Goldgroup Mining Inc. — Interim / Quarterly Report 2020

Nov 17, 2020

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Management’s Discussion and Analysis

Third Quarter – Interim period ended September 30, 2020

(Expressed in U.S. dollars, unless otherwise noted)

November 16, 2020

This Management’s Discussion and Analysis (“MD&A”) relates to the financial condition and results of operations of Goldgroup Mining Inc. (“Goldgroup” or the “Company”) together with its subsidiaries as of the date of this report, and is intended to supplement and complement the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020. Readers are cautioned that this MD&A contains forward-looking statements and that actual events may vary from management’s expectations. Goldgroup’s public disclosure documents are available on SEDAR at www.sedar.com. The condensed interim consolidated financial statements and MD&A are presented in United States (“US”) dollars, except where noted, and have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This discussion addresses matters we consider important for an understanding of our financial condition and results of operations as of and for the three and nine months ended September 30, 2020.

The MD&A contains forward-looking statements and should be read in conjunction with the risks discussed herein and those set out under the heading “Risk Factors” in Goldgroup’s annual information form dated March 30, 2020 (the “AIF”) and the Company’s annual audited financial statements and MD&A for the year ended December 31, 2019. Please also refer to the “Cautionary Statement on Forward-Looking Information” at the end of this MD&A.

OVERVIEW

Goldgroup is a Canadian-based gold production, development, and exploration company with a portfolio of projects in Mexico, including its 100% owned Cerro Prieto project in the state of Sonora and an interest in DynaResource de Mexico, SA de C.V., which owns 100% of the high grade gold exploration project San José de Gracia located in the state of Sinaloa. The Company is listed on the Toronto Stock Exchange (“TSX”) under the symbol “GGA” and on the Over-The-Counter (“OTC”) market under the symbol “GGAZF”.

As of June 20, 2012 the Company is listed on the Bolsa Mexicana de Valores S.A.B de C.V., also known as “SIC”, under the symbol GGAN.MX.

The profitability and operating cash flow of the Company are affected by various factors, including the amount of gold produced and sold, the market price of gold, operating costs, interest rates, regulatory and environmental compliance, general and administrative costs, the level of exploration and development expenditures, decommissioning and restoration provisions and other discretionary costs. Goldgroup is also exposed to fluctuations in foreign currency exchange rates that can materially impact profitability and cash flow. To date, all of the Company’s projects are located in Mexico and are subject to foreign investment risk, including increases in various levels of taxation and royalties, renegotiation of contracts, fuel cost changes, profit sharing law changes, property title risk and political uncertainty. While Goldgroup seeks to manage the level of risk associated with its business, many of the factors affecting these risks are beyond the Company’s control.

The Company may need to raise additional funds over and above amounts raised to date to continue the development of Cerro Prieto, as well as to complete the exploration and development of its other property interests. There can be no assurance that additional capital or other types of financing will be available to the Company if needed or that, if available, the terms of such financing will be on terms favourable to the Company.

Nine months ended – September 30, 2020

HIGHLIGHTS AND DEVELOPMENTS – Q3 2020

• During the quarter ended September 30, 2020, the Company was ramping up production from the required limiting of operations at the Cerro Prieto project for 45 days due to the Mexican Government mandate to suspend non-essential businesses. This resulted in a decrease in production in the current quarter relative to the comparative period. In addition, mining operations were negatively impacted due to the government mandated COVID-19 shutdown and ramp up during the year and shortage of water availability during the quarter due to the lack of rain for this period compared to historical periods. The Company has rectified this situation subsequent to period end and the recovery is expected to increase for the remainder of the year to align with the historical average.

• During the three and nine months ended September 30, 2020, the Company produced 2,111 (2019 – 2,961) and 7,582 (2019 – 10,229) ounces of gold, respectively.

• During the three and nine months ended September 30, 2020, the average realized price for the gold sold $1,898 (2019 – $1,475) and $1,717 (2019 – $1,362), respectively.

• During the three and nine months ended September 30, 2020, the company’s all-in sustaining cost of production per ounce was $2,449 (2019 - $1,359) and $1,608 (2019 - $1,132) and all-in cost per ounce was $2,945 (2019 - $1,600) and $1,894 (2019 – $1,326) respectively.[(1) ]

• (1) Cash cost is a non IFRS measure. See “Non IFRS Measures”

OUTLOOK

The Company’s main objective is to maintain sustainable cash flows from operations on its projects and the main areas of focus for 2020 include:

• Cerro Prieto – management is pursuing exploration of nearby areas within our concessions to extend mine life and potentially increase production.

• San José de Gracia – continue to work towards bringing a resolution to the conflict with DynaUSA and moving the project into production.

Going concern

The Company has experienced recurring operating losses and has an accumulated deficit of $145.8 million at September 30, 2020. In addition, as at September 30, 2020, the Company has working capital deficiency of $1.6 million. Working capital is defined as current assets less current liabilities and provides a measure of the Company’s ability to settle liabilities that are due within one year with assets that are also expected to be converted into cash within one year. The continuing operations of the Company are dependent upon its ability to arrange additional financing and resolving the legal disputes with DynaResource, Inc. (“DynaUSA”). These matters result in material uncertainties which may cast significant doubt about the Company’s on its ability to continue as a going concern. These financial statements do not include any adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis was not appropriate for the financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, the reported revenues and expenses, and the classifications used in the statement of financial statement.

On April 8, 2020, the Company announced that the Mexican federal government has mandated that all non-essential businesses, temporarily suspend operations due to the COVID-19 virus. To date the Company was required to limit operations at the Cerro Prieto project for 45 days due to the Mexican Government mandate to suspend non-essential businesses and restarted operations on June 1, 2020.

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CERRO PRIETO PROJECT, MEXICO

Overview

The Cerro Prieto project, located in the Cucurpe Mining District, Sonora, Mexico, is comprised of the San Felix (205 ha), San Francisco (10 ha), Elba (5.82 ha), Huerta de Oro (20 ha), Reyna de Plata (9.79 ha), Cerro Prieto “North” (2,508 ha) and Argonauta 6 (4,120 ha) mineral concessions. Cerro Prieto is 52 road kilometers from the regional center of Magdalena de Kino (population 40,000) and 150 kilometers northeast of the city of Hermosillo.

Gold is produced in doré in Mexico and then shipped to a refiner in the United States for final refining prior to sale. Cerro Prieto is subject to a 2% NSR royalty payable upon production in addition to a production royalty payable to Oroco Resource Corp. calculated as 20% of the difference between the market price of gold and $1,250 per ounce up to a maximum of US$90 per ounce of gold produced from the project, for the greater of:

• (i) The first 90,000 ounces of gold produced from the Cerro Prieto Project; and

• (ii) All ounces of gold produced from the Project until the completion of five full years of commercial production.

In March 2016, the Company commissioned an independent review of the Mineral Resource estimate for Cerro Prieto. This study was undertaken to ensure that management has appropriate information regarding efficient extraction of mineralized material identified at its Cerro Prieto mineral deposit.

