GFG Resources Inc. — Interim / Quarterly Report 2021

Feb 17, 2021

GFG Resources Inc.

Condensed Interim Consolidated Financial Statements (Unaudited)

For the three and six months ended December 31, 2020 and 2019 Expressed in Canadian Dollars

NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited condensed interim consolidated financial statements of GFG Resources Inc. for the three and six months ended December 31, 2020 and 2019 have been prepared by the management of the Company and approved by the Company's Audit Committee and the Company's Board of Directors.

Under National Instruments 51-102, Part 4, subsection 4.3 (3) (a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that an auditor has not reviewed the financial statements.

The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company's management.

The Company's independent auditor has not performed a review of these financial statements.

GFG RESOURCES INC. Condensed Interim Consolidated Statements of Financial Position

(Unaudited - Expressed in Canadian Dollars)

	December 31,	June 30,
	2020	2020
Assets	$	$
Current Assets
Cash (Note 3)	3,875,641	7,029,509
Receivables (Note 4)	456,924	78,763
Prepaid expenses	100,830	86,204
	4,433,395	7,194,476
Deposits	25,895	28,519
Exploration and evaluation assets (Note 5)	31,690,341	29,490,674
Equipment (Note 6)	88,663	108,715
Reclamation bonds (Note 7)	282,014	447,544
	36,520,308	37,269,928
Liabilities and Shareholders' EquityCurrent Liabilities
Accounts payable and accrued liabilities (Note 8)	337,344	345,018
Flow-through share premium liabilities (Note 9)	922,323	1,618,133
Lease liability (Note 10)	31,139	28,480
Advance (Note 11)	20,044	20,044
	1,310,850	2,011,675
Non-current LiabilitiesLoan payable (Note 12)	40,000	40,000
Lease liability (Note 10)	31,764	48,132
Asset retirement obligation (Note 13)	327,500	327,091
	1,710,114	2,426,898
Shareholders' Equity
Share capital (Note 14)	42,954,507	42,948,047
Reserve (Note 14)	2,217,216	2,158,593
Accumulated other comprehensive loss	(428,505)	(428,505)
Deficit	(9,933,024)	(9,835,105)
	34,810,194	34,843,030
	36,520,308	37,269,928

Commitments (Note 18)

"Patrick Downey" "Arnold Klassen"

Patrick Downey, Chair Arnold Klassen, Audit Chair

GFG RESOURCES INC.

Condensed Interim Consolidated Statements of Net Loss and Comprehensive Loss

(Unaudited - Expressed in Canadian Dollars)

	Three Months Ended		Six Months Ended
	December 31,2020	December 31,2019	December 31,2020	December 31,2019
	$	$	$	$
Expenses
Bank charges and interest	485	836	1,057	1,467
Consulting fees	-	21,036	-	21,036
Depreciation (Note 6)	10,026	16,659	20,052	33,199
Directors' fees (Note 15)	16,095	18,160	34,271	36,321
Insurance	11,793	8,354	23,643	16,531
Investor relations (Note 15)	117,177	137,624	221,423	218,478
Memberships and dues	3,297	3,620	8,508	4,514
Professional fees	59,069	13,332	84,984	28,766
Office	8,234	10,282	15,200	17,265
Regulatory and filing fees	5,134	6,097	13,983	12,040
Rent	29,974	-	60,133	-
Salaries and benefits (Note 15)	107,240	104,583	225,705	227,612
Share-based compensation (Note 14)	23,742	67,291	52,460	167,011
Travel	2,175	8,404	5,993	28,140
	(394,441)	(416,278)	(767,412)	(812,380)
Other income (loss)
Interest expense (Note 10)	(2,534)	(6,210)	(5,324)	(12,856)
Recovery of premium on flow-through
shares (Note 9)	366,491	238,773	695,810	349,623
Foreign exchange loss	(18,043)	(25,197)	(39,279)	(10,856)
Interest and other income	5,971	10,814	18,286	41,814
	351,885	218,180	669,493	367,725
Net loss and comprehensive loss for the
period	(42,556)	(198,098)	(97,919)	(444,655)
Basic and diluted loss per share	(0.00)	(0.00)	(0.00)	(0.00)
Weighted average number of commonshares outstanding	132,564,970	105,975,659	132,557,226	100,515,154

GFG RESOURCES INC.

