Midnight Sun Mining Corp. — Annual Report 2023

Mar 28, 2024

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Midnight Sun Mining Corp.

Consolidated Financial Statements For the year ended December 31, 2023

(Expressed in Canadian Dollars)

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INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Midnight Sun Mining Corp.

Opinion

We have audited the accompanying consolidated financial statements of Midnight Sun Mining Corp. (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2023, 2022 and January 1, 2022, and the consolidated statements of operations and comprehensive loss, changes in shareholders’ equity, and cash flows for the years ended December 31, 2023 and 2022, and notes to the consolidated financial statements, including material accounting policy information.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2023, 2022 and January 1, 2022, and its financial performance and its cash flows for the years ended December 31, 2023 and 2022 in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 2 of the consolidated financial statements, which indicates that during the year ended December 31, 2023, and the year ended December 31, 2022, the Company experienced operating losses before income taxes and negative operating cash flows with the operations of the Company having been primarily funded by the issuance of share capital. As stated in Note 2, these events and conditions indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Emphasis of Matter

We draw attention to Note 15 to the consolidated financial statements, which explains that certain comparative information presented for the year ended December 31, 2022 and as at January 1, 2022 have been restated. Our opinion is not modified in respect to this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matter described below to be the key audit matter to be communicated in our audit report.

Assessment of Impairment Indicators of Exploration and Evaluation Assets (“E&E Assets”)

As described in Note 6 to the financial statements, the carrying amount of the Company’s E&E Assets was $12,957,223 as of December 31, 2023. As more fully described in Notes 2 and 3 to the financial statements, management assesses E&E Assets for indicators of impairment at each reporting period.

The principal considerations for our determination that the assessment of impairment indicators of the E&E Assets is a key audit matter are that there was judgment by management when assessing whether there were indicators of impairment for the E&E Assets, specifically related to the assets’ carrying amount which is impacted by the Company’s intent and ability to continue to explore and evaluate these assets. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate audit evidence relating to the judgments made by management in their assessment of indicators of impairment that could give rise to the requirement to prepare an estimate of the recoverable amount of the E&E Assets.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures include, among others:

• Evaluating management’s assessment of impairment indicators.

• Evaluating the intent for the E&E Assets through discussion and communication with management.

• Reviewing the Company’s recent expenditure activity.

• Assessing compliance with agreements and expenditure requirements including reviewing earn-in agreements.

• Assessing the Company’s right to explore E&E Assets.

• Obtaining, on a test basis, confirmation of title to ensure mineral rights underlying the E&E Assets are in good standing.

• Obtaining confirmation of mineral title from former earn-in partner stating title is being held on behalf of the Company.

Other Information

Management is responsible for the other information. The other information obtained at the date of this auditor's report includes Management’s Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

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Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year ended and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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The engagement partner on the audit resulting in this independent auditor’s report is Stephen Hawkshaw.

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Vancouver, Canada March 28, 2024

Chartered Professional Accountants

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Midnight Sun Mining Corp. Consolidated Statements of Financial Position

(Expressed in Canadian Dollars)

As At December 31, 2023 December 31, 2022 (restated – Note 15)	January 1, 2022 (restated – Note 15)
ASSETS Current Cash $ 23,883 $ 40,483 Advances and deposits 49,576 19,058 Loans and debenture receivable (note 10) - 119,969 Receivables 31,214 11,817	$ 2,564,905 65,112 - 6,317
104,673 191,327 Right-of-use asset(note 5) 371,335 17,089 Investments(note 10) 525,000 525,000 Loans and debenture receivable(note 10) - - Exploration and evaluation assets(note 6) 12,957,223 12,957,223	2,636,334 41,834 350,000 175,427 12,957,223
Total Assets $ 13,958,231 $ 13,690,639	$ 16,160,818
LIABILITIES AND SHAREHOLDERS’ EQUITY Current Accounts payable and accrued liabilities $ 110,486 $ 343,108 Lease liabilities (note 7) 62,185 18,429 Due to related parties (note 10) 81,383 117,124 Loans payable (note 8) 163,000 -	$ 81,106 24,551 66,298 -
417,054 478,661 Non-current portion of loans payable(note 8) - 40,000 Non-current portion of lease liabilities (note7) 314,090 -	171,955 40,000 18,056
Total Liabilities 731,144 518,661	230,011
Shareholders’ Equity Share capital (note 9) 22,082,698 21,015,097 Share subscriptions received in advance (note 9) - 5,000 Reserves – options (note 9) 2,608,547 2,109,929 Reserves – warrants (note 9) 271,657 240,561 Deficit (13,770,501) (12,233,295)	21,015,097 - 1,693,878 240,561 (9,524,800)
11,192,401 11,137,292 Non-controlling interest (note 6) 2,034,686 2,034,686	13,424,736 2,506,071
Total Shareholders’ Equity 13,227,087 13,171,978	15,930,807
Total Liabilities and Shareholders’ Equity $ 13,958,231 $ 13,690,639	$ 16,160,818

Nature of operations (note 1) Commitments and contingences (note 13) Subsequent event (note 16)

Approved and authorized by the Board of Directors on March 28, 2024:

“Robert Sibthorpe” “Allan Fabbro” Robert Sibthorpe, Director Allan Fabbro, Director

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

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Midnight Sun Mining Corp.

Consolidated Statements of Operations and Comprehensive Loss (Expressed in Canadian Dollars)

For the year ended December 31,		2023		2022
Expenses
Accounting and audit fees	$	131,451	$	103,170
Accretion on lease liabilities (note 7)		10,177		3,228
Consulting fees (note 10)		72,749		82,779
Depreciation expense (note 5)		37,389		25,632
Exploration expense (note 6)		279,367		1,650,934
Foreign exchange loss (gain)		(4,111)		11,176
Investor and shareholder relations		291,249		258,096
Legal fees		30,808		21,500
Office services and miscellaneous		61,566		76,718
Regulatory and transfer agent fees		45,214		44,777
Share-based payments (notes 9 and 10)		525,725		416,051
Wages and benefits (note 10)		394,239		361,911
		(1,875,823)		(3,055,972)
Allowance for doubtful accounts recovery (expense) (note 10)		346,135		(365,016)
Unrealized gain on investments (note 10)		-		175,000
Interest expense (note 8)		(10,000)		-
Interest income (note 10)		2,482		66,108
Loss and comprehensive loss for the year		(1,537,206)		(3,179,880)
Loss attributable to:
Owners of the parent		(1,537,206)		(3,179,880)
Non-controlling interest		-		-
	$	(1,537,206)	$	(3,179,880)
Loss per share–basic and diluted	$	(0.01)	$	(0.03)
Weighted average number of common shares outstanding –
basic and diluted		118,341,568		113,004,014

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

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Midnight Sun Mining Corp.