By incorporating exploration drilling results acquired subsequent to the last Mineral Resource update of 2013 and assessing production information accumulated by the Company since commencement of test mining operations in December 2013, an update to the previously defined Mineral Resources has been completed. Highlights of this update are as follows:

• Virtually all resource blocks potentially amenable to open-pit surface mining have been reclassified to the Measured or Indicated Mineral Resource classification;

• Un-mined mineralized material within the oxide portion of the Cerro Prieto mine plan (through 2019) have been estimated to aggregate 2,478,000 tonnes grading 1.35 g/t gold, for 108,000 gross ounces (as at December 31, 2015);

• Within the reclassified Mineral Resource blocks above the 1,000 meter elevation to the Q1 2016 topographic surface (the surface after mining from Q4 2013 to Q1 2016) certain portions are candidates for upgrade to Proven or Probable Mineral Reserves; and

• Depending on the outcome of certain economic viability tests, which are currently under way, 2,341,000 tonnes grading 1.35 g/t gold are candidates for classification to the Proven plus Probable Mineral Reserve classification. An additional 137,000 tonnes grading 1.51 g/t gold are classified as Measured plus Indicated Mineral Resources.

Estimates of Mineral Reserves necessarily depend upon a number of variable factors and assumptions, all of which may vary from the actual results, such as: changes in commodity prices, international exchange rates, taxation of environmental regulations, or unforeseen changes in geological or mining conditions.

A determination of Mineral Resources and Mineral Reserves prepared by a QP are estimates based on technical assumptions that comply with applicable mining standards. Though preparation of the estimates are conducted in accordance with relevant mining standards, the estimates are subject to a number of uncertainties inherent in estimating quantities and classification of Mineral Resources and Mineral Reserves, including the QP’s assessment of available financial, technical, geological, and contractual information. Therefore, such statements should not be interpreted as assurances of mine life or a measure of the profitability of future operations, particularly in these times of global economic uncertainty.

Scientific and technical information relating to Cerro Prieto presented above has been approved by Rodney A. Blakestad, J.D., C.P.G., who by reason of education, affiliation with a professional association (as defined in NI 43-

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101) and past relevant work experience, fulfills the requirements of a Qualified Person as defined in NI 43-101, and he is Independent of the issuer applying all of the tests in Section 1.5 of NI 43-101CP.

On August 8, 2013 the Company released an updated National Instrument 43-101 Measured and Indicated and Inferred mineral resource estimate (the “NI 43-101”) for Cerro Prieto. Giroux Consultants Ltd. and Duncan Bain Consulting Ltd. prepared and authorized the release of this NI 43-101 resource estimate entitled “Report on the 2011-2012 Exploration Program including an Updated Resource Estimation on the Cerro Prieto Project - Magdalena de Kino Area, Sonora State Mexico dated June 10, 2013”. Highlights of this estimate can be found in the MD&A for the year ended December 31, 2013 on SEDAR.

The Company wishes to make clear that it is not basing its production decision on a preliminary economic assessment demonstrating the potential viability of mineral resources or a feasibility study of mineral reserves demonstrating economic and technical viability, and as a result there is increased uncertainty and these are multiple technical and economic risks of failure which are associated with this production decision. These risks, among others, include areas that are analyzed in more detail in a Preliminary Economic Assessment (“PEA”) or Feasibility Study, such as applying economic analysis to resources or reserves, more detailed metallurgy, a number of various specialized studies.

BATAMOTE, MEXICO

During the year ended December 31, 2017, the Company entered into an option agreement to purchase a 100% ownership in an additional exploration property in close proximity to the Cerro Prieto mine for $4,000. During the second quarter of 2018, the Company commenced extraction and operations on the project and as management determined that operating results, which includes the grade and volume of material mined, were being achieved consistently and there were indicators that these operating results would continue. The Company amortized the option payments to depreciation and depletion over the term of each option.

The Company ceased mining from Batamote at the end of the period ended March 31, 2019.

SAN JOSÉ DE GRACIA PROJECT, MEXICO

Overview

On March 14, 2011, the Company completed the requirements for its earn-in/option agreement with DynaResource de Mexico S.A. de C.V. (“DynaMexico”) for a 50% equity interest in DynaMexico by reaching the expenditure funding requirement of $18,000,000. DynaMexico owns 100% of the San José de Gracia gold project.

San José de Gracia is located in the northeast portion of Sinaloa State, Mexico, approximately 120 kilometres northeast of the coastal city of Los Mochis, straddling the Chihuahua border. The property consists of 34 mineral concessions covering approximately 69,000 hectares with no outstanding royalty or other applicable interests.

Management has had numerous discussions with DynaUSA, owners of the remaining 50% shareholding of DynaMexico, to determine how to proceed with this project. The Company continues to assess available alternatives for the future development of the San José de Gracia project. Until such time as a development strategy and financial plan for the San José de Gracia project can be agreed to with DynaUSA, Goldgroup’s financial support to fund further exploration and development activities has been placed on hold. Development activities will be limited and the costs of maintaining the project are expected to be nominal.

Legal disputes

There are several ongoing legal disputes between Goldgroup and DynaUSA which are summarized below:

On January 22, 2013 Goldgroup announced that it had moved to dismiss as totally without merit a lawsuit filed against it and others in Dallas County District Court by DynaResource, Inc. and DynaResource de Mexico, S.A. de C.V. (collectively “DynaResource”).

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DynaResource alleged, among other things, that the Company has wrongfully used and disseminated confidential information and data belonging to DynaResource, and materially misrepresented Goldgroup’s ownership interest in SJG. Goldgroup owns a 50% interest in DynaMexico, which owns 100% of SJG. Goldgroup has properly disclosed its interest in SJG, has not materially misrepresented it, and has not improperly used any DynaResource confidential information. Goldgroup denies all such allegations by DynaResource, has moved to dismiss the lawsuit, and intends to vigorously defend itself and its interests.

On October 28, 2013 the Company announced that it filed a legal action before the appropriate criminal authorities in Mexico concerning recent activities undertaken by Koy Wilber Diepholz (“Diepholz”), shareholder, President and Chairman of the Board of Directors of DynaMexico and Chairman, Chief Executive Officer and Treasurer of DynaUSA. The purpose of the legal action case is to investigate whether illegal acts were committed by Diepholz, in his role as CEO of DynaMexico, for his own benefit and for the benefit of DynaUSA.

On March 11, 2014 DynaResource dropped its lawsuit against the Company.

On March 14, 2014 the Company filed for arbitration in Denver, Colorado, against DynaResource Inc. to protect its interests pursuant to the SJG earn-in option agreement dated September 1, 2006.

On June 29, 2015 a Mazatlán Judge denied DynaMex the request for an “amparo”, which is, by Mexican Law, an appeal to the injunction obtained by Goldgroup against DynaMex regarding the 300 new shares of DynaMex issued in favor of DynaUSA. The issuance of the DynaMex shares to DynaUSA diluted Goldgroup’s ownership interest (from 50% to 20%) in DynaMex with DynaUSA purporting to be an owner of 80% of DynaMex.

On October 13, 2015 the Company was made aware of a news release disseminated by DynaResource de Mexico SA de C.V. (“Dyna”). Goldgroup was never notified of the purported court case discussed, does not recognize any of the claims mentioned therein and is of the belief that such claims are without merit.

During the year ended December 31, 2015, management concluded that due to the ongoing legal disputes the Company no longer has significant influence over DynaMexico and therefore discontinued treating the investment as an investment in associate.

During the year ended December 31, 2016 the Company received the favorable results and award from the conclusion of the arbitration between the Company and DynaUSA. The results and award were issued by the American Arbitration Association – International Centre for Dispute Resolution (“Arbitrator” or “ICDR”) on August 24, 2016. This Award is final, binding and may be enforced in court.

