FireFox Gold Corp. — Management Reports 2026

Feb 9, 2026

{0}------------------------------------------------

Xanadu Mines Ltd

Management's Discussion and Analysis

For the year ended December 31, 2019 Dated as of April 2, 2020

Note to Reader:

This MD&A amends and restates and supersedes, the Company's MD&A filed on April 2, 2020. This MD&A provides additional disclosure on page 5 under the heading 'Mineral Resources', and on page 10 under the heading 'Resource reporting governance arrangements', on the request of the ASX. For this reason, the April 2, 2020 MD&A should not be relied upon and readers should refer only to the April 3, 2020 document.

{1}------------------------------------------------

For the year ended December 31, 2019

General

This Management Discussion and Analysis (MD&A) is current to April 2, 2020 and is Management's assessment of the operations and the financial results together with future prospects of Xanadu Mines. This MD&A should be read in conjunction with the Company's audited consolidated financialstatements for the years ended December 31, 2019 and 2018 and notes thereto, prepared in accordance with International Financial Reporting Standards (IFRS). Management is responsible for the preparation of the financial statements and this MD&A.

All dollar figures in this MD&A are expressed in Australian dollars (\$) unless stated otherwise.

This MD&A contains forward-looking statements and should be read in conjunction with the risk factors described in the "Risks and Uncertainties" and the "Cautionary Note Regarding Forward-Looking Information" sections at the end of this MD&A.

Additional information relating to the Company, including the Company's most recent financial reports, are available on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com, on the ASX Announcements platform under the Company's code XAM and on the Company's website at www.xanadumines.com.

The information in this MD&A relating to the broader Kharmagtai project is supported by the technical report titled Independent Technical Report on the Kharmagtai Property, Mongolia prepared by Andrew Vigar and Rod Graham of Mining Associates Limited, dated June 8, 2018.

The information in this MD&A that relates to exploration results is based on information compiled by Dr Andrew Stewart who is responsible for the exploration data, comments on exploration target sizes, QA/QC and geological interpretation and information. Dr Stewart, who is an employee of Xanadu and is a Member of the Australian Institute of Geoscientists, has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as the "Competent Person" as defined in the 2012 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves" and the National Instrument 43-101. Dr Stewart consents to the inclusion in the report of the matters based on this information in the form and context in which it appears.

Forward-looking statements

This MD&A contains forward-looking statements, which are based on certain assumptions and analyses made by the Company derived from its experience and perceptions. The forward-looking statements in this MD&A are subject to important risks, uncertainties, and assumptions, which are difficult to predict and which may affect the Company's operations that may include, amongst other things, statements regarding targets, estimates and assumptions in respect of mineral reserves and mineral resources and anticipated grades and recovery rates, production and prices, recovery costs and results, capital expenditures and are or may be based on assumptions and estimates related to future technical, economic, market, political, social and other conditions. These forward–looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by Xanadu, are inherently subject to significant technical, business, economic, competitive, political and social uncertainties and contingencies and involve known and unknown risks and uncertainties that could cause actual events or results to differ materially from estimated or anticipated events or results reflected in such forward-looking statements. The words believe, expect, anticipate, indicate, contemplate, target, plan, intends, continue, budget, estimate, may, will, schedule and similar expressions identify forward-looking statements. The forwardlooking statements included in this MD&A are made as of the date of this MD&A and other than as required by law, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Description of Business

Xanadu is an Australian incorporated public company with its shares listed on the ASX and TSX under the code XAM. The principal activity of the Company (and its subsidiaries) is copper-gold exploration in Mongolia. The Company holds interests in three tenements: (a) the Kharmagtai copper-gold project; (b) the Red Mountain copper-gold project; and (c) the Yellow Mountain copper project (Figure 1).

Review of Operations

The 12 months ended 31 December 2019 have proved to be a pivotal year for Xanadu Mines. The Company controls one of the most promising porphyry copper and gold projects in Asia with Kharmagtai and has a portfolio of advanced district-scale exploration projects including Red Mountain and Yellow Mountain (Figure 1).

{2}------------------------------------------------

FIGURE 1: Location of Xanadu's copper-gold projects, within Mongolia's highly mineralised and vastly underexplored mineral belts. The resource figure above (598 million tonnes (Mt)) includes both indicated (129.3Mt) and inferred (468.9Mt) resource categories. Both at the same 0.3eCu cut-off grade (refer to Xanadu's ASX/TSX Announcement dated October 31, 2018).

The planned exploration programs targeted the discovery of additional copper-gold deposits on the Company's South Gobi porphyry projects at Kharmagtai and Red Mountain, where a total of 5,208 metres (m) of diamond drilling were completed during the calendar year (Figure 2).

Kharmagtai Copper-gold Project (Xanadu 76.5%)

The flagship Kharmagtai project has continued to emerge as one of the premier undeveloped copper and gold assets globally. The project is located within the Omnogovi Province, approximately 420 kilometres (km) southeast of Ulaanbaatar and 120 km north of the Rio Tinto-controlled Oyu Tolgoi deposit. Xanadu and its joint venture partner, Mongol Metals LLC, announced the acquisition of a 90% interest in the Kharmagtai porphyry copper-gold project from Turquoise Hill Resources in February 2014. Under the Mongol Metals LLC joint venture terms, Xanadu earned an 85% interest in the Kharmagtai project, equivalent to a 76.5% effective interest, by funding acquisition and exploration costs.

Exploration during 2019 focused on the dual strategy of assessing the Kharmagtai project economics via an open pit Scoping Study, updated metallurgy and assessing the opportunity for an oxide gold project, to provide funding for the larger copper gold project. Figure 2 shows the Kharmagtai license with drilling completed during 2019.

{3}------------------------------------------------

For the year ended December 31, 2019

FIGURE 2: The Kharmagtai Mining License showing known porphyry deposits, new targets and holes completed in 2019.

KHARMAGTAI OPEN PIT SCOPING STUDY

The Study was commissioned to assess the potential economics of a standalone open pit operation and concentrator exploiting the currently known Mineral Resource. It does not consider any value that may be generated using underground mining techniques, oxide gold potential (refer to Xanadu's ASX/TSX Announcement dated 20 March 2019), nor from possible resource growth from future exploration success. The project economics indicated by the study are considered encouraging and highlight Xanadu's Kharmagtai project's potential to become a robust, high-margin, rapid-payback, long-life and low-strip ratio copper-gold mine in Mongolia at 10 year average copper and gold prices.

The Scoping Study was prepared by CSA Global with input from reputable industry consultants O2 Mining Limited and the Company. Although a case exists to progress to PFS based on current resources, further exploration will enhance and could transform the project from good to great.

The Scoping Study suggests that mining could occur three pits: Stockwork Hill, Copper Hill and White Hill. These deposits have been optimised using the Lerch-Grossman algorithm and sequenced in concept as three separate pits but will ultimately resulting in two large open pits (Figure 3). The optimised open pit designs extend to a maximum vertical depth of approximately 380m and the largest final pit (Stockwork Hill and White Hill combined) would be 2.1km in length and 1.3km in width. The project concept assumes a processing facility with a notional throughput capacity of 20 million tonnes per annum (Mtpa).

The Scoping Study is based on Indicated and Inferred Mineral Resources. It should be noted there is a low level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in upgrading of that material to Indicated or Measured classification.

{4}------------------------------------------------

For the year ended December 31, 2019

The Kharmagtai open pit Scoping Study indicates there is the potential to economically extract approximately 51% of mineralisation from within the Indicated and Inferred Mineral Resources (refer to Xanadu's ASX/TSX Announcement dated 31 October 2018) using open cut mining and the material assumptions (Table 2) used in the Scoping Study. The Company notes that all three currently defined deposits are open at depth and along strike and are the subject of current and planned drilling programs.

Mineral Resources

The Mineral Resource that forms the basis of the Scoping Study is unchanged from that announced by the Company on 31 October 2018 (and presented in an NI 43-101 report lodged on SEDAR in October 2018). The Mineral Resource Estimate was reported in accordance with JORC (2012) and NI 43-101 and demonstrates that the mineralisation is robust and continuous with over 22% of the resource classified in the Indicated Mineral Resource category. Recent drilling over the last two years has significantly advanced the understanding of the deposit geology and the relationships between lithology, alteration, structure and mineralisation. Table 1 below provides a summary of the Mineral Resources as presented in the 31 October 2018 Mineral Resource report. There have been no changes to the reported Mineral Resource Estimate during the current reporting period.