Consolidated Statements of Changes in Shareholders’ Equity (Expressed in Canadian Dollars)

		Attributable to owners of the parent	Attributable to owners of the parent	Attributable to owners of the parent
	Shares Amount	Share subscriptions received in advance	Reserves – warrants	Reserves – options	Deficit (restated – Note 15) Total Non-controlling interest (restated – Note 15) Total shareholders’ equity
Balance, December 31, 2021 Share subscription received Share-based payments Adjustment to non-controlling interest in ZHLMIL Loss for theyear	113,004,014 $ 21,015,097 - - - - - - - -	$ - 5,000 - - -	$ 240,561 - - - -	$ 1,693,878 - 416,051 - -	$ (9,524,800) $ 13,424,736 $ 2,506,071 $ 15,930,807 - 5,000 - 5,000 - 416,051 - 416,051 471,385 471,385 (471,385) - (3,179,880) (3,179,880) - (3,179,880)
Balance, December 31, 2022 Private placement Warrants exercised Options exercised Share issuance costs Share issuance costs – agents’ warrants Share-based payments Loss for the year	113,004,014 21,015,097 4,685,000 937,000 542,000 138,210 350,000 84,857 - (58,660) - (33,806) - - - -	5,000 (5,000) - - - - - -	240,561 - (2,710) - - 33,806 - -	2,109,929 - - (27,107) - - 525,725 -	(12,233,295) 11,137,292 2,034,686 13,171,978 - 932,000 - 932,000 - 135,500 - 135,500 - 57,750 - 57,750 - (58,660) - (58,660) - - - - - 525,725 - 525,725 (1,537,206) (1,537,206) - (1,537,206)
Balance, December 31, 2023	118,581,014 $ 22,082,698	$ -	$ 271,657	$ 2,608,547	$ (13,770,501) $ 11,192,401 $ 2,034,686 $ 13,227,087

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

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Midnight Sun Mining Corp. Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars)

For the year- ended December 31,		2023		2022
Operating activities
Loss for the year	$	(1,537,206)	$	(3,179,880)
Items not affecting cash:
Depreciation		37,389		25,632
Accretion on lease liabilities		10,177		3,228
Change in allowance for doubtful accounts		(346,135)		365,016
Share-based payments		525,725		416,051
Unrealized foreign exchange		(1,966)		-
Unrealized gain on investments		-		(175,000)
Interest expense on loans payable		10,000		-
Interest accrued on loans receivable		(2,482)		(66,108)
Changes in non-cash working capital items
Accounts payable and accrued liabilities		(232,622)		282,437
Due to related parties		(35,741)		50,826
Accounts receivable		(19,397)		(5,500)
Advances and deposits		(30,518)		46,054
		(1,622,776)		(2,237,244)
Investing activities
Loan payments received		470,552		40,000
Loans advanced		-		(303,885)
		470,552		(263,885)
Financing activities
Proceeds from private placements		932,000		-
Proceeds from warrant exercises		135,500		-
Proceeds from option exercises		57,750		-
Proceeds from loans payable		113,000		-
Share issuance costs		(58,660)		-
Share subscriptions received		-		5,000
Payments toward lease liabilities		(43,966)		(28,293)
		1,135,624		(23,293)
Net change in cash		(16,600)		(2,524,422)
Cash, beginning ofyear		40,483		2,564,905
Cash, end ofyear	$	23,883	$	40,483
SUPPLEMENTAL NON-CASH DISCLOSURES
Valuation of finders’ warrants included in share issuance costs	$	33,806	$	-
Adjustment to lease liabilities and right of use assets	$	757	$	887
Adjustment of non-controlling interest to deficit	$	-	$	343,423
Fair value of warrants reclassified to reserves on exercise	$	2,710	$	-
Fair value of options reclassified to reserves on exercise	$	27,107	$	-
Additions to lease liabilities and right of use assets	$	390,878	$	-
Loans receivable settled against accounts payable and accrued
liabilities	$	-	$	20,435

No cash was paid for interest or taxes for the years ended December 31, 2023 and 2022.

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

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

1. Nature of Operations

Midnight Sun Mining Corp. (the “Company”) was incorporated on April 11, 2007 pursuant to the Business Corporations Act of British Columbia. The Company’s principal business activity is the acquisition and exploration of mineral property interests. The Company is in the exploration stage and substantially all the Company’s efforts are devoted to financing and exploring these property interests. There has been no determination whether the Company’s interests in unproven exploration and evaluation assets contain economically recoverable mineral resources.

The Company is listed for trading on the TSX Venture Exchange (“TSX-V”) under the symbol “MMA”, and its corporate head office is located at Suite 770, 789 West Pender Street, Vancouver, BC.

2. Basis of Presentation

a) Statement of compliance

These consolidated financial statements, including comparatives, have been prepared in accordance with IFRS Accounting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). The material accounting policies, as disclosed, have been applied consistently to all periods presented in these consolidated financial statements.

These consolidated financial statements were authorized for issuance by the Board of Directors on March 28, 2024.

b) Going concern

These consolidated financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. If the going concern assumption were not appropriate for these consolidated financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, the reported revenues and expenses and the statement of financial position classifications used.

The continuing operations of the Company are dependent upon its ability to continue to raise adequate financing and to commence profitable operations in the future. While the Company has been successful in the past at raising funds, there can be no assurance that it will be able to do so in the future.

During the year ended December 31, 2023, and the year ended December 31, 2022, the Company experienced operating losses before income taxes and negative operating cash flows with the operations of the Company having been primarily funded by the issuance of share capital. The Company expects to incur further losses in the development of its business. These material uncertainties may cast significant doubt about the Company’s ability to continue as a going concern.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

As at December 31, 2023, the Company had an accumulated deficit of $13,770,501 (2022 - $12,233,295) and had a working capital deficiency of $312,381 (2022 – $287,334). Management has estimated that the Company will require additional financing to complete all planned exploration programs. Continued operations are dependent on the Company’s ability to complete public equity financing, secure project debt financing or generate profitable operations in the future.

In the event cash flow from operations, if any, together with the proceeds for any future financings are insufficient to meet the Company’s operating expenses, the Company will be required to reevaluate its planned expenditures and allocate its total resources in such a manner as the Board of Directors and management deem to be in the Company’s best interest. This may result in a substantial reduction of the scope of existing and planned operations.

These consolidated financial statements do not give effect to adjustments, which could be material, to the carrying values and classification of assets and liabilities, which may be required should the Company be unable to continue as a going concern.

