Luca Mining Corp. — Interim / Quarterly Report 2020

Dec 1, 2020

TELSON MINING CORPORATION

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Months Ended September 30, 2020 and 2019

UNAUDITED

(Expressed in thousands of Canadian dollars) _______________________________________

TELSON MINING CORPORATION

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Months Ended September 30, 2020 and 2019

NOTICE OF NO AUDITOR REVIEW

The accompanying unaudited condensed interim consolidated financial statements of Telson Mining Corporation (the "Company") have been prepared by and are the responsibility of Company's management and approved by the Company's Audit Committee and Board of Directors.

The Company's independent auditor has not performed a review of these condensed interim consolidated financial statements in accordance with the standards established by CPA Canada for a review of interim financial statements by the entity's auditor.

November 30, 2020

Condensed Interim Consolidated Statements of Financial Position

(Expressed in thousands of Canadian dollars)

	September 30, 2020	December 31, 2019
AssetsCurrent assets:
Cash	$729	$145
Marketable securities (note 3)	3,875	4,653
Accounts receivable (note 4)	1,605	330
Prepaid expenses and deposits	2,047	416
Inventories (note 5)	5,161	7,355
	13,417	12,899
Non-current assets:
Mineral interest and development assets (note 6)	15,09719,476	12,335
Property, plant and equipment (note 7)Other assets (note 4)	4,872	19,7876,213
	39,445	38,335
Total assets	$52,862	$51,234
LiabilitiesCurrent liabilities:
Accounts payable and accrued liabilities	$29,103	$30,561
Obligation under share purchase agreement (note 6(a))	2691,092	260
Current portion of right of use liabilities (note 10)	26,581	1,457
Short-term debt (note 9)	12,888	24,954
Due to Nyrstar Mining Ltd. short-term (note 6(b) and 8)		11,905
	69,933	69,137
Non-current liabilities:
Long-term debt (note 9)	556588	-
Right of use liabilities (note 10)Provision for site reclamation and closure	5,278	4705,758
	6,422	6,228
Total liabilities	$76,355	$75,365
Deficiency	61,867
Share capital (note 11)Share subscriptions received in advance	$-	$59,743795
Equity reserves (note 12)	7,842	6,423
Currency translation reserve	(2,130)	(1,964)
Deficit	(91,072)	(89,128)
Total deficiency	(23,493)	(24,131)
Total liabilities and deficiency	$52,862	$51,234
Commitments (note 18)

Subsequent events (note 19)

Approved by the Board of Directors on November 30, 2020, and signed on the Company's behalf by:

"Ralph Shearing"	"Rory Godinho"
Director	Director

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

(Expressed in thousands of Canadian dollars, except shares and per share amounts)

	Three months ended September 30,		Nine months ended September 30,
	2020	2019	2020	2019
Revenues
Gross sales	$11,148	$1,068	$25,483	$29,446
Treatment and selling costs	(4,451)	146	(11,951)	(9,944)
	6,697	1,214	13,532	19,502
Cost of Sales
Production cost	$5,794	$1,014	$12,701	$14,591
Royalties	231	33	462	653
Accretion of provision for site reclamation and closure	88	392	271	1,193
Depletion, depreciation and amortization (note 6 and 7)	111	8	318	746
	6,224	1,447	13,752	17,183
Mine operating profit (loss)	473	(233)	(220)	2,319
General Expenses:
Consulting fees, wages and benefits (note 15)	$(464) $	1,014	$1,790	$4,364
Legal and professional fees	89	66	220	242
Office, rent and administration	112	596	490	1,626
Amortization of right-of-use assets (note 7 and 10)	55	–	110
Regulatory, transfer agent and shareholder information	(4)	5	17	33
Travel, promotion and investor relations	53	54	180	248
Share-based compensation (note 12(a) and 15)	23	–	23	45
	(136)	1,735	2,830	6,558
Other (income) expense:
Interest income and other income	$119	$(24) $	(247) $	(81)
Accretion of provision for site reclamation and closure	8	8	24	26
Change in value of marketable securities (note 3)	(54)	(87)	(521)	(427)
Interest expenses and other expenses	286	302	972	1,289
Foreign exchange loss (gain)	(4,127)	1,092	(1,334)	147
	(3,768)	1,291	(1,106)	954
Total income (loss) before income tax	$4,377	$(3,259) $	(1,944) $	(5,193)
Other comprehensive loss
Items that may be reclassified subsequently to profit or (loss)
Foreign currency translation adjustment	(4,019)	1,540	(166)	136
Total items that may be reclassified subsequently to profit or (loss)	(4,019)	1,540	(166)	136
Total comprehensive loss for the period	$358	$(1,719) $	(2,110) $	(5,057)
Weighted average number of common shares outstanding
Basic and diluted	173,976,734	139,579,152	161,810,840	139,573,841
Loss per share (note 14)
Basic and diluted	$0.03	$(0.02) $	(0.01) $	(0.04)

Condensed Interim Consolidated Statements of Changes in Deficiency

(Expressed in thousands of Canadian dollars, except for number of common shares)

	Number ofcommonshares	Share	Sharecapital subscriptionsreceived inadvance	Equityreserves	Currencytranslationreserve	Deficit	Total
Balance as at December 31, 2018	139,559,152	$59,740	$–	$6,379	$(1,532) $	(59,771) $	4,816
Stock options exercisedFair value of stock options allocated to	20,000	2	–	–	–	–	2
share capital issued on exercise	–	2	–	(2)	–	–	–
Share-based compensation (note 12)	–	–	–	45	–	–	45
Loss and comprehensive loss for the year	–	–	–	–	136	(5,193)	(5,057)
Balance as at September 30, 2019	139,579,152	$59,744	$–	$6,422	$(1,396) $	(64,964) $	(194)
Balance as at December 31, 2019	139,579,152	$59,743	$795	$6,423	$(1,964) $	(89,128) $	(24,131)
Subscriptions received in advanceShares issued on private placement, net of	–	–	1,543	–	–	–	1,543
issuance cost (note11)	35,420,577	3,484	(2,338)	–	–	–	1,146
Share-based compensation (note 12)	–	–		23	–	–	23
Finder's fees (note11)	361,239	36	–	–	–	–	36
Fair value of warrants issued in private
placements	–	(1,396)	–	1,396	–	–	–
Loss and comprehensive loss for the period	–	–		–	(166)	(1,944)	(2,110)
Balance as at September 30, 2020	175,360,968	$61,867	$–	$7,842	$(2,130) $	(91,072) $	(23,493)

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian dollars)

	Three months ended September 30,			Nine months ended September 30,
	2020	2019	2020	2019
Cash (used in) provided by:
Operating activities:
Loss for the period	$4,377	$(3,259)	$(1,944)	$(5,193)
Items not involving cash:
Depletion and depreciation	111	8	318	746
Accretion and change of provision for site reclamation and closure	96	392	295	1,193
Amortization of right-of-use assets	55	-	110	-
Share-based compensation (note 12)	23	-	23	45
Accrued interest on debt net of interest paid	286	743	972	1,305
Revaluation of marketable securities	(54)	(99)	(521)	(439)
Changes in non-cash working capital:
Accounts receivable and other assets	(24)	(684)	12	(1,463)
Prepaid expenses and deposits	(1,383)	28	(1,734)	572
Inventories	(451)	(370)	1,314	(128)
Accounts payable and accrued liabilities	1,148	757	(921)	6,756
Cash provided (used) by operating activities	4,184	(2,484)	(2,076)	3,394
Investing activities:
Plant and equipment, net	(136)	(15)	(108)	(2,348)
Mineral interest and development assets additions	(762)	101	(2,114)	(1,691)
Redeemed marketable securities	239	529	685	1,139
Cash used in investing activities	(659)	(303)	(1,537)	(3,818)
Financing activities:
Shares issued on private placement, net of issuance cost	1,183	-	2,726	-
Interest paid	(27)	-	(51)	-
Debt acquired	655	-	655	-
Repayment of right of use liabilities	(309)	-	(315)	(199)
Repayment of debt	–	-	-	(907)
Cash provided (used) in financing activities	1,502	-	3,015	(1,106)
Effect of foreign exchange rate changes on cash	(4,960)	2,688	1,182	1,431
Increase (decrease) in cash	67	(99)	584	(99)
Cash, beginning of the period	662	116	145	116
Cash, end of the period	$729	$17	$729	$17

Supplemental cash flow information (note 13)

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

1. NATURE OF OPERATIONS

Telson Mining Corporation, (the "Company" or "Telson") was incorporated on April 11, 1986, under the laws of British Columbia, Canada. The Company's head office address is Suite 1000 - 1111 Melville Street, Vancouver, British Columbia, V6E 3V6, Canada. The registered and records office address is 725 Granville Street, Suite 400, Vancouver, British Columbia, Canada, V7Y 1G5. The Company is listed for trading on the TSX Venture Exchange ("TSX-V") under the symbol "TSN".

