Anacortes Mining Corp. — Management Reports 2023

Apr 18, 2023

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

General

On October 6, 2021, the Company changed its corporate name from First Light Capital Corp. to Anacortes Mining Corp. The Company is listed on the TSX Venture Exchange under the symbol 'XYZ.V' and is a reporting issuer in Ontario, Alberta and BC. The Company is also listed on the OTC Markets Group (OTCQX) under the symbol 'XYZFF'.

The following Management's Discussion and Analysis ("MD&A") is intended to assist the reader to assess material changes in financial condition and results of operations of Anacortes Mining Corp. ("Anacortes" or the "Company") as at and for the years ended December 31, 2022 and 2021. This MD&A should be read in conjunction with the audited consolidated financial statements and the notes thereto as at and for the year ended December 31, 2022. These audited consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

All dollar amounts are expressed in Canadian dollars unless otherwise indicated. Note that additional information relating to the Company is available on SEDAR at www.sedar.com. This MD&A contains forward-looking statements. Please refer to the cautionary language at the end of this document.

The effective date of this MD&A is April 14, 2023.

Contents of the MD&A

• 1. Highlights for the year ended December 31, 2022 and outlook for 2023
• 1. Overview
• 1. Tres Cruces Project (including summary of the Preliminary Economic Assessment)
• 1. Results of operations
• 4.1 Results of operations for years ended December 31, 2022 and 2021
• 4.2 Results of operations for the three months ended December 31, 2022 and 2021
• 1. Selected annual and quarterly information
• 1. Liquidity and capital resources
• 1. Outstanding share data
• 1. Transactions between related parties
• 1. Off-balance sheet transactions
• 1. Proposed transactions and subsequent events
• 1. Use of accounting estimates and judgments
• 1. Financial instruments
• 1. Risk factors
• 13.1 Financial
• 13.2 Industry

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

• 13**.**3 Metal prices
• 13.4 Political risk
• 13.5 Environmental and governmental regulations
• 13.6 COVID-19 global pandemic
• 1. Cautionary statement on forward-looking information
• 1. Approvals
• 1. Additional information

1. Highlights for the Year Ended December 31, 2022

• During the year ended December 31, 2022, the Company spent $6,129,156 on its Tres Cruces Project in Peru. This included the completion of a Preliminary Economic Assessment ("PEA") and Phase 1 of a drilling program.
• The PEA was completed in March 2022 and highlights include a pre-tax net present value at a 5% discount rate ("NPV 5%") of US$294.3 million, an after-tax NPV 5% of US$165.9 million and an aftertax internal rate of return ("IRR") of 33.0% with a 2.1 year payback at US$1,700/oz.
• In 2022, the Company also incurred $591,350 in property investigation costs ($nil in the year ended December 31, 2021) as it entered into discussions with various third parties regarding the acquisition of complementary assets, the sale of the Company to logical suitors, or the business combination of the Company with another company. During 2022, none of the discussions led to the consummation of a transaction.
• During the year ended December 31, 2022, the Company incurred a net loss of $3,137,356 compared to $19,424,280 in 2021.
• As at December 31, 2022, the Company had a cash position of $4,827,272 (December 31, 2021 $12,862,013.
• On March 6, 2023, the Company entered into a binding letter of intent with Steppe Gold Ltd. ("Steppe Gold") pursuant to which Steppe Gold, either directly or through a wholly-owned subsidiary, will acquire all of the issued and outstanding common shares of Anacortes by way of a court approved plan of arrangement under the Business Corporations Act (British Columbia), in an all-share transaction.

2. Overview

On October 6, 2021, the Company closed a transaction with New Oroperu Resources Inc. pursuant to a definitive arrangement agreement entered into by both parties on June 16, 2021 to combine and create Anacortes Mining Corp. As a result of the transaction, Anacortes owns a 100-per-cent interest in the Tres Cruces gold project located in Peru. Tres Cruces is one of the highest-grade undeveloped gold oxide deposits globally and hosts oxide plus sulphide indicated resources of 2,474,000 oz at 1.65 g/t gold, inclusive of 630,000 oz of high-grade leachable gold at 1.28 g/t gold and inferred resources of 104,000 oz at 1.26 g/t gold. The PEA on the leachable resource at Tres Cruces released earlier in 2022 indicates a robust open-pit, heap leach project. Anacortes intends to advance the Tres Cruces Oxide Project through feasibility, permitting and to production while continuing to seek further growth opportunities in the Americas, with the goal of creating a mid-tier multi-asset gold producer.

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

3. Tres Cruces Project

The Tres Cruces Oxide Project is strategically located in a highly prospective geological belt that hosts significant gold deposits such as Lagunas Norte (which is located within 10 km), Yanacocha and Pierina. Tres Cruces is underexplored with oxide and sulphide resource growth potential. It has not been drilled since 2008 when gold prices were approximately US$850/oz, and several of the best drill intercepts from the previous drilling campaign are below and outside of the current pit-constrained mineral resource.

