Midnight Sun Mining Corp. — Interim / Quarterly Report 2020

Jun 1, 2020

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Midnight Sun Mining Corp.

Condensed Consolidated Interim Financial Statements For the three-month periods ended March 31, 2020 and 2019

(Expressed in Canadian Dollars) (Unaudited)

Notice of No Review of Condensed Consolidated Interim Financial Statements

Under National Instrument 51-102, Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the condensed consolidated interim financial statements; they must be accompanied by a notice indicating that the condensed consolidated interim financial statements have not been reviewed by an auditor.

The accompanying condensed consolidated interim financial statements of the Company have been prepared by and are the responsibility of the Company’s management.

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

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Midnight Sun Mining Corp.

Condensed Consolidated Interim Statements of Financial Position (Expressed in Canadian Dollars) (Unaudited)

(Expressed in Canadian Dollars) (Unaudited)
		March 31, 2020		December 31,
As At				2018
ASSETS
Current
Cash	$	23,053	$	6,969
Advances and deposits		18,239		21,598
Receivables		82,746		76,743
		124,038		105,310
Right-of-Use Asset(note 4)		33,150		39,000
Exploration and evaluation assets(note 5)		18,797,499		18,790,702
Total Assets	$	18,954,687	$	18,935,012
LIABILITIES and SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities	$	554,333	$	467,543
Lease liabilities (note 6)		24,428		23,827
Due to related parties (note 8)		123,401		124,589
		702,162		615,959
Lease liabilities– non-current portion(note 6)		10,918		17,256
Total Liabilities		713,080		633,215
Shareholders’ Equity
Share capital		16,617,704		16,617,704
Reserves – options (note 7)		1,358,606		1,358,606
Reserves – warrants (note 7)		121,928		121,928
Subscriptions receivable (note 7)		(33,500)		(54,000)
Deficit		(7,310,203)		(7,229,513)
		10,754,535		10,814,725
Non-controlling interest (note 5)		7,487,072		7,487,072
Total Shareholders’ Equity		18,241,607		18,301,797
Total Liabilities and Shareholders’ Equity	$	18,954,687	$	18,935,012
Nature of operations (note 1)
Basis of presentation (note 2)
Events after reporting date (note 11)

Approved and authorized by the Board of Directors on June 1, 2020:

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

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

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Midnight Sun Mining Corp.

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

(Expressed in Canadian Dollars) (Unaudited)
	For	the three	months ended
		March 31,
		2020		2019
Expenses
Accounting and audit fees	$	12,763	$	8,728
Accretion on lease liabilities (note 6)		924		-
Consulting fees (note 8)		12,104		-
Depreciation expense (note 4)		5,850		-
Foreign exchange loss		7,835		4,704
Investor and shareholder relations		9,131		14,248
Legal fees		5,726		5,503
Office services and miscellaneous		13,302		23,028
Regulatory and transfer agent fees		6,815		8,863
Share-based payments (note 7)		-		1,224
Wages and benefits (note 8)		6,240		14,548
Loss and comprehensive loss for the year		(80,690)		(80,846)
Loss attributable to:
Owners of the parent		(80,690)		(80,846)
Non-controlling interest		-		-
	$	(80,690)	$	(80,846)
Loss per share–basic and diluted	$	(0.00)	$	(0.00)
Weighted average number of common shares outstanding–basic and diluted	91,551,781		88,778,447

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

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Midnight Sun Mining Corp.

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

(Unaudited)

				Share							Non-	Total
			subscriptions			Reserves –	Reserves –				controlling	shareholders
	Shares	Amount		receivable		warrants	options	Deficit	Total		interest	’equity
Balance, December 31, 2018	88,778,447	$ 16,317,898	$	-	$	94,194	$ 1,327,167	$ (6,872,515)	$ 10,866,744	$	-	$ 10,866,744
Share-based payments	-	-		-		-	1,224	-	1,224		-	1,224
Loss for the year	-	-		-		-	-	(80,846)	(80,846)		-	(80,846)
Balance, March 31, 2019	88,778,447	16,317,898		-		94,194	1,328,391	(6,953,361)	10,787,122		-	10,787,122
Shares issued for private placement
	2,773,334	305,066		(54,000)		27,734	-	-	278,800		-	278,800
Share issuance costs	-	(5,260)		-		-	-	-	(5,260)		-	(5,260)
Share-based payments	-	-		-		-	30,215	-	30,215		-	30,215
Non-controlling interest in Zambian High Light Mining
Investment Limited	-	-		-		-	-	-	-		7,487,072	7,487,072
Loss for the year	-	-		-		-	-	(276,152)	(276,152)		-	(276,152)
Balance, December 31, 2019	91,551,781	16,617,704		(54,000)		121,928	1,358,606	(7,229,513)	10,814,725		7,487,072	18,301,797
Share subscriptions received	-	-		20,500		-	-	-	20,500		-	20,500
Loss for the year	-	-		-		-	-	(80,690)	(80,690)		-	(80,690)
Balance, March 31, 2020	91,551,781	$ 16,617,704	$	(33,500)	$	121,928	$ 1,358,606	$ (7,310,203)	$ 10,754,535	$	7,487,072	$ 18,241,607