The Company's principal business activity is the production of base metals and the acquisition, exploration and development of resource properties in Mexico, with a focus on the mine operation of Campo Morado and the development of Tahuehueto mine project (Note 6). Effective May 16, 2018 the Company completed commissioning of Campo Morado mine and declared commercial production. There can be no assurances that the Company will meet its production targets and that realized metal prices will be sufficient to cover the cost of operations. In addition, the business of mineral development involves a high degree of risk and there can be no assurance that the Company's current operations, including development programs, will result in profitable mining operations. The recoverability of the carrying value of mineral interests, and the Company's continued ongoing existence is dependent upon the preservation of its interest in the underlying properties, the achievement of profitable operations, the ability of the Company to raise additional sources of funding, and/or, alternatively, upon the Company's ability to dispose of some or all of its interests on an advantageous basis. These conditions may cast significant doubt upon the Company's ability to continue as a going concern.

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.

These condensed interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. The Company has a working capital deficit as at September 30, 2020 of $56,516 (December 31, 2019 of $56,238) and an accumulated deficit of $91,072 (December 31, 2019 - $89,128).

2. BASIS OF PRESENTATION

(a) Statement of compliance

These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting" using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). These condensed interim consolidated financial statements follow the same accounting policies and methods of application as the Company's most recent annual financial statements. These condensed interim consolidated financial statements do not include all of the information required for full consolidated annual financial statements and should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2019, which were filed under the Company's profile on SEDAR at www.sedar.com.

These condensed interim consolidated financial statements were approved and authorized for issuance by the Board of Directors of the Company on November 30, 2020.

(b) Basis of presentation and consolidation

These condensed interim consolidated financial statements include the financial statements of Telson Mining Corporation, and entities controlled by the Company (its subsidiaries). The following is a list of subsidiaries and their geographical locations:

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

2. BASIS OF PRESENTATION (continued)

(b) Basis of presentation and consolidation (continued)

Subsidiary	Place of Incorporation	Beneficial Interest
Samarkand de Mexico, S.A. de C.V.	Mexico	100%
Sierra Soleada S.A. de C.V.	Mexico	100%
Real de la Bufa S.A. de C.V.	Mexico	99%
Minas de Campo Morado, S.A. de C.V.	Mexico	100%
Prestadora de Servicios Arcelia, S.A. de C.V.	Mexico	100%
Minas de Arcelia, S.A. de C.V.	Mexico	100%
Grupo Minero Mexicano Nyrstar, S.A. de C.V.	Mexico	100%
Grupo Minero HD, S.A. de C.V.	Mexico	100%

Control exists when the Company has power over an investee, exposure or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the Company's returns. All intercompany balances and transactions have been eliminated upon consolidation.

These condensed interim consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments which are measured at fair value. In addition, these condensed interim consolidated financial statements have been prepared using the accrual basis of accounting, except for the cash flow information.

(c) Functional and presentation currency

The presentation currency of the Company's financial statements is the Canadian dollar; therefore, references to $ means Canadian dollars, US$ are to US dollars and MXN$ to Mexican pesos.

The functional currency of Telson Mining Corporation, the parent entity, is the Canadian dollar. The US dollar was determined to be the functional currency of the primary economic environment in which the Mexican subsidiaries Real de la Bufa, S.A. de C.V. and Minas de Campo Morado, S.A. de C.V. operate, as most of the development, operational and sales activities are denominated or are influenced by the US dollar.

independently from the currency, the figures are presented in thousands except for per tonne amounts, share amounts and per share values.

(d) Critical accounting estimates and judgments

The preparation of financial statements in conformity with IFRS, requires management to select accounting policies and make estimates and judgments that may have a significant impact on the condensed interim consolidated financial statements. Estimates are continuously evaluated and are based on management's experience and expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Critical judgments exercised in applying accounting policies, apart from those involving estimates, that have the most significant effect on the amounts recognized in these condensed interim consolidated financial statements were the same as those applied to the audited consolidated financial statements as at the year ended December 31, 2019.

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

2. BASIS OF PRESENTATION (continued)

(e) Accounting standards adopted during the period

(f) Accounting standards and amendments issued but not yet effective

3. MARKETABLE SECURITIES

For the three and nine months ended September 30, 2020 and 2019
BASIS OF PRESENTATION (continued)
(e)Accounting standards adopted during the period
There were no new standards effective January 1, 2020, that impacted these condensed interim consolidatedfinancial statements or are expected to have a material effect in the future.
(f)Accounting standards and amendments issued but not yet effective
There were no accounting standards or amendments to existing standards issued but not yet adopted as ofJanuary 1, 2020, that are expected to have a material impact in the Company's financial statements in thefuture.
MARKETABLE SECURITIES
		Amount
Balance, December 31, 2018		$5,296
Redemption of marketable securities		(1,137)
Realized and unrealized gain		526
Foreign exchange movement		(32)
Balance, December 31, 2019		$4,653
Redemption of marketable securities		(684)
Realized and unrealized gain		521
Foreign exchange movement		(615)
Balance, September 30, 2020		$3,875
The Company holds senior bond trusts which are classified as FVTPL and are recorded at fair value using thequoted market prices as at September 30, 2020, and are therefore classified as level 1 within the fair valuehierarchy with an interest rate of 11% per annum, payable every six months.
	September 30, 2020	December 31, 2019
Trade receivables	$748	$130
Value added taxes and other taxes
receivable	29	27
	828	173
Other receivables

4. ACCOUNTS RECEIVABLE

Value added taxes and other taxes

The Company has a concentrate off-take agreement where the customer will purchase 100% of the metals concentrate produced at the Campo Morado (effective September 11, 2017) and Tahuehueto (effective December 7, 2017) mining properties.

During the nine months ended September 30, 2020, and the year ended December 31, 2019, the Company reclassed valued added taxes receivable in Mexico to long term based on the expected time to collection. As at September 30, 2020, the Company has $4,872 (December 31, 2019 $6,213) in valued added taxes receivable included in other assets and classified as non-current assets.

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

5. INVENTORIES

Telson Mining Corporation
Notes to the Condensed Interim Consolidated Financial Statements
Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)
For the three and nine months ended September 30, 2020 and 2019
	September 30, 2020	December 31, 2019
Materials and supplies	$3,660$	4,967
Concentrates	1,043	-
Stock pile ore	458	2,388

6. MINERAL INTEREST AND DEVELOPMENT ASSETS

a) Tahuehueto project

In 1997, the Company through a wholly owned subsidiary entered into a share purchase agreement (the "Real Agreement") to purchase 90% of the issued and outstanding shares of Real de la Bufa, which holds a 100% interest in the Tahuehueto mineral property, located in the state of Durango, Mexico. In 2007, the Company converted into equity a portion of its inter-company debt with Real de la Bufa, thereby increasing its ownership to 99%. A portion of the Tahuehueto mineral property is subject to a 1.6% net smelter return royalty ("NSR").

Pursuant to the Real Agreement, the Company is obligated to make final payments in the amount of $269 (December 31, 2019 - $260) US$200 to some of the Real de la Bufa's shareholders.

On April 26, 2016, the Company signed an agreement with the local community and extended the surface access rights for 30 years. Under the terms of the agreement, the Company made an initial payment of US$46 (paid) and will subsequently make equal recurring yearly payments that will increase by a rate of 5% compounded annually.

