Midnight Sun Mining Corp. — Interim / Quarterly Report 2020

Aug 27, 2020

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MIDNIGHT SUN MINING CORP.

MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020

As at August 26, 2020

MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

1. INTRODUCTION

The following management’s discussion and analysis (“MD&A”) of Midnight Sun Mining Corp. has been prepared as of August 26, 2020. This MD&A should be read in conjunction with the condensed consolidated interim financial statements (“Financial Statements”) of Midnight Sun Mining Corp. and the notes thereto for the three and six-month period ended June 30, 2020 as well as the audited consolidated financial statements for the year ended December 31, 2019, which have been prepared using accounting policies consistent with International Financial Reporting Standards (“IFRS”). The Financial Statements have been prepared using the accrual basis of accounting except for cash flow information. All figures are expressed in Canadian dollars unless otherwise indicated.

Management is responsible for the preparation and integrity of the Financial Statements, including the maintenance of appropriate information systems, procedures and internal controls. Management is also responsible for ensuring that information disclosed externally, including the financial statements and MD&A, is complete and reliable.

Description of Business

Midnight Sun Mining Corp. (the “Company” or “Midnight Sun”) was incorporated on April 11, 2007 pursuant to the Business Corporations Act of British Columbia. The Company’s principal business activity is acquiring, exploring and evaluating mineral properties and joint venturing or developing these properties further or disposing of them when the evaluation is complete. At June 30, 2020, the Company was in the exploration stage of activity on its jointly held exploration licenses in Zambia, and the Financial Statements include the accounts of its subsidiaries Midnight Sun Mining Zambia Limited (“MSM Zambia”), a company incorporated on October 29, 2013 under the laws of Zambia as well as Midnight Sun One Co. and Midnight Sun Two Co., two companies incorporated in 2018 under the laws of the British Virgin Islands. The Company has consolidated the operations of MSM Zambia since its incorporation.

2. HIGHLIGHTS & SIGNIFICANT EVENTS

- Corporate Highlights for the Six Month Period Ended June 30, 2020

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.

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

- Financial Highlights for the Six Month Period Ended June 30, 2020

Private Placement

On May 26, 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 twentyfour 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:

• Initial Cash Payment: A cash payment in the amount of USD$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 USD$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 USD$16,000,000 in work expenditures within four years and making a total of USD$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 USD$14,000,000 in work expenditures or completing a Feasibility Study within three years of starting Stage 2 and making an additional USD$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 USD$15,000,000 in work expenditures within two years.

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

3. EXPLORATION AND EVALUATION ASSETS

60% Option Agreement

On July 30, 2013, the Company, entered into an option agreement (the “Option”) with Kam Chuen, to acquire a 60% interest in two mineral prospecting licenses 14039-HQ-LPL and 12124-HQ-LPL, the Solwezi Licenses, which are held in a Kam Chuen subsidiary, Zambian High Light Mining Investment Limited (“ZHLMIL”). The TSXV approved the Option on December 6, 2013.

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.

Upon the Company fulfilling its share issuance and exploration expenditure requirements, per the Option terms, Kam Chuen transferred 60% ownership interest in ZHLMIL to Midnight Sun and Midnight Sun will continue to manage the exploration and development of the Solwezi Licenses.

Solwezi Licenses - Zambia

The Solwezi Licenses cover a total area of 506 square kilometres in the Zambian Copperbelt and are located approximately 15 kilometres from the producing Kinsanshi copper/gold mine and roughly 450 kilometres northwest of the Zambian capital of Lusaka.

On March 1, 2017, the Acting Chief Registrar of Mining Rights issued a new exploration license, 21509-HQ-LEL, covering the same ground and replacing the existing license 14039-HQ-LPL. 21059-HQ-LEL is in effect for an initial period of 4 years with the option for future renewals provided 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 granted in accordance with the Mines and Mineral Development Act, 2015 and is 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. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

- Exploration Property Expenditures

As at June 30, 2020, the Company had funded the following expenditures on the Solwezi Licenses:

Site and project expenditures	31-Dec-19	Additions	30-Jun-20
Acquisition costs $ Assays Diamond drilling Equipment Field expenses General & administration Geological consulting License Travel and accommodation Total operations funded $	4,136,678$ 326,119 3,043,326 2,566 1,212,272 577,474 1,084,677 260,469 708,731 11,352,312$	- - - - - 116,464 21,252 - -	$ 4,136,678 326,119 3,043,326 2,566 1,212,272 693,938 1,105,929 260,469 708,731
		137,716	11,490,028

The following table presents the Company’s expenditures relating to mineral properties on a property-by-property basis for the two most recent financial years.

