Erdene Resource Development Corporation — Interim / Quarterly Report 2021

Nov 9, 2021

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CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the three and nine months ended September 30, 2021, and 2020

(Canadian dollars) (Unaudited)

Prepared by management – See Notice to Reader

NOTICE TO READER

Under National Instrument 51-102, Part 4, subsection 4.3 (3) (a), if an auditor has not performed a review of the condensed consolidated interim financial statements, they must be accompanied by a notice to this effect. These unaudited condensed consolidated interim financial statements have been prepared by management of the Corporation. Management have compiled the unaudited condensed consolidated interim statements of financial position of Erdene Resource Development Corporation as at September 30, 2021, and December 31, 2020, and the unaudited condensed consolidated interim statements of comprehensive loss, changes in equity and cash flows for the three and nine months ended September 30, 2021, and 2020. The Corporation’s independent auditors have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of the September 30, 2021, and 2020 condensed consolidated interim financial statements. Readers are cautioned that these statements may not be appropriate for their intended purposes.

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ERDENE RESOURCE DEVELOPMENT CORPORATION

Condensed Consolidated Interim Statements of Financial Position

(Canadian dollars)

(Canadian dollars)
			September 30,		December 31,
	Notes		2021		2020
Assets
Cash and cash equivalents		$	4,759,760	$	12,800,728
Receivables			42,104		89,344
Prepaids			899,331		212,479
Current assets			5,701,195		13,102,551
Exploration and evaluation assets	4		36,223,563		29,364,155
Right-of-use asset	5		85,665		107,693
Property, plant and equipment			308,244		239,431
Non-current assets			36,617,472		29,711,279
Total Assets		$	42,318,667	$	42,813,830
Liabilities and Equity
Trade and other payables		$	894,580	$	582,356
Leaseliability	5		29,481		27,853
Current liabilities			924,061		610,209
Leaseliability	5		63,380		85,699
Non-current liabilities			63,380		85,699
Total Liabilities			987,441		695,908
Shareholders' Equity
Share capital	8	$	138,986,768	$	136,618,086
Contributed surplus			26,617,048		25,937,667
Accumulated other comprehensive loss			(2,968,021)		(2,964,666)
Deficit			(121,304,569)		(117,473,165)
Total Shareholders' Equity			41,331,226		42,117,922
Total Liabilities and Equity		$	42,318,667	$	42,813,830

Commitments (Note 6) Subsequent Events (Note 13)

The accompanying notes are an integral part of these condensed consolidated interim financial statements. Approved on behalf of the Board:

Signed “John P. Byrne”

_________ Director

Signed “T. Layton Croft” _________ Director

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ERDENE RESOURCE DEVELOPMENT CORPORATION

Condensed Consolidated Interim Statements of Comprehensive Loss

(Canadian dollars)

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For the three months ended For the nine months ended
September 30, September 30,
Notes 2021 2020 2021 2020
Operating Expenses
Exploration and evaluation 9 $ 1,365,839 $ 787,182 $ 2,248,744 $ 1,098,423
Corporate and administration 10 565,092 869,876 1,594,223 1,595,933
Loss from operating activities 1,930,931 1,657,058 3,842,967 2,694,356
Finance income (10,957) (18,940) (47,565) (36,279)
Interest expense 1,602 498,035 5,200 1,612,296
Change in fair value of financial instrument 7 - 2,030,963 - 7,595,661
Foreign exchange loss (gain) 14,222 (295,776) 30,802 (274,720)
Net Loss $ 1,935,798 $ 3,871,340 $ 3,831,404 $ 11,591,314
Other comprehensive loss (income):
Foreign currency translation difference
arising on translation of foreign subsidiaries (452,098) 481,603 3,355 355,110
Other comprehensive loss (income) (452,098) 481,603 3,355 355,110
Total comprehensive loss $ 1,483,700 $ 4,352,943 $ 3,834,759 $ 11,946,424
Basic and diluted loss per share $ 0.01 $ 0.02 $ 0.01 $ 0.06
Basic weighted average number
of shares outstanding 274,300,800 216,697,893 270,627,645 200,219,907
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The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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ERDENE RESOURCE DEVELOPMENT CORPORATION