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

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Condensed Consolidated Interim Statements of Cash Flows (Expressed in Canadian Dollars) (Unaudited)

Midnight Sun Mining Corp.

For the three months ended March 31,		2020		2019
Operating activities
Loss for the year	$	(80,690)	$	(80,846)
Items not affecting cash:
Depreciation		5,850		-
Accretion on lease liabilities		924		-
Share-based payments		-		1,224
Changes in non-cash working capital items
Accounts payable and accrued liabilities		(1,472)		229,076
Due to related parties		3,359		8,734
Accounts receivable		(1,188)		-
Advances and deposits		84,249		23,209
		11,032		181,397
Investing activities
Exploration and evaluation assets expenditures		(8,787)		(363,979)
		(8,787)		(363,979)
Financing activities
Share subscriptions received		20,500		-
Payments toward lease liabilities		(6,661)		-
		13,839		-
Net change in cash		16,084		(182,582)
Cash, beginning of year		6,969		207,875
Cash, end of year	$	23,053	$	25,293
SUPPLEMENTAL NON-CASH DISCLOSURES
Exploration and evaluation assets included in accounts
payable and accrued liabilities	$	370,142	$	166,242
Exploration and evaluation assets recovery included in
receivables	$	53,213	$	-

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

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Midnight Sun Mining Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2020 (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 unaudited condensed consolidated interim financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC”). These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual financial statements required by IFRS as issued by IASB and interpretations issued by IFRIC.

The policies applied in these unaudited condensed consolidated interim financial statements are based on IFRS issued and outstanding as of June 1, 2020, the date the Board of Directors approved the statements. The same accounting policies and methods of computation are followed in these unaudited condensed consolidated interim financial statements as compared with the most recent annual consolidated financial statements as at and for the year ended December 31, 2019. Any subsequent changes to IFRS that are given effect in the Company’s annual financial statements for the year ending December 31, 2019 could result in restatement of these unaudited condensed consolidated interim financial statements.

b) Going concern

These unaudited condensed consolidated interim 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 unaudited condensed consolidated interim 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 three months ended March 31, 2020 and the year ended December 31, 2019, 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

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Midnight Sun Mining Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2020 (Expressed in Canadian dollars)

uncertainties may cast significant doubt about the Company’s ability to continue as a going concern.

As at March 31, 2020, the Company had an accumulated deficit of $7,310,203 (December 31, 2019 - $7,229,513) and had a working capital deficit of $578,124 (December 31, 2019 – working capital deficit of $510,649). 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 unaudited condensed consolidated interim 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.

COVID-19

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

c) Consolidation

These unaudited condensed consolidated interim 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 One Co.	BVI	100%
Midnight Sun Two Co.	BVI	100%
Zambian High Light Mining Investment Limited (“ZHLMIL”)	Zambia	60%

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., 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 non-monetary 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 Condensed Consolidated Interim Financial Statements March 31, 2020 (Expressed in Canadian dollars)

e) Basis of measurement

These unaudited condensed consolidated interim financial statements have been prepared on a historical costs 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 unaudited condensed consolidated interim financial statements have been prepared using the accrual basis of accounting except for cashflow information.

f) Estimates and judgments

The preparation of these unaudited condensed consolidated interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated interim financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These unaudited condensed consolidated interim financial statements include estimates, which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the unaudited condensed consolidated interim 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 unaudited condensed consolidated interim 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.

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

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Midnight Sun Mining Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2020 (Expressed in Canadian dollars)

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. Asset acquisition

During fiscal 2017 the Company fulfilled all requirements to earn a 60% interest in the Solwezi property (note 5). The transfer of the 60% interest to the Company occurred during the year ended December 31, 2019. Management determined that the acquisition represented an acquisition of assets rather than a business combination because the mineral properties were in the exploration and evaluation stage and had not demonstrated technical feasibility, economic viability or the ability to provide economic benefit. The Solwezi property does not have the workforce, resources and reserves, mine plan, or financial resources to meet the definition of a business for accounting purposes. The Company has made the judgment that government approval is required for the asset acquisition to be completed for accounting purposes as there is uncertainty surrounding timing and completion of this approval.

vi. 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.