Table 1. Interim Kharmagtai Mineral Resource Estimate (valid as at 31 October 2018)

Deposit	Classification	Tonnes	Grades				Contained Metal
		Mt	CuEq, %	Cu, %	Au, g/t	CuEq, Kt	Cu, Kt	Au, Koz
White Hill	Indicated	45.2	0.42	0.30	0.23	189	135	340
Stockwork Hill		74.4	0.59	0.38	0.41	441	286	972
Copper Hill		9.7	0.76	0.48	0.54	73	47	167
Total Indicated		129.3	0.54	0.36	0.36	703	468	1,479
White Hill	Inferred	412.8	0.40	0.31	0.17	1,653	1,299	2,227
Stockwork Hill		55.4	0.47	0.30	0.34	263	167	601
Copper Hill		0.7	0.39	0.31	0.16	3	2	4
Total Inferred		468.9	0.41	0.31	0.19	1,919	1,468	2,832

Notes:

• Mineral Resources are classified according to Canadian Institute of Mining (CIM) Definition Standards for Mineral Resources and Mineral Reserves (10 May 2014).
• Mineral Resources for open pit mining are estimated within the limits of an ultimate pit shell. Mineral Resources for underground mining are estimated outside the limits of ultimate pit shell.
• A cut-off grade of 0.3% CuEq has been applied for open pit mineral resources.
• A cut-off grade of 0.5% CuEq has been applied for underground mineral resources.
• Dry bulk density values of 2.65 t/m3 for oxide zones; 2.76, 2.74, 2.73 and 2.71 t/m3 for country rocks, 2.78, 2.80, 2.77, 2.81 and 2.76 t/m3 for porphyries and 2.76 t/m3 for andesite dyke were used for the model cells.
• CuEq was calculated using conversion factor 0.62097 for gold. Metal prices were US\$3.1 /lb for copper and US\$1320 /oz for gold, recoveries – 70% for gold and 85% for copper (82.35% relative gold to copper recovery), copper equivalent formula applied: CuEq = Cu + Au * 0.62097 * 0.8235.
• Rows and columns may not add up exactly due to rounding.

{5}------------------------------------------------

FIGURE 3: Open Pit design from 2019 Scoping Study (colour coded by phase).

{6}------------------------------------------------

For the year ended December 31, 2019

Table 2: Key Scoping Study Input Assumptions

Parameters	Units	Estimated Values
Processing
Maximum processing constraint	Mtpa	20
Metal Recovery
Copper (average)	%	86.6
Gold (average)	%	70.9
Concentrate transport cost	US\$/tonne	25
Payablity Copper (Cu)	%	96
Payability Gold (Au)	%	90
Smelting Charge Cu	US\$/dry metric tonne (dmt)	90
Refining Charge Au	US\$/Payable Oz	5
Preproduction Capital Cost Estimates
Open pit mining capital (mining fleet, pre-strip)	US\$ million	115
Surface Infrastructure (camp, workshop, power, magazine, water, tailings)	US\$ million	61
Processing	US\$ million	209
Indirects (owner cost, Engineering, Procurement and Construction Management (EPCM)	US\$ million	44
Contingency	US\$ million	55
Total Initial Capital	US\$ million	484
Sustaining Capital	US\$ million	194
Environmental	US\$ million	5
Total Capital	US\$ million	683

NOTES:

• 1. Estimates are based upon the Kharmagtai open pit mining operations only. The Scoping Study excludes the production potential from the Zara copper-gold deposit, Golden Eagle Oxide, underground sources of mineable material, and further near surface open pit resources.
• 1. Estimates presented in Table 1 are on the basis of a 100% project interest. Xanadu holds a 76% participating interest in the project through a contractual joint venture.
• 1. The Mineral Resource Estimate reported in accordance with JORC Code 2012 and NI 43-101 and announced by the Company on 31 October 2018, forms the basis of the mining and financial estimates referred to in the Announcement.
• 1. Technical and economic estimates in the Scoping Study are based on low level technical and economic assessments (+/- 35% accuracy) that are not sufficient to support the estimation of Ore Reserves.

IMPROVED METALLURGY FOR KHARMAGTAI COPPER-GOLD PROJECT

Additional metallurgical testing has been completed on the Kharmagtai project. This work was conducted at SGS Canada Inc. in Vancouver, British Columbia (SGS) under the direction of David Middleditch and Andy Holloway of AGP Mining Consultants Inc. (AGP) (Toronto, Canada). New composites, three domain composites and nine variability composites were selected by Xanadu geologists with input from AGP personnel to represent the main geological and alteration domains within the open pit portion of the three existing deposits and to be representative of material in the 2018 Mineral Resource Estimate.

Copper and gold recoveries average 89.5% and 69.7% respectively for the two main master composites, ranging from 89.3% to 89.7% for copper and 60.8% to 78.7% for gold. Copper concentrates graded at an average of 25.2% Cu and 26.5g/t Au and ranged from 24.8 to 25.6% Cu and 21.5 to 30.0g/t Au.

{7}------------------------------------------------

For the year ended December 31, 2019

The 2019 metallurgical test program was designed to improve upon metallurgical assumptions in the 2018 Mineral Resource Estimate (see Xanadu's ASX/TSX announcement dated 31 October 2018) and 2019 Scoping Study (see Xanadu's ASX/TSX announcement dated 11 April 2019). Three domain composites and nine variability composites were selected to represent the main geometallurgical domains within the open pits designed during the 2018 Mineral Resource Estimate.

Each composite was run using the same base parameters as the 2008 metallurgical tests as a starting point. Selected composites were then optimised for the effect of primary grind and changes to cleaner parameters, flotation times and additive dosages. Locked cycle test characteristics for the two major alteration domains (Albite and Chlorite-Sericite) which represent around 80% of the mill feed from the 2018 MRE and 2019 Scoping Study can be found in Table 2.

2019 samples were selected from all three deposits with variability domains within each deposit defined by a geometallurgical model developed to represent the key rock type and alteration types.

Full details of this metallurgical work can be found in Xanadu's ASX/TSX announcement dated 19 December 2019.

Table 2: Locked cycle test results for the two main master composites at Kharmagtai

Test	Products	Wt. % Assays, g/t, %			Distribution, %
			Cu	Fe	Au	S	Cu	Fe	Au	S
Alb MC-LCT1	3rd Cleaner Con	1.0	25.57	31.60	30.04	35.80	89.7	5.4	78.7	41.2
	1st Cleaner Tailing	20.2	0.03	7.36	0.13	2.25	2.1	24.9	7.0	51.9
	Rougher Tailing	78.8	0.03	5.28	0.07	0.08	8.2	69.7	14.3	6.9
	Feed		0.29	5.97	0.39	0.88
Ser_Chl MC-LCT1	3rd Cleaner Con	1.2	24.77	21.50	21.49	34.96	89.3	5.0	60.8	14.1
	1st Cleaner Tailing	21.8	0.06	14.47	0.55	11.51	3.9	41.6	27.9	83.4
	Rougher Tailing	77.0	0.03	5.25	0.06	0.10	6.9	53.4	11.4	2.5
	Feed		0.34	7.58	0.43	3.00
Average	3rd Cleaner Con	1.1	25.2	26.5	25.8	35.4	89.5	5.2	69.7	27.7

Red Mountain Project (Xanadu 90%)

The Red Mountain copper-gold project is located in the Dornogovi Province of southern Mongolia, approximately 70km west of the future industrial centre of Sainshand. Red Mountain is a highly prospective porphyry copper-gold project. The project comprises a large and underexplored porphyry district (covering approximately 40km²) and consists of multiple co-genetic porphyry copper-gold centres, mineralised tourmaline breccia pipes and copper-gold/base metal magnetite skarns, which occur within the central part of Mining Licence 17129A (Figure 4).

Exploration during 2019 at Red Mountain, continued to define the project's potential through a combination of mapping, geophysics and geochemistry, identifying multiple drill-ready targets. Exploration work indicates that outcropping mineralisation may represent the shallow part of a deeper, more continuous porphyry system. A tourmaline breccia complex is also present at Red Mountain with similarities to the mineralised tourmaline breccia dike complex at Kharmagtai. The Company will continue its systematic and low-cost exploration program at Red Mountain. The next phase of exploration will focus on delineating potential large-scale porphyry deposits via testing the many geophysical and geochemical anomalies which remain within the Red Mountain licence area.

