Arianne Phosphate Inc. — Management Reports 2020

Aug 20, 2020

ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

ARIANNE PHOSPHATE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Second Quarter 2020

Period ended June 30, 2020

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

TABLE OF CONTENTS

FORWARD-LOOKING INFORMATION ............................................................................................................. 3 DESCRIPTION OF THE BUSINESS .................................................................................................................... 3 HIGHLIGHTS ......................................................................................................................................................... 4 OBJECTIVES.......................................................................................................................................................... 4 OPERATIONAL REVIEW ..................................................................................................................................... 5 PHOSPHATE INDUSTRY TRENDS .................................................................................................................... 8 SUSTAINABLE DEVELOPMENT ....................................................................................................................... 9 FINANCIAL POSITION ANALYSIS .................................................................................................................... 9 CASHFLOWS, LIQUIDITY AND CAPITAL MANAGEMENT ....................................................................... 10 FINANCING ......................................................................................................................................................... 11 SUMMARY OF QUARTERLY RESULTS ......................................................................................................... 11 SUMMARY OF FINANCIAL ACTIVITIES FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 2020 12 SUMMARY OF FINANCIAL ACTIVITIES FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2020 ...... 12 RELATED PARTY TRANSACTIONS ............................................................................................................... 12 OFF BALANCE SHEET ARRANGEMENTS ..................................................................................................... 13 OBLIGATIONS AND COMMITMENTS ............................................................................................................ 13 APPLICATION OF NEW AND REVISED IFRS AND CRITICAL ACCOUNTING ESTIMATES ................. 14 FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT ................................ 14 INFORMATION ON SHARES OUTSTANDING............................................................................................... 14

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

This Management’s Discussion and Analysis (“MD&A”) presents an analysis of the financial situation and operations of Arianne Phosphate Inc. (“Arianne” or the “Company”) for the period ended June 30, 2020. This report was prepared in compliance with the provisions of Form 51-102F1, approved by the Board of Directors and dated August 20, 2020. It should be read in conjunction with the unaudited condensed consolidated interim financial statements for the period ended June 30, 2020 (the “financial statements”).

The accounting policies followed in the financial statements are consistent with those applied in the Company’s annual financial statements for the year ended December 31, 2019 and, where required, in Note 2 of the unaudited condensed interim consolidated financial statements for the six-month period ended June 30, 2020. The financial statements should be read in conjunction with the Company’s consolidated and audited annual financial statements for the year ended December 31, 2019, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB.

All amounts presented in the MD&A are in Canadian dollars (CAD) unless otherwise noted.

FORWARD-LOOKING INFORMATION

Certain statements in this MD&A about our current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements, or any other future events or developments constitute forward-looking statements. The words “may”, “will”, “would”, “should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “likely”, “predicts”, “estimates” or “potential” or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements. Specific forward-looking statements in this MD&A include, but are not limited to, statements with respect to the general development of the business and the eventual start of commercial production and to the liquidity position of the Company. Forwardlooking statements are based on information currently available to us and on estimates and assumptions made by us regarding, among other things, general economic conditions and the mining industry in general, in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable in the circumstances. Although reasonable, the statements can entail known and unknown risks and uncertainties and, accordingly, actual results and future events could differ materially from those anticipated in such statements.

Arianne ensures to comply with all relevant host country environmental and social laws, regulations and permits in all material respects.

DESCRIPTION OF THE BUSINESS

Arianne is a company focused on the development of the Lac à Paul phosphate project (Lac à Paul) located in the Saguenay-Lac-St-Jean area, in the province of Quebec. The Company’s shares are listed on the TSX Venture Exchange (symbol DAN), on the Frankfurt exchange (symbol JE9N) and on the US Stock Exchange Over-the-Counter (OTC) (symbol DRRSF). The registered office of the Company is located at 393 Racine Street East, Suite 200, Chicoutimi, Québec, Canada G7H 1T2.

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

HIGHLIGHTS

• In July 2020, the Company announced that it has received favorable results from recently conducted metallurgical tests performed at COREM Labs in Quebec City, Canada. In tests run earlier this year, Arianne weighed the benefits of using a different collector agent sourced from NordChem, a Canadian-based company that provides tailor-made chemicals to the mining industry. Results recently received from these tests demonstrated that Arianne could produce a phosphate concentrate averaging 40.25% P2O5 with recoveries ranging between 91.1% and 93.2% and, combined with the rapidity with which this collector acts, would also produce cost savings in the production of our high-purity concentrate.