There are many external factors that can adversely affect general workforces, economies and financial markets globally. Examples include, but are not limited to, the COVID-19 global pandemic and political conflict in other regions. It is not possible for the Company to predict the duration or magnitude of adverse results of such external factors and their effect on the Company's business or ability to raise funds.

c) Consolidation

These consolidated financial statements include the accounts of the Company and its controlled subsidiaries. Control exists when the Company possess power over an investee, has exposure to variable returns from the investee and the ability to use its power over the investee to affect its returns. All significant inter-company transactions have been eliminated upon consolidation. The Company’s significant subsidiaries are as follows:

	Country of	Effective
	Incorporation	Interest
Midnight Sun Mining Zambia Limited (“MSM Zambia”)	Zambia	100%
Midnight Sun (BVI) One Corp.	BVI	100%
Midnight Sun (BVI) Two Corp.	BVI	100%
Zambian High Light Mining Investment Limited (“ZHLMIL”)	Zambia	84.30%
FAMS MiningZambia Limited(“FAMS”)	Zambia	100%

d) Functional and presentation currency

The Company’s reporting and functional currency is the Canadian dollar. The functional currency of MSM Zambia, Midnight Sun One Co., Midnight Sun Two Co., FAMS, and ZHLMIL is also the Canadian dollar. Monetary assets and liabilities of the Company are translated into Canadian dollars at the exchange rate in effect on the statement of financial position date while nonmonetary assets and liabilities are translated at historical rates, and revenues and expenses are translated at the average rates over the reporting period. Gains and losses from these translations are included in the results from operations.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

e) Basis of measurement

These consolidated financial statements have been prepared on a historical cost basis except for financial instruments classified as financial instruments at fair value through profit or loss, which are stated at their fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting except for cashflow information.

f) Estimates and judgments

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These consolidated financial statements include estimates, which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised, and the revision affects both current and future periods.

Information about critical judgments and estimates in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are as follows:

i. Asset carrying values and impairment charges.

At each reporting period, the Company reviews its non-current assets to determine whether there are any indications of impairment. Calculating the estimated recoverable amount of the cash generating unit for non-current asset impairment tests requires management to make estimates and assumptions with respect to estimated recoverable reserves, estimated future commodity prices, the expected future operating and capital costs and discount rates. Changes in any of these assumptions or estimates used in determining the recoverable amount could impact the impairment analysis.

ii. Recognition of deferred 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 interpretations 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.

iii. Share-based payments

Estimating the fair value of granted stock options requires determining the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected rate of forfeitures and dividend yield and making assumptions about them.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

iv. Provision for environmental rehabilitation

The Company assesses its reclamation provisions at each reporting date. Significant estimates and assumptions are made in determining the provision for environmental rehabilitation as there are numerous factors that will affect the ultimate amount payable. These factors include estimates of the extent, cost, and timing of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rate, and changes in discount rates. These uncertainties may result in future expenditures differing from the amounts currently provided.

v. Functional currency

Management considers the determination of the functional currency of the Company a significant judgment. Management has used its judgment to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions and considered various factors including the currency of historical and future expenditures and the currency in which funds from financing activities are generated. A Company’s functional currency is only changed when there is a material change in the underlying transactions, events, and conditions.

vi. Investments

The fair value of financial instruments that are not traded in an active market is estimated on the basis of the price established in recent transactions involving similar instruments or, in the absence thereof, determined using valuation techniques. The Company uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.

vii. Loans receivable

The Company exercises judgment in identifying impaired loans receivable, the collection of which may be uncertain. In determining whether an impairment loss should be recorded in profit or loss, the Company considers whether there is any observable data indicating that an increase in the credit risk or a decrease in the estimated future cash flows from a loan has occurred. This evidence may include observable data indicating that there has been an adverse change in the payment status and days outstanding.

3. Material Accounting Policies

a) Exploration and evaluation assets

Exploration and evaluation expenditures are recognized in profit or loss. Costs incurred before the Company has obtained legal rights to explore areas of interest are also recognized in profit or loss. Expenditures incurred by the Company in connection with the development of mineral resources after the technical feasibility and commercial viability of extracting a mineral resource are demonstrable are capitalized. Acquisition costs of mineral properties, such as cash and share consideration and option payments, are capitalized on an individual prospect basis. Amounts received for the sale of mineral properties and for option payments are treated as reductions of the cost of the property, with payments in excess of capitalized costs recognized in income.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

The recoverability of the amounts capitalized for the undeveloped mineral properties is dependent upon the determination of economically recoverable ore reserves, confirmation of the Company's interest in the underlying mineral claims, the ability to obtain the necessary financing to complete their development, and future profitable production or proceeds from the disposition thereof.

Subsequent recovery of the resulting carrying value depends on successful development or sale of the mineral property. If a mineral property does not prove viable, all unrecoverable costs associated with the project net of any impairment provisions are written off.

From time to time, the Company may acquire or dispose of properties pursuant to the terms of option agreements. Due to the fact that options are exercisable entirely at the discretion of the optionee, the amounts payable or receivable are not recorded. Option payments are recorded as mineral property costs or recoveries when the payments are made or received.

b) Share capital

Common shares issued are classified as equity. Incremental costs directly attributable to the issuance of common shares are recognized as a deduction from equity. Common shares issued for consideration other than cash are valued based on their market value at the date of the share issuance.

As part of its private placements, the Company has issued warrants and finder’s warrants. Any warrants that expire or are exercised during the year are transferred back to share capital or deficit, if originally determined to have a value. The Company values warrants as part of a private placement offering under the residual value approach. Finder’s warrants are valued using the Black-Scholes option pricing model.

c) Loss per share

The Company computes the dilutive effect of options, warrants and similar instruments on loss per common share from the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the period. For the years presented, this calculation proved to be anti-dilutive. Basic loss per share is calculated using the weighted average number of common shares outstanding during the year.

d) Share-based payments

The Company grants stock options to acquire common shares of the Company to directors, officers, employees, and consultants. An individual is classified as an employee when the individual is an employee for legal or tax purposes or provides services similar to those performed by an employee. The fair value of stock options is measured on the date of grant, using the BlackScholes option pricing model, and is recognized over the vesting period. A corresponding increase in reserves is recorded when stock options are expensed. When stock options are exercised, share capital is credited by the sum of the consideration paid and the related portion of sharebased payments previously recorded in reserves. Consideration paid for the shares on the exercise of stock options is credited to share capital.

Where equity instruments are issued to non-employees and some or all the goods and services received by the Company as consideration cannot be specifically identified, they are measured at the fair value of the share-based payment. Otherwise share-based payments are measured at the fair value of the goods and services received. On expiry or cancellation, the value of stock options remains in reserves.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

e) Income taxes

Income tax on the profit or loss for the years presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regards to previous years.

Deferred tax is recorded using the statement of financial position asset and liability method, providing for temporary differences, between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting or taxable loss; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.

Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability to pay the related dividend. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

f) Provision for environmental rehabilitation

The Company recognizes liabilities for statutory, contractual, constructive, or legal obligations associated with the retirement of exploration and evaluation assets and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. The net present value of future rehabilitation cost estimates arising from the decommissioning of plant and other site preparation work is capitalized to the production assets along with a corresponding increase in the rehabilitation provision in the period incurred. Discount rates using a pre-tax rate that reflect the time value of money are used to calculate the net present value. The rehabilitation asset is amortized on the same basis as mining assets.