					Solwezi	Solwezi	**Total **
Balance, December 31, 2018				$ 11,141,449			$ 11,141,449
Exploration expenditures						210,863	210,863
Total additions during year						210,863	210,863
Balance, December 31, 2019				$ 11,352,312			$ 11,352,312
Exploration expenditures						137,716	137,716
Total additions during period						137,716	137,716
Balance, June 30, 2020				$ 11,490,028			$ 11,490,028

Exploration Property – Activities

The main deposit types being targeted by exploration on the Solwezi Licenses are; Stratiform-type deposits, a common model for many copper deposits within the Zambian Copperbelt, and Hydrothermal-type copper mineralization as found at the nearby Kinsanshi Mine.

Based on historical work, the Company identified six significant exploration targets on the Solwezi Licences. Since signing the Option work has focussed on the following four areas:

• The 22 Zone – a near surface oxide deposit with deep sulphide potential. Limited shallow drill testing returned a best intercept of 5.71% copper over 14.2 metres near surface.

• Mitu – an ore shale hosted copper-cobalt-nickel-gold target with significant size potential. Initial drilling in this area encountered significant copper/cobalt mineralization.

• Dumbwa – initial drilling on a 14-kilometre long soil anomaly has produced multiple

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

copper-cobalt intercepts in the near surface oxides.

• Kifumbwe – a large nickel soil anomaly covering over 6 kilometres of identified strike.

The Company’s recent exploration focus has been Mitu, where in October 2016 “ore shale style” base metal mineralization was discovered on the flank of the Solwezi Dome. Ore shale mineralization is the dominant type of copper-cobalt-nickel deposition in the Zambia-Congo Copperbelt, the largest copper producing area in the world. Mineralization associated with the shale units generally forms in physical “traps” between the contact of the Upper and Lower Roan geological units. This contact zone extends over 17 kilometres on the Solwezi Licenses.

A 12-hole diamond drill program at Mitu in 2016 covered an area of 300 metres on strike and 400 metres down dip. Shale units containing base metal sulphide mineralization were encountered at vertical depths of up to 170 metres. An additional 43 drill holes using air core drilling covered a strike length of approximately 1,200 metres.

During 2017, the Company continued work at Mitu with a program consisting initially of 37 linekilometres of natural source audio magneto telluric (“NSAMT”) designed to establish the extent of the geophysical footprint of the ore shales. The geophysics were followed by 648 soil samples and 4,755 metres of shallow air core drilling in 119 holes to bedrock to establish that a conductive anomaly indicated by the geophysics correlated with the presence of ore-shale. This program tested 10 kilometres of the 17-kilometre contact area with encouraging results. The geophysics, sampling and air core drilling were followed up with a 15-hole, 4,062 metre, diamond drill program to test the grade, physical dimensions and consistency of mineralized ore shales.

During 2018, at Mitu, the Company conducted a 34 line-kilometre NSAMT survey, completed 10,424 metres of air core drilling and drilled 1,503 metres of diamond drilling. In addition, a 3,889-line kilometre VTEM survey covering the entirety of the Solwezi Licenses was conducted, new core storage and logging facilities were constructed, and all available core was relogged. In December of 2018 Midnight Sun received the raw data from the VTEM survey and in February of 2019, received the initial interpretations derived from the data. Based on the VTEM interpretation, the Company has identified 4 new target areas on the Solwezi Licenses and added to its understanding of the 6 previously identified target areas.

Together with Rio Tinto the Company is developing plans for a new phase of exploration on the Solwezi Licenses during 2020. This phase of exploration will be managed and funded by Rio Tinto under an option agreement announced on April 27, 2020. Exploration work on the Solwezi Licenses may be delayed due to ongoing restrictions on travel implemented as a result of the COVID-19 pandemic, however, the Company is confident that significant work will be undertaken during 2020.

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

Since optioning the Solwezi Licenses, Midnight Sun has reviewed all available data generated by the optionor and previous operators. The Company has directly carried out the following activities:

Work			30-Jun-20			Additions			31-Dec-19
Geochemical - sampling Ground Geophysics – NSAMT Airborne Geophysics -VTEM Air Core drilling - metres Air Core drilling - holes RC drilling - metres RC drilling - holes Diamond drilling - metres Diamond drilling- holes	5,928 - 77.7 kms - 3,889 - 34,639 - 835 - 1,276 - 15 - 8,829 - 57 -						5,928 77.7 kms 3,889 34,639 835 1,276 15 8,829 57

Richard Mazur, P.Geo., Director of the Company, a Qualified Person under NI 43-101, has reviewed the information contained herein.

