Lara Exploration Ltd. - Interim / Quarterly Report 2021

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MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE SIX MONTHS ENDED JUNE 30, 2021

GENERAL

This discussion and analysis of financial position and results of operations is prepared as at August 24, 2021 and should be read in conjunction with the condensed consolidated interim financial statements of Lara Exploration Ltd. (the “Company” or “Lara”) for the six months ended June 30, 2021 and the related notes thereto.

The Company prepares its financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). All dollar amounts included therein and in the following management’s discussion and analysis (“MD&A”) are in Canadian dollars except where noted. These documents and other information relevant to the Company’s activities are available for viewing on SEDAR at www.sedar.com.

FORWARD-LOOKING INFORMATION

This MD&A may contain “forward-looking statements” that reflect the Company’s current expectations and projections about its future results. When used in this MD&A, words such as “estimate”, “intend”, ”expect”, ”anticipate,” and similar expressions are intended to identify forward-looking statements, which, by their very nature, are not guarantees of the Company’s future operational or financial performance, and are subject to risks and uncertainties and other factors that could cause Lara’s actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties, and factors may include but are not limited to unavailability of financing, failure to identify commercially viable mineral reserves, fluctuations in market prices for commodities, difficulties in obtaining required approvals or permits for the development of a mineral project and other factors.

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.

Lara’s operating plan is dependent on its joint venture partners being able to make option payments and fund exploration activities on some of the properties that Lara holds. The operating plan is also dependent on being able to raise new equity funds and sell investments as required to raise enough capital to acquire and explore new properties. Other factors that affect Lara’s operating plan are commodity prices, gaining access to exploration properties by securing or renewing licenses, and concluding agreements with local communities. If any of these factors impact the Company in a negative way, such as joint venture partners being unable to raise enough capital to complete option agreements or if the Company is unable to raise enough capital of its own, there will be a significant impact on the Company’s operating plan and any forward-looking statements contained herein.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this MD&A or as of the date otherwise specifically indicated herein. Due to risks and uncertainties, including the risks and uncertainties identified above and elsewhere in this MD&A, actual events may differ materially from current expectations. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether because of new information, future events or otherwise, except as required by securities law.

COMPANY OVERVIEW

Lara is a prospect and royalty generator with a strategy to seek exploration discoveries and create royalty interests in South America, aiming to fund a significant portion of its mineral exploration costs through joint ventures and partnership agreements. This approach significantly reduces the technical and financial risk for the Company, without losing exposure to the shareholder value enhancement of a major discovery. Lara’s experienced management team has already made multiple discoveries and is well established in South America. Currently, the Company is focused and most active in Brazil and Peru.

COMPANY HIGHLIGHTS FOR THE QUARTER ENDED JUNE 30, 2021

The new mill and flotation circuits were received at the Celesta Copper Mine, where work continues to ramp up mining and processing to 800 tonnes per day by end Q3.
In their Q2 2021 Production Report, Hochschild noted completion of 3,150m of diamond drilling on the Company’s Corina Gold-Silver Project, including an intercept from hole DHCOR-21-036 of 5.5m at 1.3g/tAu
Subsequent to the end of the period, our 45%-owned subsidiary received a US$200,000 option payment from from Minsur for the Lara Copper Project, along with news of the start of fieldwork.

EXPLORATION REVIEW

Despite the ongoing challenges of the Covid-19 pandemic, which has hit both Brazil and Peru particulalry hard, we have had a productive Q2, with progress on our most important projects and a much more active generative effort.

The new property acquisitions at Planalto in Q1 effectively doubled the strike potential of the Homestead discovery, giving us an opportunity to significantly grow this target and we were busy with permitting for a new drill program during the quarter. The Celesta copper mine is still behind on its production targets, but making good progress with all new mill equipment delivered during Q2 and completion of a cut back at Pit-1 (previously Osmar-1) so that we have been able to mine from both Pit-1 and Pit-2 (previously Osmar-2) in Q3. Celesta is targeting a milling rate of 800 tonnes per day by the end of Q3, up from the current average of 300tpd.

