Andean Precious Metals Corp. — Management Reports 2021

Mar 16, 2021

BUCKHAVEN CAPITAL CORP.

MANAGEMENT DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED NOVEMBER 30, 2020

Background

This management discussion and analysis (“MD&A”) for Buckhaven Capital Corp. (“Buckhaven” or the “Company”) is prepared as at March 16, 2021 and should be read in conjunction with the Company’s audited financial statements as at and for the year ended November 30, 2020, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

All dollar figures included therein and in the following MD&A are quoted in Canadian dollars. Additional information relevant to the Company’s activities can be found on SEDAR at www.sedar.com.

Company overview

The Company was incorporated on October 23, 2018 under the Business Corporations Act (British Columbia) and is a Capital Pool Company (“CPC”) as defined in the TSX Venture Exchange (“TSX-V”) Policy 2.4 (“Policy 2.4”). As a CPC, the Company’s immediate objective is to identify and acquire either operating assets or a business, subject to shareholders’ approval, that meet the criteria of a Qualifying Transaction as defined by the TSX-V (“Qualifying Transaction”). Until such time that a Qualifying Transaction is completed, the Company will have no significant revenue and will incur expenses primarily for Qualifying Transaction investigation, TSX-V listing and filing requirements, professional services and office facilities and administration, subject to certain restrictions under Policy 2.4.

The Company was incorporated with 1,380,000 shares being issued at a price of $0.075 per share for total proceeds of $103,500 (the “Seed Shares”). The Seed Shares are held in escrow and will be released ratably over a period following the completion of a Qualifying Transaction. Should a Qualifying Transaction not be completed within two years, then one-half of the Seed Shares may be cancelled in accordance with policies of the TSX-V.

On June 19, 2019, the Company completed its initial public offering (the “IPO”) issuing an additional 2,150,000 common shares at a price of $0.15 per share for total gross proceeds of $322,500. Share issuance costs for the IPO were $125,806, which includes $9,427 for the fair value of 100,000 agent’s warrants (the “Agent’s Warrants”). Each Agent’s Warrant is exercisable to purchase an additional common share in the Company at a price of $0.15 for a 24-month period following the completion of the IPO.

On June 19, 2019, the Company granted stock options to purchase 300,000 common shares to directors of the Company exercisable at a price of $0.15 for a five-year period following their grant. The fair value of these stock options at the date of grant was $37,936.

Potential Qualifying Transaction

On October 30, 2020, the Company entered into a master agreement (the “Master Agreement”) with 1254688 B.C. Ltd. (“125”) and Ag-Mining Investments, AB (“Ag-Mining”). Pursuant to the Master Agreement, the Company will consolidate its existing share capital on 1.5-for-1 basis and will acquire all common shares of 125 (the “Transaction”) in exchange for post-consolidation shares in the Company on a 1-for-1 basis. Additionally, the Company will replace all stock options, warrants and restricted share units outstanding in 125 with equivalent post-consolidation instruments. The Transaction, which is subject to regulatory approval, will be the Company’s Qualifying Transaction and will be treated as a reverse take-over of the Company by 125.

In connection with the Transaction, 125 proposes to complete a best-efforts brokered private placement of subscription receipts (the “Concurrent Financing”). Subject to certain conditions, the subscription receipts will be exchanged for 125 common shares and will be included in the post-consolidation shares issued by the Company to acquire 125.

Following the Transaction, the combined entity (the “Resulting Issuer”) will operate as Andean Precious Metals Corp. and will continue the operations of 125 and its wholly-owned subsidiary, Ag-Mining. Ag-Mining is the 100% owner of the San Bartolomé silver operation in Potosi, Bolivia which processes ore from Ag-Mining’s own mining rights and from ore purchased from third parties.

As at November 30, 2020, the Company accrued professional fees of $28,212 for legal services provided in connection with the Transaction, but 125 has agreed to pay all additional legal fees should the Transaction not be completed.

A filing statement dated March 15, 2021 is available on www.sedar.com and contains further information on the Transaction, the Concurrent Financing, the Resulting Issuer and the operations of 125 and Ag-Mining.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the COVID-19 coronavirus outbreak a pandemic, which continues to spread globally. As a CPC with no commercial operations, the COVID-19 pandemic has not had a significant impact on the Company’s routine operations or on the carrying value of its assets. However, the pandemic’s effect on the Company’s postTransaction operations and its ability to raise additional capital is dependent on factors such as infection rates, government shut-downs, vaccination rates, and operational changes, all of which are unknown and may change frequently.

Forward-Looking Statements

Certain statements contained in this MD&A constitute forward-looking statements. Such forward-looking statements involve a number of 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 statements. These risks include, but are not limited to, the Company completing the Transaction, and its ability to maintain sufficient capital for short-term

operations and to pursue another Qualifying Transaction should the Transaction not be completed. Readers are cautioned not to place undue reliance on these forward-looking statements.

