First Tellurium Corp. — Management Reports 2021

Dec 31, 2021

MANAGEMENT DISCUSSION AND ANALYSIS For the three months ended October 31, 2021

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The following discussion and analysis of the operations, results and financial position of First Tellurium Corp. (formerly Deer Horn Capital Inc.) (the “Company” or "First Tellurium") for the three months ended October 31, 2021 should be read in conjunction with the audited financial statements for the three months ended October 31, 2021, which can be found on SEDAR at www.sedar.com.

This Management Discussion and Analysis (“MD&A”) is dated December 30, 2021 and discloses specified information up to that date. The Company is classified as a “venture issuer” for the purposes of National Instrument 51-102. The Company’s financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) in Canada. Unless otherwise cited, references to dollar amounts are in Canadian dollars.

The Company is a reporting issuer in each of the provinces of British Columbia, Alberta and Ontario. Its head office is located at 381 – 1440 Garden Place, Delta, BC, V4M 3Z2. Its registered records office is located at Suite 1100 - 736 Granville Street, Vancouver, BC, V67 1G3.

Forward-looking Information

Certain statements in this MD&A and the documents incorporated by reference contain forward-looking information, which includes forward-looking statements within the meaning of applicable Canadian securities laws. Forward-looking statements 20 are statements which relate to future events or our future performance, including our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, or “potential” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause the Company’s or the industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. No assurance can be given that any of the events anticipated by the forward-looking information and statements will occur or, if they do occur, what benefits the Company will obtain from them. This MD&A contains forward-looking information and statements, which may include but are not limited to: statements with respect to the financial and operating performance of the Company; investments objectives and strategies; the business goals and strategies; forecast operating and financial results; planned capital expenditures; potential future market for products, business prospects and opportunities; costs and timing of developmental new projects; management’s assessment of future plans and operations; and requirements for additional capital.

Overview

First Tellurium is a publicly-traded, Vancouver-based, diversified issuer. The Company has a 50% interest in the Deer Horn Property, located in British Columbia. The Company also has an option to acquire the Colorado Klondike Property, located in south-central Colorado, USA. The Company is refocusing its efforts on mineral exploration and intends to complete further equity financing in order to resume exploration and development on its mineral property interests while seeking additional opportunities in the junior mining sector to expand its property portfolio. The Company also has a 49% equity interest in Cheona Metals Inc., whose focus in on underexplored mineral lands in northern British Columbia. Additionally, the Company has a 49% equity interest in Cheona Health Inc., whose focus helping Indigenous and other communities in Canada achieve better health and well-being.

The Company announced its plans for its proposed 2021 exploration programs. Underlying much of its proposed work for 2021 is a 5-year exploration permit, for which the Company received government approval on November 3, 2021. The permit will be used for drilling and other exploration to expand its Deer Horn property’s current NI 43-101 resource. In addition, the Company also plans further exploration of copper mineralization identified in past prospecting west of the gold-silver-tellurium resource.

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MANAGEMENT DISCUSSION AND ANALYSIS For the three months ended October 31, 2021

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The Company also has exploration plans on its Colorado Klondike property to include mapping and sampling of locally exposed bedrock in roadcuts, and geological follow-up of tellurium samples collected in from 2006 – 2011 with further surface exploration planned.

Cheona Metals Inc. staked mineral claims on the ancestral lands of the Dease River First Nation and the Taku River Tlingit First Nation, totaling 2,893 hectares.

First Tellurium is a member of the Initiative for Responsible Mining Assurance (or “IRMA”).

Strategy, Performance and Outlook

The current world economic situation generated by the COVID-19 global pandemic has generated though significant volatility in the world economy affecting the mining and energy industries as well. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected the Company’s ability to obtain additional financing and complete planned work programs on its properties. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.

Due to the current market conditions and operational restrictions, the Company’s plan to undertake a spring/summer 2020 exploration campaign on its Deer Horn Property was delayed. In August 2020, it retained the services of a mine engineering firm to manage permitting and development for a 10,000tonne bulk sample program. In August 2020, the Company also engaged environmental consultants to undertake preliminary environmental assessments and to support geological and engineering work to further the bulk sample permitting.

