Mako Mining — Interim / Quarterly Report 2023

Aug 22, 2023

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023 (Expressed in United States dollars) (Unaudited)

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CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Expressed in thousands of United States dollars

(Unaudited)

As at	Note		June 30, 2023		December 31, 2022
ASSETS
Current
Cash and cash equivalents		$	1,739	$	523
Receivables	4		176		1,180
Inventories	5		15,946		9,971
Gold stream derivative asset	6		283		346
Prepaid expenses,and other advances			811		884
Total current assets			18,955		12,904
Advances and other prepaid expenses			267		3
Exploration and evaluation assets	7		765		765
Mineralproperty, plant and equipment	8		24,584		31,499
TOTAL ASSETS		$	44,571	$	45,171
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	9	$	12,607	$	12,678
Term loans	10		4,404		2,771
Derivative liability	10		15		18
Provision for reclamation and rehabilitation	11		799		689
Total current liabilities			17,825		16,156
Accrued liabilities	9		944		1,131
Provision for reclamation and rehabilitation	11		2,121		1,944
Term loans	10		10,968		12,270
Total liabilities			31,858		31,501
Shareholders' equity
Share capital	12		88,206		88,021
Contributed surplus	12		12,177		12,087
Accumulated other comprehensive income			1,414		1,402
Deficit			(89,084)		(87,840)
Total shareholders' equity			12,713		13,670
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	44,571		45,171

Approved by the Audit Committee of the Board of Directors on August 22, 2023

”John Hick”, Audit Committee Chair “Akiba Leisman”, Director

Events after the reporting period (Note 19)

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

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CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

Expressed in thousands of United States dollars, except per share amounts (Unaudited)

(Unaudited)
			For the three		months ended		For the six		months ended
		Note	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Revenue		$	12,772	$	16,222	$	28,587	$	33,439
Production services revenue	6	& 13(e)(ii)	81		151		184		213
			12,853		16,373		28,771		33,652
Cost of sales
Production costs			(6,693)		(7,761)		(13,605)		(15,393)
Write-down of inventories			(353)		-		(1,169)		-
Depreciation,depletion and amortization			(3,906)		(6,776)		(7,603)		(11,845)
			(10,952)		(14,537)		(22,377)		(27,238)
Mine operating profit			1,901		1,836		6,394		6,414
Exploration and evaluation expenses			(1,498)		(2,718)		(2,190)		(4,582)
General and administrative expenses		17	(2,235)		(1,599)		(3,726)		(3,340)
Other income (expense)
Accretion and interest expense		18	(251)		(335)		(695)		(1,472)
Change in provision for reclamation and rehabilitation		11	15		30		12		4
Change in fair value of derivative liability		10(b),(c)	(86)		5		(89)		88
Gain (loss) on gold stream derivative asset		6	8		(36)		46		35
Foreign exchange loss			(52)		224		(67)		(184)
Interest income			6		-		8		-
Loss before income taxes			(2,192)		(2,593)		(307)		(3,037)
Income tax expense			(438)		(610)		(937)		(1,152)
Loss for the period		$	(2,630)	$	(3,203)	$	(1,244)	$	(4,189)
Other comprehensive income (loss)
Loss for the period			(2,630)		(3,203)		(1,244)		(4,189)
Items subject to reclassification into statement of income	(loss):
Foreign currencytranslation adjustment			9		(280)		12		(34)
Other comprehensive income(loss) for theperiod			9		(280)		12		(34)
Comprehensive loss for the period		$	(2,621)	$	(3,483)	$	(1,232)	$	(4,223)
Basic and diluted loss per common share		$	(0.04)	$	(0.05)	$	(0.02)	$	(0.06)
Weighted average common shares outstanding - basic (thousands)			65,819		65,813		65,788		65,863

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

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CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Expressed in thousands of United States dollars (Unaudited)

(Unaudited)
	Number of shares (000s)		Share capital	Contributed surplus		Accumulated other comprehensive income(loss)			Deficit		Total
Balance at December 31, 2021	65,931	$	88,259	$	11,603	$	1,763	$	(75,657)	$	25,968
Shares cancelled (NCIB)	(140)		(195)		-		-		(182)		(377)
Share-based compensation	-		-		279		-		-		279
Net loss	-		-		-		-		(4,189)		(4,189)
Other comprehensive loss	-		-		-		(34)		-		(34)
Balance at June 30, 2022	65,791	$	88,064	$	11,882	$	1,729	$	(80,028)	$	21,647
Shares cancelled (NCIB)	(68)		(94)		-		-		(24)		(118)
Common shares issued on DSU vesting	20		51		(51)		-		-		-
Share-based compensation	-		-		256		-		-		256
Net loss	-		-		-		-		(7,788)		(7,788)
Other comprehensive loss	-		-		-		(327)		-		(327)
Balance at December 31, 2022	65,743	$	88,021	$	12,087	$	1,402	$	(87,840)	$	13,670
Common shares issued on RSU vesting	76		185		(185)		-		-		-
Share-based compensation	-		-		275		-		-		275
Net loss	-		-		-		-		(1,244)		(1,244)
Other comprehensive income	-		-		-		12		-		12
Balance at June 30, 2023	65,819	$	88,206	$	12,177	$	1,414	$	(89,084)	$	12,713

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

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CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

Expressed in thousands of United States dollars (Unaudited)

