are not necessarily indicative of future performance. Certain information set forth in this MD&A, including management's assessment of the Corporation's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Corporation s control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be inaccurate and, as such, reliance should not be placed on forward-looking statements. Premier s actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, if any, that Premier will derive there from. Premier 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. Highlights Over 114,000 meters drilled on Hardrock Project Premier was successful in confirming the presence of significant mineralization in several zones at depth. Recognized with the Bernie Schneider Discovery of the Year Award Red Lake Gold Mines (RLGM) announces high-speed tram is 27% complete. RLGM s high speed tram linking the Cochenour Project (Bruce Channel) to the underground infrastructure of RLGM is 27% complete as of February 28, Saddle Gold acquisition positions Premier in Nevada s Carlin Trend Acquisition includes both a significant interest in the high grade Saddle-Tess deposit and a 1.5% NSR in Newmont s Emigrant Springs Deposit. Raised some $55,000,000 in 2010 The Corporation is well financed to complete significant drill programs planned for the upcoming year. 11

14 Company Overview Premier is a Canadian-based mineral exploration company, focused on exploring for and developing gold deposits within the Americas. Premier has a diverse portfolio of advanced-stage gold exploration properties in Northwestern Ontario, Canada, Nevada, U.S., and a joint venture in Mexico. Premier is active in three districts of Canada: Red Lake, Geraldton and the Musselwhite Mine area. In Red Lake, Premier is involved in 4 projects, the flagship of which is the Rahill-Bonanza Joint Venture with Red Lake Gold Mines, an affiliate of Goldcorp Inc. The Red Lake Mining District is world renowned for high-grade gold with Goldcorp s Red Lake Gold Mines (RLGM) considered to be one of the highest grade producing gold mines in the world. The mines of Red Lake have produced tens of millions of ounces of gold, making it one of the world s most prolific gold camps. The Rahill-Bonanza Property (49% PG) is located immediately adjacent to, and along strike from, the RLGM complex. Premier s East Bay Project, also joint ventured with Red Lake Gold Mines (35% PG), is being assessed for potential underground development subsequent to aggressive diamond drilling completed prior to The other projects in the Red Lake District include the early stage Lennie Project (100% PG) and Newman- Madsen Project (50% PG). The PQ North Property is strategically located just north of, and along strike from, Goldcorp s Musselwhite Gold Mine. Premier has signed a Letter of Intent with the North Caribou Lake First Nation that paves the way for a major exploration program to begin immediately on the property. The PQ North Property encompasses a major fold structure along strike from and within the main rock unit (Northern Banded Iron Formation) that hosts the gold-bearing ore zones at Musselwhite. Previous drilling on the Property has returned several significant intersections and has identified structural units similar to those at the mine. Premier holds the right to a 100% interest in the PQ North Property subject to a 2% Net Smelter Returns Royalty of which Premier retains the right to acquire 1% by paying to the vendor $1.0 million. The Hardrock Project is located in the heart of the Beardmore-Geraldton Greenstone Belt, a highly prospective high-grade gold district that has seen relatively little exploration over the past several decades. The Project area covers approximately 15 square kilometres of some of the most strategic ground in the region and is host to three past-producing mines and numerous exploration targets in a district that has more than 4.1 Million ounces of historic gold production. Premier, operator of the Project has earned a 70% interest in the project by making cash and share payments to Roxmark Mines Limited (now Goldstone Resources Inc.) and by completing exploration expenditure commitments on the joint venture property. In June 2010, Premier announced the intent to purchase Saddle Gold Inc., whose major asset included a significant portion of the underground and high grade Saddle deposit as well as a 1.5% NSR on the Emigrant Springs Mine project of Newmont Mining Inc. The purchase positions Premier with an important project within a world class and stable jurisdiction, to complement its Ontario assets in Red Lake and at Hardrock. Premier and Sutter Gold Mines ( Sutter ) jointly explore the Santa Teresa mineral concession, located in the historic and high grade El Alamo District of Baja California Norte, Mexico. The concession is accessible by road and is located approximately 100 kilometres southeast of Ensenada, Mexico and 250 kilometres from San Diego, California, USA. Premier continues to evaluate other high quality, high grade Americas-based gold projects with the strong belief that A World of Opportunity lies before it and aggressive exploration in proven districts will repeatedly reward our shareholders. 12

15 Results of Operations Premier management was very active during 2010 in positioning the Corporation for future growth. A total in excess of 140,000 metres of diamond drilling was completed, at a cost of more than $19.0 million during the year on seven projects. Red Lake District, Northwestern Ontario Rahill-Bonanza Joint Venture The Rahill-Bonanza Project is a joint venture between (49%) and Red Lake Gold Mines (51%), an affiliate of Goldcorp Inc. It is strategically positioned in the heart of the Mine Trend and remains the only portion of the trend not 100% controlled by Goldcorp. Approximately 18,600 metres of diamond drilling, at a cost of $1.4 million to Premier, was completed on the Rahill-Bonanza joint venture property during the year. The exploration program, operated by Red Lake Gold Mines (RLGM) on behalf of the joint venture, focused on testing prospective exploration targets, and defining potentially significant resources, located in close proximity to Goldcorp's Bruce Channel Deposit that is located immediately northwest of the joint venture property. The Wilmar Extension target, PG70 zone and Fold Target were all tested during the year. The Wilmar Gold Mine was developed via a drift that links it with the nearby Cochenour Mine infrastructure being rehabilitated by Goldcorp. Past-production at Wilmar, over a period of four years, resulted in 203,256 tons of ore being mined at an average grade of 0.30 oz/ton Au (10.3g/t Au). The deposit remained open at depth when the mine shutdown and previous drilling performed down-dip of the mine workings by the joint venture in 2007 returned numerous significant intersections including 18.1 g/t Au over 2.0 m and 14.2g/t Au over 5.0 m. Hole PG10082 was the first drilled by the joint venture to test the down-plunge extension of the "2E Zone" and returned a strong mineralized zone with visible gold containing g/t across 3.5 m (2.01 oz/t across 11.5 ft) including g/t across 1.15 m (6.06 oz/t across 3.8 ft) in hole PG This intersection occurs approximately 500 metres east of the PG70 Zone and is completely untested in between these two zones. The PG70 Zone consists of multiple gold-bearing horizons associated primarily with favourable ultramafic rock units similar to, and nearby to, Goldcorp's Cochenour (Bruce Channel) Project that is currently being developed by RLGM. Several new holes have intersected the PG70 Zone, further expanding the limits of the horizon that remains open in all directions. The new drilling further defines the horizon where previous holes returned multiple intersections including g/t Au across 1.5 m (3.63 oz/ton across 4.9 feet) in hole PG10075, g/t Au across 2.0 m (0.69 oz/ton across 6.6 feet) in hole PG10071 and 4.31 g/t Au across 25.0 m (0.13 oz/ton across 82.0 feet) including 9.53 g/t Au across 6.0 m (0.28 oz/ton across 19.7 feet) in hole PG10072B. Widely spaced drill holes have now intersected mineralization in the PG70 Zone over an area approximately 700 metres by 350 metres. The Fold Target was identified as an area that could be host to gold mineralization similar to, and along strike from, the Bruce Chanel Deposit (BCD) (see Figure 1). The first drill hole (PG10080) that tested this target intersected a similar sequence of rocks to those found at the BCD including favourable ultramafic rock units, quartz-carbonate veining, biotite alteration and multiple zones of mineralization with no significant assays. PG10080 is interpreted to be too far north to have tested the fold target which is further to the south than previously thought. East Bay Joint Venture The East Bay Project is a joint venture between Premier (35%) and RLGM (65%) and is located immediately northeast of and on strike with Rubicon Minerals F2 Zone discovery (4 million ounces of gold) at its Phoenix Gold Project. During the winter of 2010, 5 holes were completed to test four targets based on the F2 Model and proximal to a major regional shear zone at the footwall of the East Bay Ultramafic Trend. Of the primary targets, where cross-cutting structures were interpreted to cut the East Bay Trend, one contained gold mineralization associated with a major mineralized shear zone. Due to ice conditions, several favourable structures remain untested. Hole EBJV10174, a single hole into the target, intersected high grade gold within a quartz 13

16 vein containing visible gold as well as gold. associated with a mineralized shear zone. Hole EBJV10175 tested the shear zone 500 m to the northeast and also intersected similar mineralization. Highlights from the new discovery area include: g/t Au across 0.7 m (1.49 oz/ton across 2.3 feet) within the QV Zone 7.25 g/t Au across 2.8 m (0.21 oz/ton across 9.0 feet) within the Shear Zone During the Fourth Quarter, Premier announced that diamond drilling had intersected a high grade gold vein located at the Footwall Vein Target. The current drill program consisted of step-out holes to the north of the discovery hole. Drill Hole EBJV10176 intersected the Footwall Zone target (East Bay Shear Zone) with assays of g/t Au across 1.0 m (8.68 oz/ton across 3.3 feet), as well as the QV Zone of g/t Au across 0.8 m (0.41 oz/ton across 2.6 feet)..a total of 2,778 metres of drilling were completed at East Bay during the year at a cost of $286,000 to Premier. Newman-Madsen Joint Venture At Premier s Newman-Madsen Project, a 50:50 joint venture with partner and operator Sabina Gold and Silver, a total of 3,183 metres of diamond drilling in four holes was completed prior to the end of 2010 at a cost of $226,000 to Premier. Drilling was successful in intersecting the targeted stratigraphy and delineating a highly prospective area of hydrothermal alteration where significant gold values including a high-grade intercept of 43.51g/t over 0.65 meters were encountered. The intercept is interpreted to demonstrate the potential for the Newman-Madsen property to host significant mineralization consistent with the recognized horizons hosting the Madsen Mine (>2.4 million ounces) located immediately to the Southwest. Further anomalous and significant gold assays were also returned from a series of quartz-feldspar porphyry intrusives that are a part of ongoing interpretations and follow up exploration. Phase I mapping and core re-logging was also completed increasing the geologic confidence within the property while further defining exploration targets. Redgold Project On October 14, 2010, Premier announced that it has entered into Option and Purchase Agreements to acquire interests in three adjoining properties located in the Red Lake Mining Division, in the Province of Ontario. The combined property package will be called the Redgold Project. The Redgold Project is strategically located 80 km east of the Red Lake Gold Mines complex, within the Birch-Uchi greenstone belt The Project covers numerous high-grade gold vein prospects that will be the focus of an exploration program that will begin immediately on the project, including diamond drilling. At total of 1,679 metres of drilling were completed prior to the end of the year at a cost of $143,000. Geraldton District, Northwestern Ontario A total of 114,000 metres of diamond drilling was completed during the year on the Hardrock Project at cost of some $14.5 million. Diamond drilling focussed primarily on testing deeper mineralization such as extensions of the North and F Zones. The Hardrock Project area covers approximately 15 square kilometres of some of the most strategic ground in the region and is host to past-producing mines and numerous exploration targets in a district that has more than 4.1 Million ounces of historic gold production. Premier, operator of the Project, holds a 70 % interest in the project. 14 At Hardrock, significant potential exists for developing resources in several areas including: Open pit-style mineralization at sites where historic resources were partially delineated by previous operators, in addition to newly defined mineralization at the Tenacity, EP and Kailey Zones; Numerous surface and historic high-grade gold intercepts throughout the large property package that have received little to no follow-up; Historic resource blocks reported to remain within the mine workings, including high-grade vein targets; and, The main mined zones which remain open below the 600m Level.

