Defiance Silver Corp. — Interim / Quarterly Report 2021

Mar 1, 2021

DEFIANCE SILVER CORP.

INTERIM MANAGEMENT’S DISCUSSION & ANALYSIS

For the three and six months ended December 31, 2020

Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

Introduction

This Interim Management’s Discussion and Analysis (“ MD&A ”) is an overview of all material information about Defiance Silver Corp. (the “ Company ” or “ Defiance ”) operations, liquidity and capital resources for the three and six months ended December 31, 2020. The interim MD&A should be read with the unaudited condensed consolidated interim financial statements for the three and six months ended December 31, 2020, and the related notes contained therein which have been prepared under International Accounting Standard 34 – Interim Financial Reporting as issued by the International Accounting Standards Board. The following should also be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2020, and the related notes contained therein which have been prepared under International Financial Reporting Standards (“IFRS”), and all other disclosure documents of the Company. All amounts are stated in Canadian dollars unless otherwise indicated. The information contained herein is not a substitute for detailed investigation or analysis on any particular issue. Additional information relevant to the Company’s activities can be found on SEDAR at www.sedar.com and the Company’s website at www.defiancesilver.com. The effective date of this MD&A is February 24, 2021.

Going Concern

These consolidated financial statements have been prepared assuming the Company will continue on a going-concern basis. The Company has incurred losses since inception and the ability of the Company to continue as a going-concern depends upon its ability to develop profitable operations and to continue to raise adequate financing. Management is actively targeting sources of additional financing through other business and financial transactions which would assure continuation of the Company’s operations and exploration programs. In order for the Company to meet its liabilities as they come due and to continue its operations, the Company is solely dependent upon its ability to generate such financing. The Company expects to use similar financing techniques in the future and is pursuing such additional sources of financing as estimated to be required to sufficiently support its operations until such time that its operations become self-sustaining.

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business, its ability to raise funds or results of operations at this time.

At December 31, 2020, the Company had cash of $9,806,379 (June 30, 2020 $569,031) and working capital of $8,935,357 (June 30, 2020 – working capital deficiency of $1,441,115). The Company will require additional funds to support its exploration activities and meet working capital requirements. While the Company believes that it will be able to raise additional funds and/or reduce expenditures to continue as a going concern there is no assurance that the Company will be successful in obtaining additional funding at an acceptable cost as and when needed or at all. Failure to obtain additional funding on a timely basis may cause the Company to postpone exploration and/or evaluation plans, dilute or forfeit rights in its mineral properties or substantially reduce its operations. The financial statements do not include any adjustments to carrying values of asset amounts and liabilities, reported expenses and the statement of financial

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

position classifications used, that would be necessary if the going concern assumption were not appropriate. Such adjustments could be material.

Forward-Looking Statements

Except for historical information, this MD&A may contain forward-looking statements. The statements involve known and unknown risks, uncertainties, and other factors that may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievement expressed or implied by these forward-looking statements.

The factors that could cause actual results to differ materially include, but are not limited to, the following: general economic conditions; changes in financial markets; the impact of exchange rates; political conditions and developments or criminal activity in countries in which the Company operates; changes in the supply, demand and pricing of the metal commodities which the Company hopes to find and successfully mine; changes in regulatory requirements impacting the Company’s operations; the sufficiency of current working capital and the estimated cost and availability of funding for the continued exploration and development of the Company’s exploration properties.

This list is not exhaustive and these and other factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking statements. As a result of the foregoing and other factors, no assurance can be given as to any such future results, levels of activity or achievements and neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements (except as required by applicable law). The Company does not assume the obligation to update any forward-looking statement.

Description of Business

The Company is a publicly listed company on the TSX Venture Exchange (“TSX-V”) trading under the symbol DEF. The Company is an exploration-stage company and engages principally in the acquisition and exploration of exploration and evaluation assets primarily in Mexico. To date, equity financings and shortterm loans have provided the main source of financing.

The recovery of the Company’s investment in its mineral rights is dependent upon the discovery of economically recoverable mineral reserves and the ability to raise sufficient capital to finance these operations. The ultimate outcome of these operations cannot presently be determined because they are contingent on future matters.

Liquidity

The Company is in the acquisition and early exploration stage and therefore has no incoming cash flows from operations. At December 31, 2020, the Company had cash of $9,806,379 (June 30, 2020 $569,031) and working capital of $8,935,357 (June 30, 2020 – working capital deficiency of $1,441,115).

At present, the Company’s operations do not generate positive cash flows and its financial success is dependent on management’s ability to discover economically viable mineral deposits. The mineral exploration process can take many years and is subject to factors that are beyond the Company’s control.

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

The Company is considered to be in the exploration and evaluation stage. Thus, it is dependent on obtaining regular financings in order to continue its exploration and evaluation programs. Despite previous success in acquiring these financings, there is no guarantee of obtaining future financings. The Company’s cash is invested in business accounts with quality financial institutions, is available on demand for the Company’s programs, and is not invested in any asset backed commercial paper.

Capital Resources

The Company will continue to seek capital through public markets by issuing common shares pursuant to private placements. The Company manages its capital structure to maximize its financial flexibility making adjustments to it in response to changes in economic conditions and the risk characteristics of the underlying assets and business opportunities. The Company does not presently utilize any quantitative measures to monitor its capital and is not subject to externally imposed capital requirements.

Loan Payable

During the period ended December 31, 2020, the Company:

• i) Repaid in full the outstanding loan including accrued interest. The lender has acknowledged the repayment in full and the Charges created by the general security agreement have been removed by the lender.

During the year ended June 30, 2020, the Company:

• i) entered into a loan agreement in the amount of $200,000. The loan is unsecured, bears interest at 1% per month and is repayable on or before July 24, 2020. The loan was repaid on August 15, 2019 including interest of $1,381;

• ii) extended its outstanding loan facility for a period of 12 months; the principal balance on extension was $1,221,649. The loan bears interest at the rate of 10% per annum, accrued daily and matures on December 21, 2020. The Company issued 2,350,000 warrants to the lender, each warrant entitling the lender to acquire one common share of the Company at $0.20 until December 21, 2020. The warrants were valued using the Black-Scholes Model resulting in a fair value of $137,591 based on the following assumptions: dividend yield 0%, expected life of 1 year, expected volatility of 73.41%, and a risk-free interest rate of 1.67% (Note 11).

Financings

On September 16, 2020 the Company closed a brokered private placement by issuing 29,415,000 units at a price of $0.34 per unit for gross proceeds of $10,001,100. Each unit consists of one common share and one-half of one common share purchase warrant (each whole warrant a “Warrant”). Each Warrant is exercisable to purchase one common share at a price of $0.48 per share on or before September 16, 2022. The Company paid finder’s fees of $755,772 and recognized $633,177 for share issuance costs related to the issuance of 1,470,782 non-transferable compensation options, each compensation option consists of an option to purchase one unit at a price of $0.34 per unit with each unit consisting of one common share at $0.34 and one-half of one common share purchase warrant. Each Warrant is exercisable to purchase one common share at a price of $0.48 per share on or before September 16, 2022. The fair value of the

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

compensation options was determined using the Black-Scholes option pricing model using the following assumptions: risk free interest rate 0.24%, expected life of 2 years, annualized volatility 97.69% and dividend rate at nil.

On August 12, 2019 the Company closed a non-brokered private placement by issuing 14,448,283 units at a price of $0.23 per unit for gross proceeds of $3,323,106. Each unit consists of one common share and one common share purchase warrant. Each warrant is exercisable to purchase one common share at a price of $0.31 per share on or before August 12, 2022. The Company paid finder’s fees of $30,056 and issued 87,780 broker warrants. Each broker warrant is exercisable to purchase one common share at a price of $0.23 per share on or before August 12, 2020.

Overall Performance/Significant Events

Significant events

• January 27, 2021 Defiance announces that it has entered into an option to acquire 1,915 Ha surrounding the Tepal Gold-Copper Project in Michoacán, Mexico. Defiance has agreed to pay the annual concession fees until a production decision has been made, upon which Defiance will pay the vendor USD $2 million for 100% ownership of the mining concessions.

• January 16, 2021 Mr. Darrell Rader resigned from the board of directors

• December 16, 2020 Defiance announces that Geologix Explorations Mexico, S.A. de C.V., a subsidiary of Defiance Silver Corp., has acquired an option to repurchase the royalty on the company’s Tepal project in Michoacán, Mexico from Minera Tepal, S.A. de C.V (“Minera Tepal”). The company has the option to acquire the existing 2.5% NSR from Minera Tepal over four years for total consideration of USD $4.85 million. Payments may be accelerated at the option of the purchaser.

• December 9, 2020 Defiance reports that drilling has commenced on the San Acacio project in Zacatecas, Mexico. The drill program is planned as a minimum 5,000 metre program. Drilling has been prioritized on testing the Veta Grande vein system in hanging wall structural offsets; the Veta Grande structure at depth and blind hanging wall and footwall veins outside of the known resource and historical mining areas.

• December 2, 2020 Defiance announces that it has entered into a definitive option agreement with Pan American Silver Corp. (“Pan American”) to acquire a 100% interest in Pan American’s Lucita property, located adjacent to Defiance’s San Acacio project. If the option requirements are satisfied and the option is exercised by the Company, this acquisition would nearly triple the land position of Defiance in the historic Zacatecas silver district to over 4,300 Ha and contains some of the most prospective targets in the camp.

• November 5, 2020 Defiance announces several appointments to its executive and management teams, including Mr. George Cavey P.Geo, who joined the Company as Vice President, Exploration. Mr. Douglas Cavey joined as Vice President of Corporate Development and Senior Technical Advisor and Ms. Jennifer Roskowski as Principal Geologist.

• September 21, 2020 Defiance announced that it has repaid in full the Company’s outstanding Loan with Windermere Capital Fund SPC (on behalf of the Navigator Segregated Portfolio). The Company has now repaid the total outstanding balance of $1,312,018 including accrued interest. The Loan was secured by the assets of the Company’s subsidiaries and the General Security Agreement will now be removed following repayment of the Loan in full.

• September 16, 2020 Defiance Silver Closed C$10.0m Brokered Private Placement

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

• June 20, 2020 Defiance announced that it was resuming its aggressive field program that included core re-logging, surface and underground mapping, geochemistry and surface diamond drilling.

• May 19, 2020 Defiance announced that it has successfully renegotiated and significantly extended the terms of the option agreement on the Company’s flagship San Acacio Silver project. The project vendor has agreed to extend the option agreement terms by three years from September 27, 2020 to September, 27, 2023.

Acquisition of Valoro Resources Inc.

Effective November 5, 2018, the Company and ValOro Resources Inc. (“Valoro”) signed a Definitive Arrangement Agreement to complete a transaction whereby the Company acquired all of the issued and outstanding Valoro shares (the “Transaction”). The Company and Valoro completed the Transaction under the Business Corporations Act (British Columbia) on December 31, 2018. Former Valoro shareholders received 0.71 Defiance shares for each Valoro share held.