Effective January 1, 2017, the Company commenced capitalization of all direct costs related to the development of the Tahuehueto project to mineral interest and development asset under IAS 16, as management determined that the technical feasibility and commercial viability had been established through the positive results associated with the pre-feasibility study, access to financing and board approval to start developing the project, thereby making it a development stage asset under IFRS.

b) Campo Morado project

On June 13, 2017, the Company completed a definitive Share Purchase Agreement (the "Campo Morado Agreement") with Nyrstar Mining Ltd. and Nyrstar Mexico Resources Corp. (collectively "Nyrstar") to purchase all the shares of Nyrstar's Mexican subsidiary companies that make up and own 100% of the Campo Morado mine ("Campo Morado"), located in Guerrero State, Mexico.

The Campo Morado property comprises seven mineral concessions located in Guerrero state, Mexico. The Campo Morado project is subject to a royalty between 2% and 3% of the net value of liquidation over the minerals extracted during the term of existence of the mining concession to the Servicio Geológico Mexicano ("SGM").

As part of the Campo Morado acquisition, the seller retained the right to receive a variable purchase price on future zinc production on the first 10 million tonnes of ore processed by the Company at the Campo Morado mine when the price of zinc is at or above US$2,100 per tonne. This was accounted for as contingent consideration. Telson shall pay Nyrstar the greater of either:

• a) US$20 per tonne of zinc sold if the zinc price received is over US$2,100 per tonne; or
• b) a percentage that ranges between 0.5% and 4.25% of the net smelter revenues received from zinc when the price of zinc ranges between US$1,200 and US$2,500 from the Campo Morado mine.

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

6. MINERAL INTEREST AND DEVELOPMENT ASSETS (continued)

b) Campo Morado project (continued)

The Company maintains the right under the Campo Morado Agreement to purchase 100% of the variable purchase price at any time for US$4 million.

Effective May 15, 2018 the Company declared commercial production at Campo Morado mine; therefore, the Company stopped capitalizing costs and expenses related to mineral interest and development assets for this project and since then, all sales and cost of sales are now presented in the statement of loss and comprehensive loss.

As at September 30, 2020, (as described in note 8), the Company has recorded $12,888 (US$9.6 million), (December 31, 2019 $11,905 (US$9.1 million)) due to Nyrstar Mining Ltd., on the statement of financial position, representing the balance of Campo Morado's loan agreement of US$5.5 million (December 31, 2019 - US$5.5 million); the balance of the contingent consideration of US$2.9 million (December 31, 2019 - US$2.9 million) and interest payable of US$1.2 million (December 31, 2019 – US$0.7 million).

Mineral properties are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Management assess the carrying values of its mineral properties for indication of impairment each quarter end. During the fourth quarter ended December 31, 2019, management determined that there were indicators of impairment on the Company's Campo Morado project due to the decline in zinc prices, and the Company having suspended operations at the Campo Morado throughout the year from June 20, 2019, to December 31, 2019.

As a result of the impairment indicators noted above, an impairment test was performed that determined that the recoverable amount of the Campo's Morado cash generating unit (CGU), based on a VIU model (level 3 in the fair value hierarchy) of exceeded the carrying value of the CGU, resulting in an asset impairment charge of $21,712 for the year ended December 31, 2019.

Capitalized cash flows are determined with reference to undiscounted risk adjusted cash flows and a discount rate of 20% based on characteristic of the CGU.

The discounted cash flow incorporates management's best estimates of key assumptions which include discount rates, future commodity prices, production based on current estimates of recoverable reserves, consideration of mineral resources and future foreign exchange rates. The cash flows are for periods up to the date the mine is expected to cease production. An after-tax discount rate of 20% was used. The cash flow calculations were based on estimates of future production levels using expected tonnage, grades, recoveries and reserves and factors in historical data. Commodity prices used in the impairment assessment were determined by reference to external market participant sources. The key commodity prices for this assessment are the prices of zinc, lead, silver and gold as follows: 2020 0.92 0.82 1,690.00 17.75

As a result of the impairment indicators noted above, an impairment test was performed that determinedthat the recoverable amount of the Campo's Morado cash generating unit (CGU), based on a VIU model		Morado throughout the year from June 20, 2019, to December 31, 2019.		project due to the decline in zinc prices, and the Company having suspended operations at the Campo
(level 3 in the fair value hierarchy) of exceeded the carrying value of the CGU, resulting in an assetimpairment charge of $21,712 for the year ended December 31, 2019.
Capitalized cash flows are determined with reference to undiscounted risk adjusted cash flows and a
The discounted cash flow incorporates management's best estimates of key assumptions which includediscount rates, future commodity prices, production based on current estimates of recoverable reserves,consideration of mineral resources and future foreign exchange rates. The cash flows are for periods up tothe date the mine is expected to cease production. An after-tax discount rate of 20% was used. The cashflow calculations were based on estimates of future production levels using expected tonnage, grades,recoveries and reserves and factors in historical data. Commodity prices used in the impairmentassessment were determined by reference to external market participant sources. The key commodityprices for this assessment are the prices of zinc, lead, silver and gold as follows:
	Zinc (US$	Lead (US$	Gold (US $	Silver (US$
Year	per lb)	per lb)	per oz)	per oz)
2020	0.92	0.82	1,690.00	17.75
2021	1	0.87	1,742.74	19.11
2022	1.03	0.9	1,719.26	19.07
2023	1.08	0.92	1,639.21	19.07
2024	1.1	0.91	1,579.47	19.47
2025	1.09	0.91	1,563.33	17.75
	1.2	1.01	1,503.20	17.25
2026	1.23	1.02	1,528.00	18.84
2027			1,502.00	19.31
2028	1.26	1.03

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

6. MINERAL INTEREST AND DEVELOPMENT ASSETS (continued)

b) Campo Morado project (continued)

Expected future cash flows used to determine the VIU in the impairment testing are inherently uncertain and could materially change over time. Should management's estimate of the future not reflect actual events, future impairments may be identified. This may have a material effect on the Corporation's consolidated financial statements. Although it is reasonably possible for a change in key assumptions to occur, the possible effects of a change in any single assumption may not fairly reflect the impact on the CGU's fair value as the assumptions are inextricably linked.

c) Costs capitalized as mineral interest and development assets

occur, the possible effects of a change in any single assumption may not fairly reflect the impact on theCGU's fair value as the assumptions are inextricably linked.	consolidated financial statements. Although it is reasonably possible for a change in key assumptions to
On April 27, 2020, the Mexican Ministry of Health proclaimed a national health emergency with animmediate suspension order of all "non-essential" public and private sector business, including mining inorder to mitigate the spread and transmission of the COVID-19 virus. As a result, the Company suspendedoperations at Campo Morado mine and implemented care and maintenance activities during thesuspension.
On June 4, 2020, the Company restarted mining operations at Campo Morado as the Mexican Governmentdeemed mining to be an essential industry, resulting in lifting off the suspension order to curtail miningoperations because of the COVID-19 pandemic.
c) Costs capitalized as mineral interest and development assets
For the period ended September 30, 2020, and December 31, 2019, the Company capitalized the followingacquisition and developments costs:
		Tahuehueto
Balance as at December 31, 2019	$	12,335
Costs incurred:
Assaying, data and maps		2
Camp cost, equipment and field supplies		134
Fuel and consumables		80
Supplies, lubricants and other		15
Project general and office expenses		160
Permitting, environmental and community costs		119
Salaries and wages		129
Travel and accommodation		10
Depreciation capitalized		691
Interest capitalized, net		1,240
Total additions for the year		2,580
Foreign currency movementBalance, September 30, 2020	$	18215,097

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

6. MINERAL INTEREST AND DEVELOPMENT ASSETS (continued)

c) Costs capitalized as mineral interest and development assets (continued)

	Tahuehueto	CampoMorado	Total
Balance as at December 31, 2018	$6,393	$23,829	$30,222
Costs incurred:
Assaying, data, and maps	50	-	50
Camp cost, equipment, and field supplies	1,607	-	1,607
Development costs	3,146	-	3,146
Freight and related costs	198	-	198
Fuel and consumables	517	-	517
Supplies, lubricants and other	311	-	311
Project general and office expenses	654	-	654
Geological consulting services	3	-	3
Permitting, environmental and community costs	4	-	4
Salaries and wages	1,477	-	1,477
Travel and accommodation	99	-	99
Depreciation capitalized	861	-	861
Royalties	152	-	152
Interest capitalized, net	1,834	-	1,834
Pre - commercial sales	(4,696)	-	(4,696)
Total additions for the year	6,217	-	6,217
Depletion for the year	-	(642)	(642)
Change of provision for site reclamation
and closure	12	(849)	(837)
Impairment	-	(21,712)	(21,712)
Foreign currency movement	(287)	(626)	(913)
Balance as at December 31, 2019	$12,335	$-	$12,335

Included in mineral interest and development assets are $1,240 (December 31, 2019 - $1,834) of capitalized borrowing costs based on a capitalization rate of 100%.

