Dynacor Group Inc. — Management Reports 2020

Aug 13, 2020

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Dynacor Gold Mines Inc.

Management Discussion and Analysis For the six-month period ended

June 30, 2020

Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

Index MANAGEMENT DISCUSSION AND ANALYSIS ........................................................................................ 3 Introduction ................................................................................................................................................ 3 Responsibility of financial reports .............................................................................................................. 3 Business and strategy ............................................................................................................................... 4 COVID-19 Update ..................................................................................................................................... 4 1-FINANCIAL HIGHLIGHTS ........................................................................................................................ 6 Highlights for the second quarter of 2020 ................................................................................................. 6 2-KEY ECONOMIC TRENDS ....................................................................................................................... 7 Gold market price ...................................................................................................................................... 7 Exchange rates .......................................................................................................................................... 7 3-OVERALL PERFORMANCE ..................................................................................................................... 8 4-CONSOLIDATED RESULTS AND GOLD ORE PROCESSING OPERATIONS ..................................... 9 Extract from Statement of net income and comprehensive income .......................................................... 9 Production, sales and gross operating margin ........................................................................................ 10 Net income and comprehensive income variance analysis .................................................................... 11 Reconciliation of non-IFRS measures ..................................................................................................... 12 Ore processing production statistics and financial summary .................................................................. 13 5-CASH FLOW AND LIQUIDITY ............................................................................................................... 15 6-STATEMENT OF FINANCIAL POSITION .............................................................................................. 17 7-QUARTERLY REVIEW ........................................................................................................................... 20 8-INFORMATION ON OUTSTANDING SHARES ...................................................................................... 20 9-TRANSACTIONS WITH RELATED PARTIES ....................................................................................... 21 10-MINING EXPLORATION PROPERTIES ............................................................................................... 22 11- FOLLOW-UP OUTLOOK-2020 ............................................................................................................ 22 12-RISKS AND UNCERTAINTIES ............................................................................................................. 22 13-JUDGMENTS, ESTIMATES AND ASSUMPTIONS ............................................................................. 23 14-ACCOUNTING POLICIES AND MODIFICATIONS .............................................................................. 23 15-NON-IFRS MEASURES ........................................................................................................................ 23 16-DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING ............................................................................................................................................... 24 17-CAUTION REGARDING FORWARD LOOKING STATEMENTS ........................................................ 25 18-CORPORATE INFORMATION ............................................................................................................. 26

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

MANAGEMENT DISCUSSION AND ANALYSIS

Introduction

This Management Discussion and Analysis (the “MD&A”) for Dynacor Gold Mines Inc. (“Dynacor” or the “Corporation”) is intended to help the reader understand the strategy, continuing operations and financial performance of the Corporation and comments on the Corporation’s major activities which have occurred during the six-month period ended June 30, 2020 (“Q2-2020”) as well as the subsequent period up to August 12, 2020. This MD&A should be read in conjunction with Dynacor’s audited consolidated financial statements as at and for the year ended December 31, 2019 (the “Annual Financial Statements”), and is intended to supplement and complement the unaudited condensed interim consolidated financial statements and notes thereto as of June 30, 2020, and for the three-month periods and for the six-month periods ended June 30, 2020 and 2019 (the “Financial Statements”).

The Corporation has prepared the MD&A with reference to National Instrument 51-102, “Continuous Disclosure Obligations” of the Canadian Securities Administrators.

All amounts are in United States dollars (in “US dollars”), unless otherwise indicated, which is the Corporation’s presentation and functional currency.

Where we say “we”, “us”, “our”, the “Corporation” or “Dynacor”, we mean Dynacor Gold Mines Inc. and/or one or more or all its subsidiary, as it may apply. The information provided herein, effective August 12, 2020, is based on assumptions related to future events and results, which may vary. Further information on the Corporation and its operations has been filed electronically on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.

Responsibility of financial reports

Management is responsible for the preparation of the Financial Statements and the MD&A. The Corporation’s Board of Directors (the “Board”) has the responsibility to ensure that management assumes its responsibilities with regards to the preparation of the Financial Statements and the MD&A. To assist management, the Board has created an Audit Committee. The Audit Committee meets with management to discuss the operating results and the financial situation of the Corporation. It then makes its recommendations and submits the Financial Statements and the MD&A to the Board for their review and approval. Following the recommendation of the Audit Committee, the Board has approved the Financial Statements and the MD&A on August 12, 2020.

The Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. Consequently, all comparative financial information presented in the MD&A reflects the consistent application of IFRS. The Financial Statements have been filed electronically on SEDAR at www.sedar.com.

Listing

Dynacor is a publicly traded Corporation listed on the Toronto Stock Exchange (“TSX”) under the symbol “DNG” and on the OTC in the United States under the symbol “DNGDF”.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

Business and strategy

Dynacor’s activities consist of the production of gold and silver from the processing of purchased ore and the exploration of its mining properties located in Peru, with the potential for commercial extraction of gold and other precious metals. The Corporation purchases ore from local government registered artisanal ore producers from various regions of Peru which is then processed it at its wholly owned milling facility to produce gold dores and silver pellets which are sold internationally at market prices. All the Corporation’s gold sales were with one sole customer. However, management considers economic dependence does not exist as the Corporation can sell its gold to numerous clients worldwide. The Corporation also owns the rights on several mining properties which are at the exploration stage, including its flagship exploration gold, copper and silver prospect, the Tumipampa property (“Tumipampa”). During 2019, the Corporation has entered into an agreement with a group of artisanal miners for them to extract ore which we then purchase and transport to our plant for process. A total volume of over 1,400 tonnes was extracted since 2019.