4. SUMMARY OF QUARTERLY RESULTS

The tables below present’s selected financial data for the Company’s eight most recently completed quarters, all information was prepared in accordance with IFRS.

Jun 30 Mar 31 Dec 31	Sept 30
2020 2020 2019	2019
$ $ $	$
Financial results Net loss for period 402,451 80,690 160,150 Basic & diluted loss per share 0.00 0.00 0.00 Exploration expenditures 126,388 11,328 133,143	59,497 0.00 60,670
Statement of Financial Position Cash 277,330 23,053 6,969 Exploration & evaluation assets 18,873,332 18,797,499 18,790,702 Total assets 19,372,133 18,954,687 18,935,012 Shareholders’ equity 19,165,942 18,241,607 18,301,797	125,202 11,219,169 11,394,008 10,945,861

	June 30 March 31 December 31	Sept 30
	2019 2019 2018	2018
	$ $ $	$
Financial results Net loss for period Basic & diluted loss per share Exploration expenditures	56,505 80,846 81,715 0.00 0.00 0.00 (38,068) 55,118 (4,075)	127,073 0.00 $544,541
Statement of Financial Position Cash Exploration & evaluation assets Total assets Shareholders’ equity	37,174 25,293 207,875 11,158,499 11,196,567 11,141,449 11,254,299 11,304,930 11,455,602 10,731,433 10,787,122 10,866,744	19,161 11,145,524 11,362,970 9,996,805

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

All exploration expenditures relate to work done on the Solwezi Licenses. Net losses for all periods reflect general and administrative costs including legal and accounting. Prior to January 1, 2018, Zambian operations were directed and managed from Canada. In January 2018, the Company added technical and support staff in Zambia and transferred most operational functions to MSM Zambia as the size and scope of the annual program in Zambia increased. The increased activity in MSM Zambia resulted in an initial increase in office, legal, accounting, administrative and staffing costs as reflected in the net losses for the quarters ended March 31 through September 30, 2018. During the quarter ended September 30, 2018 the Company reassessed its administrative processes and significantly reduced administrative costs in both Zambia and Canada. Company management continues to evaluate options to effectively manage costs in both Canada and Zambia while maintaining enough resources to oversee seasonal exploration programs, other property related work and administrative functions.

5. DISCUSSION OF OPERATIONS

The following discussions address some of the reasons for variations in the quarterly numbers, but as is typical with junior exploration and mining companies there can be significant fluctuation from quarter to quarter. Quarterly results can vary greatly depending on whether the Company is in an active exploration phase or has granted stock options. Activity levels are primarily dependent on the success of the Company’s ongoing exploration and evaluation work and the Company’s ability to raise funds through equity issuances. The granting of stock options can cause a material variation in net loss on a quarterly basis due to the resulting share-based payment charges which can be significant.

Overall Performance & Results of Operations

Three Month Period Ended June 30, 2020

The Company’s loss for the three months ended June 30, 2020, was $402,451, or $0.00 per share, as compared to a loss of $56,505, or $0.00 per share for the three months ended June 30, 2019. Outside of a significant share-based payment expense related to an option grant, the results are considered to be comparable and in line with expectations over the prior period.

Major expenses during the three-month period ended June 30, 2020 consisted of accounting and audit fees, $6,799 (2019: $13,004), consulting fees, $12,468 (2019: $nil), investor and shareholder relations, $10,425 (2019: $10,458), legal fees, $7,232 (2019: $428), office services and miscellaneous expense, $11,939 (2019: $13,780), regulatory and transfer agent fees, $4,856 (2019: $962), share-based payments, $317,648 (2019: $811), and wages and benefits, $6,240 (2018: $14,044).

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

Six Month Period Ended June 30, 2020

The Company’s loss for the six months ended June 30, 2020, was $483,141, or $0.01 per share, as compared to a loss of $137,346, or $0.00 per share for the six months ended June 30, 2019. Outside of a significant share-based payment expense related to an option grant, the results are considered to be comparable and in line with expectations over the prior period.

Major expenses during the six-month period ended June 30, 2020 consisted of accounting and audit fees, $19,562 (2019: $21,732), consulting fees, $24,572 (2019: $nil), investor and shareholder relations, $19,556 (2019: $24,706), legal fees, $12,958 (2019: $5,931), office services and miscellaneous expenses, $25,241 (2019: $39,803), regulatory and transfer agent fees, $11,671 (2019: $9,825), share-based payments, $317,648 (2019: $2,035), travel, $nil (2019: $nil) and wages and benefits, $12,480 (2019: $28,592).