• On June 30, 2020 Arianne extended its secured credit facilities held with Mercury Financing Corp. The extended secured credit facilities will have a maturity of June 15, 2021. These credit facilities will continue to bear interest at an annual rate of 15%, with all interest capitalized through maturity. The Company has also issued Mercury 26,780,000 non-transferable warrants with an exercise price of $0.2466 per share.

• On June 10, 2020 the Company closed an equity financing in the amount of $1,500,000 financing. Under the terms of the financing, Arianne has issued 9,999,998 units at a price of $0.15 per unit. Each unit is comprised of one common share and one-half warrant. Each full warrant entitles the holder to purchase one common share at a price of $0.20 until June 10, 2023. The Government of Quebec subscribed 3,333,333 units in this placement through Investissement Quebec.

• In April 2020, Arianne received the final report from its partners for the optimization of the trucktrailer design. The new design will now allow for a payload of 150Mt as opposed to the original 120Mt of phosphate concentrate providing for greater economies of scale. This increased payload per run will both improve our profitability as we lower our FOB cost at port and, reduce our environmental footprint as Arianne will require fewer trucks to haul the same annual output.

• In April 2020, Arianne’s Board and Management put into effect several changes to policy and budgeting in response to the Covid-19 crisis. The Company is continuing to closely monitor the situation and react to any changes that may need to be put in place to counter the path of the virus and any effect they may have on Arianne’s operations.

OBJECTIVES

Over the short term, the strategic objectives that guide management and the Company’s directors can be summarized as follows:

• Secure financing for construction and development of the Lac à Paul project (the “Project”) (on going);

• Sign an “Impact and Benefit Agreement” (IBA) with the First Nations (on going);

• Continue to optimize its Lac à Paul project by reducing cash operating production costs and capital expenses (on going).

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

Over the medium term, the Company’s goal remains to build a profitable phosphate mine that will generate economic returns and benefits for our shareholders as well as stakeholders in the Saguenay-Lac-St-Jean region and Québec.

OPERATIONAL REVIEW

Off-take agreements

In September and December 2018, the Company announced the formal execution of two off-take agreements. Under the terms of those agreements, the buyers have entered into long-term contracts to purchase Arianne’s high-purity phosphate concentrate which will be shipped to the buyers’ processing plant for further processing into downstream phosphate products. The off-take agreements also have a mechanism whereby it can be extended beyond the initial contract period and applies pricing that accounts for the high quality of Arianne’s concentrate. The Company is conducting ongoing discussion and negotiations with addition potential customers and off-takers.

Fertilizer Agreement Trader

In March 2019, Arianne entered into an agency agreement with Compagnie Indo Française de Commerce (“CIFC”) to market and sell Arianne’s high-purity, low-contaminant phosphate concentrate into the Indian market. Based in New Delhi, India, Compagnie Indo Francaise de Commerce Pvt. Ltd. is a private company. CIFC’s business includes the trading, sale, marketing and supply of critical raw materials to India, including fertilizers, agricultural chemicals and animal feeds.

Downstream production of phosphoric acid

In October 2019, Arianne has received the final report regarding a downstream phosphoric acid facility. Arianne phosphate concentrate responded extremely well during the process and was capable of producing a 60% P2O5 Merchant Grade Acid (“MGA”) and opposed to usual 52% MGA and, therefore, should be able to be sold at higher margin. Further, because of the high-quality nature of the Arianne phosphate concentrate input, the gypsum by-product produced during the process appears to have commercial value, as opposed to the typical contaminated waste generated by using traditional phosphate rock sources. These tests should now allow us to continue discussions with several groups that have indicated an interest in the possibilities of a phosphoric acid facility. With the right partner, the facility can have numerous advantages; control of its own rock source will provide an economic benefit as well as allow for greater security of supply. In addition, it will also provide a buyer for roughly 40% of Arianne future mine production.

The company has partnered with the Province of New Brunswick for the review of constructing a phosphoric acid plant in Belledune, New Brunswick.