In Peru, Hochschild continued drilling on our Corina project, with 3,150m completed in the quarter and four rigs at site going into Q3. Subsequent to the end of the period, Minsur advised us that they had completed their preparatory legal work and were mobilising to the field and made the 12 month option payment.

OUTLOOK

The acquisition of the two new northern properties and the transfer of everything into a new project holding company has meant that we have had to restart all our permitting to drill at Planalto, which has caused some frustrating delays, but we are hopeful that we will have permits in place to mobilise by the end of Q3. We have been advised by Celesta that the mill expension should be completed in August and we can thus expect a significant increase in production and cashflow by the end of Q3.

Travel restrictions and the need to keep our people and those around us safe, have for some time limited our generative exploration efforts, but I am happy to say that we had field teams checking existing targets and visiting new prospects in Brazil, Peru and Chile during the period and that work will continue in the months ahead

BRAZIL EXPLORATION

Planalto Copper Project

Having secured options on two mineral properties that could double the strike length of the Homestead discovery to the north, we undertook a program in Q1 of surface work and IP geophysics over those areas and other potential extensions of Homestead, defining a number of new drill targets and we have relogged a lot of the drill core to try to build a more coherent geological model. Q2 by comparison has been quieter as we’ve had to redo all the drill permitting to include the new properties, which has been slower than we would have liked, but is now well advanced and we hope to be drilling again by the end of Q3 to test these new targets and other potential extensions of the Homestead deposit indicated in our recent surveys.

Celesta Copper Project

The Celesta copper mine continued to operate through the period, though despite some incremental improvements, still at a level below the 500tpd defined as commercial production. The new flotation and milling circuits arrived at site during the period and are being installed, the current program should see them coming on-line in August and the plant starting to operate at 800tpd in September. During Q2 most production was derived from Pit-2 (previously Osmar 2), but the cut-back of Pit-1 (previously Osmar-1) was advanced and we have started to blend higher-grade transition ore from Pit-1 into the plant in Q3. Development work has also started on Pit-3 (previously Galpão), such that by the end of Q3 we will have ore from all three pits to feed the increased plant capacity.

PERU EXPLORATION

Corina Gold Project

In their Q2 Production Report, Hochschild noted the completion of another 3,150m of drilling on the Corina and Luciano viens and provided results of hole DHCOR-21-036, which intercepted 5.5m at 1.3g/tAu and 3g/tAg. Hochschild plans to continue drilling in Q3.

Lara Copper Project

Subsequent to the end of the period Minsur advised us of their plan to restart fieldwork at the Lara project and made the second option payment of US$200,000 as part of an Option and Royalty Agreement (“the Agreement”) for the Lara Copper Project signed in July 2020. The Project is registered in the name of Minas Dixon S.A., which is in turn owned 55% Global Battery Metals Ltd. (“GBML”), and 45% by Lara. Under the terms of the Agreement, GBML and Lara have granted Minsur an exclusive option to acquire a 100% interest in the Lara Copper Project by making staged cash payments of US$5.75 million to Minas Dixon S.A. on the satisfaction of various milestones, and with each of GBML and Lara retaining a 0.75% net smelter royalty.

Minsur is expected to start fieldwork in Q3, including relogging of drill holes, detailed geological mapping and geophysics. Permitting is also underway for a drilling campaign that is targeted to commence in Q2-2022, once the permit has been approved.

Qualified Person

Michael Bennell, Lara’s Vice President Exploration and a Fellow of the Australasian Institute of Mining and Metallurgy, is a Qualified Person as defined by NI 43-101 Standards of Disclosure for Mineral Projects, has reviewed and has approved the disclosure of the technical information in the MD&A regarding the Company’s projects.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2021

For the three months ended June 30, 2021, the Company had a loss of $329,386 or $0.01 per share compared to income of $108,063 or $0.00 per share in 2020. The unfavorable variance was due to much lower other income, higher exploration expenditures, a write-off of exploration and evaluation assets.

