Engineer Gold Mines Ltd. — Management Reports 2022

Nov 30, 2022

Investor Services

2600 Seven Evergreen Place Winnipeg, Manitoba R3L 2T3

November 30, 2022

To the Limited Partner of Shelter Restaurant (Moose Jaw) Limited Partnership

Sale of Property - Offer to Purchase

From 1987 to 2017, the primary asset of the Shelter Restaurant (Moose Jaw) Limited Partnership was a 7,260 square foot single-storey building, operated as a Bonanza Family Restaurant, located in Moose Jaw, Saskatchewan. During fiscal 2020, the building was demolished such that the primary asset is 1.41 acres of vacant land (the "Property").

Pursuant to the terms of the Special Resolution that was approved at a meeting of the Limited Partners on July 29, 2020, Shelter Canadian is authorized to sell the Property at a minimum gross selling price of \$1.75 million. Since 2020, management has been evaluating offers to purchase the Property and has engaged in negotiations in an effort to obtain the highest possible selling price on behalf of the Limited Partners.

Recently, 72087 Manitoba Limited, the General Partner of the Limited Partnership, received an unconditional offer to purchase the Property at a gross purchase price of \$1.5 million. Based on the current economic conditions and an evaluation of the offers to purchase that have been received to date, management believes that a gross purchase price of \$1.5 million represents the maximum selling price attainable for the Property.

In order to accept an offer to purchase that is below the previously established minimum selling price of \$1.75 million, Limited Partner approval is required. An analysis of the net after-tax benefit that would result from the sale of the Property at a gross selling price of \$1.5 million is provided below.

Analysis of the Potential Sale of Shelter Restaurant

As disclosed in Appendix A, the sale of the Property at a gross selling price of \$1.5 million, will not result in any cash proceeds to the Limited Partners; however, it would result in a net after-tax benefit to the Limited Partners. Specifically, after accounting for (1) the taxable capital gain which would result from the sale of the Property; (2) the tax impact of demolishing the building; (3) the use of loss carry-forwards from previous years; and, (4) the allowable capital loss for tax purposes upon wind-up of the Limited Partnership, it is estimated that the sale would generate a net benefit of approximately \$6,920 per 6.6667% unit of limited partnership interest. By comparison, in our correspondence of June 23, 2020, it was estimated that the sale of the Property would result in a net after-tax benefit to the Limited Partners of \$5,000 per 6.6667% unit of limited partnership interest.

If the sale is approved and completed, the Limited Partnership would no longer own any assets and the Limited Partnership would be dissolved in accordance with provisions set forth in the Limited Partnership Agreement. As noted above, the detailed calculation and an analysis of the estimated net after-tax benefit that would result from the sale of the property of Limited Partnership is enclosed in Appendix A.

Preferred Cash Distributions

In accordance with the terms of the Services Agreement, during the initial commitment period, which ended December 31, 1991, Limited Partners were entitled to guaranteed cash distributions in the total amount of \$149,850, representing \$9,990 per limited partnership interest. Subsequent to the initial commitment period, the Limited Partners have been entitled to receive a preferred cash distribution in the amount of \$40,500 per annum, representing \$2,700 per unit of limited partnership interest.

To the extent that the cash flow of the Limited Partnership was not sufficient to fund the total preferred return in certain years, the preferred distributions were based on the actual cash flow, with any shortfall accrued, and later paid from net refinancing proceeds.

As of December 31, 2021, the cumulative preferred distribution entitlement amounted to \$1,364,850, compared to cumulative cash distributions paid of \$2,228,450, representing cumulative cash distributions which are \$863,625 in excess of the preferred distribution entitlement. For limited partners that purchased Limited Partnership Units in 1987, the average annualized pre-tax return on investment is approximately 13.2%.

Advances Payable to Shelter

The liabilities of the Limited Partnership include unsecured advances payable from Shelter Canadian. The projected balance of the advances payable as at the estimated date of the potential sale of the Property is estimated to be \$947,600. Given that the sale of the property will not result in sufficient proceeds to fully repay the advances payable, the analysis reflects non-payment of advances payable in the amount of \$485,200, resulting in a \$462,400 partial repayment of advances payable.

Tax, Legal, and Accounting Advice Disclaimer

The calculation of the net after-tax cash proceeds are estimates. The foregoing comments and material enclosed in the Information Circular and Appendix A have been prepared for information purposes only and are not intended to provide, and should not be relied upon for, tax, legal, or accounting advice. Limited partners are encouraged to obtain independent tax, legal, and accounting advice from their own professional tax, legal, and accounting advisors.