Paul area growth potential

Through further exploration activities completed in 2014, Arianne estimated, in 2015, measured and indicated resources on the Paul Eastern Extension of 12.5 million tonnes at 6.31% P2O5 with a 4.0% P2O5 cut-off grade. Additionally, an updated resource estimate, from the geological remodeling of the Paul Zone and its Western Extension, now amount to 690 million tonnes at 7.18% P2O5 with a 4.0% P2O5 cut-off grade in the measured & indicated category (1). In total, Arianne’s resource estimate on the Paul area in 2015 shows measured and indicated resources (1) of 703 Mt at 7.16% P2O5 with a 4.0% P2O5 cut-off grade. The Paul Zone and both its Extensions are still open on the east and west sides as well as in depth.

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

Other apatite mineralized areas on Arianne’s claims

Arianne’s claims also include five deposits with resources identified. Manouane zone has an amount of 164 million tonnes of measured and indicated resources (1) at 5.88% P2O5 with a 2.43% cut-off grade. Zone 2 has an amount of 64 million tonnes of inferred resources (1) at 4.55% P2O5 with a 2.43% cutoff grade. Nicole zone has an amount of 78 million tonnes of inferred resources (1) at 5.34% P2O5 with a 3.5% cut-off grade. Traverse zone has an amount of 17 million tonnes of inferred resources (1) at 5.98% P2O5 with a 3.5% cut-off grade. And South TraMan zone has an amount of 146 million tonnes of inferred resources (1) at 5.30% P2O5 with a 3.5% cut-off grade.

Moreover, many other apatite mineralized zones are reported within the Arianne’s Lac à Paul project (MiniPaul, Lucie, Lise, Naja, North TraMan and Turc). Some of these zones (i.e., Lucie, Lise, and Naja) have been drilled and show a good potential.

Infrastructure

The project is located 240 km north of the Saguenay-Lac-St-Jean region in Québec, Canada. This region is economically well-diversified with existing infrastructure, a strong industrial base and a high-quality labour pool. The region is also known for numerous hydropower generating dams. It has a well-developed road network and access to deep-sea ports.

The Lac à Paul project will get its 129 MW of electricity from Hydro-Québec through Rio Tinto Alcan’s Chute-des-Passes power dam, which is located 40 km from the project. A 345-kV/161-kV substation at Chute-des-Passes and a 161-kV power line will be built to supply the electricity to the Lac à Paul mine site.

The Company received the certificate of authorization permitting the woodcut of the areas of the camp, the crusher, the conveyor, the plant, the telecommunication tower, part of the pit and all the access roads to these infrastructures.

In May 2019, the Company received the certificate of authorization permitting the construction of a 161kV power line of 46 km and the extension of the substation at Chute-des-passes power dam.

Of interest to Arianne, in the Québec Economic Plan 2016-2017, the government announced the introduction of a measure to foster investment in businesses billed at the large-power industrial rate (Rate L). This measure provides financial assistance in the form of a reduction of electricity costs and will enable the reimbursement of up to 50% of the cost of a business’s eligible investments, i.e.:

• 40% of eligible investments made; and

• an additional 10% for a 20% reduction of greenhouse gas (GHG) intensity.

This assistance will correspond to a maximum reduction of 20% of a business’s electricity bill for a maximum of four years per project.

Arianne is in discussion with the provincial government to obtain a reduction on the power cost for the first 4 years of operation.

1 Cautionary Statements: Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. Additional studies are required to convert these mineral resources to mineral reserves.

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

Phosphate concentrate transport

The phosphate concentrate will be transported by truck from the mine on an existing logging road to a deep-water port located on the north shore of the Saguenay River. Studies completed in June 2014 led to the selection and presentation of a scenario using forest roads R-253 and R-200 on the “Monts-Valin” and the maritime terminal on the north shore of the Saguenay River at Sainte-Rose-du-Nord.

Arianne Phosphate had worked with Alcoa Innovation and the National Research Council of Canada (NRC) to integrate aluminum in the design of the trailer that will transport the phosphate concentrate from the Lac à Paul mine to the deep-water port that will be located in Sainte-Rose-du-Nord. The final report from its partners for the optimization of the truck-trailer design has been received. The new design will now allow for a payload of 150Mt as opposed to the original 120Mt of phosphate concentrate providing for greater economies of scale. This increased payload per run will both improve our profitability as we lower our FOB cost at port and, reduce our environmental footprint as Arianne will require fewer trucks to haul the same annual output.