Other income was lower in 2021, mainly because the Company received a large option payment on the Corina property in 2020 and there was no comparable receipt in 2021. Exploration expenditures were higher in 2021 due to increased general reconnaissance exploration activity in Peru in 2021. In 2021, the Company wrote off the capitalized costs for the Buenos Aires and Rafa licenses whereas there was no write-off in 2020.

Six Months Ended June 30, 2021

For the six months ended June 30, 2021, the Company had a loss of $445,453 or $0.01 per share compared to a loss of $90,772. The unfavorable variance was due to: much lower other income, higher exploration expenses, and the write-off of two exploration properties partially offset by a decline in fair value of investments in 2020 and a gain on sale of investments in 2021.

Other income was lower in 20211 because the Company received $94,000 of royalty income and $42,000 of operator’s fees compared to the receipt of an option payment of $476,000 on the Corina property and $115,000 of revenue from a penalty payment from Celesta. Exploration expenditures were higher in 2021 due to increased general reconnaissance exploration activity in Peru in 2021. The Company wrote off the capitalized costs for the Buenos Aires and Rafa licenses whereas there was no corresponding write-off in 2020.

In 2020, Lara had a decline in the fair value of investments of $108,000 and there was no similar decline in 2021. In 2021, Lara had a gain of $73,000 on the sale of investments whereas there was no corresponding gain in 2020.

SUMMARY OF QUARTERLY RESULTS

	2021	2021	2020	2020
Quarter Ended	Jun. 30	Mar. 31	Dec. 31	Sept. 30
Net exploration expenditures	$ 155,346	$ 68,848	$ 38,034	$ 99,397
Share-based payments	16,636	-	-	640,882
Net income (loss) for the period	(329,386)	(116,067)	(93,487)	(796,332)
Net income (loss) per share (basic and
diluted)	(0.01)	(0.00)	(0.00)	(0.02)
	2020	2020	2019	2019
Quarter Ended	Jun. 30	Mar. 31	Dec. 31	Sept. 30
Net exploration expenditures	$ 83,581	$ 86,018	$ 364,846	$ 567,884
Share-based payments	-	5,918	52,123	7,562
Net income (loss) for the period	108,063	(198,785)	200,318	(741,575)
Net lossper share(basic and diluted)	0.00	(0.01)	0.01	(0.02)

The net loss for each quarter is primarily based on the amount of exploration expenditures incurred, option payments paid or received, and whether stock options were granted and vested in the quarter.

Exploration Expenditures

The Company has three main types of exploration activity: general reconnaissance, exploration of mineral properties acquired through claim staking, and exploration of mineral properties acquired through option agreements with third parties.

The amount of exploration activity in a quarter depends on whether the company is in the process of conducting general reconnaissance to acquire new relatively unexplored properties, starting to conduct exploration on recently acquired mineral properties and whether Lara is simultaneously receiving funding from a third party to conduct exploration on properties which have been optioned. For properties that have been optioned, Lara generally receives the funding, manages the exploration programs, and records the expenditures in their financial statements, net of the amounts paid by third parties.

Exploration spending is also dependent on a healthy treasury. The Company closely monitors its cash position and reduces exploration expenditures if there is not enough funding to cover all administration expenses and planned exploration expenditures each year.

Option Payments Received from Third Parties

The Company enters into option agreements with third parties, whereby those third parties agree to acquire a majority interest in a mineral property through a combination of defined exploration expenditures and cash or share payments. Cash or share payments are first accounted for by recovering any exploration costs incurred by Lara, then any capitalized acquisition costs effect and finally, any excess payments that are received are credited to other income. Option payments can be significant during the later stages of an option agreement. If they are accounted for as exploration expense recoveries or other income, the payments will have a material effect on the Company’s net income or loss for a given quarter.