The Company released its Preliminary Economic Assessment (PEA) on Tres Cruces in March 2022. Highlights of the PEA are:

PEA ASSUMPTIONS AND RESULTS
Description	Units
Net Present Value (NPV 5%) Pre-Tax	US$ (million)	$294.3
Net Present Value (NPV 5%) After-Tax	US$ (million)	$165.9
After-Tax Internal Rate of Return (IRR)	%	33.0
Payback Period	Years	2.1
LOM Cumulative Cash Flow	US$ (million)	$235.6
LOM All-In Sustaining Costs (AISC)	US$/oz	$786
Pre-Production CAPEX	US$ (million)	$125.2
Sustaining CAPEX (LOM)	US$ (million)	$5.2
Mine Life	Years	7
Average Processing Rate	Tonnes/day	5,800
LOM Strip Ratio		2.89:1
Average Gold Recovery	%	81.7
Average Annual Gold Production	Oz/year	68,000
Total LOM Gold Production	Ounces	481,000

This PEA was prepared in accordance with National Instrument 43-101 ("NI 43-101") and evaluates the economics of mining the Tres Cruces Oxide Gold Deposit through conventional open pit mining and heap leach processing for gold recovery to doré. The study was prepared by M3 Engineering and Technology of Tucson, Arizona and Lima, Peru, in cooperation with Nilsson Mine Services of Pitt Meadows, BC, Transmin Ltd., of Lima, Peru, Advantage Geoservices Ltd. of Osoyoos, BC, and Jeffrey Rowe of Surrey, BC.

For more information on the PEA, including gold price sensitivity analysis, please see the press release dated March 8, 2022. The complete PEA can also be found on SEDAR and the Company's website.

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no guarantee that the inferred mineral resources can be categorized as Indicated or Measured mineral resources or mineral reserves, and as such there is no guarantee that the project and the economics of that project as described in this report can be achieved.

The Company released the results of its first four drill holes on July 19, 2022 and on August 4, 2022. The following is a tabular summary of those results. For more information, please refer to the above-dated news releases.

Hole	Azimuth / dip(degrees) / Final	From (m)	To (m)Interval		Lithology /Alteration	Gold(g/t)
	depth (m)
ATC-500		8.00 m	43.90 m	35.90 m	Andesite /MassiveSilica	0.64
ATC-500	10° / -55° / 150.0 m	49.20 m	73.00 m	23.80 m	Andesite /Argillic	1.75
ATC-500		85.00 m	150.00 m	65.00 m	Andesite /Argillic	0.66
ATC-501		28.35 m	110.90 m	82.55 m	Andesite /MassiveSilica	1.62
ATC-501		115.50 m	238.60 m	123.10 m	Andesite /Argillic	2.11
ATC-501	270°/ -85°/ 496.30 m	326.10 m	330.50m	4.40 m	Andesite /Argillic	0.70
ATC-501		415.75 m	418.60 m	2.85 m	Andesite /Argillic	0.50
ATC-501		454.20 m	458.65 m	4.45 m	Andesite /Argillic	0.34
ATC-502	165° / -60° / 120.0 m	0.90 m	9.90 m	9.00 m	Dacite andAndesite /MassiveSilica	0.44
ATC-502		15.85 m	19.30 m	3.45 m	Dacite /Silica	0.55
ATC-502		44.10 m	46.85 m	2.75 m	Andesite /Argillic	0.52
ATC-504	0°/ -90°/ 256.80 m	40.50 m	183.40 m	142.90 m	Dacite andAndesite /MassiveSilica andArgillic	1.43
ATC-504		190.0 m	192.35 m	2.35 m	Andesite /Argillic	0.92
ATC-504		194.20 m	233.60 m	39.40 m	Andesite /Argillic	1.45