Metallurgy

The tests conducted in 2013 for the feasibility study demonstrated the possibility of producing an apatite concentrate containing 38.6% P2O5 with a recovery of 90%. Additional tests carried out at the request of potential clients have significantly improved the quality of the concentrate by lowering the content of certain contaminants, thus reducing the minor elements ratio (MER) from 0.089 to 0.030. These tests allowed us to produce more than one tonne of concentrate with a 40% P2O5 content.

MoU agreements to benefit the Lac à Paul project

The Arianne team has been working hard on securing various aspects for the project with key suppliers for developing the Lac à Paul project. In 2019, Arianne signed a MOU with SINOCONST, a large Chinese state-owned enterprise to work towards a final binding agreement relating to the development of Arianne’s Lac à Paul project which, would include full project financing. Discussions are ongoing.

First Nations

Thanks to negotiations with the three Innu First Nations groups: Pessamit, Mastheuiatsh and Essipit, a Cooperation Agreement for the exploration and pre-construction phase, was signed in 2015 for the Lac à Paul project. The agreement has been used as a framework to govern the relationship between Arianne and the three communities, reflecting mutual intentions to further build a relationship characterized by cooperation and mutual respect in connection with the development of the Lac à Paul project. The shared agreement lays out the areas in which Arianne and the three communities have agreed to work together and maintain communication in order to support their mutual goals to conclude an IBA. Negotiation on the Impacts and Benefits Agreement (IBA) is on going. Several meetings were held.

Saguenay–Lac-St-Jean community relations

As the project develops, the Company maintains an open dialogue with the stakeholders in the region, as well as with groups and individuals impacted by the project. Community relations have always been a priority for Arianne. The Company is committed to maintaining full and open communication with all communities affected by the Lac à Paul project. During 2015, Arianne created an independent Monitoring Committee in compliance with the Quebec Government’s Mining Law.

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

Economic impact of the project

In June 2019, the Regional Manufacturers Corporation and the Haut-Saguenay Community Development Corporation published an independent study on the potential significant socio-economic impacts of the Arianne Phosphate, BlackRock Metals and Energy Saguenay, which concludes that their construction will multiply by 5 the number of workers in the regional construction industry (3.68 years), and with a remuneration of 30.6% above the level currently observed, 7,076 inhabitants will add 2.6% to the regional population, including 1,962 children under 15 years of age. In the same direction, the remuneration of new permanent jobs generated will be 35.3% higher than the average currently observed in the region.

Port of Saguenay

The Port of Saguenay and Arianne will cooperate in building a maritime terminal on the north shore of the Saguenay River on the limits of Sainte-Rose-du-Nord.

In October 2018, the Company announced that the Port of Saguenay has received a favorable decision with regards to the construction of a maritime terminal facility on the north shore of the Saguenay River. Granted by the Minister for the Environment and Climate Change, the Honorable Catherine McKenna, this decision now paves the way forward for the construction of a terminal that will allow for the shipping of Arianne’s phosphate concentrate to customers around the world.

PHOSPHATE INDUSTRY TRENDS

Phosphate rock mining is declining in North America. The last phosphate mine in Canada closed in 2013. Global demand for phosphate is expected to increase over the medium and long term due to global population growth and a shift in dietary habits towards more protein-rich foods.

Within this context, the Lac à Paul project can satisfy a portion of this growing demand and provide a reliable and secure supply of high-quality phosphate rock.

Phosphate has no substitute and is a key component essential to life. It helps root development and drought resistance in plants.

Phosphate purchasers (potential customers) are concerned with the security of supplies and are aware of the beneficial geopolitical situation regarding the region where the mine is located. The Lac à Paul project is located in a politically stable mining-friendly jurisdiction. As well, as a result of European legislation and environmental issues in North America, there has been a growing awareness surrounding the nature of the phosphate concentrate that is used in the production of fertilizer and other applications. Due to these growing concerns, the interest in higher purity phosphate rock, such as Arianne’s, is projected to increase. Further, recent events surrounding the COVID-19 virus should continue to focus attention on both the food chain and supply chain and thus, the attractiveness of the Lac a Paul project.

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

SUSTAINABLE DEVELOPMENT

Measuring and offsetting greenhouse gas emissions

As part of its Sustainable Development Policy, Arianne offsets its greenhouse gas (“GHG”) emissions by investing in sustainable development and innovation projects.

Summary of offset measures implemented by Arianne as of June 30, 2020.