7. PROPERTY, PLANT AND EQUIPMENT

For the three and nine months ended September 30, 2020 and 2019
7.PROPERTY, PLANT AND EQUIPMENT
	Land	Mine plant &infrastructure		Machinery&equipment	Construction	in progress		ComsignedAssets		Right ofuse assets(Note 10)	Total
Cost
Balance, December 31, 2018	$3,300 $		2,228	$10,260 $		1,851	$		- $	2,315	$19,954
Adjustment on initi alapplication of IFRS 16	-		-	-		-		-		689	689
Additions	-		-	842		1,684		-		-	2,526
Dispositions	-		-	(15)		-		-		-	(15)
Balance, December 31, 2019	$3,300 $		2,228	$11,087 $		3,535	$		- $	3,004	$23,154
Additions	-		-	122		1		-		271	394
Transfers	-		2,182	(2,138)		(44)		1,384		(1,384)	-
Dispositions	-		-	(14)		-		-		(285)	(299)
Balance, September 30, 2020	$3,300 $		4,410	$9,057 $		3,492 $		1,384 $		1,606	$23,249
Accumulated amortization
Balance, December 31, 2018	$	- $	83	$661	$	-	$		- $	240	$984
Amortization for the period	-		170	816		-		-		422	1,408
Balance, December 31, 2019	$	- $	253	$1,477	$	-	$		- $	662	$2,392
Amortization for the period	-		77	795		-		-		242	1,114
Transfers	-		-	-		-		334		(334)	-
Dispositions	-		-	-		-		-		(106)	(106)
Balance, September 30, 2020	$	- $	330	$2,272	$		- $	334 $		464	$3,400
Foreign currency movement
Balance, December 31, 2019	(171)		(111)	(493)		(94)		-		(106)	(975)
Balance, September 30, 2020	(51)		(123)	(80)		(52)		(57)		(10)	(373)
Net book value
Balance, December 31, 2019	$3,129	$	1,864 $	9,117	$	3,441 $		-	$	2,236 $	19,787
Balance, September 30, 2020	$3,249	$	3,957 $	6,705	$	3,440 $		993 $		1,132 $	19,476

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

8. DUE TO NYRSTAR MINING LTD.

		Notes to the Condensed Interim Consolidated Financial StatementsUnaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)
For the three and nine months ended September 30, 2020 and 2019
DUE TO NYRSTAR MINING LTD.
As at September 30, 2020 and December 31, 2019, the Company recorded the following amounts due toNyrstar Mining Ltd:
		Considerationpayable due toacquisition	Contingentconsideration(Note 6(b))		Total
Balance, December 31, 2018	$	7,593 $	4,057	$	11,650
Accrued interest		875	-		875
Interest paid		(35)	-		(35)
Foreign exchange adjustment		(391)	(194)		(585)
Balance, December 31, 2019	$	8,042	$3,863	$	11,905
Accrued interest		714	-		714
Foreign exchange adjustment		165	104		269
Balance, September 30, 2020	$	8,921	$3,967	$	12,888
	Considerationpayable due toacquisition		Contingentconsideration(Note 6(b))	Total
Current portion	$	8,921	$3,967	$	12,888
Balance, September 30, 2020	$	8,921	$3,967	$	12,888
		Considerationpayable due toacquisition	Contingentconsideration(Note 6(b))		Total
Current portion	$	8,042	$3,863	$	11,905
Balance, December 31, 2019	$	8,042	$3,863	$	11,905

	payable due toacquisition	consideration(Note 6(b))	Total

On June 12, 2018, the Company renegotiated the terms for the remaining balance of the Campo Morado Agreement and entered into a loan agreement with Nyrstar ("Campo Morado Loan Agreement"). On November 19, 2018, the Company reached an agreement with Nyrstar to amend the terms of the Campo Morado Loan Agreement to mainly reduce the monthly principal repayment from US$1.0 million to US$500, which also effectively extended the repayment period of the balance owing and the interest rate was kept at a fixed rate of 10% per annum and 12% for any amounts overdue.

As a result of the Company not being able to meet its contractual obligations, on October 11, 2019, the Company received a formal notice of default on regards to the Campo Morado Loan Agreement.

On April 17, 2020 , the Company entered into a waiver request letter agreement with Trafigura Mexico, S.A. de C.V., (the "Trafigura Letter Agreement") where Telson agreed to transfer all its assets in the Campo Morado and Tahuehueto mine projects to the trustee of the Trust Agreement (the "Trust") so as to secure all of its Trafigura loan obligation and Trafigura waived past and forgoing defaults under Trafigura's loan agreement with Telson, deferring interest and principal payments until June 30, 2021.

On May 20, 2020, the Company entered into a letter agreement with Nyrstar (the "Nyrstar Letter Agreement") in which Nyrstar provided Telson a conditional waiver to Telson's default status of the Campo Morado Loan Agreement. As a consequence, Telson agreed to accept Nyrstar into the Trust (note 9 d)) thereby granting full security on the Nyrstar loan and by subordinating to Trafigura and new secured lender(s) that might provide debt funding necessary to finalize construction of Tahuehueto mine project.

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

8. DUE TO NYRSTAR MINING LTD. (continued)

The Nyrstar Letter Agreement further provides,

• Nyrstar's conditional approval and consent to allow Telson to avoid a cause for default by granting Telson a waiver, forgoing defaults under the Campo Morado Loan Agreement, and deferring interests and principal payments until June 30, 2021.
• This waiver eliminates the Campo Morado Loan Agreement restriction on Telson for disposition of assets, if necessary, to generate cash to allow Telson to repay its loan obligations to Nyrstar.
• Nyrstar agrees to restructure the Campo Morado Loan Agreement under terms and conditions to be negotiated on good faith by both parties based on market conditions and updated cash flow projections which confirm either of Telson's projects financial viability if,
  • a. the Tahuehueto Project is ramped up or,
  • b. the Campo Morado project successfully operates and shows monthly repayment of due obligations to Nyrstar and Trafigura on at least 6 consecutive months in amounts not less to an aggregate of US$300 per month, on a pro rata basis based on outstanding amounts due under the loan obligations with Nyrstar and Trafigura.
  • c. If Telson successfully raises funding in a sufficient amount to fully fund the final construction and ramp up of the Tahuehueto Project, which funding amount and requirements for effective ramp up to be independently verified by a mutually acceptable independent engineering consultant.

If Telson repays the total debt due to Nyrstar under the Campo Morado Loan Agreement, Nyrstar shall no longer be a beneficiary of the Trust. As is mentioned in note 19, on November 12, 2020, the Company executed the Trust Agreement with Trafigura.

9. SHORT AND LONG-TERM DEBT

a) Line of Credit

On July 22, 2016, the Company entered into an agreement with Estrategica Corporativa en Finanzas, S.A.P.I. de C.V. ("Escorfin"), for a line of credit for up to MXN$150 million (the "LOC"). The funds drawn down under the LOC accrue interest at a rate of 15% per year, payable monthly after a grace period of 12 months. Interest generated during the grace period will be subsequently paid in 12 consecutive monthly installments. Furthermore, the Company is required to pay back any cash advances in 24 equal consecutive monthly installments following a 36-month grace period and no later than July 28, 2022. The Company may repay any outstanding balance of the LOC at any time without penalty. In case of default of any payment under the LOC, the Company will pay a moratorium interest rate of 30% per annum. The Company has not been charged the 30% interest rate by the lender during the period ended September 30, 2020and the year ended December 31, 2019. The funds from the LOC are to be applied towards the Company's investment plan established in its completed Internal Scoping Study. The obligations of the Company under the LOC are secured by substantially all the Real de la Bufa's assets, including certain mining concessions.