During the six-month period ended June 30, 2020, $282,838 in cash was used for operating activities and $503,119 in cash was used for exploration and evaluation asset expenditures. During the period, the Company generated $1,056,318 from financing activities, comprised of $1,009,138 in net proceeds from share issuances, $20,500 in share subscriptions receivable, and $40,000 in loan proceeds received, less payments towards lease liabilities of $13,320.

6. LIQUIDITY AND CAPITAL RESOURCES

As at June 30, 2020, the Company had $277,330 in cash. The Company does not have cash flow from operations due to it being an exploration stage company; therefore, financings have been the sole source of funds. At June 30, 2020, the Company had working capital of $309,732 and an accumulated deficit of $7,712,654. In the opinion of management this working capital is insufficient to support the Company’s near term general administrative and corporate operating requirements on an on-going basis.

Liquidity Outlook

In order to finance the Company’s exploration programs and to cover administrative and overhead expenses, the Company raises money through the sale of equity, from the exercise of convertible securities and from optioning its exploration and evaluation assets. Many factors influence the Company’s ability to raise funds, including the health of the resource market, the climate for mineral exploration investment, the Company’s track record, and the experience and calibre of its management. Actual funding requirements may vary from those planned due to several factors, including the progress of exploration activities.

During the period ended June 30, 2020, the Company closed a non-brokered private placement for gross proceeds of $1,071,925. Management is encouraged by improving equity markets for mineral exploration programs and anticipates seeking additional sources of funding prior to the end of the fiscal year. Given volatility in equity markets, global economic uncertainty, cost pressures and results of exploration activities there can be no certainty equity funding will be available to the Company or if available funding will be on acceptable terms. Management

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

believes it will be able to raise equity capital as required but recognizes that there will be risks which may be beyond its control.

Capital Resources

The Company believes it has sufficient capital to cover its administrative overhead expenses for the next twelve months. The Company does not currently have capital to fund all budgeted or planned exploration activities on the Solwezi Licenses during 2020. However, during the period ended June 30, 2020 an Earn-in and Option Agreement with Rio Tinto which is expected to result in Rio Tinto providing all funding for planned exploration programs during 2020. To continue exploring the Solwezi Licenses without the participation of Rio Tinto, Midnight Sun will be required to raise additional capital, and if capital is not available the Company will have to delay some planned exploration expenditures.

7. TRANSACTIONS WITH RELATED PARTIES

The Company’s related parties at June 30, 2020 consist of 8 officers and directors (and their related companies).

Name of Related Party	Position at Dec 31, 2019	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

As at June 30, 2020, $44,979 (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 $25,780 (December 31, 2019 - $26,800) due from a director and officer of the Company.

8. KEY MANAGEMENT COMPENSATION

Compensation paid or accrued to key management and/or their related companies during the sixmonth period ended June 30, 2020 and 2019 is as follows:

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

	For the Three Months Ended June 30,	For the Three Months Ended June 30,
Nature of Expenditure	2020	2019
Wages and benefits Management services Share-based payments Total	$ 12,480 24,572 205,071	$ 12,480 - -
	$ 242,123	$ 12,480

Key management consists of those individuals having authority and responsibility for, directly or indirectly, planning, directing, and controlling the activities of the Company. Wages are paid to the Company’s Corporate Secretary, Consulting fees are amounts paid to the Company’s former CEO and share-based payments reflect the stock option expense for options granted to the Company’s directors, CFO, Corporate Secretary and a director of ZHLML.

All the above payments and accruals were made in the normal course of operations and have been valued here and in the Financial Statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

9. OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

10. PROPOSED TRANSACTIONS

The Company does not currently have any proposed transactions other than the transactions discussed in this MD&A; however, the Company will continue to review potential property acquisitions in addition to conducting exploration work on its properties.

11. CHANGES IN ACCOUNTING POLICY

The Company did not have any changes in accounting policies.

12. FINANCIAL INSTRUMENTS AND RELATED RISKS

The Board, through the Audit Committee, is responsible for identifying the principal risks facing the Company and ensuring that appropriate risk management systems are developed and implemented. The Company manages its exposure to financial risks, including liquidity risk, foreign exchange rate risk, interest rate risk and credit risk in accordance with its risk management framework.

Financial Instruments

Financial assets

The Company classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. The Company's accounting policy for each category is as follows:

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

• Fair value through profit or loss - This category comprises derivatives, or assets acquired or incurred principally for the purpose of selling or repurchasing it 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.

• Loans and receivables - These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at cost less any provision for impairment. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default.