17 Results from the diamond drilling were released on a regular basis throughout the year. Premier was successful in confirming the presence of significant mineralization in several zones, and in March reported an initial NI compliant mineral resource estimate. Premier reported on progress at Hardrock regularly with some eleven exploration related press releases during the year. The most significant of these results were reported on November 4, 2010 and included: 7.92 g/t gold (Au) across metres (m) (0.23 oz/t across feet) including g/t Au across 31.0 m (0.69 oz/ton across feet) in hole MM179C conducting initial resource confirmation drilling in the F-Zone g/t Au across 20.5 m (0.54 oz/t across 67.2 feet) in hole MM170 in step-out drilling located approximately 500 metres west of the limits of previous exploration. Drilling was accelerated during the fourth quarter by utilizing up to 11 diamond drills. The results of Premier s activity at Hardrock will be integrated into a new mineral resource estimate anticipated to be reported on early during Q2 of In April, the Company was awarded the Northwest Ontario "Bernie Schnieder, Discovery of the Year" for the Hardrock Project. The award is presented by the Northwest Ontario prospectors Association (NWOPA) to recognize an exceptional discovery in Northwestern Ontario during the previous calendar year. PQ North Property, Musselwhite District, Ontario During Q1 of 2010, Premier completed a winter drilling campaign of some 6,553 metres at a cost of $1.3 million. Warm winter conditions limited the number of targets that could be assessed and as a result, the drill program was limited in scope than desired. No press releases of results were made on PQ North during the year. In light of the difficult conditions during 2010 at PQ North, Premier has planned an aggressive exploration program for This program will include preparation of drill roads and platforms to allow for diamond drilling to be active continuously during the year. Saddle Gold Project, Carlin District, Nevada, USA On November 10, 2010, Premier announced that it was activating exploration on it s newly acquired Saddle Gold Project. The Saddle Gold Project is 100%-held by Premier's wholly-owned subsidiary (Premier Gold Mines USA Inc.) and includes the mineral rights in respect of a majority portion of the Saddle/NW Tess Gold Deposit ("Saddle Deposit" or "Saddle") and a 1.5% production royalty on the nearby Emigrant Springs Gold Deposit ("Emigrant Springs" or "Emigrant"). Both Emigrant Springs and the minority portion of the Saddle Deposit are owned by Newmont Mining Corporation ("Newmont"). The Saddle Gold Project is located in Elko County, Nevada (See Figure 1 below), some eleven miles southeast of Newmont's 25 million ounce Gold Quarry/Tusc operation, two miles west of Emigrant Springs and adjacent to Evolving Gold Corporation's high grade "Carlin Project". The Phase I exploration program is the first step toward a goal of completing a NI compliant mineral resource estimate on the Saddle Deposit and includes initially some 11 drill holes designed to expand the known size of the deposit and also confirm its internal grade and geometry. A ground-based gravity geophysical survey is also underway. Premier regards the potential to delineate a significant resource at its Saddle Gold Project as excellent and believes the Rain Sub-district will "re-emerge" as an important gold-producing enclave in the future as it remains an under-explored part of the Carlin Trend. By the end of 2010, five drill hole pre-collars had been completed at a cost of $278,

18 Selected Financial Data The following table provides selected financial information and should be read in conjunction with the Corporation s audited consolidated financial statements for the periods below. Operations Year ended December $ Year ended December 31, 2009 $ Year ended December 31, 2008 $ Total revenue 335,481 88, ,323 Income (loss) and comprehensive income (10,056,875) (3,684,592) 222,184 (loss) for the year Basic and diluted loss per share Balance Sheet Working capital 47,342,503 19,746,427 17,964,110 Total assets 183,523,931 88,851,746 68,410,963 Total liabilities 31,227,166 8,953,599 6,152,068 The fiscal year ended December 31, 2010 was a year of significant growth for the Corporation. Working capital increased by 139%, which was primarily due to the completion of two private placements during the year that raised approximately $55 million. Additionally, total assets increased by 106%, which was partly attributed to private placements, as well as the acquisition of Saddle Gold Inc. ("Saddle") for US$24 million. This acquisition gave the Corporation a strategic piece of property located in the historic Carlin Trend of Nevada. Operationally, the Corporation pursued an aggressive exploration program, with 114,000 metres drilled on Hardrock, 6,500 metres drilled at PQ North and additional exploration completed on the Red Lake and Nevada properties. In total there was some 140,000 metres of diamond drilling completed, at a cost of more than $19.0 million during the year on seven projects. Going forward, the next year is expected to be another banner year for growth as a company, with significant exploration planned for most properties. Management is confident that with a healthy balance sheet, strategic assets, and commitment from the Corporation to continue to expand horizons means that current trend of growth for the Corporation is expected to continue in the year ahead. Quarterly Information The following is a summary of selected financial information of the Corporation for the quarterly periods indicated Quarter Fourth Third Second First Fourth Third Second First ($) ($) ($) ($) ($) ($) ($) ($) Revenue 117, ,125 88,972 17,372 16,612 29,000 8,861 33, Income (loss) from continuing operations Loss from continuing operations per Common share (basic and diluted) (716,054) (775,845) (7,465,56 9) (2,115,36 8) 513,575 (571,482) (4,183,59 2) (791,091) (0.00) 0.00 (0.07) (0.02) (0.05) 0.00 Net income (Loss) 267,679 (423,814) (7,775,31 2) Net income (Loss) per Common share (basic and diluted) (2,125,42 8) (93,449) 533,132 (3,847,68 6) (276,589) (0.08) (0.02) (0.04) 0.00

19 Overall Performance Net loss for the year ended December 31, 2010 was $10,056,875 compared to net loss of $3,684,592 for the same period of the previous year, an increase of 173%. It should be noted that the 2009 comparative figures have been restated to reflect a correction in recording the future income taxes related to share issue costs. The future income tax recovery related to share issue costs was initially recorded as a future income tax recovery, whereas is should have been recorded as a credit to share capital. The effect of the restatement has been to increase the 2009 opening deficit and 2009 opening common share value by $182,529, decrease 2009 future income tax recovery by $373,855, increase 2009 common share value by $373,855 and reduce the 2009 basic and diluted loss per share to (0.05). The cumulative effect of restatement has been to increase the opening 2010 deficit by $566,384. Overall, the increase in net loss compared to the previous year is primarily the result of increased activity across the Corporation. Operating expenditures increased from $6,190,910 to $11,408,317. This increase is primarily due to the increase in stock based compensation from $3,976,438 to $8,411,220, which was due an increase in the number of stock options granted during the year, and a stock award to certain employees and members of management. Most of the operating expenditures have increased, which is to be expected giving the growth profile of the Corporation. Going forward, management expects that general and administrative expenditures will increase slightly, and that professional fees and stock based compensation will fluctuate independent of the operating activities as they are dependent on period specific decisions and activities. Of the $11,408,317 in operating expenses incurred during the year ended December 31, 2010, $11,917 related to non-cash charges for amortization, and $8,411,220 to non-cash charges for stock based compensation. Of the remaining $2,985,180 in operating expenses, $2,186,934 related to general and administrative expenses, which were 17% higher than the previous year, $522,544 to professional fees, which were 148% higher than the previous year, and $243,376 for the flow-through interest penalty, which was 95% higher than the previous year. General and administrative expenses on an overall basis were slightly higher, which is reasonable given he growth the Corporation experienced, and this trend can be expected to continue at a pace relative to the expansion of the Corporation. The most significant amounts included in general and administrative expenses are: listing fees of $271,402, which were 246% higher than the previous year; accounting and administrative of $195,778, which were 2% lower than the previous year; investor relations of $378,305, which were 4% lower than the previous year; travel expenses of $166,489, which were 37% higher than the previous year; and executive and office salaries of $334,315, which were 14% lower than the previous year. The significant increase in professional fees is essentially a period increase, as the Corporation began expanding into the U.S. there are were increased legal fees to establish the Corporation there. Exploration and development programs during the year ended December 31, 2010 resulted in a net increase in mineral properties of $63,174,202. Details of the mineral property expenditures during the year are included in the following table: 17

20 31-Dec-09 Transactions 31-Dec-10 BONANZA DEFERRED EXPLORATION ANALYTICAL 735,251 9, ,290 GEOLOGICAL 338, ,819 GEOPHYSICAL GEOCHEMICAL FUEL 2, ,802 TRANSPORTATION & ACCOMODATION 93,619 12, ,779 EXPLORATORY DRILLING 3,392,551-3,392,551 PROPERTY WORK 56, ,868 ADVANCED PROPERTY WORK OPERATIONS SUPPORT 574,243 37, ,272 A/R - CASH CALL - RAHILL BONANZA JOINT VENTURE (1,867,245) - (1,867,245) A/P - CASH CALL - RAHILL BONANZA JOINT VENTURE 4,125,129 1,369,901 5,495,030 7,451,802 1,429,422 8,881,224 DEFERRED DEVELOPMENT ACQUISITIONS COST &OPTION PAYMENTS PAID 19,267,617-19,267,618 OPTION PAYMENTS RECEIVED (440,000) - (440,000) 26,279,419 1 PROPERTY WRITEOFF - 27,708,841 EAST BAY DEFERRED EXPLORATION ANALYTICAL 5,401-5,401 GEOLOGICAL 8,530-8,530 GEOPHYSICAL GEOCHEMICAL FUEL TRANSPORTATION & ACCOMODATION EXPLORATORY DRILLING 44,659-44,659 PROPERTY WORK ADVANCED PROPERTY WORK OPERATIONS SUPPORT ADMINISTRATION 7,143 1,614 8,758 A/P - CASH CALL - EAST BAY JOINT VENTURE - 284, ,661 66, , ,995 DEFERRED DEVELOPMENT ACQUISITIONS COST &OPTION PAYMENTS PAID 6,225,083-6,225,083 OPTION PAYMENTS RECEIVED ,291, ,276 6,578,078 PROPERTY WRITEOFF - 6,578,078 PQ NORTH DEFERRED EXPLORATION ANALYTICAL 64,365 71, ,982 GEOLOGICAL 163,654 42, ,798 GEOPHYSICAL 203, ,500 GEOCHEMICAL FUEL 27,243 3,672 30,915 TRANSPORTATION & ACCOMODATION 499, , ,295 EXPLORATORY DRILLING 1,683, ,510 2,418,221 PROPERTY WORK 172, ,088 ADVANCED PROPERTY WORK OPERATIONS SUPPORT 626, , ,411 3,441,261 1,271,949 4,713,211 DEFERRED DEVELOPMENT ACQUISITIONS COST &OPTION PAYMENTS PAID 114, ,455 OPTION PAYMENTS RECEIVED ,555,716 1,271,949 4,827,666 PROPERTY WRITEOFF - 4,827,666 18