Condensed Interim Consolidated Statements of Changes in Shareholders' Equity

For the Six Months Ended December 31, 2020 and 2019

(Unaudited - Expressed in Canadian Dollars)

				AccumulatedOther
	Number of			Comprehensive
	Shares Issued	Share Capital$	Reserve$	Loss$	Deficit$	Total$
Balance at June 30, 2020	132,549,481	42,948,047	2,158,593	(428,505)	(9,835,105)	34,843,030
Share-based compensation (Note 14)	-	-	61,083	-	-	61,083
Exercise of stock options (Note 14)	25,000	4,000	-	-	-	4,000
Transfer to share capital	-	2,460	(2,460)	-	-	-
Net loss for the period	-	-	-	-	(97,919)	(97,919)
Balance at December 31, 2020	132,574,481	42,954,507	2,217,216	(428,505)	(9,933,024)	34,810,194
Balance at June 30, 2019	95,054,648	35,380,921	2,659,915	(428,505)	(9,027,675)	28,584,656
Shares issued for cash (Note 14)	14,196,368	3,183,353	-	-	-	3,183,353
Share issue costs (Note14)	-	(76,302)	-	-	-	(76,302)
Flow-through share premium liability (Note9)	-	(628,176)	-	-	-	(628,176)
Share-based compensation (Note14)	-	-	187,877	-	-	187,877
RSU redemption (Note 14)	600,000	840,000	(840,000)	-	-	-
Net loss for the period	-	-	-	-	(444,655)	(444,655)
Balance at December 31, 2019	109,851,016	38,699,796	2,007,792	(428,505)	(9,472,330)	30,806,753

GFG RESOURCES INC.

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited - Expressed in Canadian Dollars)

		Six Months Ended
	December 31,2020	December 31,2019
	$	$
Operating activities
Net loss for the period	(97,919)	(444,655)
Items not affecting cash:
Accretion interest	409	3,932
Depreciation	4,617	6,042
Depreciation – right-of-use asset	15,435	27,157
Foreign exchange	26,250	12,521
Recovery of flow-through share premium	(695,810)	(349,623)
Share-based compensation	52,460	167,011
Interest expense	5,324	12,856
Changes in non-cash working capital items:
Receivables	(59,336)	(40,678)
Prepaid expenses and deposits	(12,002)	11,480
Accounts payable and accrued liabilities	244,249	232,597
Net cash used in operating activities	(516,323)	(361,360)
Investing activitiesEquipment	-	(4,200)
Advances from Newcrest	-	79,846
Exploration and evaluation assets, net of recoveries	(2,761,792)	(861,672)
Reclamation bond	139,280	-
Net cash used in investing activities	(2,622,512)	(786,026)
Financing activities
Exercise of stock options	4,000	-
Proceeds from share issuances, net of issue costs	-	3,107,051
Lease payments	(19,033)	(35,693)
Net cash provided by (used in) financing activities	(15,033)	3,071,358
Net increase (decrease) in cash	(3,153,868)	1,923,972
Cash, beginning of period	7,029,509	1,561,317
Cash, end of period	3,875,641	3,485,289
Non-cash transactions:	$	$
Exploration and evaluation assets in accounts payable at period end	251,923	21,975
Exploration and evaluation assets in receivables at period end	318,825	-
Share-based compensation pertaining to exploration and evaluation assets	8,623	20,866

NOTE 1 - Nature and Continuance of Operations

GFG Resources Inc. ("GFG" or the "Company") was incorporated on January 24, 2012, under the laws of the Province of British Columbia, Canada. The principal business of the Company is to acquire, explore and develop interests in exploration and evaluation assets. The Company's head office address is Suite 202 – 640 Broadway Avenue, Saskatoon, Saskatchewan, S7N 1A9. The Company's common shares are listed under the symbol "GFG" on the TSX Venture Exchange ("TSX-V") in Canada and on the OTCQB under the symbol "GFGSF" in the United States.

The Company's operations could be adversely affected by the effects of a widespread global outbreak of a contagious disease, including the recent outbreak of respiratory illness caused by COVID-19. The Company cannot accurately predict the impact COVID-19 will have on its ability to raise funds, its operations, the ability of others to meet their obligations with the Company, due to uncertainties relating to the geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions.

These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. The Company's ability to continue as a going concern is dependent upon its ability to raise additional funds which is strongly influenced by exploration success and capital market conditions. An inability to raise additional funds will cast significant doubt on the Company's ability to continue as a going concern. These financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate.

NOTE 2 - Basis of Preparation and Statement of Compliance

The condensed interim consolidated financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and the interpretations issued by the IFRS Interpretations Committee ("IFRIC"). These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 – Interim Financial Reporting.

These condensed interim consolidated financial statements do not include all of the information required for full IFRS financial statements and therefore should be read in conjunction with the Company's most recent annual consolidated financial statements for the year ended June 30, 2020, which were prepared in accordance with IFRS as issued by IASB.

The accounting policies and methods of application applied by the Company in these condensed interim consolidated financial statements are the same as those applied in the Company's most recent annual consolidated financial statements for the year ended June 30, 2020.

The condensed interim consolidated financial statements were authorized for issuance by the Board of Directors on February 12, 2021.

Basis of measurement

These financial statements have been prepared on the historical cost basis except if otherwise noted. In addition, these financial statements have been prepared using the accrual basis of accounting except for cash flow information. All figures are presented in thousands of Canadian dollars unless otherwise noted.