The Company has entered into option agreement for the Colorado Klondike Property, located in southcentral Colorado, from Colorado Klondike LLC. The terms of the agreement include consideration for an aggregate US$260,000 cash and the incurrence of an aggregate US$300,000 in exploration expenditures on the property within five years, at which time the option may be fully exercised upon payment of US$1,500,000. Upon full exercise of the option Colorado Klondike LLC will retain a 3% NSR, with the Company reserving the right to buy-back a 1% NSR for consideration of US$1,000,000. The Company will also be required to pay an advance royalty payment of US$60,000 per annum commencing on the first anniversary of the exercise of the option. The Company has made an initial US$50,000 payment towards the option.

The Company continues to further its partnership contributions with Cheona Metals Inc. and is in planning stages for further joint prospecting in northern British Columbia.

Additionally, the Company has a 49% interest in Cheona Health Inc., a privately-held corporation formed to whose focus is to help Indigenous and other communities in Canada achieve better health and wellbeing.

The Company completed two private placements, issuing an aggregate 22,950,000 shares for gross proceeds totaling $1,944,000, of which $140,000 was through the issuance of 400,000 flow-through shares.

Deer Horn Property

The Company intends to resume its exploration efforts on its 50% interest in the Deer Horn Property to include both exploration of additional targets on new showings as well as further in-fill and step-out drilling with a view to upgrade and expand the existing resource, and advance to prefeasibility status.

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MANAGEMENT DISCUSSION AND ANALYSIS For the three months ended October 31, 2021

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On June 6, 2018, the Company announced results of a revised and updated Preliminary Economic Assessment (“PEA”) for the property. The amended and restated PEA, prepared in accordance with NI 43-

101, is available in the Company’s disclosure record located on SEDAR (www.sedar.com). The PEA estimated that the project will carry a 9-year mine life with a 1.6-year payback period.

The PEA describes a 74,000 tonnes per year seasonal, open-pit mining operation and conventional flotation mill which would produce a combined gold/silver/tellurium concentrate. The Project may be permitted under the Mines Act of BC as a small mine, without the requirement for a provincial environmental assessment (EA) as the project mining tonnage does not exceed the legislated reviewable project threshold of 75,000 tonnes per year. Waste to ore cut-offs were determined using metal prices of US$1,300 per ounce gold, US$17 per ounce silver, US$100 per kilogram tellurium, US$3 per pound copper and $1 per pound zinc for net smelter return calculations. Net smelter return cut-off for the PEA pit delineated resource was assumed to be $29/tonne.

The initial capital cost of the Project is estimated to be $28.3 million. Average mine, process and G&A operating costs over the Project’s life (including pre-stripping and waste handling) are estimated to be $94 per tonne milled. A base case economic evaluation was undertaken incorporating historical three-year trailing averages for metal prices as of May 31, 2018.

It should be noted that this PEA is preliminary in nature as it includes inferred mineral resources which are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the PEA forecast will be realized or that any of the resources will ever be upgraded to reserves. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

The Company also received approval for a five-year exploration permit in addition to its intended permit application for a 10,000 bulk sample. The permit will be used for drilling and other exploration to expand the property’s current NI 43-101 resource of gold, silver and tellurium. In August 2020, the Company engaged environmental consultants to undertake preliminary environmental assessments relating to the bulk sampling and geological and engineering consultants to further the bulk sample permitting.

Colorado Klondike Property

The Company is currently in the planning phases for an initial work program on the Colorado Klondike Property to include surface sampling, prospecting and mapping.

Cheona Metals Inc.

The Company entered into a partnership with a First Nation entrepreneur, forming a company, Cheona Metals Inc. (“Cheona Metals”), in which it holds a 49% equity interest. Cheona Metals will focus on exploration in highly prospective areas in northern British Columbia.

In July 2020, Cheona Metals undertook prospecting activity near the “Golden Horseshoe,” or Golden Triangle region of northern British Columbia. The prospecting focused on ground that had seen little, if any, prior investigation by prospectors. The Company anticipates Cheona Metals will have results and follow-up exploration plans in early 2022. To date, Cheona Metals has staked two mineral claims totaling 2,403 hectares in the Dease River region of British Columbia and one mineral claim in the Atlin District of British Columbia totaling 490 hectares.

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MANAGEMENT DISCUSSION AND ANALYSIS For the three months ended October 31, 2021

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Cheona Health Inc.