Selected Financial Information

	November 30, 2020	November 30, 2019
	$	$
Total assets	236,866	279,170
Total long-term liabilities	-	-
Total shareholders’ equity	198,726	269,475
	Year Ended	Year Ended
	November 30, 2020	November 30, 2019
	$	$
Net loss for the year	(70,749)	(67,929)
Basic and diluted lossper share(1)	(0.03)	(0.07)

(1) Basic and diluted loss per share is calculated using a weighted average number of common shares that excludes 1,380,000 of the Company’s common shares that are held in escrow.

Results of Operations

The Company currently has no business operations and until such time as the Company completes a Qualifying Transaction as defined by the TSX-V, corporate expenditures will be restricted to costs of raising equity financing, administrative costs to maintain the Company in good standing and costs to identify and evaluate potential Qualifying Transactions.

The Company incurred a loss of $70,749 in the year ended November 30, 2020 compared to a $67,929 net loss in the year ended November 30, 2019. The increase in net loss is primarily owing to a $30,896 increase in professional fees for legal services provided in connection with the Transaction. The Company was also publicly-traded for the entire year ended November 30, 2020 compared with only half of the year ended November 30, 2019. As a result, the Company’s expense for transfer agent, shareholder communication, listing and filing fees increased by $9,756 in the year ended November 30, 2020.

Partly offsetting these expense increases was a $37,936 expense reduction for share-based compensation recognized for the fair value of stock options granted in the year ended November 30, 2019. These options were fully-vested on their grant date, so the entire fair value was recognized as an expense in that period with nothing recognized in subsequent periods.

Results for Most Recent Fiscal Quarter:

The Company recorded a loss of $46,713 for the three months ended November 30, 2020 (2019 - $17,204). Significant expenses in the period included $39,400 for professional fees comprising legal services provided in connection with the Transactions and an accrual for the audit of the Company’s financial statements, $3,957 for transfer agent services and TSX-V listing fees, and $3,150 for corporate and administrative services. Except for the additional expenses incurred for Transaction-related legal services, these expenses were comparable with those in the three months ended November 30, 2019.

Quarterly Information

Results for recent fiscal quarters are as follows:

Three Months Ended General and Administrative Expenses, Excluding Share- based Compensation Stock-based Compensation Net Loss	Basic & Diluted Loss per Share1
$ $ $	$
November 30, 2020 46,713 - 46,713 August 31, 2020 7,760 - 7,760 May 31, 2020 9,395 - 9,395 February 28, 2020 6,881 - 6,881 November 30, 2019 17,204 - 17,204 August 31, 2019 1,453 37,936 39,389 May 31, 2019 3,906 - 3,906 February28,2019 7,430 - 7,430	0.02 - - - 0.01 0.02 - -

1 The sum of basic and diluted loss per share for each three-month period does not equal the loss per share for the year as a whole.

Financial Condition including Cash Flows, Liquidity and Capital Resources

At November 30, 2020, the Company’s working capital was $198,726, comprising cash of $236,866 less accounts payable and accrued liabilities of $38,140. As a CPC, the Company’s routine expenses are limited to general administrative costs such as TSX-V listing and filing fees, audit fees and accounting fees. When the Company has identified a potential Qualifying Transaction, additional legal or other transaction-related costs may be incurred, regardless of whether the transaction is ultimately completed.

If the Transaction is not completed, it is uncertain as to when another Qualifying Transaction can be identified and completed, but the Company’s current cash balance is sufficient to pay its existing accounts payable and accrued liabilities, to maintain routine on-going operations and to investigate other potential Qualifying Transactions for the next 12 months.

Related Party Transactions

The Company is party to a corporate services agreement with Earlston Management Corp. (“Earlston”), whereby Earlston provides various administrative, management and corporate services to the Company for a fee of $1,000 per month plus out-of-pocket costs. Earlston is related to the Company by virtue of providing key management services. The Company’s expense for administrative and corporate services for the year ended November 30, 2020 includes $12,600 (2019 - $12,600) in such costs incurred with Earlston of which $1,051 is included in accounts payable and accrued liabilities as at November 30, 2020 (November 30, 2019 - $1,051).

During the year ended November 30, 2019, the Company granted 300,000 stock options with a total fair value of $37,936, determined using the Black-Scholes option-pricing model to directors of the Company. No other compensation was paid to directors or officers during this period or the year ended November 30, 2020.