Emissions	Tonnes
1999-2010	867
2011	222
2012	963
2013	100
2014	2,070
2015	37
2016(1)	207
2017(1)	45
2018(1)	29
2019(1)	25.2
2020(1)	-
Financial equivalents	4,259
Price/tonne CO2($/tonne)	20.82
Amount to offset ($)	88,672
Amounts already invested	$
Global TraPs 2011	5,181
UQAC Eco-Advising Chair	4,240
Global TraPs 2012	3,490
Research grant 2012-2014	27,000
Carbone Boréal 2012	37
Biopterre	1,000
Total invested	40,948
Additional investment	**43,252 **

(1) Arianne Phosphate was committed to having a carbon-neutral exploration phase. This exploration phase was completed after obtaining the ministerial decree issued by the Government of Quebec in December 2015. The Company will continue to quantify and publish its greenhouse gas emissions without committing itself to offset future emissions.

FINANCIAL POSITION ANALYSIS

As at June 30, 2020, total assets were $67,379,215 compared to $64,219,430 as at December 31, 2019. The primary reason for the increase is the capitalization of development costs and right-of-use assets and the raise of a $1,500,000 equity financing during the period. During 2020, cost which have been capitalized relate to work with the port of Saguenay toward the construction of a maritime terminal and work to comply with the request from the permits from the Canadian Environmental Assessment Agency, design of the trailer truck to look at greater integration of aluminium and the capitalization of carrying costs.

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

Current assets of $1,498,863 as at June 30, 2020 have increased from $586,059 as at December 31, 2019. This is explained by a higher amount of cash and cash equivalents and higher receivables due to additional capital raised via the issuance of capital stock.

Current liabilities of $31,19,857 as at June 30, 2020 have increased from $27,953,148 as at December 31, 2019. Which is the result of the interest on the credit line facility and the classification in the current liabilities the working capital facilities which expires on June 2021.

CASHFLOWS, LIQUIDITY AND CAPITAL MANAGEMENT

Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company’s cash balance as at June 30, 2020 was $831,005 and it had $500,000 in trust to be received from the last equity financing.

Based on current spending estimates for the project’s development, the Company will need additional financing in the next 12 months. Any funding shortfall may be met in the future in several ways including, but not limited to, the issuance of new equity, debt financing or the securing of capital from potential partners. While management has been successful in securing financing in the past, there can be no assurance that it will be able to do so in the future or that these sources of funding or initiatives will be available to the Company or that they will be available on terms which are acceptable to the Company.

Cash flows provided by (used in)	Six-month period ended June 30, 2020 $	Six-month period ended June 30, 2019 $
Operating activities	(906,407)	(1,369,007)
Investment activities	(508,104)	(1,209,532)
Financingactivities	1,889,812	1,746,984
Increase (decrease) in cash and cash equivalents	475,301	(831,555)

Operating activities

For the six-month period ended June 30, 2020, cash outflows from operating activities totalled $0.9M (million), while there was outflows of $1.4M of cash for the same period in 2019. The reason for the change in operating activities from the six-month period ended June 30, 2020 is due to lower activities and reduction of manpower. Due to the uncertainties of the Covid-19 environment, the Company revised cash burn to adjust to the situation by substantial reductions to salaries instituted as of April 2020 for the management and employees.

Investment activities

For the six-month period ended June 30, 2020, cash used in investing activities was $0.5 M, whereas $1.2M was paid in the comparative period, both reflecting costs capitalized for property, plant and equipment. The decrease is due to a lower amount of investment in the development asset: work with the port of Saguenay, phosphoric acid plant prefeasibility study (in 2019), design of the trailers with integration of aluminium and environmental compliance with the decree. Furthermore, the Company received $0.3M in tax credit proceeds in the six-month period ended June 30, 2019, $0.08M for the sixmonth period ended June 30, 2020.

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

Financing activities

For the six-month period ended June 30, 2020, $1.9M of cash inflow was provided by the issuance of shares from a private placement. For the period of six-month ending June 30, 2019, $1.5M provided by issuance of shares was accounted and $0.3M from warrants exercised.

FINANCING

Financing

In June, 2020 the Company closed an equity financing in the amount of $1,500,000 financing. Under the terms of the financing, Arianne has issued 9,999,998 units at a price of $0.15 per unit. Each unit is comprised of one common share and one-half warrant. Each full warrant entitles the holder to purchase one common share at a price of $0.20 until June 10, 2023.

