ARGONAUT GOLD INC. MANAGEMENT S DISCUSSION & ANALYSIS FOR THE THREE MONTHS ENDED MARCH 31, 2014

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1 ARGONAUT GOLD INC. MANAGEMENT S DISCUSSION & ANALYSIS FOR THE THREE MONTHS ENDED MARCH 31, 2014 The following Management s Discussion and Analysis ( MD&A ) of Argonaut Gold Inc. (the Company or Argonaut ) and its subsidiaries has been prepared as at May 5, All dollar amounts are expressed in United States dollars unless otherwise stated (CA$ represents Canadian dollars). This MD&A should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto for the three months ended March 31, The financial statements were prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board and as applicable to interim financial statements. Additional information relating to the Company, including its Annual Information Form, is available under the Company s profile on the SEDAR website at This MD&A contains forward looking information as further described in the "Cautionary Statement" at the end of this MD&A. Reference to the risk factors described in the Cautionary Statement at the end of this MD&A is advised. FIRST QUARTER AND RECENT HIGHLIGHTS FINANCIAL HIGHLIGHTS: Revenues of $39.1 million in the first quarter. Sales of 28,639 ounces of gold in the first quarter (20,906 at El Castillo; 7,733 at La Colorada). Net income of $2.8 million in the first quarter. Cash flow from operating activities before changes in non-cash operating working capital and other items was $12.9 million in the first quarter. Cash and cash equivalents was $59.7 million at March 31, Successfully carried out capital expansion programs to enhance production at El Castillo and La Colorada. o Production increased to 30,963 gold equivalent ounces ( GEOs ) (based on a silver to gold ratio of 55:1), a 4% improvement over the first quarter of 2013 and 7% improvement over fourth quarter of o Cash cost per gold ounce sold of $731 (see Non-IFRS Measures section). COMPANY HIGHLIGHTS: El Castillo GEO production of 22,171 ounces consisting of 21,976 gold ounces and 10,737 silver ounces. 39,924 gold ounces loaded on the leach pads equating to 22,278 projected recoverable gold ounces. Mining: o New mining equipment added to increase capacity from 69 thousand tonnes per day ( ktpd ) to 87 ktpd, or a 26% increase. o Mine plan has moved out of transitional ore into more oxidized material which is expected to result in improved recoveries in the future. Crushing and conveying: o West overland conveyor moved a new record 1,345,339 tonnes. o East crusher 1,497,323 tonnes crushed and loaded to pad. Pad expansion of cell 8 is ahead of schedule. o Cell portion 2a to be completed in June and cell portion 3b to be completed in September. Negotiated new lease for mining equipment which reduced the overall finance cost of the equipment by decreasing the interest rate from 10.4% to 5.7%. La Colorada GEO production of 8,792 ounces, consisting of 7,563 gold ounces and 67,579 silver ounces. An internal assessment of reprocessing old heap leach material shows positive results incorporating four million tonnes of 0.35 grams per tonne ( g/t ) gold and 11.2 g/t silver into the mine plan, with recoveries estimated at 50% gold and 30% silver. 1

2 10,812 gold ounces and 102,766 silver ounces loaded on the pad; 7,048 projected recoverable GEOs to leach pad. An additional secondary cone crusher was added to the crushing circuit in March increasing the crushing circuit to five cones from four cones for a 25% increase in crushing capacity. Former El Castillo crusher in place at La Colorada. Magino Two rounds of heap leach metallurgical test work have been completed at Magino; positive results warranted further test work to analyze the heap leach potential of the lower grade material at Magino. San Antonio The Company was notified on April 10, 2014 that the appeal to overturn the 2012 Medio Impacto Ambiental ( MIA ) ruling was denied. The Company plans to appeal this ruling. The Company continues to work with the municipality to amend the zoning to accommodate the project. The Company believes that the project continues to have strong community support. San Agustin 13,000 metres of drilling completed to date including 12,000 metres of reverse circulation ( RC ) in 119 drill holes and 1,000 metres of core in 13 drill holes. Metallurgical test work: o Core drilling is complete and all PQ core has been shipped to Kappes, Cassiday & Associates in o Reno, Nevada to conduct metallurgical column tests. Run of mine ( ROM ) coarse ore samples have been collected and transported to El Castillo for bulk ROM column testing. 