Xanadu and JOGMEC have entered into a new exploration earn-in agreement over Xanadu's Red Mountain project, located in the south Gobi region of Mongolia. Exploration objectives are discovery of a Tier-1 porphyry copper-gold discovery. The key terms of the earn-in and joint venture agreement are as follows:

• JOGMEC may earn a 51% interest in the project by sole funding \$USD7.2 million of expenditure over four years;
• During the earn-in, Xanadu will be the Manager of the Project;
• Upon JOGMEC completing the earn-in, a joint venture will be formed, and the parties must contribute funds based on their percentage interest to maintain their respective interests; and
• Standard dilution clauses will apply to the parties' interests. Should a party's interest dilute to below 10%, it shall automatically convert to a net smelter royalty.

{8}------------------------------------------------

FIGURE 4: The Red Mountain Mining Licence showing known porphyry deposits and new targets.

Yellow Mountain Project (Xanadu 100%)

Sharchuluut Uul is an early stage project focused on what is an extensive advanced argillic (high-sulphidation porphyry lithocap) alteration above a deeper porphyry centre. Limited drilling to date has intersected broad zones of porphyry alteration. Xanadu has outlined two main target areas that are yet to be tested.

Competent Person's Statements

The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves(the JORC Code 2012) sets out minimum standards, recommendations and guidelines for Public Reporting in Australasia of Exploration Results, Mineral Resources and Ore Reserves. The Information contained in this MD&A has been presented in accordance with the JORC Code 2012.

The information in this MD&A that relates to Mineral Resources is based on information compiled by Dmitry Pertel who is responsible for the Mineral Resource Estimate. Mr Pertel is a full-time employee of CSA Global and is a Member of the Australian Institute of Geoscientists, has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as the Qualified Person as defined in the CIM Guidelines and NI 43-101. Mr Pertel consents to the inclusion in the Scoping Study report of the matters based on this information in the form and context in which it appears.

The information in this MD&A that relates to the Scoping Study is based, and fairly reflects, information compiled by Gordon Zurowski, P.Eng is a registered Professional Engineer in Ontario, Canada. Mr Zurowski is employed by CSA Global. Mr Zurowski has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the JORC Code 2012. Mr Zurowski consents to the inclusion in the Scoping Study report of the matters based on his information in the form and context in which it appears.

The information in this MD&A that relates to metallurgical test work is based on a summary of results compiled by Andrew Holloway who is responsible for metallurgical and process engineering aspects of the project. Mr. Holloway, who is a principal of AGP and is a Professional Engineer in Ontario, Canada, has sufficient experience relevant to the style of mineralisation and type of deposit under

{9}------------------------------------------------

For the year ended December 31, 2019

consideration and to the activity he is undertaking to qualify as the Competent Person as defined in JORC Code 2012 and NI 43-101. Mr Holloway consents to the inclusion in the Scoping Study report of the matters based on this information in the form and context in which it appears.

The information in this MD&A that relates to exploration results is based on information compiled by Dr Andrew Stewart who is responsible for the exploration data, comments on exploration target sizes, QA/QC and geological interpretation and information. Dr Stewart, who is an employee of Xanadu and is a Member of the Australasian Institute of Geoscientists, has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as the Competent Person as defined in JORC Code 2012 and NI 43-101. Dr Stewart consents to the inclusion in the Scoping Study report of the matters based on this information in the form and context in which it appears.

Resource reporting governance arrangements

Xanadu Mines reporting of resource estimates are governed by the following:

• Reporting in accordance to the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code 2012); and
• By suitably qualified and experienced persons

The Company confirms it is not aware of any new information or data that materially affects the information included in this MD&A relating to exploration activities and all material assumptions and technical parameters underpinning the exploration activities in the market announcements referenced continue to apply and have not been changed. The Company confirms that the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcements.

Results of Operations

	Year ended	Year ended	Year ended
	December 31, 2019	December 31, 2018	December 31, 2017
	\$'000	\$'000	\$'000
Exploration expenditures	3,219	8,290	7,086
Impairment of deferred exploration expenditure	4,425	-	-
Corporate general and administration	3,720	4,630	3,208
Share-based payments	(215)	1,696	326
Depreciation and amortisation	60	81	91
Total comprehensive loss	9,272	5,625	5,788
Basic loss per share	1.18	1.00	0.72
Diluted loss per share	1.18	1.00	0.72
	As at	As at	As at
	December 31, 2019	December 31, 2018	December 31, 2017
	\$'000	\$'000	\$'000
Deferred exploration expenditures	43,352	45,903	37,157
Total assets	44,995	52,076	47,213
Total liabilities	161	814	1,421
Net assets	44,834	51,262	45,792

The Company is in the exploration stage and does not generate operating revenue.

Expenditures arising from exploration and evaluation activities relating to an area of interest are carried forward, provided such costs are expected to be recouped through successful development, or by sale, or where exploration and evaluation activities have not, at balance date, reached a stage to allow a reasonable assessment regarding the existence of economically recoverable resources. Rights of tenure must be current to carry forward deferred exploration and evaluation expenditure. Costs carried forward in respect of an area of interest that is abandoned are written off in the year in which the decision to abandon is made.

Exploration expenditures in the reporting period decreased due to reduced volume of drilling at the Kharmagtai project. A total of 5,208m of diamond drilling was completed during the calendar year at the Kharmagtai project.

{10}------------------------------------------------

For the year ended December 31, 2019

The impairment of deferred exploration expenditure relates to the following deferred exploration expenditure assets ('000): Yellow Mountain \$3,442 and Red Mountain \$983. Yellow Mountain has been fully impaired as the licence expires in May 2020 and is not expected to be renewed. The company is seeking compensation for this licence as exploration has been restricted for forestry regulations. No amount has been recognised for any compensation. In relation to Red Mountain, the company continues to assess options to fund further exploration and the asset has been written down based on the expected recoverable amount.

Corporate general and administration expenses decreased with measures taken to cut expenses. Share-based payments expense decreased due to expiry and forfeiture of all share performance rights.

Selected quarterly information

	Quarter ended	Quarter ended	Quarter ended	Quarter ended
	December 31,	September 30,	June 30,	March 31,
	2019	2019	2019	2019
	\$'000	\$'000	\$'000	\$'000
Exploration expenditures	554	1,393	283	989
Impairment of deferred exploration	4,425	-	-	-
expenditure
Corporate general and administration	833	725	1,272	890
Share-based payments	-	7	(293)	71
Depreciation and amortisation	15	19	13	13
Loss after income taxes	5,285	750	1,096	909
Basic loss per share	0.76	0.11	0.17	0.14
Diluted loss per share	0.76	0.11	0.17	0.14
	Quarter ended	Quarter ended	Quarter ended	Quarter ended
	December 31,	September 30,	June 30,	March 31,
	2018	2018	2018	2018
	\$'000	\$'000	\$'000	\$'000
Exploration expenditures	762	2,109	2,709	2,710
Corporate general and administration	1,615	996	965	1,054
Share-based payments	164	164	684	684
Depreciation and amortisation	18	19	17	27
Loss after income taxes	1,828	1,176	1,522	1,801
Basic loss per share	0.24	0.16	0.25	0.30
Diluted loss per share	0.24	0.16	0.25	0.30

Share-based payments are measured by reference to the fair value at the date at which they are granted. The fair value of the options is determined by an independent written valuation. Share-based payments expense is amortised over the vesting period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition.

Capital Management

The Company had \$1.2 million cash on hand as at December 31, 2019 (December 31, 2018: \$5.2 million). On July 8, 2019, the Company closed a non-renounceable Rights Issue made to shareholders of the Company on the basis of 1 new fully paid ordinary share for every 10 shares held at an issue price of \$0.052 per share. Acceptances of entitlements under the Rights Issue were received for a total of 40,393,314 New Shares (including 12,566,076 Additional New Shares) raising \$2.1 million. On August 22, 2019, the Company placed the non-renounceable Rights Issue shortfall raising further \$1.2 million, representing 24,411,099 New Shares at \$0.052 per share.

Subsequent to the year end, on January 16, 2020, the Company conducted a non-brokered placement raising \$2.5 million. The Placement was conducted at \$0.033 per share and it resulted in 78,326,311 new ordinary shares issued.

The primary use of funds over 2020 will be the continuation of exploration activities at the Company's Kharmagtai copper-gold project and for working capital purposes. The Company may need to raise additional capital for its exploration activities or seek joint venture partners. There is a risk that capital or joint venture partners may not be available or available on acceptable terms. Capital management is a priority of Management and the Company retains the flexibility to reduce its cost base while preserving its exploration projects if required.