The Corporation’s strategy is to maximize shareholder value by effectively managing its existing assets as well as pursuing organic and strategic growth opportunities. With its ore processing activities, Dynacor has succeeded in implementing and growing a solid source of cash flow which enables the Corporation to fund the exploration and development of its exploration assets where a $2.4 million budget was put in place for 2018/2019, as well as to face difficult market conditions by not being required to rely on the equity markets to raise capital. The drilling exploration program at Tumipampa has yet to start since the Corporation is still awaiting its permit to be issued by the Ministry of Energy and Mines of Peru.

In 2019, the Corporation achieved a production of 80,677 ounces, in line with 2018 (81,314 ounces).

In December 2019, the Peruvian authorities retained our gold shipment of 2,650 ounces. Following this export retention, the corporation temporarily stopped exporting gold. However, it continued purchasing and processing ore, therefore increasing its ore and gold in process inventory at the end of 2019. In January 2020, exports and sales resumed and year-end accumulated gold in process inventory was poured to gold and sold. At the date this report, this retained shipment of finish goods is still being retained by the Peruvian authorities.

COVID-19 Update

In 2020, the COVID-19 became a worldwide crisis. Following the state of emergency decree in Peru, which was declared on March 16, 2020, the Corporation temporarily stopped its ore purchase and process operations. On June 5, 2020, the Corporation received the approval for its health and safety protocol plan from the Peruvian Ministry of Health. Accordingly, on June 6, 2020, the Corporation gradually resumed its ore processing operations and believes it will return to full operating capacity of 300 tonnes per day (“tpd”) before the end of the third quarter, 2020.

The resumption of ore purchasing and processing, together with returning employees and suppliers, is compliant with the Ministry of Health guidelines. A document has been prepared containing the measures to be taken to monitor the risk of exposure to COVID-19 at the workplace, as well as establishing prevention and control standards to prevent the appearance and/or spread of the virus by safeguarding the safety and health of our workers, our suppliers, customers and visitors.

More specifically, the plan allows to:

• establish guidelines for the monitoring, prevention and control of the health of workers engaged in activities during the COVID-19 pandemic;

• establish guidelines for return at workplace;

• ensure the sustainability of monitoring, prevention and control measures taken to avoid the transmissibility of COVID-19.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

COVID-19 Update (continued)

The plan includes several procedures for the prevention of COVID-19, for example:

• cleaning and disinfection of workplace;

• identification of COVID-19 symptomatology prior to entry to the workplace;

• mandatory hand washing and disinfection;

• awareness of contagion prevention at the workplace;

• collective preventive measures;

• personal protection measures and monitoring of work-related comorbidity in the COVID-19 context;

• • isolation quarters.

Likewise, the plan presents the procedure for return at the workplace, for example:

• process for entry at the workplace and for job execution;

• review and strengthen for workers in critical work procedures;

• process for the return to work of workers with COVID-19 risk factors and process for the return to work of workers with COVID-19 clinic discharge.

The Plan considers all the activities of Veta Dorada (offices, collecting sites, factory, etc.). However, since the COVID-19 situation is still particularly complicated in Peru, even if management believes it has put in place a diligent health and safety protocol, it cannot ensure that it will keep from having the virus entering its working premises and affecting any of our Corporation employees.

The total duration and impacts of this crisis are still unknown, therefore it could still have a prospective material impact on the Corporation’s activities, cash flow and liquidities. The Corporation has taken and will continue to take actions to minimize the impact. However, it is impossible to precisely determine the prospective financial implications of these events. At the date of this report the Corporation has a solid financial situation. The Corporation continues to monitor the overall situation and apply its cash management and liquidity control plan.

COVID-19 virus crisis and economic uncertainties impacted stock markets. Markets will remain volatile at least until this world crisis ends.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

1-FINANCIAL HIGHLIGHTS

Impacted by the COVID-19 crisis, Dynacor, following thirty six (36) consecutive quarters of profits, recorded a net loss of (-$0.7 million) (-$0.02 per share) compared to a net profit of $0.7 million ($0.02 per share) for the three-month period ended June 30, 2019 (“Q2-2019”).

During the quarter, the Corporation concentrated its effort to monetize its inventory and receivables, reducing its risks and solidifying its overall financial situation. The Corporation increased its cash position by $4.5 million, from $16.1 million at March 31, 2020 to $20.6 million at June 30, 2020 and resumed its operations before the end of the period.

We are in a very good position to get back to the production level we were at prior to the crisis and at the end of 2019. Due to the very good financial results of Q1-2020, the net income for the six-month period ending June 30, 2020 is $1.7 million compared to $1.9 million for the same period of 2019.

Highlights for the second quarter of 2020

( Variance %, are calculated based on rounded figures)

In Q2-2020, due to the ongoing COVID-19 worldwide crisis and the state of emergency declared in Peru, the Corporation had to stop its ore purchase activities and temporarily shut-down its processing operations during almost three months. This exceptional context obviously impacted the Corporation quarterly financial and operational results.

Considering its solid financial situation and the gradual resumption of its activities, the Corporation pursued its dividend policy and declared in June, a 0.015$ CA per share dividend which was paid in July.

Operational and Strategic

• Volume of 3,244 tonnes processed compared to 22,737 tonnes in Q2-2019;

• Gold production of 1,897 ounces compared to 18,095 ounces in Q2-2019.

Financial

• Cash on hand of $20.6 million in Q2-2020 compared with $6.7 million at year-end 2019;

• Sales of $8.0 million, compared to $22.7 million in Q2-2019;

• Expenses related to the safeguard of all our production and ore purchase department employees in view of the resumption of activities amounted to $0.5 million during the quarter;

• Net loss of (-$0.7 million) or (-$0.02 per share), compared to a net profit of $0.7 million in Q2-2019;

• EBITDA [(1)] of (-$0.1 million), compared to $1.9 million in Q2-2019;

• Cash flow from operating activities before change in working capital items of (-$0.03 million), compared to $1.6 million in Q2-2019.