Capital Management

Capital is composed of the Company’s shareholders’ equity and any debt that it may issue. As at November 30, 2020, the Company’s shareholders’ equity was $198,726 and it had current liabilities of $38,140. The Company’s objectives when managing capital are to maintain financial viability and to protect its ability to meet its on-going liabilities, to continue as a going concern, to maintain creditworthiness and to maximize returns for shareholders over the long term. Protecting the ability to pay current and future liabilities includes maintaining capital above minimum regulatory levels, current financial strength rating requirements and internally determined capital guidelines and calculated risk management levels.

The Company is not subject to any externally imposed capital requirements other than the expenditure restrictions applicable under Policy 2.4, which will apply following the completion of the IPO. These expenditure restrictions limit the aggregate amount that the Company is permitted to spend on certain share issuance costs, professional fees, transfer agent fees, listing and filing fees and other general and administrative costs to the lesser of $210,000 or 30% of the gross proceeds from share issuances.

The Company’s current capital will only be sufficient to identify and evaluate a limited number of assets and businesses for the purpose of completing a Qualifying Transaction should the Transaction not be completed.

Financial Instruments and Risk Management

As at November 30, 2020, the Company’s financial instruments comprise cash and accounts payable and accrued liabilities. The fair values of accounts payable and accrued liabilities approximate their carrying values due to their short-term maturity. Fair values of financial instruments are classified in a fair value hierarchy based on the inputs used to determine fair values. The levels of the fair value hierarchy are as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 – Inputs other than quoted prices 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 that are not based on observable market data (unobservable inputs).

As at November 30, 2020, the fair value of cash held by the Company was based on level 1 of the fair value hierarchy.

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

Credit risk

Credit risk is the risk of loss arising from a customer or third party to a financial instrument failing to meet its contractual obligations. The Company’s credit risk is primarily attributable to its cash. The Company limits exposure to credit risk by maintaining its cash with large financial institutions.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. As at November 30, 2020, the Company had a cash balance of $236,866 which the Company’s management believes is sufficient to pay for $38,140 in liabilities then outstanding, maintain operations for the next 12 months should the Transaction not be completed. However, additional funding may be required to meet long-term requirements following a Qualifying Transaction or should no such transaction be completed. The Company’s financial liabilities include trade payables that have contractual maturities of 30 days or are due on demand and are subject to normal trade terms.

Market risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and equity prices. As the Company does not currently hold and does not expect to hold interest-bearing financial instruments other than cash, assets or liabilities denominated in a foreign currency, and marketable securities or other financial instruments subject to fluctuations in equity prices, it currently does not have and is not expected to have exposure to these market risks.

Outstanding Share Data

As of the date of this MD&A, the Company has 3,530,000 common shares outstanding of which 1,380,000 are in escrow. Additionally, the Company has 300,000 stock options and 100,000 warrants outstanding.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Critical Accounting Estimates and Judgments

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the measurements of assets, liabilities, revenues, expenses and certain disclosures reported in these financial statements. Significant estimates made by management include the following:

• i. Valuation of share-based compensation and Agent’s Warrants

Management uses the Black-Scholes option pricing model to determine the fair value of compensatory stock options and warrants. This model requires assumptions of the expected future price volatility of the Company’s common shares, expected life of options and warrants, future risk-free interest rates and the dividend yield of the Company’s common shares.

ii. Income taxes

Provisions for income and other taxes are based on management’s interpretation of taxation laws, which may differ from the interpretation by taxation authorities. Such differences may result in eventual tax payments differing from amounts accrued. Reported amounts for deferred tax assets and liabilities are based on management’s expectation for the timing and amounts of future taxable income or loss, as well as future taxation rates. Changes to these underlying estimates may result in changes to the carrying value, if any, of deferred income tax assets and liabilities.

The Company’s significant accounting policies and estimates are included in Note 3 of its audited financial statements for the year ended November 30, 2020.

Risks and Uncertainties

The Company’s objective is to identify and complete a Qualifying Transaction and until it does so, the Company will not have a source of recurring income, commercial operations, significant assets other that cash and shall not generate earnings or pay dividends. Until the completion of a Qualifying Transaction, the Company is not permitted to carry on any other business other than the identification and evaluation of potential Qualifying Transactions.

Should the Company be unable to complete a Qualifying Transaction, such as the Transaction with 125, before its existing cash has been spent, it will require additional capital financing and there is no assurance that it will be able to obtain adequate financing in the future or that the terms of such financing will be favourable.

The Company’s success depends to a certain degree upon key members of its management to identify a potential Qualifying Transaction. The loss of the service of members of the management team or certain key employees could have a material adverse effect on the Company.

Corporate Governance

The Company’s Board of Directors and its committees substantially follow the recommended corporate governance guidelines for public companies to ensure transparency and accountability to shareholders. The current Board comprises three individuals, one of whom is an executive officer of the Company. All members of the Board comprise the Audit Committee.