{11}------------------------------------------------

For the year ended December 31, 2019

Financial instruments and risk management

The Board of Directors is responsible for the determination of the Company's risk management objectives and policies. The Board has delegated to the Company's management, the authority for designing and operating processes that ensure the effective implementation of the objectives and policies.

The overall objective of the Board is to set policies that seek to reduce risk as much as possible without unduly affecting the Company's competitiveness and flexibility. Further details regarding these policies are set out below.

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices are comprised of four types of risk: foreign currency risk, interest rate risk, commodity price risk and equity price risk.

Foreign currency risk: The Company is exposed to foreign exchange fluctuations with respect to Australian Dollars (A\$), US Dollars (US\$), Mongolian Tughrik (MNT), and Canadian Dollars (C\$). The Company's financial results are reported in A\$. Salaries for certain local employees in Mongolia may be paid in MNT. The Company's operations are in Mongolia and some of its payment commitments and exploration expenditures under the various agreements governing its rights are denominated in MNT and US\$. As a result, the Company's financial position and results are impacted by the exchange rate fluctuations among A\$, US\$, MNT and C\$. Such fluctuations may materially affect the Company's financial position and results.

Xanadu's currency risk to US\$ foreign denominated financial assets and liabilities at the end of the reporting period, expressed in A\$, was as follows:

	Assets
	2019	2018
Consolidated	\$'000	\$'000
Cash and cash equivalents	1,209	524

The following sensitivity is based on the foreign currency risk exposures in existence at the balance date:

		AUD strengthened			AUD weakened
		Effect on profit	Effect on		Effect on profit	Effect on
Consolidated – 2019	% change	before tax	equity	% change	before tax	equity
A\$/US\$ '000	10%	39	39	(10%)	(39)	(39)
		AUD strengthened			AUD weakened
		Effect on profit	Effect on		Effect on profit	Effect on
Consolidated – 2018	% change	before tax	equity	% change	before tax	equity
A\$/US\$ '000	10%	52	52	(10%)	(52)	(52)

Interest Rate Risk: Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company does not have any borrowings at variable rates. Interest rate risk is limited to potential decreases on the interest rate offers on cash and cash equivalents held with chartered financial institutions. The Company considers this risk to be immaterial.

As at the reporting date, Xanadu had the following cash and cash equivalents and variable rate borrowings outstanding:

	2019		2018
	Weighted		Weighted
	average		average
	interest rate	Balance	interest rate	Balance
Consolidated	%	\$'000	%	\$'000
Cash and cash equivalents	2.40%	1,209	2.40%	5,225
Net exposure to cash flow interest rate risk		1,209		5,225

{12}------------------------------------------------

For the year ended December 31, 2019

The following sensitivity is based on the interest rate risk exposures in existence at the balance date:

		Basis points increase			Basis points decrease
Consolidated – 2019 ('000)	Basis points change	Effect on profit before tax	Effect on equity	Basis points change	Effect on profit before tax	Effect on equity
Net interest rate risk exposure	100	12	12	(100)	(12)	(12)
		Basis points increase			Basis points decrease
Consolidated – 2018 ('000)	Basis points change	Effect on profit before tax	Effect on equity	Basis points change	Effect on profit before tax	Effect on equity
Net interest rate risk exposure	100	52	52	(100)	(52)	(52)

Commodity Price Risk: Even if commercial quantities of mineral deposits are discovered, there is no guarantee that a profitable market will exist for the sale of the metals produced. Factors beyond the control of the Company may affect the marketability of any minerals discovered. The prices of various metals have experienced significant movement over short periods of time, and are affected by numerous factors beyond the control of the Company, including, among other things, international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production methods. The Company is particularly exposed to the risk of movement in the price of copper and gold.

Equity Price Risk: Equity risk is the uncertainty associated with the valuation of assets arising from changes in equity markets. The Company is exposed to this risk through its equity holdings.

Credit Risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments which are potentially subject to credit risk for the Company consist primarily of cash and amounts receivable. Cash is maintained with financial institutions of reputable credit and may be redeemed upon demand.

The Company's maximum exposure to credit risk at the reporting date is the carrying value of its cash and cash equivalents of \$1.2 million (December 31, 2018 \$5.2 million).

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The primary source of funds available to the Company is from equity financing. The Company has in place a planning and budgeting process to help determine the funds required to support the Company's normal operating requirements on an ongoing basis, to support its exploration plans, and to ensure that it will have sufficient liquidity to meet its liabilities when due. To the extent the Company does not believe it has sufficient liquidity to meet these obligations, management will consider securing additional funds through equity or debt transactions. The Company does not have unlimited financial resources and there is no assurance that sufficient additional funding or financing will be available to the Company or its direct and indirect subsidiaries on acceptable terms, or at all, for further exploration or development of its properties or to fulfill its obligations under any applicable agreements.

Failure to obtain such additional funding could result in the delay or indefinite postponement of the exploration and development of the Company's properties.

Other business risks

Political and Legal Risks

The Company's mineral projects are located in Mongolia, where mineral exploration and mining activities may be affected in varying degrees by political instability, economic conditions, expropriation or nationalization of property and changes in government regulations such as foreign investment laws, tax laws, business laws, environmental laws and mining laws, affecting the Company's business in that country. Government policy may change to discourage foreign investment, nationalization of the mining industry may occur and other government limitations, restrictions or requirements may be implemented. There can be no assurance that the Company's assets will not be subject to nationalization, requisition, expropriation or confiscation, whether legitimate or not, by any authority or body.

The regulatory environment is in a state of continuing change, and new laws, regulations and requirements may be retroactive in their effect and implementation. There can be no assurance that Mongolian laws protecting foreign investments will not be amended or abolished or that existing laws will be enforced or interpreted to provide adequate protection against any or all of the risks described above.

{13}------------------------------------------------

For the year ended December 31, 2019

Licence Risks

The Company has licenses covering the Kharmagtai project, Red Mountain project and Yellow Mountain project. The Government of Mongolia could revoke either of these licenses if the Company fails to satisfy its obligations, including payment of royalties and taxes to the Government of Mongolia and the satisfaction of certain mining, environmental, health and safety requirements. A termination of the Company's mining licenses by the Government of Mongolia could materially and adversely affect the Company's reputation, business, prospects, financial conditions and results of operations. In addition, the Company would require additional licenses or permits to conduct the Company's mining or exploration operations in Mongolia. There can be no assurance that the Company will be able to obtain and maintain such licenses or permits on terms favorable to it, or at all, for the Company's future intended mining or exploration targets in Mongolia, or that such terms would not be subject to various changes.

On July 16, 2009, the Mongolian Parliament enacted legislation to Prohibit Mineral Exploration and Mining Operations in Headwaters of Rivers, Protected Zones of Water Reservoirs and Forested Areas (the Long Name Law) which prohibits minerals exploration and mining in areas such as headwaters of rivers and lakes, forest areas as defined in the Mongolian Law on Forest and areas adjacent to rivers and lakes as defined in the Law of Mongolia on Water. New exploration licences and mining licences overlapping with the defined prohibited areas will not be granted, and previously granted licences that overlap with the defined prohibited areas, will be terminated within five months following the adoption of the Long Name Law. The Company's license for the Yellow Mountain project overlaps with the borderzone of a forested area and zones allocated to the protection of water basins/reservoirs under the Long Name Law. Pursuant to the Law of Mongolia on Minerals (the Minerals Law) and the Long Name Law, minerals licences which overlap with restricted areas will be revoked by the mineral's authority only if, and when, compensation is paid in full to the holder of the relevant licence. The Company has not received any such notice from any Mongolian Government Authority, indicating the revocation of the Yellow Mountain Licence or inviting the Company to discuss the revocation of its licence. Notwithstanding the validity of the Yellow Mountain Licence, as a matter of law, the Company will not be entitled to undertake any exploration activities in any portion of the Yellow Mountain Licence area that overlaps with a restricted area.

Mineral Resource Assumptions Risk

The Company's Mineral Resource Estimate and Mineral Reserve Estimate for the Kharmagtai project are based on a number of assumptions. There are numerous uncertainties inherent in estimating quantities of mineral reserves and grades of mineralization, including many factors beyond the control of the Company. There can be no assurance that the mineral resources and mineral reserve estimates will be recovered in the quantities, qualities or yields presented in this prospectus or set out in the Kharmagtai Technical Report.