Results and Award from Arbitration

The Arbitrator concluded that there is no doubt that DynaUSA has failed to do what they are obligated to do under an Earn-In/Option Agreement with Goldgroup, dated September 1, 2006 (the “Agreement”). The Award, in summary, clarifies several doubts arising from misleading news releases issued by DynaUSA:

The Award confirms that the Agreement is in full force and effect;

• The expenditures made by DynaUSA without the approval of the joint Management Committee have to be reimbursed to DynaResource Mexico S.A. de C.V. (“DynaMexico”), an entity in which Goldgroup owns 50% equity of, since Goldgroup did not participate in those decisions;

• A detailed accountability assessment by DynaUSA must be done for Goldgroup for the last 5 years when DynaUSA excluded Goldgroup from the management of DynaMexico and delivered to Goldgroup within 20 days of the issuance of the Award;

• The use of the Power of Attorney of Mr. K.D. Diepholz did not provide authorization for Mr. Diepholz to circumvent the Management Committee’s power to approve and oversee expenditures;

• DynaUSA has acted in bad faith and breached the terms of the Agreement;

• Certain amounts must be reimbursed to Goldgroup which includes and not limited to the fees paid and to be paid in the Mexico City case related to the current dispute;

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• A fifth director must be jointly appointed in DynaMexico and the names of prospective candidates exchanged by the parties, no later than 10 calendar days from the date of the Award ; and

• The deliberate dilution by DynaUSA of Goldgroup’s equity interest in DynaMexico was illegal and therefore invalid.

The Company has complied with all requirements set out in the Arbitration award and has yet to receive any payment or required documentation from DynaUSA or Dyna Mexico.

On August 24, 2017, a Federal Amparo judge in the state of Veracruz, Mexico, dismissed Goldgroup Resources Inc.’s Amparo challenge. Goldgroup’s position in response to the USD$48 million claim remains the same, that Goldgroup was never notified of the purported court case, and does not recognize any of the claims mentioned therein and is of the belief that such claims are entirely without merit. The Company pursued the case to the Mexican Supreme Court level to get the judgement overturned.

In February 2018, the Company received the recommendation of the magistrate judge in Denver, who has recommended that the Company’s application to confirm the arbitration award be denied. The Company has filed an objection which will request the judge to reject the recommendation and confirm the arbitration award.

On May 9, 2019, the Company received a final judgment in the United States District Court for the District of Colorado confirming the Company’s Results and Award from Arbitration discussed above. Following the arbitration, DynaUSA filed documents in an attempt to convince the court to vacate the arbitration award.

The May 9th order denied DynaUSA’s motion to vacate the award and rejected the recommendation of a United States Magistrate Judge, who had agreed with DynaUSA that the arbitration award should be thrown out. The court’s order confirms all of the relief outlined in the August 2016 arbitration award, including DynaUSA having to: pay the Company $404 in costs and attorney fees; pay the Company $86 in separate fees and expenses; and pay DynaResource de Mexico, S.A. de C.V. (“DynaMexico”) $1,045 for various legal and other expenses that DynaUSA improperly caused DynaMexico to incur.

On December 6, 2019, the 11th Federal Circuit Collegiate Court in México denied Goldgroup’s Amparo regarding the USD $48 million claim and the Company will continue to pursue all legal avenues in Mexico to achieve a favorable resolution to the DynaUSA dispute. On August 28, 2020, DynaMexico filed a Petition for Recognition of the claim in Texas which the Company is in the process of defending.

On March 25, 2020, the United States District Court for the District of Colorado denied Dyna’s motion to alter or amend the Final judgement and denied Dyna’s motion for stay and judgment pending appeal and to waive or reduce supersedeas bond and ordered Dyna to post a supersedeas bond in the amount of $1,106,929.60 in order to be granted a stay, within 21 days of the order.

On July 24, 2020, the United States District Court for the District of Colorado granted Dyna a stay on the monetary awards upon posting of a $1,111 bond before July 28, 2020, although denied Dyna’s request to stay the non-monetary awards of the judgement. This bond has been posted and therefore the monetary awards are stayed pending the outcome of Dyna’s appeal of the arbitration award.

EL MOZO PROJECT, ECUADOR

During fiscal 2015 the Company signed the Definitive Agreement to acquire all of the issued and outstanding shares of 0990718 B.C. Ltd. (the “Vendors”), a company holding an 80% option interest in the El Mozo project in Ecuador, in exchange for the issuance of an aggregate of 5,500,000 common shares of the Company valued at $382 to the shareholders of 0990718 pursuant to a share exchange agreement with the Vendors (the “Share Exchange Agreement”). In addition to the common shares, the Company granted to the Vendors an aggregate 1% NSR on Goldgroup’s ownership portion in the El Mozo Project pursuant to an NSR agreement (the “Royalty Agreement”). Under the Royalty Agreement Goldgroup has the right to repurchase the Vendors’ NSR.

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Option agreement terms

Under the Option Agreement, 0990718 BC Ltd. could earn an 80% interest in the El Mozo project. During the year ended December 31, 2019, the Company recognized an impairment of $2,351 and $255 on the El Mozo and another Ecuador project respectively, due to delays in obtaining the environmental permit and the political uncertainty in the Azuay province.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Operating Statistics	Three months ended Sept. 30, 2020	Three months ended Sept. 30, 2019	Nine months ended Sept. 30, 2020	Nine months ended Sept. 30, 2019
Ore mined (tonnes) Waste mined (tonnes) Total mined (tonnes) Waste-to-ore-ratio Ore to pad (tonnes) Recovery Grade of ore mined (g/t Au) Grade of ore placed on pad (g/t Au) Gold ounces – produced Gold ounces – sold All-in sustaining cash cost per ounce(1) All-in cash cost per ounce(1) Average realized gold price per ounce sold	246,861	243,690	572,129	646,749
	1,668,610	1,362,757	3,280,337	3,826,442
	1,915,471	1,606,447	3,852,466	4,473,191
	6.76	5.59	5.73	5.92
	276,959	205,300	594,532	580,490
	30%	40%	48%	52%
	1.01	1.24	0.88	1.13
	0.79	1.12	0.83	1.06
	2,110	2,961	7,582	10,229
	2,479	3,292	7,619	10,572
	$ 2,449	$ 1,359	$ 1,608	$ 1,132
	$ 2,945	$ 1,600	$ 1,894	$ 1,326
	$ 1,898	$ 1,475	$ 1,717	$ 1,362

(1) Cash cost is a non IFRS measure. See “Non IFRS Measures”

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

The total ore to pad was higher than the comparative period although the grade for the period was lower with the recovery also being lower due to the government mandated COVID-19 shutdown and ramp up and water shortages in the current period which impacted the availability of leaching solution placed on the pad. This caused the overall ounces produced for the period to be lower than the comparative period due. All-in sustaining and all-in cash costs are higher than the comparative quarter due to increased costs in the use of contract miners and lower ounces produced due to the recovery lag in the current period.

Three months ended September 30, 2020 compared to three months ended September 30, 2019

The total ore to pad was higher than the comparative period although the grade for the period was lower with the recovery also being lower due to the government mandated COVID-19 shutdown and ramp up early in quarter and water shortages in the current period which impacted the availability of leaching solution placed on the pad. This caused the overall ounces produced for the period to be lower than the comparative period due. All-in sustaining and all-in cash costs are higher than the comparative quarter due to increased costs in the use of contract miners and lower ounces produced due to the recovery lag in the current period.