Cash Return to Shareholders

• Quarterly dividend of CA$0.015 per share and totaling $0.4 million (CA$0.6 million) paid in July 2020.

(Detailed variance calculations and explanations are contained in section 4)

(1) EBITDA: “Earnings before interest, taxes and depreciation” is a non-IFRS financial performance measure with no standard definition under IFRS. It is therefore possible that this measure could not be comparable with a similar measure of another Corporation. The Corporation uses this non-IFRS measure as an indicator of the cash generated by the operations and allows investor to compare the profitability of the Corporation with others by canceling effects of different assets bases, effects due to different tax structures as well as the effects of different capital structures. EBITDA is calculated on p.12 of this MD&A. See the “Non-IFRS Measures” section 15 of this MD&A.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

2-KEY ECONOMIC TRENDS

Gold market price

During Q2-2020, the market price of gold averaged $1,710/oz, compared to $1,310/oz in Q2-2019.

Below, the charts of the overall market price of gold for the first months of 2020 and 2019. At the date of this report, and after having reached as high as $2,067/once in August, the market price of gold stands just below $2,000/oz at $1,940/oz.

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Exchange rates

The quarter-end and quarterly average exchange rates for 2020 and 2019 were as follows:

June 30 (closing rate) Q-2 (average rate) March 31 (closing rate) Q-1 (average rate) December 31 (closing rate)	$US/$CA 2020 2019 1.363 1.309 1.385 1.338 1.419 1.336 1.345 1.330 1.299	$US/Soles 2020 2019
		3.519 3.288 3.428 3.321 3.435 3.319 3.394 3.325 3.317

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The Corporation has not entered into any hedging contracts.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

3-OVERALL PERFORMANCE

Tonnes processed in Q2-2020 were significantly impacted by the ore purchase stoppage and the shutdown of our plant during most of the quarter due to the State of emergency declared in Peru.

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The Corporation gradually resumed its ore processing operations in mid-June 2020 and believes it will return to full operating capacity of 300 tonnes per day (“tpd”) before the end of the third quarter, 2020. In July 2020, the Corporation processed an average of 230 tonnes per day.

Our gold production was negatively impacted by the volume processed and the lower grade of ore available than usual (approximately -25% since the beginning of year compared with 2019.

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Total sales amounted to $8.0 million compared to $22.7 million in Q2-2019. The $14.7 million decrease is explained by the decreases in ounces sold (-$17.2 million) partially offset by higher selling prices ($2.5 million).

Other variances of gross margin and net income are detailed in section 4.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

4-CONSOLIDATED RESULTS AND GOLD ORE PROCESSING OPERATIONS

Extract from Statement of net income and comprehensive income

(in $'000) Sales Cost of sales Gross operating margin General and administrative expenses Other projects Operating income Income before income taxes Net income and comprehensive income Earnings per share Basic Diluted	Three-month periods ended June 30, 2020 2019 8,007 22,697 (7,975) (20,139) 32 2,558 (746) (1,150) (13) - (727) 1,408 (755) 1,325 (685) 757 (-$0.02) $0.02 (-$0.02) $0.02	Six-month periods ended June 30, 2020 2019
		38,876 45,616 (33,895) (40,268)
		4,981 5,348 (1,837) (2,107) (141) -
		3,003 3,241 2,892 3,106 1,700 1,937 $0.04 $0.05 $0.04 $0.05

June 30, 2020 is $1.7 million compared to $1.9 million for the same period of 2019.

All expenses incurred during the quarter, including fixed operation costs, were accounted as part of cost of sales, which explains the low gross operating margin.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

Production, sales and gross operating margin

Gold production and sales for the three and six-month periods ended June 30, 2020 and 2019, are summarized as follows:

Gold Production (ounces) Gold Production (equivalent Au ounces) Gold sales (equivalent Au ounces) Total sales Total cash cost of sales(1) Cash gross operating margin(2) Depreciation Gross operating margin Gross Operating Margin per equivalent Au ounce sold ($/ounce) Average gold market price ($/ounce) Cash gross operating margin per equivalent Au ounce sold Average selling price Average cash cost of sales(3) Cash gross operating margin(4)	Three-month periods ended June 30, 2020 2019 ounces ounces 1,897 18,095 1,935 18,423 4,721 17,402 ($‘000) ($‘000) 8,007 22,697 (7,456) (19,577) 551 3,120 519 562 32 2,558 7 147 1,710 1,310 $/ounce (*) $/ounce (*) 1,696 1,304 (1,579) (1,125) 117 179	Six-month periods ended June 30, 2020 2019
		ounces ounces
		15,221 34,095 15,477 34,647 24,196 35,073
		($‘000) ($‘000)
		38,876 45,616 (32,807) (39,115)
		6,069 6,501 1,088 1,153
		4,981 5,348 206 152 1,647 1,307 $/ounce (*) $/ounce (*) 1,607 1,301 (1,356) (1,116)
		251 185

(*) per equivalent Au ounce sold

The Q2-2020 gross operating margin amounted to $0.03 million. This result includes underactivity fixed expenses amounting to approximately $1.2 million mostly:

• Salaries: $0.5 million as most of our employees working for the Corporation were kept in preparation for the restart of operations;

• Depreciations: $0.5 million.

(1) Cash cost of sales is the cost of sales and is a non-IFRS financial performance measure with no standard definition under IFRS. It is therefore possible that this measure could not be comparable with a similar measure of another corporation. See the “non-IFRS Measures” section 15 of this MD&A.