Expressed in thousands of United States dollars (Unaudited)
For the six months ended	Note		June 30, 2023		June 30, 2022
Operating activities
Loss for the period		$	(1,244)	$	(4,189)
Non-cash items:
Accretion and interest expense			684		1,194
Depreciation, depletion and amortization			7,686		11,850
Change in provision for reclamation and rehabilitation			(12)		15
Writedown of inventory			1,169		-
Lease interest			10		-
Change in fair value of derivative liability			88		-
Gain on gold stream derivative asset			63		81
Share-based payments			275		279
Unrealized foreign exchange loss			22		318
		$	8,741	$	9,548
Changes in non-cash workingcapital	16		(4,243)		2,626
Net cashprovided byoperatingactivities			4,498		12,174
Investing activities
Expenditures on mineralproperty, plant and equipment			(3,232)		(4,969)
Net cash used in investingactivities		$	(3,232)	$	(4,969)
Financing activities
Purchase of common shares - NCIB			-		(377)
Sailfish Silver Loan			6,000		-
Repayment of Sailfish Loan and derivative liability			(2,033)		(2,294)
Repayment of Wexford Loan			(4,000)		(4,000)
Payments on lease liability			(49)		-
Net cash used in financingactivates		$	(82)	$	(6,671)
Effect of foreign exchange on cash and cash equivalents			32		8
Change in cash and cash equivalents			1,216		542
Cash and cash equivalents, beginning ofperiod			523		1,944
Cash and cash equivalents, end ofperiod		$	1,739	$	2,486

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

1. NATURE OF OPERATIONS

Mako Mining Corp. (“Mako” or the “Company”) was incorporated on April 1, 2004, under the laws of the Yukon Territory and continued into British Columbia under the British Columbia Corporations Act. The Company is listed on the TSX Venture Exchange (“TSX-V”) under the symbol MKO. The address of the Company’s corporate office and principal place of business is Suite 700 – 838 West Hastings Street, Vancouver, BC, V6C 0A6, Canada.

Mako is a gold mining and exploration company. The Company’s primary asset is the San Albino mine, an open pit mine located in Nicaragua, which commenced commercial production on July 1, 2021. In addition to its mining operation, Mako continues to explore its other concessions in Nicaragua.

On March 8, 2023, the Company effected the consolidation of all of its issued and outstanding common shares on the basis of one new common share for ten previously issued and outstanding common shares.

2. BASIS OF PRESENTATION

(a) Statement of compliance

These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), as applicable to the preparation of interim financial statements including International Accounting Standard (“IAS”) 34, Interim Financial Reporting . Accordingly, they do not include all the information and notes to the consolidated financial statements required by IFRS for annual financial statements and should be read in conjunction with the Company’s most recent audited consolidated financial statements for the year ended December 31, 2022.

These condensed interim consolidated financial statements were approved for issuance by the Board of Directors on August 22, 2023.

(b) Basis of presentation

The accounting policies and methods used in the preparation of these condensed interim consolidated financial statements are the same as those applied in the Company’s most recent audited consolidated financial statements for the year ended December 31, 2022.

These condensed interim consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments that are measured at fair value.

(c) Basis of consolidation

These condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions, balances, revenues and expenses have been eliminated upon consolidation.

Subsidiaries are included in the condensed interim consolidated financial statements from the date of acquisition or control until the date of disposition or until control ceases. Control exists when the Company has exposure or rights to variable returns from its involvement with an entity, and the ability to affect those returns through its power over the entity.

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

The condensed interim consolidated financial statements of the Company include the following subsidiaries:

	Referred	Place of	Ownership
Subsidiary	to as	incorporation	interest	Principal activity
Gold Belt, S.A.	“Gold Belt”	Nicaragua	100%	Holds mineral interest in Nicaragua, exploration
				activities.
Nicoz Resources, S.A.	“Nicoz”	Nicaragua	100%	Holds mineral interest in Nicaragua, San Albino
				mine and exploration activities.
Mako US Corp.	“Mako US”	United States	100%	Incorporated on June 19,2019,service company

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of these condensed interim consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed at each period end. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Outlined below are the key areas which require management to make significant estimates and assumptions in determining carrying values.

(a) Estimated mineral resources

Mineral resources are estimates of the amount of metal that can be extracted from the Company’s properties, considering both economic and legal factors. The Company estimates the quantity and/or grade of its mineral resources based on information compiled by appropriately qualified persons relating to the geological data on the size, depth and shape of the ore body, and requires judgments to interpret the complex geological data. Calculating mineral resources is based upon factors such as estimates of metallurgical recoveries along with geological assumptions and judgments made in estimating the size, and grade of the ore body. Changes in the mineral resources may affect the Company’s financial position in a number of ways, including:

• asset carrying values may be affected due to changes in estimated future cash flows;

• depreciation charges in the Company’s consolidated statement of comprehensive income (loss) may change when such charges are determined by the unit-of-production basis, or when the useful lives of assets change; and

• provision for reclamation liabilities balances may be affected as the estimated timing of reclamation activities is adjusted for changes in the estimated mine life as determined by the available mineral resources.

(b) Silver obligations

The carrying value of the Sailfish Silver Loan represents management’s best estimate of the fair value of the arrangement. The fair value incorporates estimates of silver prices and discount rates. Judgement was made in determining that it’s a derivative. (Refer to note 10(c)).

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023 All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

(c) Deferred income taxes

The determination of income tax expense and deferred income tax involves judgment and estimates as to the future taxable earnings, expected timing of reversals of deferred tax assets and liabilities, and interpretation of laws in the countries in which the Company operates. The Company is subject to assessments by tax authorities who may interpret the tax law differently. Changes in these estimates may materially affect the final amount of deferred income taxes or the timing of tax payments.