21 31-Dec-09 Transactions 31-Dec-10 HARDROCK/GERALDTON DEFERRED EXPLORATION ANALYTICAL 1,729, ,035 2,606,089 GEOLOGICAL 1,033,181 1,092,111 2,125,292 GEOPHYSICAL 102,690 1, ,440 GEOCHEMICAL - 74,200 74,200 FUEL 27,628 17,154 44,782 TRANSPORTATION & ACCOMODATION 231,956 88, ,888 EXPLORATORY DRILLING 14,842,505 10,763,883 25,606,387 PROPERTY WORK 307, , ,508 ADVANCED PROPERTY WORK 31,557 68, ,095 OPERATIONS SUPPORT 1,946,507 1,175,066 3,121,573 CASH CALL - HARDROCK/GERALDTON - JOINT VENTURE ,252,939 14,404,314 34,657,253 DEFERRED DEVELOPMENT ACQUISITIONS COST & OPTION PAYMENTS PAID 4,699,395-4,699,395 OPTION PAYMENTS RECEIVED ,952,334 14,404,314 39,356,648 PROPERTY WRITEOFF - 39,356,648 LENNIE DEFERRED EXPLORATION ANALYTICAL 60,104 18,345 78,449 GEOLOGICAL 48,524 (1,063) 47,462 GEOPHYSICAL GEOCHEMICAL FUEL ,767 TRANSPORTATION & ACCOMODATION 16,988 9,252 26,240 EXPLORATORY DRILLING 871, ,969 1,107,814 PROPERTY WORK 9,523-9,523 ADVANCED PROPERTY WORK OPERATIONS SUPPORT 156,390 68, ,991 CASH CALL - LENNIE - JOINT VENTURE ,164, ,067 1,496,246 DEFERRED DEVELOPMENT ACQUISITIONS COST & OPTION PAYMENTS PAID 188, ,400 OPTION PAYMENTS RECEIVED ,352, ,067 1,684,646 PROPERTY WRITEOFF (1,684,646) (0) REDGOLD-BOBJO, RAINGOLD, & WOCO LAKE DEFERRED EXPLORATION ANALYTICAL - 7,550 7,550 GEOLOGICAL - 1,524 1,524 GEOPHYSICAL - 311, ,672 GEOCHEMICAL FUEL TRANSPORTATION & ACCOMODATION - 64,288 64,288 EXPLORATORY DRILLING - 143, ,166 PROPERTY WORK - 79,492 79,492 ADVANCED PROPERTY WORK OPERATIONS SUPPORT - 20,318 20,318 ADMINISTRATION , ,315 DEFERRED DEVELOPMENT ACQUISITIONS COST & OPTION PAYMENTS PAID - 859, ,500 OPTION PAYMENTS RECEIVED ,488,815 1,488,815 PROPERTY WRITEOFF - 1,488,815 19

22 31-Dec-09 Transactions 31-Dec-10 SADDLE, NEVADA DEFERRED EXPLORATION ANALYTICAL - 25,587 25,587 GEOLOGICAL - 253, ,549 GEOPHYSICAL - 228, ,981 GEOCHEMICAL FUEL - 36,993 36,993 TRANSPORTATION & ACCOMODATION - 4,752 4,752 EXPLORATORY DRILLING - 296, ,674 PROPERTY WORK - 10,799 10,799 ADVANCED PROPERTY WORK OPERATIONS SUPPORT - 2,537 2,537 ADMINISTRATION - 2,112 2, , ,982 DEFERRED DEVELOPMENT ACQUISITIONS COST & OPTION PAYMENTS PAID - 44,445,983 44,445,983 OPTION PAYMENTS RECEIVED ,307,965 45,307,965 PROPERTY WRITEOFF - 45,307,965 OTHER AREAS DEFERRED EXPLORATION ANALYTICAL 141,826 4, ,544 GEOLOGICAL 515,911 21, ,613 GEOPHYSICAL 5,836-5,836 GEOCHEMICAL FUEL 1,018-1,018 TRANSPORTATION & ACCOMODATION 43,224-43,224 EXPLORATORY DRILLING 1,568, ,296 1,794,806 PROPERTY WORK 1,619 33,283 34,902 ADVANCED PROPERTY WORK OPERATIONS SUPPORT 1,244-1,244 ADMINISTRATION 97, ,974 2,377, ,028 2,663,161 DEFERRED DEVELOPMENT ACQUISITIONS COST & OPTION PAYMENTS PAID 891,017 93, ,529 OPTION PAYMENTS RECEIVED - (41,500) (41,500) 3,268, , ,029 PROPERTY WRITEOFF 3,606,190 20

23 Transaction with Saddle Gold Inc. On June 14, 2010 the Corporation acquired Saddle Gold Inc. ("Saddle") by way of a merger transaction whereby a wholly-owned Delaware, USA, subsidiary of Premier merged with and into Saddle pursuant to the applicable provisions of the Delaware General Corporation Law. Saddle owns, among other things, the mineral rights in respect of a majority portion of the Saddle Gold Deposit (the "Saddle Property") and a 1.5% production royalty on the Emigrant Springs Deposit, both located in Elko County, Nevada. The aggregate purchase price was US$24,000,000, with Premier paying US$3,100,000 in cash and issuing 5,442,357 common shares at a fair value of CDN$4.00 per share. Included in purchase consideration were CDN$984,000 paid in transactions costs. Following completion of the acquisition, Premier holds all of the assets and liabilities of Saddle, including outstanding debt in the principal amount of US$12,000,000 (see Note 13 - Long-term Debt). The purchase consideration totaling CDN $25,958,791, has been allocated as follows: Cash $ 1,995 Accounts receivable 111,143 Mineral properties 45,045,585 Accounts payable (516,287) Future tax liability (6,380,045) Long term debt (12,303,600) Total net assets 25,958,791 Purchase consideration: 5,442,357 common shares issued $ 21,769,428 Cash 4,189,363 Liquidity and Capital Resources Current assets at December 31, 2010 were $52,306,288 compared to $21,515,053 at December 31, 2009 and total assets were $183,523,931 compared to $88,851,746. The increase in total assets relates primarily to the transaction with Saddle Gold Inc, and the financings completed during the period. The Corporation's cash and cash equivalents balance was $51,476,694 at December 31, 2010 compared to $21,226,978 at December 31, The Corporation also held $2,208,815 in long term investments at December 31, 2010 compared to $1,490,150 at December 31, The Corporation is very comfortable with its cash position at year end. The money currently held in treasury is sufficient to complete the ambitious drill program for 2011 and cover operating expenditures for a minimum of 3 years. Cash used in operating activities was $3,580,735 for the year ended December 31, The most significant non-cash credits to earnings were a change in unrealized gain on investments of $2,224,543 and the future tax recovery of $1,054,493. The most significant non-cash charges to earnings include stock based compensation of $8,411,220, and write down of mineral properties of $1,767,943. Cash used in investing activities was $20,770,753 for the year ended December 31, 2010 which relates to $22,115,714 in mineral property related expenditures, offset by the proceeds from the sale of investments of $1,344,961, resulting from the Corporation s decision to move out of equity investments and into more secure government backed securities and high interest savings accounts. Cash provided by financing activities was $54,601,204 which is comprised of the proceeds from private placements of $54,942,200, and the proceeds from the exercise of stock options for $3,597,327 and the exercise of warrants of $696,121, which were offset by share issue costs of $3,121,115 and repayment of long term debt of $1,513,

24 The Corporation has financed the majority of its exploration activities with flow-through share issuances. Resource expenditure deductions for income tax purposes related to exploration and development activities funded by flow-through share issuances are renounced to investors in accordance with income tax legislation. When these expenditures are renounced to investors, temporary taxable differences created by the renunciation reduce share capital. The Corporation applies Canada Revenue Agency s look-back rule when accounting for the tax consequences of Flow-Through Share Issuance. Interest penalties accrued during the year ending December 31, 2010 in relation to resource expenditures renounced to investors under Canada Revenue s look-back rule, totalled $243,376. As at December 31, 2010, the financial instruments of the Corporation consisted of cash and cash equivalents, accounts receivable, long-term investments, accounts payable and accrued liabilities and long term debt. Unless otherwise noted, the Corporation does not expect to be exposed to significant interest, currency or credit risks arising from these financial instruments. The Corporation estimates that the fair value of the financial instruments approximate the carrying values. The Corporation is authorized to issue an unlimited number of Common Shares of which 104,195,658 were outstanding as of March 24, As at March 24, 2011 the Corporation had options outstanding to purchase an aggregate of 6,027,390 Common Shares under its share incentive plan with exercise prices ranging between $1.00 and $7.45 per share and expiry dates between September 15, 2011 and December 8, All of the issued options had vested by March 24, There were no warrants outstanding as of March 24, Maturing investments and new financing arrangements will continue to be the major sources of cash flow for the Corporation, as the Corporation is still in the exploration stage without revenue from operations. Commitments The following is a summary of the commitments of the Corporation as at December 31, 2010: Total Contracts and operating leases $211,329 $19,073 $6,470 $236,872 Exploration agreements $0 $0 $0 $0 Exploration expenditure commitment from the issuance of flow through shares $21,450,000 $0 $0 $0 Mineral Property Held for Sale Newman Madsen Mineral property held for sale includes the Newman Madsen property with a book value of $102,064. As at December 31, 2010 the Corporation was in discussions with other parties regarding the possible sale of the Corporation's interest in these mineral properties. Property write-down As at March 31, 2010, the Corporation decided to no longer pursue its option to acquire a 100% interest in the Lennie project, and as such $1,767,943 has been charged against earnings in the period. A penalty for early termination was paid to Newcastle Resources Ltd. Contingency The Corporation has been summoned to appear before the Ontario Court Justice for a matter related to Provincial offences under the Crown Forest Sustainability Act, 1994 in respect of activities that allegedly occurred in 2010 on the Redgold property. Currently the outcome of the charges is not determinable, and the financial impact, if any, will be recorded when the outcome is determinable and the amount is estimable. 22

25 Transactions with Related Parties The following are the related party transactions, recorded at the exchange amount as agreed to by the parties: [a] Included in general and administrative expenses are amounts totaling $37,119 ( $33,381) for corporate secretarial services provided by companies related to the Corporation through a common officer. [b] Included in general and administrative expenditures are amounts totalling $265,832 ( $260,831) and included in the mineral property expenditures are amounts totalling $112,102 ( $106,434) for rent, facilities related charges, and accounting and management services provided by a company related to the Corporation through common officer and an officer and director. [c] Included in other revenue are amounts totaling $31,800 ( $22,950) for rental of a core shack to a company related to the Corporation though a common director. [d] Included in general and administrative expenses are amounts totalling $ ( $nil) for consulting fees paid to a company related to the Corporation by a common director. Critical Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Based on historical experience, current market conditions and expert advice, management makes assumptions that are believed to be reasonable under the circumstances. These estimates and assumptions form the basis for judgments about the carrying value of assets and liabilities and reported amounts for revenues and expenses. The following have been identified as critical accounting policies and estimates and a change in these policies or estimates could materially impact the consolidated financial statements. The Company s complete accounting policies are described in Note 2 to the consolidated annual financial statements for the year ended December 31, Mineral properties The cost of mineral properties includes all direct exploration costs including administrative expenses and certain deferred costs that can be directly related to specific projects. Exploration and associated costs relating to non specific projects / properties are expensed in the period incurred. Significant property acquisition, exploration costs relating to specific properties for which economically recoverable reserves are believed to exist are deferred until the project to which they relate is sold, abandoned or placed into production. Costs related to properties abandoned are written-off when it is determined that the property has no continuing value. All of the Corporation's properties are in the exploration stage and have not yet attained commercial production. The ultimate realization of the carrying value of properties in the exploration stage is dependent upon the successful development or sale of these properties. Stock-based compensation All stock-based awards made to employees and non-employees are measured and recognized using the Black-Scholes option pricing model. For employees, the fair value of the options is measured at the date of the grant. For non-employees, the fair value of the options is measured on the earlier of the date at which the counterparty performance is complete, the date the performance commitment is reached, or the date at which the equity instruments are granted if they are fully vested and non-forfeitable. For employees and non-employees, the fair value of options is accrued and charged to operations on a graded basis over the vesting period with the offsetting credit to contributed surplus. If and when the stock options are ultimately exercised, the applicable amounts of contributed surplus are transferred to share capital. No expense is recognized for awards that do not ultimately vest. 23