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	Three months ended Sept. 30,	Nine months ended Sept. 30,
(tabled amounts are expressed in thousands of U.S dollars)	2020 2019	2020 2019
Metal sales Cost of sales Depreciation and depletion	$ 4,746 $ 4,901	$ 13,301 $ 14,575 (11,567) (11,261) (1,498) (1,662)
	(5,068) (3,798) (495) (551)
Gross (loss)profit	(817) 552	236 1,652
General and administration(a) Finance cost, net Reversal of bad debt expense Foreign exchange (loss) gain Warrant liability – unrealized (loss) gain Gain on investments Gain (loss) on disposal of property, plant and equipment Impairment – exploration and evaluation assets Other income	(1,146) (804) (205) (76) - 100 (97) 58 99 2 434 (91) - - - (2,606) 28 25	(2,327) (2,092) (302) (258) - 100 4 28 99 8 470 482 - 3 - (2,606) 55 54
Loss before income taxes Provision for income taxes: Current Future	(1,704) (2,840) 280 (36) - -	(1,765) (2,629) 79 (224) - -
Net loss	(1,424) (2,876)	(1,686) (2,853)
Other comprehensive income(loss)	- -	- -
Total comprehensive loss for the period Basic & diluted lossper share	$ (1,424) $ (2,876) (0.01) (0.02)	$ (1,686) $ (2,853) (0.01) (0.02)

(a) General and administration expense include amortization expense, non-cash stock based compensation expense, salary and consulting expense, professional fees and exploration expense.

	As at September 30,
(tabled amounts are expressed in thousands of U.S dollars)	2020 2019
Cash and cash equivalents Total assets Non-current financial liabilities Lease liabilities Cash dividends declared	$ 582 $ 399 9,591 11,757 1,947 58 108 403 $ 0.00 $ 0.00

Three months ended September 30, 2020 compared to three months ended September 30, 2019

Gross loss was $817 in the current period compared to a gross profit of $552 in the comparative period. The decrease is due to the reduced ounces of gold sold due to the government mandated COVID-19 shutdown and ramp up and to water shortages in the current period which impacted the availability of leaching solution placed on the pad and the increased cost of production from the use of contract miners and an increase in gold price indexed royalty payments.

General and administration expenses were higher in the current period when compared to prior period due to increased legal fees incurred regarding the Dyna USA legal dispute. Finance cost is higher than the comparative period due to

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transaction costs being incurred in the debt extinguishment. The Company realized a gain of $99 on warrant revaluation due to fluctuations in black scholes variables. The Company realized a gain on investments of $434 due to the markto-market loss in the period. Foreign exchange and warrant liability unrealized gain fluctuated dependent on volatility of the market conditions.

Income tax expense and recovery fluctuated dependent on level of mining activity. Non-cash deferred income tax expense for accounting purpose depends on the difference between carrying value for accounting purpose and tax basis.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

Gross profit was $236 in the current period compared to a gross profit of $1,652 in the comparative period. The decrease is due to the reduced ounces of gold sold due to the government mandated COVID-19 shutdown and ramp up and water shortages in the current period which impacted the availability of leaching solution placed on the pad and the increased cost of production from the use of contract miners and an increase in gold price indexed royalty payments.

General and administration expenses were higher in the current period when compared to prior period due to increased legal fees incurred regarding the Dyna USA legal dispute. Finance cost is higher than the comparative period due to transaction costs being incurred in the debt extinguishment. The Company realized a gain of $99 on warrant revaluation due to fluctuations in black scholes variables. The Company realized a gain on investments of $470 due to the markto-market loss in the period. Foreign exchange and warrant liability unrealized gain fluctuated dependent on volatility of the market conditions.

Income tax expense and recovery fluctuated dependent on level of mining activity. Non-cash deferred income tax expense for accounting purpose depends on the difference between carrying value for accounting purpose and tax basis.

Cash and cash equivalents increased in the current period when compared to prior years due to increased cash from operations and timing of sales receipts. Total assets were lower than prior year due to a decrease in inventory, exploration and evaluation properties and property and equipment. Non-current financial liabilities increased due to the new loan from Accendo being classified as long-term.

QUARTERLY RESULTS

(tabled amounts are expressed in thousands of U.S. dollars)

Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018

Revenue Income (loss) income from mine operations Net income (loss) Total comprehensive income (loss) for the period Basic and diluted earnings (loss) per share Diluted earnings (loss) per share Cash and cash equivalents Total assets Non-current financial liabilities Cash dividend declared Total ounces produced Total ounces sold All-in sustaining cash cost per ounce(1) All-in cash cost per ounce(1)

4,746 3,293 5,262 4,794 4,901 4,954 4,720 4,755 4,400 (817) 491 562 (632) 552 983 117 268 (587) (1,424) (102) (160) (1,080) (2,853) 551 (487) (1,248) (1,393) (1,424) (102) (160) (1,080) (2,853) 551 (487) (1,248) (1,393) (0.01) (0.00) (0.00) (0.01) (0.02) 0.00 (0.00) (0.01) (0.01) (0.01) (0.00) (0.00) (0.01) (0.02) 0.00 (0.00) (0.01) (0.01) 582 342 1,169 560 399 232 94 329 357 9,591 8,802 9,083 9,682 11,757 14,683 14,277 14,519 14,998 1,947 - - - 58 285 512 741 701 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2,110 2,243 3,228 3,230 2,961 4,000 3,269 4,054 3,595 2,479 1,897 3,243 3,185 3,292 3,719 3,561 3,773 3,587 2,449 1,260 1,256 1,323 1,359 945 1,154 1,039 1,203 2,945 1,541 1,408 1,536 1,600 1,157 1,286 1,143 1,405

(1) Cash cost is a non IFRS measure. See “Non IFRS Measures”

Three months ended September 30, 2020 statement of losses compared with previous quarters in 2019 and 2018

Revenue has fluctuated over the years as the Company has switched from producing at Cerro Prieto to Batamote and now back to Cerro Prieto and is higher than the previous quarter as the previous quarter had a 45-day government

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mandated Covid shutdown. Revenue is lower than Q1 2020 and in line with the remainder of the comparative periods due to lower gold ounces produced compensated by higher gold sale prices. Loss from operations was $0.8 million in the current quarter and the lowest of all comparative quarters because of lower ounces sold due to the government mandated COVID-19 shutdown and ramp up early and to water shortages in the current period which impacted the availability of leaching solution placed on the pad and the increased cost of production from the use of contract miners and an increase in gold price indexed royalty payments.

Net loss and total comprehensive loss was $1.4 million in the current quarter which is higher than all comparative periods other than Q3 2019 when the Company recognized a $2.6 million impairment on Ecuador assets. The increased loss was due to lower ounces sold due to the government mandated COVID-19 shutdown and ramp up and water shortages in the current period which impacted the availability of leaching solution placed on the pad and the increased cost of production from the use of contract miners and an increase in gold price indexed royalty payments.

Total gold produced has fluctuated over the years as the Company has switched from producing at Cerro Prieto to Batamote and now subsequent to period end back to Cerro Prieto. The reduction in the current period is due to lower ounces produced due to the government mandated COVID-19 shutdown and ramp up and water shortages in the current period which impacted the availability of leaching solution placed on the pad.

All-in sustaining cash cost and all-in cash cost per ounce has fluctuated over the years as the Company has switched from producing at Cerro Prieto to Batamote and now subsequent to period end back to Cerro Prieto. All-in sustaining and all-in cash costs are higher than the comparative quarters due to lower ounce produced due to the government mandated COVID-19 shutdown and ramp up and water shortages in the current period which impacted the availability of leaching solution placed on the pad and the increased cost of production from the use of contract miners and an increase in gold price indexed royalty payments.

