Nicola Mining — Annual Report 2021

Mar 1, 2022

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NICOLA MINING INC.

Consolidated Financial Statements

For the years ended December 31, 2021, and 2020.

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Nicola Mining Inc.

Opinion

We have audited the accompanying consolidated financial statements of Nicola Mining Inc. (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2021 and 2020, and the consolidated statements of operations and comprehensive loss, cash flows, and changes in shareholders’ equity for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2021 and 2020, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).

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 1 of the consolidated financial statements, which indicates that as at December 31, 2021, the Company had an accumulated deficit of $93,265,600 and a working capital deficiency of $5,272,297. As stated in Note 1, 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.

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, 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 s o.

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.

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

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Vancouver, Canada February 28, 2022

Chartered Professional Accountants

NICOLA MINING INC. Consolidated Statements of Financial Position (Expressed in Canadian dollars)

Note	Note		December 31, 2021 December 31, 2020	December 31, 2021 December 31, 2020
Assets Current assets Cash and cash equivalents Amounts receivable 4 Prepaid expenses and otherassets			$ 916,286 $ 734,870 93,923	824,705 100,881 52,665
Non-current assets Property, plant, and equipment 5 Right-of-use-assets 8 Mineral interests 6 Restricted cash 9			1,745,079 9,129,286 51,017 225,003 1,211,367	978,251 9,090,448 69,845 3 1,211,013
Total assets			$ 12,361,752 $	11,349,560
Liabilities Current liabilities Accounts payable and accrued liabilities Current portion of lease liabilities 8 Current portion of equipment loan 10 Current portion of secured convertible debentures 12 Flow-through sharepremium 14			$ 569,845 $ 17,553 57,087 6,372,891 -	671,821 15,927 43,739 - 95,231
Non-current liabilities Asset retirement obligation 7 Lease liabilities 8 Equipment loan 10 Secured convertible debenture 12			7,017,376 3,909,679 37,565 10,668 545,047	826,718 3,831,834 55,141 67,755 6,369,276
Total liabilities			11,520,335	11,150,724
Equity Shareholders' equity Share capital 14 Warrants 14 Equity component of convertible debentures Contributed surplus Accumulated deficit			82,346,704 1,694,494 2,153,819 7,912,000 (93,265,600)	78,605,424 1,694,494 2,167,952 7,591,331 (89,860,365)
Total shareholders’(deficiency) equity			841,417	198,836
Total liabilities and shareholders’ equity			$ 12,361,752 $	11,349,560
	Peter Espig (signed) Director		Frank Hogel(signed)	Director

Nature of operations and going concern (Note 1) Subsequent Events (Note 19)

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

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NICOLA MINING INC. Consolidated Statements of Operations and Comprehensive Loss (Expressed in Canadian dollars)

	Year Ended December 31
Note	2021 2020
Operating Expenses Exploration costs 6 $ 851,926 $ 348,703 Environmental penalty - 136,000 Mill costs 5 1,480,156 1,034,186 Accretion of asset retirement obligation 7 77,845 157,049 Salaries and benefits 16 136,193 139,807 Share-based compensation expense 15,16 438,678 72,471 Professional fees 163,331 209,529 Consulting fees 16 150,000 220,000 Office and general 54,459 71,254 Travel and investor relations 148,747 92,669 Regulatory and transfer agent fees 85,445 39,777 Rent 29,338 27,673 Vehicle expenses 9,021 5,639 Depreciation 3,511 1,652
Operating Loss (3,628,650) (2,556,409)
Flow-through premium 14 95,231 - Gravel, ash, soil, and other income 7 1,401,694 894,335 Gain on disposal of mobile equipment 5 77,750 - Finance costs 13 (1,384,857) (1,299,031) Part XII.6 tax, recovery, tax penalties - (8,439) Foreign exchange loss (2,403) - Recovery - re settlement of 2021 environmental penalty–account payables 36,000 39,055
Loss before income taxes (3,405,235) (2,930,489)
Deferred income tax recovery 18 - 40,125
Net loss for the year $ (3,405,235) $ (2,890,364)
Loss Per Share –basic and diluted $ (0.01) $ (0.01)
Weighted Average Number of Common Shares Outstanding – basic and diluted 276,957,605 249,606,552

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

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NICOLA MINING INC. Consolidated Statements of Cash Flows (Expressed in Canadian dollars)