26 Recent Accounting Pronouncements Business combinations / consolidated financial statements / non-controlling interests In January 2009, the CICA adopted sections 1582, "Business Combinations", 1601, "Consolidated Financial Statements", and 1602, "Non-Controlling Interests" which superseded current sections 1581, "Business Combinations" and 1600, "Consolidated Financial Statements". These sections will be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, Earlier adoption is permitted. If an entity applies these sections before January 1, 2011, it is required to disclose that fact and apply each of the new sections concurrently. These new sections were created to converge Canadian GAAP to IFRS. As the Corporation has not chosen to early adopt, these standards will affect the accounting for any business combinations completed after January 1, Future Accounting Changes IFRS Conversion Plan During 2009, the Corporation put in place a comprehensive IFRS conversion plan which addresses changes in accounting policies, restatement of comparative periods, organization, internal controls and any required changes to business processes. To ensure the full impact of the conversion was understood, personnel responsible for the IFRS conversion project attended training courses on the adoption and implementation of IFRS. Through in-depth training, and thorough review of transitional statements prepared by comparative companies, the Corporation believes the finance personnel are prepared for the transition. During Q3 2009, the Corporation reviewed its existing accounting system along with internal and disclosure processes and concluded that they would not need significant modification as a result of the Corporation s conversion to IFRS. Included in this review was an assessment of existing reporting templates and checklists, rationalization of the existing chart of accounts, and review of the efficiency of period-end close procedures. As a part of the Corporation s transition to International Financial Reporting Standards, an initial review of the impact on internal control over financial reporting has been completed. The Corporation believes that the current controls, policies and procedures included in ICFR design are sufficient to meet the requirements of the upcoming transition. Management expects that the transition to IFRS will not have a material impact on the Corporation s internal control over financial reporting due to the limited complexity of its business. 24

27 Initial Adoption of IFRS IFRS 1 First-time Adoption of International Financial Reporting Standards sets forth guidance for the initial adoption of IFRS. Under IFRS1 the standards are applied retrospectively at the transitional balance sheet date with all adjustments to assets and liabilities taken to retained earnings unless certain exemptions are applied. Following the initial examination the Corporation plans to apply the following exemptions to its opening balance sheet dated January 1, 2010: (i) Business Combinations IFRS 1 indicates a first-time adopter may elect not to apply IFRS 3 Business Combinations retrospectively to business combinations that occurred before the date of transition to IFRS. The Corporation will take advantage of this election and will apply IFRS 3 to business combinations that occur on or after January 1, As the Corporation has not chosen to early adopt, these standards will affect the accounting for any business combinations completed after January 1, (ii) IFRS 2 - Share-based payment transactions IFRS 1 encourages, but does not require, first-time adopters to apply IFRS 2 Share-based Payments to equity instruments that were granted on or before November 7, 2002, or equity instruments that were granted subsequent to November 7, 2002 and vested before the later of the date of transition to IFRS and January 1, The Corporation has elected not to apply IFRS 2 to awards that vested or will vest prior to January 1, (iii) IAS 23 Borrowing costs IAS 23 Borrowing costs has not been applied to borrowing costs relating to qualifying assets for which the commencement date for capitalization is on or after January 1, IFRS employs a conceptual framework that is similar to Canadian GAAP. The adoption of IFRS will not have any material impact on the financial information previously disclosed under Canadian GAAP. The Corporation identified the following adjustments as a result of the adoption of IFRS: (i) IFRS requires that the functional currency of each entity of the Corporation be deter mined separately and record the foreign exchange resulting from the consolidation in equity rather than in the statement of operations. IFRS 1 provides an exemption and allows for such adjustments to be made as of the transition date, resulting in no change to the December 31, 2009 financial statements on the transition date. For the year ended December 31, 2010, the foreign exchange resulting from the consolidation amounted to a loss of $68,186, which will result in a decrease in the current year s loss in the statement of operations and an Exchange reserve being recorded in the Statement of Equity on application of IFRS. (ii) Income tax Income tax expense is calculated in a similar manner in accordance with GAAP and IFRS. Future income tax assets / liabilities are also calculated in a similar manner in accordance with GAAP and IFRS. However, the treatment of future incomes taxes with respect to asset purchases will differ and, consequently, the purchase price allocation for the Saddle Gold acquisition will change. In order to allow the users of the financial statements to better understand other changes between IFRS and GAAP that do not have any quantitative effect or adjustments to the Corporation s financial statements, the following qualitative explanation of the differences between GAAP and IFRS is provided: (i) (ii) Property, plant and equipment GAAP and IFRS allow the use of original cost less depreciation as the cost base. IFRS requires separate depreciation rate for components that depreciate differently. Exploration for and Evaluation of Mineral Resources GAAP and IFRS allow the capitalization of costs associated with the exploration for and evaluation of mineral resources. 25

28 The eventual changeover to IFRS represents a change due to new accounting standards and is a significant undertaking that may materially affect the Corporation s reported financial position and results of operations. Throughout the period leading up to the transition, The Corporation has continually assessed the impact of the conversion, and below is a table outlining some of the key milestones, timing, and current status of the Corporation s changeover: Key Activity Timing Current Status Financial Reporting Identify differences in Canadian GAAP and IFRS and effect on accounting policies Overall assessment completed and updated to Q Differences identified and analysis of impact and disclosures ongoing Determine applicable IFRS 1 exemptions Assessment finalized Q Exemptions identified and assessment is ongoing Develop financial statements in accordance with IFRS Quantify effects of change in initial IFRS disclosure and 2010 comparative statements Business activities Assess effect on budgeting and planning processes First financial statements to be filed for Q Initial quantification completed Q Completed Q Accounting policy development initiated, review of comparative adopters in other jurisdictions reviewed. The quantitative impact will be finalized upon completion of transition Budgeting and planning not impacted by conversion Assess need for IFRS training Information technology infrastructure Determine that software and business processes are IFRS compliant Training completed by Q to facilitate parallel processing by Q Completed Q to facilitate parallel processing of 2010 general ledger Training is completed and analysis of the impact on all finance staff is underway Initial assessment completed in conjunction with analysis of accounting policies Assess needs for program upgrades and changes to general ledger Control Environment For accounting policies changes, asses control framework and effectiveness implications Initial assessment completed and to be an ongoing process throughout conversion Control and design effectiveness are continually being monitored throughout the conversion process. Assessment is completed in conjunction with analysis of accounting policies Assessment is completed in conjunction with analysis of accounting policies. Business combinations / consolidated financial statements / non-controlling interests In January 2009, the CICA adopted sections 1582, "Business Combinations", 1601, "Consolidated Financial Statements", and 1602, "Non-Controlling Interests" which superseded current sections 1581, "Business Combinations" and 1600, "Consolidated Financial Statements". These sections will be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, Earlier adoption is permitted. If an entity applies these sections before January 1, 2011, it is required to disclose that fact and apply each of the new sections concurrently. These new sections were created to converge Canadian GAAP to IFRS. 26

29 Off-Balance Sheet Arrangements The Corporation has not participated in any off-balance sheet or income statement arrangements. Risks and Uncertainties At the present time, the Corporation does not hold any interest in a mining property in production. The Corporation's viability and potential success lie in its ability to develop, exploit and generate revenue out of mineral deposits. It is impossible to ensure that the current exploration programs planned by Premier will result in a profitable commercial mining operation. Revenues, profitability and cash flow from any future mining operations involving the Corporation will be influenced by precious and/or base metal prices and by the relationship of such prices to production costs. Such prices have fluctuated widely and are affected by numerous factors beyond the Corporation's control. The exploration activities of the Corporation are subject to various federal, provincial and local laws governing prospecting, development, production, taxes, labour standards and occupational health, mine safety, toxic substances and other matters. Exploration activities are also subject to various federal, provincial and local laws and regulations relating to the protection of the environment. These laws mandate, among other things, the maintenance of air and water quality standards, and land reclamation. These laws also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Although Premier s exploration activities are currently carried out in accordance with all applicable rules and regulations, no assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner which could limit or curtail production or development. Amendments to current laws and regulations governing operations and activities of exploration could have an adverse impact on the Corporation. The exploration and development of mineral properties may require Premier to obtain regulatory or other permits and licenses from various governmental licensing bodies. There can be no assurance that the Corporation will be able to obtain all necessary permits and licenses that may be required to carry out exploration, development and mining operations on its properties. The Corporation has limited financial resources and there is no assurance that additional funding will be available to it for further exploration and development of its projects or to fulfill its obligations under applicable agreements. Although the Corporation has been successful in obtaining financing through the sale of equity securities, there can be no assurance that the Corporation will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of the property interests of the Corporation with the possible dilution or loss of such interests. Controls and Procedures In accordance with the requirements of National Instrument Certification of Disclosure in Issuer s Annual and Interim Filings, the Corporation s management, including Chief Executive Officer (CEO) and Chief Financial Officer (CFO), have evaluated the operating effectiveness of the Corporation s internal control over financial reporting. Management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under, the supervision of, the CEO and CFO and effected by 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. Management assessed the effectiveness of the Corporation s internal control over financial reporting as of September 30, Based on this assessment, management believes that, as of December 31, 2010, the Corporation s internal control over financial reporting is designed effectively. Disclosure controls and procedures are designed to provide reasonable assurance that all relevant Information is gathered and reported to senior management, including the CEO and CFO, on a timely basis so that appropriate decisions can be made regarding annual and interim financial statement disclosure. Management believes these disclosure controls and procedures have been effective during the period ended December 31,

30 Additional Information Additional information relating to the Corporation can be found on SEDAR at or on the Corporation s web-site at John Seaman (Signed) John Seaman Chief Financial Officer Thunder Bay, Canada March 24,

31 Consolidated Financial Statements (Stated in Canadian Dollars) December 31, 2010 and

32 30

33 31

34 (Incorporated under the laws of Ontario) CONSOLIDATED BALANCE SHEETS As at December 31, (Stated in Canadian Dollars) $ $ [restated - note 22] ASSETS Current Cash and cash equivalents [note 4] 51,476,694 21,226,978 Accounts receivable 770, ,188 Prepaids and deposits 59,565 28,887 Total current assets 52,306,288 21,515,053 Investments [note 5] 2,208,815 1,490,150 Equipment [note 6] 32,561 44,478 Mineral properties [note 7] 128,874,203 65,700,001 Mineral properties held for sale [note 8] 102, , ,523,931 88,851,746 LIABILITIES Current Accounts payable and accrued liabilities 3,424,259 1,622,016 Taxes payable 131, ,610 Current portion of long term debt [note 13] 1,407,601 - Total current liabilities 4,963,785 1,768,626 Long term tax payable 93, ,829 Future tax liability [note 16] 16,718,702 7,060,144 Long term debt [note 13] 9,451,036 - Shareholders' equity Share capital Issued Common shares [note 9] 156,523,820 79,084,467 Share purchase warrants [note 10] - 224,436 Contributed surplus [note 12] 12,353,460 7,104,904 Obligation to issue shares - 7,980 Deficit (16,580,515) (6,523,640) Total shareholders' equity 152,296,765 79,898, ,523,931 88,851,746 Commitments [note 19] Contingency [note 23] See accompanying notes to the consolidated financial statements On behalf of the Board: "John Seaman" Director "Ewan Downie" Director 32