Condensed Consolidated Interim Statements of Changes in Equity (Canadian dollars)

(Canadian dollars)
							Accumulated other
	Notes	Number of shares		Share capital	Contributed surplus		comprehensive loss			Deficit		Total equity
Balance at January 1, 2020		191,068,490	$	109,466,565	$	16,829,920	$	(1,958,616)	$	(104,356,807)	$	19,981,062
Total comprehensive loss for the period:
Net loss		-		-		-		-		(11,591,314)		(11,591,314)
Other comprehensive income		-		-		-		(355,110)		-		(355,110)
Private placements, net of share issue costs		44,444,441		10,729,388		8,206,644		-		-		18,936,032
Options exercised		1,520,000		359,010		(119,510)						239,500
Issue of shares from DSU plan		719,212		132,964		(132,964)						-
Share-based compensation		-		-		1,130,758						1,130,758
Total transactions with owners		46,683,653		11,221,362		9,084,928		-		-		20,306,290
Balance at September 30, 2020		237,752,143	$	120,687,927	$	25,914,848	$	(2,313,726)	$	(115,948,121)	$	28,340,928
Balance at January 1, 2021		268,450,433	$	136,618,086	$	25,937,667	$	(2,964,666)	$	(117,473,165)	$	42,117,922
Total comprehensive loss for the period:
Net loss		-		-		-		-		(3,831,404)		(3,831,404)
Other comprehensive loss		-		-		-		(3,355)		-		(3,355)
Options exercised	8	900,000		492,275		(173,875)						318,400
Warrants exercised	8	5,803,750		1,876,407		(135,282)						1,741,125
Share-based compensation	8	-		-		988,538		-		-		988,538
Total transactions with owners		6,703,750		2,368,682		679,381		-		-		3,048,063
Balance at September 30, 2021		275,154,183	$	138,986,768	$	26,617,048	$	(2,968,021)	$	(121,304,569)	$	41,331,226

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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ERDENE RESOURCE DEVELOPMENT CORPORATION

Condensed Consolidated Interim Statements of Cash Flows

(Canadian dollars)

(Canadian dollars)
		For the three months ended			For the nine months ended
		September		30,	September		30,
	Notes	2021		2020	2021		2020
Cash flows from operating activities:
Net loss	$	(1,935,798)	$	(3,871,340)	(3,831,404)	$	(11,591,314)
Items not involving cash:
Depreciation and amortization		17,904		12,571	51,618		38,540
Share-based compensation		298,375		933,071	988,538		1,130,758
Finance income		(10,957)		(18,940)	(47,565)		(36,279)
Interest expense capitalized	7	-		495,906	-		1,605,512
Foreign exchange not related to cash		14,222		(178,355)	30,802		(230,182)
Fair value change on convertible loan	7	-		1,913,542	-		7,551,123
Change in non-cash workingcapital		(138,892)		(82,814)	(328,935)		383,057
Cash flows from operatingactivities		(1,755,146)		(796,359)	(3,136,946)		(1,148,785)
Cash flows from financing activities:
Issue of common shares, net of issue costs		-		18,936,032	-		18,936,032
Proceeds on exercise of stock options		-		67,000	318,400		239,500
Proceeds on exercise of warrants		1,222,875		-	1,741,125		-
Repayment of lease liability		(7,029)		(6,492)	(20,691)		(19,066)
Cash flows from financingactivities		1,215,846		18,996,540	2,038,834		19,156,466
Cash flows from investing activities:
Expenditures on exploration and evaluation assets	4	(2,135,342)		(2,760,039)	(6,871,310)		(5,997,230)
Expenditures on property, plant and equipment (Net)		(63,486)		(161,073)	(99,127)		(165,192)
Interest received		10,957		18,940	47,565		36,279
Cash flows from investingactivities		(2,187,871)		(2,902,172)	(6,922,872)		(6,126,143)
Effect of exchange rate changes on cash balances		(12,545)		(5,547)	(19,984)		219,414
Decrease in cash and cash equivalents		(2,739,716)		15,292,462	(8,040,968)		12,100,952
Cash and cash equivalents,beginningofperiod		7,499,476		1,915,353	12,800,728		5,106,863
Cash and cash equivalents, end of period	$	4,759,760	$	17,207,815	4,759,760	$	17,207,815