(d) Impairment of non-current assets

Management applies significant judgment in its assessment and evaluation of asset or cash generating units at each reporting date to determine whether there are any indications of impairment. The Company considers both internal and external sources of information when making the assessment of whether there are indications of impairment for the Company’s mineral properties, plant and equipment. External sources of information considered are changes in the Company’s economic, legal and regulatory environment, which it does not control, but affect the recoverability of its mining assets. Internal sources of information the Company considers include the manner in which mining properties and plant and equipment are being used or are expected to be used and indications of economic performance of the assets. Calculating the fair value less costs of disposal of cash generating units for impairment tests requires management to make estimates and assumptions with respect to future production levels, operating, capital and closure costs, future metal prices and discount rates. Changes in any of the assumptions or estimates used in determining the fair values could impact the impairment analysis.

(e) Reclamation and remediation provisions

Reclamation and remediation provisions represent the present value of estimated future costs for the reclamation of the Company’s mines and properties. These estimates include assumptions as to the cost of services, timing of the reclamation work to be performed, inflation rates, foreign exchange rates and interest rates. The reclamation and closure estimates are more uncertain the further into the future the activities are to be performed.

The actual cost to reclaim a mine may vary from the estimated amounts because there are uncertainties in factors used to estimate the cost and potential changes in regulations or laws governing the reclamation of a mine. Management periodically reviews the reclamation requirements as new information becomes available and will assess the impact of new regulations and laws as they are enacted. Any changes to assumptions will result in an adjustment to the provision which affects the Company’s liabilities and either its mineral property, plant and equipment or statement of income.

(f) Depreciation, depletion and amortization

The Company uses the units of production method to deplete mineral properties and the straight-line method to amortize plant and equipment. The calculation of the unit of production rate and the useful life and residual values of plant and equipment, and therefore the annual depletion and depreciation expense, could be materially affected by changes in the underlying estimates. Changes in estimates can be the result of changes in the Company’s mine plans, changes in the estimation of mineral resources and changes in the estimated remaining life or residual value of plant and equipment.

(g) Stockpiled ore and ore in-circuit net realizable value

Management applies significant judgment in developing the net realizable value (“NRV”) of stockpiled ore and ore in-circuit inventory, including assumptions related to estimated recoverable ounces of gold within stockpiled ore

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

and ore in-circuit inventory, the estimated forecasted gold price per ounce, estimated costs of completion and selling expenses.

4. RECEIVABLES

RECEIVABLES
As at		June 30, 2023		December 31, 2022
Trade receivable	$	-	$	1,098
Other		176		82
	$	176	$	1,180

5. INVENTORIES

INVENTORIES
As at		June 30, 2023		December 31, 2022
Stockpiled ore	$	11,159	$	5,737
Ore in-circuit		1,800		1,566
Finished metal		97		261
Supplies and spareparts		2,890		2,407
	$	15,946	$	9,971

As at June 30, 2023, and December 31, 2022, ore in-circuit and finished metal were recorded at cost, and stockpiled ore was recorded at NRV. During the three and six months ended June 30, 2023, stockpiled ore was written down by $352,593 and $1,168,593 (2022 - $nil and $nil), respectively.

6. GOLD STREAM DERIVATIVE ASSET

Gold stream derivative asset arises from the amended gold stream agreement the Company entered into with Sailfish Royalty Corp (“Sailfish”) (also refer to note 13(e)) in November 2018 whereby the Company received $1,096,051 (the “Gold Stream Advance”) which was recorded as a credit to the mineral property. At that time, it was determined to be a disposition of mineral interest. In return for the Gold Stream Advance, the Company is required to deliver 4% of gold production to Sailfish and is to receive a payment at 25% of the market price of the gold delivered. Effectively the Company sold 4% of the property and is being paid for services relating to the processes required to obtain the finished metal. As the price of gold is not closely related to the price of the services being provided, the contract to provide these services contains an embedded derivative that requires separation from the host contract.

The contract to deliver to Sailfish its 4% of gold production, in return for 25% of the market value of the gold delivered, contains an embedded derivative that was previously of minimal value. This derivative consists of a "swap" of the variable payment based on the price of gold for the fixed price implied by the contract. As at June 30, 2023, this derivative was determined to be an asset of $282,561 (December 31, 2022 - $345,696) based on current spot and future gold prices, and projected deliveries under the contract, all of which is disclosed as a current asset in the statement of financial position.

For the three and six months ended June 30, 2023, the Company delivered a total of 268 and 606 (2022 – 330 and 703) ounces of gold, respectively to Sailfish, pursuant to this agreement. In exchange the Company received $132,549 and $292,240 (2022 - $154,644 and $329,193), resulting in a fair value movement on the derivative of $7,775 and $45,511 (2022 – loss of $35,601 and gain $35,216) for the three and six months ended June 30, 2023, respectively.