The Company has drawn down from its LOC a total amount of MXN$46 million primarily to further its Tahuehueto project. The continuity of the outstanding long-term debt is as follows:

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

9. SHORT AND LONG-TERM DEBT (continued)

a) Line of Credit (continued)

Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)
For the three and nine months ended September 30, 2020 and 2019
Line of Credit (continued)
	Amount
Balance, December 31, 2018	$3,380
Withdraw of line of credit	69
Accrued interest	471
Foreign exchange adjustment	(28)
Balance, December 31, 2019	$3,892
Accrued interest	321
Foreign exchange adjustment	(462)

b) Loan Facility Campo

Loan Facility Campo
On September 11, 2017, the Company entered into a loan agreement ("Loan Agreement Campo") withTrafigura Mexico, S.A. de C.V. ("Trafigura") in the amount of US$5 million for financing working capital toinitiate the restart of continuous mining operations at the Campo Morado mining facility. The loan bearsinterest at an effective annual rate equivalent to LIBOR (3M) plus 5%, it has a three-year term with ninemonths grace period followed by thirty monthly repayments. In connection to the loan agreement theCompany's subsidiary, Minas de Campo Morado, S.A. de C.V., also entered into an Offtake agreementwith Trafigura, ("Offtake Agreement Campo") in which the Company will sell all its zinc and leadconcentrates for a fifty-one-month term starting October 2017.
Under the terms of the Loan Agreement Campo, the Company is subject to certain covenants, includingthe Company must maintain a minimum current ratio of 1:1 without taking into consideration amounts dueto Nyrstar Mining Ltd. The Company is not in compliance with the covenants as at September 30,2020and December 31, 2019, therefore the outstanding balance is presented within current liabilities. The loanis secured by all of the outstanding shares of Minas de Campo Morado, S.A. de C.V. The continuity of theloan is as follows:
	Amount
Balance, December 31, 2018	$4,813
Principal repayments	(215)
Interest paid	(201)
Accrued interest	397
Foreign exchange adjustment	(229)
Balance, December 31, 2019	$4,565
Accrued interestForeign exchange adjustment	203170

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

9. SHORT AND LONG-TERM DEBT (continued)

c) Loan Facility Real

On December 7, 2017, the Company entered into a loan agreement ("Loan Agreement Real") with Trafigura Mexico, S.A. de C.V. in the amount of US$15 million for financing working capital, rehabilitation and operation of the Tahuehueto mining project. The Loan Facility is available in three tranches, the first tranche equivalent to US$7.5 million was received upon signing of the agreement. The second tranche equal to US$5 million was received on November 6, 2018. The third tranche for US$2.5 million was available in nine months after the signing of the agreement but shall not pass nine months after the signing of the agreement subject to securing additional funding of US$2.5 million in the form of equity and/or a loan and at least US$2 million of these funds are invested on capital expenditures. The loan bears interest at an effective annual rate equivalent to LIBOR (1Y) plus 6%, it has a three-year term with a twelve-month grace period followed by twenty-four repayments. In connection to the loan agreement the Company's subsidiary Real de la Bufa, S.A. de C.V., also entered into an Offtake agreement with Trafigura., ("Offtake Agreement Real") in which the Company will sell all its zinc and lead concentrates for a sixty-month term, starting January 2018. Interest paid (777) Principal repayment (685)

available in nine months after the signing of the agreement but shall not pass nine months after the signingof the agreement subject to securing additional funding of US$2.5 million in the form of equity and/or aloan and at least US$2 million of these funds are invested on capital expenditures. The loan bears interestat an effective annual rate equivalent to LIBOR (1Y) plus 6%, it has a three-year term with a twelve-monthgrace period followed by twenty-four repayments. In connection to the loan agreement the Company'ssubsidiary Real de la Bufa, S.A. de C.V., also entered into an Offtake agreement with Trafigura., ("OfftakeAgreement Real") in which the Company will sell all its zinc and lead concentrates for a sixty-month term,starting January 2018.Under the terms of the Loan Agreement Real, the Company is subject to certain covenants, including theCompany must maintain a minimum current ratio of 1:1 without taking into consideration amounts due toNyrstar Mining Ltd. The Company is not in compliance with the covenants as at September 30, 2020 andDecember 31, 2019, therefore the outstanding balance is presented within current liabilities. The loan is
secured by the Tahuehueto mining concessions and certain property plant and equipment. The continuityof the loan is as follows:
	Amount
Balance, December 31, 2018	$17,210
Interest paid	(777)
Principal repayment	(685)
Accrued interest	1,363
Foreign exchange adjustment	(614)
Balance, December 31, 2019	$16,497
Accrued interest	866
Foreign exchange adjustment	395

d) Request Letter Agreement Waiver

On March 26, 2020, the Company entered into a letter agreement (the "Letter Agreement") with Trafigura which defines the terms under which Trafigura will provide Telson a waiver to certain terms of the loan agreements entered into between the companies and described below.

Under the terms of the Letter Agreement, Telson acknowledges that it is in default of its loan obligations under two loan agreements entered into between Trafigura and Telson as follows:

• 1. Loan Agreement Campo and,
• 1. Loan Agreement Real

Material Terms of the Letter Agreement are as follows:

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

9. SHORT AND LONG-TERM DEBT (continued)

• d) Request Letter Agreement Waiver (continued)
  • 1. Trafigura has provided their approval and consent to allow Telson to avoid a cause for default by granting Telson a waiver, forgoing defaults under the Loan Agreements, and deferring interests and principal payments until June 30, 2021.
  • 1. This waiver also eliminates the Loan Agreements restriction on Telson for disposition of assets, if necessary, to generate cash to allow Telson to repay its loan obligations to Trafigura.
  • 1. Trafigura agrees to restructure the entire loan debt obligation under terms and conditions to be negotiated on good faith by both parties based on market conditions and updated cash flow projections which confirm the projects financial viability, if
    • a. the Tahuehueto Project is ramped up or,
    • b. Telson successfully raises funding in sufficient amounts to fully fund the final construction and ramp up of the Tahuehueto Project, which funding amount and requirements for effective ramp up, to be independently verified by a mutually acceptable independent engineering consultant.
    • c. And subject to the fulfillment of the milestones outlined in section 7 below.
  • 1. Telson agrees to undertake to conduct a process to market assets for potential sale (the "Transaction") in amounts to repay its loan obligations to Trafigura.
  • 1. Telson will transfer all its assets in the Campo Morado Project and Tahuehueto Project to a trustee of the Trust Agreement (the "Trust") in order to secure the full repayment of the Loan Agreements. Should Telson repay the total debt due to Trafigura under the Loan Agreements, the Trust will be terminated, and all assets held within the Trust will return to Telson.
  • 1. Telson undertakes to make every effort to,
    • a. Raise funding to repay the full amount of the Loan Agreements and at the same time to,
    • b. Progress the Transaction and should Telson not obtain sufficient funding to repay the Loan Agreements debt before June 30, 2021, Telson intends to perform the sale of one or more of its project assets, to generate sufficient funds to repay the Loan Agreements.
  • 1. Milestones Telson will take all reasonable commercial efforts to advance the Transaction, adhering to the time schedule outlined below and will provide Trafigura evidence that this process is advancing to the following schedule.
    • a. Before December 31, 2020, Telson shall have received at least three (3) letters of intent from potential buyers regarding the Transaction.
    • b. Before March 31, 2021, Telson shall have received at least three (3) binding offers from potential buyers regarding the Transaction.
    • c. It is recognized that a breach of the Letter Agreement shall not have occurred should Telson fail to receive the letters of intent and binding offers as contemplated in the above sections as a result of market conditions which fail to generate bona fide interest in the purchase of the assets so long as Telson has in good faith made all commercially reasonable efforts to advance the Transaction and can provide evidence of such efforts.