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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ERDENE RESOURCE DEVELOPMENT CORPORATION Notes to Condensed Consolidated Interim Financial Statements (Canadian dollars) (Unaudited)

For the three and nine months ended September 30, 2021, and 2020

1. Nature of operations:

Erdene Resource Development Corporation (“Erdene” or the “Corporation”) is a Canadian based resource company focused on the exploration and development of precious and base metal deposits in Mongolia. The Corporation’s common shares are listed on the Toronto Stock Exchange under the symbol "ERD" and the Mongolian Stock Exchange under the symbol “ERDN”. The address of the Corporation’s registered office is 1300-1969 Upper Water Street, Halifax, Nova Scotia, B3J 2V1.

Erdene is a late exploration stage business focusing on the acquisition, exploration and development of gold and other precious and base metal properties in southwest Mongolia. Currently, the Corporation’s principal development is the Bayan Khundii Gold Project, located in Bayankhongor province in Mongolia.

In August 2020, Erdene completed a Feasibility Study for its Bayan Khundii Gold Project, titled “Bayan Khundii Gold Project Feasibility Study, NI 43-101 Technical Report”. The continued operations of the Corporation and the recoverability of the amounts capitalized for mineral properties is dependent upon the existence of economically recoverable reserves, the ability of the Corporation to obtain the necessary financing to complete the exploration and development of such properties and upon future profitable production or proceeds from the disposition of one or more of the properties.

COVID-19

On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The outbreak and efforts to contain it have had a significant effect on commodity prices and global capital markets. The Corporation adopted certain operating and preventative procedures in response to COVID-19, and associated restrictions implemented by the Government of Mongolia, including remote working, travel restrictions, and increased sanitation. As a result, the Corporation has been able to continue operating safely during the pandemic. Notwithstanding the proactive and considered actions taken to maintain a safe workplace, it is possible that in the future there will be negative impacts on operations that could have a material adverse effect on the Corporation’s results of operations and financial position. The Corporation had $4,777,134 in working capital at September 30, 2021, which along with the proceeds of the recently closed Mongolian Stock Exchange financing (see note 13), is sufficient to meet to meet the Corporation’s minimum obligations for a period of at least 12 months from the balance sheet date.

2. Basis of presentation

These unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2021 (the “Interim Financial Statements”) have been prepared in accordance with IAS 34 – Interim Financial Reporting. The Interim Financial Statements should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 2020 (“Annual Financial Statements”), which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).

These unaudited condensed consolidated interim financial statements were authorized for issue on behalf of the Board of Directors on November 9, 2021.

3. Seasonality

The corporation’s business experiences a seasonal pattern in which exploration expenditures and investments in exploration and evaluation assets are concentrated in the second and third quarters of the year due to weather conditions in Mongolia.

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ERDENE RESOURCE DEVELOPMENT CORPORATION Notes to Condensed Consolidated Interim Financial Statements (Canadian dollars) (Unaudited)

For the three and nine months ended September 30, 2021, and 2020

4. Exploration and evaluation assets

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Bayan Khundii Altan Nar Zuun Mod Ulaan & Other Total
Balance, January 1, 2020 $ 16,164,725 $ 3,561,166 $ 828,799 $ 928,827 $ 21,483,517
Additions 7,436,420 391,875 64,512 980,554 8,873,361
Effect of movements in exchange rates (750,939) (125,774) (55,030) (60,980) (992,723)
Balance, December 31, 2020 $ 22,850,206 $ 3,827,267 $ 838,281 $ 1,848,401 $ 29,364,155
Balance, January 1, 2021 $ 22,850,206 $ 3,827,267 $ 838,281 $ 1,848,401 $ 29,364,155
Additions 6,371,969 385,029 105,693 8,619 6,871,310
Effect of movements in exchange rates (9,418) (1,358) (521) (605) (11,902)
Balance, September 30, 2021 $ 29,212,757 $ 4,210,938 $ 943,453 $ 1,856,415 $ 36,223,563
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The Corporation’s mineral exploration and mining licenses in Mongolia are held by its subsidiaries, Erdene Mongol LLC, Anian Resources LLC and Leader Exploration LLC. Mineral exploration licenses are valid for a period of three years and, through renewals, can be extended to a maximum of twelve years, subject to minimum work requirements. Mining licenses are issued for an initial term of 30 years with two 20-year extensions possible. These rights are held in good standing through the payment of an annual license fee.