The Company’s estimates of reclamation costs could change as a result of changes in regulatory requirements, discount rates and assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly to mining assets with a corresponding entry to the rehabilitation provision. The Company’s estimates are reviewed annually for changes in regulatory requirements, discount rates, effects of inflation and changes in estimates. Changes in the net present value, excluding changes in the Company’s estimates of reclamation costs, are charged to profit and loss for the period.

As at December 31, 2023 and 2022, the Company had no provisions for environmental rehabilitation.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

g) Leases

At inception of a contract, we assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We asses whether the contract involves the use of an identified asset, whether we have the right to obtain substantially all of the economic benefits from use of the asset during the term of the arrangement and if we have the right to direct the use of the asset.

As a lessee, we recognize a right-of-use asset, and a lease liability at the commencement date of a lease. The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability adjusted for any payments made at or before the commencement date, plus any decommissioning and restoration costs, less any lease incentives received.

The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain measurements of the lease liability.

A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the interest rate implicit in the lease, or if that rate cannot be readily determined, the incremental borrowing rate. Lease payments included in the measurement of the lease liability are comprised of:

• fixed payments, including in-substance fixed payments, less any lease incentives receivable;

• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

• amounts expected to be payable under a residual value guarantee;

• exercise prices of purchase options if we are reasonably certain to exercise that option; and

• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if there is a change in our estimate or assessment of the expected amount payable under a residual value guarantee, purchase, extension or termination option. Variable lease payments not included in the initial measurement of the lease liability are charged directly to profit.

h) Financial Instruments

Financial assets

The Company classified its financial assets in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (“FVTOCI”), or at amortized cost. The determination of the classification of financial assets is made at initial recognition. Equity instruments that are held for trading (including all equity derivative instruments) are classified as FVTPL; for other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. The Company’s accounting policy for each of the categories is as follows:

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

Financial assets at FVTPL: Financial assets carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statement of operations and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of financial assets held at FVTPL are included in the statement of operations and comprehensive loss in the period.

Financial assets at FVTOCI: Financial assets carried at FVTOCI are recorded at fair value and transaction costs are expensed in the statement of operations and comprehensive loss. Realized and unrealized gains and losses arising from changes in fair value of the financial assets held at FVTOCI are included in other comprehensive (loss) income in the period.

Financial assets at FVTOCI: Investments in equity instruments at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently they are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive (loss) income as the investments arise.

Financial assets at amortized cost: A financial asset is measured at amortized cost if the objective of the business model is to hold the financial asset for the collection of contractual cash flows, and the asset’s contractual cash flows are comprised solely of payments of principal and interest. They are classified as current assets or non-current assets based on their maturity date and are initially recognized at fair value and subsequently carried at amortized cost less any impairment.

Impairment of financial assets at amortized cost: The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost.

The following table shows the classification of the Company’s financial assets under IFRS 9:

Financial asset	IFRS 9 Classification
Cash	Amortized cost
Advances and deposits	Amortized cost
Investments	FVTPL
Loans receivable	Amortized cost
Receivables	Amortized cost

Financial liabilities

The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was incurred. The Company's accounting policy for each category is as follows:

Fair value through profit or loss – This category comprises derivatives or liabilities acquired or incurred principally for the purpose of selling or repurchasing in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized in the statement of operations and comprehensive loss.

Other financial liabilities - This category includes accounts payable and accrued liabilities which are recognized at amortized cost using the effective interest method.

Transaction costs in respect of financial instruments at fair value through profit or loss are recognized in the statement of operations and comprehensive loss immediately, while transaction costs associated with all other financial instruments are included in the initial measurement of the financial instrument.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

The following table shows the classification of the Company’s financial liabilities under IFRS 9:

Financial liability	IFRS 9 Classification
Accounts payable and accrued liabilities	Other financial liabilities
Due to related parties	Other financial liabilities
Loans payable	Other financial liabilities

i) New and amended IFRS standards that are effective in the current year

In the current year, the Company has applied the below amendment to IFRS Standards and Interpretations issued by the IASB that was effective for annual periods that begin on or after January 1, 2023.

Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgments—Disclosure of Accounting Policies

The amendments change the requirements in IAS 1 with regard to disclosure of accounting policies. The amendments replace all instances of the term "significant accounting policies" with "material accounting policy information." Accounting policy information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements.

The supporting paragraphs in IAS 1 are also amended to clarify that accounting policy information that relates to immaterial transactions, other events or conditions is immaterial and need not be disclosed.

Accounting policy information may be material because of the nature of the related transactions, other events or conditions, even if the amounts are immaterial. However, not all accounting policy information relating to material transactions, other events or conditions is itself material. The International Accounting Standards Board ("IASB") has also developed guidance and examples to explain and demonstrate the application of the ‘four-step materiality process’ described in IFRS Practice Statement 2.

The amendment was applied effective January 1, 2023 and did not have a material impact on the Company's financial statements.

4. Management of Financial Risk

Fair value measurement disclosure includes classification of financial instrument fair values in a hierarchy comprising three levels reflecting the significance of the inputs used in making the measurements, described as follows:

Level 1: Valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Valuations based on directly or indirectly observable inputs in active markets for similar assets or liabilities, other than Level 1 prices such as quoted interest or currency exchange rates; and

Level 3: Valuations based on significant inputs that are not derived from observable market data, such as discounted cash flow methodologies based on internal cash flow forecasts.

The Company has designated its investments at level 2 (Note 10).

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

The Company’s financial instruments are exposed to certain financial risks. The risk exposures and the impact on the Company’s financial instruments are summarized as follows.

a) Fair value

The carrying value of receivables, loan receivable, short-term investments, accounts payable and accrued liabilities, loan payable, and amounts due to related parties approximated their fair value because of the short-term nature of these instruments.

b) Interest rate risk

The Company has non-material exposure at December 31, 2023 and December 31, 2022, to interest rate risk through its financial instruments.

c) Currency risk

Throughout the year ended December 31, 2023, and the year ended December 31, 2022, the majority of the Company’s cash was held in Canadian dollars, the Company’s functional and reporting currency. The Company is exposed to currency risk due to accounts payable denominated in US Dollars. A 1% change in the foreign exchange rate between the Canadian and US Dollar would not result in a material fluctuation in the loss for the period.

d) Credit risk

The Company has some cash balances and no interest-bearing debt. The Company’s current policy is to invest excess cash in investment-grade short-term deposit certificates issued by Canadian financial institutions with which it keeps its bank accounts and management believes the risk of loss to be remote. The Company also has $12,112 held with a major financial institution in Zambia. Management believes the risk of loss to be remote.