2 RC drill rigs operating at site. Preliminary mineral resource estimate expected by the end of the third quarter or early fourth quarter, followed by a preliminary economic assessment ( PEA ) by year-end. While this asset is not yet categorized as a material property to Argonaut, work is progressing to upgrade historic resource work on this property. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS Argonaut is a public company listed on the Toronto Stock Exchange ( TSX ) and engaged in gold mining, mine development and mineral exploration activities at gold-bearing mineral properties in the Americas. As at March 31, 2014, the Company owns the producing El Castillo mine in the State of Durango, Mexico, the producing La Colorada mine in the State of Sonora, Mexico, the advanced exploration stage San Antonio property in the State of Baja California Sur, Mexico, the advanced exploration stage Magino property in the Province of Ontario, Canada, the exploration stage San Agustin property located 10 kilometres from the El Castillo mine in the State of Durango, Mexico, and several other exploration stage projects, all of which are located in North America. 2

3 SUMMARY OF QUARTERLY RESULTS The following table sets forth selected unaudited quarterly financial information prepared in accordance with IFRS: 2014 Q Q Q Q Q Q Q Q2 Revenue ($000s) $39,054 $34,604 $42,447 $44,930 $43,080 $52,347 $72,875 $37,544 Net income (loss) ($000s) $2,816 $(14,674) $6,577 $6,494 $11,615 $19,070 $27,212 $11,314 Income (loss) per share basic $0.02 $(0.10) $0.04 $0.04 $0.08 $0.19 $0.29 $0.12 Income (loss) per share diluted $0.02 $(0.10) $0.04 $0.04 $0.08 $0.18 $0.26 $0.11 Gold ounces sold 28,639 26,918 30,792 31,756 25,441 29,502 42,534 23,247 Average realized gold price per ounce $1,304 $1,248 $1,331 $1,388 $1,622 $1,698 $1,666 $1,600 In December 2013, Mexico enacted tax reform legislation that increases the effective tax rate applicable to the Company s Mexican operations effective January 1, The law increases the future corporate income tax rate to 30% from 28%, creates a 10% withholding tax on dividends paid to non-resident shareholders (subject to any reduction by an Income Tax Treaty) and implements a new 7.5% Special Mining Duty generally applicable to earnings before income tax, depreciation, depletion, amortization, and interest. During the fourth quarter of 2013, the Company recognized a non-cash charge of $16.8 million related to the deferred tax effect of the above tax changes. Quarterly results are predominantly influenced by the number of ounces of gold sold, the realized price per ounce and the cash cost per ounce of gold sold. The quarterly year-over-year decrease in revenue for the first quarter of 2014 was the result of a lower gold price per ounce, partially offset by an increase in gold ounces sold. The quarterly year-over-year decrease in net income was due primarily to a lower average realized gold price per ounce and a higher cash cost per gold ounce sold (see Non-IFRS Measures section). 3

4 DISCUSSION OF OPERATIONS Unaudited and expressed in $000s Three months ended March 31, Revenue $ 39,054 $ 43,080 Cost of sales Production costs 22,644 16,928 Depreciation, depletion and amortization 8,392 5,193 Total cost of sales 31,036 22,121 Gross profit 8,018 20,959 Exploration expenses General and administrative expenses 3,253 3,447 Profit from operations 4,636 17,199 Finance income Finance expenses (658) (103) Other income (expense) 512 (66) Income before income taxes 4,665 17,338 Income tax expense 1,849 5,723 Net income for the period $ 2,816 $ 11,615 For the three months ended March 31, 2014, as compared against the three months ended March 31, 2013 Revenue for the three months ended March 31, 2014 was $39.1 million, a decrease from $43.1 million during the three months ended March 31, During the first quarter of 2014, gold ounces sold totaled 28,639 (25,441 ounces sold in the same period of 2013) at an average realized price per ounce of $1,304 ($1,622 average price per ounce in the same period of 2013). Production costs for the first quarter of 2014 were $22.6 million, an increase from $16.9 million in the first quarter of The increase in production costs was due to the increase in ounces sold and a higher cash cost per ounce. Cash cost per gold ounce sold (see Non-IFRS Measures section) increased to $731 in the first quarter of 2014 from $594 in the same period of 2013, principally due to a decrease in the average gold grade of material to the leach pad and an increase in mining cost as capitalized stripping decreased. Depreciation, depletion and amortization expense included in cost of sales for the first quarter of 2014 totaled $8.4 million, an increase from $5.2 million in the first quarter of 2013, due to increased ounces sold, as many of the mining assets are amortized on a unit-of-production basis, and the increase in mineral properties, plant and equipment cost in 2013, including the purchase of mining contractor equipment in General and administrative expenses for the first quarter of 2014 were $3.3 million, a slight decrease from $3.4 million in the same period of Income tax expense decreased to $1.8 million during the first quarter of 2014 from $5.7 million in the same period of 2013, primarily due to lower taxable income. Net income for the first quarter of 2014 was $2.8 million or $0.02 per basic share, a decrease from $11.6 million or $0.08 per basic share for the three months ended March 31,