(2) Cash gross operating margin is calculated by deducting to the sales the cash cost of sales and is a non-IFRS financial performance measure with no standard definition under IFRS. It is therefore possible that this measure could not be comparable with a similar measure of another corporation. See the “non-IFRS Measures” section 15 of this MD&A.

(3) Average cash cost of sales is calculated by dividing the cash cost of sales by sales volume in ounces and is a non-IFRS financial performance measure with no standard definition under IFRS. It is therefore possible that this measure could not be comparable with a similar measure of another company. See the “non-IFRS Measures” section 15 of this MD&A.

(4) Cash gross operating margin per equivalent ounce Au is calculated by subtracting the average cash cost of sale per equivalent ounces of Au from the average selling price per equivalent ounces of Au and is a non-IFRS financial performance measure with no standard definition under IFRS. It is therefore possible that this measure could not be comparable with a similar measure of another company. See the “non-IFRS Measures” section 15 of this MD&A.

These non-IFRS measures are used by management as indicators of the gross amount of cash which could be generated from the production of one unit (ounce) of gold.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

Net income and comprehensive income variance analysis

The variance in the net income and comprehensive income between Q2-2020 and 2019 and between the six-month period ending June 30, 2020 are as follows:

(in million $) Net income Q2-2019 Decrease in gross operating margin Decrease in general administrative expenses Decrease in income tax expenses Total variances Net income Q2-2020 (in million $) Net income YTD-2019 Increase in gross operating margin derived from the December 2019 postponed export Decrease in gross operating margin Decrease in general administrative expenses Increase in other project expenses Total variances Net income YTD-2020	Q2-2020 vs. 2019 0.7 (2.5) 0.4 0.7
	(1.4)
	(0.7)
	YTD-2020 vs. 2019 1.9 1.5 (1.9) 0.3 (0.1)
	(0.2)
	1.7

The gross operating margin variance which represents the main variance in net income was explained in the previous page.

The decrease in general administrative expenses is mainly due to savings on salaries compared Q2-2019.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

Reconciliation of non-IFRS measures

Reconciliation of non-IFRS measures
(in $'000) Reconciliation of net income and comprehensive income to EBITDA(1) Net income and comprehensive income Income taxes Financial expenses Depreciation EBITDA(1) Reconciliation of net cash flow from operating activities before change in working capital items per share(2) Net cash flow from operating activities before change in working capital items (in $'000) Basic weighted average number of common shares outstanding (‘000) Net cash flow from operating activities before change in working capital items per share(2)	Three-month periods ended June 30, 2020 2019 (685) 757 (70) 568 31 25 599 616 (125) 1,966 (27) 1,571 38,787 39,140 $0.00 $0.04	Six-month periods ended June 30, 2020 2019
		1,700 1,937 1,192 1,169 49 65 1,239 1,261
		4,180 4,432
		3,195 3,490 38,787 39,256
		$0.08 $0.09

(1) EBITDA: “Earnings before interest, taxes and depreciation” is a non-IFRS financial performance measure with no standard definition under IFRS. It is therefore possible that this measure could not be comparable with a similar measure of another Corporation. The Corporation uses this non-IFRS measure as an indicator of the cash generated by the operations and allows investor to compare the profitability of the Corporation with others by canceling effects of different assets bases, effects due to different tax structures as well as the effects of different capital structures. See the “Non-IFRS Measures” section 15 of this MD&A.

(2) Net cash-flow from operating activities before change in working capital per share is a non-IFRS financial performance measure with no standard definition under IFRS. It is therefore possible that this measure could not be comparable with a similar measure of another Corporation. See the “Non-IFRS Measures” section 15 of this MD&A. The Corporation uses this non-IFRS measure which can also be helpful to investors as it provides a result which can be compared with the Corporation market share price.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

Ore processing production statistics and financial summary

Below is the table explaining the variances between the three-month periods ended June 30, 2020 and 2019 mainly due to the shut-down of operations in Peru during COVID-19 State of Emergency.

Ore processing production statistics summary	Q2- 2020	Comments and explanations over variances	Q2- 2019	Variance in %
Tonnes processed	3,244	Consistent with the shut-down of operations in Q2-2020.	22,737	(85.7)
Average daily tonnes processed(1)	36	Consistent with variances in tonnes processed.	250	(85.6)
Ounces produced (Au)	1,897	Decrease mainly explained by a lower tonnage of ore processed at a lower average grade.	18,095	(89.5)
Ounces sold (Au equivalent)	4,721	In line with the production and the delayed shipment of June 2020.	17,402	(72.9)
Financial summary
Sales (millions $)	8.0	Decrease due to lower ounces sold (-$17.2 million) partially offset by higher selling prices (+$2.5 million) compared to 2019.	22.7	(64.8)
Average selling price per Au equivalent ounce sold ($)	1,696	Consistent with the market gold price.	1,304	30.1
Gross operating margin (millions $)	0.03	Decrease attributable to lower sales and to under-activity fixed costs.	2.6	(98.8)
Gross operating margin (% of sales)	0.4%	Consistent with the decrease in gross operating margin.	11.3%	(96.5)
Gross operating margin per equivalent Au ounce sold ($)	7	Consistent with the decrease in gross operating margin.	147	(95.2)
Cash gross operating margin per equivalent Au ounce sold ($)	117	Consistent with the decrease in sales and gross operating margin.	179	(34.6)
EBITDA (millions $)	(0.1)	Consistent with the decrease in gross operating margin.	1.9	(105.3)
Cash flows from operating activities before changes in working capital items (millions $)	-	Consistent with the decrease in gross operating margin.	1.6	(100.0)
Net cash flow from operating activities before change in working capital items per share ($)	-	Consistent with the decrease in gross operating margin.	0.04	(100.0)
Net income (millions $)	(0.7)	Decrease mainly attributable to the lower gross operation margin ($2.5 million) partially offset by a decrease in general and administrative expenses (-$0.4 million) and in the income tax charge (-$0.6 million).	0.7	(200.0)
Earnings per share ($)	(0.02)	In line with changes in net income	0.02	(200.0)

( Variance %, are calculated based on these rounded figures)

(1) Considering 91 days (full calendar days replacing annual basis of 346 days used in prior years)

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

Below is the table explaining the variances between the six-month periods ended June 30, 2020 and 2019.