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

7. EXPLORATION AND EVALUATION ASSETS

The following exploration and evaluation assets (acquisition costs) are located in Nicaragua:

							Potrerillos		El Jicaro		Total
Balance,June	30,	2023	and December	31,	2022	$	645	$	120	$	765

8. MINERAL PROPERTY, PLANT AND EQUIPMENT

	Mineral property			Plant		Land and Building		Equipment		Right-of-use asset		Total
Cost
As at December 31, 2021	$	10,309	$	38,044	$	3,247	$	1,662	$	-	$	53,262
Additions		-		780		2,144		1,916		353		5,193
Asset retirement obligation		499		-		-		-		-		499
Foreign currency translation adjustment		(259)		(82)		-		-		-		(341)
Deferred stripping		4,259		-		-		-		-		4,259
As at December 31, 2022	$	14,808	$	38,742	$	5,391	$	3,578	$	353	$	62,872
Additions		-		77		227		91		-		395
Asset retirement obligation		79		159		-		-		-		238
Deferred stripping		3,798		-		-		-		-		3,798
As at June 30, 2023	$	18,685	$	38,978	$	5,618	$	3,669	$	353	$	67,303
Accumulated depreciation
As at December 31, 2021	$	2,643	$	5,632	$	124	$	1,101	$	-	$	9,500
Depreciation		6,695		14,554	$	22		787		29		22,087
Foreign currencytranslation adjustment		(179)		(35)		-		-		-		(214)
As at December 31, 2022	$	9,159	$	20,151	$	146	$	1,888	$	29	$	31,373
Depreciation		6,302		4,693		19		288		44		11,346
As at June 30, 2023	$	15,461	$	24,844	$	165	$	2,176	$	73	$	42,719
Net book value as at December 31,2021	$	7,666	$	32,412	$	3,123	$	561	$	-	$	43,762
Net book value as at December 31,2022	$	5,649	$	18,591	$	5,245	$	1,690	$	324	$	31,499
Net book value as at June 30,2023	$	3,224	$	14,134	$	5,453	$	1,493	$	280	$	24,584

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As at		June 30, 2023		December 31, 2022
Accounts payable and accrued liabilities	$	11,081	$	10,897
Lease liability (Note 9 (a))		84		99
Income taxes payable		145		208
Sailfish Loan payment accrual (Note 10 (b))		398		368
Surface rights acquisitions		700		1,050
Due to relatedparties(Note 13)		199		56
Total current liabilities	$	12,607	$	12,678
Non-current liability
Surface rights acquisitions		-		200
Lease liability (Note 9 (a))		213		238
Accrued liabilities(Note 9(b))		731		693
Total non-current liabilities		944		1,131
Total accountspayable and accrued liabilities	$	13,551	$	13,809

(a) Lease liability

As at	June 30, 2023	December 31, 2022
Opening balance	337	-
Additions	-	354
Lease payments made	(49)	(24)
Finance charges	9	7
Closing balance	297	337
Less: currentportion	(84)	(99)
	213	238

The lease liability was discounted at a discount rate of 6%.

		$
Total lease payments payable for the next	twelve months	99
Total lease payments payable for the next	1-3 years	207
Total leasepaymentspayable for the next	4-5years	18

(b) Severance Obligation

Non-current accrued liabilities as at June 30, 2023, include severance obligation for employees at the Company’s operations in Nicaragua of $504,589 (December 31, 2022 - $410,482). The severance is computed based on the years of service at the average salary of the last six months of employment. Employees that work less than six years have a maximum benefit of five months salaries. The calculation is in line with labor regulations in Nicaragua.

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

10. TERM LOANS

LOANS
As at		June 30, 2023		December 31, 2022
Wexford Loan (Note 10 (a))
Accrued interest and cash bonus interest accrual	$	5,900	$	5,405
		5,900		5,405
Principal		15,150		15,150
Principal repayments made		(12,285)		(8,285)
		2,865		6,865
Total Wexford Loan	$	8,765	$	12,270
Sailfish Loan (Note 10 (b))		529		2,789
Sailfish Silver Loan(Note 10(c))		6,093		-
Total Term Loans	$	15,387	$	15,059
Disclosed as follows:
Current liabilities	$	4,419	$	2,789
Non-current liabilities		10,968		12,270
	$	15,387	$	15,059

• (a) Wexford Loan

On February 20, 2020, the Company entered into a $15,150,000 unsecured loan facility (the “Wexford Loan”) from Wexford Catalyst Trading Limited, Wexford Spectrum Trading Limited and Debello Trading Limited (collectively, the “Lenders”), each private investment fund is managed by the Company’s controlling shareholder, Wexford Capital LP (“Wexford Loan Agreement”). The Wexford Loan may be prepaid at any time, in whole or in part, at par plus accrued but unpaid interest, without penalty or premium (“Obligations Termination Date”). The Wexford Loan bears interest at the rate of 10% per annum thereafter. The Company paid a non-refundable up-front fee of $150,000 to the Lenders on the closing of the Wexford Loan. On August 12, 2022, the Lenders extended the maturity date from February 21, 2023 to March 31, 2024. On May 25, 2023, the maturity date of the Wexford Loan was further extended from March 31, 2024 to March 31, 2025.

As at March 31, 2023 and December 31, 2022, the Wexford Loan was fully drawn.

As at June 30, 2023, the accrued interest and cash bonus interest accrual, after the Company having received six waivers was as follows:

six waivers was as follows:
	$
Accrued interest and cash bonus interest accrual as at December 31, 2021	3,735
Accrued interest	1,093
Cash Bonus Interest – cash equivalent of 321.25 ounces ofgold	577
Accrued interest and cash bonus interest accrual as at December 31, 2022	5,405
Accrued interest	448
Cash Bonus Interest – cash equivalent of 321.25 ounces ofgold	47
Accrued interest and cash bonus interest accrual as at June 30, 2023	5,900

In accordance with the Wexford Loan Agreement, as the Wexford Loan was not repaid in full on the first anniversary of the closing date, then the Company must pay to the Lenders a cash bonus interest equal to

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023 All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

the cash equivalent of 500 ounces of gold on each successive anniversary of the closing date (“Cash Bonus Interest”). This resulted in the initial accrual of $933,493 and a further accrual of $331,264 in 2021. During the year ended December 31, 2022, the Company accrued an additional $577,203. During the six months ended June 30, 2023, the Company accrued an additional $46,953. To date, the Company has accrued for the cash equivalent of 1,000 ounces of gold.