5 El Castillo Mine Operating Statistics Three months ended March 31, Tonnes ore 3,665,557 3,172,772 Tonnes waste 4,163,718 3,013,605 Tonnes mined 7,829,275 6,186,377 Waste/ore ratio Tonnes ore direct to leach pad 822,895 1,729,396 Tonnes crushed East 1,497,323 1,431,686 Tonnes West - overland conveyor 1,345,339 - Gold grade to leach pad (g/t) Gold ounces to leach pad 39,924 36,023 Gold ounces produced 21,976 23,125 Gold ounces sold 20,906 19,509 Silver ounces sold 10,737 8,687 Cash cost per gold ounce sold (see Non-IFRS Measures section) $752 $702 During the first quarter of 2014, the Company mined 7,829,275 tonnes including 3,665,557 ore tonnes. The Company crushed 1,497,323 tonnes, conveyed 1,345,339 tonnes and placed 822,895 tonnes directly to leach pads which resulted in total gold ounces to the leach pad of 39,924. The Company produced 21,976 gold ounces during the first quarter of The Company sold 20,906 gold ounces during the first quarter of 2014 at a cash cost per gold ounce sold of $752 after silver credits (see Non-IFRS Measures section). Capital expenditures during the first quarter of 2014 were $2.9 million primarily for leach pad construction and capitalized stripping. There were $3.0 million in capital expenditures in the first quarter of 2014 in the Corporate and Other segment that is primarily related to mining equipment currently used at the El Castillo mine site. Also included in the El Castillo segment and in addition to those capital expenditures above were $1.0 million primarily related to San Agustin exploration drilling. 5

6 La Colorada Mine Operating Statistics Three months ended March 31, Tonnes ore mined 559, ,637 Tonnes waste mined 4,043,218 3,798,625 Total tonnes mined 4,603,140 4,355,262 Waste/ore ratio Gold grade mined (g/t) Tonnes rehandled 70,429 - Tonnes moved 4,673,569 4,355,262 Tonnes to leach pad including rehandled ore 635, ,272 Gold grade to leach pad (g/t) Gold ounces to leach pad 10,812 5,142 Gold ounces produced 7,563 5,782 Gold ounces sold 7,733 5,932 Silver ounces produced 67,579 44,879 Silver ounces sold 73,211 54,269 GEOs produced (55:1 ratio) 8,792 6,598 GEOs sold (55:1 ratio) 9,064 6,919 Cash cost per gold ounce sold (net of silver credits) (see Non-IFRS Measures section) $674 $240 During the first quarter of 2014, the Company mined 4,603,140 tonnes containing 559,922 ore tonnes. The waste to ore ratio during the first quarter of 2014 was The Company loaded 635,063 tonnes which contained an estimated 10,812 ounces of gold to the leach pads. The Company produced 7,563 gold ounces and 67,579 silver ounces during the first quarter of The Company sold 7,733 gold ounces in the first quarter of 2014 at a cash cost per gold ounce sold of $674 after silver credits (see Non-IFRS Measures section). The cash cost increase is due to the transition from overburden stripping in 2013 to normal capitalized stripping in Capital expenditures during the first quarter of 2014 were $3.7 million primarily for capitalized stripping ($3 million). San Antonio and Magino Projects Capital expenditures for the San Antonio project during the first quarter of 2014 were $0.5 million, primarily for capitalized exploration, permitting and administrative expenses. The Company continues to pursue approvals for its San Antonio project. As previously disclosed, on August 2, 2012 the Secretary for Environment and Natural Resources denied the authorization for a MIA for the Company's San Antonio project due to municipal zoning incompatibility over a portion of the site. In response, the Company appealed the determination in connection with its MIA before Mexican Federal Court. The Company s appeal regarding the MIA authorization was denied by the Mexican Federal Court on April 10, The Company will appeal the decision of the Mexican Federal Court and is also working with the local municipality to seek an amendment to the zoning. The Company believes that the project continues to have strong community support. Capital expenditures for the Magino project during the first quarter of 2014 were $1.7 million, primarily for capitalized exploration, permitting and administrative expenses. Argonaut continues to work towards permitting these projects and has engaged the community, regulators, and various agencies toward defining projects within the jurisdictional guidelines that will be acceptable to all parties. 6