Total assets and non-current liabilities as at September 30, 2020 compared with previous quarters in 2019 and 2018

Total assets have decreased over the years as a result of the Company depleting the Cerro Prieto mine during production and abandoning their exploration and evaluation projects in Ecuador.

Non-current liabilities fluctuate from quarter to quarter because of the repayment of the loans payable and the reclassification of the loan payable to non-current liabilities.

LIQUIDITY AND CAPITAL RESOURCES

A summary of the Company’s cash position and changes in cash and cash equivalents for:

	For the three months ended September 30,	For the three months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
(tabled amounts are expressed in thousands of U.S. dollars)	2020	2019	2020	2019
Cash provided by (used in) operating activities Cash provided by (used in) investing activities Cash provided by (used in) financing activities	$ (1,064)	$ 281	$ (746)	$ 889
	(71)	229	(429)	234
	1,375	(343)	1,197	(1,053)
Increase (decrease) in cash	240	167	22	70
Cash and cash equivalents, end of period	$ 582	$ 399	$ 582	$ 399

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

Cash inflow from operating activities was lower in the current period due to cash flow from mining operations and the change working capital items (e.g. decrease in accounts receivables), net of corporate expenses.

Cash used in investing activities were higher due the Company purchasing new plant and equipment during the period.

Cash provided by financing activities was higher in the current period as the Company completed a private placement and drew down on a loan facility with Accendo.

Third Quarter – September 30, 2020

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Nine months ended – September 30, 2020

SHAREHOLDER’S EQUITY

Goldgroup’s authorized capital stock consists of an unlimited number of common shares without par value. As at September 30, 2020 and at the date of this report, the Company had 211,803,356 common shares and 15,580,000 stock options and 20,833,332 warrants outstanding.

On August 31, 2020, the Company closed a private placement and issued 26,666,667 units at a price of $0.03 per unit, for aggregate gross proceeds of approximately $600,000 (CAD $800,000). Each unit consisted of one common share of the Company and one-half of one common share purchase warrant, with each full warrant exercisable to purchase one share at a price of $0.06 per Share until August 31, 2022.

As part of a loan restructure, the Company issued 7,500,000 warrants to Accendo. Each warrant is exercisable for the purchase of one common share in the capital of the Company at a price of $0.025 per share with an expiry date of June 29, 2023.

Table below provides a summary of the warrants outstanding as at September 30, 2020 and as at the date of this report:

		Weighted
	Number
Expiry date		Average
	of warrants
		exercise price (C$)
June 29, 2023 August 31, 2022	7,500,000 13,333,332	0.025 0.060
Balance, September 30, 2020	20,833,332	0.047

The table below provides a summary of the stock options outstanding as at September 30, 2020 and the date of this report:

	Number	Number of stock	Exercise price
Expiry date	of stock options	options (vested)	(CDN$)
December 8, 2020 October 26, 2021 January 23, 2023 July 27, 2025	2,360,000 3,530,000 1,540,000 8,150,000	2,360,000 3,530,000 1,540,000 2,037,500	0.06 0.27 0.07 0.035
Balance as at September 30, 2020 and the date of this report	15,580,000	9,467,500

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Nine months ended – September 30, 2020

REGULATORY DISCLOSURES

Off balance sheet arrangements

The Company does not have any off-balance sheet arrangements.

Proposed Transactions

The Company does not have any proposed transactions as at September 30, 2020 other than as disclosed elsewhere in this document.

Financial instruments

Fair values of financial instruments

The fair values of financial instruments are summarized as follows:

Fair value measurements

The accounting classification and of each category of financial instruments, and the level within the fair value hierarchy in which they have been classified are set out below:

	Fair Value	September 30,	December 31,
Denominated in ‘000 USD
	Hierarchy Level	2020	2019
Financial assets Amortized cost Cash and cash equivalents(1) Receivables(1) Fair value through profit or loss Investments Financial liabilities Other financial liabilities Accounts payable & accrued liabilities(1) Loan payable(2) Lease liability Warrant liability(3)	N/A N/A Level 1 N/A N/A N/A Level 3	$ 582 42 786 5,622 1,526 108 421	$ 560 34 371 4,951 733 342 -

(1) The carrying value of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximates fair value due to the short-term nature of these items.

(2) Loans payable is presented on an amortized cost basis and will be accreted to its face amount over the term to maturity of the loan at an effective interest rate.

(3) The Company applies a standard Black-Scholes model to value the warrant liability

Credit Risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash and loans receivable. The majority of the

Third Quarter – September 30, 2020

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Nine months ended – September 30, 2020

Company’s cash and cash equivalents and restricted cash are held through large Canadian financial institutions. Receivables are primarily due from government agencies.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure as described in the capital management section below. The accounts payable and income taxes payable are due within the current operating period. The Company is exposed to liquidity risk.

Market Risk

The Company’s financial instruments include investments which are publicly traded and therefore subject to the risks related to the fluctuation in market prices of publicly traded securities. Some of these investments have been acquired as a result of property transactions and, to a large extent, represent strategic investments in related mining companies and their properties. The Company closely monitors market values to determine the most appropriate course of action.

Commodity Price Risk

The Company is exposed to commodity price risk given that its revenues are derived from the sale of metals, the price of which have been historically volatile.

Interest Rate Risk

Interest rate risk is the risk that the fair value of future cash flows from a financial instrument will fluctuate because of changes to market interest rates. The Company is exposed from time to time to interest rate risk as a result of holding fixed income cash equivalents and investments, of varying maturities and loans payable. A 1% change in market interest rates would result in no significant change in value of cash and cash equivalents or fixed income securities. The risk that the Company will realize a loss as a result of a decline in the fair value of these assets is limited as they are generally held to maturity.

Foreign Exchange Risk

The Company operates in Canada, Mexico and Ecuador and is exposed to foreign exchange risk arising from transactions denominated in foreign currencies.

The operating results and the financial position of the Company are reported in United States dollars. Fluctuations of the operating currencies in relation to the United States dollar will have an impact upon the reported results of the Company and may also affect the value of the Company’s assets and liabilities.

The Company’s financial assets and liabilities as at September 30, 2020 are denominated in United States Dollars, Canadian Dollars, and Mexican Pesos, and are set out in the following table:

Third Quarter – September 30, 2020

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Nine months ended – September 30, 2020

Denominated in ‘000 USD	Canadian Dollars	US Dollars	Mexico Pesos	Total
Financial assets Cash and cash equivalents Receivables - other Investments	$ 131 - 786	$ 391 42 -	$ 60 - -	$ 582 42 786
Financial liabilities Accounts payable and accrued liabilities Loan payable Lease liability Warrant Liability	917 (78) - (98) (421)	433 (4,097) (1,526) - -	60 (1,447) - (10) -	1,410 (5,622) (1,526) (108) (421)
Net financial (liabilities) assets	$ 320	$ (5,190)	$ (1,397)	$ (6,267)

The Company’s financial assets and liabilities as at December 31, 2019 are denominated in United States Dollars, Canadian Dollars, and Mexican Pesos, and are set out in the following table:

Denominated in ‘000 USD	Canadian Dollars	US Dollars	Mexico Pesos	Total
Financial assets Cash and cash equivalents Receivables - other Investments	$ 26 - 371	$ 532 4 -	$ 2 30 -	$ 560 34 371
Financial liabilities Accounts payable and accrued liabilities Loan payable Lease liability	397 (267) - (177)	536 (3,072) (733) -	32 (1,612) - (165)	965 (4,951) (733) (342)
Net financial (liabilities) assets	$ (47)	$ (3,269)	$ (1,745)	$ (5,061)

The Company’s reported results will be affected by changes in the US dollar to Canadian dollar and US dollar to Mexican Pesos exchange rate. As of September 30, 2020, a 10% appreciation of the Canadian dollar relative to the US dollar would have decreased net financial assets by approximately $70,000 (December 31, 2019 - $13,000). A 10% depreciation of the US Dollar relative to the Canadian dollar would have had the equal but opposite effect. A 10% appreciation of the Mexican Pesos relative to the US dollar would have decreased net financial asset by approximately $139,000 (December 31, 2019 - $158,000) and a 10% depreciation of the Mexican Pesos would have had an equal but opposite effect. The Company has not entered into any agreements or purchased any instruments to hedge possible currency risk.