The applicable formula set out in the Wexford Loan Agreement is the principal amount less any principal repayments divided by the total loan facility multiplied by the price of gold based on the closing London Bullion Market monthly average.

During the three and six months ended June 30, 2023, the Company recorded $202,549 and $495,923 (2022 - $267,051 and $1,168,383) of accrued interest and cash bonus interest on the Wexford Loan all of which has been expensed, respectively.

Repayments

During the six months ended June 30, 2023, the Company made voluntary principal repayments of $4,000,000 (2022 - $3,999,970).

• (b) Sailfish Loan and Derivative Liability

On August 27, 2021, the Company entered into a $8,000,000 unsecured gold-linked two-year term loan with Sailfish, a company related by common shareholders and a common director (the “Sailfish Loan”). The Sailfish Loan is to be repaid with 24 monthly payments, with each monthly payment equal to the cash equivalent of 205 ounces of gold at the average market gold price subject to a minimum price of $1,750 and a maximum price of $2,000 (the “Price Parameters”).

Management determined that the Sailfish Loan is a debt contract with an embedded derivative. By fixing the number of ounces that would have to be repaid to satisfy the debt obligation, the Company is essentially entering into a commodity forward. As the price of gold is not closely related to the host debt contract, the forward is required to be separated from the host contract and accounted for at fair value, with any movements going through the statement of income.

The embedded derivative reflects the fact that the cash payment is variable as it is linked to the fluctuating price of gold with the Price Parameters of a cap at $2,000 and a floor at $1,750 acting as call and put options, respectively.

On March 2, 2023, the Sailfish Loan was modified whereby the remaining seven payments will be made in physical silver in lieu of cash. On March 10, 2023, the Company delivered 18,278 ounces of silver in lieu of $380,181 cash.

As at June 30, 2023, the Company revalued the embedded derivative within the Sailfish Loan and determined a $14,583 (December 31, 2022 - $17,605) fair value. Assumptions associated with the revaluation includes volatility of gold futures ranging from 14.9% to 15.2% (December 31, 2022 – 14.8% to 18.9%), risk free rate of 4.47% (December 31, 2022 – 4.07%), and the gold price at $1,828 (December 31, 2022 - $1,828) per ounce. As at June 30, 2023, the Company included in accounts payable an accrual of $398,295 for the Sailfish Loan payment that was made on July 7, 2023, based on the average gold price of $1,942 per ounce. As at December 31, 2022, the Company included in accounts payable an accrual of $368,332 for the Sailfish Loan payment that was made in cash on January 6, 2023, based on the December 2022 average gold price of $1,797 per ounce.

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

During the six months ended June 30, 2023, the Company paid six monthly instalment repayments totaling $2,369,338 (2022- $2,293,899).

During the six months ended June 30, 2023, the Company recorded $50,574 and $165,996 (2022 - $56,212 and $277,723) of finance expense accretion on the Sailfish Loan, and $1,216 and $4,073 (2022 - $4,979 and $87,926) of fair value adjustment on the Sailfish Loan.

	During the six months ended June 30, 2023, the Company recorded $50,574 and $165,996 (2022 - $56,212 and $277,723) of finance expense accretion on the Sailfish Loan, and $1,216 and $4,073 (2022 - $4,979 and $87,926) of fair value adjustment on the Sailfish Loan.
	Sailfish Loan $ Derivative Liability $ Total $
	As at December 31, 2021 6,675 89 6,764 Finance expense 565 - 565 Fair value adjustment - (71) (71) Loan repayments made (4,467) - (4,467) Change in accrual loanpayment (2) - (2)
	As at December 31, 2022 2,771 18 2,789 Finance expense 166 - 166 Fair value adjustment - (3) (3) Loan repayments made (2,369) - (2,369) Change in accrual loanpayment (54) - (54)
	As at June 30,2023 514 15 529
	Disclosed as follows: Current liabilities 514 15 529 Non-current liabilities - - -
	514 15 529

(c) Sailfish Silver Loan

On May 24, 2023, the Company entered into an agreement with Sailfish, whereby Sailfish will advance $6,000,000 (received, May 25, 2023) for the delivery of a fixed amount of ounces of silver (13,500), on the last day of the month or the gold equivalent, for a period of 24 months (“Silver Loan”). Interest on the Silver Loan is accrued at US Prime (8.25%) plus four percent per annum, calculated daily on the undelivered ounces. Sailfish also has the option, exercisable after 12 months from entering the Silver Loan, to purchase all remaining future silver production from all of the Company’s concessions for an additional $1,000,000.

The Company determined that the stream obligation is a derivative liability, and as such, the stream obligation is recorded at fair value through profit or loss (“FVTPL”) at each statement of financial position date.

The fair value of the stream obligation was valued using a discounted cash flow model. The significant assumptions developed by management used in the model included: the silver forward price curve and a discount rate of 14.96%.

As at June 30, 2023, the Company owed 27,000 ounces of silver to Sailfish.

During the three months ended June 30, 2023, a change in the fair value of the Silver Loan of $92,450 was recorded in change in fair value of derivative liability in the statement of income (loss).