Copper and gold mineral resource and mineral reserve estimates are inherently prone to variability. They involve expressions of judgment with regard to the presence and quality of mineralization and the ability to extract and process the mineralization economically. These judgments are based on a variety of factors, such as knowledge, experience and industry practice.

Environmental Risk

Existing and possible future environmental legislation, regulations and actions could cause significant expense, capital expenditures, restrictions and delays in the activities of the Company, the extent of which cannot be predicted and which may well be beyond the capacity of the Company to fund. Failure to comply with applicable environmental laws and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions.

Operational Risk

The Company's activities are subject to a number of operational risks and hazards, some of which are beyond its control. These risks and hazards include unexpected maintenance or technical problems, periodic interruptions due to inclement or hazardous weather conditions, natural disasters such as earthquakes, industrial accidents, power, water or fuel supply interruptions or the increase in the price of such supplies, critical equipment failure, malfunction and breakdowns of information management systems, fires, and unusual or unexpected variations in mineralization, geological or mining conditions.

Subsequent to end of the financial year, the COVID-19 outbreak was declared a pandemic by the World Health Organization in March 2020. We have not seen a significant impact on our business to date. However, although there are currently no restrictions on transportation locally, any further deterioration of the situation may result in quarantines and affect the Company's ability to undertake exploration activities in the South Gobi. Therefore, the outbreak and the response of Governments in dealing with the pandemic may interfere with general activity levels within the community, the economy and the operations of our business. The scale and duration of these developments remain uncertain as at the date of this MD&A however they will have an impact on our forecast cash flow and financial condition.

{14}------------------------------------------------

For the year ended December 31, 2019

Contractual Risk

Xanadu's key project (the Kharmagtai project) is held pursuant to a joint venture arrangement. Additionally, the Company may wish to develop its projects or future projects through further joint venture arrangements.

As in any contractual relationship, the ability for Xanadu to ultimately receive benefits from these contracts is dependent upon the relevant third party complying with its contractual obligations. Specifically, Xanadu's ability to further its flagship Kharmagtai project therefore depends upon the strength and enforceability of these contracts and the ability to enforce them against the relevant counterparties, under relevant laws.

Further, the under the terms of the Company's original acquisition of the Kharmagtai project, the Company agreed to assume certain royalty obligations, the precise terms of which are unclear or not in existence. There is therefore some doubt as to the precise nature of the Company's obligations to the extent they exist.

In respect of these agreements and obligations, it may be necessary for Xanadu to enforce its rights under any of the contracts or pursue legal action to clarify their terms. Such legal action may be costly and no guarantee can be given by Xanadu that a legal remedy will ultimately be granted on appropriate terms.

Significant changes in the state of affairs

There were no significant changes in the state of affairs of the Company during the financial period.

Matters subsequent to the end of the financial period

On January 16, 2020, the Company completed a non-brokered placement raising \$2.58 million (Placement). The Placement was conducted at \$0.033 per share and it resulted in 78,326,311 new ordinary shares being issued. Shareholder approval was not required for the Placement, which was undertaken under Xanadu's Listing Rule 7.1, 15% placement capacity. The New Shares were issued to Precious Capital Gold Mining & Metals Fund (PCG), managed by SSI Asset Management AG (SSI), a Zurich based fund. Following completion of the Placement, PCG holds approximately 9.9% of Xanadu's issued capital.

On March 24, 2020, the Company announced that it entered into an earn-in agreement with Japan Oil, Gas and Metals National Corporation (JOGMEC) to sole fund up to \$USD7.2 million in exploration expenditure at the Company's Red Mountain copper-gold Project in Mongolia. The key terms of the earn-in and joint venture agreement are as follows:

• JOGMEC may earn a 51% interest in the project by sole funding \$USD7.2 million of expenditure over four years;
• during the earn-in, Xanadu will be the Manager of the Project;
• upon JOGMEC completing the earn-in, a joint venture will be formed, and the parties must contribute funds based on their percentage interest to maintain their respective interests; and
• standard dilution clauses will apply to the parties' interests. Should a party's interest dilute to below 10%, it shall automatically convert to a net smelter royalty.

Subsequent to end of the financial year, the COVID-19 outbreak was declared a pandemic by the World Health Organization in March 2020. In March 2020, Mongolia reported its first transported case of COVID-19. As a response, the country closed its borders and halted all international flights. As at date of this MD&A, Mongolia had reported six cases of COVID-19.

We have not seen a significant impact on our business to date. However, although there are currently no restrictions on transportation locally, any further deterioration of the situation may result in quarantines and affect the Company's ability to undertake exploration activities in the South Gobi. Therefore, the outbreak and the response of Governments in dealing with the pandemic may interfere with general activity levels within the community, the economy and the operations of our business. The scale and duration of these developments remain uncertain as at the date of this MD&A however they will have an impact on our forecast cash flow and financial condition.

It is not possible to estimate the impact of the outbreak's near-term and longer effects or Governments' varying efforts to combat the outbreak and support businesses. This being the case, we do not consider it practicable to provide a quantitative or qualitative estimate of the potential impact of this outbreak on the Group at this time.

The financial statements have been prepared based upon conditions existing at 31 December 2019 and considering those events occurring subsequent to that date, that provide evidence of conditions that existed at the end of the reporting period. As the outbreak of COVID-19 occurred after 31 December 2019, its impact is considered an event that is indicative of conditions that arose after the reporting period and accordingly, no adjustments have been made to financial statements as at 31 December 2019 for the impacts of COVID-19.

{15}------------------------------------------------

For the year ended December 31, 2019

No other matter or circumstance has arisen since December 31, 2019 that has significantly affected, or may significantly affect Xanadu's operations, the results of those operations, or the Company's state of affairs in future financial years.

Commitments

Commitments in relation to exploration licences contracted at the reporting date, including regulatory charges such as licence fees, and corporate administrations, but not recognised as liabilities within one year are \$0.2 million (December 31, 2018: \$0.7 million). As the future exploration activity is in most cases dependent upon reserves being found, it is not possible to set out the funds due to be contributed in more than one year's time. No other commitments or contingencies existed at December 31, 2019.

Commitments recognised as liabilities within one year are trade payables and vehicle leases totalling \$0.2 million.

Related party transactions

Parent entity and subsidiaries

Xanadu Mines Ltd is the parent entity. Interests in subsidiaries are set out in Note 27 to the financial statements.

Key management personnel

Disclosures relating to key management personnel are set out in Note 21 to the financial statements and the Remuneration Report.

Transactions with related parties

On January 2, 2017, the Company relocated its Ulaanbaatar office and entered into a rental agreement with Mr Ganbayar Lkhagvasuren, an Executive Director of the Company. The transaction between these related parties is on normal commercial terms and conditions, no more favourable than those available to other parties that are arm's length. The Company paid rental totalling \$86,480 for the year ended December 31, 2019 (December 31, 2018: \$89,438).

For the year ended December 31, 2019, the Company sourced legal services for total \$44,612 from HopgoodGanim Lawyers, where the Company's Independent Non-Executive Director, Michele Muscillo, is a partner.

Receivable from and payable to related parties

There were no trade receivables from or trade payables to related parties at the current and previous reporting date.

Loans to/from related parties

There were no loans to or from related parties as at December 31, 2019.

Terms and conditions

All transactions were made on normal commercial terms and conditions and at market rates.

Likely developments and expected results of operations

Information on likely developments in the operations of the Company and the expected results of operations have been included in the MD&A. Xanadu intends to continue to invest and explore the projects described in this MD&A.

Dividends

There were no dividends paid, recommended or declared during the current or previous financial period.

Off balance sheet arrangements

The Company has not entered into any off-balance sheet transactions.

New or amended Accounting Standards and Interpretations adopted

The Company has adopted all of the new or amended Australian Accounting Standards Board (AASB) Standards that are mandatory for the applicable annual reporting periods. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.

AASB 16 Leases

The Group has adopted AASB 16 Leases (AASB 16) from 1 January 2019. The standard replaces AASB 117 Leases (AASB 117) and for lessees, eliminates the classifications of operating leases and finance leases. Except for short-term leases and leases of low-value assets, right-of-use assets and corresponding lease liabilities are recognised in the statement of financial position. Straight-line operating lease expense recognition is replaced with a depreciation charge for the right-of-use assets (included in operating costs) and an interest expense on the recognised lease liabilities (included in finance costs). In the earlier periods of the lease, the expenses associated with

{16}------------------------------------------------

For the year ended December 31, 2019

the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) results improve as the operating expense is now replaced by interest expense and depreciation in the statement of profit or loss and other comprehensive income. For classification within the statement of cash flows, the interest portion is disclosed in operating activities and the principal portion of the lease payments are separately disclosed in financing activities. For lessor accounting, the standard does not substantially change how a lessor accounts for leases.