The Company entered into a partnership Cheona Health Inc. (“Cheona Health”), in which it holds a 49% equity interest. Cheona Health’s focus is to help Indigenous and other communities in Canada achieve better health and well-being.

Revenue and Expense Summary

Expenses – Three months ended October 31, 2021

General and administrative expenses totaled $245,431 for the period ended October 31, 2021 compared to $106,031 for the period ended October 31, 2020. Details of the largest changes and significant general and administrative items are as follows:

• Advertising and promotion increased by $2,734 to $4,800 from $2,066 and is due to the increased efforts for advertising.

• Exploration expenses decreased by $19,548 to $nil from $19,548 as a result of no exploration activity undertaken during the period ended October 31, 2021 over the prior period.

• Investor relations and shareholder information decreased by $1,160 to $3,800 from $4,960 and is due to reduced investor relations costs.

• Office and miscellaneous expenses decreased minimally by $246 to $5,265 from $5,511.

• Professional fees increased by $549 to $549 from $nil and is attributable to amounts due for filing of reports.

• Regulatory and filing fees increased by $20,237 to $24,055 from $3,818 and is due to costs incurred for DTC eligibility in connection with a potential listing in the United States.

In addition, the Company recorded $147,327 in share based compensation for options granted during the period as opposed to $17,169 in the period ended October 31, 2020.

Interest expense increased slightly to $5,767 for the period ended October 31, 2021 compared to $4,625 for the same period 2020 due mainly to interest and finance charges relating to professional fees.

There was an equity loss of $7,368 for the period ended October 31, 2021 compared to $nil for the period ended October 31, 2020, relating to the Company’s share of the equity loss from Cheona Metals Inc.

Exploration Expenses

The Company incurred no exploration expenses during the period ended October 31, 2021 (2020 - $19,548).

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MANAGEMENT DISCUSSION AND ANALYSIS For the three months ended October 31, 2021

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Summary of Quarterly Results

Quarter Ended	2021 Oct. 31 Q4 $	2021 July 31 Q4 $ 2021 Apr. 30 Q3 $ 2021 Jan. 31 Q2 $ 2020 Oct. 31 Q1 $	2020 July 31 Q4 $ 2020 Apr. 30 Q3 $ 2020 Jan. 31 Q2 $
G&A Expenses (recoveries) Share-based payments Loss and comprehensive loss Net Loss -per share -per share (diluted) Total Assets Working Capital (Deficiency) Share Capital: Authorized Outstanding Warrants Options	98,104 147,327 245,431 $0.01 - 992,815 34,061 Unlimited 38,068,431 22,057,500 3,700,000	136,689 70,777 169,122 88,862 - - - 17,169 136,689 70,777 169,122 106,031 $0.005 - 0.005 - - - - - 219,267 247,373 224,689 237,147 (701,632) (562,348) (288,896) (450,265) Unlimited Unlimited Unlimited Unlimited 32,343,431 32,343,431 32,243,431 28,443,431 16,232,500 16,232,500 16,232,500 12,432,500 2,150,000 2,270,000 2,270,000 2,270,000	102,557 134,904 108,017 - 78,309 5,973 102,557 213,213 113,990 $0.01 $0.01 $0.01 - - 293,245 224,512 134,167 (304,998) (389,742) (584,483) Unlimited Unlimited Unlimited 28,443,431 24,843,431 18,193,000 12,673,500 10,673,500 2,423,500 2,120,000 2,120,000 1,070,000

The variation in quarterly losses has been relatively stable throughout the prior quarters and quarterly increases are due mainly to period expenses incurred for share-based payments and losses recorded due to settlement of debt. It is anticipated that there will be an increase to quarterly losses as exploration and other corporate activity resumes until such time as the Company is able to generate revenues from its mineral property interests.

Liquidity and Capital Resources

First Tellurium is currently in the exploration stage and earns no revenue from operations. The Company invests its cash and cash equivalents with major Canadian financial institutions with investment grade credit ratings. First Tellurium has no outstanding bank debt as at October 31, 2021.