7 LIQUIDITY AND CAPITAL RESOURCES The Company s cash and cash equivalents balance as at March 31, 2014 was $59.7 million as compared to $81.1 million as at December 31, Additionally, the Company had restricted cash of $1.8 million as at March 31, 2014 related to the surface and mining rights exchange agreement signed with Richmont Mines Inc. ( Richmont ) in October The closing of this arrangement is conditional upon receiving consents and approvals required from certain persons or governmental bodies. Cash Flows For the three months ended March 31, 2014, as compared to the three months ended March 31, 2013 During the first quarter of 2014, cash decreased by $21.3 million due primarily to capital expenditures incurred and cash paid to extinguish certain mining equipment leases, as compared to the first quarter of 2013 in which cash decreased by $22.3 million due primarily to capital expenditures incurred and cash paid in relation to the acquisition of businesses. Cash provided by operating activities totaled $2.9 million in the first quarter of 2014, as compared to $1.8 million generated in the first quarter of Cash from operations before changes in non-cash operating working capital and other items in the first quarter of 2014 was $12.9 million, as compared to $19.4 million generated in the first quarter of The decrease in cash from operations is primarily related to the decrease in average realized gold price per ounce sold in the first quarter of 2014 as compared to the first quarter of Cash used in investing activities totaled $13.6 million in the first quarter of 2014, versus $21.3 million used in the first quarter of The cash used in investing activities in the first quarter of 2014 consists primarily of capital expenditures of $13.6 million principally related to the El Castillo mine, La Colorada mine and Magino project. Investing activities during the first quarter of 2013 consisted primarily of capital expenditures of $16.5 million principally related to the El Castillo mine, La Colorada mine and Magino project and cash payments of $5.3 million related to the acquisition of businesses. Cash used in financing activities totaled $8.1 million in the first quarter of 2014, as compared to $0.1 million used in the first quarter of During the first quarter of 2014, the Company made debt and interest payments of $7.9 million and $0.3 million, respectively, on the leased mining fleet, including cash paid to extinguish certain finance lease obligations. During the first quarter of 2013, the Company received $0.6 million for the exercise of options, partially offset by the repayment of debt of $0.5 million. Total assets decreased to $925.8 million as at March 31, 2014, as compared to $942.5 million as at December 31, 2013, principally due to the decrease in cash and cash equivalents and the effects of foreign currency fluctuations on mineral properties, plant and equipment. Total liabilities decreased to $110.4 million as at March 31, 2014, as compared to $117.7 million as at December 31, 2013, as a result of the extinguishment of certain finance lease obligations. Liquidity Outlook In 2014, the Company plans to produce between 135,000 and 150,000 GEOs (based on a silver to gold ratio of 55:1). Cash cost per ounce of gold sold (see non-ifrs measures section) in 2014 is expected to be between $750 and $775 per ounce. The Company plans on investing a total of $43 to $63 million on capital expenditures and exploration initiatives in Major capital expenditures in 2014 are expected to include approximately $15 million at El Castillo (including mining service company expenditures and capitalized stripping), $13 million at La Colorada (predominately capitalized stripping of $9 million), $3 to $23 million at San Antonio (subject to permits being granted), $3 million at San Agustin and $4 million at Magino. Exploration expenditures in 2014 are expected to amount to approximately $5 million. 7