IFRIC 23: Uncertainty Over Income Tax Treatments

The Company determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty. The Company applies significant judgement in identifying uncertainties over income tax treatments. Since Xanadu and its wholly owned subsidiaries (the Group) operates in a multinational environment, it assessed whether the interpretation had an impact on its consolidated financial statements.

This Interpretation does not have any material impact on the current annual financial report for the year ended December 31, 2019.

Directors

The following individuals were Directors of Xanadu during the whole of the financial period and up to the date of this MD&A, unless otherwise stated:

Colin Moorhead (appointed November 28, 2019) – Independent Non-Executive Chairman Andrew Stewart – Chief Executive Officer Ganbayar Lkhagvasuren – Executive Director Michele Muscillo – Independent Non-Executive Director Stephen Motteram (appointed October 18, 2019) – Non-Executive Director Marcus Engelbrecht (ceased April 30, 2019) – Non-Executive Director Kevin Tomlinson (ceased April 30, 2019) – Independent Non-Executive Chairman Hannah Badenach (ceased October 18, 2019) – Non-Executive Director

Information on Directors

Name: Colin Moorhead

Title: Independent Non-Executive Chairman Qualifications: B.Sc (Hons) FAusIMM (CP) GAICD

Darryl Clark (ceased November 28, 2019) – Independent Non-Executive Chairman

Experience and expertise: Colin is an experienced industry executive with a demonstrated track record of over three

decades building value in mining companies through innovation, discovery, project development and safe, efficient operations. Colin has extensive experience in development and financing significant mining projects internationally. He also has experience with global mining operations as well as experience in successful mergers and acquisitions. A geologist by training, Colin is known for strong leadership, strategy and execution that saw him rise through the ranks from a graduate with BHP in 1987 to an executive level manager responsible for global exploration and resource development at Newcrest Mining from 2008 to 2015, a period of significant growth for the company. Colin has significant relevant experience as CEO of emerging Indonesian listed producer PT Merdeka Copper Gold Tbk, where he built and led the team that constructed and commissioned the highly successful Tujuh Bukit Gold Mine. Colin is a Fellow, Chartered Professional and Immediate Past President of AUSIMM, a graduate of AICD and Harvard Business School Advanced Management Program (AMP).

Other current directorships: Merdeka Copper Gold (IDX:MDKA)

Former directorships (last 3 years): Finders Resources Limited (ASX:FND) (from August 2018 to October 2019)

Special responsibilities: Member of the Audit and Risk Committee, Nomination and Remuneration Committee and

Safety, Health and Environment Committee

Interests in shares: None Interests in rights: None

{17}------------------------------------------------

For the year ended December 31, 2019

Name: Dr Andrew Stewart Title: Chief Executive Officer

Qualifications: BSc, PhD, MAIG, MSEG, MAICD

Experience and expertise: Andrew is a geologist with over 15 years' experience in mineral exploration; primarily focussed

on project generation, project evaluation and exploration strategy development throughout Asia and Eastern Europe. Andrew has particular expertise in porphyry copper and epithermal gold deposits, but has worked across a diverse range of commodities. He holds a BSc (Hons) from Macquarie University and a PhD from the Centre of Ore Deposits and Exploration Studies at the University of Tasmania. During his time at Ivanhoe Mines and Vale, Andrew held various technical and management positions in Mongolia and Indonesia and has been involved in several green field discoveries. After providing technical and program management for Vale in Indonesia and Mongolia, Andrew joined Xanadu Mines as Chief Geologist leading the gold and

base metals project generation and evaluation team in Mongolia. Other current directorships: Godolphin Resources Limited (ASX:GRL) (December 19, 2020 - current)

Former directorships (last 3 years): None

Special responsibilities: Chief Executive Officer

Interests in shares: 4,721,292 Interests in rights: None

Name: Ganbayar Lkhagvasuren Title: Executive Director

Qualifications: M.IBL

Experience and expertise: Ganbayar is a co-founder of Xanadu and has been a Director since 2006. He is the joint venture

partner in Mongol Metals LLC and brings a vital Mongolian perspective to the Board of

Directors.

Other current directorships: None Former directorships (last 3 years): None

Special responsibilities: Member of the Safety, Health and Environment Committee

Interests in shares: 16,558,329 Interests in rights: None

Name: Michele Muscillo

Title: Independent Non-Executive Director

Qualifications: LL.B

Experience and expertise: Michele is a Partner with HopgoodGanim Lawyers in Brisbane. He has practised exclusively in

corporate law for the duration of his legal career and has extensive experience in mergers and acquisitions and capital markets transactions, including the negotiation of significant commercial contracts and agreements. His key areas of practice include Corporate Advisory and Governance, Mergers and Acquisitions, Capital Markets and Resources and Energy. Michele is also currently a Non-Executive Director with ASX-Listed Aeris Resources Limited (ASX: AIS), a Non-Executive Director with ASX/TSX listed Cardinal Resources Limited (ASX/TSX: CDV) and a Non-Executive Director with ASX listed Mako Gold Limited (ASX: MKG). Formerly, Michele was also Non-Executive Director of Orbis Gold Limited from the time of its ASX listing, through the discovery of its flagship Natougou project and ultimately to the sale of the

Company to TSX-Listed SEMAFO Inc. (TSX: SMF) in 2015.

Other current directorships: Cardinal Resources Limited (appointed October 12, 2017 - current), Aeris Resources Limited

(appointed May 2, 2013 - current), Mako Gold Limited (appointed April 20, 2017 - current)

Former directorships (last 3 years): None

Special responsibilities: Chairman of the Audit and Risk Committee and the Nomination and Remuneration Committee

Interests in shares: 59,441 Interests in rights: None

Name: Stephen Motteram Title: Non-Executive Director

Qualifications: B.Ag Sci (Hons), MBA, GAICD, CPA

Experience and expertise: Mr Motteram has over 20 years' experience in financial institutions and trading houses,

specialising in commodities trading, project & structured finance, equity and equity-linked investments. He has originated, executed and managed natural resource, energy and infrastructure transactions in Australia, Indonesia, Africa, India, Brazil and China. Stephen has

{18}------------------------------------------------

For the year ended December 31, 2019

worked for Noble since January 2011 and prior to that, worked with National Austral Bank in Hong Kong and Australia for approximately 10 years, and previously was a trader with Louis Dreyfus. Mr Motteram holds a B. Agricultural Science (Honours) from the University of Melbourne and an MBA from the Melbourne Business School. He is a Certified Practicing

Accountant and a Graduate of the Australian Institute of Company Directors.

Other current directorships: None

Former directorships (last three years): Cockatoo Coal Limited (ASX: COK) (March 2015 to August 2017)

Special responsibilities: Member of the Audit and Risk Committee

Interests in shares: None Interests in rights: None

Other current directorships quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated.

Former directorships (last three years) quoted above are directorships held in the last three years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated.

Company Secretary

Phil Mackey, B Bus

Phil was appointed Company Secretary of Xanadu in May 2017. Phil has over four decades of listed and unlisted company secretarial and commercial experience, including multi-jurisdictional board practice as both a company secretary and a director. Previously, Phil served as Company Secretary of ASX and SGX dual listed Australand Group Limited (a quadruple stapled group) and Deputy Company Secretary of AMP Limited (ASX:AMP). Phil's commercial experience includes appointment as Chief Operating Officer (Specialised Funds) at Babcock & Brown. Phil is a Fellow of the Governance Institute Australia and a Graduate Member of the Australian Institute of Company Directors.

Meetings of Directors

The number of meetings of the Company's Board of Directors (the Board) and of each Board committee held during the period ended December 31, 2019 and the number of meetings attended by each Director were:

					Nomination &
					Remuneration		Safety, Health and
	Full Board			Audit & Risk Committee		Committee		Environment Committee
	Attended	Held	Attended	Held	Attended	Held	Attended	Held
C Moorhead	1	1	–	–	–	–	–	–
A Stewart	16	16	–	–	–	–	2	2
G Lkhagvasuren	14	16	–	–	–	–	2	2
M Muscillo	16	16	2	2	2	2	–	–
S Motteram	2	2	–	–	–	–	–	–
K Tomlinson	7	7	1	1	1	1	–	–
M Engelbrecht	6	7	–	–	–	–	–	–
H Badenach	12	14	–	1	1	1	–	–
D Clark	15	15	2	2	1	1	1	1

Held: represents the number of meetings held during the time the Director held office or was a member of the relevant Committee.