As consideration, the Company issued 15,421,520 common shares at a value of $3,855,380. As part of the arrangement, all unexercised Valoro stock options and warrants were replaced with 1,371,011 stock options and 1,357,708 warrants of the Company at the exchange ratio of 0.71 and a total Black Scholes value of $93,134. The Company incurred $27,409 in transaction costs and $260,630 in severance costs relating to the acquisition, and these costs were capitalized as part of the acquisition. The acquisition of Valoro was treated as an acquisition of exploration and evaluation assets.

At the time of completion, the Company had 118,773,341 common shares outstanding, of which shareholders of Defiance owned 87% and the former shareholders of Valoro owned approximately 13%.

Highlights of the Transaction

• The Tepal Gold Copper Project having a 2017 Preliminary Economic Assessment (“PEA”) estimating a pre-tax NPV5% of $299 million and a 36% IRR with a 1.6-year payback period and a post-tax NPV5% of $169 million and a 24% IRR with a 2.4-year payback period. The PEA is based on an estimated Measured and Indicated Resource containing 4 M oz. gold equivalent.

• Proven management team: Extensive experience in all critical mining and exploration disciplines with demonstrated capabilities in financing, acquiring, developing and operating mines and a proven track record of exploration successes.

• Enhanced market presence: The larger merged company is expected to appeal to a broader institutional shareholder base and improve share trading liquidity.

• Compelling value proposition: Significant leverage among junior Mexico explorer’s equities and attractive relative valuation based on net asset value.

Acquisition of MAG Silver Corp’s Zacatecas Silver District holdings

In June 2018, the Company entered into a binding agreement to acquire MAG Silver Corp’s (“MAG”) Zacatecas Silver District holdings. As consideration for the sale, MAG received cash of $10,000 and 5,000,000 common shares of the Company representing an approximate 5% strategic investment position. The Company has a 100% interest in MAG’s Lagartos Project along with a significant regional exploration database covering 135,000ha stretching from the Zacatecas to the Fresnillo Silver Districts. The Lagartos Project consists of 14 concessions totaling approximately 800 hectares (Figure 1). The transaction

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

provided Defiance control over a 1,506ha land package within the rapidly consolidating Zacatecas Silver district including over 65% of the Veta Grande vein, which hosts Defences’ 100% owned San Acacio Silver Deposit (16.9M oz in 2.9 MT grading 182.42 grams per tonne silver inferred resource, see Defiance News Release dated January 15, 2015). Concessions bordering both the San Acacio deposit and other Veta Grande veins are being advanced by Pan American Silver, Capstone Mining and Endeavour Silver (see Exploration and Evaluation Asset Review below for further information).

Exploration and Evaluation Assets Review

Minera Santa Remy SA de CV Projects

Qualified Person

The review of the Minera Santa Remy SA de CV Projects for the periods October 2011-October 2019 has been prepared by the geological staff under the supervision of Bruce Winfield, P.Geo., a Consultant of the Company, and a Qualified Person (“QP”) as defined by National Instrument 43-101 (Standards of Disclosure for Exploration and Evaluation Projects).

Subsequent to November 1, 2019, the review of the Minera Santa Remy SA de CV Projects has been prepared by the geological staff under the supervision of George Cavey, P.Geo., a Consultant of the Company, and a Qualified Person (“QP”) as defined by National Instrument 43-101 (Standards of Disclosure for Exploration and Evaluation Projects).

The Company currently has the right to acquire an interest in two properties, the San Acacio property, and the Lucita Property both located in Zacatecas State, Mexico, through the San Acacio purchase option agreement and the Lucita purchase option agreement. The company owns the Lagartos licenses 100% outright through a purchase agreement with MAG Silver.

San Acacio Property

The Company entered into an option agreement on October 24, 2011, subsequently the subject of several amendments, with the Mexican owners (“the Vendors”) for an option to purchase a 100% interest in the San Acacio property consisting of 10 mining concessions and associated surface rights and tailings. The San Acacio property is located approximately 6.5 km north of the city of Zacatecas, Mexico.

The Company has paid US$3,986,056 towards the agreement through December 31, 2020.

During the year ended June 30, 2020, the Company renegotiated and extended the terms of its San Acacio Silver Project option agreement by three years from September 27, 2020 to September 27, 2023. In addition, 80% of the option payments due before March 27 and June 27, 2020 have been deferred as a part of this extension. The Company will make quarterly payments, over three years, to the property vendor. As a result of the amending agreement, the payment terms are as follows:

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

			Letter Of Intent		Option		Lease	Interest	Interest
			Payment		Payment		Payment	Payment		Total
By September	27,	2012	USD 25,000	USD	-	USD	-	USD	-	USD 25,000	(paid)
By September	27,	2013	-		250,000					250,000	(paid)
By September	27,	2014	-		-		150,000			150,000	(paid)
By September	27,	2015	-		-		225,000			225,000	(paid)
By September	27,	2016	-		100,000		150,000			250,000	(paid)
By September	27,	2017	-		200,000		150,000			350,000	(paid)
By September	27,	2018	-		600,000		150,000			750,000	(paid)
By September	27,	2019	-		600,000		200,000		107,600	907,600	(paid)
By September	27,	2020	-		500,000		100,000		-	600,000	(paid)
By September	27,	2021	-		400,000		283,334		86,063	769,397	(386,071 paid)
By September	27,	2022	-		400,000		283,333		76,063	759,396
By September	27,	2023	-		400,000		283,333		66,063	749,396
On September	27,	2023	-		2,300,000		-		107,461	2,407,461
		Total	USD 25,000	USD 5,750,000		USD 1,975,000		USD 443,250		USD 8,193,250

The property is subject to a 2.5% net smelter return royalty (“NSR”) payable to the vendors on production from the property. The Company will have the right to purchase the NSR at any time for US$2,500,000 which will escalate with the official Mexican Inflation Index after a five year period. Should the agreement be terminated prior to September 27, 2023 a break fee equal to 5% of the outstanding option balance shall be paid to the property vendor.

Following the first anniversary of the purchase of the Assets, the Company must make minimum advance annual royalty payments of US$125,000. The minimum advance royalty commitment terminates in the event that the production royalty paid is equal to or higher than the equivalent to the minimum that would have been due during six consecutive months.

The Veta Grande vein, which pinches and swells along strike, produced approximately 200M ounces of silver from high-grade shoots in the swells, with an estimated 100M ounces of silver from high-grade shoots on Defiance’s portion of the Veta Grande. Mapping, mineralogical studies and drilling to date indicate that the pinching and swelling continues along strike and the mineralized system hosting the San Acacio deposit is tilted to the southeast. With only a few shallow historic exploration shafts and minor modern exploration, there is significant potential for the discovery of multiple intact, high grade silver shoots in this area. Over 4.4 km of Defiance's 5.6 km holdings along the Veta Grande vein have not seen historical production nor been systematically explored, providing Defiance the opportunity to potentially grow the resource along strike.

Surface rights agreements

In August 2014, the Company obtained authorization to temporarily occupy and explore certain land holdings on the San Acacio property. In order to keep the agreement in good standing, the Company is

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

required to make semi-annual payments during the exploration phase and the development phase. The agreement will be valid for twenty years with the option to extend in the future.

On February 27, 2015, the Company entered into an additional surface rights agreement for the right to occupy and perform exploration work on the San Acacio property. The Company will have authorization to explore the surface of the property for a term of three years which can be extended for an additional three years at the Company’s choice, by making annual advance payments and by paying a one time fee on the signing of the agreement. On February 26, 2018, the Company exercised its right to extend the term of the contract for an additional three years by making a one time payment, and is required to make semi-annual payments. All required payments have been made.

On July 14, 2016, the Company entered into an additional surface rights agreement for the right to occupy and perform exploration work on the San Acacio property. The Company will have authorization to explore the surface of the property for a term of five years which can be renewed for a further five years at the Company’s choice by making advance annual payments and by paying a one time fee on signing of the agreement. All required payments have been made.

Property Background

The San Acacio mining concessions control approximately 5.6 kilometers of the 8.5 kilometer long Veta Grande vein system, one of the three major vein systems within the Zacatecas Silver District that has produced over 700 million ounces of silver since 1548. Veta Grande is a classic epithermal silver rich vein system with accessory gold and base metal credits. The San Acacio Deposit has been exploited over a strike length of 1.2 kilometer to an approximate depth of 200 meters. Three shallow exploration shafts were also made prior to 1910 along the vein for an additional 900 meters along strike to the southeast. The structure, which is believed to exist over a further 3.5 kilometers of strike length to the southeast, has not had any modern exploration.

On January 15[th] , 2015 the Company announced a new resource calculation with additional ounces of silver (AgEq) as well as significantly higher grade (AgEq).

San Acacio Inferred Resource

					Grade > Cut-off	Grade > Cut-off		Contained Metal	Contained Metal
Vein	AgEq Cut-off **g/t **	Tonnes > Cut-off tonnes		Ag(g/t)	Au(g/t)	AgEq (g/t)	Ag (oz)	Au(oz)	AgEq (oz)
Veta G	100		2,150,000	192.43	0.19	204.66	13,302,000	10,000	14,147
Veta C	100		739,000	153.28	0.08	158.66	3,642,000	19,000	3,770,000
Veta B	100		13,000	76.53	0.45	105.98	32,000	190	44,000
Total	100		2,902,000	181.94	0.16	192.50	16,976,000	12,090	17,961,000

Note: AgEq refers to silver equivalent using a gold price of $1,270/ oz Au and silver price of $19.60 the silver equivalent value would be silver content plus 65 times the gold content. (Note: total contained AgEq values may not add exactly because of rounding). Metallurgical recoveries are not taken into account.

On January 29, 2015 the Company announced results for the initial three holes which intersected wide zones of high grade mineralization (see news release for details).

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

Drill hole	From (m)	To (m)	Length (m)	Ag, g/t	Au, g/t	Cu, %	Pb, %	Zn, %	Ageq, g/t*
SAD14-01	132.50	149.50	17.00	110.21	0.13	0.01	0.11	0.35	139.15
including	134.00	142.10	8.10	222.12	0.22	0.01	0.20	0.53	268.13
SAD14-02	168.50	185.20	16.70	101.11	0.75	0.02	0.14	1.79	235.36
including	168.50	171.10	3.20	419.09	0.82	0.02	0.14	0.30	499.43
including	176.20	182.10	5.90	30.15	1.46	0.03	0.23	4.62	334.68
SAD14-03	194.50	213.30	18.80	21.37	0.42	0.02	0.84	1.10	128.03
including	205.00	213.30	8.30	42.89	0.92	0.04	1.87	2.44	278.33

• *Reported for comparison only, with no assumptions regarding metal recovery or smelter payments. Prices used are Au: $1210.50/ounce, Ag: $16.33/ounce, Cu; $2.80/pound, Pb; $0.83/pound and Zn $0.95/pound. US dollars.