8 Subsequent to March 31, 2014, the Company entered into a new finance lease for heavy mining equipment, receiving cash of $5.7 million. This lease replaces certain finance lease obligations that were extinguished in the first quarter of 2014, resulting in a decrease in the interest rate on leased assets from 10.4% to 5.7%. The Company s cash and cash equivalents balance and the cash expected to be generated from the operation of the El Castillo and La Colorada mines during 2014 are anticipated to be sufficient to meet the planned development and operating activities of the Company for the next 12 months. If required, the Company anticipates it can raise cash from debt financing or proceeds from sale of shares to meet its cash requirements. The Company s results are highly dependent on the price of gold and future changes in the price of gold will therefore impact performance. Readers are encouraged to read the Risk Factors contained in the Company s 2013 Annual Information Form. The following table summarizes the Company s undiscounted payments for commitments and contractual obligations: Expressed in $000s Thereafter Total Operating lease obligations $ 654 $ 599 $ 396 $ 291 $ 38 $ - $ 1,978 Land agreement obligations ,466 3,418 Purchase obligations (1) 7, ,414 Finance lease obligations 3,924 1,573 1, ,725 Deferred cash consideration 10,000 20, ,000 Reclamation and remediation provision ,545 9,545 $ 22,335 $ 22,560 $ 2,021 $ 698 $ 455 $ 11,011 $ 59,080 (1) As at March 31, 2014, the Company has entered into commitments totaling $7.4 million for supplies to be provided during The profitability and operating cash flow of Argonaut are affected by various factors, including the amount of gold produced at the mines, the market price of gold, operating costs, interest rates, regulatory and environmental compliance, the level of exploration activity and capital expenditures, general and administrative costs, and other discretionary costs and activities. Argonaut is also exposed to fluctuations in currency exchange rates, interest rates, regulatory, licensing and political risks and varying levels of taxation that can impact profitability and cash flow. Argonaut seeks to manage the risks associated with its business operations; however, many of the factors affecting these risks are beyond the Company s control. The Company s financial performance, including its profitability and cash flow from operations, is tied to the price of gold and cost of inputs to its gold production. The price of gold itself is the greatest factor in profitability and cash flow from operations, and should be expected to continue to be impacted by market factors. The price of gold is subject to volatile price movements which can take place over short periods of time and are affected by multiple macroeconomic and industry factors that are beyond the control of the Company. Some of the major recent factors influencing the price of gold include currency exchange rates, the relative value of the US dollar, supply and demand for gold and more general economic results and projections such as interest rate and inflation projections and assumptions. Commodity prices in general continue to see volatility as economies around the world continue their cautious recovery from the economic difficulties experienced over the last several years. Volatility in the price of gold may impact the Company s revenue, while volatility in the price of other commodities, such as oil, may have an impact on the Company s operating costs and capital expenditure deployment. 8

9 CONTINGENCIES Various tax and legal matters are outstanding from time to time. Judgments and assumptions regarding these matters are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations. In the event that management s estimate of the future resolution of these matters changes, the Company will recognize the effects of these changes in the consolidated financial statements on the date such changes occur. In October 2013, the Company signed a surface and mining rights exchange agreement with Richmont. Pursuant to this agreement, Argonaut will expand its surface and mining rights associated with its Magino project. The terms of this agreement provide for a CA$2 million payment from Argonaut to Richmont. The closing of this transaction is conditional upon receiving consents and approvals required from certain persons or governmental bodies. FINANCIAL INSTRUMENTS Marketable securities are recorded at fair value. The carrying amounts of cash and cash equivalents, restricted cash, receivables, and accounts payable and accrued liabilities are considered to be reasonable approximations of their fair values due to the short-term nature of these instruments. At March 31, 2014 and December 31, 2013, the carrying amount of deferred cash consideration is considered to be a reasonable approximation of its fair value, as the calculation of the estimated net present value of the deferred cash consideration was performed on December 30, The carrying amount of debt is less than the fair value at March 31, 2014 by $0.5 million (December 31, $0.6 million). The carrying amount of debt differs from its fair value at March 31, 2014 as a result of changes in market interest rates since acquisition. OUTSTANDING SHARE DATA As at March 31, 2014, the Company had 154,396,616 common shares and 3,182,042 