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Nine months ended – September 30, 2020

The table below summarizes the maturity profile of the Company’s non-derivative financial liabilities:

	Current – within 1 year	Non- current – 1 to 3
September 30, 2020(Denominated in ‘000 USD)
		years
Accounts payable and accrued liabilities Loan payable Lease liability	$ 5,622 - 108	$ - 1,526 -
	$5,730	$1,526
	Current – within 1 year	Non- current – 1 to 3
December 31, 2019(Denominated in ‘000 USD)
		years
Accounts payable and accrued liabilities Loan payable Lease liability	$ 4,951 733 300	$ - - 42
	$5,984	$42

Related party transactions

The Company’s related parties include its subsidiaries, associates over which it exercises significant influence, and key management personnel. Key management personnel include officers, directors or companies with common directors of the Company. The remuneration of the Company’s directors and other key management personnel during the period ended September 30, are as follows:

Denominated in thousands (‘000)	2020	2019
Short-term employee benefits included in salary and consulting Director’s fees included in professional fess Share-based compensation Consultingfees included in salaryand consulting	$ 129 64 50 81	$ 244 89 4 81
	$ 324	$ 418

Short-term employee benefits include salaries incurred within the period to the statement of financial position date and other annual employee benefits. They are included in cost of sales, administrative expenses and exploration and evaluation properties.

At September 30, 2020, accounts payable and accrued liabilities includes $106,000 (December 31, 2019 - $294,000) owing to a director and/or officer and/or companies controlled by the directors.

During the period ended September 30, 2020 the Company paid consulting fees totalling $81,000 (2019 - $81,000) to companies controlled by directors and/or officers of the Company.

During the period ended September 30, 2020, the Company closed a loan facility with Accendo in the amount of USD$3,000,000 the (”Facility”). Javier Reyes, a director of the Company, is the CEO and Chairman of Accendo. As part of the loan the Company paid $27,750 in initiation fees and issued 7,500,000 common share purchase warrants exercisable to purchase one common share in the capital of the Company at a price of CAD$0.025 for a period of 36 months to Accendo.

Amounts owing to or from related parties are non-interest bearing, unsecured and due on demand.

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Third Quarter – September 30, 2020

Nine months ended – September 30, 2020

Capital management

The capital of the Company consists of items included in shareholder’s equity. The Company’s objectives for capital management are to safeguard its ability to support the Company’s normal operating requirement on an ongoing basis, continue the development and exploration of its mineral properties and support any expansionary plans.

The Company manages its capital structure and makes adjustments in light of changes in its economic environment and the risk characteristics of the Company’s assets. To effectively manage the entity’s capital requirements, the Company has in place a planning, budgeting and forecasting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. As at September 30, 2020, the Company expects its capital resources will require additional support for its normal operating requirements, planned development and exploration of its mineral properties for the next twelve months. There are no externally imposed capital requirements to which the Company has not complied.

Critical accounting estimates

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The Company’s management makes judgments in its process of applying the Company’s accounting policies in the preparation of its consolidated financial statements. In addition, the preparation of the financial data requires that the Company’s management make assumptions and estimates of the effects of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Estimates are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively.

Significant judgments in applying accounting policies

The critical judgments that the Company’s management has made in the process of applying the Company’s accounting policies, apart from those involving estimations, that have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are as follows:

• a) Impairment of assets

• The carrying value of property, plant and equipment and the Company’s mineral property is reviewed each reporting period to determine whether there is any indication of impairment. If the carrying amount of an asset exceeds its recoverable amount, the asset is impaired and an impairment loss is recognized in profit or loss. The assessment of fair values, including those of the cash-generating units, require the use of estimates and assumptions for recoverable production, long-term commodity prices, discount rates, foreign exchange rates, future capital requirements and operating performance. Changes in any of the assumptions or estimates used in determining the fair value of assets could impact the impairment analysis.

• b) Economic recoverability and probability of future economic benefits of exploration and evaluation assets. Management has determined that exploratory drilling and evaluation, related costs incurred which have been capitalized are economically recoverable. Management uses several criteria in its assessments of economic recoverability and probability of future economic benefit including geologic and metallurgic information, history of conversion of mineral deposits to proven and probable reserves, scoping and feasibility studies, accessible facilities, existing permits and life of mine plans.

• c) Functional currency

The functional currency for each of the Company’s subsidiaries, joint ventures and investments in associates, is the currency of the primary economic environment in which the entity operates. The Company has determined the functional currency of each entity is the US dollar. Determination of functional currency may involve certain judgments to determine the primary economic environment and the Company reconsiders the

Third Quarter – September 30, 2020

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Nine months ended – September 30, 2020

functional currency of its entities if there is a change in events and conditions which determined the primary economic environment.

• d) Commencement of commercial production

Costs associated with the commissioning of new assets, in the pre-commercial period before they are operating in the way intended by management, are capitalized, net of any pre-production revenues. Commercial production is deemed to have occurred when management determines that, amongst other items, the completion of operational commissioning of major mine components has been reached, operating results, which includes the grade and volume of material mined, are being achieved consistently for a period of time, and there are indicators that these operating results will continue, all of which involve management judgments. The Company processed material extracted from an exploration and evaluation property (Batamote) through the mill of the adjacent Cerro Prieto production property until March 31, 2019. The costs associated with the Batamote option payments were amortized through depreciation and depletion over the term of each option period. The revenue generated from the Batamote property was recognized as revenue through profit or loss.

Key sources of Estimation Uncertainty

The preparation of the Company’s unaudited interim consolidated financial statements in conformity with IFRS requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results could differ from these estimates. Differences may be material.

The areas which require management to make significant estimates and assumptions in determining carrying values include, but are not limited to:

• a) Mineral Reserves Estimation

The carrying value and recoverability of mineral properties requires management to make certain estimates, judgments and assumptions about each project. Management considers the economics of the project, including the latest resources prices and the long-term forecasts, and the overall economic viability of the project. The determination of mineral resources also requires the use of estimates. The Company estimates its mineral resources based on information compiled by Qualified Persons as defined in accordance with Canadian Securities Administrators National Instrument 43-101, Standards for Disclosure of Mineral Projects. There are numerous uncertainties inherent in estimating mineral resources and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecasted prices of commodities, exchange rates, production costs or recovery rates may change the economic status of resources and may result in changes to resource estimates.

b) Depreciation and depletion

Plants and other facilities used directly in mining activities are depreciated using the units-of-production (“UOP”) method over a period not to exceed the estimated life of the ore body based on recoverable ounces to be mined from estimated resources. Mobile and other equipment are depreciated, net of residual value, on a straight-line basis, over the useful life of the equipment to the extent that the useful life does not exceed the related estimated life of the mine based on estimated recoverable resources.