• 1 Gram = 0.03215074657 Troy ounce

• *True Widths are approximately 70% to 80% of each intersection

The three holes were drilled on a single cross-section at the northwestern end of the San Acacio vein below the Almaden historic workings. The holes produced wide intersections of mineralization with grades substantially higher than the grade of the current resource.

On July 7[th] and August 26[th] , 2015 the Company announced results from the five remaining holes drilled in the first part of the Phase I, 5,000m drill program to test below the historic Almaden workings (see news releases for details).

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*True Widths are approximately 70% to 80% of each intersection

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

These five holes were drilled on two sections spaced 100m apart. The holes continued to give wide, high grade intersections extending the zone of mineralization along strike to a length of 200m and a depth of 140m below the base of the current resource.

On July 28, 2015, the Company announced commencement of drilling to test the zone below the historic Esperanza-Guadalupe workings 600m to the southeast along the San Acacio vein system. The program was completed on August 28, 2015 with the deepening of drill hole SAD15-8 and completion of drill holes SA15-9 to 11 for a total of 1,236.05m.

In March 2016, the Company reported the results of the three holes SA15-9 to 11 drilled at the San Acacio silver deposit. Drilling 550m southeast of the last 8 reported drill holes intercepted wide zones of mineralization in both the Veta Grande and Veta Chica veins. Results from these holes extend the known mineralization to 140 meters below the current resource with mineralization still open to depth and along strike.

Drill hole SAD15-10 intersected the San Acacio vein with an overall a length of 11.95m. In SAD15-10, three zones within the overall vein straddled two old mine workings and returned; 2.1m grading 333.87 g/t AgEq, 5.5m grading 187.06, and 1.6m grading 99.55 g/t AgEq. Hole SAD15-09 intersected the San Acacio vein over a length of 7.65m that includes a 3.05m wide old working. It is believed that the old workings encountered represent the high-grade portion of the vein had been mined historically.

Both drill holes SAD15-09 and SAD15-10 intersected the hanging wall Veta Chica Vein. Vet Chica intercepts in SAD15-09 returned 15.65m grading 68.76 g/t AgEq with a 4.85m section grading 128.71 g/t AgEq and SAD15-10 returned 1.6m grading 110.50 g/t AgEq.

The workings intersected in both holes SAD15-9 and SAD15-10, are believed to represent the higher grade portions of the 7.65m and 11.95m long intersections of the San Acacio vein that were historically mined.

In all three holes, SAD15-9, SAD15-10, and SAD15-11, the vein intercepts were hosted within a zone defined by long intersections of 55.6m, 110.3m, and 136.4m respectively of a quartz pyrite breccia that is anomalous in silver, zinc and copper. This breccia represents a previously unrecognized hydrothermal event which may indicate a larger hydrothermal system at depth.

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In July 2016, the Company filed a drill permit application with Semarnat for a drilling program to include up to 126 holes totaling approximately 60,000m. The drill holes will target extensions of mineralization within the 1200m long San Acacio deposit as well as the 900m long extension of the deposit to the southeast. As of January 2017, the required permit had been received. Further exploration has been done under a drill permit issued by Semarnat in March 2017, This permit was amended in September 2020 to include additional access roads and drill pads. Work in 2017 and 2019 was contemplated under a permit issued by Semarnat in October 2017. Estimated cost of remediation under both these permits is estimated to be less than $25,000 for the disturbed area.

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

The Company’s drilling to date has extended mineralization below the base of the current resource in two of the past producing zones, Almaden and Guadalupe. Results were excellent, producing long intersections of high grade mineralization in the extension to depth of two of the zones as follows.

Zone Hole # From(m) To(m) Length (m)***	Ag, g/t Au, g/t Cu, % Pb, % Zn, % AgEq, g/t*
Almaden SAD14-01 132.50 149.50 17.00 including 134.00 142.10 8.10	110.21 0.13 0.01 0.11 0.35 139.15 222.12 0.22 0.01 0.20 0.53 268.13
Almaden SAD14-02 168.50 185.20 16.70 including 168.50 171.70 3.20 including 176.20 182.10 5.90	101.11 0.75 0.02 0.14 1.79 235.36 419.09 0.82 0.02 0.14 0.30 499.43 30.15 1.46 0.03 0.23 4.62 334.68
Almaden SAD14-03 194.50 213.30 18.80 including 205.00 213.30 8.30	21.37 0.42 0.02 0.84 1.10 128.03 42.89 0.92 0.04 1.87 2.44 278.33
Almaden SAD14-04 143.00 153.10 10.10 including 147.00 153.10 6.10	100.23 0.56 0.13 0.77 1.61 248.11 138.35 0.80 0.19 1.27 1.90 340.41
Almaden SAD15-07 136.40 140.00 3.60 SAD15-07 147.10 149.50 2.40 SAD15-07 185.40 206.50 21.10 including 199.10 206.50 7.40	211.49 0.14 0.01 0.11 0.20 234.17 149.16 0.16 0.02 0.42 1.59 241.55 70.84 0.24 0.03 0.35 0.77 134.87 158.75 0.52 0.07 0.81 1.83 306.68
Guadalupe SAD15-10 331.50 343.45 11.95 including 331.5 333.6 2.1 333.60 335.65 2.05 including 335.65 341.15 5.5 341.15 341.85 0.7 including 341.85 343.45 1.60 SAD15-10 ** 331.50 343.45 11.95	Veta Grande vein
	283.31 0.17 0.01 0.38 0.70 337.75
	Mine Opening on Veta Grande
	96.65 0.26 0.03 0.61 1.34 194.32
	Mine Opening on Veta Grande
	19.44 0.12 0.02 0.40 1.58 106.88 96.87 0.17 0.02 0.40 0.95 163.07

*Reported for comparison only, with no assumptions regarding metal recovery or smelter payments. Prices used are Au: $1210.50/ounce, Ag: $16.33/ounce, Cu; $2.80/pound, Pb; $0.83/pound and Zn $0.95/pound. US dollars.

**Grade not calculated because of no data for open mine workings.

***True Widths are approximately 70% to 80% of each intersection.

****Calculated using zero grade for the mine openings.

Results from drill hole SAD15-10 includes two historic mine openings that were assigned no grade. Even with this assumption, the intercept returned the strong grade of 163.07g/t Ag Eq. It can be assumed that the high-grade was mined out by the historical miners. This extends the depth of the strongly mineralized main vein 150m below the base of the current resource.

In May 2017, Defiance announced the resumption of drilling at the San Acacio Silver Project in the Zacatecas silver district. This drilling targeted the expansion of the current deposit and focused specifically on following up on the Esperanza and Almaden mineralized high grade shoots. Previous drilling at Esperanza intersected 12.7m grading 297g/t silver equivalent (“AgEq”) while at Almaden, drilling returned 8.3m grading 278 g/t AgEq.

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In July and October 2017, results were released from the remaining diamond drill holes SAD17-12 to SAD17-17 in the Phase I 5000m drill program as presented in the following table.

Hole #	From (m)	To (m)	Length (m)	Ag, g/t	Au, g/t	Cu, %	Pb, %	Zn, %	AgEq, g/t
SAD 17-12	226.2	253.65	27.03	148.21	0.29	0.02	0.13	0.67	202.99
including	226.2	234.20	7.58	212.91	0.05	0.01	0.06	0.26	230.03
including	238.0	243.00	5.00	230.69	0.51	0.04	0.43	1.68	354.97
including	247.6	253.65	6.05	122.07	0.74	0.01	0.09	1.04	222.59
SAD17-13	261.00	271.00	10.00	171.22	0.08	0.01	0.27	0.42	204.65
including	261.00	264.00	3.00	372.21	0.10	0.01	0.16	0.45	404.03
SAD17-14	308.07	308.67	0.60	139.53	0.40	0.00	1.84	1.09	276.74
	314.12	315.00	0.88	213.84	0.30	0.00	0.01	0.00	236.21
	318.00	318.30	0.30	477.55	0.46	0.00	0.05	0.17	520.27
SAD17-15	209.82	213.00	3.18	285.04	0.02	0.01	0.05	0.17	296.30
SAD17-17	439.13	440.14	1.01	33.90	0.12	0.01	0.51	3.14	187.85

Reported for comparison only, with no assumptions regarding metal recovery or smelter payments. Prices used are Au: $1,210.50/ounce, Ag: $16.33/ounce, Cu; $2.80/pound, Pb; $0.83/pound and Zn $0.95/pound. US dollars. *True Widths are approximately 70% to 80% of each intersection.

Drill holes SAD17-13 and SAD17-14 targeted the Esperanza Zone, extending the mineralization further at depth below drill hole SAD17-12 which intersected high grade silver over a core length of 27.03 meters of hydrothermal breccia and veins assaying 202.99 g/t AgEq (see Defiance news release dated June 8, 2017). Hole SAD17-13 extended the wide zone of mineralization in drill hole SAD17-12 with a 10 meter intersection grading 204.65 g/t AgEq. Drill hole SAD17-14 intersected three narrower zones of mineralization before intersecting a fault that displaced the main vein. Drill hole SAD17-15 drilled 100 meters to the southeast on the vein intersected high grade mineralization grading 296.30 g/t AgEq over 3.18 meters. Drill hole SAD17-17, drilled 100 meters farther to the southeast, extended the wide vein intersection of 11.95 meters in drill hole SAD15- 10 with its high grade mineralization and old workings, 80 meters vertically although mineralization was primarily base metals with 3.14% Zinc and 0.51% lead, possibly in the low grade zone between silver and silver-base metal zones.

Results from the drilling program announced in the News Release dated October 31, 2017, along the 900m segment of the Veta Grande vein from the Guadalupe Pit through to the historic Restauracion shaft indicated pinching and swelling of the Veta Grande vein. Holes SAD17-18 and SAD17-19 intersected wide zones of amethyst bearing vein with anomalous silver values, 9.8m and 27.76m respectively, that elsewhere on the Veta Grande vein are associated shoots of high-grade silver mineralization. Characteristics of the amethyst rich mineralization indicate being at a high level within the system.

An Induced Polarization (IP) geophysical survey was designed to test the potential at depth for the silver mineralization hosted within the 900m long segment of the San Acacio Vein from the Guadalupe Pit to the Restauracion Shaft. The survey defined an anomaly 200m long by 300m wide starting at depth of

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approximately 200m. The anomaly is open along strike as well as to depth with the potential to host a blind mineralized shoot on the Veta Grande vein.