Ore processing production statistics summary	YTD- 2020	Comments and explanations over variances	YTD- 2019	Variance in %
Tonnes processed	26,145	Consistent with the shut-down of operations in Q2-2020.	43,551	(40.0)
Average daily tonnes processed(1)	144	Consistent with variances in tonnes processed.	241	(40.2)
Ounces produced (Au)	15,221	Decrease mainly explained by a lower tonnage of ore processed at a lower average grade.	34,095	(55.4)
Ounces sold (Au equivalent)	24,196	In line with the production and the delayed shipment of December 2019.	35,073	(31.0)
Financial summary
Sales (millions $)	38.9	Decrease due to lower ounces sold (-$14.4 million) partially offset by higher selling prices (+$7.7 million) compared to 2019.	45.6	(14.7)
Average selling price per Au equivalent ounce sold ($)	1,607	Consistent with the market gold price.	1,301	23.5
Gross operating margin (millions $)	5.0	Variance attributable to lower ounces sold at a higher selling price.	5.3	(5.7)
Gross operating margin (% of sales)	12.8%	Consistent with the decrease in the gross operating margin and the increase in the gold price.	11.7%	9.4
Gross operating margin per equivalent Au ounce sold ($)	206	Consistent with the increase in average selling price and the gross operating margin as a % of sales.	152	35.5
Cash gross operating margin per equivalent Au ounce sold ($)	251	Consistent with the increase in average selling price and the gross operating margin as a % of sales.	185	35.7
EBITDA (millions $)	4.2	Consistent with last year.	4.4	(4.5)
Cash flows from operating activities before changes in working capital items (millions $)	3.2	Consistent with last year.	3.5	(8.6)
Net cash flow from operating activities before change in working capital items per share ($)	0.08	Consistent with last year.	0.09	(11.1)
Net income (millions $)	1.7	Decrease mainly attributable to the lower gross operation margin ($0.4 million), the decrease in general and administrative expenses (-$0.3 million) and the increase in other project expenses ($0.1 million).	1.9	(10.5)
Earnings per share ($)	0.04	In line with changes in net income and the number of outstanding shares.	0.05	(20.0)

( Variance %, are calculated based on these rounded figures)

(1) Considering 182 days in 2020 and 181 days in 2019 (full calendar days replacing annual basis of 346 days used in prior years)

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

5-CASH FLOW AND LIQUIDITY

The impacts of all the activities on the Corporation’s cash flow are summarized below:

(in $'000) Operating activities Net income, adjusted for non-cash items Change in working capital items Net cash from operating activities Investing activities Acquisition of property, plant and equipment, net of proceeds of disposition Additions to exploration and evaluation assets Net cash used in investing activities Financing activities Bank loan Payment on asset retirement obligation Repayment of lease liabilities and interest’s payments Proceeds from the exercise of stock options Repurchase of common shares Dividends paid Net cash from (used in) financing activities Change in cash during the period Effect of exchange rate changes on cash Cash, beginning of the period Cash, end of the period	Three-month periods ended June 30, 2020 2019 (27) 1,571 5,039 (1,177) 5,012 394 (12) (818) - (85) (12) (903) - - - (1) (153) (173) - 69 - (317) (410) (294) (563) (716) 4,437 (1,225) 51 10 16,107 14,428 20,595 13,213	Six-month periods ended June 30, 2020 2019
		3,195 3,490 14,887 (1,649)
		18,082 1,841
		46 (847) (28) (160)
		18 (1,007)
		(3,015) - - (1) (341) (329) - 70 - (729) (858) (585)
		(4,214) (1,574)
		13,886 (740) (34) 24 6,743 13,929 20,595 13,213

Operating activities

During Q2-2020, the cash flow from operations, before changes in working capital items, amounted to (-$0.03 million) ($3.2 million for the six-month period ending June 30, 2020), compared to $1.6 million in Q2-2019 ($3.5 million for the six-month period ending June 30, 2019). This decrease between quarters is primarily explained by the decrease in gross operating margin due to lower gold production.

During Q2-2020, total cash from operating activities amounted to $5.0 million ($18.1 million for the six-month period ending June 30, 2020) compared to $0.4 million in Q2-2019 ($1.8 million for the six-month period ending June 30, 2019). Changes in working capital items amounted to ($5.0 million) ($14.9 million for the six-month period ending June 30, 2020) compared to (-$1.2 million) in 2019 (-$1.6 million for the six-month period ending June 30, 2019). The variance is mainly attributable to the variance in inventories.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

Investing activities

During Q2-2020, there were very limited investments.

During Q2-2019, net investments amounted to $0.8 million ($0.9 million for the six-month period ending June 30, 2019) and related to the acquisition of land, rolling stocks and additions to the tailing pond. Net additions to exploration and evaluation assets during Q2-2019 amounted to $0.1 million ($0.2 million for the six-month period ending June 30, 2019).

Financing activities

In December 2019, the Corporation entered into a bank loan agreement with a local Peruvian bank in the amount of $3.0 million to support its working capital needs following the retention of its shipment and as its ore purchases were reaching record level. The bank loan was fully reimbursed at maturity in February 2020.