Share-based Compensation

The Company periodically grants stock options to its directors, senior management, and consultants. These grants are usually fully vested on the date of the grant, which can result in a significant share-based payment expense occurring in a given quarter of any year. The last two major option grants, which included all directors, senior management, and consultants, occurred in 2020 and 2017. More recently, Lara has granted options to recognize a specific achievement by senior management, to compensate a new director, or to recognize ongoing contributions from current directors. The greater the number of options granted, and the higher the exercise price, the greater the amount of share-based payment expense that will be recognized.

Lara also grants bonus shares to senior management approximately every two years. The shares have generally vested, one-third on the grant date, one-third after one year, and one-third after two years. Whenever a new bonus share grant takes place, there can be a significant share-based payment expense in that quarter because the first third of the bonus shares are vested immediately, and the expense is recorded at that time. The remaining bonus shares accrue evenly over the succeeding quarters and do not generally cause a significant variation in net income or loss over those quarters.

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

The Company had working capital of $1,183,501 at June 30, 2021 compared to working capital of $1,375,394 as at December 31, 2020. Working capital decreased by $191,893 in the six months ended June 30, 2021 due to funds consumed in operations, acquisition of mineral properties and the purchase of equipment partially offset by cash received from the sale of investments. The Company is expecting that it will continue to receive Celesta royalty payments and operator’s fees on the Planalto Copper Project on a regular basis. However, Lara may need to raise additional working capital in order to sustain operations for the next twelve months depending on the level of exploration activity.

OUTSTANDING SHARE DATA

There are 39,627,608 common shares issued and outstanding. In addition, there are 3,700,000 fully vested stock options outstanding with exercise prices ranging from $0.50 to $1.02 per option with terms expiring between November 18, 2021, and June 28, 2026. The Company also has 2,000,000 common share purchase warrants outstanding with an exercise price of $0.70, which expire on March 26, 2022.

INVESTMENTS IN ASSOCIATED COMPANY

Minas Dixon S.A.

The Company owns a 45% interest in Minas Dixon S.A. (“Minas”). As at December 31, 2020, Lara had a net investment of $Nil in Minas. During the three months ended March 31, 2021 the Company did not make any further investment in Minas and therefore had a net investment of $Nil in Minas at the quarter-end.

RELATED PARTY TRANSACTIONS

The aggregate value of transactions paid or accrued to key management personnel and directors was as follows:

		Salary		Share-based
For the three months ended June 30, 2021		or fees		payments		Total
Chief Executive Officer	$	61,840	$	-	$	61,840
VP Corporate Development		24,000		-		24,000
VP Exploration		84,568		-		84,568
Seabord Services Corp.		106,800		-		106,800
	$	277,208	$	-	$	277,208

The above payments for management compensation are payments made in the normal course of business. The amounts paid for these services are negotiated in good faith by both parties and fall within normal market ranges. The Compensation Committee reviews executive compensation annually. The Board of Directors considers any changes to executive compensation recommended by the Compensation Committee and approves these changes if appropriate. The consulting contracts with senior management are ongoing monthly commitments that can be terminated by either party with sufficient notice. All balances due to related parties are included in accounts payable and accrued liabilities.

The outstanding balances due to or from related parties are as follows:

			June 30,		December 31,
Relatedparty assets and liabilities	Service or items		2021		2020
Amounts due from (to):
CEO	Fees and Expenses	$	-	$	(946)
VP Exploration	Fees and expenses		(12,097)		(2,677)
VP Corporate Development	Fees and expenses		(14,306)		-
Seabord Services	Deposit		10,000		10,000

FINANCIAL INSTRUMENTS

The Company classified its financial instruments as follows:

As at June 30, 2021		FVTPL		Amortized Cost	Total
Cash and cash equivalents	$		-	$ 1,548,507	$1,548,507
Restricted cash equivalents			-	57,500	57,500
Receivables			-	34,325	34,325
Long-term investments		178,668		-	178,668
Accounts payable and accrued liabilities			-	(170,855)	(170,855)
Advances from JV Partners			-	(263,304)	(263,304)
	$	178,668		$1,206,173	$1,384,841

Fair Value

The carrying value of receivables and accounts payable and accrued liabilities approximated their fair value due to the short-term nature of these instruments.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

RISKS AND UNCERTAINTIES

Financial Risk Management

Lara’s strategy for cash is to safeguard this asset by investing any excess cash in very low-risk financial instruments such as term deposits or by holding funds in the highest yielding accounts with a major Canadian bank. By using this strategy, the Company preserves its cash resources and can earn a low-risk return through the yields on these investments. The Company’s financial instruments are exposed to certain financial risks, which include currency risk, credit risk, liquidity risk, and interest rate risk.

Foreign Currency Risk

The Company operates mainly in Canada, Brazil, and Peru and is therefore exposed to financial risk related to the fluctuation of foreign exchange rates. The Company funds cash calls to its subsidiary companies outside of Canada in Canadian or US dollars, and a portion of its expenditures are incurred in the local currencies. The risk is that a significant change in the exchange rate of the Canadian dollar relative to the US dollar, the Brazilian real and the Peruvian sol could have an adverse effect on the Company’s results of operations, financial position, or cash flows. The Company has not hedged its exposure to currency fluctuations. The Company is exposed to currency risk through assets and liabilities denominated in these foreign currencies. A 10% change in the exchange rate of these foreign currencies to the Canadian dollar would result in an increase or decrease of approximately $117,500 to the net loss or income from operations.

Market and Interest Rate Risk

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in values of quoted market prices. Interest rate risk is the risk that the fair value of cash flows from a financial instrument will fluctuate due to changes in market interest rates. Lara holds FVTPL investments, which have market risk and have generally declined in value since acquisition because of the weak equity markets for exploration companies. The Company’s cash is held mainly in interest-bearing bank accounts, and therefore there is currently minimal interest rate risk.

Credit Risk

Credit risk is the risk that one party will cause a financial loss for another party by failing to discharge an obligation. The Company is exposed to credit risk with respect to its cash and cash equivalents. The Company’s cash and cash equivalents are mainly held through a large Canadian financial institution and are primarily held in bank accounts or GIC’s and accordingly, credit risk is minimized. The Company generally does not accrue receivables for scheduled option payments, only recording them when they have been received. That procedure significantly reduces the risk of recording uncollectible receivables.

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 resources. The Company’s objective is to ensure that there are sufficient committed financial resources to meet its business requirements for a minimum of twelve months.

Mineral Property Exploration and Mining Risks

The business of mineral deposit exploration and extraction involves a high degree of risk. Few properties that are explored ultimately become producing mines. At present, none of the Company’s properties has a known commercial ore deposit. The main responses to operating risks include ensuring ownership of and access to mineral properties by confirming that option agreements, claims and leases are in good standing and obtaining permits for drilling and other exploration activities. There can be additional risks involved in some countries where pending applications for claims or licenses can be affected by government changes to application procedures.

Some of the Company’s mineral properties are located within or near local communities. In these areas, it may be necessary as a practical matter to negotiate surface access with these local communities. There can be no guarantee that, despite having the legal right to access a mineral property and carry on exploration activities, that the Company will be able to negotiate a satisfactory agreement with any such existing landowners or communities for this access. Therefore, the Company or one of its joint venture partners may be unable to carry out exploration activities on a property. In those circumstances where a local community or landowner has denied access, the Company may need to rely on the assistance of local officials or the courts to gain access, or it may be forced to abandon the property.

Lara is currently earning an interest in certain of its properties through option agreements, and the acquisition of title to the properties is only completed when the option conditions have been met. These conditions generally include making cash payments to the vendor, paying annual land fees, incurring exploration expenditures on the properties, and can include the satisfactory completion of technical studies. If the Company does not satisfactorily complete these option conditions in the time frame laid out in the option agreements, the Company’s title to the related property will not vest, and the Company will have to write-off the previously capitalized costs related to that property.