Defiance followed up on results of the geophysical survey with additional drilling in 2019. The diamond drill program tested the deep geophysical anomaly as recommended in the geophysical report, which interpreted the anomaly to occur about 450 metres southeast of previous drilling and between a downhole depth of 200 metres to 450 metres. Drilling also tested for the possible extension of the Veta Grande vein system along strike to the southeast where it was thought to dip beneath cover. This represents the first exploration of the vein strike to the southeast where exploration is still in the early stages. Drilling was initiated on June 11 and completed on July 8, 2019. Two deep HQ sized diamond drill holes were completed during this program, for a total of 928.4 metres drilled.

Drill hole DSA19-001 was completed as recommended, oriented to test the deep IP Anomaly to a depth of 500m to cross the full width of the anomaly. A total of 451.15 meters were drilled, intersecting a thick volcano sedimentary basin stratigraphy of mafic volcanic’s, intermediate to felsic tuff, pyritic carbonaceous mudstone, barite breccia, chert, siltstone and greywacke. Sulphide mineralization as marcasite, and both primary and secondary pyrite is common through out the drill hole, locally exceeding 10% pyrite at the depth of the IP anomaly. The drill hole ended in a magnetic basalt/andesite. The pyrite is sufficient to explain the IP anomaly; however, this amount of pyrite alteration does merit further investigation to determine its source. No significant assay results were received. The drill hole is currently interpreted to have collared in the footwall to the principal vein structure, where the San Acacio vein appears to be displaced by a fault intersected in core.

Drill hole DSA19-002 was oriented based on the results of the first drill hole, specifically to test the along strike continuity of the Veta Grande to the southeast, and beneath favourable alteration located in outcrop. The drill hole successfully intersected three zones of favourable alteration and quartz veining that likely correlates with the Veta Grande, meriting additional follow up drilling. Strong alteration and local quartz veining with silicification was intersected between downhole depths of 283.50 to 302.0 metres (18.50 metre thick), between 339.4 to 356.33 metres (16.93 metres thick), and between 380.26 to 397.26 metres (17.00 metres think). Due to drill permit restrictions that limited the hole location to an existing road, this hole did drill downdip of and at an oblique angle to the vein structure.

Until further information is received from additional drilling, true widths cannot be determined, but are expected to be less than the reported intersections. Drill hole DSA19-002 did not return any significant assay values but this is not uncommon with an epithermal vein system where ore shoots are commonly separated by barren zones. A similar stratigraphy as the first hole was intersected in this hole, including a thicker sequence of pyritic chert, silicified tuff, and mafic flows and/or dikes that suggest the basin may be deepening to the south.

Drill Collar location and orientation

	Date		Coords	UTM WGS84			Orientation	Orientation		Cumulative
Drill hole	Started	Ended	E	N	Elev	Survey	Azimuth	Dip	Depth (m)	(m)
DSA19-001	2019-06-11	2019-06-23	753420	2525255		Garmin	52	-68	451.15	451.15
DSA19-002	2019-06-23	2019-07-08	753590	2525325		Garmin	160	-48	477.25	928.40

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November 2019 - 2020

Qualified Person

Mr. George Cavey, P.Geo, is a Qualified Person within the meaning of National Instrument 43-101, and has approved the following technical information concerning the Company’s material mineral properties. He has verified that the data disclosed is in accordance with the published results of the reports described under the 2019-2020, and ongoing 2021 exploration plans of the San Acacio, Lagartos and Lucita Projects.

Defiance’s exploration teams spent the fall of 2019 and the spring of 2020 executing a work program focused on property-scale mapping, 3D modeling and drill core re-logging at the San Acacio project. As a result of this program, Defiance and its technical team, have generated new targets in previously overlooked portions of the property. The recent work highlights the potential for composite vein systems at depth and suggests the presence of a long-lived mineralizing system at San Acacio. Significant new drill targets that have been generated include:

• 1) A 1.3km X 300m corridor where a hanging wall mineralizing event has been identified. Key targets in this corridor include hanging wall veins parallel to the Veta Grande and offset hanging wall structures found in the vicinity of the Tiro San Genaro. Significant mineralization outside of the main Veta Grande structure was outlined by positive drill results in the vicinity SAD15-08 (Veta Natividad and Veta Grande) both at depth and along strike between Almaden and Tiro San Genaro. Targets include parallel and offset structures in the vicinity of previous drilling at El Mirador/Almaden and SAD17-12/13/14.

• 2) Deep targets along strike of the Veta Grande to the immediate south east. This area was tested late in 2017 and is structurally complicated, consisting of down-dropped blocks and regional block rotation.

• 3) “El Mirador,” part of a multi-kilometer felsic fault structure (La Veta Morada) with visible silver sulfides that outcrops near previous drilling in the vicinity of the Almaden Shaft and underground workings. This style of structure has a positive correlation to regional exploration and development successes at other nearby projects.

This following table is presented to highlight the significant mineralization outside of the principle Veta Grande structure. Re-logging and property-scale mapping has been successful in identifying multiple phases or pulses of mineralization. These targets have largely been untested and may have been intersected in multiple holes, such as SAD17-13, where several styles of overprinting mineralization is witnessed at similar depths as veining found in the NW of the property in the hanging wall of the Veta Grande structure.

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Table 1 . Highlighted Intercepts in the Hanging wall of the Veta Grande (VG)

ble 1. Highlighted	Intercept	s in the Ha	ngingwall	of the Vet	a Grand	e(VG)
Hole ID	From	To	Width*	Ag	Au	Cu	Pb	Zn	Zone
SADD09-04A	243.0	244.3	1.3*	769	0.15	0.01	0.23	0.79	Natividad
including	243.0	243.30	0.3*	3,090.0	0.57	0.04	0.92	3.27	Natividad
SADD10-09	314.85	316.05	1.20*	239	0.42	0.117	1.33	4.10	HW VG
SAD15-08	106.05	113.3	7.25*	631.46	0.43	0.01	0.09	0.22	Unknown
SAD17-13	261.0	264.0	3.0*	372.21	0.10	0.01	0.16	0.45	HW Vein
including	261.0	262.0	1.0*	748.7	0.19	0.01	0.31	0.88	HW Vein

*True Thicknesses unknown

There is strong evidence supporting a buried system at depth. Metal zonation ratios and alteration assemblages support this theory. More importantly, core re-logging identified a style of mineralization that is observed as silver sulphide veins in vertical structures in the hanging wall of the Veta Grande, cross cutting the Veta Grande mineralizing events. These important observations help support the theory of a long-lived, multi-phased mineralizing event in the Veta Grande camp. These features can be found in epithermal environments, and micro-veining adjacent to known veins were key features that led to the blind discovery of the high-grade Martha Vein at Coeur Mining’s La Preciosa Silver Deposit.

San Acacio 2020 Exploration Program highlights

• 1) Extensive 3D geological modelling refined the companies understanding of the mineral system at San Acacio.

• 2) A Detailed trace element geochemistry program was conducted over the entire San Acacio license area. This will help identify the metal zonation and mineral system footprints. Surface geochemistry in conjunction with geological mapping and geophysics provide excellent tools for system fingerprinting and outlining deeper prospective targets.

• 3) Ongoing Data compilation of all relevant historical and recent geologic and development data from the Zacatecas District continues; currently there is data covering over 135,000 Ha in the database.

• 4) The company started an exploration drill program within permit areas with drilling partners Major Drilling. Drilling will be done as oriented core drilling, for industry best practice down-hole structural modeling. The first drill hole of this drill program was labelled DDSA-20-33.

• 5) The company began an extensive program of surface geological mapping.

2021

• 1) The company is continuing with an exploration drill program within the permit area on the San Acacio project. It is expected that the company will complete 5000 metres of drilling before the end of March 2021. All drilling is done as oriented core drilling and all core is analyzed using an Olympus pXRF tool in conjunction with the geological and structural logging. All samples follow industry best practices for QA/QC including: core transport and handling, RQD, Density measurements, Sampling chain of command and chemical analysis that is conducted by accredited laboratories.

• 2) The company is continuing with detailed geologic modelling integrating the results of the surface drilling program to further refine geological targets.

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• 3) The company is continuing with detailed surface and underground geological mapping and will integrate the results into the San Acacio geologic model.

• 4) The company is actively reviewing its geophysical database and has engaged 3[rd] party support to re-process certain geophysical data.

• 5) The company will apply for additional environmental permits to support its surface drilling program.

• 6) The company continues to advance discussions with 3[rd] parties with hopes of further district consolidation of mineral licenses.

Lagartos Project

Defiance has also received a database covering an additional 135,000 hectares in the Zacatecas silver district providing the opportunity to acquire further concessions. All of the Lagartos concessions are located within the Zacatecas silver district, which has produced an estimated 700 million ounces of silver, principally before 1895. Zacatecas lies along the “Fresnillo Silver Trend” a regional structural zone that has yielded over 5 billion ounces of silver. The four largest districts along the trend; Guanajuato, Zacatecas, Sombrerete and Fresnillo are all characterized by multiple sets of parallel silver-gold veins with high-grade oreshoots located periodically along their lengths. The Zacatecas District is characterized by six major sets of such parallel veins. This consolidation gives Defiance control of over 65% of the Veta Grande vein, which historically produced an estimated 200 million oz of silver within the district. A number of the other newly acquired Lagartos concessions are adjacent to other important vein systems in the Zacatecas Silver District including: the Malanoche vein system currently being mined by Capstone Mining Corp.; the Cantera - El Bote vein system; and the Panuco vein system controlled by Zacatecas Silver Corp. and Pan American Silver Corp. It is believed that all the known deposits were found in outcrop 350 to 500 years ago, while new “blind”vein systems remain to be discovered.

MAG’s exploration programs successfully identified a number of broad (10s of meters wide) hydrothermal alteration zones along structures up to 4 kilometers long that appear to represent the upper level manifestations of deeper Zacatecas and/or Fresnillo (Juanicipio)-style epithermal vein mineralization. Selected grab samples are not necessarily representative of the mineralization hosted on the property.

Highlights of the Lagartos acquisition:

• 800 hectares of mining rights in 14 concessions

• Exploration digital data bank including; a drill hole database totaling 90 holes, extensive geochemistry, geophysics, satellite imagery, and detailed drill logs from over 135,000ha of ground stretching from the Zacatecas Silver District to the Fresnillo Silver District

• All core drilled by MAG Silver in the district.

2021 Exploration plans at the Lagartos project area

• 1) Detailed surface mapping to integrate the mineral system into a geologic model.

• 2) Surface geochemistry over the “Las Majadas” area, where previous drilling has intersected a mineralized epithermal system.

• 3) Permit applications for surface diamond drilling.