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

11. RECLAMATION AND REHABILITATION OBLIGATIONS

RECLAMATION AND REHABILITATION OBLIGATIONS
		San Albino Mine	La	Trinidad Mine		Total
Balance, December 31, 2021	$	1,246	$	1,042	$	2,288
Cash outflows for reclamation and rehabilitation activities		-		(49)		(49)
Changes in estimate		499		(185)		314
Accretion expense		75		5		80
Balance, December 31, 2022	$	1,820	$	813	$	2,633
Cash outflows for reclamation and rehabilitation activities		-		(3)		(3)
Changes in estimate		237		(12)		225
Accretion expense		44		21		65
Balance, June 30, 2023	$	2,101	$	819	$	2,920
				June 30		December 31
As at				2023		2022
Disclosed as follows:
Current portion			$	799	$	689
Long-termportion				2,121		1,944
			$	2,920	$	2,633

The Company has recognized liabilities relating to the La Trinidad mine and the San Albino Project and has determined that no significant closure and reclamation liabilities exist in connection with the activities on its other properties. The Company has calculated the present value of the closure and reclamation provision as at June 30, 2023, using the undiscounted estimate of cash outflows associated with reclamation activities as $3,257,216 (December 31, 2022 - $3,028,358), with $851,304 (December 31, 2022 - $848,043) associated to the La Trinidad mine and $2,405,912 (December 31, 2022 - $2,180,315) associated with the San Albino Project. The provision was determined using a discount rate of 3.71% - 5.40% (December 31, 2022 – 4.11% - 4.74%) and an inflation rate of 2.46% - 2.49% (December 31, 2022 – 2.44% - 2.52%). The Company intends to complete the reclamation activities on La Trinidad by the end of 2024.

12. SHARE CAPITAL

• (a) Authorized – Unlimited number of common shares, without par value.

• (b) Issued

• (i) On March 8, 2023, the Company consolidated its shares on a ten-for-one basis. All share and per share amounts in these condensed consolidated financial statements have been adjusted retroactively to reflect this change.

• (ii) During the six months ended June 30, 2023, 75,190 common shares of the Company were issued on the vesting of 75,190 restricted share units and the fair value of $185,462 was transferred from contributed surplus to share capital (refer to Note 12 (e)).

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

• (iii) On October 19, 2021, the Company commenced a normal course issuer bid (“NCIB”) whereby the Company intended to purchase up to a maximum of 3,296,545 common shares in the capital of the Company. All common shares acquired by the Company under the NCIB are to be subsequently cancelled. Purchases under the NCIB ended on October 18, 2022.

During the year ended December 31, 2022, the Company purchased 208,100 common shares for $494,815 (C$633,515) and allocated $289,238 (C$358,265) to deficit. These common shares were cancelled.

• (iv) On November 30, 2022, 20,600 common shares of the Company were issued on the vesting of 20,600 deferred share units and the fair value of $50,812 was transferred from contributed surplus to share capital (refer to note 12 (f)).

• (c) Share purchase warrants

On January 16, 2022, 3,550,000 share purchase warrants, exercisable at C$0.60 per warrant and 150,000 Broker Warrants, exercisable at C$0.40 per warrant expired unexercised.

As at June 30, 2023, the Company had no share purchase warrants outstanding.

• (d) Share options

	For the six	months ended	For the year ended	For the year ended
		June 30, 2023	December 31, 2022
	Number		Number
	of options	WAEP	of options	WAEP
Opening balance	3,370,004	C$2.68	3,364,500	C$2.67
Granted	540,000	2.13	70,000	3.70
Forfeited	-	-	(5,000)	5.10
Expired	(15,000)	5.10	(59,500)	3.30
Ending balance	3,895,004	C$2.59	3,370,000	C$2.68
Options exercisable	3,402,504	C$2.61	3,240,000	C$2.63
Weighted average remaining contractual	1.71		1.59
life(inyears)

WAEP = Weighted average exercise price

On May 12, 2023, the Company granted 540,000 stock options to employees and consultants of the Company exercisable to acquire one common share of the Company at an exercise price of C$2.13 per share for a term of five years, expiring on May 12, 2028. The options vest as to 25% on the date of grant, and as to 25% on each of the first, second and third anniversary of the date of grant. The fair value of these options was calculated as $488,691 (C$656,567) using the Black-Scholes model.

On March 9, 2022, the Company granted 70,000 stock options to an employee of the Company exercisable to acquire one common share of the Company at an exercise price of C$3.70 per share for a term of five years, expiring on March 9, 2027. The options vest as to 25% on the date of grant, and as to 25% on each of the first, second and third anniversary of the date of grant. The fair value of these options was calculated as $101,856 (C$130,800) using the Black-Scholes model.

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

During the three and six months ended June 30, 2023, the Company recorded share-based payments expense of $53,907 and $185,571 (2022 - $201,153 and $278,663), respectively, all of which is included in general and administrative expenses.

(e) Restricted share units (“RSU”)

On May 12, 2023, the Company granted 38,829 restricted share units (“RSU”) to officers of the Company. Each RSUs will vest 50% on the first anniversary of the grant date (being May 12, 2024), 25% on the one year and sixth month anniversary of the grant date (being November 12, 2024) and the remaining 25% on May 12, 2025. Once vested, each RSU is exercisable into one common share entitling the holder to receive the common share for no additional consideration. The fair value was C$2.04 per RSU with a total fair value of $58,957 (C$79,211) based on the market value of the underlying shares at the date of issuance.

On January 31, 2022, the Company granted 150,380 RSU to senior executives. Each RSU will vest 50% on the first anniversary of the grant date (being January 31, 2023), 25% on the second anniversary of the grant date (being January 31, 2024) and 25% on December 1, 2024. Once vested, each RSU is exercisable into one common share entitling the holder to receive the common share for no additional consideration. The fair value was C$0.32 per RSU with a total fair value of $370,925 (C$473,697) based on the market value of the underlying shares at the date of issuance.