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

4. Results of Operations

	Three months ended Dec 31,				Twelve months ended Dec 31,
	20212022		2022		2021
Expenses
Transaction costs	$-	$	15,702,607	$-	$	16,397,735
Consulting fees	30,428		23,782	108,411		177,863
Directors' fees	33,293		27,361	119,543		60,427
General and administration	5,473		9,829	17,660		31,817
Salaries and benefits	610,581		122,473	1,192,161		122,473
Insurance	7,813		8,087	31,250		28,090
Legal and audit	10,528		90,283	137,358		135,750
Property investigations	328,750		-	591,350		-
Regulatory fees	6,092		25,652	73,615		54,636
Travel	1,037		1,029	32,232		1,029
Shareholder communications	103,634		123,516	374,575		169,201
Share-based payments	499,327		2,182,376	657,832		2,298,137
	(1,636,956)		(18,316,995)	(3,335,987)		(19,477,158)
Other
Interest income	51,180		3,348	133,488		8,625
Foreign exchange gain (loss)	(10,678)		44,777	65,143		44,253
Net loss	$(1,596,454)	$	(18,268,870)	$(3,137,356)	$	(19,424,280)
Other comprehensive income (loss)
Gain (loss) on foreign currency
translation	$211,967	$	(2,561)	$394,530	$	(2,561)
Net loss and other comprehensive
loss for the period	$(1,384,487)	$	(18,271,431)	$(2,742,826)	$	(19,426,841)
Basic and diluted loss per share	$(0.04)	$	(0.44)	$(0.07)	$	(0.63)

4.1 Results of operations for the years ended December 31, 2022 and 2021

The Company's net loss for the year ended December 31, 2022, was $3,137,356 (December 31, 2021 - $19,424,280). The loss for 2022 was comprised primarily of salaries and benefits of $1,192,161, property investigation costs of $591,350, legal and audit costs of $137,358, shareholder communications costs of $374,575, share-based payment expense of $657,832 offset by interest income of $133,488 and a foreign exchange gain of $65,143.

During the year ended December 31, 2022, the Company incurred $1,192,161 in salaries and benefits (2021 – $122,473) representing amounts paid to officers and employees of the Company who were hired during the quarter ended December 31, 2021. It also included year-end bonuses to officers and employees, which bonuses were awarded based on the achievement of certain pre-determined objectives approved by the Company's board of directors.

During the year ended December 31, 2022, the Company incurred $591,350 in property investigation costs (December 31, 2021 – $nil) relating to costs incurred to conduct due diligence on prospective mineral properties and potential mergers and acquisition transactions. These costs include consulting fees paid to geologists and mining engineers conducting due diligence on the potential targets and legal fees.

In the second half of 2022, the Company was engaged in meaningful discussions with a certain party (the "Counterparty") regarding a possible transaction that could provide several strategic benefits to Anacortes,

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

including a logical fit of quality assets, near-term production and cash flow generation, and a stronger financial position to fund the development of the Tres Cruces Project. A transaction was not consummated with this Counterparty. Details of the progress of those discussions are discussed under "Liquidity and Capital Resources" below.

Regulatory fees were $73,615 in 2022 compared to $54,636 in 2021 as filing fees increased due to the larger capitalization of the Company following the transaction with New Oroperu Resources Inc. in October 2021. In addition, the Company incurred additional application and listing fees when it obtained an OTCQB listing on the OTC Markets Group in February 2022. The listing was upgraded from the OTCQB to the OTCQX in June 2022.

Shareholder communications costs increased from $169,201 in 2021 to $374,575 in 2022 as the Company hired a shareholder communications firm and a market maker in October 2021 to provide the Company with greater exposure to potential shareholders. The Company also engaged in other investor relations activities such as attending investor conferences and making company presentations.

Consulting fees decreased from $177,863 in 2021 to $108,411 in 2022. In 2021, the Company had consulting contracts with certain directors and officers of New Oroperu. Some of these contracts included monthly administrative fees. These contracts terminated upon the closing of the transaction with New Oroperu on October 6, 2021.

The Company recorded interest income of $133,488 in 2022 compared to $8,625 in 2021. The Company did not have any cash deposits in interest bearing accounts in 2021 until following the closing of the transaction with New Oroperu. In 2022, interest income increased each quarter due to hikes in the interest rate earned on deposits. However, this has been offset by a decrease in the Company's cash balances.

A foreign exchange gain of $65,143 was recorded in 2022 ($44,253 in 2021) as the Company generally purchased U.S. dollars in 2022 at an exchange rate that was lower than the exchange rate prevailing on the date that the U.S. dollars were spent.

In 2022, the Company incurred $657,832 in share-based payment expense in respect of stock options granted in December and February 2022. In 2021, the share based payment incurred was $2,298,137 as a result of the options granted in October of 2021.

The gain on foreign currency translation of $394,530 (December 31, 2021 – loss of $2,561) resulted from the translation of the financial statements of the Company's Peruvian subsidiary stated in US dollars to Canadian dollars.

Expenditures at Tres Cruces

During the year ended December 31, 2022 , the Company incurred aggregate expenditures of $6,129,156 (December 31, 2021 – $2,807,956) on the Tres Cruces project, primarily on the completion of the preliminary economic assessment (PEA) and on Phase I of its drilling campaign at Tres Cruces. All of these costs were capitalized in exploration and evaluation properties. The results of the PEA and drilling program have been disclosed in the Company's press releases dated March 8, 2022, July 19, 2022 and August 4, 2022. The drilling program is currently on hiatus.