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Lucita Project

On November 30, 2020, the Company entered into an into a definitive option agreement with Pan American Silver Corp. (“Pan American”) to acquire a 100% interest in Pan American’s Lucita property consisting of 28 mining concessions, located adjacent to Defiance’s San Acacio project. The property is subject to a 2% net smelter return royalty (“NSR”) payable to the vendors on production from the property. The payment terms are as follows:

				Option Payment	Option Payment
November	30,	2020		USD	100,000	(paid)
November	30,	2021			100,000
November	30,	2022			500,000
November	30,	2023			800,000
			Total	USD	1,500,000

Highlights of the Acquisition Include:

• Defiance’s Zacatecas District landholding interests increased from 1,600 Ha to over 4,300 Ha, including more than 10 known veins that returned drill results including 3.25m of 325 g/t Ag and 1.25m of 775 g/t Ag (Figure 1).

• Acquired the on-strike extension of Zacatecas Silver Corporation’s 19 million ounce Ag-Equivalent Panuco Deposit (see full disclosure below).

• Lucita hosts the undrilled Palenque vein structure, a 12 metre wide structure that has a 4km strike length and has return historical in situ grab and dump samples ranging from 25g/t Ag to over 700g/t Ag (Figure 2).

• Other priority high-grade vein structures also exist on the southern license area.

2021 Exploration plans at Lucita

• 1) The company continues to advance the geological understanding of the district and views the Lucita option as being a key greenfield exploration target.

• 2) Work will consist of geological mapping and geochemical sampling.

• 3) The company is in the process of applying for drill permits to test the key targets on the Lucita land package.

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Geologix Mexico SA de CV

Tepal Project

Qualified Person

The disclosure of technical information on the Tepal Project has been approved by Dunham Craig, B.Sc., P. Geo., a ‘qualified person’ for the purpose of National Instrument 43-101, Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators (“ NI 43-101 ”). He has verified that the data disclosed is in accordance with the published results of the reports described under the Tepal Project.

The Tepal Gold/Copper Project (“ Tepal Project ”) is located in Michoacán State, Mexico.

Information on the Tepal Project in this MD&A is summarized or extracted from the following reports and news releases as reported by Valoro Resources Inc. (“Valoro”) (formerly Geologix Explorations Inc.), previous to the completion of the merger:

• Technical Report on the Mineral Resources of the Tepal Gold-Copper Project Michoacán State, Mexico with an effective date of March 29[th] , 2012 (the “ 2012 Resource Report ”) of David K. Makepeace, M.Eng., P.Eng. of Micon International Limited, an independent ‘qualified person’ as defined in NI 43-101;

• Technical Report on the Prefeasibility Study of the Tepal Project Michoacán State, Mexico with an effective date of March 19[th] , 2013 (the “ 2013 PFS Study ”) of Matt R. Bender, P.E. et al. of JDS Energy & Mining Inc., each of whom are ‘qualified persons’ for the purpose of NI 43-101;

• Technical Report on the Preliminary Economic Assessment on the Tepal Project, Michoacán, Mexico with an effective date of January 19, 2017 (the “ 2017 PEA Study ”) of Gord Doerksen, P.E. et al. of JDS Energy & Mining Inc., each of whom are ‘qualified persons’ for the purpose of NI 43-101;

• News releases dated February 23, 2012, March 27, 2012, June 13, 2012, July 16, 2012, August 29, 2012, November 8, 2012, February 4, 2013, March 19, 2013, May 7, 2013, July 24, 2013, October 23, 2013, April 8, 2014, January 19, 2017, February 27, 2017, August 31, 2017 and March 15, 2018.

For a complete description of the assumptions, qualifications, and procedures associated with the following information, reference should be made to the full text of the 2012 Resource Report, the 2013 PFS Study, the 2017 PEA Study and all relevant news releases detailed above. All financial information disclosed in this MD&A and referenced from the 2012 Resource Report, 2013 PFS Study and 2017 PEA Study are stated in US dollars, unless specifically noted. The geological and other non-financial disclosure which follows is a summary of the geological and technical results as at the filing date of this MD&A.

A chronology of Tepal Project milestones completed by Valoro are as follows:

• March 2012 Resource Report containing Measured and Indicated category of 187.8 million tonnes (“ t. ”) grading 0.30 g/t gold (“ Au .”) and 0.20 % copper (“ Cu .”), containing 1.80 million ounces (“ oz. ”) Au and 813 million pounds Cu, for a gold equivalent (“ Au Eq. ”) of 4.04 million oz. and an

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Inferred category of 35.7 million t. grading 0.16 g/t Au and 0.15 % Cu, containing 182,000 oz. Au and 120 million lbs. Cu for an AuEq of 512,000 oz.

• Detailed mapping, extensive soil (1,064 samples) and rock chip (1,263 samples) sampling completed over seven airborne geophysical anomalies highlighting five high priority areas for exploration drill testing.

• A reverse circulation (“ RC ”) drill program was completed with the purpose of drill testing prospective zones of mineralization as outlined by geophysical, soil and rock chip sampling anomalies. The drill program consisted of 34 drill holes with a total drilled of 4,906 metres (“ m. ”).

• Archeological Permit for construction granted by Mexican authorities.

• Metallurgical and comminution laboratory work.

• Field studies in preparation for the 2013 PFS Study.

• The 2013 PFS Study was completed on March 19, 2013.

• Pilot plant utilizing 12 tonnes of project material in September 2013.

• Environmental permit application and risk assessment submitted to SEMARNAT in September 2013. Tepal permit resolution received from the Mexican mining authority SEMARNAT for the project based on the PFS Study in April 2014.

• The 2017 PEA Study was completed on January 19, 2017.

• The results of the 2017 exploration program which identified new potential at Tepal were reported in the March 15, 2018 News Release.

2017 Exploration Program

The 2017 exploration program was initiated in the third quarter of 2017. The objectives of the 2017 exploration program were to evaluate new higher-grade and/or bulk tonnage exploration targets with resource expansion potential as well as assess the potential for new discoveries. Key results are summarized as follows:

• Valoro geologists developed a new structurally controlled exploration model for Tepal that is a departure from the long-held porphyry exploration model, with upside implications for both property-scale and regional exploration.

• The 2017 work program successfully tested the updated model via surface mapping and sampling, alteration and structural surveys, core re-logging and 3D geophysical modeling. Exploration was extended into the 2018 calendar year to generate new drill-ready resource expansion and new exploration targets with potential for making a new discovery.

• The updated model identified under-drilled areas within and surrounding the three proposed PEA pits where there is excellent potential to improve the existing gold-copper resource through additional infill and step-out drilling targeting known structural controls to mineralization that remain under drilled.

• Importantly, the 2017 exploration program directly resulted in the discovery of a previously unknown and untested epithermal system underlying the Tepal property, with characteristics of a

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high sulphidation system that will be advanced for drilling, representing an important new discovery potential for Tepal.

2017 PEA Study

The 2017 PEA Study was completed during the first quarter of 2017. The purpose of the 2017 PEA Study was to revise and update the 2013 PFS Study and to generate an optimized mining development scenario based on updated capital and operating costs and new economic base case metal prices. The 2013 PFS Study was prepared using base case metals prices of $1,390/oz. gold, $3.44/lb. copper and $26.03/oz. silver ($1,400/oz. gold, $3.15/lb. copper and $26.00/oz. silver for pit design), which reflected the 4-year trailing average metals prices as of February 28, 2013. The 2017 PEA Study was prepared using more conservative base case metals prices of $1,250/oz. gold, $2.50/lb. copper and $18.00/oz. silver ($1,250/oz. gold, $2.25/lb copper and $20.00/oz. silver for pit design). As of May 23, 2017, spot metals prices as quoted on COMEX were $1,261.40/oz. gold, $2.60/lb. copper and $17.19/oz. silver.

The 2017 PEA Study work included: a revised Whittle pit optimization, which applied estimates of metals prices, mining dilution, process recovery, off-site costs, geotechnical constraints (slope angles), and royalties to the current resource estimation (2012 Resource Report) in order to generate economic pit shells; a revised process flow sheet consisting primarily of reduction of the sulphide flotation throughput from an average 37,000 tonnes per day (“ t/d ”) to 22,000 t/d, change from batch grinding oxide material in the SAG and ball mills to an independent oxide crushing and grinding circuit; and increase of oxide carbonin-leach (CIL) retention time from 8 hours to 24 hours; a revised mining schedule based on changes to the process plant; updated mining operating costs based on contractor mining rates; and updated capital and operating cost estimates (CAPEX and OPEX) based on revised designs and more recent equipment budgetary pricing. Engineering, metallurgical, environmental, and geotechnical studies were completed for the 2013 PFS Study and the 2017 PEA study relies upon this previous work. Permitting applications have been prepared and have in some instances already been approved by the Mexican Authorities (e.g. archeological and environmental permits). Community relations strategies are being developed and implemented as part of the 2017 work program.

Valoro continued discussions with the local communities in an effort to continually assess the environmental, social, and political risks or issues related to the project. Ongoing community relations and education programs were initiated as a means of informing the immediately surrounding communities as to the status and progress of the project to date.

The positive results of the 2017 PEA Study were announced on January 19, 2017 and the technical report was filed on SEDAR on February 24, 2017. Completion of the 2017 PEA Study involved evaluating design input parameters and mineral processing requirements, performing mining and processing optimizations and trade-off studies, estimating facilities, infrastructure and operating costs, and generating project economics associated with the potential development of the Tepal mineral resource.

Mine planning studies were completed for fleet sizing and costing utilizing contractor mining, vs. an owner-operator fleet in the 2013 PFS Study. It is planned to mine the three deposits at Tepal (North, South and Tizate) via conventional open pit (“ OP ”) methods. Processing options were evaluated and resulted in the decisions to utilize independent circuits for processing oxide and sulphide material, increase the oxide CIL retention time from eight to 24 hours, and establish process throughput rates of 5,500 t/d for oxide material and 22,000 t/d for sulphide material.

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Updated capital and operating cost estimates (CAPEX and OPEX) were prepared based on revised designs and more recent equipment budgetary pricing.

The 2017 PEA Study results are outlined below:

• Pre-tax: NPV5% of $299 million and 36% IRR with a 1.6-year payback period[1]

• After-tax: NPV5% of $169 million and 24% IRR with a 2.3-year payback period[1]

• Production averages 79,000 oz. of gold and 32 Mlbs of copper over a 10-year mine life

• Life of mine (“LOM”) average cash cost of $313/oz. gold and LOM average cash cost plus sustaining cost of $396/oz. gold (net of copper and silver by-product credits)[1]

• Initial capital costs estimated at $214 million with a 2-year pre-production period

• LOM sustaining and closure capital costs estimated at $87 million

• 1 Using base case metals prices: $1,250/oz. for gold, $2.50/lb for copper, $18.00/oz. for silver

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Summary Economics

Summary 2017 PEA Study economics are detailed below. The base case economic evaluation used metals prices that are close to current spot prices and near the median of current medium to long term analyst forecasts. After-tax economics were prepared using the following assumptions: a 2.5% Net Smelter Return (NSR) royalty, 0.5% Mexican royalty based on precious metals revenue, 7.5% Mexican royalty based on EBITDA, 12% annual depreciation rate, accumulated tax loss carry forward of US$22.4 million, and a 30% Mexican income tax rate.