3. 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’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, accounts payable and accrued liabilities, and amounts due to related parties approximated their fair value because of the short-term nature of these instruments.

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Midnight Sun Mining Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2020 (Expressed in Canadian dollars)

b) Interest rate risk

The Company has non-material exposure at March 31, 2020 and December 31, 2019 to interest rate risk through its financial instruments.

c) Currency risk

Throughout the period ended March 31, 2020 and the year ended December 31, 2019, 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 result in a fluctuation of $3,176 on the net loss for the year.

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 $4,625 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 $1,473, for which the Company considers credit risk to be minimal, $53,213 in receivables from the non-controlling interest holder in ZHLMI for exploration expenditures made subsequent to the Company’s acquisition of a 60% interest in the subsidiary, and $28,060 from a director and officer.

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 March 31, 2020, the Company had $23,053 cash (December 31, 2019 – $6,969) and current liabilities of $702,162 (December 31, 2019 - $615,959). The Company’s current working capital is insufficient to support the Company’s near term general administrative and corporate operating requirements on an on-going basis. The Company intends to raise funds adequate to meet its liquidity needs for the next twelve months via private placement.

4. Right-of-Use Asset

Right-of-Use Asset
Cost
Balance, December 31, 2018	$	-
Additions (Note 6)		62,400
Balance, December 31, 2019 and March 31, 2020	$	62,400
Accumulated Depreciation
Balance, December 31,2018	$	-
Depreciation		23,400
Balance, December 31, 2019	$	23,400
Depreciation		5,850
Balance, March 31, 2020	$	29,250
Carrying Values
December 31, 2019	$	39,000
March 31, 2020	$	33,150

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Midnight Sun Mining Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2020 (Expressed in Canadian dollars)

5. Exploration and Evaluation Assets

		Solwezi
Balance, December 31, 2018		11,141,449
Acquisition costs		-
Acquisition of Zambian High Light Mining Investment Limited		7,487,072
Recovery of exploration expenditures		(48,682)
Exploration expenditures		210,863
Balance, December 31, 2019	$	18,790,702
Recovery of exploration expenditures		(4,531)
Exploration expenditures		11,328
Balance, March 31, 2020	$	18,797,499

Solwezi property

On July 30, 2013, the Company, entered into an option agreement (the “Option”) with Kam Chuen Resource Holdings Ltd. (“Kam Chuen”), to earn a 60% interest in two mineral exploration licenses, 21509-HQ-LEL and 12124-HQ-LPL, (the “Solwezi Licenses”).

Under the final terms of the Option, to earn a 60% interest in the Solwezi Licences Midnight Sun was required to issue a total of 15,333,333 common shares (issued - valued at $4,106,667) to Kam Chuen and incur a total of $3,666,667 in qualifying expenditures on the Solwezi Licenses prior to December 31, 2017.

At December 31, 2017, the Company had fulfilled all requirements to earn the 60% interest. Under the terms of the Option, upon the Company fulfilling its share issuance and exploration expenditure requirements, Kam Chuen was required to transferred 60% ownership interest in ZHLMIL to Midnight Sun. Pursuant to the Option, the Company is entitled to charge a 10% operator fee for managing the exploration programs on the Solwezi Licences, which was included in calculating the total work expenditures under the Option, but not the exploration expenditures for reporting purposes.

The licenses are held by a Zambian registered company, ZHLMIL, of which Midnight Sun is now a 60% shareholder 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 Mineral Development Act, 2015 .

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. If necessary, prior to the expiration of the license the Company and ZHLMIL will apply for a new license covering the same surface area as 12124-HQ-LEL. There is no guarantee a new license will be granted to the Company or an affiliated entity.

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Midnight Sun Mining Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2020 (Expressed in Canadian dollars)

As at March 31, 2020 and December 31, 2019, the Company had funded the following exploration expenditures on the Solwezi Licenses:

expenditures on the Solwezi Licenses:
		March 31, 2020		December 31,
				2019
Site and project expenditures:
Acquisition costs	$	4,136,678	$	4,136,678
Assays		326,119		326,119
Drilling		3,043,326		3,043,326
Equipment		2,566		2,566
Field expenses		1,212,272		1,212,272
General and administrative		583,371		577,474
Geological consulting		1,090,108		1,084,677
License		260,469		260,469
Travel and accommodation		708,731		708,731
Total operations funded	$	11,363,640	$	11,352,312

As at October 20, 2019, cumulative acquisition and exploration expenditures towards the option were $11,230,607. The Company has recognized the acquisition of the financial and operating control of the ZHLMIL as follows:

control of the ZHLMIL as follows:
Net Assets Acquired
Total consideration	$	11,230,607
Non-controlling interest		7,487,072
Exploration and evaluation assets	$	18,717,679

The acquisition of the 60% interest in ZHLMIL resulted in a gross-up of the Company’s exploration and evaluation assets of $7,487,072.