4.2 Results of operations for the three months ended December 31, 2022 and 2021

The Company's net loss for the three months ended December 31, 2022 ("Q4 2022") was $1,596,454 (three months ended December 31, 2021 ("Q4 2021") - $18,268,870). The loss for the period was comprised primarily of salaries and benefits of $610,581, shareholder communications of $103,634, and property investigations of $328,750, offset by interest income of $51,180.

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

In Q4 2022, the Company incurred $610,581 in salaries and benefits (Q4 2021 – $122,473) which included year-end bonuses to officers and employees, which bonuses were awarded based on the achievement of certain pre-determined objectives approved by the Company's board of directors.

Legal and audit costs decreased from $90,283 in Q4 2021 to $10,528 in Q4 2022. The costs in Q4 2021 were higher because of set up and transition costs as it was the first quarter of operations for the resulting issuer following the New Oroperu transaction. Q4 2021 costs also included the full annual accrual for the audit of the December 31, 2021 financial statements. The audit costs for the December 31, 2022 financial statements were accrued quarterly in 2022.

Property investigation costs were $328,750 in Q4 2022 compared to $nil in Q4 2021 as discussed in Section 4.1 above and also under "Liquidity and Capital Resources" below.

A foreign exchange loss of $10,678 was recorded in Q4 2022 compared to a gain of $44,777 in Q4 2021 as the Company generally purchased U.S. dollars in Q4 2022 at an exchange rate that was higher than the exchange rate prevailing on the date that the U.S. dollars were spent.

In Q4 2022, the Company recorded $499,327 share-based payment expense incurred in respect of stock options granted in December 2022. In Q4 2021 share-based payment was $2,182,376 in respect of stock options granted in October 2021.

The gain on foreign currency translation of $211,967 (Q4 2021 – loss of $2,561) resulted from the translation of the financial statements of the Company's Peruvian subsidiary stated in US dollars to Canadian dollars.

5. Selected Annual and Quarterly Information

The following selected financial data has been prepared in accordance with IFRS. This table should be read in conjunction with the Company's audited consolidated financial statements.

	2022	2021	2020
Loss for the year	(3,137,356)	(19,424,280)	(1,369,678)
Basic and diluted loss per share	($0.07)	($0.63)	($0.05)
Total assets	14,938,357	16,396,616	2,244,142
Total liabilities	517,364	274,784	125,368
Total shareholders' equity	14,420,993	16,121,832	2,118,774

Results for the eight most recent quarters ending with the last quarter ended December 31, 2022:

	December 31	September 30	June 30	March 31
For the quarterly periods ending	2022	2022	2022	2022
Loss for the quarter	(1,596,454)	(315,864)	(590,047)	(634,991)
Basic loss per share	($0.04)	($0.01)	($0.01)	($0.02)
	December 31	September 30	June 30	March 31
For the quarterly periods ending	2021	2021	2021	2021
Loss for the quarter	(18,268,870)	(578,372)	(327,497)	(254,817)
Basic loss per share	($0.44)	($0.02)	($0.01)	($0.01)

Quarterly Results - General Trend

In August 2022, the Company temporarily suspended drilling operations at Tres Cruces in an effort to conserve cash while discussions with a third party regarding a potential transaction were advanced. In

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

December 2022, the Company further reduced its expenditures at Tres Cruces and does not anticipate an increase in expenditures at Tres Cruces until further drilling is planned. For 2023, corporate expenses are expected to be consistent with or slightly lower than prior quarters as certain cost cutting measures were also implemented at head office. Expenses may increase if the Company pursues possible asset acquisitions or corporate transactions.

6. Liquidity and Capital Resources

During the year December 31, 2022, the Company's cash position decreased by $8,034,741 mainly as a result of funding development activities at its Tres Cruces project and funding corporate expenses. As at December 31, 2022, the Company's cash position was $4,827,272 (December 31, 2021 – $12,862,013) and its working capital was $4,723,481 (December 31, 2021 – $12,948,006).

The Company commenced its Phase I drilling program at Tres Cruces in May 2022. The drilling program was designed to support a feasibility study on the Tres Cruces Oxide Project as well as to test the depth potential of the underlying sulphides, where many holes drilled by Barrick, the previous operator, ended in promising gold and silver mineralization. The drilling program was put on hiatus in August 2022 in an effort to conserve cash while discussions regarding a potential transaction were advanced, as discussed below.

The directors and management of Anacortes regularly review the Company's overall corporate strategy and long-term strategic initiatives with a view of strengthening its business and identifying opportunities to maximize shareholder value. As part of this process, the board and management continuously review the relative strategic benefits of (i) continuing as a single-asset company or (ii) corporate transactions that could involve acquisitions of complementary assets or the sale of the Company to logical suitors. During 2022, there was considerable inbound interest regarding a possible corporate transaction.