Bayan Khundii Gold Project

The Bayan Khundii Gold Project is located in Bayankhongor province in Mongolia and is comprised of the 2,309 hectare Khundii mining license, issued in August 2019, from the Mineral Resource and Petroleum Authority of Mongolia, through the conversion of a portion of its legacy Khundii exploration license. The Khundii mining license includes the Bayan Khundii Resources and Reserves reported in “Bayan Khundii Gold Project Feasibility Study NI 43-101 Technical Report”, dated August 31, 2020, and prepared by Roma Oil and Mining Associates Limited. The Corporation is currently completing construction readiness activities on the project in advance of a decision to proceed to construction, anticipated in early 2022.

Additionally, the mining license includes Erdene’s highly prospective Altan Arrow, Dark Horse, Khundii North and Khundii West targets. On July 1, 2016, the Corporation began capitalizing exploration costs on the property in accordance with its capitalization policy.

Altan Nar Gold Project

The Altan Nar Gold Project is located in Bayankhongor province in Mongolia, approximately 16km north of Erdene’s Bayan Khundii Gold Project. Erdene received the 4,669 hectare Altan Nar mining license including the Altan Nar gold, silver, lead and zinc resource, on March 5, 2020, from the Mineral Resource and Petroleum Authority of Mongolia, through the conversion of its legacy Tsenkher Nomin exploration license. On January 1, 2015, having received the initial resource estimate for the Altan Nar prospect, the Corporation began capitalizing exploration costs on the property in accordance with its capitalization policy. Prior to 2015, the Corporation only capitalized licensing costs associated with Altan Nar.

Zuun Mod Copper & Molybdenum Resource

The Zuun Mod property is located in Bayankhongor province in Mongolia and is comprised of a 6,041 hectare molybdenum-copper Mining License. The mining license was issued in 2011. The Zuun Mod molybdenumcopper deposit has significant potential for development provided the molybdenum price improves. The Corporation will continue to evaluate its options in light of technological and market factors.

Ulaan & Other

The Ulaan exploration license covers an area of approximately 1,780 hectares, situated immediately adjacent to the Khundii mining license. The exploration license is in its seventh year of a maximum 12-year term and can be converted to a mining license at any time prior to the end of the twelfth year by meeting the requirements

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ERDENE RESOURCE DEVELOPMENT CORPORATION Notes to Condensed Consolidated Interim Financial Statements (Canadian dollars) (Unaudited)

For the three and nine months ended September 30, 2021, and 2020

4. Exploration and evaluation assets (continued)

prescribed under the Minerals Law of Mongolia. On August 30, 2017, Erdene acquired 51% of the outstanding shares of Leader Exploration LLC, a private Mongolian company that holds the license. Erdene evaluated the acquisition considering IFRS 3, Business Combinations, and concluded that the transaction constituted the acquisition of a collection of assets, not a business. On December 10, 2020, Erdene acquired an 100% interest in the Ulaan exploration license with the purchase of the remaining 49% interest in Leader Exploration LLC for US$750,000.

The Corporation maintains an exploration license for 2,205 hectares of the legacy Khundii exploration license that were not converted to a mining license in 2019. This exploration license is in its twelfth year of a maximum 12-year term and can be converted to a mining license at any time prior to the end of the twelfth year by meeting the requirements prescribed under the Minerals Law of Mongolia.

5. Leases

The Company entered a five-year lease for its head office, with an effective date of September 1, 2019. The lease is reflected on the balance sheet as a right-of-use asset, with an associated lease liability. The discount rate applied to the lease is 7%.