• Held-to-maturity investments - These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company's management has the positive intention and ability to hold to maturity. These assets are measured at amortized cost using the effective interest method. If there is objective evidence that the investment is impaired, determined by reference to external credit ratings and other relevant indicators, the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, are recognized in the statement of operations and comprehensive loss.

• Available-for-sale - Non-derivative financial assets not included in the above categories are classified as available-for- sale. They are carried at fair value with changes in fair value recognized directly in equity. Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognized in the statement of operations and comprehensive loss.

All financial assets except for those at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described above.

Financial liabilities

The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired. 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 it 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 amounts due to related parties and accounts payables and accrued liabilities, all of which are recognized at amortized cost.

Classification The Company’s cash, deposits, and receivables are classified as loans and receivables. The

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

Company’s accounts payable and accrued liabilities and due to related parties are classified as other financial liabilities.

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.

Related Risks

Interest rate risk

The Company has non-material exposure at December 31, 2019 and 2018 to interest rate risk through its financial instruments.

Currency Risk

Throughout the period ended June 30, 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 not result in a material fluctuation on the net loss for the year.

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 $31,147 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 $5,306, for which the Company considers credit risk to be minimal, $103,768 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 $25,780 from a director and officer.

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 June 30, 2020, the Company had $277,330 cash (December 31, 2019 – $6,969) and current liabilities of $161,769 (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.

Finance Risk

The Company has no source of operating cash flow and no assurance that additional funding will be available to it for further exploration and development of its projects when required. Although the Company has been successful in the past in obtaining financing through the sale of equity

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

securities or joint ventures, there can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in the delay or indefinite postponement of further exploration and development of its properties.

13. RISKS AND UNCERTAINTIES

The Company has no history of profitable operations and its present business is at an early stage. As such, the Company is subject to many risks common to such enterprises, including undercapitalization, cash shortages and limitations with respect to personnel, financial and other resources and the lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders' investment and the likelihood of success must be considered in light of its early stage of operations. For more information of the risks and uncertainties to which the Company may be subject please refer to the Company’s MD&A for the financial year ended December 31, 2019.

14. NATURE OF SECURITIES

The purchase of the Company’s securities involves a high degree of risk and should be undertaken only by investors whose financial resources are sufficient to enable them to assume such risks. The Company’s securities should not be purchased by persons who cannot afford the possibility of the loss of their entire investment. Furthermore, an investment in the Company’s securities should not constitute a major portion of an investor's portfolio.

15. DISCLOSURE OF OUTSTANDING SHARE DATA

The table below presents the Company’s common share data as of August 26, 2020.

	Price Expiry date	August 26, 2020
Common shares issued and outstanding Securities convertible into common shares: Stock Options $0.25 November 28, 2021 $0.35 August 18, 2022 $0.36 January 31, 2023 $0.135 May 6, 2025 Total Options Warrants $0.20 October 31, 2020 $0.20 November 30, 2020 $0.20 December 18, 2020 $0.20 August 8, 2021 $0.135 May 26, 2022 Total Warrants		99,491,966 2,600,000 1,000,000 2,325,000 3,000,000
		8,925,000
		4,258,000 2,575,000 1,301,000 2,773,334 8,359,275
		19,266,609
Total options & warrants		28,191,609

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

16. COMMITMENTS

Other than obligations disclosed in the Financial Statements and elsewhere this MD&A the Company does not have any commitments.

Subsequent to the period ended June 30, 2020, The Company’s Joint Venture Partners have 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.

17. ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS

Additional disclosure concerning Midnight Sun’s general and administrative expenses and exploration and evaluation assets expenditures is provided in the Company’s Financial Statements. These Financial Statements are available on SEDAR at www.sedar.com.

18. APPROVAL

The Board of Directors oversees management’s responsibility for financial reporting and internal control systems through an Audit Committee. This Committee meets periodically with management and annually with the independent auditors to review the scope and results of the annual audit and to review the financial statements and related financial reporting and internal control matters before the financial statements are approved by the Board of Directors and submitted to the shareholders of the Company. The Board of Directors of Midnight Sun has approved the financial statements and the disclosure contained in this MD&A. A copy of this MD&A will be provided to anyone who requests it.

19. FORWARD LOOKING INFORMATION

Forward-looking statements relate to future events or future performance and reflect management's expectations or beliefs regarding future events and include, but are not limited to, statements with respect to the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of operations, environmental risks, permitting risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual

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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Three & Six-Month Period Ended June 30, 2020

results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of resources; possible variations in ore reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors detailed from time to time in the Company's interim and annual financial statements which are filed and available for review on SEDAR at www.sedar.com. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

20. ADDITIONAL INFORMATION

Additional information is available on SEDAR at www.sedar.com.

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