35 CONSOLIDATED STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICIT Year ended December 31, (Stated in Canadian Dollars) $ $ [restated note 22] REVENUE Investment income 286,462 44,594 Other income 49,019 43, ,481 88,215 EXPENSES Amortization 11,917 16,164 Stock based compensation [note 11] 8,411,220 3,976,438 Flow through interest penalty 243, ,931 General and administrative [note 18] 2,186,934 1,863,137 Professional fees 522, ,240 Exploration expenses 32,326-11,408,317 6,190,910 Loss before the following (11,072,836) (6,102,695) Change in unrealized gain on investments 2,224,543 2,376,781 Gain on sale of mineral properties - 98,494 Loss on sale of investments (160,917) (1,405,170) Foreign exchange loss (68,186) - Interest expense (266,029) - Write down of mineral property [note 7] (1,767,943) - Loss before income taxes (11,111,368) (5,032,590) Income taxes Current - - Future tax recovery [note 16] (1,054,493) (1,347,998) Loss and comprehensive loss for the year (10,056,875) (3,684,592) Deficit, beginning of year, as previously reported (5,967,256) (2,656,519) Restatement [note 22] (556,384) (182,529) Deficit, end of the year (16,580,515) (6,523,640) Basic and diluted loss per share [note 15] (0.10) (0.05) See accompanying notes to the consolidated financial statements 33

36 CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, (Stated in Canadian Dollars) $ $ [restated note 22] OPERATING ACTIVITIES Loss and comprehensive loss for the year (10,056,875) (3,684,592) Add charges (deduct credits) to earnings not involving a current payment (receipt) of cash Amortization 11,917 16,164 Stock based compensation 8,411,220 3,976,438 Change in unrealized gain on investments (2,224,543) (2,376,781) Gain on sale of mineral properties - (98,494) Write down of mineral properties 1,767,943 - Loss on sale of investments 160,917 1,405,170 Future tax recovery (1,054,493) (1,347,998) Foreign exchange loss 68,186 - (2,915,728) (2,110,093) Net change in non cash working capital balances related to operations (665,007) (198,328) Cash used in operating activities (3,580,735) (2,308,421) INVESTMENT ACTIVITIES Mineral exploration and development expenditures, net (17,928,346) (17,530,124) Acquisition of Saddle Gold (4,187,368) - Proceeds from the purchase of property, plant and equipment, net - (1,396) Proceeds from the sale of investments, net 1,344,961 1,558,378 Cash used in investment activities (20,770,753) (15,973,142) FINANCING ACTIVITIES Shares issued in private placements 54,942,020 20,453,140 Proceeds from the exercise of stock options 3,597,327 1,107,600 Proceeds from the exercise of share purchase warrants 696,121 - Share issue costs (3,121,115) (1,065,919) Repayment of long term debt (1,513,149) - Obligation to issue shares - 7,980 Cash provided by financing activities 54,601,204 20,502,801 Increase in cash and cash equivalents during the year 30,249,716 2,221,238 Cash and cash equivalents, beginning of the year 21,226,978 19,005,740 Cash and cash equivalents, end of the year 51,476,694 21,226,978 See accompanying notes to the consolidated financial statements 34

37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) 1. NATURE OF BUSINESS (the "Corporation" or "Premier") was incorporated under the laws of the Province of Ontario on May 29, 2006, and was inactive until August 18, On August 18, 2006 the Corporation entered into an agreement with Wolfden Resources Inc. ("Wolfden") whereby Wolfden completed a re organization by way of a statutory plan of arrangement (the "Arrangement"). Pursuant to the Arrangement, Wolfden transferred certain of its mineral property interests in Ontario and $2,000,000 cash to the Corporation and each registered holder of Wolfden common shares was entitled to receive one New Wolfden common share and 0.7 of a Premier common share in exchange for each Wolfden common share held by the shareholder immediately prior to the effective date. The mineral properties transferred were recorded at the carrying value of Wolfden immediately prior to the re organization. On October 5, 2008 Premier incorporated a Mexican subsidiary referred to as Oro Premier de Mexico, S.A. de C. V. ("Oro Premier"), in connection with the acquisition of certain mineral claims located in the El Alamo Mining District, Baja California, Mexico. On June 14, 2010 Premier incorporated a United States subsidiary referred to as Premier Gold Mines USA Inc., in connection with the acquisition of Saddle Gold Inc. (see Note 2). The Corporation is in the exploration stage and its principal business activity is the acquisition, exploration and development of mineral properties that it believes contain mineralization that will be economically recoverable in the future. 2. ACQUISITION OF SADDLE GOLD INC. On June 14, 2010 the Corporation acquired Saddle Gold Inc. ("Saddle") by way of a merger transaction whereby a wholly owned Delaware, USA, subsidiary of Premier merged with and into Saddle pursuant to the applicable provisions of the Delaware General Corporation Law. Saddle owns, among other things, the mineral rights in respect of a majority portion of the Saddle Gold Deposit (the "Saddle Property") and a 1.5% production royalty on the Emigrant Springs Deposit, both located in Elko County, Nevada. The aggregate purchase price was US$24,000,000, with Premier paying US$3,100,000 in cash and issuing 5,442,357 common shares at a fair value of CDN$4.00 per share. Included in purchase consideration were CDN$984,000 paid in transactions costs. Following completion of the acquisition, Premier holds all of the assets and liabilities of Saddle, including outstanding debt in the principal amount of US$12,000,000 (see Note 13 Long term debt). The purchase consideration totaling CDN $25,958,791, has been allocated as follows: Cash $ 1,995 Accounts receivable 111,143 Mineral properties 45,045,585 Accounts payable (516,287) Future tax liability (6,380,045) Long term debt (12,303,600) Total net assets $25,958,791 Purchase consideration: 5,442,357 common shares issued $21,769,428 Cash 3,205,363 Acquisition costs 984,000 $25,958,791 35

38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) 3. SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include the accounts of the Corporation and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Subsidiaries The subsidiaries are entities in which the Corporation has the power to control the financial and operating policies. The subsidiaries are consolidated from the date on which the net assets or control is acquired and is no longer consolidated when control ceases. Measurement uncertainty The accompanying consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles. The recovery of the Corporations investment in mineral properties and related deferred expenditures is dependent upon the discovery of economically recoverable reserves, the ability of the Corporation to obtain necessary financing to develop the properties and establish future profitable production from the properties, or from the proceeds of their disposition. The preparation of consolidated financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results may differ from these estimates. Significant estimates used in the preparation of these consolidated financial statements include, but are not limited to, stock based compensation, the valuation of mineral properties, and current and future income taxes. Basis of consolidation These consolidated financial statements include the accounts of the Corporation and its subsidiaries Premier Gold Mines USA Inc. and Oro Premier de Mexico S.A. de C.V.. Cash and cash equivalents Short term investments which have a term to maturity of three months or less from the acquisition date or are cashable without penalty are considered cash equivalents. Revenue recognition Management fees are recorded on the accrual basis as other income in the statement of earnings and deficit. Interest income is recognized on the accrual basis. Stock based compensation All stock based awards made to employees and non employees are measured and recognized using the Black Scholes option pricing model. For employees, the fair value of the options is measured at the date of the grant. For non employees, the fair value of the options is measured on the earlier of the date at which the counterparty performance is complete, the date the performance commitment is reached, or the date at which the equity instruments are granted if they are fully vested and non forfeitable. For employees and non employees, the fair value of options is accrued and charged to operations on a graded basis over the vesting period with the offsetting credit to contributed surplus. If and when the stock options are ultimately exercised, the applicable amounts of contributed surplus are transferred to share capital. No expense is recognized for awards that do not ultimately vest. Income taxes Income taxes are calculated using the asset and liability method of accounting. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that will be in effect when the differences are expected to reverse or losses are expected to be utilized. A valuation allowance is recognized to the extent that the recoverability of future income tax assets is not considered "more likely than not". 36

39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) Loss per common share (LPS) Basic loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year, including contingently issuable shares which are included when the conditions necessary for issuance have been met. Diluted loss per share is calculated in a similar manner, except that the weighted average number of common shares outstanding is increased to include potentially issuable common shares from the assumed exercise of common share purchase options and warrants, if dilutive. The number of additional shares included in the calculation is based on the treasury stock method for options and warrants. The effect of potential issuances of shares under options and warrants would be anti dilutive, and accordingly basic and diluted LPS are the same. Equipment Equipment is recorded at cost. Amortization is recorded on a declining balance basis over the estimated useful life of the asset using the following rate: Computer equipment 30% Those expenditures which extend the useful life of an asset are capitalized, whereas repairs and maintenance expenditures, which do not extend the useful life of an asset, are charged to operations during the period they are incurred. The Corporation evaluates the recoverability of equipment on a periodic basis. Impairment of long lived assets The Corporation reviews the recoverability of its long lived assets at the end of each reporting period and when events and circumstances indicate an impairment event may have occurred. The Corporation assesses the recoverability of its long lived assets by determining whether the carrying value of the long lived assets can be recovered over their remaining lives through undiscounted future operating cash flows. In the event that future recoverability is not supported, the amount of impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Corporation s average cost of funds. If the discounted value of the future cash flows is less than the carrying amount of the asset, impairment is recognized. Mineral properties The cost of mineral properties includes all direct exploration costs including administrative expenses and certain deferred costs that can be directly related to specific projects. Exploration and associated costs relating to non specific projects / properties are expensed in the period incurred. Significant property acquisition, exploration costs relating to specific properties for which economically recoverable reserves are believed to exist are deferred until the project to which they relate is sold, abandoned or placed into production. Costs related to properties abandoned are written off when it is determined that the property has no continuing value. All of the Corporation's properties are in the exploration stage and have not yet attained commercial production. The ultimate realization of the carrying value of properties in the exploration stage is dependent upon the successful development or sale of these properties. Flow through shares The Corporation has financed a portion of its exploration activities through the issuance of flow through shares, which transfer the tax deductibility of exploration expenditures to the investor. The proceeds received on the issue of such shares have been credited to share capital and the related exploration costs have been charged to mineral properties. Resource expenditure deductions for income tax purposes related to exploration activities funded by flow through share arrangements are renounced to investors in accordance with income tax legislation. When these expenditures are renounced, temporary taxable differences created by the renunciation will reduce share capital and increase the future tax liability. Joint ventures Several of the Corporation's exploration projects are conducted through joint venture relationships. The Corporation accounts for its investments in jointly controlled assets using the proportionate consolidation method; accordingly, only the Corporation's proportionate interest in such projects is reflected in the accounts. the balance sheet dates and non monetary items are translated at historical exchange rates. Foreign exchange gains and losses are included in operations. 37