stock options issued and outstanding. During the quarter ended March 31, 2014, the Company granted 418,510 stock options under the amended and restated 2010 share incentive plan. During the quarter ended March 31, 2014, the Company also granted 250,183 restricted shares under the amended and restated 2010 share incentive plan. During the quarter ended Mach 31, 2014, 17,394 stock options were exercised. As of May 5, 2014, the Company had 154,396,616 common shares and 3,182,042 stock options issued and outstanding. The Company s shares trade on the TSX under the symbol AR. CRITICAL ACCOUNTING ESTIMATES The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may vary from those estimates due to inherent uncertainty or other factors. The Company regularly reviews its estimates. Revisions to estimates and the resulting effects on the carrying amounts of the assets and liabilities are accounted for prospectively. Key sources of estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below. Fair value of assets and liabilities acquired through an acquisition Judgment and estimates are used to determine the fair value of the assets and liabilities acquired resulting from an acquisition. In the determination of the fair value of the assets and liabilities, management makes certain judgments and estimates regarding mineral reserves, resources, exploration potential, capital expenditures, commodity prices, operating costs, economic lives, reclamation costs and discount rates, among others. It may take time to obtain the information necessary to measure their fair values. In the case of a business combination, changes to the provisional measurements of assets and liabilities acquired may be retrospectively adjusted when new information is obtained until the final values are determined. 9

10 Work-in-process inventory / Production costs The Company s management makes estimates of the amount of recoverable ounces in work-in-process inventory which is used in the determination of the cost of goods sold during the period. Changes in these estimates can result in a change in carrying amount of inventories and mine operating costs of future periods. The Company monitors the recovery of gold ounces from the leach pad and may refine its estimate based on these results. Assumptions used in inventory valuation include tonnes mined, rock density, grams of gold per tonne, recovery rate, assays of ore tonnes, solutions and gold on carbon, among others. At March 31, 2014, the carrying amount of inventories was $65.9 million (December 31, $61.1 million). Mineral properties The cost of acquiring, exploring and developing mineral properties and the cost to increase future output by providing access to additional mineral reserves or resources, are deferred. After a mine commences production, these costs are amortized over the proven and probable mineral reserves to which they relate if available; otherwise, the Company will use its best estimate based on measured and indicated mineral resources. The determination of mineral reserves and resources is complex and requires the use of estimates and assumptions related to geological sampling and modeling, future commodity prices and costs to extract and process the ore. The mineral reserve is used in estimating the value of the mineral property and in the determination of recoverable ounces which is further used in depletion and depreciation calculations. At March 31, 2014, the carrying amount of mineral properties, including exploration and evaluation assets, was $653.8 million (December 31, $662.1 million). Impairment of non-current assets At each reporting date, the Company reviews its non-current assets to determine whether there are any indications of impairment. Calculating the estimated recoverable amount of the CGUs for non-current asset impairment tests requires management to make estimates and assumptions with respect to estimated recoverable reserves, resources, estimated future commodity prices, the expected future operating and capital costs and discount rates. Changes in any of the assumptions or estimates used in determining the recoverable amount could impact the impairment analysis. Deferred income taxes The determination of income tax expense and deferred income tax involves judgment and estimates as to the future taxable earnings, expected timing of reversals of deferred tax assets and liabilities, and interpretation of laws in the countries in which the Company operates. The Company is subject to assessments by tax authorities who may interpret the tax law differently. Changes in these estimates may materially affect the final amount of deferred income taxes or the timing of tax payments. Reclamation and remediation provisions Reclamation and remediation