A total of 247,224 shares were repurchased in Q2-2019 (561,124 for the six-month period ending June 30, 2019) for a total cash consideration of $0.3 million (CA$0.4 million) ($0.7 million or CA$1.0 million for the six-month period ending June 30, 2019). In 2020, no shares were repurchased.

In 2020, two increased quarterly dividends of CA$0.015 per share were disbursed for a quarterly consideration of $0.4 million (CA$0.6 million). In 2019, two quarterly dividends of CA$0.01 per share were disbursed for a quarterly total consideration of $0.3 million (CA$0.4 million).

In 2020 and 2019, the corporation made quarterly repayments of lease liabilities for $0.2 million.

Liquidity

As at June 30, 2020, the Corporation’s working capital amounted to $21.7 million, including $20.6 million in cash ($19.6 million, including $6.7 million in cash at December 31, 2019).

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

6-STATEMENT OF FINANCIAL POSITION

6-STATEMENT OF FINANCIAL POSITION
(in $'000) Cash Accounts receivable Inventories Property, plant and equipment Right-of-use assets Exploration and evaluation assets Other assets Total assets Trade and other payables Bank loan Asset retirement obligations Current tax liabilities Lease liabilities Shareholders' equity Total liabilities and equity Share price at closing	As at June 30, As at December 31, 2020 2019
	20,595 6,743 1,183 4,729 4,641 18,301 19,948 20,959 1,263 1,561 18,777 18,738 3,838 3,782
	70,245 74,813
	4,375 6,344 - 3,000 3,774 3,769 229 419 959 1,329 60,908 59,952
	70,245 74,813
	CA $1,91 CA $1,66

Assets and short-term liabilities

As at June 30, 2020, total assets amounted to $70.2 million ($74.8 million as at December 31, 2019).

The main impact comes from the inventories that decreased significantly in 2020:

(in million $) Ore Gold in process Finished goods-Gold dore bars Supplies Less: long-term portion – other assets Total	As at June 30, As at December 31, 2020 2019
	2.0 4.5 1.0 13.5 4.8 3.4 0.2 0.3
	8.0 21.7 (3.4) (3.4)
	4.6 18.3

Included in the finished goods-Gold dore bars are 2,650 ounces of gold related to the December shipment which was and is still retained by the Peruvian authorities for control procedures. We cannot predict at this time when this shipment will be released by the authorities and therefore, we have classified then under other non-current assets. In addition, at the end of June 2020, the Corporation had 900 ounces of gold dore bars in inventory that were exported subsequently to quarter-end.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

Assets and short-term liabilities (continued)

The significant decrease in the level of inventories have positively impacted the net cash position of the Corporation.

(in million $) Cash Bank loan Total	As at June 30, As at December 31, 2020 2019
	20.6 6.7 - (3.0)
	20.6 3.7

Accounts receivable amount to $1.2 million ($4.7 million as at December 31, 2019) and are mostly comprised of IGV receivable ($0.6 million) and net advances to suppliers for mineral purchases ($0.4 million).

Property, plant and equipment amount to $19.9 million ($21.0 million as at December 31, 2019) and are mainly comprised of the Veta Dorada Plant and capitalized rehabilitation costs.

Total exploration and evaluation assets amounted to $18.8 million ($18.7 million as at December 31, 2019) and are mainly comprised of accumulated capitalized exploration work performed at Tumipampa. As of April 1, 2020, following the COVID-19 crisis and as the Corporation is still waiting for its exploration permit, the Corporation has temporarily ceased to capitalize its exploration and evaluation expenses.

Long-term liabilities and contractual commitments

Payment due by period (in 000’ $)
	Within 1	1 to 2	2 to 5	Beyond
Contractual commitments	year	years	years	5 years	Total
Trade and other payables	4,375	-	-	-	4,375
Right-of-use assets(1)	421	223	242	236	1,122
Short-term leases	60	-	-	-	60
Asset retirement obligation(2)	-	-	-	5,898	5,898
Total	4,856	223	242	6,134	11,455

(1) The amount is different from the amount disclosed in the Financial Statements as it includes overall interest calculated to the term of the related agreement.

(2) The amount is different from the amount disclosed in the Financial Statements as it represents the undiscounted value of the remaining proposed work program as per the supporting valuation report.

During the period, the Corporation met all of its obligations. The Corporation’s operations are governed by regulations regarding the protection of the environment. Subject to these regulations, the Corporation must implement progressive measures for rehabilitation work as part of its operations. Management reviews its asset retirement obligation (“ARO”) on a regular basis.

(in million $) Veta Dorada Plant Tumipampa Total future asset retirement obligation	As at June 30, As at December 31, 2020 2019
	3.49 3.49 0.28 0.28
	3.77 3.77

This estimate is subject to change following developments on each site, modifications to laws and regulations or as new information becomes available. As at June 30, 2020, the Corporation has constituted letters of credit in favor of the MEM for $1.6 million (1.4 million as at December 31, 2019) to secure closure plans of its facilities and exploration projects.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

Long-term liabilities and contractual commitments (continued)

As at June 30, 2020 and December 31, 2019, the future value of the provision for closure of facilities and exploration projects is $5.9 million, which is estimated to be disbursed in periods up to 19 years.

Shareholders’ equity

Other than results from operations, transactions affecting the shareholder’s equity are reflected in the financing activities section.

Capital resources and capital management

The Corporation generates cash flow from its ore processing activities. This positive cash flow is re-invested in the commercial operations, capital investments and exploration activities. The Corporation has access to the capital market and may eventually need from time to time to turn to the financial market in order to fund any exploration program, capital requirement and project or investment opportunities. As at June 30, 2020, the Corporation has enough resources to meet its commitments for the upcoming year, however management is always looking at financing or investment opportunities which could benefit to the growth of the Corporation.