In the second half of 2022, the Company was engaged in meaningful discussions with a certain party (the "Counterparty") regarding a possible transaction that could provide several strategic benefits to Anacortes, including a logical fit of quality assets, near-term production and cash flow generation, and a stronger financial position to fund the development of the Tres Cruces Project. A non-binding letter of intent (the "LOI") was executed with the Counterparty, which included a commitment for Anacortes to deal exclusively with the Counterparty. Given the compelling terms of the LOI, the Company agreed to enter into exclusive negotiations for a limited period of time and to conduct extensive due diligence and negotiate a definitive agreement.

Execution of the definitive agreement and closing of the transaction, as contemplated in the LOI, was conditional upon the resulting issuer securing the necessary working capital to advance its assets upon closing. The Counterparty worked diligently with various capital providers to obtain a favourable financing commitment, but by December 2022, given the length of engagement with the Counterparty, the Company decided to let the exclusivity period lapse in order to investigate other alternatives that also have the potential to provide Anacortes shareholders with meaningful value-generating opportunities.

On March 6, 2023, the Company entered into a binding letter of intent (the "Binding Agreement") with Steppe Gold Ltd. ("Steppe Gold") pursuant to which Steppe Gold, either directly or through a wholly-owned subsidiary, will acquire all of the issued and outstanding common shares (the "Anacortes Common Shares") of Anacortes by way of a court approved plan of arrangement under the Business Corporations Act (British Columbia), in an all-share transaction (the "Transaction").

Under the terms of the Binding Agreement, Anacortes shareholders will receive 0.4532 of a Steppe Gold common share (each, a "Steppe Common Share") for each Anacortes Common Share, which represents consideration of approximately C$0.48 per Anacortes Common Share and a premium of 36% based on the closing prices of the Anacortes Common Shares on the TSX Venture Exchange and the Steppe Common Shares on the TSX, each as of the close of trading on March 3, 2023. Shareholders of Steppe Gold and Anacortes will own 79% and 21% of the combined company, respectively, on a basic basis.

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

There is no assurance that the transaction with Steppe Gold will close. The Company is currently sufficiently capitalized to cover its current corporate and Tres Cruces expenditures through at least the end of 2023, but as Tres Cruces is not in commercial production, it does not generate cash from operations and the Company does not have other sources of income other than interest on its cash holdings. The Company does not have sufficient funds to fully develop Tres Cruces, achieve commercial production and produce gold and other metals economically. Although the Company was successful in raising gross proceeds of over $22 million in July 2021, there can be no assurance that future funding will be available to the Company when needed or, if available, that this funding will be on acceptable terms. If adequate funds are not available, the Company may not be able to develop Tres Cruces and achieve commercial production. Even if adequate funds are available, there is no guarantee that Tres Cruces will achieve commercial production and generate positive future cash flows.

7. Outstanding Share Data

There were 42,582,118 shares of the Company outstanding at December 31, 2022 and as of the date of this report.

Stock Options

In January 2022, 200,000 options were exercised at $1.29 and 187,666 options expired at $1.29. In February 2022, the Company granted 225,000 options at an exercise price of $2.40 with an expiry date of February 2, 2027. In October 2022, 220,000 options were exercised at $0.46, 962,381 options expired at $0.46 and 16,666 options expired at $0.60. In December 2022, 1,950,000 options were granted at an exercise price of $0.40 with an expiry date of December 23, 2027.

The following stock options are outstanding and exercisable as December 31, 2022 and as of the date of this report:

Number of Options		Exercise	Expiry Date	Contractual Life ofOptions Remaining
Outstanding	Exercisable	Price		in Years
1,800,000	1,762,500	$2.40	October 12, 2026	3.78
225,000	225,000	$2.40	February 2, 2027	4.09
1,950,000	1,800,000	$0.40	December 23, 2027	4.98
3,975,000	3,787,500

Warrants

In June 2022, 48,458 warrants were exercised at an exercise price of $0.52.

The following warrants are outstanding as of December 31, 2022 and as of the date of this report:

Number of	Exercise Price	Expiry Date	Contractual Life of Warrants
Warrants			Remaining in Years
815,138	$0.88	May 7, 2023	0.35
4,591,354	$3.30	July 21, 2023	0.55
1,744,500	$0.52	August 8, 2023	0.60
550,668	$2.40	October 5, 2023	0.76
354,166	$3.30	October 5, 2023	0.76
8,055,826

The 1,744,500 warrants with an exercise price of $0.52 per warrant was originally set to expire on August 8, 2022. In July 2022, the Company filed an application to the TSX Venture Exchange ("TSXV") to extend

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

the expiry of these warrants by 12 months to August 8, 2023. On August 8, 2022, the TSXV consented to the extension of the expiry date.