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

9. SHORT AND LONG-TERM DEBT (continued)

d) Request Letter Agreement Waiver (continued)

• d. No later than June 30, 2021, the corresponding sales and purchase agreement shall be executed between Telson and the relevant purchaser if Telson has not either, repaid its loan debt obligations or satisfied the conditions outlined within section 3 above.
• 1. In partial consideration of the waiver granted by Trafigura, Telson shall issue to Trafigura 12,000,000 share purchase warrants exercisable into one common share at an exercise price of $0.175 per share over a term of 36 months. If any of the Campo Morado Project or the Tahuehueto Project are sold and Telson repays its total debt under the Loan Agreements within the timeline proposed the share purchase warrants will expire and thereby be canceled.

e) Accendo Loan

• Loan facility amount US$500
• Repayable in 36 equal monthly payments
• Interest rate of 13.5% per annum
• Secured by a note payable

	executed between Telson and the relevant purchaser if Telson has not either, repaid itsloan debt obligations or satisfied the conditions outlined within section 3 above.
8)	In partial consideration of the waiver granted by Trafigura, Telson shall issue to Trafigura12,000,000 share purchase warrants exercisable into one common share at an exercise priceof $0.175 per share over a term of 36 months. If any of the Campo Morado Project or theTahuehueto Project are sold and Telson repays its total debt under the Loan Agreementswithin the timeline proposed the share purchase warrants will expire and thereby be canceled.
	As is mentioned in note 19, on November 12, 2020, the Company executed the Trust Agreement with Trafigura.
e)Accendo Loan
	The main terms and conditions of Accendo loan:
	Loan facility amount - US$500Repayable in 36 equal monthly paymentsInterest rate of 13.5% per annumSecured by a note payable
	The continuity of the loan is as follows:
		Amount
	Balance, December 31, 2018 and 2019	$-
Loan		655
Accrued interest		23
	Foreign exchange adjustment	12
	Balance, September 30, 2020	$690
		Total
Current portion		$134
Long term portion		556
	Balance, September 30, 2020	$690

10. RIGHT OF USE ASSETS AND LEASE LIABILITIES

In transitioning to IFRS 16, the Company analyzed its contracts to identify whether they are or contain a lease arrangement. This analysis identified contracts containing leases that have an equivalent increase to both the Company's ROU assets and ROU liabilities.

The ROU liabilities were discounted using an incremental borrowing rate as at January 1, 2019 of 8.0% to 15% per annum.

The continuity of lease labilities for the period ended September 30, 2020 is as follows:

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

10. RIGHT OF USE ASSETS AND LEASE LIABILITIES (continued)

Telson Mining CorporationNotes to the Condensed Interim Consolidated Financial StatementsUnaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)
For the three and nine months ended September 30, 2020 and 2019
RIGHT OF USE ASSETS AND LEASE LIABILITIES (continued)
	Amount
Balance lease liabilities, December 31, 2018	$1,547
Lease liabilities recognized as of January 1, 2019	689
Lease payments	(365)
Interest expense	177
Foreign exchange adjustment	(121)
Balance lease liabilities, December 31, 2019	$1,927
New leases	271
Cancelation of leases	(160)
Lease payments	(344)
Interest expense	85
Foreign exchange adjustment	(99)
Balance lease liabilities, September 30, 2020	$1,680
	Amount
Balance lease liabilities, December 31, 2018Lease liabilities recognized as of January 1, 2019	$1,547689
Lease payments	(365)
Interest expense	177
Foreign exchange adjustment	(121)
Balance lease liabilities, December 31, 2019	$1,927
New leases	271
Cancelation of leases	(160)
Lease payments	(344)
Interest expense	85
Foreign exchange adjustment	(99)
Balance lease liabilities, September 30, 2020	$1,680

Balance lease liabilities, September 30, 2020		$1,680
		Amount
Foreign exchange adjustment		(121)
Balance lease liabilities, December 31, 2019		$1,927
Foreign exchange adjustment		(99)
Balance lease liabilities, September 30, 2020		$1,680
	September 30, 2020	December 31, 2019
Current portion	$1,092	$1,457
Long term portion	588	470
Balance	$1,680	$1,927

		September 30, 2020 December 31, 2019
Current portion	۰D	$1,092$ $	1.457
Long term portion		588	470
Balance		1.680	1.927

Future minimum lease payments (principal and interest) on the leases is as follows:

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

10. RIGHT OF USE ASSETS AND LEASE LIABILITIES (continued)

Telson Mining Corporation
Notes to the Condensed Interim Consolidated Financial StatementsUnaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)
For the three and nine months ended September 30, 2020 and 2019
RIGHT OF USE ASSETS AND LEASE LIABILITIES (continued)
	Amount
20202021	$745462
2022	371
2023	124
Thereafter	108
Total minimum lease payments	1,810
Present value of minimum lease payments	(130)

Long term lease obligations September 30, 2020				$1,680
The continuity of right of use assets for the period ended September 30, 2020 is as follows:
	Machinery &	Offices	Vehicles	Right of use
	equipment			assets
				(Note 7)
Cost
Balance, January 1, 2019	$2,315	$-	$-	$2,315
Adjustment on initial application of IFRS
	-	536	153	689
Balance, December 31, 2019	$2,315	$536	$153	$3,004
Additions	-	271	-	271
DispositionsBalance, September 30, 2020	$(1,384)931	$(285)522	$-153	$(1,669)1,606
Accumulated amortization
Balance, January 1, 2019	$240	$-	$-	$240
Amortization for the year	234	142	46	422
Balance, December 31, 2019	$474	$142	$46	$662
Additions	133	81	28	242
Dispositions	(334)	(106)	-	(440)
Balance, September 30, 2020	$273	$117	$74	$464
Foreign currency movement
Balance, December 31, 2019	(61)	(35)	(10)	(106)
Balance, September 30, 2020	(10)	-	-	(10)
		$359	$97	$2,236
Net book valueBalance, December 31, 2019	$1,780			$1,132

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

11. SHARE CAPITAL

Common share transactions:

Nine months ended September 30, 2020

i. On July 10, 2020, the Company closed a non‐brokered private placement (PP Jul10) which consisted of 13,996,145 units (the Units Jul10) at a price of $0.10 per Unit Jul10 for gross proceeds of $1,400. Each Unit Jul10 is comprised of one common share and one half of one whole transferable share purchase warrant. Each whole share purchase warrant entitles the holder thereof to purchase one

additional common share of the Company at $0.15 within twenty‐four (24) months from closing. All securities issued under the PP Jul10 are subject to a hold period expiring four months and one day after the closing date.

ii. On May 27, 2020, the Company closed a non‐brokered private placement (the PP May27) which consisted of 21,424,432 units (the Units May27) at a price of $0.10 for gross proceeds of $2,142. Each Unit is comprised of one common share and one half of one whole transferable share purchase warrant. Each whole share purchase warrant entitles the holder thereof to purchase one additional common share of the Company at $0.25 within twenty‐four (24) months from closing. All securities issued under the Private Placement are subject to a hold period expiring four months and one day after the closing date. 361,239 were issued as finder's fee.

Estrategica, a related party, acquired 1,412,400.

Nine months ended September 30, 2019

12. EQUITY RESERVES

a) Share-based compensation

proceeds of $2 in connection with stock options exercised. The fair value of the options exercised was $2and was transferred from the equity reserves and recorded against share capital.a) Share-based compensationThe Company has a stock option plan (the "Plan") providing for the issuance of stock options to directors,officers, employees and other service providers enabling them to acquire up to 10% of the issued andoutstanding common stocks of the Company, on a rolling basis. Options may be granted at an exerciseprice of not less than a 25% discount of the market price on the date of the grant, or such higher price asdetermined by the Board of Directors. Stock options can be granted for a maximum term of 10 years.Vesting is not required but may be set on an individual basis as determined by the Board of Directors. Thestock options granted vest as to 33.33% on the date of the grant and 33.33% every six months thereafterfor a total vesting period of 12 months.The continuity of the number of stock options issued and outstanding is as follows:Number ofWeightedstockaverageoptionsexercise
price
Outstanding, December 31, 20189,567,1660.42
Granted350,0000.19
Cancelled(525,000)0.55
Outstanding, December 31, 2019 and September 30, 20209,392,166$0.36
- 17 -

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

12. EQUITY RESERVES (continued)

a) Share-based compensation (continued)