Additional information on the right-of-use asset is as follows:

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Balance, January 1, 2020 $ 137,064
Additions -
Depreciation (29,371)
Balance, December 31, 2020 $ 107,693
Balance, January 1, 2021 $ 107,693
Additions -
Depreciation (22,028)
Balance, September 30, 2021 $ 85,665
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The maturity analysis of the office lease liability at September 30, 2021, is as follows:

	Within 1year	Within 1year	1 -	2years	2 -	3years		Total
Lease payments	$	34,564	$	35,037	$	32,117	$	101,718
Finance charges		(5,083)		(2,952)		(822)		(8,857)
Total Lease liability	$	29,481	$	32,085	$	31,295	$	92,861

The Corporation also has leases for office space and staff accommodation in Mongolia that expire within the next 12 months. The Corporation has elected not to apply the requirements of IFRS 16 to these payments and the Corporation expenses lease payments for these facilities as incurred.

6. Commitments

Sandstorm Gold Ltd. (“Sandstorm”) holds a 1% net smelter returns royalty (“NSR Royalty”) on Erdene’s Altan Nar, Khundii and Ulaan licenses. Sandstorm has been given a right of first refusal on future stream or royalty financings related to these licenses.

The Zuun Mod License is subject to a 1.5% NSR Royalty. Erdene has the option to buy down a portion of the royalty if certain production milestones are achieved.

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ERDENE RESOURCE DEVELOPMENT CORPORATION Notes to Condensed Consolidated Interim Financial Statements (Canadian dollars) (Unaudited)

For the three and nine months ended September 30, 2021, and 2020

7. Convertible Loan

On October 11, 2019, Erdene executed a US$5 million (C$6.6 million) Convertible Loan (“Loan”) with the European Bank for Reconstruction and Development (“EBRD”). The Loan was funded by way of an initial advance of US$2.5 million on November 4, 2019, and a second advance of US$2.5 million on November 25, 2019.

On October 9, 2020, the EBRD exercised its conversion option in respect of the entire principal amount of the Convertible Loan, receiving 30,043,290 common shares of the Corporation. Additionally, the Corporation paid cash interest of US$457,639 to the EBRD, accrued to the date of extinguishment of the Loan. The carrying amount of the host liability of $5,429,703 and the fair value of the conversion option of $10,339,232, at the conversion date, were recorded as additions to share capital with the extinguishment of the liabilities.

Key terms of the Loan included:

• Principal amount of US$5.0 million

• Coupon rate of 10% payable in cash, or capitalized, at the Corporation’s option, annually

• The Loan was convertible, in whole or in part, at the election of the EBRD, into common shares of the Corporation at a conversion price (in respect of the principal amount drawn down under the Loan) of C$0.20 per share, subject to a conversion premium of 10%, 20% or 30%, respectively, if EBRD exercised its conversion option prior to or on the first, second, or third anniversary, respectively, of the date of the Loan Agreement

• Any capitalized interest on the date of the conversion was payable, at EBRD’s option, in cash or shares of the Corporation at the prevailing market price of the common shares of the Corporation (5-day Volume Weighted Average Price)

For accounting purposes, the Loan represented a hybrid financial instrument, consisting of a host loan obligation, and embedded derivative instruments comprised of the conversion and prepayment features of the Loan. The Corporation accounted for the host loan obligation at amortized cost, accreted to maturity over the term of the Loan. The embedded conversion and prepayment options were accounted for as financial liabilities measured at fair value through profit or loss.

At the dates of issue, the Loan and its components were measured at fair value as follows:

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Host liability $ 4,505,902
Conversion and prepayment options 2,106,123
Financing costs (254,262)
Net proceeds from issue $ 6,357,763
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The following table summarizes the continuity of the host liability component of the loan for the nine months ended September 30, 2021, and 2020:

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2021 2020
-
Balance, January 1 $ $ 4,333,370
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Balance, January 1	$	-	$	4,333,370
Interest expense, capitalized		-		845,166
Accretion of discount		-		760,346
Effect of movementinexchangerates		-		51,456
Balance,September 30	$	-	$	5,990,338

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ERDENE RESOURCE DEVELOPMENT CORPORATION Notes to Condensed Consolidated Interim Financial Statements (Canadian dollars) (Unaudited)

For the three and nine months ended September 30, 2021, and 2020

7. Convertible Loan (continued)

The following table summarizes the continuity of the conversion option component of the loan for the nine months ended September 30, 2021, and 2020:

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2021 2020
-
Balance, January 1 $ $ 1,927,151
Fair value adjustment - 7,499,666
-
Balance, September 30 $ $ 9,426,817
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The fair value of the conversion option was determined using a binomial option valuation model, using the following key assumptions:

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Nine Months Ended Nine Months Ended
September 30, 2021 Septemebr 30, 2020
Expected volatility n/a 75%
Risk-free interest rate n/a 0.3%
Conversion option term n/a 2.0 years
Credit spread n/a 24.8%
Underlying share price n/a $ 0.460
Exchange rate (C$:US$) n/a 0.752
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8. Share Capital and Contributed Surplus

Authorized

An unlimited number of common shares with no par value.

Deferred Share Units

In 2013, the Corporation adopted a deferred share unit (“DSU”) plan to align the long-term incentive compensation of certain officers, directors and employees with the drivers of long-term shareholder value. Under the Erdene DSU plan, the Corporation may grant DSUs to eligible plan members in such number and at such times as is determined by the Board of Directors as a bonus or in respect of services rendered by the plan member or otherwise as compensation. On the grant date, DSUs vest immediately and plan members are credited with the DSUs granted to them. Upon termination or death of the plan member, the Corporation pays the then market value of the plan member’s shares either in cash or in shares, at the sole discretion of the Corporation. Since the type of payout is at the discretion of the Corporation, and the Corporation does not intend to cash settle awards under the plan, the plan is accounted for as an equity settled plan.

During the nine months ended September 30, 2021, the Corporation granted 893,504 DSUs with an average fair value of $0.38 per DSU (2020 – 991,950 DSUs with fair value of $0.33 per DSU). The fair value of $339,664 (2020 – $328,708) was charged to share based compensation included in exploration expenses and corporate and administration expenses.

and administration expenses.
	Nine Months Ended	Nine Months Ended
	September 30, 2021	September 30, 2020
Five day volume weighted average price at grant date	0.38 $	0.33 $

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ERDENE RESOURCE DEVELOPMENT CORPORATION Notes to Condensed Consolidated Interim Financial Statements (Canadian dollars) (Unaudited)

For the three and nine months ended September 30, 2021, and 2020

8. Share Capital and Contributed Surplus (continued)

The following table summarizes the continuity of DSUs for the nine months ended September 30, 2021, and 2020:

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2021 2020
Number of DSUs Number of DSUs
Outstanding at January 1 5,032,836 4,636,850
Granted 893,504 991,950
Issued - (719,212)
Outstanding at September 30 5,926,340 4,909,588
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Warrants

The following table summarizes the continuity of warrants for the nine months ended September 30, 2021, and 2020:

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2021 2020
Weighted Weighted
Number of average Number of average
warrants exercise price warrants exercise price
Outstanding at January 1 75,097,796 $ 0.55 30,252,744 $ 0.49
Issued - - 44,845,052 0.60
Exercised (5,803,750) 0.30 - -
Expired (22,707,994) 0.55 - -
Outstanding at September 30 46,586,052 $ 0.59 75,097,796 $ 0.55
Exercisable at September 30 46,586,052 $ 0.59 75,097,796 $ 0.55
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The remaining contractual lives of warrants outstanding at September 30, 2021, are as follows:

		Weighted average
		remaining
	Number of warrants	contractual life
Exerciseprice	outstanding	(years)
$0.30	1,741,000	0.10
$0.60	44,845,052	0.86
	46,586,052	0.83

Stock options

The Corporation has a rolling 10% incentive stock option plan (the “Plan”) under which options to purchase common shares of the Corporation may be granted to directors, officers, employees and consultants of the Corporation. Under the Plan, the terms and conditions of each grant of options are determined by the Board of Directors. If there are no terms specified upon grant, options vest immediately on the grant date. The number of common shares subject to options granted under the Plan is limited to 10% of the issued and outstanding common shares of the Corporation and no one person may receive in excess of 5% of the outstanding common shares of the Corporation at the time of grant (on a non-diluted basis).