As at the date of this MD&A, the Company has a Safety, Health and Environment Committee, an Audit and Risk Committee and a Nomination and Remuneration Committee. Further details are set out in the Corporate Governance Statement on the Company's website at www.xanadumines.com.

{19}------------------------------------------------

For the year ended December 31, 2019

Remuneration Report (audited)

The Remuneration Report, which has been audited, outlines the key management personnel (KMP) remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 (Cth) (Corporations Act) and its Regulations.

KMP have authority and responsibility for planning, directing and controlling the activities of the Company and the consolidated entity, including directors of the Company and other executives. KMP comprise the Directors of the Company and executives of the Company and the Group including the most highly remunerated executives.

The Remuneration Report is set out under the following main headings:

• − Principles used to determine the nature and amount of remuneration;
• − Details of remuneration;
• − Service agreements;
• − Share-based compensation;
• − Additional information; and
• − Additional disclosures relating to key management personnel.

Principles used to determine the nature and amount of remuneration

Xanadu is a Mongolian-focused exploration company. Our strategy is to convert our South Gobi porphyry copper and gold projects into mineable deposits and build long-term value for shareholders by becoming the next internationally competitive mid-tier copper and gold company in Asia.

The Company's remuneration philosophy is to ensure that the level and composition of remuneration is competitive, reasonable and appropriate to attract, retain and motivate the directors and employees with the skills required to deliver on the Company's strategy. Our philosophy recognises the importance of people and a team approach.

Important attributes that impact on Xanadu's success are:

• − exploration and safety excellence, dedication and persistence;
• − understanding of Mongolia and a strong national team;
• − ability to communicate exploration success in the public markets to attract capital and increase shareholder value; and
• − adherence to good corporate governance principles.

When considering remuneration matters, the Nomination and Remuneration Committee reviews and recommends to the Board on matters of remuneration policy, specific recommendations in relation to senior management and all matters concerning equity plans and awards.

Executive Remuneration

There are up to three categories of remuneration employed to reward employees depending on their role and responsibility within Xanadu:

• 1. Total Fixed Remuneration;
• 1. Short Term Incentive; and
• 1. Long Term Incentive.

The remuneration mix consists of fixed and variable or "at-risk" pay and of short and longer-term rewards.

Total Fixed Remuneration

Total Fixed Remuneration (TFR) comprises base salary, any relevant allowances and statutory contributions that the Company is legally required to make in the local jurisdiction. TFR is set with reference to market data and will reflect the scope of the role and the size and activities of the Company.

TFR is reviewed annually as part of the performance appraisals undertaken in the fourth quarter of the calendar year (prior to finalisation of the following year's budget).

Within Mongolia, the term net and gross TFR is used. Net TFR is fixed remuneration net of all taxes including Personal Income Tax and Social Insurance Tax and the Company is responsible for paying these taxes. Gross TFR includes personal income tax but excludes employer social insurance tax. Within Australia, the term TFR is inclusive of personal income tax but excludes payroll tax.

{20}------------------------------------------------

For the year ended December 31, 2019

Variable or At-Risk Incentive Remuneration

It is the Board's policy to deliver at-risk incentive remuneration to employees as both a Short-Term Incentive (STI) and a Long-Term Incentive (LTI). The payment of STIs and LTIs are linked to achievement of agreed performance measures and establishes a variable remuneration arrangement that links short- and long-term performance with short- and longer-term rewards. Any equity awarded will be governed by the Xanadu Equity Incentive Plan (Plan), and if awarded to a Director, the award will be subject to shareholder approval.

The Plan was initially approved by shareholders at the 2013 Annual General Meeting, reapproved at the 2016 Annual General Meeting, and permits the award of a number of styles of awards including Options and Share Rights to employees. The issue of securities under the Plan is subject to the Xanadu Securities Trading Policy. Shares issued may be acquired on-market, transferred or issued from the capital of the Company.

Short Term Incentive (STI)

Xanadu has established the STI to achieve the following objectives:

• − focus employees on the achievements of annual key safety, financial and business targets that the Board believes will lead to sustained and improved business performance; and
• − reward and recognise superior performance, if achieved.

The incentive offered under the STI will vary depending upon individual performance against key performance indicators (KPIs) and any discretion employed by the Board. KPIs for Chief Executive Officer (CEO) and CEO's direct reports are approved by the Board upon recommendation from the Nomination and Remuneration Committee. KPIs for all other employees are approved by the CEO. Depending on the individual's position, KPIs will include a range of metrics including health and safety, exploration results, corporate governance, financial stewardship, risk management, business development and leadership. Payment of STIs can be cash or shares which is also at the discretion of the Board.

Long Term Incentive (LTI)

The Board believes that an appropriately designed LTI is an important component of the Group's remuneration arrangements. The LTI is a key tool to allow the Group to attract and retain talented directors, executive and managers and ensure the interests of LTI participants are aligned with those of shareholders in creating long-term shareholder value.

The Board's policy is to design equity style awards as LTIs. The vesting of an LTI award is dependent on the achievement of longer-term objectives, at least including share price growth over a three-year performance period.

Total Reward Mix - Executives

As a guide, the proportion of remuneration attributable to each component of the Xanadu remuneration philosophy is dependent on the level of seniority of the employee. The target total reward mix on average is as follows:

	Total Fixed	STI	LTI
	Remuneration %	% of TFR	% of TFR
CEO	100	50	50
CEO's Direct Reports	100	30	30

The STI and LTI percentages of TFR are the maximum payable and the overall mix may vary depending on individual circumstances, legacy contracts and other benefits associated with expatriate allowances. The value of equity-based awards is determined at the time of grant using industry standard valuation techniques.

Non-Executive Remuneration

The aggregate cash remuneration for Non-Executive Directors will not exceed the maximum approved amount of \$350,000. The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable by shareholders. Non-Executive Directors may also participate in the Plan if participation is approved by shareholders.

The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed annually. The Board considers fees paid and securities issued to Non-Executive Directors of comparable companies when undertaking the annual review as well as the time commitment of directors in discharging duties at Board, Committee work and additional assistance provided to the Company. Currently, the Non-Executive Director base fee is \$52,000 per annum and a Committee Chairman receives \$4,000 per annum per committee. The Non-Executive Chairman receives fee of \$120,000 per annum.

{21}------------------------------------------------

For the year ended December 31, 2019

Non-Executive Directors are encouraged by the Board to hold shares purchased on market in accordance with the Xanadu Securities Trading Policy. The Board considers that by holding shares in the Company, the Non-Executive Directors are aligning themselves with the best interests of the shareholders.

Details of remuneration

Amounts of remuneration

Details of the remuneration of KMP of the Group are set out in the following tables.

The KMP of the Group consisted of the Directors of Xanadu Mines and the following persons:

− M Dambiinyam - Chief Financial Officer

				Post-employment	Share-based
		Short-term benefits		benefits	payments
	Cash salary		Others/	Super	Equity
Year ended	and fee	Bonus	Non-monetary	annuation	settled	Total
December 31, 2019	\$	\$	\$	\$	\$	\$
Non-Executive Directors:
C Moorhead*	9,132	-	-	868	-	10,000
M Muscillo	60,000	-	-	-	11,205	71,205
K Tomlinson**	40,000	-	-	-	(342,330)	(302,330)
M Engelbrecht**	15,830	-	-	1,504	-	17,334
D Clark***	46,880	-	-	4,454	11,205	62,539
Executive Directors:
A Stewart	394,265	122,358	58,628	4,564	51,730	631,545
G Lkhagvasuren	381,217	78,489	-	-	36,934	496,640
Other KMP:
M Dambiinyam	240,239	50,528	-	-	7,989	298,756
	1,187,563	251,375	58,628	11,390	(223,267)	1,285,689

^* appointed November 28, 2019

Hannah Badenach and Stephen Motteram did not receive remuneration.