Operating Assumptions/Highlights (Currency in USD)	Operating Assumptions/Highlights (Currency in USD)
Mine Life	9.8years
Total Material Mined	142.9 million tonnes
StripRatio	0.6 : 1
Average Plant Throughput(Sulphide + Oxide)	9.6 Mtpa
Average Au Sulphide Head Grade	0.33g/t
Average Cu Sulphide Head Grade	0.21%
Average Au Oxide Head Grade	0.45g/t
LOM Average Au Sulphide Recovery (combined Flotation & CIL)	77%
LOM Average Cu Sulphide Recovery	87%
LOM Average Au Oxide Recovery	81%
Total Au Ounces Recovered	766,248 oz.
Total Cu lbs Recovered	308.0 Mlbs
Total AuEq. Ounces Recovered(1)	1,417,618 oz.
Average Au Production(Years 1-5)	108,390 oz.
Average Cu Production(Years 1-5)	37.3 Mlbs
Average AuEq. Production(Years 1-5)(1)	184,923 oz.
LOM Average Au Production	78,572 oz.
LOM Average Cu Production	31.6 Mlbs
LOM Average AuEq. Production(1)	145,239 oz.
Pre-Production Capital Cost	$214.2 million
LOM Sustainingand Closure Capital Cost	$86.7 million
LOM Average Cash Cost(2) per Au Ounce(net of by-products)	$313/oz.
LOM Average Cash Cost(2) plus SustainingCostper Au Ounce(net of by-products)	$396/oz.

(1) Using US$1,250/oz. Au, US$2.50/lb. Cu and US$18.00/oz. Ag prices

(2) Cash cost includes all mining, milling & refining, transport, mine-level G&A, and royalty costs

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

2020

The company is currently completing a strategic desktop analysis of all historical drilling and test work done at Tepal with plans on advancing the current targets to a drill-ready state. Areas of focus include the recently defined Mid Zone, a zone of advanced alteration located adjacent to the North and South conceptual pits; The Off-Tizate and North Tizate targets represent high-grade “feeder” targets that have demonstrated high grade Au-Ag results in drilling and are underlain by a strong IP Chargeability response.

On December 17, 2020, the Company entered into an option agreement to repurchase the existing 2.5% NSR on the Tepal Project from Minera Tepal, S.A. de C.V (“Minera Tepal”) over four years for total consideration of USD $4.85 million. The payment terms are as follows:

		Option Payment	Option Payment
January 10, 2021		USD	150,000	(paid)
June 16, 2021			150,000
December 16, 2021			300,000
June 16, 2022			300,000
December 16, 2022			550,000
June 16, 2023			550,000
December 16, 2023			600,000
June 16, 2024			600,000
December 16,2024			1,650,000
	Total	USD 4,850,000

2021

• 1) The company plans to follow up on the targets generated in the 2020 desktop project review.

• 2) The company anticipates beginning a surface exploration program consisting of detailed mapping, geochemistry and core re-logging.

• 3) The company will compile and integrate these surface works into an updated geologic model.

• 4) The company anticipates that exploration diamond drilling will be executed in late 2021.

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

Results of Operations

Summary of Quarterly Results

The following quarterly financial data is derived from the unaudited condensed consolidated interim financial statements of Defiance as at (and for) the three month periods ended on the dates indicated below. The data should be read in conjunction with the Company’s audited consolidated financial statements for the years ended June 30, 2020 and 2019 and the notes thereto.

The following tables summarize information derived from the Company’s financial statements for each of the eight most recently completed quarters:

	December 31,	September 30,		June 30,	March 31,
	2020	2020		2020	2020
Revenue	$ Nil	$ Nil	$	Nil	$ Nil
Loss and comprehensive loss
for the period	(944,997)	(374,931)	(244,392)		(403,372)
Exploration and
evaluation assets	17,038,087	15,371,727	14,710,160		14,525,167
Total assets	28,559,148	26,673,727	16,129,367		16,265,345
Lossper share	(0.00)	(0.00)		(0.00)	(0.00)
	December 31,	September 30,		June 30,	March 31,
	2019	2019		2019	2019
Revenue	$ Nil	$ Nil	$	Nil	$ Nil
Loss and comprehensive loss
for the period	(317,246)	(288,325)	(763,896)		(295,898)
Exploration and
evaluation assets	14,092,336	13,550,520	12,977,665		12,452,542
Total assets	16,345,275	16,644,963	14,012,075		13,516,351
Lossper share	(0.00)	(0.00)		(0.00)	(0.00)

Three months ended December 31, 2020

The Company’s loss for the three months ended December 31, 2020 totaled $944,997 ($0.00 per share) as compared to a loss $317,246 ($0.00 per share) for the three months ended December 31, 2019.

Expense details are as follows:

• a) Investor Relations fees of $100,256 (2019 - $146,427) – The decrease is primarily due to a decline in consultant fees incurred in retaining media and investor relations services.

• b) Legal and audit fees of $66,182 (2019 – $49,512) – Accounting and audit fees reflect accrued expenses for the Company’s annual external audit and income tax preparation. Legal fees relate to general corporate matters.

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

• c) Management and consulting fees $139,260 (2019 – $57,449) - The changes reflect management changes during the prior year subsequent to the merger with Valoro resources as well as fees paid to consultants engaged by the Company in the current period.

• d) Share-based compensation of $556,245 (2019 – $31,860) – The stock based-compensation expense is primarily affected by the number of options granted and vesting during the period, the strike price at grant date and stock-price volatility calculations used in the Black-Scholes option pricing model.

Six months ended December 31, 2020

The Company’s loss for the six months ended December 31, 2020 totaled $1,319,928 ($0.00 per share) as compared to a loss $605,570 ($0.00 per share) for the six months ended December 31, 2019.

Expense details are as follows:

• a) Investor Relations fees of $194,281 (2019 - $187,920) – The increase is primarily due to new consultants engaged to provide media and investor relations services in the first quarter of the Company’s 2021 fiscal year.

• b) Legal and audit fees of $126,927 (2019 – $88,700) – Accounting and audit fees reflect accrued expenses for the Company’s annual external audit and income tax preparation. Legal fees relate to general corporate matters.

• c) Management and consulting fees $255,460 (2019 – $145,531) - The changes reflect management changes during the prior year subsequent to the merger with Valoro resources as well as fees paid to consultants engaged by the Company in the current period.

• d) Share-based compensation of $597,932 (2019 – $80,138) – The stock based-compensation expense is primarily affected by the number of options granted and vesting during the period, the strike price at grant date and stock-price volatility calculations used in the Black-Scholes option pricing model.

Value added tax (VAT)

The Company, through its wholly-owned subsidiaries in Mexico, has a total of $1,106,647 in VAT receivable as of December 31, 2020 (June 30, 2020 – $756,038).

Outstanding Share Data

As at the date of this report, the Company had 195,678,853 common shares issued and outstanding.

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

The following stock options were outstanding at the date of this report:

Number of Options	Exercise Price		Number of Options	Exercise Price
Outstanding	($)	Expiry Date	Exercisable	($)
124,250	0.70	March 2, 2021	124,250	0.70
42,600	1.13	June 16, 2021	42,600	1.13
200,000	0.41	July 21, 2021	200,000	0.41
75,000	0.28	September 16, 2021	75,000	0.28
650,000	0.32	December 14, 2021	650,000	0.32
221,875	1.13	March 1, 2022	221,875	1.13
135,000	0.35	February 15, 2023	135,000	0.35
273,350	0.70	March 16, 2023	273,350	0.70
26,700	0.20	May 29, 2024	13,367	0.20
900,000	0.20	May 29, 2029	600,000	0.20
200,000	0.31	July 23, 2029	133,333	0.31
605,000	0.23	May 29, 2030	201,667	0.23
150,000	0.33	July 29, 2025	75,000	0.33
840,000	0.59	November 5, 2025	280,000	0.59
1,312,500	0.59	November 5,2030	437,500	0.59
5,756,275	0.46		3,462,942	0.47

Warrants

As at the date of this report, the Company had 33,474,729 warrants issued and outstanding as follows:

Number of Warrants	Exercise Price	Expiry Date
1,662,500	0.30	March 11, 2021
4,214,452	0.30	April 5, 2021
37,200	0.20	April 5, 2021
998,792	0.30	May 3, 2021
51,000	0.20	May 3, 2021
12,138,286	0.31	August 12, 2022
14,372,499	0.48	September 16,2022
33,474,729	0.38

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

Compensation Options

As at the date of this report, the Company had 1,470,782 compensation options issued and outstanding as follows:

Number of
Compensation
Options	Exercise Price	Expiry Date
1,470,782	0.34	September 16,2022
1,470,782	0.34

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements as at June 30, 2020 or as of the date of this report.

Related Party Transactions

Related parties include the Board of Directors, officers, close family members and entities that are controlled by these individuals.

As at December 31, 2020, accounts payable and accrued liabilities included $18,666 (June 30, 2020 - $124,249) payable to directors, officers and companies controlled or related to directors and/or officers. Amounts payable to related parties have no specific terms of repayment, are unsecured and do not bear interest.

During the period ended December 31, 2020, the Company:

• (a)paid or accrued management fees of $60,000 (2019 - $Nil) to the CEO of the Company.

• (b) paid or accrued management fees of $103,478 (2019 - $87,244) to the CFO of the Company.

• (c)paid or accrued management fees of $30,000 (2019 - $30,000) to a company controlled by a director of the Company.

Share-based compensation includes stock options granted to directors and officers recorded at a fair value of $361,254 (2019 - $71,342).

Subsequent Events

Subsequent to December 31, 2020 the following events occurred:

• (a) the Company issued 3,591,260 common shares pursuant to exercise of warrants for gross proceeds of $1,113,038;

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

• (b) the Company issued 108,986 common shares pursuant to exercise of stock options for gross proceeds of $76,290;

• (c) The Company entered into an option agreement with Minera Tepal to acquire 1,915 Ha surrounding the Tepal Gold-Copper Project in Michoacán, Mexico. The company will pay the annual concession fees until a production decision has been made, upon which time the Company will pay the vendor USD $2 million for 100% ownership of the mining concessions;

• (d) Darrell Rader resigned as a director of the Company.

Proposed Transactions

At the present time, there are no new proposed transactions that should be disclosed.

Risks and Uncertainties

Investment Considerations and Risk Factors

An investment in securities of the Company involves a high degree of risk and must be considered highly speculative due to the nature of the Company’s business and the present stage of exploration and development of its properties. In addition to information set out or incorporated by reference in this MD&A, prospective investors should carefully consider the risk factors set out below. Any one of such risk factors could materially affect the Company’s financial condition and future operating results and could cause actual events to differ materially from those described in forward-looking statements relating to the Company.