The calculation of the UOP rate, and therefore the annual depreciation and depletion expense, could be materially affected by changes in the underlying estimates. Changes in estimates can be the result of actual future production differing from current forecasts of future production, expansion of mineral reserves through exploration activities, differences between estimated and actual costs of mining and differences in gold price used in the estimation of mineral reserves.

Third Quarter – September 30, 2020

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Nine months ended – September 30, 2020

Significant judgment is involved in the determination of useful life and residual values for the computation of depreciation and depletion and no assurance can be given that actual useful lives and residual values will not differ significantly from current assumptions.

c) Inventories

Expenditures incurred, and depreciation and depletion of assets used in mining and processing activities are deferred and accumulated as the cost of ore in stockpiles, ore on leach pads, in-process and finished metal inventories. These deferred amounts are carried at the lower of average cost or net realizable value (“NRV”). Write-downs of ore in stockpiles, ore on leach pads, in-process and finished metal inventories resulting from NRV impairments are reported as a component of current period costs. The primary factors that influence the need to record write-downs include prevailing and long-term metal prices and prevailing costs for production inputs such as labour, fuel and energy, materials and supplies, as well as realized ore grades and actual production levels.

Costs are attributed to the leach pads based on current mining costs, including applicable depreciation and depletion relating to mining operations incurred up to the point of placing the ore on the pad. Costs are removed from the leach pad based on the average cost per recoverable ounce of gold on the leach pad as the gold is recovered. Estimates of recoverable gold on the leach pads are calculated from the quantities of ore placed on the pads, the grade of ore placed on the leach pads and an estimated percentage of recovery. Timing and ultimate recovery of gold contained on leach pads can vary significantly from the estimates. The quantities of recoverable gold placed on the leach pads are reconciled to the quantities of gold actually recovered (metallurgical balancing), by comparing the grades of ore placed on the leach pads to actual ounces recovered. The nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and the engineering estimates are refined based on actual results over time. The ultimate recovery of gold from a pad will not be known until the leaching process is completed.

The allocation of costs to ore on leach pads and in-process inventories and the determination of NRV involve the use of estimates. There is a high degree of judgment in estimating future costs, future production levels, proven and probable reserves estimates, gold and silver prices, and the ultimate estimated recovery for ore on leach pads. There can be no assurance that actual results will not differ significantly from estimates used in the determination of the carrying value of inventories.

d) Decommissioning and restoration provision

The Company assesses its provision for reclamation and remediation on an annual basis or when new material information becomes available. Mining and exploration activities are subject to various laws and regulations governing the protection of the environment. In general, these laws and regulations are continually changing and the Company has made, and intends to make in the future, expenditures to comply with such laws and regulations. Accounting for reclamation and remediation obligations requires management to make estimates of the future costs the Company will incur to complete the reclamation and remediation work required to comply with existing laws and regulations at each mining operation and exploration and development property. Actual costs incurred may differ from those amounts estimated. Also, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required to be performed by the Company. Increases in future costs could materially impact the amounts charged to operations for reclamation and remediation. The provision represents management’s best estimate of the present value of the future reclamation and remediation obligation. The actual future expenditures may differ from the amounts currently provided.

e) Share-based payments

Share-based payments are determined using the Black Scholes option pricing model based on estimated fair values of all share based awards at the date of grant and is expensed to profit or loss over each award’s vesting period. The Black Scholes option pricing model utilizes subjective assumptions such as expected price volatility and expected life of the option. Changes in these input assumptions can significantly affect the fair value estimate.

Third Quarter – September 30, 2020

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Nine months ended – September 30, 2020

For asset acquisitions, contingent share consideration is an estimate of the fair value of the contingent amounts expected to be payable in the future. The fair value is based on number of contingent shares, the share price of the Company on the date of acquisition and management’s expectations of probability.

f) Contingencies

Due to the size, complexity and nature of the Company’s operations, various legal and tax matters are outstanding from time to time. In the event that management’s estimate of the future resolution of these matters changes, the Company will recognize the effects of the changes in its consolidated financial statements on the date such changes occur.

g) Deferred taxes

In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. Forecasted cash flows from operations are based on life of mine projections internally developed and reviewed by management. The likelihood that tax positions taken will be sustained upon examination by applicable tax authorities is assessed based on individual facts and circumstances of the relevant tax position evaluated in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these estimates can occur that materially affect the amounts of income tax assets recognized. At the end of each reporting period, the Company reassesses unrecognized income tax assets

h) Impairment

Non-current assets are tested for impairment if there is an indicator of impairment, and in the case of goodwill, at least annually. The impairment analysis requires the use of estimates and assumptions, including amongst others, long-term commodity prices, discount rates, length of mine life, future production levels, future operating costs, future capital expenditures and tax estimates. The estimates and assumptions are subject to risk and uncertainty; hence, there is the possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances the carrying value of the assets may be impaired or a prior period’s impairment charge reversed with the impact recorded in the statements of loss and comprehensive loss.

Current assets include receivables which are reviewed for collectability that may be affected by default, delays and other economic indicators.

• i) Valuation of right-of-use asset and lease liabilities

The application of IFRS 16 requires the Company to make judgments that affect the valuation of the rightof-use assets and the valuation of lease liabilities. These include: determining agreements in scope of IFRS 16, determining the contract term and determining the interest rate used for discounting of future cash flows.

The lease term determined by the Company is comprised of the non-cancellable period of lease agreements, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

The present value of the lease payment is determined using a discount rate representing the rate of its loan payable observed in the period when the lease agreement commences or is modified.

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Nine months ended – September 30, 2020

OTHER MD&A REQUIREMENTS

Goldgroup’s business of exploring, developing and mining mineral resources involves a variety of operational, financial and regulatory risks that are typical in the natural resource industry. The Company attempts to mitigate these risks and minimize their effect on its financial performance, but there is no guarantee that the Company will be profitable in the future, and any investment in Goldgroup’s common shares should be considered speculative.

Additional information relating to the Company, including the AIF is available on the SEDAR website at www.sedar.com and on the Company’s website at www.goldgroupmining.com.

The Board of Directors of Goldgroup has approved the disclosure contained in this MD&A. A copy of this MD&A will be provided to anyone who requests it from the Company.

Compliance with NI 43-101

As required by National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”), Goldgroup has filed technical reports detailing the technical information related to its material mineral properties discussed herein. For the purposes of NI 43-101, the Company’s material mineral properties, the San José de Gracia project, the Cerro Colorado mine and the Cerro Prieto project. Unless otherwise indicated, Goldgroup has prepared the technical information in this MD&A (“Technical Information”) based on information contained in the technical reports, news releases and other public filings (collectively, the “Disclosure Documents”) available under the Company’s profile on SEDAR. Each Disclosure Document was prepared by or under the supervision of a qualified person as defined in NI 43-101. For readers to fully understand the information in this MD&A, they should read the Disclosure Documents in their entirety, including all qualifications, assumptions and exclusions that relate to the information set out in this MD&A which qualifies the Technical Information. The Disclosure Documents are each intended to be read as a whole, and sections should not be read or relied upon out of context. The Technical Information is subject to the assumptions and qualifications contained in the Disclosure Documents.

The Cerro Colorado Technical Report dated May 14, 2012 and effective February 29, 2012 was prepared by Marc Simpson, P. Geo. and co-authored by Gary Giroux, MASc., P.Eng of Giroux Consultants Ltd. and Fernando Rodrigues BSc, MBA, MAusIMM, MMSAQP of SRK Consulting (U.S.) Ltd.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining internal controls over financial reporting (“ICFR”) to provide reasonable assurance in respect to the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS.