Prior to the close of the acquisition, but after meeting the required terms of the agreement, the Company overspent on the Option’s required exploration expenditures by a total of $3,790,603, for which it believes Kam Chuen to be responsible for reimbursement of its 40% share. The Company intends on formally requesting payment in the amount of $1,516,243 subsequent to the year ended December 31, 2019, and in lieu of receipt of payment will pursue dilution of Kam Chuen’s ownership interest in ZHLMIL. Successful collection of this amount is considered to be uncertain as the expenditures were made prior to the Company’s acquisition of the 60% share in ZHLMIL, and accordingly, no receivable has been recognized for this amount.

During the period ended March 31, 2020, the Company incurred $11,828 in exploration expenditures for which it has recognized a receivable from Kam Chuen of $4,531 (December 31, 2019 - $81,726 in exploration expenditures for which it has recognized a receivable from Kam Chuen in the amount of $32,690).

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Midnight Sun Mining Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2020 (Expressed in Canadian dollars)

6. Lease liabilities

During the year ended December 31, 2019, the Company entered into a new office lease with a term of 32 months from January 1, 2019 and expected total payments of $70,780. Using an annual discount rate of 10%, the Company recognized a lease liability and corresponding right-of-use asset (note 4) of $62,400. The following is a reconciliation of the changes in the lease liabilities for the three months ended March 31, 2020 and the year ended December 31, 2019:

		March 31,	December 31,	December 31,
		2020		2019
Opening Balance	$	41,083	$	-
Additions		-		62,400
Payments		(6,661)		(26,378)
Lease accretion		924		5,061
		35,346		41,083
Lease liabilities, current portion		(24,428)		(23,827)
Lease liabilities, non-current portion	$	10,918	$	17,256

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

Fiscal Year		Payment
2020	$	19,980
2021		17,761
Amount representing future lease accretion		(2,395)
Lease liabilities	$	35,346

7. Share Capital and Reserves

a) Authorised

Unlimited number of common shares authorised, without par value.

b) Share issuances

At March 31, 2020, the Company had 91,551,781 common shares (December 31, 2019 – 91,551,781) issued and outstanding.

2020 share issuance

The Company did not issue any shares during the three-month period ended March 31, 2020

2019 share issuance

On August 8, 2019 the Company completed a non-brokered private placement by issuing 2,773,334 units (the "Units") at a price of $0.12 per Unit for gross proceeds of $332,800. Each Unit consists of one common share ("Common Share") in the capital of the Company and one Common Share purchase warrant ("Warrant"). Each Warrant entitles the holder to purchase one Common Share of the Company for a period of twenty-four months from closing, at an exercise price of $0.20. The Company recognized $305,066 related to the Units to share capital with the

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Midnight Sun Mining Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2020 (Expressed in Canadian dollars)

residual value of $27,734 to reserves. As at December 31, 2019, $54,000 remained receivable. Finder’s fees of $2,640 were paid in cash in connection with the Private Placement. In connection with the closing of the placement, the Company incurred an addition $2,620 in share issuance costs.

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:

	Number of
	stock options	Weight average
	outstanding		exercise price
Balance, December 31, 2018	6,800,000		0.31
Expired/Cancelled	(875,000)		0.31
Balance, December 31, 2019 and March 31, 2020	5,925,000	$	0.31
Exercisable, March 31, 2020	5,925,000	$	0.31

The Company did not grant any stock options during the three months ended March 31, 2020 (2019 – nil). Total share-based payments recognized for the three months ended March 31, 2020 was $nil (2019 - $nil) for incentive options vested. At March 31, 2020, the Company has 5,925,000 outstanding stock options enabling holders to acquire common shares as follows:

			Number of	Weighted
Expiry date		Exercise	stock options	average years to
		price	outstanding	expiry
November 28, 2021	$	0.25	2,600,000	1.91
August 18, 2022	$	0.35	1,000,000	2.63
January 31, 2023	$	0.36	2,325,000	3.09
			5,925,000	2.50

d) Warrants

Share purchase warrants outstanding and exercisable are summarized as follows:

						Number of
						stock options	Weight average
						outstanding		exercise price
Balance, December	31,	2018				31,299,505		0.33
Granted						2,773,334		0.20
Expired						(21,238,523)		0.31
Balance, December	31,	2019	and March	31,	2020	12,834,316	$	0.24