Basis of consolidation

The condensed interim consolidated financial statements incorporate the financial statements of GFG and its subsidiaries listed in the following table:

NOTE 2 - Basis of Preparation and Statement of Compliance (continued)

Name of Subsidiary	Country of Incorporation	Ownership	Principle Activities
GFG Resources (US) Inc.	USA	100%	Mineral exploration
JMO Exploration (US) Inc.	USA	100%	Mineral exploration

Subsidiaries are those entities which GFG controls by having the power to govern their financial and operating policies. Subsidiaries are fully consolidated from the date on which control is obtained by GFG and are deconsolidated from the date that control ceases. All intercompany transactions, balances, income and expenses are eliminated upon consolidation.

Critical judgements and estimates

In the application of the Company's accounting policies management is required to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the year. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes could materially differ from these estimates.

The critical judgments and estimates that management have made in the process of applying the Company's accounting policies are disclosed in the Company's annual consolidated financial statements for the year ended June 30, 2020.

NOTE 3 - Cash

	December 31,2020	June 30,2020
	$	$
Cash on deposit at bank	3,854,910	7,009,465
Cash held in trust account	20,731	20,044
	3,875,641	7,029,509

NOTE 4 - Receivables

	December 31,	June 30,
	2020	2020
	$	$
GST	131,311	51,467
Other receivables	325,613	27,296
	456,924	78,763

At December 31, 2020, Other receivables includes $318,825 due as a result of the monetization of a property right on certain Pen Gold properties.

NOTE 5 - Exploration and Evaluation Assets

The following is a continuity of the Company's exploration and evaluation expenditures:

	WyomingRattlesnake	OntarioPen & Dore	Total
	$	$	$
Balance at June 30, 2020	10,640,667	18,850,007	29,490,674
Additions:
Exploration expenses
Claim maintenance fees	361,359	7,050	368,409
Consulting	4,171	603,607	607,778
Salaries and benefits	106,507	224,807	331,314
Other	4,555	-	4,555
Drilling	-	962,071	962,071
Geophysics	-	63,863	63,863
General field expenses	-	180,502	180,502
Monetization of property right	-	(318,825)	(318,825)
	476,592	1,723,075	2,199,667
Balance at December 31, 2020	11,117,259	20,573,082	31,690,341

	Wyoming	Ontario
	Rattlesnake	Pen & Dore	Total
	$	$	$
Balance at June 30, 2019	10,865,542	16,313,051	27,178,593
Additions:
Exploration expenses
Claim maintenance fees	409,735	25,376	435,111
Consulting	40,199	750,574	790,773
Salaries and benefits	495,662	398,185	893,847
Management fees	378,967	-	378,967
Other	206,997	-	206,997
Drilling	2,934,116	853,894	3,788,010
Geochem	175,078	-	175,078
Geophysics	-	239,241	239,241
General field expenses	43,301	269,686	312,987
Travel and accommodation	28,872	-	28,872
Asset retirement obligation	11,983	-	11,983
	4,724,910	2,536,956	7,261,866
Recovery of Exploration and evaluation
assets expenditures	(4,949,785)	-	(4,949,785)
	(224,875)	2,536,956	2,312,081
Balance at June 30, 2020	10,640,667	18,850,007	29,490,674

Ontario Properties

Pen Gold Project

West Porcupine Property

On December 21, 2017, the Company purchased 100% of Probe Metal Inc's ("Probe") interest in the West Porcupine property, a land package consisting of 198 claims located southwest of Timmins, Ontario, in exchange for 6,477,883 common shares valued at approximately $0.50 per share, for total consideration, including transaction costs, of $3,293,426. Several NSRs exist on certain claims within the West Porcupine property and are described below:

West Porcupine

The West Porcupine has 0.5%, 1.0% and 2.0% NSRs on certain mineral claims. The Company has the right to re-purchase these NSRs for $250,000, $1,000,000 and $1,500,000, respectively.

Ivanhoe

There is a 4% NSR over certain mineral claims of the Ivanhoe property. The Company has the right to purchase 3% of the NSR for $3,000,000. Also, the Company is to make a $1,000,000 payment upon the filing of a National Instrument 43-101 compliant technical report which discloses a mineral reserve (proven and probable) totaling a minimum of 1,000,000 ounces of gold.

Ross

There is a 2% NSR over certain mineral claims of the Ross property. The Company has the right to purchase the NSR for $3,000,000.

Kenogaming Township

There is a 2% NSR over certain mineral claims of the Kenogaming Property. The Company has the right to purchase the NSR for $3,000,000.

The Company also agrees to pay the Mattagami First Nation and Flying Post First Nation the following:

• 2% of the first $5,000,000 eligible costs of the exploration activities, and
• 1% of the exploration costs for any amount greater than $5,000,000.

In addition to these properties, the West Porcupine Property acquisition also included claims staked by Probe for which there is no NSR.

Rapier Gold Inc.