The Corporation’s capital structure consists of common shares, stock options and deferred share units (“DSUs”). The Corporation manages its capital structure and makes changes pursuant to economic conditions and conditions related to its assets. The Corporation has the ability to raise capital when it is necessary to meet its requirements and therefore, it does not have a specific target debt to capital ratio. The Corporation also possesses the ability to raise debt to maintain a balance between debt and shareholders’ equity.

The Corporation is not subject to any externally imposed capital. The Corporation’s objectives in managing capital are the following:

• i. to preserve the capacity to continue its operations in order to maximize the return to its shareholders and maintain an optimal capital structure in order to increase the shareholders’ equity in the long term.

• ii. to ensure the Corporation has sufficient capital to meet its short-term needs and ensure the development of its projects and mining activities.

• iii. to satisfy the external requirements with regards to capital needed in respect of any lending agreements.

• iv. to maintain an optimal capital structure in order to minimize the cost of debt financing.

The Corporation is not subject to any externally imposed capital requirements. However, for the Corporation’s Peruvian subsidiary, the General Corporate Law (Peru) establishes that a minimum of 10% of the distributable profit of each year must be allocated to a legal reserve account, until this account reaches 20% of its capital ($1,834,265 as at June 30, 2020 and December 31, 2019). Dynacor may transfer the funds from this legal reserve account, but the Corporation will be obliged to replace these funds in the subsequent year.

Off-balance sheet transactions

Except for the renewal of short-term office leases, the Corporation did not enter any off-balance sheet transactions during the three-month period ended June 30, 2020.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

7-QUARTERLY REVIEW

(Unaudited, in accordance with IAS 34)

	2020	2020		2019	2019		2018	2018
Financials (in $'000) Sales Cost of sales Depreciation General and administrative expenses Loss (gain) on foreign exchange Income tax expenses Net income Acquisition of property, plant and equipment Additional exploration and evaluation Gross operating margin (%) Earnings per share ($) Basic Diluted	Q2 8,007 7,975 599 747 (3) (70) (685) 12 - 0.4% (-0.02) (-0.02)	Q1 30,869 25,920 640 1,090 65 1,262 2,385 7 28 16.0% 0.06 0.06	Q4 23,216 20,210 652 1,416 (6) 584 949 309 44 12.9% 0.02 0.02	Q3 33,667 29,053 638 974 71 1,180 2,301 112 (13) 13.7% 0.06 0.06	Q2 22,697 20,139 616 1,150 20 568 757 823 86 11.3% 0.02 0.02	Q1 22,919 20,129 645 957 11 601 1,180 44 73 12.2% 0.03 0.03	Q4 25,666 22,259 655 1,079 116 947 1,275 241 335 13.3% 0.03 0.03	Q3 24,439 21,819 614 1,182 47 622 694 224 320 10.7% 0.02 0.02

Second quarter results (refer to page 13 for variance analysis).

8-INFORMATION ON OUTSTANDING SHARES

Data concerning outstanding shares (as at August 12, 2020)

	Number
Common shares	38,799,756
DSUs	412,846
Share purchase options	1,240,000

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

9-TRANSACTIONS WITH RELATED PARTIES

Key management personnel

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Corporation as a whole. The Corporation has determined that key management personnel consists of members of the Board, corporate officers, including the Corporation’s Chief Executive Officer, Chief Financial Officer and Vice President Operations (since August 2018).

Remuneration attributed to key management personnel can be summarized as follows:

(in $) Salaries, benefits and directors’ fees Share-based payments(1)	Three-month periods ended June 30, 2020 2019 142,767 271,532 60,415 63,606 203,182 335,138	Six-month periods ended June 30, 2020 2019 380,354 511,299 60,415 65,536 440,769 576,835	Six-month periods ended June 30, 2020 2019 380,354 511,299 60,415 65,536 440,769 576,835
			511,299 65,536
			576,835

(1) Represents the value of share purchase options which have vested during the period.

Other related parties

In the normal course of operations and at fair value, being the amount of consideration determined and agreed to by the related parties:

A firm of which an officer of the Corporation is a partner, charged legal professional fees amounting to $19,229 for the three-month period ended June 30, 2020 ($37,947 for the six-month period ended June 30, 2020) ($26,363 and $47,362 respectively for the same periods of 2019).

A Company of which a director is the sole shareholder did not charge geological professional fees for the three-month and six-month periods ended June 30, 2020 ($16,545 for the same periods of 2019).

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

10-MINING EXPLORATION PROPERTIES

Tumipampa

Location and Geological Context

Tumipampa is located 500 km from Lima, Peru, in the Circa district, Province of Abancay, Department of Apurimac. Tumipampa’s concessions cover an area of 8,432 hectares and are located geographically on the eastern slopes of the Andes Mountain Range between 4,200 and 4,800 metres above sea level. The northern part of Tumipampa straddles the limestones of the host Ferrobamba deposit ‘Tintaya’ skarn-type (copper-gold), which is recognized as a major world class deposit of this type with more than 139 million tonnes at 1.23% Cu and 0.23g/t Au. The Tintaya mine is located 197 km northeast of Tumipampa. Moreover, major deposits have been recently unearthed at Los Chancas (355 million tons at 0.62% Cu, 0.05%Mo and 0.039g/t Au) (Southern Copper), Las Bambas (1.13 billion tonnes of 0.77% Cu,0.05 – 0.068 g/t Au and 0.01% Mo) (MMG Limited) and Constancia-which just began production (Hudbay), which are located on either side and near Tumipampa, respectively. All these major deposits are part of a belt of porphyry type deposits Cu-Au Skarn-related batholiths Andahuaylas-Yauri, an intrusive that is 300 km long and 150 km wide.