Receivables consist of goods and services tax due from the Government of Canada in the amount of $18,614 and receivables from related companies of $12,600 for rent payments. The Company considers credit risk associated with these amounts to be low.

e) Liquidity risk

The Company attempts to manage liquidity risk by maintaining sufficient cash balances. Liquidity requirements are managed based on expected cash flows to ensure that there is sufficient capital in order to meet short-term obligations. As at December 31, 2023, the Company had $23,883 cash (2022 – $40,483) and current liabilities of $254,054 (2022 - $478,661).

f) Price risk

The Company is exposed to price risk with respect to commodity prices. The Company closely monitors commodity prices to determine the appropriate course of action to be taken by the Company.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

5. Right-of-Use Asset

Cost
Balance, December 31, 2021	$	50,200
Adjustment to lease liabilities (note 7)		887
Balance, December 31, 2022		51,087
Adjustment to lease liabilities (note 7)		757
Termination of lease liabilities (note 7)		(51,844)
Additions to lease liabilities (note 7)		390,878
Balance, December 31, 2023	$	390,878
Accumulated Depreciation
Balance, December 31, 2021	$	8,366
Depreciation		25,632
Balance, December 31, 2022		33,998
Depreciation		37,389
Termination of lease liabilities (note 7)		(51,844)
Balance, December 31, 2023	$	19,543
Carrying Values
December 31, 2022	$	17,089
December 31, 2023	$	371,335

6. Exploration and Evaluation Assets

							Solwezi
Balance, December	31	2021,	2022	and	2023	$	12,957,223

Solwezi property

Pursuant to an option agreement, the Company acquired a 60% interest in two Zambian mineral property licences (the “Solwezi Licenses”) during the year ended December 31, 2019. The licenses are held by a Zambian registered company, ZHLMIL, of which Midnight Sun acquired an initial 60% shareholding from Kam Chuen who retained the remaining 40%. The Company holds its interest in ZHLMIL through the Company’s wholly owned subsidiary, Midnight Sun (BVI) Two Corp. The share transfer from Kam Chuen to Midnight Sun (BVI) Two Corp. occurred on October 20, 2019 and was registered in Zambia with the Patents and Companies Registration Agency. The acquisition was accounted for as an asset acquisition.

On March 1, 2017, the Acting Chief Registrar of Mining Rights issued the license 21509-HQ-LEL which will be in effect for a period of 4 years with the option for future renewals providing the license is maintained in accordance with the contained terms and the Mines and Minerals Development Act, 2015 . On February 28, 2021, license 21509-HQ-LEL was renewed for a further 3 year period and subsequent to December 31, 2023, the Company applied for an extension on 21509-HQ-LEL. In renewing the claim in February 2021, the Company was required to relinquish 50% of the license area. The relinquished 50% was granted to Rio Tinto Exploration Zambia Limited as license 28816-HQ-LEL and is held on behalf of the Company as per the terms of the Earn-In and Joint Venture Agreement between Rio Tinto Mining and Exploration Limited (“Rio Tinto”) and Midnight Sun. Following the termination of the Earn-In agreement with Rio Tinto, Rio Tinto is required to transfer license 28816-HQ-LEL to the Company. Rio Tinto currently holds 28816-HQ-LEL in trust for the Company.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

On November 30, 2018, the Zambian Mining Cadastre issued a renewal of prospecting license 12124-HQ-LPL as large-scale exploration license, 12124-HQ-LEL, having an expiration date of December 23, 2021. This renewal was the final renewal period available to ZHLMIL. In accordance with the Mines and Minerals Development Act, 2015, for a period of 12 months, ZHLMIL is precluded from owning the same license area which expired. In order to preserve the license area, Rio Tinto formed a new corporation, Solwezi Metals Exploration Ltd., to apply for a new License over the same area. The relationship between Solwezi Metals Exploration Ltd. and Midnight Sun is governed by the terms of the Earn-In and Joint Venture Agreement between Rio Tinto and Midnight Sun. Solwezi Metals Exploration Ltd.’s application was accepted by the Zambian Mining Cadastre on November 23, 2021, and licence 30678-HQ-LEL was granted on March 27, 2023. Swolezi Metal Exploration Ltd. currently holds 30678-HQ-LEL in trust for the Company.

On September 22, 2020, the Company increased its ownership share in ZHLMIL to 80.65% by participating in an issuance of 16,022 ZHLMIL ordinary shares at a price of $618.52 with a total value of $9,909,927. Of the total subscription, 5,756 ZHLMIL ordinary shares were fully paid up based on previous expenditures incurred by the Company in the amount of $3,560,020. The remaining 10,266 ZHLMIL ordinary shares in the amount of $6,349,726 were fully paid up by way of exploration expenditures made on behalf of ZHLMIL by the Company or the Company’s former earn-in partner, Rio Tinto during the year ended December 31, 2020. On the acquisition of the additional 20.65% interest in the ZHLMIL, the Company recognized a decrease to the noncontrolling interest of $2,676,818 with a corresponding reduction in deficit.

On December 7, 2022, the Company increased its ownership share in ZHLMIL to 84.30% by participating in an issuance of 7,187 ZHLMIL ordinary shares at a price of $618.52 with a total value of $4,445,303. The remaining ordinary shares in the amount were fully paid up by way of exploration expenditures made on behalf of ZHLMIL by the Company or the Company’s earn-in partner, Rio Tinto. On the acquisition of the additional 3.64% interest in the ZHLMIL, the Company recognized a decrease to the non-controlling interest of $471,385 with a corresponding reduction in deficit.

As at December 31, 2023, the only asset held by ZHLMIL is the Solwezi exploration and evaluation asset. There were no operations within ZHLMIL for the year ended December 31, 2023, and accordingly no loss attributed to the NCI.

As at December 31, 2023, and December 31, 2022, the Company had funded the following cumulative exploration expenditures on the Solwezi Licenses:

		December 31,		December 31,
		2023		2022
Site and project expenditures:
Acquisition costs	$	12,957,223	$	12,957,223
Assays		340,681		334,763
Drilling		4,029,417		3,995,275
Field expenses		1,341,175		1,318,977
General and administrative		960,558		907,686
Geological consulting		1,811,195		1,676,760
License		268,870		268,870
Travel and accommodation		789,320		759,518
Total operations funded	$	22,498,439	$	22,219,072

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

The following table presents the Company’s exploration expenditures on the Solwezi Licenses for the year ended December 31, 2023, and 2022:

		December 31,		December 31,
		2023		2022
Site and project expenditures:
Assays	$	5,918	$	8,644
Drilling		34,142		951,949
Field expenses		22,198		106,705
General and administrative		52,872		36,268
Geological consulting		134,435		489,154
Licences		-		8,401
Travel & accommodation		29,802		49,813
Exploration expenses	$	279,367	$	1,650,934

7. Lease Liabilities

During the year ended December 31, 2021, the Company renewed its office lease for a term of 24 months from September 1, 2021, with expected total payments of $55,626. Using an annual discount rate of 10%, the Company recognized a lease liability and corresponding right-of-use asset (note 4) of $50,200 during the year ended December 31, 2021. During the year ended December 31, 2023, because of an amendment to the lease payment schedule, the Company recognized an adjustment to lease liabilities and right-of-use asset (note 5) of $757 (2022 - $887). During the year ended December 31, 2023, the lease term expired and was not renewed by the Company.