On February 28, 2018, the Company completed the plan of arrangement with Rapier pursuant to which GFG acquired all of the outstanding shares of Rapier. Pursuant to the completion of the acquisition the Company acquired Rapier's Pen Gold Project, southwest of Timmins, Ontario. On June 30, 2020, Rapier was dissolved and GFG assumed the commitments that were originally to be fulfilled by Rapier.

Further detail of significant properties is provided below:

Pen Gold East

The Company owns a 100% interest in the Pen Gold East property, located adjacent to the northeastern corner of Pen Gold South in Kenogaming Township, Porcupine Mining District. Pursuant to an option agreement entered into on June 1, 2012, total payments of $40,000 were required and paid, which payments are deductible against a potential $200,000 future payment if greater than 200,000 ounces of gold are mined. The Company has the right to purchase one-half of a 2% NSR for $2,000,000.

Pen Gold Project (continued)

Pen Gold South

The Company has a 100% interest in the Pen Gold South property, located in the Kenogaming, Penhorwood and Keith Townships in Ontario, which is subject to a 2.75% NSR. The Company has the right to purchase 2% of the NSR for $3,000,000.

Pen Gold North

The Company has a 100% interest in the Pen Gold North property which is subject to a 2% production royalty. If the Company files a National Instrument 43-101 compliant measured and indicated gold resource on the property, a payment of $5 per resource ounce is payable, up to a maximum of $5,000,000. Further, an additional $5 per resource ounce is due, subject to consumer price index adjustments, if the Company subsequently completes a positive feasibility study and arranges financing to construct a mine on the property.

Porphyry Hill

The Company has a 100% interest in the Porphyry Hill property, located in the Reeves township, which is subject to a 2% NSR. The Company has the right to purchase one-half of the 2% NSR for $1,000,000, subject to certain cost of living adjustments.

Reeves

The Company has a 100% interest in the Reeves property, located in the Reeves Township, Porcupine Mining District, which is subject to a 2% NSR. The Company has the right to purchase one-half of the 2% NSR for $1,000,000.

In addition to these properties, the Rapier acquisition also included staked claims for which there is no NSR.

The Company also assumed the obligation between Rapier, the Flying Post First Nation and Mattagami First Nation. Under the terms of the agreement, the Company pays 2% of all costs of the exploration program annually to the Flying Post and Mattagami First Nations.

Sewell Property

On June 25, 2018, the Company purchased, from a subsidiary of Alamos Gold Inc., 100% of its interest in the Sewell property, a land package consisting of one legacy claim and five patented claims covering approximately 3,000 hectares adjacent to the Company's Pen Gold Project, in exchange for 390,930 common shares valued at approximately $0.24 per share, for total consideration, including transaction costs, of $93,823.

The Sewell property is subject to a 1% NSR.

Dore Gold Project

Swayze Property

On December 21, 2017, the Company purchased, from Osisko Mining Inc. ("Osisko"), 100% of its interest in the Swayze property, a land package consisting of 56 claims, in exchange for 1,110,494 common shares with a fair value of $0.50 per share, for total consideration, including transaction costs, of $590,527.

The Company is subject to a 1% NSR on the Swayze property. The Company has the right to purchase the NSR for $1,000,000.

The Company also agreed to assume the obligation between Osisko and the Flying Post First Nation. Under the terms of the agreement, the Company pays 1% of all costs of the exploration program annually.

Dore Gold Project (continued)

Subsequent to acquiring the Swayze Property, the Company acquired additional adjacent claims over several staking campaigns. The staked claims are held 100% by the Company and not subject to any NSR. The Swayze Property and these additional staked claims constitute the Dore Gold Project.

Wyoming Rattlesnake Properties

Rattlesnake Property

In July 2015, the Company entered into an agreement to acquire a 100% interest in certain claims and Wyoming State leases comprising the Rattlesnake Property in Wyoming ("Rattlesnake Acquisition").

Total consideration consisted of:

• (1) Cash payments of US$714,000 (paid);
• (2) 2,000,000 shares (issued);
• (3) Promissory note of US$600,000 (paid); and
• (4) 1,500,000 shares provided that the Rattlesnake Property contains an aggregate mineral resource of over 1,000,000 ounces of gold.

The Rattlesnake Property is subject to a 2% NSR. The Company has the right to purchase one-half of the NSR for US$1,000,000.

In October 2015, the Company entered into an agreement to acquire a 100% interest in certain mining claims and leases adjacent to the Rattlesnake Property in Wyoming ("Rattlesnake Claims").

Total consideration consisted of:

• (1) Cash payments of US$150,000 (paid);
• (2) 1,400,000 shares (issued);
• (3) 375,000 shares upon drilling of a discovery hole on the Endurance Claims prior to October 8, 2022; and
• (4) 375,000 shares upon delivery of a National Instrument 43-101 compliant resource exceeding 500,000 ounces of gold at the Endurance Claims, prior to October 8, 2022.