provisions represent the present value of estimated future costs for the reclamation of the Company s mines and properties. These estimates include assumptions as to the cost of services, timing of the reclamation work to be performed, inflation rates, exchange rates and interest rates. The actual cost to reclaim a mine may vary from the estimated amounts because there are uncertainties in factors used to estimate the cost and potential changes in regulations or laws governing the reclamation of a mine. Management periodically reviews the reclamation requirements and adjusts the liability as new information becomes available and will assess the impact of new regulations and laws as they are enacted. At March 31, 2014, the carrying amount of the Company s provision for reclamation and remediation cost obligations was $7.3 million (December 31, $7.2 million). 10

11 DISCLOSURE CONTROLS AND PROCEDURES The Canadian Securities Administrators have issued National Instrument Certification of Disclosure in Issuers Annual and Interim Filings ( National Instrument ) which requires public companies in Canada to submit annual and interim certificates relating to the design and effectiveness of the disclosure controls and procedures that are in use at the company. The Company s disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported on a timely basis to senior management, including the Company s Chief Executive Officer and Chief Financial Officer, to enable this information to be reviewed and discussed so that appropriate decisions can be made regarding the timely public disclosure of the information. INTERNAL CONTROL OVER FINANCIAL REPORTING National Instrument also requires public companies in Canada to submit interim and annual certificates relating to the design of internal control over financial reporting ( ICFR ) and an annual certificate that includes evaluating the effectiveness of ICFR. The Company s ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Management is responsible for establishing and maintaining ICFR. The Company has continued to use the 1992 Commission of Sponsoring Organizations of the Treadway Commission (COSO) framework as the basis for designing its ICFR. Due to its inherent limitations, ICFR may not prevent or detect misstatements on a timely basis as such systems can only be designed to provide reasonable as opposed to absolute assurance. Also, projections of any evaluation of the effectiveness of ICFR to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Changes to Internal Control over Financial Reporting National Instrument also requires public companies in Canada to disclose in their MD&A any change in ICFR during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, ICFR. There were no changes in ICFR during the quarter ended March 31, 2014 that materially affected or are reasonably likely to materially affect the Company s ICFR. 11

12 NON-IFRS MEASURES The Company has included a non-ifrs measure for Cash cost per gold ounce sold in this MD&A to supplement its financial statements which are presented in accordance with IFRS. The Company believes that this measure provides investors with an improved ability to evaluate the performance of the Company by providing control of production costs and trends in cash costs of the Company. Management also uses this measure to monitor internal performance. Non-IFRS measures do not have any standardized meaning prescribed under IFRS. Therefore they may not be comparable to similar measures employed by other companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The following table provides a reconciliation of cost of sales per the financial statements to cash cost per gold ounce sold: Three months ended March 31, El Castillo Production costs (1) ($000s) $15,934 $13,939 Less silver sales ($000s) $217 $253 Net cost of sales ($000s) $15,717 $13,686 Gold ounces sold 20,906 19,509 Cash cost per gold ounce sold $752 $702 Three months ended March 31, La Colorada Production costs (1) ($000s) $6,710 $2,989 Less silver sales ($000s) $1,495 $1,568 Net cost of sales ($000s) $5,215 $1,421 Gold ounces sold 7,733 5,932 Cash cost per gold ounce sold $674 $240 Three months ended March 31, All Mines Production costs (1) ($000s) $22,644 $16,928 Less silver sales ($000s) $1,712 $1,821 Net cost of sales ($000s) $20,932 $15,107 Gold ounces sold 28,639 25,441 Cash cost per gold ounce sold $731 $594 (1) Excludes depreciation, depletion and amortization. 12