8. Related Party Transactions

During the years ended December 31, 2022 and 2021, the Company's related parties consisted of executive officers and directors ("Key Personnel") and private companies owned by Key Personnel.

The following table represents the details of related party transactions paid or accrued to Key Personnel and their private companies in the three months and year ended December 31, 2022 and 2021:

		Three months ended			Twelve months ended
	Note	Dec 31, 2022		Dec 31, 2021		Dec 31, 2022		Dec 31, 2021
Consulting fees	(i)	$-	$	3,097	$	-	$	165,097
Exploration and evaluation properties	(ii)	-		2,563		182,154		120,789
General and administative		-		244		-		11,509
Salaries and benefits		449,446		-		831,093		-
Share based payments		371,939		1,784,805		469,758		1,900,566
Directors' fees		28,750		27,427		115,000		60,427
		$850,135	$	1,818,136		$ 1,598,005	$	2,258,388

• (i) In 2022, consulting fees of $Nil were paid to Key Personnel compared to 2021 when $55,161, $91,936 and $18,000 were paid to companies controlled by the former CFO, former VP Corporate Development and former director, respectively, of New Oroperu. Refer to Note 7 to Company's audited financial statements for the year ended December 31, 2022.
• (ii) In 2022, $182,154 was paid to the President of Aurifera Tres Cruces as salary in connection with the Company's Tres Cruces project. In 2021, $120,789 was paid to company controlled by a former officer of New Oroperu for technical services relating to Tres Cruces. These costs were capitalized.

As at December 31, 2022, $3,329 (December 31, 2021 – $26,781) was due to related parties. Any amounts payable to related parties are non-interest bearing and due on demand.

9. Off-Balance Sheet Arrangements

The Company has not entered into any off-balance sheet financing arrangements during 2022 and up until the date of this report.

10. Proposed Transactions and Subsequent Events

On March 6, 2023, the Company entered into a binding letter of intent (the "Binding Agreement") with Steppe Gold Ltd. ("Steppe Gold") pursuant to which Steppe Gold, either directly or through a wholly-owned subsidiary, will acquire all of the issued and outstanding common shares (the "Anacortes Common Shares") of Anacortes by way of a court approved plan of arrangement under the Business Corporations Act (British Columbia), in an all-share transaction (the "Transaction").

Under the terms of the Binding Agreement, Anacortes shareholders will receive 0.4532 of a Steppe Gold common share (each, a "Steppe Common Share") for each Anacortes Common Share, which represents consideration of approximately C$0.48 per Anacortes Common Share and a premium of 36% based on the closing prices of the Anacortes Common Shares on the TSX Venture Exchange and the Steppe Common

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

Shares on the TSX, each as of the close of trading on March 3, 2023. Shareholders of Steppe Gold and Anacortes will own 79% and 21% of the combined company, respectively, on a basic basis.

11. Use of Estimates and Judgments

The preparation of these consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, revenues and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances and which form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Significant assumptions about the future and other sources of estimation uncertainty that management has made that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

Critical accounting estimates

Critical accounting estimates are estimates and assumptions made by management in the preparation of these consolidated financial statements that may result in a material adjustment to the carrying amount of assets and liabilities within the next financial year and include, but are not limited to, the following:

Share-based payments and valuations of equity units issued in reverse takeover transaction

The fair value of share-based payments is subject to the limitations of the Black-Scholes option pricing model, which incorporates market data and involves the input of highly subjective assumptions, including the volatility of share prices, and changes in subjective input assumptions which can materially affect the fair value estimate. In addition, the valuations of equity units issued in the reverse takeover transaction are also based on the Black-Scholes option pricing model. Where equity units have been issued for certain transaction costs, the amounts of that cost have been allocated between common shares and share purchase warrants on the relative fair value method.

Critical accounting judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements include, but are not limited to, the following:

Functional currency

The Company applied judgment in determining its functional currency and the functional currency of its subsidiaries. Functional currency was determined based on the currency in which funds are sourced and the degree of dependence by the subsidiary on the Company for financial support.

Going concern

The assessment of whether the going concern assumption is appropriate requires management to take into account all available information about the future, which is at least, but is not limited to, 12 months from the end of the reporting period.

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

Exploration and evaluation properties

Management is required to make judgments on the status of each mineral property, the future plans with respect to finding commercial reserves, and indicators of impairment. The nature of exploration and evaluation activity is such that only a few projects are ultimately successful and some assets are likely to become impaired in future periods.

Recovery of deferred tax assets

The Company estimates the expected manner and timing of the realization or settlement of the carrying value of its assets and liabilities and applies the tax rates that are enacted or substantively enacted on the estimated dates of realization or settlement.