Notes to the Condensed Interim Consolidated Financial StatementsUnaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)
	For the three and nine months ended September 30, 2020 and 2019
EQUITY RESERVES (continued)
a)Share-based compensation (continued)
As at September 30, 2020, the number of stock options outstanding and exercisable was:
		Outstanding
Expiry date	Number ofoptions	Exerciseprice	Remainingcontractuallife (years)	Number ofoptions
March 22, 2021	5,437,166	$0.13	0.47	5,437,166
November 11, 2022	3,155,000	$0.71	2.12	3,155,000
April 16, 2023	400,000	$0.77	2.54	400,000
April 23, 2023	50,000	$0.72	2.56	50,000
August 6, 2025	100,000	$0.16	4.85	33,000
September 16, 2025	250,000	$0.20	4.96	82,500
	9,392,166			9,157,666
b)Share purchase warrants	The Company uses the fair value method of accounting for all share-based payments to directors, officers,employees and others providing similar services. During the nine months ended September 30, 2020 anamount of $23 (2019 - $45) was expensed as share-based compensation. The portion of share-basedcompensation recorded is based on the vesting schedule of the options.
nil).	During the nine months ended September 30, 2020 the Company granted 350,000 stock options (2019 –
The continuity of the number of share purchase warrants outstanding is as follows:
			Warrants	Exercise
			outstanding	price
			5,520,035	$0.12
Outstanding, December 31, 2018
Exercised			(5,510,294)	0.12
Issued			4,562,401	1.25
ExpiredOutstanding, December 31, 2019			(9,741)4,562,401	0.12$1.25

b) Share purchase warrants

b)Share purchase warrants
The Company uses the fair value method of accounting for all share-based payments to directors, officers,employees and others providing similar services. During the nine months ended September 30, 2020 anamount of $23 (2019 - $45) was expensed as share-based compensation. The portion of share-basedcompensation recorded is based on the vesting schedule of the options.During the nine months ended September 30, 2020 the Company granted 350,000 stock options (2019 –
nil).
The continuity of the number of share purchase warrants outstanding is as follows:
			Warrants	Exercise
			outstanding	price
Outstanding, December 31, 2018			5,520,035	$0.12
Exercised			(5,510,294)	0.12
Issued			4,562,401	1.25
Expired			(9,741)	0.12
Outstanding, December 31, 2019			4,562,401	$1.25
Issued			17,890,909	0.21
Outstanding, September 30, 2020			22,453,310	$0.42
	Outstanding
Expiry date		Granted	Exerciseprice	Remainingcontractual
				life (years)
October 9, 2020		4,562,401	$1.25	0.02
February 4, 2022		9,729,221	$0.25	1.35
May 27, 2022Jul 09, 2022		1,163,6156,998,073	$0.25$0.15	1.651.77

	Outstanding
Expiry date		Granted	Exerciseprice	Remainingcontractuallife (years)

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

13. SUPPLEMENTAL CASH FLOW INFORMATION

Telson Mining CorporationNotes to the Condensed Interim Consolidated Financial StatementsUnaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)
For the three and nine months ended September 30, 2020 and 2019
SUPPLEMENTAL CASH FLOW INFORMATION
		Three months ended		Nine Months ended
	2020	September 30,2019	2020	September 30,2019
Accounts payable and accrued liabilities included in
mineral interest and development assets	$(2,347)	$463	$(1,429)	$1,640
Interest of long term debt capitalized as mineral
	319	471	1,240	1,464
interest and development assets
Depreciationcapitalizedasmineralinterestand
development assets	288	264	691	805
Right of use of assets amortization capitalized	(268)	-	(106)	-
Fair value of stock options exercised	-	-	-	2
		Three months ended		Nine Months ended
		September 30,		September 30,
Interest paid (note 8 and 9)	2020$	2019-$	2020- $	201985 $1,019

		Three months endedSeptember 30,		Nine Months endedSeptember 30,
Interest paid (note 8 and 9)	$-	$	- $		85 $		1,019

14. LOSS PER SHARE

Net loss attributable to common shareholdersWeighted average number of shares – Basic anddilutedBasic and diluted loss per share	2020$173,976,734$	4,3770.03	Three months endedSeptember 30,2019$(3,259)139,579,152$(0.02)	$$	2020(1,944)161,810,840(0.01)	$$	Nine Months endedSeptember 30,2019(5,193)139,573,841(0.04)
Basic loss per share amounts are calculated by dividing the net loss for the period by the weighted averagenumber of common shares outstanding during the period.
Interest paid (note 8 and 9)	$	-	$	- $	85 $		1,019
			Three months endedSeptember 30,				Nine Months endedSeptember 30,
development assets

15. RELATED PARTY BALANCES AND TRANSACTIONS

a) Compensation of key management personnel:

Key management personnel include members of the Board, the Chief Executive Officer and President, Chief Financial Officer and the Vice President, Corporate Development. The net aggregate compensation paid, or payable and related party transactions are shown as follows:

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

15. RELATED PARTY BALANCES AND TRANSACTIONS (continued)

a) Compensation of key management personnel (continued)

			Three months endedSeptember 30,		Nine Months endedSeptember 30,
	2020		2019	2020	2019
Short-term benefits	$	133 $	219 $	444 $	667
Share-based compensation		-	-	-	40
	$	133 $	219 $	444 $	707

b) Related party balances:

As at September 30, 2020, directors and officers or their related companies were owed $4,254 (December 31, 2019 – $4,503) included in accounts payable and accrued liabilities mainly in respect to compensation and other labour obligations. These amounts are unsecured, non-interest bearing and have no specific terms of settlement. September 30, 2020 December 31, 2019 Current portion of the debt $ 3,751 $ 3,892 Balance $ 3,751 $ 3,892

As at September 30, 2020, directors and officers or their related companies owed the Company $nil (December 31, 2019 – $15) included in prepaid expenses and deposits.

c) Estrategica Corporativa en Finanzas, S.A.P.I. DE C.V. ("Escorfin")

Effective November 6, 2018. the Company appointed Roberto Guzman to the Board of Directors. Roberto is also the president, director and shareholder of Escorfin (Note 9a). Escorfin is a private equity fund that specialize in real estate development, energy innovations, and tourism investment in Mexico.

The following summarizes the transactions and balances owing to Escorfin:

		September 30, 2020 December 31, 2019
Current portion of the debt	3.751	3.892
Balance	3.751	3.892

During the nine months ended September 30, 2020, the Company incurred interest in the amount of $714 (December 31, 2019 $875) from which $nil were paid (December 31, 2019 $nil).

16. FINANCIAL INSTRUMENTS

Fair value of financial instruments:

Financial instruments recorded at fair value on the consolidated statements of financial position are classified using a fair value hierarchy that reflects the significant of the inputs used in making the measurements. The three levels of the fair value hierarchy are:

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

16. FINANCIAL INSTRUMENTS (continued)

a) Credit risk

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

Marketable securities are classified as level one and recorded at fair value using quoted market prices. The carrying value of cash, accounts receivable, accounts payable and accrued liabilities, obligation under share purchase agreement, and due to Nyrstar Mining Ltd. approximated their fair value because of the short-term nature of these instruments. The fair values of the Company's long-term debt and right of use liabilities approximated their carrying value as their interest rates are comparable to market interest rates.

Trade receivables from provisional sales of metals concentrates include provisional pricing, and final price and assay adjustments. Derivative instruments are forward arrangements that were valued using pricing models, which require a variety of inputs, such as expected zinc and lead prices, and foreign exchange rates. The trade receivables from sales of concentrate are derivative instruments and are valued using observable market commodity prices and thereby classified within Level 2 of the fair value hierarchy.

The Company's activities expose it to financial risks of varying degrees of significance, which could affect its ability to achieve its strategic objectives for growth and shareholder returns. The principal financial risks to which the Company is exposed are credit risk, liquidity risk, currency risk, interest rate risk and commodity price risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework and reviews the Company's policies on an ongoing basis.

a) 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. The Company's cash and marketable securities are held through large Canadian, international, and foreign national financial institutions. The Company's accounts receivable consists of trade receivables from concentrate sales and taxes receivable from federal government agencies. Trade receivables are held with one large international metals trading company. The Company mitigates this risk by transacting only with reputable financial institutions and requiring provisional payments of 90% of the value of the concentrate shipped to a single well-known buyer. The carrying amount of financial assets recorded in the financial statements represents the Company's maximum exposure to credit risk. The Company believes it is not exposed to significant credit risk.

b) 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. To mitigate this risk, the Company has a planning and budgeting process in place to determine the funds required to support its ongoing operations and capital expenditures. The Company ensures that sufficient funds are raised from equity offerings or debt financings to meet its operating requirements, after taking into account existing cash and expected exercise of stock options and share purchase warrants. See Note 1 for further discussion.