13 CAUTIONARY STATEMENT Readers of this MD&A are encouraged to read the Risk Factors as more fully described in the Company s filings with the Canadian Securities Administrators, including its Annual Information Form for the year ended December 31, 2013, available on SEDAR at Important risk factors to consider, among others, are Commodity Price Volatility Uncertainty in the Estimation of Mineral Reserves and Mineral Resources Uncertainty of Exploration and Development The Company May Not Achieve its Production Estimates Environmental Risks and Hazards Permitting Risk This MD&A includes certain forward-looking information within the meaning of applicable Canadian securities legislation. All statements, other than statements of historical facts, included in this MD&A that address activities, events, or developments that the Company expects or anticipates will or may occur in the future, including such things as future business strategy, competitive strengths, goals, expansion and growth of the Company s businesses, operations, plans and other such matters are forward-looking information. When used in this MD&A, the words estimate, plan, anticipate, expect, intend, believe and similar expressions are intended to identify forward-looking information. This information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Examples of such forward-looking information include statements pertaining to, without limitation, the future price of gold, the estimation of the mineral reserves and resources, the realization of mineral reserve and resource estimates, the timing and amount of estimated future production at the El Castillo and La Colorada mines, costs of production (including cash cost per ounce of gold sold), expected capital expenditures, costs and timing of development of new deposits, success of exploration activities, permitting requirements, currency fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks and hazards, title disputes or claims and limitations on insurance coverage. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated, or intended. There can be no assurance that such information will prove to be accurate as actual results may differ materially from those anticipated. Many factors are beyond the Company s ability to predict or control. Readers of this MD&A are cautioned not to put undue reliance on forward-looking information due to its inherent uncertainty. Argonaut disclaims any intent or obligation to update any forward-looking information, whether as a result of new information, future events or results or otherwise. This forward-looking information should not be relied upon as representing management s views as of any date subsequent to the date of this MD&A. 13

14 Technical Information and Qualified Person The technical information contained in this document has been prepared under supervision of, and reviewed and approved by Mr. Thomas H. Burkhart, Argonaut's Vice President of Exploration, and a qualified person as defined by National Instrument For further information on the Company s properties please see the reports as listed below on the Company s website or on El Castillo Mine NI Technical Report on Resources and Reserves, Argonaut Gold Inc., El Castillo Mine, Durango State, Mexico dated February 24, 2011 La Colorada Mine NI Preliminary Economic Assessment La Colorada Project, Sonora, Mexico dated December 30, 2011 Magino Gold Project NI Technical Report and Mineral Resource Estimate on the Magino Gold Project, Ontario, Toronto, Canada dated January 30, 2014 San Antonio Gold NI Technical Report and Mineral Resource Estimate on the San Antonio Gold Project Project, Baja California Sur, Mexico dated October 10, 2012 The San Agustin project is not a material property of Argonaut. For further information on the San Agustin project, please see the historic estimates disclosed in the technical report title "San Agustin Resource Estimate" dated March 2009 and available under Silver Standard at Per Silver Standard, the historic mineral reserves estimate was completed by Gilles Arseneau, Ph.D., P.Geo., a Qualified Person, pursuant to NI , in a technical report completed by Wardrop, a TetraTech company, entitled San Agustin Resources Estimate dated March, This report was reviewed by Thomas Burkhart on behalf of Argonaut Gold, who has concluded that it continues to be relevant and reliable as a basis for understanding the potential resources at the property. To the best of Argonaut Gold's knowledge, information and belief, there is no new material, scientific or technical information that would make the disclosure of the mineral resources inaccurate or misleading. Argonaut Gold has not done sufficient work to classify the historic estimate as current mineral resources or mineral reserves and is not treating the historical estimate as current mineral resources or mineral reserves. The Company plans to complete a 25,000 metre drill program to update the resource model and verify or upgrade the historic work to support the development of a current estimate. 14