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Midnight Sun Mining Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2020 (Expressed in Canadian dollars)

At March 31, 2020, the Company has 12,834,316 outstanding warrants enabling holders to acquire common shares as follows:

common shares as follows:
			Number of	Weighted
Expiry date		Exercise	stock options	average years to
		price	outstanding	expiry
May 11, 2020*	$	0.48	685,782	0.36
May 30, 2020*	$	0.48	1,041,200	0.41
October 31, 2020	$	0.20	4,458,000	0.84
November 30, 2020	$	0.20	2,575,000	0.92
December 18, 2020	$	0.20	1,301,000	0.97
August 8, 2021	$	0.20	2,773,334	1.61
			12,834,316	0.97

*Expired subsequent to period end

On October 24, 2019, the Company extended the expiry dates of outstanding common share purchase warrants issued pursuant to private placement offerings of the Company as follows:

Number of	Exercise
Warrants	price	Previous Expiry	New Expiration Date
4,458,000 $	0.20	October 31, 2019	October 31, 2020
2,575,000 $	0.20	November 30, 2019	November 30, 2020
1,301,000 $	0.20	December 18, 2019	December 18, 2020

8. Related Party Transactions and Key Management Compensation

The Company’s related parties at March 31, 2020 consist of 8 officers and directors (and their related companies), as follows:

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

Compensation paid or accrued to key management and/or their related companies during the three months ended March 31, 2020 and 2019 was as follows:

	For	the three months	the three months	ended,
Nature of expenditure		2020		2019
Wages and benefits	$	6,240	$	6,240
Management services		12,104		-
	$	18,344	$	6,240

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

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Midnight Sun Mining Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2020 (Expressed in Canadian dollars)

As at March 31, 2020, $123,401 (December 31, 2018 - $124,589) 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. Included in share subscriptions receivable is $33,500 (December 31, 2019 - $54,000) due from director and officer of the Company. Included in accounts receivable is $28,060 (December 31, 2019 - $26,800) due from a director and officer of the Company.

9. Segmented Information

The Company has one reportable operating segment, being the acquisition and exploration of mineral properties. At March 31, 2020 and December 31, 2019, the Company’s exploration and evaluation assets are located in one geographic location: Zambia, Africa.

10. 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 3.

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.

11. Events After Reporting Date

Private Placement

On May 25, 2020, the Company completed a non-brokered private placement by issuing 7,940,185 units at a price of $0.135 per unit for gross proceeds of $1,071,925. Each unit consists of one common share in the capital of the Company and one Common Share purchase warrant. Each Warrant entitles the holder to purchase one Common Share of the Company for a period of twenty-four months from closing, at an exercise price of $0.25. Finder’s fees of $56,577 were paid in cash and 419,090 Finder’s Warrants were issued in connection with the Private Placement.

Incentive Stock Options

On May 6, 2020, the Company granted an aggregate of 3,000,000 incentive stock options at an exercise price of $0.135 per share to certain directors, officers, employees, and consultants. 350,000 of the options have a term of 1 year, and the remaining 2,650,000 have a term of 5 years.

Earn-in Agreement

On April 27, 2020, the Company entered into an earn-in and joint venture agreement with Rio Tinto Mining and Exploration Limited (“Rio Tinto”) in which Rio Tinto can earn up to a 75% interest in the Solwezi Licenses. The terms of the agreement are as follows:

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Midnight Sun Mining Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2020 (Expressed in Canadian dollars)

• Initial Cash Payment: A cash payment in the amount of US$700,000 will become payable by Rio Tinto to Midnight Sun upon removal of conditions.

• Initial Work Program: Rio Tinto can fund an initial work program on the Solwezi Licenses by spending US$3,000,000, of which USD$2,000,000 is a firm commitment, within the next two field season. After completing the firm commitment, a further USD$300,000 will become payable by Rio Tinto to Midnight Sun before Rio Tinto proceeds with the additional expenditures.

• Stage 1: After completing the Initial Work Program, Rio Tinto can earn 51% ownership of the Solwezi Licenses by incurring a further US$16,000,000 in work expenditures within four years and making a total of US$1,000,000 in additional scheduled cash payments to Midnight Sun.

• Stage 2: Rio Tinto can earn an additional 14% ownership of the Licences by incurring a further US$14,000,000 in work expenditures or completing a Feasibility Study within three years of starting Stage 2 and making an additional US$1,000,000 cash payment to Midnight Sun.

• Stage 3: Rio Tinto can earn an additional 10% ownership of the Licences by incurring a further US$15,000,000 in work expenditures within two years.

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