In March 2023, 75,190 RSUs vested.

For the three and six months ended June 30, 2023, total share-based compensation relating to RSUs was $26,049 and $61,230 (2022 - $65,801 and $109,187) of which all is included in general and administrative expenses, respectively.

At June 30, 2023, there were 114,019 (December 31, 2022 – 150,380) RSUs outstanding.

(f) Deferred share units (“DSU”)

On January 31, 2022, the Company granted 131,840 deferred share units (“DSU”) to the Company’s directors. Each DSU will vest on the director’s termination of service and is exercisable into one common share entitling the holder to receive the common share for no additional consideration or receive the cash equivalent or a combination thereof. The fair value was C$0.32 per DSU with a total fair value of $325,196 (C$415,296) based on the market value of the underlying shares at the date of issuance.

On November 30, 2022, following the departure of a board member, 20,600 DSU vested and 20,600 common shares of the Company were issued and the fair value of $50,812 (C$64,890) was transferred from contributed surplus to share capital.

For the three and six months ended June 30, 2023, total share-based compensation relating to DSUs was $17,448 and $28,953 (2022 - $20,680 and $34,316) of which all is included in general and administrative expenses.

At June 30, 2023, there were 111,240 (December 31, 2022 - 111,240) RSUs outstanding.

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

• (g) The fair value of stock options and warrants are estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

For the six months ended	June	30, 2023		June 30, 2022
	Options	Warrants	Options	Warrants
Risk-free interest rate	3.16%	N/A	1.65%	N/A
Expected dividend yield	-	N/A	-	N/A
Expected stock price volatility	64.71%	N/A	58.06%	N/A
Expected life in years	5 years	N/A	5 years	N/A
Forfeiture rate	0.00%	N/A	0.00%	N/A
Weighted average fair value	C$1.22	N/A	C$1.91	N/A

13. RELATED PARTY TRANSACTIONS

• (a) Key management compensation

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company, and comprise the Company’s Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Directors.

	Three months ended		Six months ended
	June 30, 2023 June 30, 2022	June 30, 2023	June 30, 2022
Director fees	$ 90 $ 51	$ 183	$ 102
Salaries, consulting and management fees	627 232	848	818
Share-based compensation	51 174	108	233
Total	$768$457	$1,139	$1,153
As at		June 30, 2023	December 31, 2022
Amount included in accountspayable		$ 199	$ 56

During the three and six months ended June 30, 2023, the Company granted bonuses of $407,226 and $407,226 (2022 - $nil and $365,000) to three senior members of management which is included in general and administrative expenses, respectively.

A special committee was set up in November 2022, comprised of two directors and each member of this committee receives $8,000 per month.

• (b) Tes-Oro Mining Group, LLC (“Tes-Oro”)

Tes-Oro is a private company controlled by the Company’s Chief Operating Officer. Tes-Oro is a full-service engineering, procurement and construction management firm working with the Company. During the three and six months ended June 30, 2023, the Company expensed fees relating to consulting services of $684 and $1,367 (2022 - $687 and $4,773), reclamation and rehabilitation expenses of $nil and $7,389 (2022 - $nil and $nil) and $8,542 and $17,085 (2022 - $24,668 and $53,910) in general office expenses, respectively. Amounts payable to Tes-Oro as at June 30, 2023, were $1,749 (December 31, 2022 - $nil).

(c) Sonoran Resources, LLC (“Sonoran”)

Sonoran is a private company controlled by the Company’s Chief Operating Officer. Sonoran is a management, scientific, and technical consulting services industry firm which leases office equipment to

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

the Company. During the three and six months ended June 30, 2023, the Company expensed fees relating to general office expenses of $nil and $nil (2022 - $1,007 and $2,581). Amounts payable to Sonoran as at June 30, 2023, were $nil (December 31, 2022 - $nil).

(d) Wexford LP (“Wexford”)

Wexford is the Company’s controlling shareholder. Except as noted elsewhere in the financial statements, during the three and six months ended June 30, 2023, the Company expensed fees of $nil and $3,000 related to transaction costs (2022 - $nil and $3,070), respectively. Amounts payable to Wexford as at June 30, 2023, were $3,000 (December 31, 2022 - $nil).

(e) Sailfish Royalty Corp. (“Sailfish”)

Sailfish is a publicly traded company related by common shareholders, and a director. In addition to the Sailfish Loan (note 10 (b)), during the three and six months ended June 30, 2023, the Company’s subsidiary Nicoz:

• i. received advances of $169,117 and $373,797 (2022 - $253,083 and $423,488) for the purchase of gold ounces, respectively;

• ii. sold 268 and 606 (2022 – 330 and 703) ounces of gold to Sailfish for $132,549 and $292,240 (2022 - $154,644 and $329,193) of which $57,234 and $108,646 (2022 - $151,372 and $212,911) is recorded as production services revenue and $7,775 and $45,511 (2022- $3,272 and $116,282) is included in the gain on gold stream derivative asset disclosed in the statement of income and comprehensive income, respectively.

As at June 30, 2023, the balance remaining from the advance received from Sailfish was $58,001 (December 31, 2022 – a balance of $23,556 was receivable from Sailfish).

14. FINANCIAL INSTRUMENTS AND LIQUIDITY RISK

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

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

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

The Company’s financial instruments include cash, receivables, accounts payable and the Term Loans. The carrying values of cash, receivables and accounts payable approximate fair value because of the short-term nature of these instruments or capacity of prompt liquidation.