Currently, all of the land surrounding Tumipampa is claimed by major mining companies such as Southern Copper, MMG Limited, Buenaventura, Golden Ideal Gold Mining (China), Super Strong Mining (China) and Bear Creek Mining.

11- FOLLOW-UP OUTLOOK-2020

Ore processing

The Corporation purchasing and processing operations resumed in June and so far without any issues. In July we processed an average of more than 230 tonnes per day and aiming to reach full capacity of 300 tonnes per day by the end of the third quarter.

Exploration

There has been no progress in the Corporation exploration business since last year end MD&A release as the Corporation is still awaiting for its future drilling exploration permit.

12-RISKS AND UNCERTAINTIES

The Corporation operates in the mining industry which is subject to numerous significant risks that can influence the profitability of a company. Please refer the Corporation’s annual information form or it’s MD&A for the year ended December 31, 2019, filed electronically on SEDAR www.sedar.com for more details.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

13-JUDGMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of consolidated financial statements (refer to note 5 of the Annual Financial Statements and to note 4 of the Q2-2020 Condensed Interim Financial Statements) requires management to make judgments, estimates and assumptions on the reported amounts of assets and liabilities, and revenues and expenses. The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may be substantially different.

The significant accounting estimates are those that require assumptions on matters that are substantially uncertain at the time of the estimate, that should the assumptions be modified, it would have a material impact on the reported earnings or the financial position of the Corporation. A description of the Corporation’s main accounting policies can be found in the Annual Financial Statements, filed electronically on SEDAR at www.sedar.com.

14-ACCOUNTING POLICIES AND MODIFICATIONS

Changes in accounting policies and policies issued but not yet effective

There were no changes in accounting policies during the year.

15-NON-IFRS MEASURES

Throughout this document, the Corporation has provided measures prepared according to IFRS as well as some non-IFRS financial performance measures. Because the non-IFRS performance measures do not have any standardized definition prescribed by IFRS, they may not be comparable to similar measures presented by other companies. The Corporation provides these non-IFRS financial performance measures as they may be used by some investors to evaluate our financial performance. Accordingly, they are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These non-IFRS financial performance measures were reconciled to reported IFRS measures within the document. (Refer to sections 1 and 4 for description and reconciliation of those non-IFRS measures).

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

16-DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

Disclosure controls and procedures (“DC&P”)

The CEO and the CFO of the Corporation are responsible for establishing and maintaining the Corporation’s DC&P, including adherence to the Disclosure Policy adopted by the Corporation. The Disclosure Policy requires all staff to keep senior management fully apprised of all material information affecting the Corporation so that they may evaluate and discuss this information and determine the appropriateness and timing for public release. The CEO and CFO evaluated the effectiveness of the Corporation’s DC&P as required by Multilateral Instrument 52-109 issued by the Canadian Securities Administrators. They concluded that as of June 30, 2020, the Corporation’s DC&P were effective. Since the June 30, 2020 evaluation, there have been no adverse changes to the Corporation’s DC&P and they continue to remain effective.

Internal control over financial reporting (“ICFR”)

Management has developed a system for ICFR in order to provide reasonable assurance with regards to the reliability of the financial information published and the preparation of the financial statements in accordance with IFRS. The CEO and the CFO evaluated the effectiveness of the ICFR as at June 30, 2020, based on the framework and criteria established in Internal Control – Integrated Framework as issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, and based on their evaluation, management has concluded that the Corporation’s ICFR were effective.

Limitations of controls and procedures

The Corporation’s management, including the CEO and CFO, believe that any DC&P or ICFR, no matter how well conceived and operated, can provide only reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system reflects the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a costeffective control system, misstatements due to error or fraud may occur and not be detected.

Changes to ICFR

No changes were made to our ICFR during the three-month period ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, our ICFR.

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

17-CAUTION REGARDING FORWARD LOOKING STATEMENTS

Statements contained in this document that are not historical facts are regarded as forward-looking statements. These statements may involve risk, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Many factors could cause such differences, including: volatility in market metal prices; changes in foreign currency exchange rates and interest rates; unexpected variations in geological conditions of a property of erroneous geological data; environmental risks including increased regulatory constraints; unexpected adverse mining conditions; adverse political conditions, and changes in government regulations and policies. Although the Corporation believes that the assumptions inherent in the forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this document. The Corporation has not committed to maintaining this forward-looking information unless so required by law.

(s) Jean Martineau Jean Martineau President and Chief Executive Officer

(s) Leonard Teoli CPA, CA Leonard Teoli

Vice-President and Chief Financial Officer

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Dynacor Gold Mines Inc. June 30, 2020

Management Discussion and Analysis

18-CORPORATE INFORMATION

Dynacor Gold Mines Inc.

Corporate Office 625 René Lévesque Ouest Suite 1200 Montreal, Québec, Canada H3B 1R2 Tel.: (514) 393-9000 Fax: (514) 393-9002 Website:http://www.dynacor.com Twitter:http://twitter.com/DynacorGold

Directors and Officers

Pierre Lépine, CPA, CA - Chairman of the Board Jean Martineau- President and CEO Roger Demers, FCPA, FCA, ASC- Director Eddy Canova, Geo- Director Réjean Gourde, Ing- Director Isabel Rocha- Director Leonard Teoli, CPA, CA- VP Finance and CFO Jorge Luis Cardenas, Ing- VP Operations René Branchaud, LLB- Corporate Secretary

Legal Counsel

Lavery, de Billy LLP

Auditors

Raymond Chabot Grant Thornton LLP

Transfer Agent

AST Trust Company (Canada)

Exchange listings

Toronto Stock Exchange – DNG OTC - DNGDF

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