Accounting for reverse takeover transaction

Determination of whether a set of assets acquired and liabilities assumed constitute the acquisition of a business or asset may require the Company to make certain judgements as to whether or not the assets acquired and liabilities assumed include the inputs, processes and outputs necessary to constitute a business as defined in IFRS 3 – Business Combinations. If an acquired set of assets and liabilities includes goodwill, the set is presumed to be a business.

As a result of the transaction with New Oroperu Resources Inc. ("NOP"), the then-current shareholders of NOP acquired control of First Light and consequently, the Transaction has been accounted for as a reverse acquisition of First Light in accordance with the guidance provided under IFRS 2, Share-based payments, and IFRS 3, Business Combinations. Accordingly, the Transaction has been accounted for as an acquisition of the net assets of First Light by NOP where the excess of the fair values of the equity instruments granted by NOP to the shareholders and option and warrant holders of First Light over the net assets of First Light has been recognized as a transaction expense in the consolidated statements of loss and comprehensive loss for the year ended December 31, 2021.

12. Financial Instruments

As at December 31, 2022 and 2021, the Company's financial instruments are comprised of cash, trade payables and accrued liabilities and due to related parties. The carrying amount reported in the consolidated statements of financial position for these financial instruments approximate fair value due to the short-term maturities of these financial instruments.

The Company's risk exposure and the impact on the Company's financial instruments are as follows:

a) Credit Risk

Credit risk is the risk of financial loss to the Company if a customer or counter party to a financial instrument fails to meet its contractual obligations.

The Company is exposed to concentration of credit risk with respect to its cash; however, the risk is minimized as cash is placed with major Canadian financial institutions.

b) Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due. The Company's approach to managing liquidity risk is to plan that it will have sufficient assets and cash flows to meet liabilities when due. As at December 31, 2022, the Company

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

had working capital of $4,723,481 (December 31, 2021 - $12,948,006). As at December 31, 2022, the Company had trade payables and accrued liabilities of $517,364 (December 31, 2021 - $274,784). c) Market Risk

Market risk is the risk that the fair value of or future cash flows from the Company's financial instruments will significantly fluctuate due to changes in market prices. The value of financial instruments can be affected by changes in interest rates, foreign currency rates and equity prices. Management closely monitors individual interest rate and foreign currency movements to determine the appropriate course of action to be taken by the Company.

d) Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is not exposed to significant interest rate risk.

e) Foreign currency risk

The Company has certain assets and liabilities denominated in United States dollars that expose it to currency risk, as follows:

	December 31,	December 31,
	2022	2021
Cash	$357,497	$702,771
Accounts payable	(189,519)	(14,125)
Net foreign exposure to US dollars	$167,978	$688,646

The Company's exposure to foreign currency risk arises primarily from fluctuations between the Canadian dollar and the US dollar. Cash held in US dollars as at December 31, 2022 is $357,497 and liabilities denominated in US dollars are $189,519. The Company has not entered into any derivative instruments or utilized other techniques to manage foreign exchange fluctuations.

Based on the above net currency exposure as at December 31, 2022 and assuming all other variables remain constant, a 10% strengthening or weakening of the US dollar against the Canadian dollar would result in $22,751 increase/decrease of foreign exchange gain or loss in the Company's consolidated statements of loss and comprehensive loss.

f) Other price risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or foreign currency risk. The Company is not exposed to any significant price risk.

13. Risk Factors

Companies operating in the mining industry face many and varied kinds of risks. While risk management cannot eliminate the impact of all potential risks, the Company strives to manage such risks to the extent possible and practical. The following are the risk factors most applicable to the Company.

13.1 Financial

The Company has not generated any revenue since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. As at December 31,

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

2022, the Company has incurred losses since inception and has an accumulated operating deficit of $58,626,839. The continuation and long-term viability of the Company remains dependent upon its ability to obtain necessary equity financing to continue operations and to determine the existence, discovery and successful exploitation of economically recoverable reserves in its resource properties, confirmation of the Company's interests in the underlying properties, and the attainment of profitable operations.

13.2 Industry

Exploring and developing mineral resource projects bears a high potential for a variety of risks. Additionally, few exploration projects successfully achieve development due to factors that cannot be predicted or foreseen. Moreover, even one such factor may result in the economic viability of a project being detrimentally impacted such that it is not feasible or practical to proceed.

Although the Company has taken steps to verify the title to mineral properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company's title. Property title may be subject to unregistered prior agreements or transfers and title may be affected by undetected defects.

13.3 Metal Prices

The principal activity of the Company is the exploration and development of gold resource properties. The feasible development of such properties is highly dependent upon the price of gold. A sustained and substantial decline in commodity gold prices could result in the write-down, termination of exploration and development work or loss of its interests in identified resource properties. Although such prices cannot be forecasted with certainty, the Company carefully monitors factors which could affect gold commodity prices in order to assess the feasibility of its resource projects.