The Company’s derivative asset and liability is measured using level 3 inputs.

During the six months ended June 30, 2023, there were no transfers between level 1, level 2 and level 3 classified assets and liabilities.

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

Liquidity risk

Liquidity risk represents the risk that the Company will be unable to meet its obligations associated with its financial liabilities as they fall due. The Company manages liquidity risk by preparing an annual budget for approval by the Board of Directors and preparing cash flow and liquidity forecasts on a regular basis. The Company's objective when managing liquidity risk is to ensure that it has sufficient liquidity available to meet its liabilities when due. The Company uses cash to settle its financial obligations. The ability to do this relies on the Company collecting its trade receivables in a timely manner and maintaining sufficient cash on hand through debt financing.

As at June 30, 2023, the Company had cash and cash equivalents of $1,738,631 (December 31, 2022 -$523,262), a working capital of $1,130,180 (December 31, 2022 – deficit of $3,253,887) and an accumulated deficit of $89,084,163 (December 31, 2022 - $87,840,695). The Company recorded net loss of $2,630,174 and $1,243,470 for the three and six months ended June 30, 2023 (net loss for three and six months ended June 30, 2022 – $3,203,128 and $4,189,019); and for the six months ended June 30, 2023, had cash inflows from operating activities of $4,497,708 (for the six months ended June 30, 2022 - $12,374,106) and investing outflows of $3,232,109 (for the six months ended June 30, 2022 - $4,968,812).

Based on the Company’s forecasted cash flows and the current working capital, the Company estimates that it will have sufficient liquidity to meet its obligations and operating requirements for at least the next twelve months.

The following are the contractual maturities of financial liabilities:

	Carrying	Contractual	Within 1	1 to 2	2 to	3	3 to 6
At June 30, 2023	Amount	Cash Flows	year	years	years		years
	$	$	$	$	$		$
Accounts payable and
accrued liabilities	13,551	13,551	12,819	103	106		523
Term loans and
derivative	15,387	15,387	4,173	11,214		-	-
Asset Retirement
Obligation	819	-	799	20		-	-
Total	29,757	28,938	17,791	11,337	106		523

Commodity price risk

The Company is subject to commodity price risk from fluctuations in the market prices for silver. Commodity price risks are affected by many factors that are outside the Company’s control including global or regional consumption patterns, the supply of and demand for metals, speculative activities, the availability and costs of metal substitutes, inflation, and political and economic conditions. The financial instrument impacted by commodity prices is the Sailfish Loan and Derivative Liability and the Sailfish Silver Loan obligation. A 10% increase in the market price of silver would increase derivative liabilities by approximately $690,000, whereas a 10% decrease in the market price of silver would decrease derivative liabilities by approximately $690,000.

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

15. SEGMENTED INFORMATION

For the three and six months ended June 30, 2023 and 2022, the Company’s principal product was gold sold to the refinery at spot market rates by the Company’s subsidiary, Nicoz. The gold was produced at the San Albino mine in Nicaragua.

For the three and six months ended June 30, 2023 and for the year ended December 31, 2022, all of the Company’s significant non-current assets and revenues were in Nicaragua.

16. SUPPLEMENTARY CASH FLOW INFORMATION

Changes in non-cash working capital comprise the following:

	For the six months ended June 30, 2023 June 30, 2022
	Change in receivables $ 883 $ (1,331) Change in inventories (2,922) 4,362 Change in prepaid expenses, and other 46 (1,027) Change in accounts payable and accrued liabilities (2,231) 591 Change in due to related parties (19) 50 Cash outflow for reclamation activities - (19)
	$ (4,243) $ 2,626

17. GENERAL AND ADMINISTRATIVE EXPENSES

		Three	Three	months ended			Six	months ended
		June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Accounting and legal	$	321	$	158	$	464	$	234
Consulting fees		16		49		24		49
Directors’ fees		90		51		182		102
Depreciation		25		3		52		5
General office expenses		38		96		90		136
Insurance		132		116		270		214
Investor relations and communications		21		83		62		128
Rent		1		15		2		27
Salaries and benefits		1,303		814		2,143		1,980
Stock-based compensation		204		144		275		279
Telephone and IT services		31		18		62		62
Transfer agent fees and regulatory fees		24		10		51		55
Travel		29		42		49		69
	$	2,235	$	1,599	$	3,726	$	3,340

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NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2023

All tabular amounts are in thousands of United States dollars unless otherwise stated (Unaudited)

18. ACCRETION AND INTEREST EXPENSE

	For the three	For the three	months ended	For the six	months ended
	June	30, 2023	June 30, 2022	June 30, 2023	June 30, 2022
Accretion on asset retirement obligation	$	36	$ 14	$ 65	$ 25
(Note 11)
Interest expense - Wexford Loan		202	265	495	1,169
(Note 10 (a))
Interest expense – other		5	-	12	-
Finance costs on derivative liability		8	56	123	278
(Note 10(b))
	$	251	$335	$695	$1,472

19. EVENTS AFTER THE REPORTING PERIOD

The following events took place subsequent to June 30, 2023:

• (a) Sailfish Loan

Two monthly repayment installments were made on the Sailfish Loan. On July 7, 2023 and August 3, 2023, the Company delivered 17,190 and 16,367 ounces of silver in lieu of $398,295 and $399,101 cash, respectively.

• (b) On August 9, 2023, 128,500 stock options with an exercise price of $1.95 expired unexercised.

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