Ability to Continue as a Going Concern

The unaudited condensed consolidated interim financial statements of Golden Queen Mining Co Ltd. have been prepared using accounting principles generally accepted in the United States (“US GAAP”) applicable to a going concern.

The Company generated $6.0 million in cash from operating activities during the nine months ended September 30, 2017. The Company had a working capital deficit of $9.1 million at September 30, 2017.

The Company is required to pay the following to the Clay Group on the following dates: $5.4 million of accrued interest and principal on January 1, 2018; $3.1 million of interest and principal on April 1, 2018; $3.0 million of interest and principal on July 1, 2018; $3.0 million of interest and principal on and October 1, 2018. The Company will need to receive cash distributions from GQM LLC to service its debt and such distributions are contingent on GQM LLC’s ability to generate positive cash flows. The Company reviewed the mine plan in light of the nine months ended September 30, 2017 results and has determined it is unlikely it will receive sufficient distributions from GQM LLC during this fiscal year to service its debt in early 2018. This situation raises substantial doubt about the Company’s ability to continue as a going concern. Consequently, discussions with the Clay Group to restructure the reimbursement schedule have been initiated. While the Company has been successful in re-negotiating the debt reimbursement schedule with the Clay Group on previous occasions, there can be no assurance that will be achieved going forward.

The Company’s access to the net assets of GQM LLC is determined by the Board of Managers of GQM LLC. The Board of Managers is not controlled by the Company and therefore there is no guarantee that any access to the net assets of GQM LLC would be provided to the Company in order to continue as a going concern. The Board of Managers of GQM LLC determine when and if distributions from GQM LLC are made to the holders of its membership units at their sole discretion.

The unaudited condensed consolidated interim financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used, that would be necessary if the company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.