In February 2020, the Company closed on the first tranche of an equity financing in the amount of $425,025. Under the terms of the financing, Arianne has issued 1,700,100 units at a price of $0.25 per unit. Each unit is comprised of one common share and one-half common share warrant. Each full warrant entitles the holder to purchase one common share at a price of $0.40 until February 13, 2023.

In April 2020, Arianne received a loan of $40,000 from the Canada Emergency Business Account regarding the outbreak of the Covid-19. This loan as 0% interest until December 31, 2022.

Working capital

The negative working capital was $29,670,994 on June 30, 2020, compared to a negative working capital of $27,367,089 as at December 31, 2019. The working capital decreased due to the higher credit line facility due to interest capitalized as at June 30, 2020.

Management estimates that the cash available at the end of June 30, 2020 will not be sufficient to meet the Company’s obligations and budgeted expenditures through June 30, 2021. These circumstances lend some doubt as to the ability of the Company to meet its obligations as they come due and, accordingly, the appropriateness of the use of accounting principles are an ongoing concern. The Company will need to secure financing in 2020. If management is unable to obtain new funding, the Company may be unable to continue its operations, and the amounts realized for assets might be less than the amounts reflected in the financial statements.

SUMMARY OF QUARTERLY RESULTS

	September 30, 2018 $	December 31, 2018 $	March 31, 2019 $	June 30, 2019 $	September 30, 2019 $	December 31, 2019 $	March 31, 2020 $	June 30, 2020 $
Net income (loss)	(531,642)	(495,064)	(631,282)	(641,842)	(429,177)	(453,456)	(444,629)	(194,153)
Basic and diluted loss per share	(0.01)	(0.01)	(0.01)	(0.01)	(0.01)	(0.01)	(0.01)	(0.002)

For each quarter in fiscal 2018, 2019 and 2020 the information contained in the summary of quarterly results is presented in accordance with IFRS. Amounts in this table are presented in Canadian dollars which is also the functional currency.

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

SUMMARY OF FINANCIAL ACTIVITIES FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 2020

The net loss for the three-month period ended June 30, 2020 was $194,153 compared to a net loss of $622,821 for the three-month period ended June 30, 2019. This is the result in a decrease in salaries and benefit, management fees and communication due to reduced manpower count, salaries reduction due to substantial reductions to salaries instituted as of April 2020 in response to the Covid-19 crisis. The operating loss in 2020 of $199,416 was lower compared to $641,842 in 2019, due mainly to the aforementioned reduction in expenses above.

SUMMARY OF FINANCIAL ACTIVITIES FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2020

The net loss for the six-month period ended June 30, 2020 was $638,781 compared to a net loss of $1,254,110 for the six-month period ended June 30, 2019. This is the result in a decrease in salaries and benefit, management fees and communication due to reduced manpower count and operating activities. The operating loss in 2020 of $576,959 was lower compared to $1,234,529 in 2019, due mainly to the aforementioned reduction in expenses above.

RELATED PARTY TRANSACTIONS

The following operations occurred during the period ended June 30, 2020 and 2019:

	2020 $	2019 $
Key management compensation (1) Share-based compensation Management fees Salaries and benefits (2) Balance included in accounts payable and accrued liabilities	43,183 33,750	28,979 155,833
	76,933	184,812
	103,856	157,143
	180,789	341,995
	52,029	6,667

(1) The key management is composed of the Chief executive officer (CEO), Chief Financial Officer (CFO), Chief Operating Officer (COO), Executive Chairman and the vice-president exploration and First Nations Relations.

(2) Salaries and benefits capitalized to property, plant and equipment amount to $89,840 ($108,221 in 2019).

The Company has entered into employment and management contracts with its key executives whose estimated annual remuneration amounts to $475,000. These contracts are renewable annually. The agreements with the Company’s key executives contain provisions that apply in case of termination without cause or a change of control. If all executive team members had been dismissed without cause on June 30, 2020, the Company would have had to pay a total amount of $475,000 as severance. If a change of control had occurred on June 30, 2020, the total amounts payable to the executive team in respect of severance would have totaled $800,000 (assuming they left after a change of control and each named executive opted to receive such compensation). If the assets of the company had been sold to an “arm’s length entity" on June 30, 2020, the total amounts payable to the executive team in respect of severance would have totaled $1,050,000 (assuming they left after a change of control and each named executive opted to receive such compensation).