The acquisition of the Rattlesnake Claims was subject to an underlying option agreement to acquire a 100% interest in certain lode mining claims and Wyoming state leases. The remaining terms of the option agreement assumed by the Company are as follows:

• Cash payments of US$70,000 (paid);
• 97,000 shares (issued); and
• Exploration expenditures of US$260,000 incurred on or before December 31, 2015 (incurred).

The Rattlesnake Claims are subject to 2% NSR on production arising from mining claims and 1% NSR on production arising from mining leases. In July 2016, the Company exercised its option to buy-down a certain NSR for US$50,000.

Pursuant to the exercise of its option to buy-down a certain NSR royalty, the Company fulfilled its obligations under the terms of the agreements. The Company has been assigned all rights, title and interest in and to the claims.

The Company has the right to purchase one-half of the NSR for US$1,500,000.

IEV Property

In October 2016, the Company acquired a 100% interest in additional mining claims and leases adjacent to the Rattlesnake Property in Wyoming ("IEV Property") for US$39,423 and 100,000 shares with a fair value of US$25,000. The IEV Property

Wyoming Rattlesnake Properties (continued)

is subject to an NSR of 1% on production arising from mining claims and 0.5% on production arising from mining leases. The Company can purchase one-half of the NSR for US$250,000.

Option and Earn-in Agreement

On September 10, 2018, the Company completed an option and earn-in agreement (the "JV Agreement") with Newcrest Resources Inc., a wholly-owned subsidiary of Newcrest, to advance the RSH Project, which consists of the Wyoming Rattlesnake Properties. Under the terms of the JV Agreement, Newcrest had the right to acquire, in multiple stages, up to 75% of the RSH project by completing a series of exploration and development expenditures ("Exploration Expenditure") and making staged option cash payments totaling US$1,250,000 to the Company.

On April 3, 2020, Newcrest notified the Company that it was withdrawing from the JV Agreement. Newcrest had incurred US$4,851,005 of Exploration Expenditures pursuant to the JV Agreement. The RSH Project remains 100% owned and controlled by the Company.

NOTE 6 - Equipment

	Right-of use
	asset	Vehicles	Equipment	Total
	$	$	$	$
Cost
June 30, 2019	-	66,683	27,990	94,673
Additions	102,904	-	4,200	107,104
June 30, 2020	102,904	66,683	32,190	201,777
Additions	-	-	-	-
December 31, 2020	102,904	66,683	32,190	201,777
Accumulated depreciation
June 30, 2019	-	39,585	10,311	49,896
Depreciation	30,871	8,130	4,165	43,166
June 30, 2020	30,871	47,715	14,476	93,062
Depreciation	15,435	1,771	2,846	20,052
December 31, 2020	46,306	49,486	17,322	113,114
Net book value
June 30, 2020	72,033	18,968	17,714	108,715
December 31, 2020	56,598	17,197	14,868	88,663

NOTE 7 - Reclamation Bonds

On its RSH Project, the Company has reclamation bonds in the amount of $282,014 (June 30, 2020 - $447,544).

NOTE 8 - Accounts Payable and Accrued Liabilities

	December 31,2020	June 30,2020
	$	$
Accounts payable	263,042	280,693
Accrued liabilities	74,302	64,325
	337,344	345,018

NOTE 9 - Flow-through Share Premium Liabilities

	December 31,2020	June 30,2020
	$	$
Balance, beginning of period	1,618,133	120,081
Premium liabilities recognized on flow-through shares issued	-	2,221,091
Settlement of flow-through share premium liabilities
December 2018 issuance	-	(120,081)
October 2019 issuance	(25,218)	(602,958)
May 2020 issuance	(670,592)	-
Balance, end of period	922,323	1,618,133

In May 2020, the Company issued 15,818,420 flow-through shares for gross proceeds of $4,598,415. These flow-through shares issued in a non-brokered private placement were issued at a premium to the market price in recognition of the tax benefits accruing to subscribers. The flow-through premium liability was calculated to be $1,592,915. The flow-through premium is derecognized through income as the qualifying expenditures are incurred. During the six months ended December 31, 2020, the Company satisfied $670,592 of the commitment by incurring qualifying expenditures of $1,935,859. As of December 31, 2020, the Company is committed to incur a further $2,662,556 of qualifying expenditures by December 31, 2021.

In October 2019, the Company issued 8,560,813 flow-through shares and units for gross proceeds of $2,168,954. These flowthrough shares and units issued in a non-brokered private placement were issued at a premium to the market price in recognition of the tax benefits accruing to subscribers. The flow-through premium liability was calculated to be $628,176. The flow-through premium is derecognized through income as the qualifying expenditures are incurred. As of December 31, 2020, the Company has incurred all of the required expenditures.

In December 2018, the Company issued 7,190,000 flow-through shares for gross proceeds of $1,995,500. These flow-through shares issued in a non-brokered private placement were issued at a premium to the market price in recognition of the tax benefits accruing to subscribers. The flow-through premium liability was calculated to be $557,500. The flow-through premium is derecognized through income as the qualifying expenditures are incurred. As of December 31, 2020, the Company has incurred all of the required expenditures.