40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) Foreign currency translation The Corporation's subsidiaries are accounted for as integrated foreign operations. Transactions of the Corporation and its subsidiaries originating in foreign currencies are translated at the rates in effect at the time of the transaction. Monetary items denominated in foreign currencies are translated to Canadian dollars at exchange rates in effect at the balance sheet dates and non monetary items are translated at historical exchange rates. Foreign exchange gains and losses are included in operations. Financial instruments Financial assets are classified as held to maturity, loans and receivables, held for trading or available for sale. The held to maturity classification is restricted to fixed maturity instruments that the Corporation intends and is able to hold to maturity. Assets classified as held to maturity or loans and receivables are accounted for at amortized cost. Held for trading assets are recorded at fair value with realized and unrealized gains and losses reported in net income. The remaining financial assets are classified as available for sale and will be recorded at fair value with unrealized gains and losses reported in a new category of the balance sheet under shareholders equity called other comprehensive income. Financial liabilities are classified as either held for trading or other liabilities. Held for trading liabilities are recorded at fair value with realized and unrealized gains and losses reported in net income, and the remaining financial liabilities are classified as other liabilities and accounted for at amortized cost. The Corporation designated its cash and cash equivalents and investments as held for trading which are measured at fair value. Transaction costs are expensed as incurred for financial instruments classified or designated as held for trading. Upon purchase of share units, the Corporation bifurcates the cost between the fair value of the embedded warrant and the share. Accounts receivable and deposits are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities and long term debt are classified as other financial liabilities and measured at amortized cost. The Corporation had no financial instruments available for sale during the year ended December 31, Changes in the fair value of the Corporation's cash and cash equivalents and investments are included in income each period. Fair Value Hierarchy In January 2009, the CICA adopted amendments to sections 3862 "Financial Instruments Disclosures". These amendments require the Corporation to present certain information about financial instruments measured at fair value in the Consolidated Balance Sheets. The hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels: Level 1: quoted prices (unadjusted in active markets for identical assets or liabilities); Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement. Additional disclosure has been provided for in Note 21 as a result of this section. RECENT ACCOUNTING PRONOUNCEMENTS Business combinations / consolidated financial statements / non controlling interests In January 2009, the CICA adopted sections 1582, "Business Combinations", 1601, "Consolidated Financial Statements", and 1602, "Non Controlling Interests" which superseded current sections 1581, "Business Combinations" and 1600, "Consolidated Financial Statements". These sections will be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, Earlier adoption is permitted. If an entity applies these sections before January 1, 2011, it is required to disclose that fact and apply each of the new sections concurrently. These new sections were created to converge Canadian GAAP to IFRS. As the Corporation has not chosen to early adopt, these standards will affect the accounting for any business combinations completed after January 1,

41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) FUTURE ACCOUNTING CHANGES Convergence with International Financial Reporting Standards In 2006, the Canadian Accounting Standards Board ("AcSB") published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with International Financial Reporting Standards (IFRS) over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the transition date for publicly listed companies to implement IFRS, which will replace Canadian GAAP for these types of entities. The effective date for this change is interim and annual financial statements relating to fiscal years beginning on or after January 1, The transition date of January 1, 2010 will require the restatement for comparative purposes of quarterly and annual amounts reported by the Corporation for the year ended December 31, Initial Adoption of IFRS IFRS 1 First time Adoption of International Financial Reporting Standards sets forth guidance for the initial adoption of IFRS. Under IFRS1 the standards are applied retrospectively at the transitional balance sheet date with all adjustments to assets and liabilities taken to retained earnings unless certain exemptions are applied. Following the initial examination the Corporation plans to apply the following exemptions to its opening balance sheet dated January 1, 2010: (i) Business Combinations IFRS 1 indicates a first time adopter may elect not to apply IFRS 3 Business Combinations retrospectively to business combinations that occurred before the date of transition to IFRS. The Corporation will take advantage of this election and will apply IFRS 3 to business combinations that occur on or after January 1, As the Corporation has chosen to apply the IFRS exemption and has no business combinations in fiscal IFRS 3 will affect the accounting for any business combinations completed after January 1, (ii) IFRS 2 Share based payment transactions IFRS 1 encourages, but does not require, first time adopters to apply IFRS 2 Share based Payments to equity instruments that were granted on or before November 7, 2002, or equity instruments that were granted subsequent to November 7, 2002 and vested before the later of the date of transition to IFRS and January 1, The Corporation has elected not to apply IFRS 2 to awards that vested prior to January 1, (iii) IAS 23 Borrowing costs IAS 23 Borrowing costs has not been applied to borrowing costs relating to qualifying assets for which the commencement date for capitalization is on or after January 1, IFRS employs a conceptual framework that is similar to Canadian GAAP. The adoption of IFRS will not have any material impact on the financial information previously disclosed under Canadian GAAP. The Corporation identified the following adjustments as a result of the adoption of IFRS: (i) IFRS requires that the functional currency of each subsidiary of the Corporation be determined separately and that the foreign exchange resulting from the consolidation be recorded in equity rather than in the statement of operations. IFRS 1 provides an exemption and allows for such adjustments to be made as of the transition date, resulting in no change to the December 31, 2009 financial statements on the transition date. For the year ended December 31, 2010, the foreign exchange resulting from the consolidation amounted to a loss of $68,186, which will result in a decrease in the current year s loss in the statement of operations and an Exchange reserve being recorded in the Statement of Equity on application of IFRS. (ii) Income tax expense is calculated in a similar manner in accordance with GAAP and IFRS. Future income tax asset / liability is also calculated in a similar manner in accordance with GAAP and IFRS. However, the treatment of future income taxes with respect to asset purchases will differ and, consequently, the purchase price allocation for the Saddle Gold acquisition will change. 39

42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) In order for the users of the financial statements to better understand other changes between IFRS and GAAP that do not have any quantitative effect or require adjustment to the Corporation s financial statements, the following qualitative explanation of the differences between GAAP and IFRS is provided: (i) Property, plant and equipment under GAAP and IFRS allow the use of original cost less depreciation rates as the cost base. IFRS requires separate depreciation rate for components that depreciate differently. (ii) Exploration for and Evaluation of Mineral Resources under GAAP and IFRS allow the capitalization of costs associated with the exploration for and evaluation of mineral resources. Although there are differences in categorization of expenses under IFRS (distinguishing between property, plant and equipment and intangibles) and timing of the commencement of capitalization, it is not anticipated that they will have a quantitative effect in the Corporation's financial statements. 4. CASH AND CASH EQUIVALENTS $ $ Cash 5,701,995 4,441,479 Short term deposits 45,774,699 16,785,499 51,476,694 21,226,978 As at December 31, 2010, the Corporation held Canadian dollar denominated cashable short term financial instruments maturing within 260 days, yielding 0.90% 1.35% [December 31, days, yielding of 0.080% 1.586%]. 5. INVESTMENTS Fair Value Cost Fair Value Cost $ $ $ $ Equities Canadian equities (*) 1,717, ,000 1,409,400 1,905,177 Other Financial Assets Investment in warrants (**) 491, ,500 80, ,500 2,208,815 1,212,500 1,490,150 2,332,677 (*) Canadian equities represent shares of publicly traded entities listed on Canadian exchanges (**) On December 8, 2010 Premier participated in a private placement with Ashburton Ventures Inc. Premier invested $600,000 in Ashburton through the purchase of 7,500,000 units at $0.08. Each unit consisted of one common share in the capital of the Ashburton and one half a common share purchase warrant. Each full warrant entitles Premier to purchase one additional share at a price of $0.13 cents per share for a period of 18 months from the date of issuance. On the date of grant the warrants had an estimated fair value of $412,500, which was based on an expected volatility of 119%, risk free rate of %, no dividends to be paid, and remaining life of 18 months. These warrants were revalued to a fair value of $491,250 on December 31, The fair value on December 31, 2010 was based on an expected volatility of 119%, risk free rate of %, no dividends to be paid, and remaining life of years. Fair value of equities is determined at the bid price as at December 31, 2010 and December 31,

43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) 6. EQUIPMENT Details of year end equipment balances are as follows: Accumulated Accumulated Cost amortization Cost amortization $ $ $ $ Computer equipment 102,528 69, ,528 58,050 Equipment, net 32,561 44,478 Amortization for the year is $11,917 [2009 $16,164]. 7. MINERAL PROPERTIES Accumulated costs with respect to the Corporation's interest in mineral properties owned, leased or under option, consisted of the following: Deferred Exploration Expenditures Option Payments and acquisition costs Mineral Property Write downs 2010 Total 2009 Total $ $ $ $ $ $ Option Payments Received Rahill - 8,881,224 19,267,617 (440,000) - 27,708,841 26,279,419 Bonanza, Ontario East Bay, 352,995 6,225, ,578,078 6,291,803 Ontario PQ North, 4,713, , ,827,666 3,555,716 Ontario Hardrock, Ontario 34,657,253 4,699, ,356,648 24,952,334 Lennie, Ontario 1,496, ,400 - (1,684,646) - 1,352,579 Redgold, 629, , ,488,815 - Ontario Saddle, 861,982 44,445, ,307,965 - Nevada Other areas 2,663, ,529 (41,500) - 3,606,190 3,268,150 54,255,387 76,784,962 (481,500) (1,684,646) 128,874,203 65,700,001 Rahill Bonanza Project The Bonanza property, located in Dome township within the Red Lake mining district of Ontario, is comprised of 12 patented mining claims; 6 of which were formerly known as the Follansbee property. The property is subject to a 1.7% net smelter return (NSR) in favour of Pure Gold Minerals Inc. ("Pure Gold"), a 0.3% NSR in favour of Eugenic Corp ("Eugenic") which relate to the 6 Bonanza claims, and a 2% NSR in favour of Interquest Incorporated relating to the 6 Follansbee claims. The Corporation has retained a right to purchase a portion, namely a 1% NSR for $1,000,000 and a first right of refusal to purchase the remaining 0.7% NSR from Pure Gold. The Corporation has also retained a first right of refusal to purchase Eugenic's 0.3% NSR. 41

44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) On March 1, 2007 the Corporation acquired the Meunier Claim in Red Lake, Ontario from an unrelated party. As consideration, the Corporation paid $50,000 on execution and issued 50,000 common shares, valued at the trading price of the Corporation's shares at the time the agreement was entered into. An additional $50,000 cash and 50,000 common shares was paid on the 18th month anniversary of the agreement. Costs associated with this acquisition are included within the Rahill Bonanza Project. On May 9, 2007 the Corporation signed an Asset Exchange Agreement (the "Agreement") with Red Lake Gold Mines, an affiliate of Goldcorp Inc. Under the terms of the Agreement, Red Lake Gold Mines agreed to transfer to Premier an undivided 50% interest in and to certain mining claims in the Red Lake District known as the Rahill Wilmar and Kostynuk Properties, and Premier agreed to transfer to the Partnership an undivided 50% interest in and to certain mining claims in the Red Lake District known as the Bonanza and Marathon Properties. On May 29, 2007 the Corporation signed the definitive Joint Venture Agreement. Pursuant to the agreement, Premier funded the initial $1,000,000 in exploration on the project commencing December 1, 2006; the date the original letter of intent was signed. Exploration expenditures in excess of the initial $1,000,000 have been funded on a 50:50 basis. Premier was the operator during the initial period of $5,000,000 in exploration. On January 18, 2008, Goldcorp exercised its option pursuant to the joint venture agreement to increase its interest in the joint venture by 1% to 51% by paying Premier $440,000. By doing this, Goldcorp took over as primary operator of the joint venture. The Corporation now holds a 49% interest in the property and will continue to participate in the ongoing exploration program. East Bay Project The East Bay property, a joint venture with Goldcorp Canada Ltd. ("Goldcorp"), is comprised of 68 unpatented mineral claims located in Bateman township within the Red Lake mining district of Ontario. Pursuant to the joint venture agreement, Goldcorp increased its proportionate interest in the joint venture from 50% to 65% by completing, at its own expense, a feasibility study during the year ended December 31, PQ North The PQ North Project is located in the Musselwhite District of Northwestern Ontario, some 300 kilometres northeast of Red Lake, proximal to Goldcorp's Musselwhite Mine. The property is within 10 kilometres of the Musselwhite Mine surface infrastructure and is accessed by road in winter and by road and lake in summer. Premier holds the right to a 100% interest in the PQ North Property subject to a 2% Net Smelter Returns Royalty of which Premier retains the right to acquire 1% by paying to the vendor $1.0 million. Hardrock Project On September 20, 2007 the Corporation signed a Letter of Intent ("LOI") with Roxmark Mines Limited, now Goldstone Resources Inc. (Goldstone), to jointly explore a portion of Goldstone's land holdings, located in the Geraldton Greenstone belt in Northwestern Ontario. Pursuant to the LOI Premier can earn an initial 51% interest in the project by paying to Goldstone $500,000 cash, issuing 250,000 common shares of the Corporation, and performing $7,000,000 in exploration on the property over a four year period, including a firm commitment of $2,500,000 in the first 12 months. Pursuant to the LOI Premier paid $100,000 cash and issued 100,000 common shares valued at the trading price of the Corporation's shares upon signing of the agreement. In addition, Premier has secured the right to earn an additional 19% interest in the JV (for a total interest of 70%) by making a further cash payment of $250,000 to Goldstone, issuing an additional 150,000 common shares of the Corporation, and bringing the property to a production decision within 5 years of the end of the initial earn in period. The Corporation is the operator of the project. On December 18, 2008, Premier closed the acquisition of mining claims commonly known as the Geraldton, Ozone Creek and Eva Summers properties located in the Geraldton district in the Province of Ontario (collectively the "G L Property"), together with certain equipment and other assets related thereto (the "Purchased Assets"). Premier acquired the G L Property from Lac Properties Inc. ("Lac"), a wholly owned subsidiary of Barrick Gold Corporation (TSX, NYSE: ABX) by (i) issuing to Lac 500,000 common shares of Premier with a fair value of $1,000,000, (ii) making a cash payment to Lac of $1,000,000, (iii) depositing $1,000,000 in an environmental reclamation trust fund in connection with the G L Property, (iv) granting to Lac a 3.0% net smelter return royalty (the "NSR Royalty") on production from the G L Property, and (v) assuming certain liabilities and obligations of Lac in respect of the Purchased Assets. The claims are subject to the NSR Royalty, including those on the Little Long Lac claims which are currently held under option by Premier (this results in a reduction from the current 5% NSR payable on the Little Long Lac claims). 42