There have been no changes in the Company’s internal control over financial reporting during the period ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

Limitations of Controls and Procedures:

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believe that any disclosure controls and procedures or internal controls over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

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Nine months ended – September 30, 2020

Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

Disclosure Controls and Procedures

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures. Based upon the results of that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the appropriate time periods and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Non-IFRS Financial Measures

Cash Costs

The Company’s MD&A often refers to cash costs per ounce, a non-IFRS performance measure in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the producing gold mine is performing compared to plan and prior periods, and also to assess the overall effectiveness and efficiency of gold mining operations. “Cash cost” figures are calculated in accordance with a standard developed by The Gold Institute, which was a worldwide association of suppliers of gold and gold products and included leading North American gold producers. The Gold Institute ceased operations in 2002, but the standard is still an accepted standard of reporting cash costs of gold production in North America. Adoption of the standard is voluntary and the cost measures presented herein may not be comparable to other similarly titled measures of other companies. Costs include mine site operating costs such as mining, processing, administration, royalties and production taxes, but are exclusive of amortization, reclamation, capital, exploration and development costs. These costs are then divided by ounces of gold sold to arrive at the total cash costs per ounce of gold sold. The measure, along with sales, is considered to be a key indicator of a company’s ability to generate operating earnings and cash flow from its mining operations.

These gold cash costs differ from measures determined in accordance with IFRS. They are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operations as determined under IFRS.

The following table provides a reconciliation between non IFRS adjusted cash costs to cost of good sold (IFRS):

Goldgroup - cash cost calculation	Three months ended Sept. 30, 2020	Three months ended Sept. 30, 2019	Nine months ended Sept. 30, 2020	Nine months ended Sept. 30, 2019
Total cost of goods sold (‘000) Add (subtract) Inventory adjustment (‘000) Total cash cost of production (‘000) Gold ounces – produced Total cash cost of production per ounce All-in sustaining cost of production per ounce	$ 5,068 $ 100 $ 5,168 2,110 $ 2,449 $ 2,449	$ 3,798 $ 226 $ 4,024 2,961 $ 1,359 $ 1,359	$ 11,567 $ 627 $ 12,194 7,582 $ 1,608 $ 1,608	$ 11,261 $ 315 $ 11,576 10,229 $ 1,132 $ 1,132

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	Add (subtract) Corporate administration (‘000) Total all-in cost (‘000) Gold ounces – produced All-in cost (per ounce)*	$ 1,047 $ 6,215 2,110 $ 2,945	$ 714 $ 4,738 2,961 $ 1,600	$ 2,166 $ 14,360 7,582 $ 1,894	$ 1,992 $ 13,568 10,229 $ 1,326

*Corporate administration excludes non cash items such as corporate depreciation and stock-based compensation.

Investor Relations Activities

Goldgroup is committed to adhering to best investor relations corporate practices. The Company continues to attend prudently selected resource-focused tradeshows, conferences, and non-deal roadshows to ensure continuous communication with current and prospective investors. Currently, the Company is not utilizing any North Americanbased investor relations external consultants. Additionally, Goldgroup has minimized North American public relations and advertising initiatives as part of a company-wide capital optimization plan.

Cautionary Statement on Forward-Looking Information

This MD&A contains “forward-looking information” (within the meaning of applicable Canadian securities law) and “forward-looking statements” (within the meaning of the United States Private Securities Litigation Reform Act of 1995) concerning Goldgroup’s plans at its mineral properties and other matters. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. Actual results could differ materially from the conclusions, forecasts and projections contained in such forward-looking information.

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects”, “is expected”, “anticipates”, “plans”, “projects”, “estimates”, “assumes”, “intends”, “strategy”, “goals”, “objectives”, “potential” or variations thereof or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to materially differ from those reflected in the forward-looking statements, and are developed based on assumptions about such risks, uncertainties and other factors set out herein including, without limitation:

• uncertainties related to actual capital costs, operating costs and expenditures, production schedules and economic returns from Goldgroup’s projects;

• uncertainties associated with development activities;

• uncertainties inherent in the estimation of mineral resources and precious metal recoveries;

• risks related to obtaining appropriate permits and licences to explore, develop, operate and produce at the Company’s projects;

• uncertainties related to current global economic conditions;

• fluctuations in precious and base metal prices;

• uncertainties related to the availability of future financing;

• potential difficulties with joint venture partners;

• risks that Goldgroup’s title to its property could be challenged;

• political and country risk;

• risks associated with Goldgroup being subject to government regulation;

• risks associated with having adequate surface rights for operations;

• environmental risks;

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• Goldgroup’s need to attract and retain qualified personnel;

• risks associated with operating hazards at the Cerro Colorado Mine;

• risks associated with potential conflicts of interest;

• Goldgroup’s lack of experience in overseeing the construction of a mining project;

• risks related to the integration of businesses and assets acquired by Goldgroup;

• uncertainties related to the competitiveness of the mining industry;

• risk associated with theft;

• risk of water shortages and risks associated with competition for water;

• uninsured risks and inadequate insurance coverage;

• risks associated with potential legal proceedings;

• risks associated with community relations;

• outside contractor risks;

• risks related to archaeological sites;

• foreign currency risks;

• risks associated with security and human rights; and

• risks related to the need for reclamation activities on Goldgroup’s properties.

• risks and uncertainty related to COVID-19

This list is not exhaustive of the factors that may affect the Company’s forward-looking information. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking information. Investors should carefully consider the risks discussed in this MD&A as well as those set out under the heading “Risk Factors” in the AIF.

Cautionary Note to U.S. Investors Concerning Estimates of Mineral Resources and Mineral Reserves

The disclosure in this MD&A uses mineral resource and mineral reserve classification terms that comply with reporting standards in Canada, and, unless otherwise indicated, all mineral resource and mineral reserve estimates included in this MD&A have been prepared in accordance with NI 43-101. NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. These standards differ significantly from the disclosure requirements of the United States Securities and Exchange Commission (the “SEC”) set forth in Industry Guide 7. Consequently, mineral resource and mineral reserve information contained in this MD&A is not comparable to similar information that would generally be disclosed by U.S. companies in accordance with the rules of the SEC.

In particular, the SEC’s Industry Guide 7 applies different standards in order to classify mineralization as a reserve. As a result, the definitions of proven and probable reserves used in NI 43-101 differ from the definitions in Industry Guide 7. Under SEC standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Accordingly, mineral reserve estimates contained in this MD&A may not qualify as “reserves” under SEC standards.

In addition, this MD&A uses the terms “measured mineral resources,” “indicated mineral resources” and “inferred mineral resources” to comply with the reporting standards in Canada. The SEC’s Industry Guide 7 does not recognize mineral resources and U.S. companies are generally not permitted to disclose resources in documents they file with the SEC. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into SEC defined mineral “reserves.” Further, “inferred mineral resources” have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Therefore, investors are also cautioned not to assume that all or any part of an inferred mineral resource exists. In accordance with Canadian rules, estimates of “inferred mineral resources” cannot form the basis of feasibility or other economic studies, except in rare cases. In addition, disclosure of “contained ounces” in a mineral resource estimate is permitted disclosure under NI 43-101 provided that the grade or quality and the quantity of each category is stated; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures. For the above reasons, information contained in this MD&A containing descriptions of our mineral resource and mineral reserve estimates is not comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements of the SEC.

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