	Year Ended December 31
	2021 2020
Operating Activities Net loss for the year Adjustments for: Accretion of asset retirement obligation Share-based compensation Depreciation Non-cash interest and finance expense Foreign exchange Flow -through premium Deferred income tax recovery Gain on disposal of mobile equipment Recovery - w rite-off of accounts payables Changes in non-cash w orking capital items Amounts receivable Prepaid expenses and other assets Accounts payable and accrued liabilities	$ (3,405,235) $ (2,890,364) 77,845 157,049 499,008 72,471 169,614 135,021 1,391,185 1,303,653 (2,343) - (95,231) - - (40,125) (77,750) - (36,000) (39,055) (633,989) 140,133 (41,258) (26,710) (65,976) 66,805
Cash and Cash Equivalents Used in Operating Activities	(2,220,130) (1,121,122)
Investing Activities Purchase of property, plant, and equipment Purchase of mineral interests Proceeds on disposal of mobile equipment Recoveries from sales of concentrate,net	(295,886) (11,500) (225,000) - 144,000 - 40,012 -
Cash and Cash Equivalents Used in Investing Activities	(336,874) (11,500)
Financing Activities Issuance of common shares, net of cash paid share issuance costs Exercise of stock options and share purchase w arrants Interest payment Repayment of lease liabilities Repayment of equipment loan Interest payment on equipment loan Working capital loan Interest payment on w orking capital loan Repayment of w orking capital loan Convertible notes issued	2,490,000 1,328,855 241,125 - - (12,500) (24,240) (20,352) (43,739) (29,473) (6,787) - 310,245 - (7,774) - (310,245) - - 190,000
Cash and Cash Equivalents Provided by Financing Activities	2,648,585 1,456,530
Net change in cash and cash equivalents for the year Cash and cash equivalents, beginning ofyear	91,581 323,908 824,705 500,797
Cash and cash equivalents, end ofyear	$ 916,286$ 824,705
Non-cash transactions: Flow -through premium (Note 14) Deferred income tax recovery Recognition of lease liabilities (Note 8) Lease termination Equipment loan Shares issued to settle convertible debentures and interest Exercise of stock options Recognition of equitycomponent of convertible debentures	$ - $ 95,231 - 40,125 - 75,295 - (14,087) - 135,650 831,816 733,022 178,339 - - 108,486

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

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NICOLA MINING INC. Consolidated Statements of Changes in Shareholders’ Equity (Expressed in Canadian dollars)

Number of Common Shares	Share Capital Warrants	Equity Component of Convertible Debentures Contributed Surplus	Accumulated Deficit Total Equity
Balance, January 1, 2020 246,844,530 Share issuance financing 10,530,765 Share issuance costs - Convertible debenture conversion 200,000 Share based compensation - Issuance of Second Tranche Debentures - Issuance of shares for interest on convertible debentures 5,739,593 Flow -through share premium - Net loss for theyear -	$ 76,640,941 $ 1,692,331 1,368,999 - (42,307) 2,163 20,434 - - - - - 712,588 - (95,231) - - -	$ 2,063,082 $ 7,518,860 - - - - (3,616) - - 72,471 108,486 - - - - - - -	$ (86,970,001) $ 945,213 - 1,368,999 - (40,144) - 16,818 - 72,471 - 108,486 - 712,588 - (95,231) (2,890,364) (2,890,364)
Balance, December 31, 2020 263,314,888	$ 78,605,424 $ 1,694,494	$2,167,952 $ 7,591,331	$ (89,860,365) $ 198,836
Balance, January 1, 2021 263,314,888 Share issuance financing 17,708,334 Share issue costs - Share-based compensation - Issuance of shares for interest on convertible debentures 7,350,632 Convertible debenture conversions 780,000 Stock options exercised 2,210,000 Net loss for theyear -	$ 78,605,424 $ 1,694,494 2,525,000 - (35,000) - - - 750,288 - 81,528 - 419,464 - - -	$ 2,167,952 $ 7,591,331 - - - - - 499,008 - - (14,133) - - (178,339) - -	$ (89,860,365) $ 198,836 - 2,525,000 - (35,000) - 499,008 - 750,288 - 67,395 - 241,125 (3,405,235) (3,405,235)
Balance, December 31, 2021 291,363,854	$ 82,346,704 $ 1,694,494	$2,153,819 $ 7,912,000	$ (93,265,600) $ 841,417

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

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

1. NATURE OF OPERATIONS AND GOING CONCERN

Nicola Mining Inc. (the “Company” or “Nicola” ) is a junior exploration company that is engaged in the business of identification, acquisition, and exploration of mineral property interests together with custom milling operations at its mill located in Merritt, B.C. (the “Merritt Mill” ). The Company’s head office is located at 3329 Aberdeen Road, Lower Nicola, B.C. Nicola is a publicly listed company incorporated under the Business Corporations Act (British Columbia). The Company’s common shares are listed on the TSX Venture Exchange (the “ TSX-V ”) under the symbol “NIM.V” and on OTCQB operated by the OTC Markets Group Inc. under the ticker “HUSIF”.