During the year end ended December 31, 2023, the Company entered into a new office lease for a term of five years from October 1, 2023, with expected total payments of $496,018. Using an annual discount rate of 10%, the Company recognized a lease liability and corresponding rightof-use asset (note 5) of $390,878.

The following is a reconciliation of the changes in the lease liabilities for year ended December 31, 2023, and year ended December 31, 2022.

		December 31,		December 31,
		2023		2022
Opening Balance	$	18,429	$	42,607
Adjustment		757		887
Additions to lease liabilities		390,878		-
Payments		(43,966)		(28,293)
Lease accretion		10,177		3,228
		376,275		18,429
Lease liabilities, current portion		(62,185)		(18,429)
Lease liabilities, non-current portion	$	314,090	$	-

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

The following summarizes the undiscounted minimum lease payments under the lease liabilities:

Fiscal Year		Payment
2024	$	96,212
2025		97,147
2026		99,952
2027		100,887
2028		77,766
Amount representing future lease accretion		(95,689)
Lease liabilities	$	376,275

8. Loans Payable

CEBA loan

As part of the Government of Canada’s response to the COVID-19 global pandemic, certain businesses are eligible to apply for the Canada Emergency Business Account (the “CEBA”). The CEBA provides companies with a $40,000 interest free loan to be used to cover non-deferrable operating expenses during the period where operations had been temporarily reduced due to the economic impacts of the COVID-19 virus. During the year ended December 31, 2020, the Company applied for the CEBA and received the $40,000 loan. The CEBA remains interest free until January 18, 2024, and has no fixed repayment schedule. If $30,000 is repaid on or before January 18, 2024, the remaining $10,000 will be forgiven. If, at January 18, 2024, any amount remains unpaid, the Company will enter into an extension agreement whereby it will accrue interest at a rate of 5% per annum, with a repayment schedule to be determined at that time. Subsequent to December 31, 2023, the Company repaid $30,000 and the remaining $10,000 loan was forgiven.

Promissory note

During the year ended December 31, 2023, the Company issued a promissory note to an arm’slength party in the amount of $100,000. The note is unsecured, matures on June 4, 2024, and bears interest of $10,000, recognizable immediately. During the year ended December 31, 2023, the Company recognized $10,000 (2022 - $nil) in interest expense. If not repaid by maturity, a penalty of $10,000 will be applied to the loan balance.

Related party loans

During the year ended December 31, 2023, the Company received an aggregate of $13,000 in unsecured loans from two officers of the Company (note 10). The loans are non-interest bearing and are repayable on demand. Subsequent to the year ended December 31, 2023, the Company received additional $73,750 from the two officers under the same terms.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

A reconciliation of loans payable for the years ended December 31, 2023 and 2022 is as follows:

		December 31,		December 31,
		2023		2022
Opening balance	$	40,000	$	40,000
Additions		113,000		-
Interest accrued		10,000		-
		163,000		40,000
Current portion of loans payable		(163,000)		-
Non-current portion of loans payable	$	-	$	40,000

9. Share Capital and Reserves

a) Authorised

Unlimited number of common shares authorised, without par value.

b) Share issuances

At December 31, 2023, the Company had 118,581,014 common shares (2022 – 113,004,014) issued and outstanding.

2023 share issuances

During the year ended December 31, 2023, the Company closed a non-brokered private placement by issuing 4,685,000 common share units at a price of $0.20 per unit for gross proceeds of $937,000, of which $5,000 had been received at December 31, 2022. Each unit consist of one common share and one common share purchase warrant exercisable for a period of two years at a price of $0.30 per common share. In connection with the offering, the Company paid finder’s fees of $58,660 and issued 292,800 finder’s warrants exercisable for a period of two years at a price of $0.30 per common share. The finder’s warrants were valued at $33,806 using the following Black-Scholes assumptions: risk-free rate of 4.03%, expected life of 2 years, and volatility of 92.74%.

2022 share issuances

There were no share issuances during the year ended December 31, 2022.

c) Stock options

The Company has a stock option plan (the “Plan”) whereby the maximum number of shares reserved for issue under the plan shall not exceed 10% of the outstanding common shares of the Company, as at the date of the grant. Options granted must be exercised no later than five years from the date of grant or such lesser period as determined by the Company’s Board of Directors. The exercise price of an option may not be less than the closing price on the TSX-V on the last trading day preceding the grant date. Options granted to directors, officers, employees, and consultants vest upon grant. Options granted in relation to investor relation services vest in equal quarterly intervals over a term of 12 months.

Stock options outstanding and exercisable are summarized as follows:

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

	Number of		Weighted
	stock options		average
	outstanding		exercise price
Balance, December 31, 2021	6,100,000	$	0.27
Granted	3,650,000		0.17
Expired/Cancelled	(1,925,000)		0.31
Balance, December 31, 2022	7,825,000		0.21
Granted	3,300,000		0.21
Exercised	(350,000)		0.165
Expired/Cancelled	(2,050,000)		0.35
Balance, December 31, 2023	8,725,000	$	0.18
Exercisable, December 31, 2023	8,725,000	$	0.18

During the year ended December 31, 2023, the Company granted 3,300,000 stock options (2022 – 3,650,000) with a weighted average fair value of $0.16 (2022 - $0.12) per option. Total sharebased payments recognized for the year ended December 31, 2023, was $525,725 (2022 - $416,051) for incentive options granted and vested. The fair value of options at the date of grant was estimated using the Black-Scholes Option Pricing Model using the following weighted average assumptions:

		December 31,		December 31,
		2023		2022
Weighted average share price on date of grant	$	0.210	$	0.165
Risk-free interest rate		3.19%		2.94%
Expected life of option		5 years		4.62 years
Expected annualized volatility		98.12%		95.15%
Expected dividend rate		0%		0%

At December 31, 2023, the Company has the following stock options outstanding:

Expiry date Exercise price	Number of stock options outstanding Weighted average years to expiry
May 6, 20251 $ 0.135 April 28, 2026 $ 0.31 August 12, 20272 $ 0.165 March 10, 20283 $ 0.21	2,025,000 1.35 200,000 2.33 3,200,000 3.62 3,300,000 4.19
	8,725,000 3.28

1. Subsequent to December 31, 2023, 100,000 of these options were exercised for proceeds of $13,500.

2. Subsequent to December 31, 2023, 42,000 of these options were exercised for proceeds of $6,930.

3. Subsequent to December 31, 2023, 850,000 of these options were exercised for proceeds of $178,500.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

d) Warrants

Share purchase warrants outstanding and exercisable are summarized as follows:

			Weighted
	Warrants		average
	outstanding		exercise price
Balance, December 31, 2021	14,137,809	$	0.35
Expired	(419,090)		0.25
Balance, December 31, 2022	13,718,719		0.36
Granted	4,977,800		0.30
Exercised	(542,000)		0.25
Expired	(7,557,005)		0.26
Balance, December 31, 2023	10,597,514	$	0.41

As at December 31, 2023, the Company had the following warrants outstanding:

Expiry date Exercise price	Number of warrants outstanding Weighted average years to expiry
July 2, 2024(1) $ 0.50 January 5, 2025 $ 0.30	5,619,714 0.50 4,977,800 1.02
	10,597,514 0.74

(1) During the year ended December 31, 2023, the life of these warrants was extended from July 2, 2023 to July 2, 2024. There was no additional value associated with this extension.