NOTE 10 - Lease Liability

A continuity of the lease liability for the period ended December 31, 2020 is as follows:

	December 31,2020	June 30,2020
	$	$
Lease liability, beginning of period	76,612	102,904
Lease payments	(19,033)	(39,878)
Interest expense	5,324	13,586
Total Lease liability	62,903	76,612
Less: current portion	(31,139)	(28,480)
	31,764	48,132

The maturity analysis of the undiscounted contractual balances of the lease liability is as follows:

	$
Less than one year	38,519
Two to three years	33,988
Total undiscounted lease liability at December 31, 2020	72,507

Total undiscounted lease payments exclude leases that are classified as short-term and leases for low-value assets, which are not recognized as lease liabilities.

NOTE 11 - Advance

As at December 31, 2020, the Company has a balance of $20,044 (June 30, 2019 - $20,044) payable to Evolving Gold. The advance is unsecured, non-interest bearing and due on demand.

NOTE 12 - Loan Payable

In May 2020, the Company received $40,000 in the form of a Canada Emergency Business Account ("CEBA") loan. CEBA is part of the economic assistance program launched by the Government of Canada to ensure that businesses have access to capital during the COVID-19 pandemic and can only be used to pay non-deferrable operating expenses. During the period from receipt of the CEBA loan to December 31, 2022 (the "Initial Term"), no interest is charged on the amount outstanding and should at least $30,000 be repaid on or before the end of the Initial Term the remaining $10,000 of principal will be forgiven. If at the end of the Initial Term the loan is not repaid, the Company has the right to exercise the option to convert the CEBA loan into a threeyear term loan bearing interest at 5% per annum. The Company intends to pay the CEBA loan prior to December 31, 2022.

NOTE 13 - Asset Retirement Obligation

As of December 31, 2020, the total undiscounted amount of estimated future cash flows required to settle the decommissioning liability is $332,028 (December 31, 2019 - $334,527), which has been estimated using an assumed inflation rate of 2.25% (December 31, 2019 – 2.19%) and discounted using an annual risk-free rate of 0.25% (December 31, 2019 – 2.86%). These obligations relate to reclamation work on the RSH Project, including rehabilitation of certain drilling sites and access to site roads, and are expected to be settled over the next 6 years. The risk-free rate is based on the prevailing risk-free pre-tax rates in the United States given the majority of the costs will be in US dollars. As of December 31, 2020, the Company recognized a decommissioning liability of $327,500 (June 30, 2020 - $327,091). During the six months ended December 31, 2020, the Company recorded an accretion expense of $409 (December 31, 2019 - $3,932).

NOTE 13 - Asset Retirement Obligation (continued)

The following table presents the reconciliation of the beginning and ending balance of the decommissioning liability:

	December 31,2020	June 30,2020
	$	$
Balance, beginning of period	327,091	309,007
Decrease in provision due to technical adjustments	-	(27,744)
Increase in provision due to change in assumptions	-	39,727
Accretion expense	409	6,101
Balance, end of period	327,500	327,091

NOTE 14 - Share Capital

Authorized share capital

Unlimited number of common shares without par value.

Issued share capital

• a) As at December 31, 2020, the Company had 132,574,481 common shares issued and outstanding (June 30, 2020 132,549,481).
• b) Shares issued during the six months ended December 31, 2020:

During the period, 25,000 stock options, with a grant price of $0.16 per common share of GFG, were exercised pursuant to the Company's stock option plan.

c) Shares issued during the six months ended December 31, 2019:

On October 29, 2019, the Company closed the second tranche of its non-brokered private placement with the issuance of: i) 610,000 units of the Company ("Units") at a price of $0.18 per Unit for gross proceeds of $109,800, with each Unit consisting of one common share of the Company and one-half of one share purchase warrant, with each whole share purchase warrant (a "Warrant") entitling the holder thereof to acquire one additional common share of the Company at an exercise price of $0.27 for a period of 24 months from the date of issuance; ii) 34,000 common shares of the Company that qualify as "flow-through shares" for the purposes of the Income Tax Act (Canada) ("FT Shares") at a price of $0.22 per FT Share for gross proceeds of $7,480;

On October 24, 2019, the Company closed the first tranche of its non-brokered private placement with the issuance of: i) 5,025,555 Units at a price of $0.18 per Unit for gross proceeds of $904,600, with each Unit consisting of one common share of the Company and one-half of one share purchase warrant, with each Warrant entitling the holder thereof to acquire one additional common share of the Company at an exercise price of $0.27 for a period of 24 months from the date of issuance; ii) 3,334,546 common shares of the Company that qualify as "flow-through shares" for the purposes of the Income Tax Act (Canada) at a price of $0.22 per FT Share for gross proceeds of $733,600; and iii) 5,192,267 charity units of the Company ("Charity Units") at a price of $0.275 per Charity Unit for gross proceeds of $1,427,873 with each Charity Unit consisting of one FT Share and one-half of one Warrant.