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

Subsequent to the nomination of Brian Ostroff as a director of the Company on June 4, 2014, Windermere is considered as a related party because it has significant influence over the Company through its representation on the Board of Directors. All agreements and transactions with Windermere are already disclosed in these financial statements and are therefore not described in this note.

Ocean Partners is also considered as a related party because a director of the Company is one of its managing directors. All agreements and transactions with Ocean Partners are already disclosed in these financial statements and are therefore not described in this note.

OFF BALANCE SHEET ARRANGEMENTS

As of the date of this MD&A, the Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company, including, and without limitation, such considerations as liquidity and capital resources.

OBLIGATIONS AND COMMITMENTS

• a) In August 2012, the Company granted the Lender of the credit line a royalty of $1 per ton of phosphate concentrate sales from the Lac à Paul project. This royalty may be redeemed at any time through a lump-sum payment of $6 million. In July 2013, the Company also granted the Lender of the credit line a royalty of $0.25 per ton of phosphate concentrate sales from the Lac à Paul project. This royalty may be redeemed at any time through a lump-sum payment of $1.5 million. These royalties will have to be redeemed by the Company for the same amount in the event of a change of control where at least 90% of the issued and outstanding shares of the Company are acquired, purchased or held by a third party, either through a tender offer or other transaction with the same result. The Company also has granted to other parties a 2.25% royalty on the net smelter return. The royalty may be redeemed at any time through a lump-sum payment of $2.5 million.

• b) The Company granted contracts in relation to the development of the Lac à Paul project for a total of $41,636. These contracts do not have termination dates and disbursements will be made in accordance with the project’s milestones.

The following are the contractual maturities of financial liabilities, including interest where applicable as at June 30, 2020:

		Contractual	0 to 12	12 to	24	More than	24
	Carrying amount	cash flows	months	months		months
	$	$	$	$		$
Accounts payable and
accrued liabilities	1,338,834	1,338,834	1,338,834		-		-
Lease liability	223,373	296,361	110,471		81,253	104,637
Loans and working
capital facility	5,548,090	6,643,758	328,000	6,285,758		30,000
Credit line	28,040,170	33,249,030	33,249,030		-		-

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

APPLICATION OF NEW AND REVISED IFRS AND CRITICAL ACCOUNTING ESTIMATES

The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. There is a summary of significant accounting policies in note 2 of the condensed consolidated interim financial statements for the six-month period ended June 30, 2020, and a summary of the critical accounting estimates and judgements in the note 4 of the audited financial statements for the year ended December 31, 2019.

COVID-19 coronavirus outbreak

The Corporation is monitoring the outbreak of the COVID-19 coronavirus. Current business disruptions could impact negatively the business and financial condition of the Corporation.

FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT

The Company’s financial instruments, financial risk and capital management are presented and described in the unaudited condensed consolidated interim financial statements for the period ended June 30, 2020.

INFORMATION ON SHARES OUTSTANDING

As at August 20, 2020, 123,198,348 common shares are issued and outstanding. There are 6,968,550 shares stock options, 48,546,591 warrants and 353,140 options granted to brokers outstanding.

(s) Jean-Sébastien David (s) Andrew Malashewsky Jean-Sébastien David Andrew Malashewsky Chief Operating Officer Chief Financial Officer

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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ARIANNE PHOSPHATE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS – SIX-MONTH PERIOD ENDED JUNE 30, 2020

Board of Directors and Officers

Dominique Bouchard , Executive Chairman of the Board of Directors Brian Ostroff , Director and Chief Executive Officer

Jim Cowley , Director Steven L. Pinney , Director Siva J. Pillay , Director Marco Gagnon , Director Claude Lafleur , Director Jean Fontaine , Director

Jean-Sébastien David , Chief Operating Officer Andrew Malashewsky , Chief Financial Officer

Ticker symbols

DAN: TSX-V (Canada) JE9N: FSE (Germany) DRRSF: OTC (USA)

Head Office

393 Racine St. East, Suite 200 Chicoutimi, Québec G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com

393 Racine St. East, Suite 200, Chicoutimi (Québec) G7H 1T2 Tel.: 418-549-7316 Fax: 418-549-5750 Email: info@arianne-inc.com www.arianne-inc.com

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