Exploration and Mining Risks

Resource exploration and development and mining operations are highly speculative and characterized by a number of significant risks which even a combination of careful evaluation, experience and knowledge may not eliminate, including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits, but from finding mineral deposits which, though present, are insufficient in quantity and quality to be mined profitability. Few properties that are explored are ultimately developed into producing mines. There is no assurance that the Company’s mineral exploration and development programs will result in any discoveries of bodies of commercial mineralization. There is also no assurance that even if commercial quantities of mineralization are discovered, a mineral property will be brought into commercial production.

Substantial expenditures are required to establish and upgrade mineral resources, to establish mineral reserves, to develop metallurgical processes to extract metals from mineral resources and, in the case of new properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining. No assurance can be given that the funds required for development can be obtained on a timely basis. Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are: the particular attributes of the deposit, such as size and grade; metal prices which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land tenure,

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

land use, importing and exporting of minerals and environmental protection. Unsuccessful exploration and development programs could have a material adverse impact on the Company’s operations and financial condition.

Factors beyond the Company’s Control

The mining exploration business is subject to a number of factors beyond the Company’s control including changes in economic conditions, intense industry competition, variability in operating costs, changes in government and in rules and regulations of various regulatory authorities. An adverse change in any one of such factors would have a material adverse effect on the Company, its business and results of operations which might result in the Company not identifying a body of economic mineralization, completing the development of a mine according to specifications in a timely, cost effective manner or successfully developing mining activities on a profitable basis.

Uncertainty in the Estimation of Mineral Resources

The figures for mineral resources contained in this MD&A are estimates only and no assurance can be given that the anticipated tonnages and grades will be achieved. Actual resources may not conform to geological, metallurgical or other expectations, and the volume and grade may be below the estimated levels.

There are numerous uncertainties inherent in estimating mineral resources and reserves, including many factors beyond the Company’s control. Such estimation is a subjective process, and the accuracy of any resource estimate is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. If the Company’s actual mineral resources and reserves are less than current estimates, or if the Company fails to develop its resource and reserve base through the realization of identified mineralized potential, its results of operations or financial condition may be materially and adversely affected.

Re-evaluation of resources occurs from time to time and they may change depending on further geological interpretation, drilling results and metal prices. The category of inferred resource is often the least reliable resource category and is subject to the most variability. The Company regularly evaluates its resources and it often determines the merits of increasing the reliability of its overall resources.

Reliance on Independent Contractors

The Company’s success depends to an extent on the performance and continued service of certain independent contractors. The Company has contracted the services of professional drillers and others for exploration, environmental, engineering and other services. Poor performance by such contractors or the loss of such services could have a material and adverse effect on the Company, its business and results of operations and result in the Company failing to meet its business objectives. Nevertheless, the Company will continue to rely upon the advice and work of consultants and others for exploration, development, construction and operating expertise.

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

Write downs and Impairments

Mining interests are the most significant assets of the Company and represent capitalized expenditures related to the development of the Company’s Projects and related plant and equipment and the value assigned to exploration potential on acquisition. The costs associated with the property are allocated to exploration and evaluation assets and include acquired interests in the exploration stage property representing the fair value at the time the property was acquired. The value of such mineral property is primarily driven by the nature and amount of material interests believed to be contained or potentially contained, in the property to which they relate.

The Company reviews and evaluates its mining interests for impairment on a quarterly basis or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable, which becomes more of a risk in the global economic conditions that exist currently. An impairment is considered to exist if the total estimated future undiscounted cash flows are less than the carrying amount of the assets. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on expected future production, commodity prices, operating costs and capital costs. There are numerous uncertainties inherent in estimating mineral resources. Differences between management’s assumptions and market conditions could have a material effect on the future on the Company’s financial position and results of operation.

In addition, with a weaker global economy, there is a larger risk surrounding inventory levels. The assumptions used in the valuation of work in process inventories by the Company include estimates of minerals recovered, assumptions of the amount of minerals that will be crushed for concentrate, assumptions of the amount of minerals in these mill circuits and an assumption of the mineral prices expected to be realized when the minerals are recovered. If these estimates or assumptions prove to be inaccurate, the Company could be required to write down the recorded value of its work in process inventories, which would reduce the Company’s earnings and working capital.

Foreign Operations

The Company’s mineral exploration and development operations are currently conducted in the foreign jurisdictions of Mexico, and, as such, the Company’s operations are exposed to various levels of political, economic, regulatory and other such risks and uncertainties as military repression; extreme fluctuations in currency exchange rates; high rates of inflation; labour unrest; the risks of war, violence, terrorism or civil unrest; expropriation and nationalization; renegotiation or nullification of existing concessions, licenses, permits and contracts; illegal mining; changes in fiscal regimes, changes in royalty and taxation policies; uncertainty regarding enforceability of contractual rights and judgments; restrictions on foreign exchange and repatriation; changing political conditions, currency controls and governmental regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.

In the past, Mexico has been subject to political instability, changes and uncertainties, which may cause changes to existing governmental regulations affecting mineral exploration and mining activities. Mexico's status as a developing country may make it more difficult for the Company to obtain any required financing for its projects.

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

The Company's operations and property are subject to a variety of governmental regulations governing health and worker safety, employment standards, waste disposal, protection of historic and archaeological sites, mine development, protection of endangered and protected species and other matters.

The Company's mineral exploration and mining activities in Mexico may be adversely affected in varying degrees by changing government regulations relating to the mining industry or shifts in political conditions that increase the costs related to the Company's activities or the maintenance of its properties.

Changes, if any, in mining or investment policies or shifts in political attitude may adversely affect the Company’s operations and financial condition. Operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, income and other taxes, expropriation of property, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety.

Failure to comply strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure could result in loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture partners with carried or other interests.

The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on the Company’s operations and financial condition.

Future changes in applicable laws and regulations or changes in their enforcement or regulatory interpretation could negatively impact current or planned exploration and development activities on the Company’s property or in respect of any other projects in which the Company becomes involved. Any failure to comply with applicable laws and regulations, even if inadvertent, could result in the interruption of exploration and development operations or material fines, penalties or other liabilities.

Title Risks

Although the Company believes that it has taken reasonable measures to ensure that title to the Company’s properties are held by the Company, including obtaining title opinions, there is no guarantee that title to any of the claims comprising the Company’s property will not be challenged or impaired.

The Company’s properties may be subject to prior unregistered agreements, interests or native land claims, and title may be affected by undetected defects. There may be valid challenges to the title of any of the claims comprising the Company’s property that, if successful, could impair development or operations. A defect could result in the Company losing all or a portion of its right, title, estate and interest in and to the property to which the title defect relates.

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

Additional Funding Required

Further exploration on, and development of, the Company’s projects, will require significant additional financing. Accordingly, the continuing development of the Company's property will depend upon the Company's ability to obtain financing through equity financing, debt financing, the joint venturing of projects or other external sources. Failure to obtain sufficient financing may result in a delay or an indefinite postponement of exploration, development or production on the Company’s property, or even a loss of property interest, or have a material adverse impact on the Company’s future cash flows, earnings, results of operations and financial condition or result in the substantial dilution of its interests in its property. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favourable to the Company. Debt financing will expose the Company to the risk of leverage, while equity financing may cause existing shareholders to suffer dilution. There can be no assurance that the Company will be successful in overcoming these risks or any other problems encountered in connection with such financings. Failure to raise capital when needed would have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company has and will continue to have negative operating cash flow until one of the properties commences commercial production should exploration and development efforts demonstrate that commercial production from such mineral property is feasible.

Global Financial Conditions

Current global financial conditions have been subject to increased volatility. The Company is exposed to liquidity risks in meeting its operating and capital expenditure requirements in instances where cash positions are unable to be maintained or appropriate financing is unavailable. These factors may impact the ability of the Company to obtain loans and other credit facilities or equity or debt financing in the future and, if obtained, on terms favourable to the Company. If these increased levels of volatility and market turmoil continue, the Company’s operations could be adversely impacted and the trading price of the common shares could be adversely affected.

Fluctuations in Metal Prices and Currencies

The Company raises its equity in Canadian dollars and maintains its accounts in Canadian dollars. Foreign expenditures by the Company are subject to foreign currency fluctuations which may materially and adversely affect the Company’s financial operations. The Company does not engage in any hedging or other transactions to protect itself against such currency fluctuations.

Market Price of Common Shares

The trading price of the Company’s common shares is likely to be significantly affected by short term changes in mineral prices or in its financial condition or results of operations as reflected in its quarterly earnings reports. Other factors unrelated to the Company’s performance that may have an effect on the price of the common shares include the following: the extent of analytical coverage available to investors concerning the Company’s business; the lessening in trading volume and general market interest in the Company’s securities (which may affect an investor’s ability to trade significant numbers of common

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

shares); and the price of the common shares and size of the Company’s public float (which may limit the ability of some institutions to invest in the Company’s securities).

As a result of any of these factors, the market price of the common shares at any given point in time may not accurately reflect the Company’s long term value. Securities class action litigation often has been brought against companies following periods of volatility in the market price of their securities. The Company could be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management’s attention and resources.

Dilution to Common Shares

During the life of the Company’s outstanding common share purchase warrants, as well as options and other rights granted or assumed by the Company, if any, the holders are given an opportunity to profit from a rise in the market price of the common shares. The Company’s ability to obtain additional financing during the period such rights are outstanding may be adversely affected and the existence of the rights may have an adverse effect on the price of the common shares. The holders of common share purchase warrants, options and other rights of the Company may exercise such securities at a time when the Company would, in all likelihood, be able to obtain any needed capital by a new offering of securities on terms more favourable than those provided by the outstanding rights.

The increase in the number of common shares in the market and the possibility of sales of such shares may have a depressive effect on the price of the common shares. In addition, as a result of such additional common shares, the voting power of the Company’s existing shareholders will be diluted.

Future Sales of Common Shares by Existing Shareholders

Sales of a large number of common shares in the public markets could decrease the trading price of the common shares and impair the Company’s ability to raise capital through future sales of common shares.

Volatility of Share Price

The price of the shares of resource companies tends to be volatile, as has been particularly evidenced during recent economic crisis and price volatilities in the commodity markets. The market price of the Company’s common shares has experienced wide fluctuations which may not necessarily be related to the operating performance, underlying asset values or prospects of the Company. Fluctuations in the market price for precious metals and other elements which are beyond the control of the Company could materially affect the price of the securities of the Company.

Future Profits or Losses and Production Revenues and Expenses

There can be no assurance that significant losses will not occur in the near future or that the Company will be profitable in the future. The Company's operating expenses and capital expenditures may increase in subsequent years as required consultants, personnel and equipment associated with advancing exploration, development and commercial production of the Company’s properties and any other properties that the Company may acquire are added. The amounts and timing of expenditures will depend on the progress of ongoing exploration and development, the results of consultants' analyses and

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

recommendations, the rate at which operating losses are incurred, the execution of any joint venture agreements with strategic partners, if any, and the Company's acquisition of additional properties, in addition to other factors, many of which are beyond the Company's control.