45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) Redgold Project In October 2010 the Corporation entered into a Letter of Intent and Option and Purchase Agreements to acquire interests in three adjoining properties located in the Red Lake Mining Division, in the Province of Ontario. The combined property package is called the Redgold Project. The Redgold Project is located 80 km east of the Red Lake Gold Mines complex, within the Birch Uchi greenstone belt. A Letter of Intent with Mainstream Minerals (TSX.V:MJO) provided Premier the opportunity to earn up to a 70% interest in the Bobjo Prospect. A definitive option agreement was signed February 11, Premier can earn its interest by making certain cash and share payments to Mainstream and performing exploration on the Property. An Option and Purchase Agreement was signed on October 15, 2010 providing Premier the option to acquire a 100% interest in the Woco Prospect from Dollard Mines Ltd., a private company, by paying to Dollard $250,000 cash on signing and issuing to Dollard 150,000 shares of Premier over a two year period (50,000 shares on signing and 50,000 shares each on the 12 and 24 month anniversary dates). The Property is subject to a 2% Net Smelter Royalty payable to Dollard, plus an underlying 1% NSR. A Purchase agreement was signed on October 21, 2010 providing for Premier to acquire 100% of the Raingold Property, comprised of 6 Patented mining claims contiguous with the other two properties that make up the Redgold Project, by paying Centaur Mining Exploration Ltd. (the beneficial owner of the property) $200,000 cash on signing and issuing 25,000 shares on signing. Saddle Property, Nevada On June 14, 2010 the Corporation acquired Saddle Gold Inc. ("Saddle"). Saddle owns, among other things, the mineral rights in respect of a majority portion of the Saddle Gold Deposit (the "Saddle Property"). The Saddle Property is located in the heart of the Carlin Trend in Elko, County, Nevada (See Note 2 Acquisition of Saddle Gold Inc.). Other areas Other mineral interests held by the Corporation include the Santa Teresa Mineral Concession and Quasaro located in Mexico. Property dispositions and agreements As at March 31, 2010, the Corporation decided to no longer pursue its option to acquire a 100% interest in the Lennie project, and as such $1,684,646 has been charged against earnings in the period. As well, 20,000 common shares valued at $84,000 were insured to Newcastle Resources Ltd. as an early termination penalty for ending the agreement. 8. MINERAL PROPERTY HELD FOR SALE Newman Madsen Mineral property held for sale includes the Newman Madsen Property with a book value of $102,064 [2009 $102,064]. As at December 31, 2010 the Corporation was in discussions with other parties regarding the possible sale of the Corporation's interest in this mineral property. 43

46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) 9. COMMON SHARES The Corporation is authorized to issue an unlimited number of common shares. Number Value # $ [restated note 22] Balance December 31, 2008, as restated [note 22] 78,065,179 61,499,957 Stock options exercised 588,400 1,107,600 Shares issued for mineral properties 240, ,400 Reallocation from contributed surplus amounts relating to the exercise of stock options - 469,520 Shares issued in private placement #1 4,103,600 14,978,140 Shares issued in private placement #2 1,500,000 5,475,000 Tax effect of flow through share renunciation - (4,071,650) Share issue costs - (1,290,355) Tax effect of share issue costs - 373,855 Balance, December 31, ,497,179 79,084,467 Stock options exercised 1,878,960 3,597,326 Reallocation from contributed surplus amounts relating to the exercise of stock options - 1,982,363 Warrants exercised 252, ,121 Reallocation from share purchase warrants amounts relating to the exercise of share purchase warrants - 224,436 Shares issued for mineral properties 95, ,500 Shares issued in private placement #1 8,000,000 32,000,000 Shares issued in private placement #2 3,000,000 18,000,000 Shares issued in private placement #3 660,000 4,950,000 Shares issued as compensation 290,000 1,180,300 Shares issued for acquisition of Saddle Gold Inc. (note 2) 5,442,357 21,769,428 Tax effect of flow through share renunciation - (5,113,285) Tax effect of share issue costs - 780,279 Share issue costs - (3,121,115) Balance, December 31, ,115, ,523, Shares issued for Mineral Property #1 The Corporation issued 40,000 common shares valued at $78,400 to Newcastle Resources Ltd. on April 14, 2009 upon closing of the agreement to acquire the Lennie Property (note 6 Mineral properties). Shares issued for Mineral Property #2 The Corporation issued 200,000 common shares valued at $464,000 on May 20, 2009 to Roxmark Mines Ltd. in relation to the Geraldton Project Joint Venture agreement dated July 18, 2008 (note 6 Mineral properties). Private Placement #1 On September 17, 2009, the Corporation completed a private placement (the "Offering") of 4,103,600 flow through common shares ("Flow Through Common Shares") at a price of $3.65 per Flow Through Common Share, for gross proceeds of $14,978,140. In consideration of the agents' services in connection with the Offering, the agents were paid an aggregate cash fee equal to 4.5 per cent of the gross proceeds raised in the Offering. In addition, the agents received broker warrants exercisable for common shares of the Corporation equal in number to 4.5 per cent of the Flow Through Common Shares issued pursuant to the Offering. Of the fees paid to the agents, 5% was paid to a company related to the Corporation through a common director. The broker warrants entitle the holder to purchase one common share at a price of $2.60 per common share for period of 12 months after the closing date. 44

47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) Private Placement #2 On November 12, 2009 the Corporation completed a private placement of 1,500,000 flow through common shares (the "Flow Through Share") at a price of $3.65 per Flow Through Share, for gross proceeds of $5,475,000. In consideration of the agents' services in connection with the offering, the agents were paid an aggregate cash fee equal to 3.75 per cent of the gross proceeds raised in the offering. In addition, the agents received broker warrants exercisable for common shares of the Corporation equal in number to 4.5 per cent of the Flow Through Shares issued pursuant to the offering. The broker warrants entitle the holder to purchase one common share at a price of $3.20 per common share for period of 12 months after the closing date Private Placement #1 On February 2, 2010 the Corporation issued 8,000,000 common shares, on a "bought deal" basis, at a price of $4.00 per common share for gross proceeds of $32,000,000. In consideration of the agents' services in connection with the offering, the agents were paid an aggregate cash fee equal to 5 per cent of the gross proceeds raised in the offering. Private Placement #2 On July 15, 2010 the Corporation completed a private placement of 3,000,000 flow through common shares at a price of $6.00 per Flow Through Common Share for aggregate gross proceeds of $18,000,000. Private Placement #3 On December 2, 2010 the Corporation completed a private placement of 660,000 flow through common shares at a price of $7.50 per Flow Through Common Share for aggregate gross proceeds of $4,950,000 Shares issued for mineral property On April 4, 2010 the Corporation issued 20,000 common shares, valued at $84,000, to Newcastle Resources Ltd. as an early termination penalty for ending the agreement on the Lennie property. On October 28, 2010 the Corporation issued 25,000 shares, valued at $136,500, to Centaur Mining Exploration Ltd. in connection with the definitive acquisition of the Raingold Property. On October 28, 2010 the Corporation issued 50,000 shares, valued at $273,000, to Dollard Mines Ltd. in connection with the definitive option and acquisition agreement of the Woco property. Shares issued as compensation On March 24, 2010 the Board approved the issuance of 290,000 common shares to various employees as compensation, accordingly, $1,180,301 was included in stock based compensation during the period. 10. SHARE PURCHASE WARRANTS The following table reflects the continuity of warrants: 2010 December 31, Exercise Opening Warrants Warrants Warrants 2010 Closing Expiry Date Price Balance Issued Exercised Expired Balance $ # # # # # September 17, ,662 - (184,662) - - November 12, ,500 - (67,500) ,162 - (252,162)

48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) 11. SHARE INCENTIVE PLAN The Corporation has a share incentive plan (the "Plan") which is restricted to directors, officers, key employees and consultants of the Corporation. The number of common shares subject to options granted under the Plan (and under all other management options and employee stock purchase plans) is limited to 10% in the aggregate and 5% with respect to any one optionee of the number of issued and outstanding common shares of the Corporation at the date of the grant of the option. Options issued under the Plan may be exercised during a period determined by the Board of Directors which cannot exceed ten years. The following table reflects the continuity of stock options under the Plan: Number of Weighted Average Stock Options Exercise Price # # $ $ Opening balance 4,861,350 2,839, Options granted 3,125,000 2,832, Options cancelled - (222,500) Options exercised (1,878,960) (588,400) ,107,390 4,861, The following table reflects the stock options outstanding as at December 31, 2010: Exercise Options Expiry Date Price Outstanding $ # September 15, ,000 August 8, ,000 March 17, ,000 April 25, ,000 July 29, ,500 October 15, ,000 December 24, ,750 May 27, ,640 June 17, ,791,500 April 13, ,935,000 December 8, ,000 6,107,390 The Corporation applies the fair value method of accounting for all stock based compensation awards and accordingly, $7,230,919 was recorded as compensation for the 3,125,000 stock options that vested during the period. All of the issued options have vested as of December 31, For purposes of the options granted, the fair value of each option was estimated on the date of grant using the Black - Scholes option pricing model, with the following assumptions: no dividends to be paid, expected volatility of 62% to 66%, risk free interest rate of 0.73% to %, expected life of 1 to 5 years. 12. CONTRIBUTED SURPLUS The following table reflects the continuity of contributed surplus: $ Balance, December 31, ,597,986 Stock options vested 3,976,438 Stock options exercised (469,520) Balance, December 31, ,104,904 Stock options vested 7,230,919 Stock options exercised (1,982,363) Balance, December 31, ,353,460 46