Joint Venture Funding Risk

Lara’s strategy is to seek partners through joint ventures to fund exploration and project development. The main risk of this strategy is that funding partners may not be able to raise enough capital to satisfy exploration and other expenditure terms in a joint venture agreement. As a result, exploration and development of one or more of the Company’s property interests may be delayed depending on whether Lara can find another partner or has enough capital resources to fund the exploration and development on its own.

Commodity Price Risk

Lara is exposed to commodity price risk. Declines in the market prices of gold, base metals and other minerals may adversely affect Lara’s ability to raise capital or attract joint venture partners to participate in its various exploration projects. Commodity price declines could also reduce the amount the Company would receive on the disposition of one of its mineral properties.

Financing and Share Price Fluctuation Risks

Lara has limited financial resources, has no reliable source of operating cash flow and has no assurance that additional funding will be available to it for further exploration and development of its projects. Further exploration and development of one or more of the Company’s projects may be dependent upon the Company’s ability to obtain financing through equity issues, debt financing or liquidation of long-term investments. Failure to obtain this financing could result in delay or indefinite postponement of further exploration and development of its projects, which could result in the loss of one or more of its properties.

Securities markets have experienced a high degree of price and volume volatility, and the market price of securities of many companies, particularly those considered to be development stage companies such as Lara, have experienced wide fluctuations in share price which have not necessarily been related to their operating performance, underlying asset values or prospects. There can be no assurance that these kinds of share price fluctuations will not occur in the future, and if they do occur, how severe the impact may be on Lara’s ability to raise additional funds through equity issues.

Political and Currency Risks

The Company is operating in countries that currently have varied political environments. Changing political situations may affect the way the Company operates. The Company’s equity financings are sourced in Canadian dollars, but for the most part, it incurs its expenditures in local currencies. There are no currency hedges in place. Therefore, a weakening of the Canadian dollar against the Brazilian real or Peruvian sol could have an adverse impact on the amount of exploration conducted.

Insured and Uninsured Risks

During exploration, development, and production on mineral properties, the Company is subject to many risks and hazards in general, including adverse environmental conditions, operational accidents, labour disputes, unusual or unexpected geological conditions, changes in the regulatory environment and natural phenomena such as severe weather conditions, floods, and earthquakes. Such occurrences could result in damage to the Company’s property or facilities and equipment, personal injury or death, environmental damage to mineral properties, delays, monetary losses, and possible legal liability.

Although the Company may maintain insurance to protect itself against certain risks in such amounts as it considers reasonable, its insurance may not cover all the potential risks associated with its operations. The Company may also be unable to maintain insurance to cover these risks at economically feasible premiums or for other reasons. Should such liabilities arise, they could reduce or eliminate future profitability and result in increased costs, have a material adverse effect on the Company’s results, and cause a decline in the value of the Company’s securities. Some work is carried out through independent consultants, and the Company requires that all consultants carry their insurance to cover any potential liabilities because of their work on a project.

Key Personnel Risk

Lara’s success is dependent upon the performance of key personnel working in management and administrative capacities or as consultants. The loss of the services of senior management or key personnel could have a material and adverse effect on the Company, its business, and results of operations.

Environmental Risks and Hazards

The activities of the Company are subject to environmental regulations issued and enforced by government agencies. Environmental legislation is evolving in a manner that will require stricter standards and enforcement and involve increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors, and employees. There can be no assurance that future changes in environmental regulation, if any, will not adversely affect Lara’s operations. Environmental hazards may exist on properties in which the Company holds interests which are unknown to the Company at present.

Competition

The Company competes with many other companies and individuals that have substantially greater financial and technical resources for the acquisition and development of projects as well as for the recruitment and retention of qualified employees.

COVID-19

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.