The Company expects to incur expenditures and losses unless and until such time as the Company’s current property or future properties may achieve a sufficient level of commercial production and revenues to fund continuing operations. The development of the Company’s properties will require the commitment of substantial resources to conduct the time-consuming exploration and development of properties. There can be no assurance that the Company will generate any revenues or achieve profitability, nor can there be any assurance that the underlying assumed levels of expenses will prove to be accurate.

Labour and Employment Matters

While the Company has good relations with its employees, its operations are dependent upon the efforts of its employees. In addition, relations between the Company and its employees may be affected by changes in the scheme of labour relations that may be introduced by the relevant governmental authorities in whose jurisdictions the Company carries on business. Changes in such legislation or in the relationship between the Company and its employees may have a material adverse effect on the Company’s operations and financial condition.

Acquisitions and Integration

From time to time, the Company examines opportunities to acquire additional mining assets and businesses. Any acquisition that the Company may choose to complete may be of a significant size, may change the scale of the Company’s business and operations, and may expose the Company to new geographic, political, operating, financial and geological risks. The Company’s success in its acquisition activities depends on its ability to identify suitable acquisition candidates, negotiate acceptable terms for any such acquisition, and integrate the acquired operations successfully with those of the Company. Any acquisitions would be accompanied by risks. For example, there may be a significant change in commodity prices after the Company has committed to complete the transaction and established the purchase price or exchange ratio; a material orebody may prove to be below expectations; the Company may have difficulty integrating and assimilating the operations and personnel of any acquired companies, realizing anticipated synergies and maximizing the financial and strategic position of the combined enterprise, and maintaining uniform standards, policies and controls across the organization; the integration of the acquired business or assets may disrupt the Company’s ongoing business and its relationships with employees, customers, suppliers and contractors; and the acquired business or assets may have unknown liabilities which may be significant. If the Company chooses to raise debt capital to finance any such acquisition, the Company’s leverage will be increased. If the Company chooses to use equity as consideration for such acquisition, existing shareholders may suffer dilution. Alternatively, the Company may choose to finance any such acquisition with its existing resources. There can be no assurance that the Company would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

Competition

The Company's business is intensely competitive in all of its phases and the Company will compete with other mining companies for natural resource acquisition opportunities, many of which have greater resources and technical facilities than the Company. Competition in the mining industry is primarily for mineral rich properties which can be developed and can produce economically; the technical expertise to find, develop, and operate such properties; the skilled labour to operate such properties; and the capital for the purpose of funding such properties. Many competitors not only explore for and mine metals, but also conduct refining and marketing operations on a world-wide basis. Such competition may result in the Company being unable to (i) acquire desired properties, (ii) recruit or retain qualified employees or (iii) raise or generate the capital necessary to fund its operations and develop its properties. The Company's inability to compete with other mining companies for these resources could have a material adverse effect on its operations, financial condition and trading price of the securities of the Company.

Loss of Key Employees

The Company depends on the business and technical expertise of a number of key personnel, including its directors and executive officers and key personnel working full-time in management and administrative capacities or as consultants. The number of persons skilled in the acquisition, exploration and development of mining properties is limited and competition for such persons is intense. As the Company’s exploration and development activities expand, it will require additional key personnel. The Company does not maintain life insurance for such personnel. The loss of any key personnel, or the failure to retain such personnel, could have a material adverse effect on the Company’s operations and financial condition.

Environmental Regulations

The operations of the Company are subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties. In addition, certain types of operations require the submission and approval of environmental impact assessments.

Environmental legislation is evolving in a manner which means stricter standards, and enforcement, fines and penalties for non-compliance are more stringent. Future legislation and regulations could cause additional expenses, capital expenditures, restrictions, liabilities and delays in the development of the Company’s properties, the extent of which cannot be predicted. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations.

Litigation and Tax Risks

All industries, including the mining industry, are subject to legal claims, with and without merit. Defence and settlement costs can be substantial, even with respect to claims that have no merit. Due to the

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Interim Management Discussion & Analysis Defiance Silver Corp. December 31, 2020

inherent uncertainty of the litigation process, there can be no assurance that the resolution of any particular legal proceeding will not have a material effect on the Company’s operations and financial position.

The Company conducts operations through foreign subsidiaries and substantially all of its assets are held in such entities. Accordingly, any limitation on the transfer of cash or other assets between the parent corporation and such entities, or among such entities, could restrict the Company’s ability to fund its operations efficiently. Any such limitations, or the perception that such limitations may exist now or in the future, could have an adverse impact on the Company’s valuation and stock price. In addition, the use of foreign subsidiaries could give rise to tax risks and obligations for the Company.

Enforcement of Civil Liabilities

Two directors of the Company reside outside of Canada and, similarly, a majority of the assets of the Company are located outside of Canada. It may not be possible for investors to effect service of process within Canada upon the director not residing in Canada. It may also not be possible to enforce against the Company and certain of its directors and officers judgments obtained in Canadian courts.

Operating Hazards and Risks

Unusual or unexpected formations, formation pressures, fires, power outages, labour disruptions, flooding, explosions, pit-wall failures, cave-ins, seismic activity, rock bursts, pollution, accidents relating to historical workings, landslides and the inability to obtain suitable or adequate machinery, equipment or labour are several of the hazards and risks involved in the operation of mines and the conduct of exploration programs, any of which could result in damage to or destruction of mines and other producing facilities, personal injury or death, damage to property, environmental damage and possible legal liability for any or all damage.

Any future milling operations will be subject to various hazards, including, without limitation, equipment failure and failure of retaining dams around tailings disposal areas, which may result in environmental pollution and legal liability.

The Company maintains insurance against risks in the operation of its business in amounts that it believes to be reasonable. Such insurance, however, contains exclusions and limitations on coverage and the Company's insurance may not cover all potential risks associated with a company with operations of the nature of those of the Company. There can be no assurance that any such insurance will continue to be available, will be available at economically acceptable premiums or will be adequate to cover any resulting liability. In some cases, such as with respect to environmental risks, coverage is not available or considered too expensive relative to the perceived risk. Losses resulting from any uninsured events may cause the Company to incur significant costs that could have a material adverse effect on the Company's operations and financial condition.

Infrastructure

Mining, development and exploration activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important determinants, which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage,

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government or other interference in the maintenance or provision of such infrastructure could adversely affect the Company’s operations and financial condition.

No History of Dividends

Investors cannot expect to receive a dividend on their investment in the foreseeable future, if at all. Accordingly, it is likely investors will not receive any return on their investment in the Company’s securities other than possible capital gains.

Activities of the Company may be impacted by the spread of COVID-19

The Company’s business could be significantly and adversely affected by the effects of the Covid-19 pandemic, which is a widespread global outbreak of a contagious disease-causing respiratory illness. The Company cannot accurately predict the impact the Covid-19 pandemic will have on either the Company's operations or on third parties’ abilities to meet their obligations with the Company, including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine and economic restrictions imposed by governments of affected countries. In particular, the continued spread of the Covid-19 globally could materially and adversely impact the Company’s business including without limitation, employee health, limitations on travel, the availability of industry experts and personnel, restrictions to planned drill programs, and other factors that will depend on future developments beyond the Company’s control. In addition, a significant outbreak of a contagious disease such as Covid-19 in the human population generally could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could negatively impact the Company’s operating results, its ability to conduct exploration programs, and its ability to raise capital.

Conflicts of Interest

Certain directors and officers of the Company are also directors or officers or shareholders of other companies that are similarly engaged in the business of acquiring, developing and exploiting natural resource properties. Such associations may give rise to conflicts of interest from time to time. The directors of the Company are required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest which they may have in any project or opportunity of the Company. If a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter.

Directors and officers with conflicts of interests will be subject to, and will follow the procedures set out in, applicable corporate and securities legislation. In determining whether or not the Company will participate in any project or opportunity, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time.

From time to time several companies may participate in the acquisition, exploration and development of natural resource properties, thereby allowing for their participation in larger programs, permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program. It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the Company making the assignment. In determining whether or not the Company will participate in a particular program and

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the interest therein to be acquired by it, the directors will primarily consider the risk to which the Company may be exposed and its financial position at that time.

These risk factors could materially affect the Company’s future results and could cause actual events to differ materially from those described in forward-looking statements relating to the Company.

Certain statements contained in this document constitute “forward-looking” statements. Such forwardlooking statements involve 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 expressly stated or implied by such forward-looking statements.

Disclosure For Venture Issuers Without Significant Revenue

An analysis of the material components of the Company’s general and administrative expenses is disclosed in the condensed consolidated interim financial statements for the period ended December 31, 2020 to which this MD&A relates. An analysis of the material components of the exploration and evaluation assets of the Company is disclosed in the condensed consolidated interim financial statements for the year ended December 31, 2020 to which this MD&A relates.

Contingencies

The Company was named in a lawsuit filed in October 2020 (the “Action”) by Avalos y Abogados, S.C. (“Avalos”), former legal counsel for Minera Santa Remy S.A. de C.V. (“Santa Remy”), which resigned as legal counsel in January 2020. Avalos seeks to recover an alleged debt owing under invoices issued to Santa Remy. In conjunction with the lawsuit, a prejudgment garnish order was served on the Company which resulted in $388,560 being held by the BC Supreme Court pending the outcome of the lawsuit. The total claim made by Avalos is $388,480. This amount has been recorded in the records of the Company. The Board of Directors retained legal counsel and intends to vigorously defend the Action.

Internal Controls Over Financial Reporting

Changes in Internal Control over Financial Reporting (“ICFR”)

In connection with National Instrument 52-109, Certification of Disclosure in Issuer’s Annual and Interim Filings (“NI 52-109”) adopted in December 2008 by each of the securities commissions across Canada, the Chief Executive Officer and Chief Financial Officer of the Company will file a Venture Issuer Basic Certificate with respect to financial information contained in the unaudited interim financial statements and the audited annual financial statements and respective accompanying Management’s Discussion and Analysis. The Venture Issue Basic Certification does not include representations relating to the establishment and maintenance of disclosure controls and procedures and internal control over financial reporting, as defined in NI52-109.

Management’s Responsibility For Financial Statements

The information provided in this report, including the financial statements, is the responsibility of management. In the preparation of these statements, estimates are sometimes necessary to make a

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determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgments and have been properly reflected in the financial statements.

Other MD&A Requirements

Additional disclosure of the Company’s technical reports, material change reports, news releases and other information can be obtained on SEDAR at www.sedar.com.

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Recent Accounting Policies

Please refer to the December 31, 2020 condensed consolidated interim financial statements on www.sedar.com.

Financial Instruments

Please refer to the December 31, 2020 condensed consolidated interim financial statements on www.sedar.com.

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