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ERDENE RESOURCE DEVELOPMENT CORPORATION Notes to Condensed Consolidated Interim Financial Statements (Canadian dollars) (Unaudited)

For the three and nine months ended September 30, 2021, and 2020

8. Share Capital and Contributed Surplus (continued)

During the nine months ended September 30, 2021, 3,825,000 options were granted at a weighted average exercise price of $0.38.

The changes in stock options during the nine months ended September 30, 2021, and 2020 were as follows:

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2021 2020
Weighted average Weighted average
Number of options exercise price Number of options exercise price
Outstanding at January 1 13,790,000 $ 0.46 12,305,000 $ 0.41
Granted 3,825,000 0.38 550,000 0.22
Expired/Surrendered (960,000) 0.36 (250,000) 0.20
Exercised (900,000) 0.35 (1,150,000) 0.15
Outstanding at September 30 15,755,000 $ 0.45 11,455,000 $ 0.43
Exercisable at September 30 15,755,000 $ 0.45 11,455,000 $ 0.43
The remaining contractual lives of options outstanding at September 30, 2021, are as follows:
Weighted average
Weighted average
remaining
exercise price of
Number of options contractual life
exercisable options
Range of prices exercisable (years)
$0.18 - $0.24 2,845,000 2.91 $ 0.20
$0.25 - $0.49 10,265,000 3.57 0.42
$0.50 - $0.89 2,645,000 0.53 0.86
15,755,000 2.94 $ 0.45
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Share-Based Compensation

For the nine months ended September 30, 2021, the Corporation charged a total of $988,538 of stock-based compensation expense to the statements of comprehensive loss (2020 – $1,130,758) of which $419,635 is attributable to exploration expenses (2020 – $515,398).

9. Exploration and evaluation expenses

The following table summarizes exploration and evaluation expenses for the three and nine months ended September 30, 2021, and 2020:

		For the three months ended	For the three months ended	September 30,	For	the nine months	ended	September 30,
		2021		2020		2021		2020
Depreciation & amortization	$	8,540	$	3,196	$	23,709	$	10,577
Direct costs		1,028,533		177,045		1,473,168		325,967
Employee compensation costs		198,901		112,441		332,232		246,481
Share-based compensation		129,865		494,500		419,635		515,398
	$	1,365,839	$	787,182	$	2,248,744	$	1,098,423

Erdene Resource Development Corp. | Condensed Consolidated Interim Financial Statements | 13

ERDENE RESOURCE DEVELOPMENT CORPORATION Notes to Condensed Consolidated Interim Financial Statements (Canadian dollars) (Unaudited)

For the three and nine months ended September 30, 2021, and 2020

10. Corporate and administration expenses

The following table summarizes corporate and administration expenses for the three and nine months ended September 30, 2021, and 2020.

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For the three months ended September 30, For the nine months ended September 30,
2021 2020 2021 2020
Administrative services $ 209,109 $ 179,446 $ 412,938 $ 360,339
Depreciation and amortization 9,369 9,139 27,905 27,716
Directors fees and expenses 29,458 1,180 80,381 45,763
Investor relations and marketing 54,702 59,959 169,176 146,358
Office and sundry 22,570 21,662 70,218 62,067
Professional fees 57,172 138,412 184,492 246,269
Regulatory compliance 12,925 19,986 77,622 84,373
Share-based compensation 168,510 438,571 568,903 615,360
Travel and accommodations 1,277 1,521 2,588 7,688
$ 565,092 $ 869,876 $ 1,594,223 $ 1,595,933
11. Financial instruments
Credit Risk:
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to
credit risk at the reporting date was:
Carrying Amount
September 30, December 31,
2021 2020
Cash and cash equivalents $ 4,759,760 $ 12,800,728
Receivables 42,104 89,344
$ 4,801,864 $ 12,890,072
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11. Financial instruments

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

The Corporation manages credit risk by holding the majority of its cash and cash equivalents with high quality financial institutions in Canada, where management believes the risk of loss to be low. At September 30, 2021, $492,090 or 10% of the balance of cash was held in banks outside Canada (December 31, 2020 - $133,130 or 1%).

Liquidity Risk:

Liquidity risk is the risk that the Corporation will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Corporation’s approach to managing liquidity is to ensure, to the extent possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions.

Market Risk:

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices.