				Post-employment	Share-based
		Short-term benefits		benefits	payments
	Cash salary		Others/	Super	Equity
Year ended	and fee	Bonus	Non-monetary	annuation	settled	Total
December 31, 2018	\$	\$	\$	\$	\$	\$
Non-Executive Directors:
K Tomlinson	142,732	-	-	-	274,868	417,600
D Clark	54,714	-	-	1,619	96,598	152,931
M Engelbrecht	48,097	-	-	4,569	-	52,666
M Muscillo	59,000	-	-	-	96,598	155,598
Executive Directors:
A Stewart	388,266	129,726	61,825	-	641,358	1,221,175
G Lkhagvasuren	306,562	47,516	-	-	378,715	732,793
Other KMP:
M Dambiinyam	195,353	34,305	-	-	104,548	334,206
M Brown	184,756	33,722	-	-	104,548	323,026
	1,379,480	245,269	61,825	6,188	1,697,233	3,389,995

H Badenach did not receive any remuneration.

^** ceased April 30, 2019 and forfeited share based payments

^*** ceased November 28, 2019

{22}------------------------------------------------

The proportion of remuneration linked to performance and the fixed proportion are as follows:

	Fixed remuneration		At risk - STI		At risk - LTI
	Year ended	Year ended	Year ended	Year ended	Year ended	Year ended
	December 31	December 31	December	December 31	December 31	December 31
Name	2019	2018	31 2019	2018	2019	2018
Non-Executive Directors:
C Moorhead	100%	-	-	-	-	-
M Muscillo	84%	38%	-	-	16%	62%
K Tomlinson	100%	34%	-	-	-	66%
M Engelbrecht	100%	100%	-	-	-	-
D Clark	82%	37%	-	-	18%	63%
Executive Directors:
A Stewart	72%	37%	19%	11%	8%	53%
G Lkhagvasuren	77%	42%	16%	6%	7%	52%
Other KMP:
M Dambiinyam	80%	58%	17%	10%	3%	31%

Service agreements

Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows:

Name: Andrew Stewart Title: Chief Executive Officer

Details: Dr Stewart's fixed remuneration, effective October 1, 2019, is an annual salary package of A\$365,000 including

compulsory taxes and superannuation contributions. In the event of termination of Dr Stewart's employment other than in the case of misconduct, the executive must give a minimum of 9 months' notice prior to termination, and the Company must give 9 months' notice prior to termination. The Company may, at its discretion, provide Dr Stewart with payment of fixed remuneration in whole or in part in lieu of notice. For the avoidance of doubt, the Company's

right to make such a payment does not give Dr Stewart any right to receive such a payment.

Name: Ganbayar Lkhagvasuren Title: Executive Director

Details: Mr Lkhagvasuren's fixed remuneration is an annual salary package of US\$265,000 including compulsory taxes and

social insurance applicable as an employee in Mongolia. In the event of Mr Lkhagvasuren's employment being terminated other than in the case of misconduct, Mr Lkhagvasuren must give a minimum of 6 months' notice prior to

termination, and the Company must give 9 months' notice prior to termination.

Name: Munkhsaikhan Dambiinyam Title: Chief Financial Officer

Details: Mr Dambiinyam'sfixed remuneration is an annual salary package of US\$167,000 including compulsory taxes and social

insurance applicable as an employee in Mongolia. In the event of termination of Mr Dambiinyam's employment other than in the case of misconduct, Mr Dambiinyam must give a minimum of 6 months' notice prior to termination, and

the Company must give 6 months' notice prior to termination.

Key management personnel have no entitlement to termination payments in the event of removal for misconduct.

Share-based compensation

Issue of shares

No shares were issued to Directors and other KMP as part of compensation during the year ended December 31, 2019.

Options

There were no options over ordinary shares granted to or vested by Directors and other KMP as part of compensation during the year ended December 31, 2019.

{23}------------------------------------------------

For the year ended December 31, 2019

Share rights

Details of share rights over ordinary shares granted, vested and lapsed for Directors and other KMP as part of compensation during the period ended December 31, 2019 are set out below:

			Number of	Number of	Number of	Value of
Name	Grant date	Expiry date	rights granted	rights vested	rights lapsed	rights lapsed (\$)
M Muscillo	November 16, 2017	October 11, 2019	-	-	1,000,000	47,000
A Stewart	November 16, 2017	May 29, 2019	-	-	7,000,000	539,000
G Lkhagvasuren	November 16, 2017	July 26, 2019	-	-	4,000,000	216,000
M Dambiinyam	July 26, 2017	July 26, 2019	-	-	2,000,000	108,000

Additional information

The section below contains further detail on how the Company's performance has impacted on remuneration outcomes for executives under the Company's incentive programs.

The table below contains a snapshot of the Company's performance against annual financial KPIs:

	2015	2016	2017	2018	2019
Share price at financial year end (\$)	0.11	0.21	0.28	0.105	0.03
Basic loss per share (cents per share)	(1.15)	(0.47)	(0.72)	(1.00)	(1.18)
Diluted loss per share (cents per share)	(1.15)	(0.47)	(0.72)	(1.00)	(1.18)

Additional disclosures relating to KMP

Shareholding

The number of ordinary shares in the Company held during the financial period by each Director and other KMP of the Group, including their personally related parties, is set out below:

	Balance at			Balance at
	the start of	On-market	Vesting of	the end of
	the period	purchases	share rights	the period
Non-Executive Directors
C Moorhead	-	-	-	-
S Motteram	-	-	-	-
M Muscillo	54,037	5,404		59,441
Executive Directors:
A Stewart	4,292,083	429,209	-	4,721,292
G Lkhagvasuren	16,558,329	-	-	16,558,329
Other KMP:
M Dambiinyam	1,478,578	-	-	1,478,578
	22,383,027	434,613	-	22,817,640

Share rights holding

The number of share rights over ordinary shares in the Company held during the financial period by each Director and other members of key management personnel of the Group, including their personally related parties, is set out below:

	Balance at				Balance at
	the start of		Vested and	Expired/	the end of
	the period	Granted	exercised	forfeited	the period
Share rights over ordinary shares
C Moorhead	-	-	-	-	-
S Motteram	-	-	-	-	-
M Muscillo	1,000,000	-	-	(1,000,000)	-
A Stewart	7,000,000	-	-	(7,000,000)	-
G Lkhagvasuren	4,000,000	-	-	(4,000,000)	-
M Dambiinyam	2,000,000	-	-	(2,000,000)	-
	14, 000,000	-	-	(14, 000,000)	-

This concludes the Remuneration Report, which has been audited.

{24}------------------------------------------------

For the year ended December 31, 2019

Shares under option

Unissued ordinary shares of Xanadu Mines under option at the date of this MD&A are as follows:

Grant date	Description	Expiry date	Exercise price	Number under option
June 26, 2018	June 2018 private placement options	June 26, 2020	\$0.25	29,411,759
				29,411,759

No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company or of any other body corporate.

Shares under share rights

There were no share rights of Xanadu Mines on issue for the period ended December 31, 2019 and up to the date of this MD&A.

Shares issued on the exercise of options

There were no ordinary shares of Xanadu Mines issued on the vesting and exercise of options during the period ended December 31, 2019 and up to the date of this MD&A.

Indemnity and insurance of officers

During or since the end of the year, the Company has not given any indemnity to a current or former officer or auditor against a liability or made any agreement under which an officer or auditor may be given any indemnity of the kind covered by subsection 199A(2) or (3) of the Corporations Act. During the financial period, the Company paid a premium in respect of a contract to insure the Directors and Officers of the Company against a liability to the extent permitted by the Corporations Act. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

Indemnity and insurance of auditor

To the extent permitted by law, the Company has agreed to indemnify the auditors, Ernst & Young, as part of the terms of its audit engagement against claims by third parties arising from the audit. No payment has been made to indemnify the auditors during the financial year. During the financial period, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity.

Proceedings on behalf of the Company

No person has applied to the Court under section 237 of the Corporations Act for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.

Non-audit services

Details of the amounts paid or payable to the auditor for non-audit services provided during the financial period by the auditor are outlined in Note 22 to the financial statements. The non-auditservices fees, excluding GST, were \$1,500 for the period ended December 31, 2019 (2018: \$85,660). The Directors are satisfied that given the total quantum paid for the non-audit services provided during the financial year by Ernst & Young as the external auditor, the general standard of independence for auditors imposed by the Corporations Act was not compromised.

Officers of the Company who are former partners of Ernst & Young

There are no officers of the Company who are former partners of Ernst & Young.

Rounding of amounts

The Company is of a kind referred to in the Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this MD&A have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.

Auditor's independence declaration

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act is set out page 30.

Auditor

Ernst & Young continues in office in accordance with section 327 of the Corporations Act.

{25}------------------------------------------------

For the year ended December 31, 2019