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

16. FINANCIAL INSTRUMENTS (continued)

c) Market risk

i) Foreign currency risk

A 10% change in the Mexican peso relative to the Canadian dollar would change the Company's profit or loss by $2,341.

ii) Interest rate risk

Interest rate risk is the risk arising from the effect of changes in floating interest rates applicable to the Company's financial instruments. At September 30, 2020 and December 31, 2019 the Company's longterm debt are at fixed and floating rates and the Company has not entered, into any financial derivatives or other financial instruments to hedge against this risk. The Company's loan agreements bear interest at variable and fixed rates. Interest risk exposure is in relation to variable rates which are lined to LIBOR.

(3M) and (1Y) rates and a variation of 1% on the interest rate would change comprehensive loss by approximately $227. Also, the Company is exposed to interest rate fluctuations on the interest rate offered on cash balances held at chartered financial institutions, however this risk is considered to be minimal.

d) Commodity and equity price risk

The Company is exposed to commodity and equity price risk given as its revenue is derived from the sale of metal concentrates, the prices for which have been historically volatile. Consequently, the economic viability of the Company's mineral interest and development assets may be adversely affected by fluctuations in metals prices. For concentrate shipped and provisionally invoiced at the period ended September 30, 2020, a 1% change in zinc and lead prices would result in an increase/decrease of approximately $28 and $7 respectively in revenues.

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

17. SEGMENTED INFORMATION

Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)
For the three and nine months ended September 30, 2020 and 2019
SEGMENTED INFORMATION
The Company is engaged in mining, exploration, and development of mineral properties in Mexico. TheCompany operates in one industry and has four reportable segments. The operating segments are managedseparately based on the nature of operations. Mining operations consists of the Campo Morado mine, whichis currently operational and producing, and development stage asset for the Tahuehueto project.Information by geographical areas is as follows:
	Canada	Mexico	Total
Current assets	$434	$12,983	$13,417
Non-current assets
Mineral interest and development assets	-	15,097	15,097
Property, plant and equipment	-	19,476	19,476
Other assets	-	4,872	4,872
Total assets, September 30, 2020	$434	$52,428	$52,862
Current liabilities	$14,295	$55,638	$69,933
Non-current liabilities	-	6,422	6,422
Total liabilities, September 30, 2020	$14,295	$62,060	$76,355
Current assets	$Canada62	$Mexico12,837	$Total12,899
Non-current assets
Mineral interest and development assets	-	12,335	12,335
Property, plant and equipment	-	19,787	19,787
Other assets	-	6,213	6,213
Total assets, December 31, 2019	$62	$51,172	$51,234
Current liabilities	$12,982	$56,155	$69,137
Non-current liabilities	-	6,228	6,228

Total assets, September 30, 2020	$434	$52,428	$52,862
Total liabilities, September 30, 2020	$14,295	$62,060	$76,355
Non-current assets
Property, plant and equipment	-	19,787	19,787
Other assets	-	6,213	6,213
Total assets, December 31, 2019	$62	$51,172	$51,234
Current liabilities	$12,982	$56,155	$69,137
Non-current liabilities	-	6,228	6,228
Total liabilities, December 31, 2019	$12,982	$62,383	$75,365

During the nine months ended September 30, 2020 and 2019, the Company sold its product to one customer accounting for 100% of commercial sales. As at September 30, 2020 trade receivables of $748 (December 31, 2019 $130) were receivable entirely from this one customer. All revenue was earned within Mexico.

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

17. SEGMENTED INFORMATION (continued)

Telson Mining CorporationNotes to the Condensed Interim Consolidated Financial StatementsUnaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)
For the three and nine months ended September 30, 2020 and 2019
SEGMENTED INFORMATION (continued)
Operating segments are as follows:
September 30, 2020	Campo	Real de la		Other Telson Mining	Total
	Morado	Bufa
	Mexico	Mexico	Mexico	Canada
Revenue, net	$13,532	$-	$-	$-	$13,532
Production costs and royalties	(13,163)	-	-	-	(13,163)
Accretion of provision for site
reclamation and closure	(271)	-	-	-	(271)
Depletion and amortizationMine operating loss	(318)(220)	--	--	--	(318)(220)
General expenses	(1,423)	(359)	-	(1,048)	(2,830)
Other income (expenses)	(748)	3,225	(107)	(1,264)	1,106
Total loss for the period	$(2,391)	$2,866	$(107)	$(2,312)	$(1,944)
Pre-commercial production revenues are capitalized to mineral interest and development assets up to the totalof operating costs and expenses.
September 30, 2019	Campo	Real de la	Other	Telson Mining	Total
	Morado	Bufa
	Mexico	Mexico	Mexico	Canada
Revenue, net	$19,502 $	-$	-	$-	$19,502
Production costs and royalties	(15,244)	-	-	-	(15,244)
Accretion of provision for sitereclamation and closure	(1,193)	-	-	-	(1,193)
Depletion and amortization	(746)	-	-	-	(746)
Mine operating earnings	2,319	-	-	-	2,319

Accretion of provision for site
Pre-commercial production revenues are capitalized to mineral interest and development assets up to the totalof operating costs and expenses.
September 30, 2019		CampoMorado		Real de laBufa
		Mexico		Mexico		Mexico		Canada
Revenue, net	$	19,502 $		-	$	-	$	-	$	19,502
Production costs and royalties		(15,244)		-		-		-	(15,244)
Accretion of provision for site
reclamation and closure		(1,193)		-		-		-	(1,193)
Depletion and amortization		(746)		-		-		-		(746)
Mine operating earnings		2,319		-		-		-	2,319
General expenses		(4,308)		(1,046)		(26)		(1,178)	(6,558)
Other (income) expenses		(542)		531		(959)		16.00		(954)
Total loss for the period		$(2,531)	$	(515)		$(985)	$	(1,162)	$(5,193)
At September 30, 2020, the Company has the following commitments:
		Within 1 year			Between 1		More than 5			Total
				and 5 years			years		September 30, 2020
Lease payments offices		$	100	$	318	$	-	$		418
			1,130		346		-			1,476
Lease payments machinery and
equipment
Vehicles			22		53					75
LoansProvisionforsitereclamationclosure	and		35,223-		4,052-		-5,278		39,2755,278

18. COMMITMENTS

Accretion of provision for site
At September 30, 2020, the Company has the following commitments:
	Within 1 year	Between 1	More than 5		Total
Lease payments offices	$100	$and 5 years318	$years-	September 30, 2020
Lease payments machinery and				$	418
equipment
Loans	35,223	4,052	-		39,275
Provisionforsitereclamationandclosure	-	-	5,278		5,278

Notes to the Condensed Interim Consolidated Financial Statements Unaudited – (Expressed in thousands of Canadian dollars, unless otherwise stated)

For the three and nine months ended September 30, 2020 and 2019

18. COMMITMENTS (continued)

Other commitments not included in the table above are as follows:

a) VPP – Variable Purchase Price

As part of the Campo Morado Acquisition the seller retained the right to receive a variable purchase price on future zinc production on the first 10 million tonnes of ore processed by the Company at the Campo Morado Mine when the price of zinc is at or above US$2,100 per tonne. Telson shall pay Nyrstar the greater of either:

• i. US$20 per tonne of zinc sold if the zinc price received is over US$2,100 per tonne; or
• ii. a percentage that ranges between 0.5% and 4.25% of the net smelter revenues received from zinc when the price of zinc ranges between US$1,200 and US$2,500 from the Campo Morado Mine.

The Company maintains the right under the Campo Morado Agreement to purchase 100% of the variable purchase price at any time for US$4 million.

In regards, the variable purchase price, the company paid $nil for the periods of nine months ended on September 30, 2020 and 2019.

b) Royalties

The Campo Morado Project is subject to a royalty between 2% and 3% of the net value of liquidation over the minerals extracted during the term of existence of the mining concession to the Servicio Geológico Mexicano ("SGM")

c) Off-take agreements

The Company has a concentrate off-take agreement with a third party whereby it will purchase 100% of the zinc and lead concentrate produced by the Campo Morado Mine up to December 2021.

The Company has a concentrate off-take agreement with a third party whereby it will purchase 100% of the zinc and lead concentrate produced by Tahuehueto project up to December 2022.

19. SUBSEQUENT EVENTS

On November 12, 2020, the Company executed the Trust Agreement (the "Trust") with Trafigura as mandated under the terms of the Letter Agreement entered into between Telson and Trafigura in March 2020.