Total common shares off 14,196,368 were issued for gross proceeds of $3,183,353.

On October 21, 2019, the Company issued 600,000 common shares pursuant to its RSU Plan.

NOTE 14 - Share Capital (continued)

Stock options

The Company has established a stock option plan under which common share purchase options may be granted to directors, officers, employees and consultants. The maximum number of shares available for options issuable under the stock option plan is 10% of the Company's common shares outstanding. Options granted have an exercise price of the Company's prior day closing price quoted on the Exchange for the common shares of the Company.

A summary of stock options activities are as follows:

	Six Months Ended		Year Ended
	December 31, 2020		June 30, 2020
	Number ofoptions	Weightedaverageexercise price	Number ofoptions	Weightedaverageexercise price
		$		$
Outstanding, beginning of period	6,253,547	0.45	4,740,519	0.58
Granted	-	-	1,895,068	0.17
Exercised	(25,000)	0.16	-	-
Forfeited/Expired	(150,000)	0.30	(382,040)	0.66
Outstanding, end of period	6,078,547	0.46	6,253,547	0.45

In February 2020, the Company granted 1,717,020 stock options to directors, employees and contractors exercisable at a price of $0.16 per share for five years. The fair value of $0.10 per stock option was assigned using the Black-Scholes option pricing model with the following assumptions: an expected life of five years; risk-free interest rate of 1.32%; a forfeiture rate of 0%; dividend yield of 0%; and volatility of 75.59%. Certain of these stock options vest immediately while others vest equally over three years with the initial vest occurring on the first anniversary date of the grant. Additional options included in this grant vest over four quarters with the final vest occurring on December 31, 2020.

In August 2019, the Company granted 178,048 stock options to a director exercisable at a price of $0.22 per share for five years. The fair value of $0.13 per stock option was assigned using the Black-Scholes option pricing model with the following assumptions: an expected life of five years; risk-free interest rate of 1.24%; a forfeiture rate of 0%; dividend yield of 0%; and volatility of 68.28%. Of the total stock options, 150,000 options vested immediately on the grant date and 28,048 options vested at 40% upon September 30, 2019 with the remainder on December 31, 2019.

A summary of the stock options outstanding and exercisable at December 31, 2020 is as follows:

Exercise
Price	Number Outstanding	Number Exercisable	Expiry Date
US$0.25	75,000	75,000	January 4, 2021
US$0.25	125,000	125,000	September 1, 2021
$0.33	425,349	358,682	April 2, 2023
$0.405	625,000	416,667	March 2, 2023
$1.09	1,600,000	1,600,000	March 17, 2022
$0.195	1,358,130	804,377	February 27, 2024
$0.22	178,048	178,048	August 1, 2024
$0.16	1,692,020	919,520	February 13, 2025
	6,078,547	4,477,294

For the three months ended December 31, 2020, the Company recognized $28,176 (December 31, 2019 - $73,888) of stock option related share-based compensation. Of this, $23,742 (December 31, 2019 - $63,455) was recorded as operating expense with the remaining $4,434 (December 31, 2019 - $10,433) capitalized to Exploration and evaluation assets.

NOTE 14 - Share Capital (continued)

Stock options (continued)

For the six months ended December 31, 2020, the Company recognized $61,083 (December 31, 2019 - $166,397) of stock option related share-based compensation. Of this, $52,460 (December 31, 2019 - $145,531) was recorded as operating expense with the remaining $8,623 (December 31, 2019 - $20,866) capitalized to Exploration and evaluation assets.

Restricted share units

On October 21, 2016, the Board granted the Chief Executive Officer 600,000 RSUs. The RSUs were granted as notional units that are economically equivalent to owning common shares of the Company. The RSUs vested over a period of three years as follows: 25% on the grant date and 25% on each anniversary date following the grant date. On October 21, 2019, all RSUs were redeemed and the Company issued 600,000 common shares pursuant to the RSU Plan. At December 31, 2020, there are no outstanding RSUs.

The RSUs were accounted for as equity-settled awards and for the three months ended December 31, 2020, the Company has recorded share-based compensation expense of $nil (December 31, 2019 - $3,836), with a corresponding amount recorded to reserves. For the six months ended December 31, 2020, the Company has recorded share-based compensation expense of $nil (December 31, 2019 - $21,480), with a corresponding amount recorded to reserves. The fair value of the share-based compensation was measured using the value on the grant date.