49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) 13. LONG TERM DEBT Following completion of the acquisition of Saddle Gold Inc., Premier holds all of the assets and liabilities of Saddle, including outstanding debt in the principal amount of US$10,800,000 pursuant to a 5% promissory note issued by Saddle, through its wholly owned Delaware subsidiary, Premier Gold Mines USA Inc. The Saddle debt is secured against, among other things, the Saddle property and the Emigrant Springs Royalty, and is payable on a declining balance from August 5, 2010, with the last principal and accrued interest payment due on August 5, The following table outlines the future principal payments required over the life of the loan: Anniversary Date Principal Payment ($USD) Principal Payment ($CDN) August 5, ,400,000 1,407,601 August 5, ,600,000 1,608,686 August 5, ,800,000 1,809,950 August 5, ,000,000 2,010,800 August 5, ,000,000 2,010,800 August 5, ,000,000 2,010,800 Total 10,800,000 10,858, SEGMENTED INFORMATION The Corporation s significant segments include three distinct geographic areas. The Canadian operations, which are located in Ontario, are managed from the Corporation s head office in Thunder Bay. The U.S. operations are managed from an office in Delaware. The Mexican operations are managed from an office in Mexico City. Country/ Region LONG TERM ASSETS As at December 31, 2010 As at December 31, 2009 LOSS AND COMPREHENSIVE LOSS Year ended December 31, 2010 Year ended December 31, 2009 [as restated note 22] $ $ $ $ Canada 83,123,626 65,279,620 (8,939,157) (3,663,407) U.S.A. 45,307,965 - (1,094,548) - Mexico 577, ,923 (23,170) (21,185) 129,008,828 65,846,543 (10,056,875) (3,684,592) 15. LOSS PER SHARE The basic loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the period. Fully diluted loss per share is the same as basic loss per share. The effect of common share purchase options and warrants on the net loss is not reflected as to do so would be anti dilutive. The following table sets for the computation of basic and diluted loss per share: [restated note 22] Numerator: Net loss (10,056,875) (3,684,592) Denominator: Weighted average number of common shares 97,273,127 79,828,219 Basic and diluted loss per share (0.10) (0.05) 47

50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) 16. INCOME TAXES Income taxes attributable to loss before income taxes differs from the amount computed by applying the combined tax rate of 31.00% ( %) to pre tax loss as a result of the following: $ $ [restated note 22] Loss before income taxes (11,111,368) (5,032,590) Expected income tax recovery from applying tax rate (3,444,524) (1,660,754) Increase (decreases) from: Stock based compensation 2,241,585 1,312,225 Non deductible and non taxable items (99,870) 19,977 Taxable gain on disposal of resource property - 12,312 Effect of change in statutory income tax rate 248,316 (1,031,758) Income tax recovery (1,054,493) (1,347,998) $ $ Non capital losses 2,998,288 1,803,636 Common share issue costs 939, ,227 Exploration and development expenditures (20,548,571) (9,458,835) Other items (107,662) 119,828 Net future tax liability (16,718,702) (7,060,144) The Corporation has unclaimed common share issue costs of $3,756,975 and non capital losses of $11,993,152 available to reduce future taxable income which expire as follows: $796,409 in 2026, $1,452,463 in 2027, $2,168,658 in 2028, $2,690,305 in 2029, and $4,885,317 in 2030 in Canada. The Corporation also has U.S. and Mexican loss carryforwards for which a future tax asset has not been recognized. In 2010, the Corporation issued a total of 3,660,000 flow through common shares for proceeds of $22,950,000. Resource expenditure deductions for income tax purposes related to exploration and development activities funded by flow through share arrangements are renounced to investors in accordance with Canadian income tax legislation. The renunciation of such expenditures is accounted for as a financing cost related to the flow through issuance and results in a reduction in share capital with a corresponding increase in the Corporation's future tax liability. The Corporation is permitted under Canadian income tax legislation to renounce flow through related resource expenditures to investors in advance of the Corporation incurring the expenditure. In accordance with this legislation, the Corporation has twelve months following the effective date of renunciation to incur the expenditures. The Corporation begins incurring interest charges for unspent funds after two months and fees for unspent funds at the end of the year following the effective date of renunciation, and until such time as funds are fully expended. As at December 31, 2009, the Corporation has renounced 100% of its flow through related resource expenditures to investors. The Corporation had until February 1, 2010 to incur the expenditures before monthly interest charges began to accrue on unspent funds. Interest charges incurred by the Corporation as a result of this income tax legislation are charged to income in the period incurred. Of the $20,453,140 in flow through financing raised in 2009 the Corporation has incurred $20,453,140 in exploration expenditures, therefore fulfilling its obligation. A flow through interest penalty of $243,476 was accrued at year end relating to the flow through financing completed and renounced as at December 31, The Corporation has renounced 100% of its flow through related resource expenditures to investors. Of the $22,950,000 in funds raised in the 2010 financing, $1,779,447 in resource expenditures were incurred by December 31, The remaining $21,170,553 must be incurred by December 31, The Corporation has until February 28, 2011 to incur the expenditures before monthly interest charges will begin to accrue on unspent funds. Interest charges incurred by the Corporation as a result of this income tax legislation are charged to income in the period incurred. 48

51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) 17. SUPPLEMENTAL CASH FLOW INFORMATION $ $ Non cash financing activities Common shares issued for non cash consideration 2,616,299 1,011,920 Warrants issued - 224,436 Share issue costs financed through broker warrants - (224,436) Reduction of contributed surplus and warrants for stock options and warrants exercised (2,206,799) (469,520) 409, ,400 Non cash investing activities Mineral properties financed through common share issuance (409,500) (542,400) RELATED PARTIES The following are the related party transactions, recorded at the exchange amount as agreed to by the parties: [a] Included in general and administrative expenses are amounts totaling $37,119 (2009 $33,381) for corporate secretarial services provided by companies related to the Corporation through a common officer. [b] Included in general and administrative expenditures are amounts totalling $265,832 (2009 $260,831) and included in the mineral property expenditures are amounts totalling $112,102 (2009 $106,434) for rent, facilities related charges, and accounting and management services provided by a company related to the Corporation through common officer and an officer and director. [c] Included in other revenue are amounts totaling $31,800 (2009 $22,950) for rental of a core shack to a company related to the Corporation though a common director. [d] Included in general and administrative expenses are amounts totalling $38,846 (2009 $nil) for consulting fees paid to a company related to the Corporation by a common director. 19. COMMITMENTS (i) The Corporation has commitments relating to a contract for facilities, and management and accounting services expiring June 2011, and operating leases for four vehicles expiring April 2011, September 2011, October 2012 and September 2013 respectively. The minimum annual contractual and lease payments for the next three years are as follows: , , , ,872 $ (ii) The Corporation has $21,170,553 in remaining flow through obligations to be spent by December 31, 2011 (see Note 16). 20. MANAGEMENT OF CAPITAL RISK The Corporation's objective when managing capital is to safeguard the Corporation's ability to continue as a going concern in order to pursue the development of its mineral properties and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk. In the management of capital, the Corporation includes the components of shareholders' equity, as well as cash and cash equivalents and investments. The Corporation manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Corporation may attempt to issue new shares, acquire or dispose of assets, or adjust the amount of cash and cash equivalents and investments. 49

52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) 21. MANAGEMENT OF FINANCIAL RISK The Corporation had no held to maturity or available for sale instruments and no allowance for credit losses as at December 31, 2010 and 2009: Financial Assets Held for trading, measured at fair value Cash and cash equivalents 51,476,694 21,226,978 Investments 2,208,815 1,490,150 Loans and receivables, measured at amortized cost Accounts receivable 770, ,188 Financial Liabilities Other liabilities, measured at amortized cost Accounts payable and accrued liabilities 3,424,259 1,622,016 Long term debt 10,858,637 - (a) Currency risk The Corporation is exposed to the financial risk related to the fluctuation of foreign exchange rates. The functional currency of the corporation is the Canadian dollar. The Corporation operates in Canada, the United States and Mexico and a portion of its expenses are incurred in U.S. dollars, and Mexican Pesos. As at December 31, 2010 the Corporation's subsidiary Premier Gold Mines USA Inc. holds a long term promissory note denominated in U.S. dollars valued at USD$10,800,000, or CDN$10,858,637. There are no significant financial instruments denominated in Mexican Pesos. Changes in the currency exchange rates between the Canadian dollar relative to the U.S. dollar and Mexican Peso could have an effect on the Corporation's results of operations, financial position or cash flows. The Corporation has not hedged its exposure to currency fluctuations. At December 31, 2010 a 100 basis point decrease/ increase in the U.S. dollar would result in a foreign exchange gain/loss of CDN$128,975. (b) Credit risk Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Corporation manages its credit risk by holding cash equivalents and investments through large Canadian financial institutions. Investments (including those presented as part of cash and cash equivalents) are composed of primarily financial instruments guaranteed by the Federal Government of Canada. These investments mature at various dates over the current operating period. The Corporation's receivables consist of sales taxes due from the Federal Governments of Canada and other amounts from Canadian Corporations. (c) Liquidity risk Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation manages liquidity risk through the management of its capital structure. Accounts payable and accrued liabilities are due within the current operating period. (d) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk that the Corporation will realize a significant loss as a result of a decline in the fair market value of investments and other items held within cash and cash equivalents is limited given that the majority of investments have a relatively short maturity. The Corporation manages its interest rate risk with investments by investing the majority of funds in short term investments and therefore is not exposed to significant fluctuations in interest rates. The interest rate risk associated with the Corporation's long term debt relates to the fixed nature of the interest rate. Should there be a significant decrease in the market interest rate, there is potential exposure due to the Corporation locking in at a higher rate. 50

53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 and 2009 (Stated in Canadian Dollars) (e) Fair value Financial instruments consist of cash and cash equivalents, investments, accounts receivable, accounts payable, accrued liabilities and long term debt. The fair value of these financial instruments approximate their carrying value, unless otherwise noted, due to the short terms to maturity. The carrying amount of the Corporation s long term debt approximates the fair value due to the applicable interest rate being in line with market interest rates. (f) Fair value hierarchy The financial assets and liabilities measured at fair value in the Consolidated Balance Sheets are grouped into Level 1 for investments, except for warrants which are grouped into Level PRIOR PERIOD ADJUSTMENT The 2009 comparative figures have been restated to reflect a correction in recording the future income taxes related to share issue costs. The future income tax expense recovery related to share issue costs was initially recorded as a future income tax recovery, whereas it should have been recorded as a credit to share capital. The effect of the restatement has been to increase the 2009 opening deficit and 2009 opening common share value by $182,529, decrease 2009 future income tax recovery by $373,855, increase 2009 common share value by $373,855 and reduce the 2009 basic and diluted loss per share to (0.05). The cumulative effect of the restatement has been to increase the opening 2010 deficit by $556, CONTINGENCY The Corporation has been summoned to appear before the Ontario Court of Justice for a matter related to provincial offences under the Crown Forest Sustainability Act, 1994 in respect of activities that allegedly occurred in 2010 on the Redgold property. Currently the outcome of the charges is not determinable, and the financial impact, if any, will be recorded when the outcome is determinable and the amount is estimable. 51

54 Cautionary Note Regarding Forward-Looking Statements Certain information set forth in this report, including management's assessment of the Corporation's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Corporation s control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be inaccurate and, as such, reliance should not be placed on forward-looking statements. Premier s actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, if any, that Premier will derive there from. Premier 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. 52

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