As at October 31, 2021, the Company has interest-bearing debenture loans in the principal amount of $182,000. The loans bear an annual interest rate of 10%, payable annually to the debenture holders and mature on March 2, 2021. The Company is currently negotiating repayment of the loans. The Company was previously not in compliance with the terms of the loan as it has not paid the annual interest to the debenture holders in accordance with the terms of the loan, resulting in the loans being due on demand. In fiscal 2018, the Company made the required interest payments under the loan agreements, however; the Company has not received a waiver of the previous breach of terms and, accordingly, the loans are

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MANAGEMENT DISCUSSION AND ANALYSIS For the three months ended October 31, 2021

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presented as current. The Company is therefore currently in default for interest payments due for the two most previously-ended fiscal years.

At October 31, 2021, First Tellurium had $718,670 in cash and cash equivalents (July 31, 2021 - $2,504) and working capital of $34,061 (July 31, 2020 – working capital deficiency of $701,632). Additional debt or equity financing will be required to meet the Company’s business objectives, to address its working capital deficiency and to service its debt.

First Tellurium assesses its financing requirements and its ability to access debt or equity markets on an ongoing basis. Given the current conditions of the financial markets, the company will seek to maintain financial flexibility and will monitor and assess its financing requirements as its activities progress. The Company’s ability to access the equity or debt markets in the future may be affected by prolonged market instability. The inability to access the equity or debt markets for sufficient capital, at acceptable terms, and within required timeframes, could have a materially adverse effect on the Company`s financial condition, results of operations and prospects.

Future exploration and subsequent development of the Company’s properties beyond currently planned expenditures will depend on the Company’s ability to obtain additional financing. The Company has limited financial resources and there is no assurance that additional funding will be available which could result in the delay or indefinite postponement of further exploration.

The Company’s financial performance is dependent on many external factors. The Company expects that any revenues it may earn from its operations in the future will be from the sale of minerals. Both prices and markets for metals and minerals are cyclical, difficult to predict, volatile, subject to government price fixing and controls and respond to changes in domestic and international political, social, and economic environments. In addition, the availability and cost of funds for exploration, development and production costs are difficult to predict. These changes in events could materially affect the financial performance of the Company.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

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MANAGEMENT DISCUSSION AND ANALYSIS For the three months ended October 31, 2021

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Related Party Transactions - Key Management Compensation

The Company’s related parties consist of companies with directors and officers in common and companies owned in whole or in part by executive officers, directors or close family members of those individuals as follows:

Name	Nature of transactions
	Management fees charged as CEO, expense
Docherty Capital Corp. (Tyrone Docherty)	allowances, share-based compensation
Saulnier Business Consulting LLC (Pamela Saulnier)	Management fees charged as CFO, expense
	allowances, , share-based compensation
Josef Fogarassy	Consulting fees charged by a director, expense allowances, share-based compensation
Allen Schwabe	Directors fees
Matt Wayrynen	Directors fees

The Company incurred the following fees with individuals and / or companies owned, or partially owned, by key management which the Company defines as officers and directors.

For the period ended	Oct. 31, 2021	Oct. 31, 2020
Management fees CEO	$ 22,500	$ 22,500
Management fees CFO	7,500	7,500
Consulting fees	15,000	15,000
Rent (included in office and miscellaneous)	4,500	4,000
Share-based compensation	44,000	-
Total	$ 93,500	$ 49,000

The Company owes amounts to key management personnel and other related parties as follows:

Three months ended October 31,	2021	2020
Due to key management or companies controlled by
key management personnel	$ 328,786	$ 244,294
Total	$ 328,786	$ 244,294

Balances owed to related parties are unsecured and non-interest bearing.

During fiscal 2021, the Company settled related party debt of $50,000 by way of issuance of units with a fair value of $124,277, resulting in a loss on settlement of debt of $74,277. The terms of the units and measurement of compensatory warrants are described in Note 13.

The Company has a long term loan receivable from an associated company that has been allocated to the investment.

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MANAGEMENT DISCUSSION AND ANALYSIS For the three months ended October 31, 2021

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FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Classification of financial instruments

Financial instruments measured at fair value are classified into one of three levels using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value (“FV”) hierarchy has the following levels:

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

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

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

The Company’s financial instruments consist of cash, receivables, accounts payable and accrued liabilities, loans payable and due to related parties.

Fair values

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.