10. Related Party Transactions and Key Management Compensation

The Company’s related parties at December 31, 2023, consist of 8 officers and directors (and their related companies), as follows:

Name of Related Party	Position	Nature of transaction
Allan J. Fabbro	Director & CEO	Director
Fengjie Huang	Director (Zambian subsidiary)	Management services
Mathew Mackenzie	Secretary	Corporate secretary
Richard J. Mazur	Director	Director
Wayne Moorhouse	Director	Director
Brett Richards /
Richards Enterprises Inc.	Director	Director
Robert A. Sibthorpe / 069426 BC Ltd	VP Exploration & Director	Management services
Alastair Brownlow / Red Fern
Consulting Ltd.	CFO	Management services

Compensation paid or accrued to key management and/or their related companies during the year ended December 31, 2023, and 2022 was as follows:

Nature of expenditure		December 31,		December 31,
		2023		2022
Wages and benefits	$	314,000	$	349,000
Consulting Fees		136,249		109,779
Share-based payments		392,989		321,311
	$	843,238	$	780,090

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

Key management consists of those individuals having authority and responsibility for, directly or indirectly, planning, directing, and controlling the activities of the Company.

As at December 31, 2023, $81,383 (2022 - $122,124) is due to officers, directors, or companies with a director in common for cash advances, unpaid geological consulting fees, unpaid wages and bonuses and unpaid expenses. As at December 31, 2023, $nil (2022 - $5,000) advanced to directors was included within advances and deposits.

During the year ended December 31, 2023, the Company charged rent of $18,000 (2022 - $nil) to two companies related by common directors and officers. As at December 31, 2023, $12,600 (2022 - $nil) is included within receivables from related parties.

Investments

During the year ended December 31, 2020, the Company purchased 2,500,000 common shares of Red Sea Resources Ltd. (“Red Sea”) at a price of $0.01 per common share for a total of $25,000. Red Sea, a private company, has common officers and directors as the Company and is in the process of identifying and acquiring exploration and evaluation properties in Egypt. During the year ended December 31, 2020, the Company was granted an additional 800,000 common shares of Red Sea valued at $0.05 per share for a total of 40,000 as a financing fee on the issuance of a USD $650,000 loan. During the year ended December 31, 2021, the Company was granted an additional 200,000 common shares of Red Sea, valued at $0.10 per common share on the advance of an additional USD $100,000 loan.

As at December 31, 2023, the investments were valued at $0.15 (2022 - $0.15) per common share for a total value of $525,000 (2022 - $525,000), based on the valuation of recently closed private placements by Red Sea.

Loans and Debenture Receivable

During the year ended December 31, 2020, the Company issued a promissory note to Red Sea in the amount of USD 650,000 without interest, payable on demand. During the year ended December 31, 2021, the Company extended an additional USD 108,990 to Red Sea, resulting in a total loan of USD 758,990 outstanding ($962,248).

During the year ended December 31, 2022, the Company entered into an agreement whereby it increased the amount advanced to $1,331,129 and renegotiated the instrument as a convertible debenture denominated in Canadian dollars, maturing on January 11, 2023, and convertible at $0.15 per common share. The convertible debenture includes interest of $63,030 owing at the time of repayment. During the year ended December 31, 2023, the Company recognized interest income of $1,900 (2022 - $61,130).

As at December 31, 2023, the Company had taken an allowance for doubtful accounts of $981,129 (2022 - $1,327,264) on the Red Sea loans. During the year ended December 31, 2023, a total of $350,000 (2022 - $nil) was repaid on the loans and reversed against the allowance for doubtful accounts. For the year ended December 31, 2023, a recovery of $346,135 (2022 - $nil) was recognized to allowance for doubtful accounts. As at December 31, 2023, a total of $981,129 (December 31, 2023 - $1,327,264) was owing.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

During the year ended December 31, 2021, the Company issued loans to officers of the Company in the amount of $173,333. The loans are unsecured, bear interest at 3% per annum, and mature on February 9, 2022. During the year ended December 31, 2022, the Company entered into an amending agreement to extend the maturity of these loans to December 31, 2022. During the year ended December 31, 2023, the Company recognized interest income of $582 (2022 - $ 4,978) on the loans. During the year ended December 31, 2023, repayments of $120,552 (2022- $60,435) were made on the loans.

A reconciliation of the Company’s loans and debentures receivable as at December 31, 2023, and December 31, 2022:

		December 31,		December 31,
		2023		2022
Opening balance	$	119,969	$	175,427
Additions		-		303,885
Interest accrued		2,482		66,108
Repayments		(470,552)		(60,435)
Change in allowance for doubtful accounts		346,135		(365,016)
Foreign exchange		1,966		-
	$	-	$	119,969

Loans payable

During the year ended December 31, 2023, the Company received an aggregate of $13,000 in unsecured loans from two officers of the Company. The loans are non-interest bearing and are repayable on demand (note 8). Subsequent to the year ended December 31, 2023, the Company received additional $73,750 from the two officers under the same terms.

11. Segmented Information

The Company has one reportable operating segment, being the acquisition and exploration of mineral properties. As at December 31, 2023, the Company’s exploration and evaluation assets are located in Zambia, Africa and the Company’s right-of-use assets are located in Canada.

12. Capital Management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the acquisition and exploration of its exploration and evaluation assets and to maintain a flexible capital structure for its projects for the benefit of its stakeholders. As the Company is in the exploration stage, its principal source of funds is from the issuance of common shares. Further information relating to liquidity risk is disclosed in note 4.

In the management of capital, the Company includes the components of shareholders’ equity. The Company manages the capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may issue new shares, enter into joint venture property arrangements, acquire or dispose of assets or adjust the amount of cash and cash equivalents and investments. In order to facilitate the management of its capital requirements, the Company prepares budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The budgets are approved by the Board of Directors. The Company is not subject to any externally imposed capital requirements and does not

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

presently utilize any quantitative measures to monitor its capital. There was no change to the Company’s capital management approach during the year ended December 31, 2023.