13.4 Political Risk

The resource properties on which the Company is pursuing its exploration and development activities are all located in Peru, South America. The political climate is considered by the Company to be generally stable but it is currently going through a period of uncertainty. To alleviate such risk, the Company funds its Peru operations on an as-needed basis. The Company does not presently maintain political risk insurance for its foreign exploration projects.

13.5 Environmental and Governmental Regulations

The current and future operations of the Company, including development activities, construction and commercial production of its Tres Cruces project, may require permits from various state and local governmental authorities in Peru. Such operations are and will be governed by laws and regulations governing development, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, safety and other matters. The Company may experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits.

The Company believes it is currently in substantial compliance with all material laws and regulations that currently apply to its activities, particularly those in the Quiruvilca Mining District where Tres Cruces is located. There can be no assurance, however, that all permits which the Company may require for the conduct of its operations will be obtainable on reasonable terms or that such laws and regulations would not have an adverse effect on any project which the Company might undertake. Failure to comply with applicable laws, regulations and permitting requirements may result in the imposition of fines or issuance of clean up orders in respect of the Company or its projects. Such legislation may be changed to impose higher standards and potentially more costly obligations. The Company endeavours to operate in such a

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

manner to ensure it conforms to the standards and government regulations required for each jurisdiction in which it operates. 13.6 COVID-19 Global Pandemic

In March 2020, the world Health organization declared a global pandemic related to COVID-19. The expected impacts on global commerce are anticipated to be far reaching. To date there have been significant volatility in the equity markets, and the movement of people and goods has experienced some restrictions.

As the Company does not have production activities, the ability to fund ongoing exploration is affected by the availability of financing. Due to market uncertainty and volatility, the Company may be restricted in its ability to raise additional funding.

The impact of these factors on the Company is still not determinable. However, they may have a material impact on the Company's financial position, results of operations and cash flows in future periods. ln particular, there may be heightened risk of mineral property impairment and going concern uncertainty.

14. Forward-looking Statements

This MD&A contains forward-looking statements which constitute "forward-looking information" within the meaning of applicable Canadian securities legislation. All statements included herein, other than statements of historical fact, are forward-looking statements and are subject to a variety of known and unknown risks, uncertainties and other factors, many of which are beyond the ability of the Company to control or predict and which could cause actual events or results to differ materially from those expressed or implied in the forward-looking statements. These risks include changes in general economic conditions and financial markets; political risks; risks relating to the current and potential adverse impacts of the COVID-19 pandemic on the economy, financial markets and the Company's operations; and risks inherent in mineral exploration and development. Accordingly, the reader should not place undue reliance on forward-looking statements.

The forward-looking statements in this MD&A may include, without limitation, statements about the Company's belief that Tres Cruces has exceptional exploration potential at depth, its intent to advance the development of the oxide resource, its expectation that its proposed drill programs can test the extent of the deposit and increase confidence in the resource, the design of the project as contemplated in the PEA, the Company's plans to conduct an extensive metallurgical program and its expectation that such a program would confirm recovery and, finally, the Company's intent to advance Tres Cruces through feasibility and to production under a heap leach open-pit scenario. Often, but not always, these forward-looking statements can be identified by the use of words such as "anticipated", "estimated", "potential", "open", "future", "assumed", "projected", "used", "detailed", "has been", "gain", "planned", "reflecting", "will", "containing", "remaining", "to be", or statements that events "could" or "should" occur or be achieved and similar expressions, including negative variations.

Forward-looking statements may also relate to future outlook and anticipated events, such as the consummation and timing of the transaction between Anacortes and Steppe Gold (the "Transaction"); the required shareholder and regulatory approvals; the satisfaction of the conditions precedent to the Transaction; the strengths, characteristics and potential of the resulting company; and discussion of future plans, projections, objectives, estimates and forecasts and the timing related thereto.

Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events. Forward-looking

MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2022 (Expressed in Canadian dollars)

statements speak only as of the date those statements are made. Except as required by applicable law, the Company assumes no obligation to update or to publicly announce the results of any change to any forward-looking statement contained or incorporated by reference herein to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward-looking statements. All forward-looking statements contained in this MD&A are expressly qualified in their entirety by this cautionary statement.

15. Approvals

The technical content of this MD&A has been reviewed and validated by James ("Jim") Currie, P. Eng., a qualified person as that term is defined in National Instrument 43-101. Mr. Currie is the President and CEO of Anacortes Mining Corp.

The Board of Directors of the Company has approved the disclosure contained in this MD&A.

16. Additional Information

Additional information about the Company may be found on the SEDAR website at www.sedar.com.