Erdene Resource Development Corp. | Condensed Consolidated Interim Financial Statements | 14

ERDENE RESOURCE DEVELOPMENT CORPORATION Notes to Condensed Consolidated Interim Financial Statements (Canadian dollars) (Unaudited)

For the three and nine months ended September 30, 2021, and 2020

11. Financial instruments (continued)

a) Interest rate risk

As of September 30, 2021, the Corporation has no interest-bearing debt and is therefore not exposed to significant interest rate risk.

b) Foreign currency risk

The functional currency of the Corporation is the Canadian dollar, and the functional currency of the Corporation’s subsidiaries is the Mongolian tugrik. Additionally, the Corporation incurs expenses and has received financing in US dollars. Consequently, fluctuations of the Canadian dollar in relation to other currencies impacts the fair value of financial assets, liabilities and operating results. Financial assets and liabilities subject to currency translation risk primarily include US dollar denominated cash, accounts payable and accrued liabilities, as well as Mongolian tugrik denominated cash, accounts payable and accrued liabilities. The Corporation maintains Canadian and US dollar bank accounts in Canada.

The Corporation’s exposure to US dollar currency risk was as follows:

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September 30, December 31,
2021 2020
Cash and cash equivalents $ 500,421 $ 292,895
Trade and other payables (222,102) (223,503)
$ 278,319 $ 69,392
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A 10% change in the US dollar exchange rate would affect net and comprehensive loss and deficit by approximately $27,800 (December 31, 2020 - $6,900).

The Corporation’s exposure to Mongolian Tugrik currency risk was as follows:

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September 30, December 31,
2021 2020
Cash and cash equivalents $ 43,620 $ 889
Trade and other receivables 9,909 5,460
Trade and other payables (398,300) (87,043)
$ (344,771) $ (80,694)
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A 10% change in the Mongolian Tugrik exchange rate would affect net and comprehensive loss and deficit by approximately $34,500 (December 31, 2020 - $8,100).

c) Price risk

The Corporation’s financial instruments are not exposed to direct price risk other than that associated with commodity price fluctuations impacting the mineral exploration and mining industries as the Corporation has no significant revenues.

Fair Value:

Assets and liabilities measured at fair value in the consolidated statements of financial position, or disclosed in the notes to the financial statements, are categorized using a fair value hierarchy that reflects the significance of the inputs used in determining the fair values:

Erdene Resource Development Corp. | Condensed Consolidated Interim Financial Statements | 15

ERDENE RESOURCE DEVELOPMENT CORPORATION Notes to Condensed Consolidated Interim Financial Statements (Canadian dollars) (Unaudited)

For the three and nine months ended September 30, 2021, and 2020

11. Financial instruments (continued)

• a) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

• b) Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• c) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value hierarchy of assets and liabilities measured at fair value on the consolidated statements of financial position or disclosed in the notes to the financial statements is as follows:

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September 30, 2021 December 31, 2020
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets and liabilities measured at fair value:
- - - -
Cash and cash equivalents $ 4,759,760 $ $ $ 12,800,728 $ $
Receivables - 42,104 - - 89,344 -
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12. Related Parties

The Corporation has defined key management personnel as senior executive officers, as well as the Board of Directors. The total remuneration of key management personnel and the Board of Directors was as follows:

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Nine months ended September 30,
2021 2020
Directors' fees $ 92,663 $ 39,699
Share-based compensation to directors 247,000 408,600
Executive compensation and benefits 989,498 903,022
Share-based compensation to key management 270,869 370,956
$ 1,600,030 $ 1,722,277
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13. Subsequent Events

On October 12, 2021, Erdene closed an over-subscribed private placement offering of Common Shares on the Mongolia Stock Exchange (”MSE”) for gross proceeds of approximately US$5 million from 1,867 institutional and private Mongolian investors. Pursuant to the offering, the Company issued 17,484,662 common shares at a price of MNT815 (C$0.36) per share. The Company paid a cash commission of 7% of the gross proceeds to the underwriters of the offering.

Subsequent to period end, 1,593,500 warrants were exercised for proceeds $478,050.

Erdene Resource Development Corp. | Condensed Consolidated Interim Financial Statements | 16