13. Commitments and Contingencies

During the year ended December 31, 2022, the Company’s Joint Venture Partners brought an action in Zambia objecting to the Earn-In Agreement, on the basis that the Company has acted in a manner oppressive to the Joint Venture Partner’s interest in ZHLMIL. The Company is of the view that the action is without merit and is vigorously defending the action and accordingly, no provision has been recorded in relation to the legal proceedings.

14. Income Taxes

A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

Year ended December 31, 2023 2022	Year ended December 31, 2023 2022
Loss for the year $ (1,537,206)	$ (3,179,880)
Expected income tax (recovery) $ (415,000) Change in statutory, foreign tax, foreign exchange rates and other (9,000) Permanent difference 95,000 Share issue cost (16,000) Change in unrecognized deductible temporary differences 345,000	$ (859,000) (42,000) 135,000 - 766,000
Total income tax expense $ -	$ -

The significant components of the Company’s unrecognized temporary difference and tax losses are as follows:

		December 31,		December 31,	Expiry
		2023		2022	Range
Temporary Differences
Share issue costs	$	91,000	$	73,000	2041-2045
Exploration and evaluation assets	$	6,035,000	$	5,768,000	N/A
Non-capital losses available for
future periods	$	7,639,000	$	6,511,000	2026-2043

Tax attributes are subject to review, and potential adjustment, by tax authorities. The Company’s non-capital losses are predominantly in Canada. Comparative figures for the year ended December 31, 2022, have been amended to reflect the restatements as per Note 15.

15. Prior Year Restatement

During the year ended December 31, 2023, management determined that there was an error pertaining to exploration and evaluation assets, non-controlling interest, and deficit. This was related to the to the acquisition of the Company’s initial 60% holding in ZHLMIL and the subsequent increases in its ownership share. The Company had originally accounted for the acquisition of ZHLMIL under IFRS 6, Exploration and Evaluation assets, when the Company was acquiring a separate entity, pursuant to other IFRS guidance. The comparatives of the Company for the year ended December 31, 2022 and January 1, 2022 have therefore been restated. There were no changes to the statement of profit or loss and statement of cash flows for the year ended December 31, 2022.

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

The change resulted in the following changes to the Company’s consolidated financial statements:

Consolidated Statement of Financial Position as at January 1, 2022:

	As previously		Effect of
	reported		restatement		As restated
Exploration and evaluation assets	$ 9,961,348	$	2,995,875	$	12,957,223
Total assets	$ 13,164,943	$	2,995,875	$	16,160,818
Deficit	$ (15,914,633)	$	6,389,833	$	(9,524,800)
Non-controlling interest	$ 5,900,029	$	(3,393,958)	$	2,506,071
Total shareholders’ equity	$ 12,934,932	$	2,995,875	$	15,930,807
Total liabilities and shareholders’equity	$ 13,164,943	$	2,995,875	$	16,160,818

Consolidated Statement of Financial Position as at December 31, 2022:

	As previously		Effect of
	reported		restatement		As restated
Exploration and evaluation assets	$ 9,961,348	$	2,995,875	$	12,957,223
Total assets	$ 10,694,764	$	2,995,875	$	13,690,639
Deficit	$ (18,751,090)	$	6,517,795	$	(12,233,295)
Non-controlling interest	$ 5,556,606	$	(3,521,920)	$	2,034,686
Total shareholders’ equity	$ 10,176,103	$	2,995,875	$	13,171,978
Total liabilities and shareholders’equity	$ 10,694,764	$	2,995,875	$	13,690,639

Consolidated Statement of Equity for the year ended December 31, 2022:

	As previously		Effect of
	reported		restatement		As restated
Deficit as at December 31, 2021	$ (15,914,633)	$	6,389,833	$	(9,524,800)
Adjustment to NCI	$ 343,423	$	127,962	$	471,385
Loss and comprehensive loss for the year	$ (3,179,880)	$	-	$	(3,179,880)
Deficit as at December 31, 2022	$ (18,751,090)	$	6,517,795	$	(12,233,295)
NCI as at December 31, 2021	$ 5,900,029	$	(3,393,958)	$	2,506,071
Adjustment to NCI	$ (343,423)	$	(127,962)	$	(471,385)
NCI as at December 31, 2022	$ 5,556,606	$	(3,521,920)	$	(2,034,686)
Total shareholders’ equity as at
December 31, 2021	$ 12,934,932	$	2,995,875	$	15,930,807
Total shareholders’ equity as at
December 31, 2022	$ 10,176,103	$	2,995,875	$	13,171,978

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Midnight Sun Mining Corp. Notes to the Consolidated Financial Statements December 31, 2023 (Expressed in Canadian dollars)

16. Subsequent Event

Subsequent to the year ended December 31, 2023, the Company entered into an earn-in agreement (the “Agreement”) with KoBold Metals Company (“KoBold”), whereby KoBold can earn a 75% interest in specific areas (the “Dumbwa Target”) within its mineral license 30678-HQ-LEL by incurring US$15,000,000 in exploration expenditures and making cumulative cash payments to the Company of US$500,000 over 4.5 years.

To complete the earn-in requirements, KoBold must complete the following:

• By year 1 anniversary of the Agreement– Completion of a minimum of 2,000 metres of diamond core drilling;

• By year 2 anniversary of the Agreement – USD$4,000,000 of cumulative exploration expenditures;

• Year 3 anniversary of the Agreement – USD$7,000,000 of cumulative exploration expenditures; and;

• Year 4.5 anniversary of the Agreement – USD$15,000,000 of cumulative exploration expenditures.

In addition to these expenditure requirements, KoBold must pay the Company cash payments on the following schedule to maintain the Earn-In Agreement:

• On commencement of the earn-in - USD $100,000

• Year 1 anniversary of the Agreement - USD $100,000

• Year 2 anniversary of the Agreement - USD $100,000

• Year 3 anniversary of the Agreement - USD $100,000

• • Year 4 anniversary of the Agreement - USD $100,000

Commencement of the earn-in is subject to a number of conditions, including the reassignment of the license within which the Dumbwa Target is located to the Company’s subsidiary. The Agreement provides that if the conditions are not satisfied by June 1, 2024, the Agreement will terminate. KoBold has the right to extend the outside date by up to six months, in KoBold’s sole discretion. As at the date of these financials commencement of the earn-in has not been completed.

Upon completion of the obligations under the Earn-In Agreement by KoBold, the parties will form a separate company (the “JV Co”), to be held initially by KoBold and the Company (or their Zambian subsidiaries) as to 75% and 25% respectively. The parties to the JV Co will be subject to the terms of a Shareholder’s Agreement, a copy of which is included as an appendix to the Earn-In Agreement. The parties have agreed that the Dumbwa Target will be separated from the Company’s existing license into a new license, and assigned to JV Co.

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