Share-based compensation

		Three Months Ended	Six Months Ended
	December 31,	December 31,	December 31,	December 31,
	2020	2019	2020	2019
	$	$	$	$
Stock options	23,742	63,455	52,460	145,531
RSUs	-	3,836	-	21,480
	23,742	67,291	52,460	167,011
Capitalized to Exploration and evaluation assets	4,434	10,433	8,623	20,866
Total Share-based compensation	28,176	77,724	61,083	187,877

Warrants

A summary of warrant activities are as follows:

	Six Months Ended			Year Ended
		December 31, 2020		June 30, 2020
	Number ofwarrants	Weightedaverageexercise price	Number ofwarrants	Weightedaverageexercise price
		$		$
Outstanding, beginning of period	5,413,910	0.27	3,970,000	0.75
Granted	-	-	5,413,910	0.27
Expired	-	-	(3,970,000)	0.75
Outstanding, end of period	5,413,910	0.27	5,413,910	0.27

NOTE 14 - Share Capital (continued)

A summary of the warrants outstanding as at December 31, 2020 is as follows:

Warrants
Outstanding	Exercise Price	Expiry Date
	$
5,108,910	0.27	October 24, 2021
305,000	0.27	October 29, 2021
5,413,910

As at December 31, 2020, the weighted average remaining contractual life of the warrants was 0.82 years with an average exercise price of $0.27.

Reserve

Reserves are increased when recognizing the compensation costs related to share-based compensation and decreased where stock options are exercised or RSUs are redeemed:

	December 31,2020	June 30,2020
	$	$
Reserve, beginning of period	2,158,593	2,659,915
Share-based compensation	61,083	338,678
Transfer to share capital	(2,460)	-
RSU redemption	-	(840,000)
Reserve, end of period	2,217,216	2,158,593

NOTE 15 - Related Party Transactions

Summary of key management personnel compensation:

Key management personnel include those persons having authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of members of the Company's Board of Directors and corporate officers.

	Three Months Ended			Six Months Ended
	December 31,	December 31,	December 31,	December 31,
	2020	2019	2020	2019
	$	$	$	$
Salaries and benefits capitalized to
exploration and evaluation assets	78,197	31,243	153,929	59,581
Salaries and benefits(1)	132,322	127,909	273,356	277,214
Director fees	16,095	18,160	34,271	36,321
Share-based compensation	22,533	63,446	51,345	159,321
Share-based compensation capitalized to
exploration and evaluation assets	4,435	9,442	8,623	18,883
	253,582	250,200	521,524	551,320

(1) Includes salaries and benefits reported within Investor relations.

Compensation of the Company's key management personnel includes salaries, non-cash benefits and board retainers.

NOTE 15 - Related Party Transactions (continued)

Executive officers and members of the board of directors may also participate in the stock option program.

As at December 31, 2020, there was $240 (December 31, 2019 - $nil) owing to the officers or directors of the Company.

NOTE 16 - Capital Disclosure and Management

The Company manages its capital to ensure that there are adequate capital resources to safeguard the Company's ability to continue as a going concern through the optimization of its capital structure. The capital structure consists of shareholders' equity. The basis for the Company's capital structure is dependent on the Company's expected business growth and changes in business environment. To maintain or adjust the capital structure, the Company may issue new shares through private placement, incur debt or return capital to shareholders.

To maximize ongoing exploration efforts, the Company does not pay out dividends. The Company's investment policy is to invest its excess cash in highly liquid short-term interest-bearing investments with short-term maturities matching timing of expenditures.

The Company's capital management approach has remained unchanged during the period ended December 31, 2020. The Company is not subject to externally-imposed capital requirements.

NOTE 17 - Financial Instruments and Risk Management

The Company has exposure to the following risks from its use of financial instruments.

a. Credit Risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its obligations. The Company's exposure to credit risk is on its cash held with Bank of Montreal and the Royal Bank of Canada.

The carrying amounts represents the maximum credit exposure.

b. Liquidity Risk

Liquidity risk is the risk that the Company will incur difficulties meeting its financial obligations as they are due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company's reputation. The Company has working capital of $3,122,545 at December 31, 2020, which is sufficient to fund certain 2021 Pen and Dore exploration programs as well as RSH Project costs and general and administrative costs.

c. 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 has determined there is no material exposure related to interest rate risk.

d. Foreign Exchange Risk

Foreign exchange risk is the risk that fair value of future cash flows will fluctuate due to changes in foreign exchange rates. The Company classifies its fair value measurements in accordance with the three-level fair value hierarchy as follows:

• Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities;
• Level 2 Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly; and
• Level 3 Inputs that are not based on observable market data.

NOTE 17 - Financial Instruments and Risk Management (continued)

The carrying value of the Company's financial assets and liabilities as at December 31, 2020 and 2019 are approximate to their fair values due to their short-term nature.

The carrying value of lease obligations where interest is charged at a fixed rate is not significantly different from the fair value.

NOTE 18 - Commitments

i) As of December 31, 2020, the Company has two separate commercial leases with the following expected, undiscounted payments:

	$
2021	70,264
2022	76,401
2023	23,771
Total	170,436

ii) To satisfy its commitment pursuant to the May 2020 issuance of flow-through shares, the Company is required to expend $4,598,415 of qualifying Canadian Exploration Expenses, as defined in the Income Tax Act (Canada), prior to December 31, 2021. At December 31, 2020, $2,662,556 remains to be incurred.