The fair value of cash is measured at Level 1 of the fair value hierarchy. The carrying value of receivables, reclamation deposit and accounts payable and accrued liabilities, loans payable and due to related parties approximate their fair value because of the short term nature of these instruments.

Financial instrument risk exposure and risk management

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company considers the fluctuations of financial markets and seeks to minimize potential adverse effects on financial performance. The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the risk management process.

Credit risk

Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligation. The Company’s exposure to credit risk includes cash and receivables. The Company reduces its credit risk by maintaining its bank accounts at large international financial institutions. The Company’s receivables consist primarily of tax receivables due from federal government agencies. The maximum exposure to credit risk is equal to the fair value or carrying value of the financial assets.

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MANAGEMENT DISCUSSION AND ANALYSIS For the three months ended October 31, 2021

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Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. The Company’s ability to continue as a going concern is dependent on management’s ability to raise required funding through future equity issuances or debt financings. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities. Management and the Board of Directors are actively involved in the review, planning and approval of significant expenditures and commitments. The Company is exposed to liquidity risk.

Interest rate risk

The Company has cash balances but no external debt. The Company’s current policy is to invest excess cash in investment grade short-term demand deposit certificates issued by its banking institutions. The company periodically monitors the investments it makes and is satisfied with the credit rating of its banks. The Company is marginally exposed to interest rate risk.

Foreign currency risk

The Company is not exposed to foreign currency risk.

Commodity price risk

The Company is exposed to price risk with respect to commodity and equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earnings due to movements in individual equity prices or general movements in the level of the stock market. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices, individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.

OTHER MD&A REQUIREMENTS

Additional Disclosure for Venture Issuers without Significant Revenue:

The following is a breakdown of the material costs incurred:

	Three months ended Oct. 31, 2021 Three months ended Oct. 31, 2020
General and Administration Expenses	$ 98,104 $ 106,031

Disclosure of Outstanding Share Data

The Company’s authorized share capital consists of unlimited common shares without par value.

As at October 31, 2021 the Company had 35,068,431 issued and outstanding common shares and as at December 30, 2021 the Company had 55,575,931 issued and outstanding common shares.

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MANAGEMENT DISCUSSION AND ANALYSIS For the three months ended October 31, 2021

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The following is a summary of stock options outstanding as at December 30 , 2021 and October 31, 2021:

Expiry Date	Exercise Price Per Share	Number of Shares Remaining Subject to Options (December 30, 2021)	Number of Shares Remaining Subject to Options (October 31, 2021)
April 5, 2028	$0.14	850,000	850,000
January 27, 2030	$0.05	100,000	100,000
March 6, 2030	$0.10	1,050,000	1,050,000
August 6, 2030	$0.10	150,000	150,000
October 4, 2030	$0.11	850,000	850,000
October 18, 2030	$0.11	700,000	700,000
Total		3,700,000	3,700,000

The following is a summary of warrants outstanding as at December 30, 2020 and October 31, 2020:

Expiry Date	Exercise Price Per Share	Number of Shares Remaining Subject to Warrants (December 30, 2021)	Number of Shares Remaining Subject to Warrants (October 31, 2021)
June 1, 2022	$0.10	2,000,000	2,000,000
March 13, 2022	$0.10	3,050,000	3,050,000
February 26, 2022	$0.10	1,300,000	1,300,000
February 19, 2022	$0.10	1,600,000	1,600,000
February 19, 2022	$0.10	2,300,000	2,300,000
January 10, 2022	$0.10	1,800,000	2,182,500
November 6, 2022	$0.10	2,600,000	2,600,000
December 11, 2022	$0.10	1,200,000	1,200,000
October 15, 2023	$0.12	5,825,000	-
November 2, 2023	$0.12	6,350,000	-
November 16, 2023	$0.12	3,000,000	-
November 26, 2023	$0.12	7,375,000	-
December 30, 2023	$0.45	400,000	-
Total		39,182,500	16,232,500

Management Responsibility for the Financial Statements

The Company’s certifying officers, based on their knowledge, having exercised reasonable diligence, are also responsible to ensure that these filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by these filings, and these financial statements together with the other financial information included in these filings. The Board of Directors approves the Financial Statements and MD&A and ensures that management has discharged its financial responsibilities.

Additional Information

Additional information relating to the Company is available on SEDAR at www.sedar.com.

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