Meeting of the Limited Partners

A meeting of the Limited Partners has been scheduled for Tuesday, January 3, 2023 at 2:00 p.m. in the Boardroom of Shelter Canadian Properties Limited, 2600 Seven Evergreen Place, Winnipeg, Manitoba. Accordingly we enclose a Notice of Meeting, an Information Circular and an Instrument of Proxy.

The purpose of the meeting is to consider a Special Resolution to authorize Shelter Canadian Properties Limited to sell the land which is owned by the Limited Partnership at a minimum gross selling price of \$1.5 million, and thereafter to dissolve the Limited Partnership in accordance with Section 10.02 of the Limited Partnership Agreement.

In order to obtain a quorum for the meeting, at least one person must be present, holding or representing as proxies for Limited Partners not less than 50% of the units. In order for a Special Resolution to be approved, an affirmative vote of at least 66 2/3% of the votes cast at a duly convened meeting of the Limited Partners is required. If you do not intend to be in attendance at the meeting, please return your Instrument of Proxy as soon as possible. We enclose a self-addressed envelope for your convenience.

Meeting of the Limited Partners (continued)

In total, Shelter Canadian and related parties of Shelter Canadian own 9 units or 60% of the limited partnership interest. In accordance with the terms of the Limited Partnership Agreement, Shelter Canadian and related parties of Shelter Canadian are only entitled to vote up to a maximum of 25% of the outstanding units (3 units) in respect of the 66 2/3% affirmative vote requirement.

If you have any questions regarding your investment, please do not hesitate to contact the undersigned.

Yours truly,

SHELTER CANADIAN PROPERTIES LIMITED

GINO ROMAGNOLI, CPA, CGA Manager, Investor Services

GR/pzb Enclosures

SHELTER RESTAURANT (MOOSE JAW) LIMITED PARTNERSHIP

$\label{eq:1.1} \begin{array}{lll} \alpha & & \ & \alpha & & \ \end{array} \begin{array}{lll} \alpha & & \ & \alpha & & \ \end{array} \begin{array}{lll} \alpha & & \ \alpha & & \ \end{array} \begin{array}{lll} \alpha & & \ \alpha & & \ \end{array} \begin{array}{lll} \alpha & & \ \alpha & & \ \end{array} \begin{array}{lll} \alpha & & \ & \alpha & \ \end{array} \begin{array}{lll} \alpha & & \ & \alpha & \ \end{array} \end{array}$

APPENDIX A

Analysis of the Sale of Property and Wind-up of Limited Partnership At a Gross Selling Price of \$1.5 Million As at February 1, 2023

Schedule 1 - Calculation of Projected Cash Proceeds

Schedule 2 - Calculation of Projected Net After-Tax Benefit

SHELTER RESTAURANT (MOOSE JAW) LIMITED PARTNERSHIP

Appendix A - Schedule 1

Calculation of Projected Cash Proceeds From the Sale of the Property As at February 1, 2023

Gross selling price		S	1,500,000
Less:	Sales commissions Legal fees		63,000 21,000
Net proceeds from sale			1,416,000
Less:	Working capital deficiency Retirement of first mortgage loan Accrued preferred cash distributions Projected unsecured cash advances from Shelter Canadian Non-payment of unsecured cash advances from Shelter Canadian		(20, 400) (933, 200) nil (947,600) 485,200
Cash proceeds from sale
Cash proceeds per unit of 6.6667% Limited Partnership interest

SHELTER RESTAURANT (MOOSE JAW) LIMITED PARTNERSHIP

Appendix A - Schedule 2

Calculation of Projected Net After-Tax Benefit As at February 1, 2023 (Per Unit of 6.6667% Limited Partnership Interest Acquired in 1987)

Cash proceeds from sale of land
Income tax payable:
Taxable capital gain on the sale of the land Terminal loss on building Rental income (loss) for January 2023 - estimated Loss carry forwards - rental income (loss) from prior years Allowable capital loss on wind-up of Limited Partnership	S	44,360 (8, 448) (250) (21, 402) (29,310)
Tax loss		(15,050)
Marginal tax rate		46%
Income tax payable / (tax savings)		(6, 923)
Net after-tax benefit per unit of 6.6667% Limited Partnership interest		6.923