As at December 31, 2021, the Company had an accumulated deficit of $93,265,600 (December 31, 2020 - $89,860,365) and working capital deficiency of $5,272,297 (December 31, 2020 - $151,533 - surplus). To continue operations, the Company will be required to raise funds through the issuance of equity or and or debt, be successful recommencing operations at the Treasure Mountain project ( “Treasure Mountain Property” ) and/or Merritt Mill ( “Merritt Mill” ), together with ongoing exploration programs at its New Craigmont property ( “New Craigmont Property” ). These factors represent a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Realization values may be substantially different from carrying values as shown and the Company’s consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. Government measures to limit the spread of COVID-19, including the closure of non-essential businesses. Due to the rapid developments and uncertainty surrounding COVID-19, it is not possible to predict the impact that COVID-19 will have on the Company’s business, financial position, and operating results in the future. In addition, it is possible that estimates in the Company’s consolidated financial statements will change in the near term as are a result of COVID-19 and the effect of any such changes could be material, which could result in, among other things impairment of long-lived assets including property, plant, and equipment. The Company is closely monitoring the impact of the pandemic on all aspects of its business.

These consolidated financial statements have been prepared using the going concern concept, 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.

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

2. BASIS OF PRESENTATION

a) Statement of Compliance with International Financial Reporting Standards

The consolidated financial statements of Nicola have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“ IASB ”) and interpretations of the International Financial Reporting Interpretations Committee (“ IFRIC ”).

These consolidated financial statements have been authorized for release by the Company’s Board of Directors on February 28, 2022.

b) Basis of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Huldra Properties Inc. All inter-company balances, and transactions are eliminated on consolidation.

c) Basis of Measurement

These consolidated financial statements are presented in Canadian dollars, which is also the Company’s and its subsidiary’s functional currency and have been prepared on a historical cost basis, except for certain financial instruments, which are carried at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

d) Use of Estimates and Judgments

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments and estimates which affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. The judgments that have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are as follows:

i) Impairment of non-current assets

Non-current assets are tested for impairment when indicators of impairment are present. Calculating the estimated fair values of cash generating units for non-current asset impairment tests requires management to make estimates and assumptions with respect to metal selling prices, future capital expenditures, reductions in the amount of recoverable reserves, resources, and exploration potential, production cost estimates, discount rates and exchange rates. Reduction in metal price forecasts, increases in estimated future costs of production, increases in estimated future non-expansionary capital expenditures, reductions in the amount of recoverable reserves, resources, and exploration potential, and/or adverse current economics can result in a write-down of the carrying amounts of the Company’s non-current assets.

ii) Completion of commissioning

The determination of the date on which a mine or plant enters the production stage is a significant judgement since capitalization of certain costs ceases and depletion and amortization of capitalized costs commence upon entering production. As a mine or plant is constructed and commissioned, costs incurred are capitalized and proceeds from mineral sales are offset against the capitalized costs. This continues until the mine or plant can operate in the manner intended by management, which requires significant judgement in its determination.

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

2. BASIS OF PRESENTATION (cont’d)

e) Key Sources of Estimation Uncertainty

The significant assumptions about the future and other major sources of estimation uncertainty as at the end of the reporting period that have a significant risk of resulting in a material adjustment to the carrying amounts of the Company’s assets and liabilities are as follows:

Convertible debentures

The Company’s convertible debentures represent management’s best estimates and judgement in accounting for separate components of financial liability and an equity instrument. The identification of such components embedded within a convertible debenture requires significant judgement given that it is based on the interpretation of the substance of the contractual arrangement. Where the conversion option has a fixed conversion rate, the financial liability, which represents the obligation to pay coupon interest on the convertible debentures in the future, is initially measured at its fair value and subsequently measured at amortized cost. The residual is accounted for as an equity instrument at issuance.

Rehabilitation provisions

The Company’s rehabilitation provision represents management’s best estimate of the present value of the future cash outflows required to settle the liability. Management assesses these provisions on an annual basis or when new information becomes available. This assessment includes the estimation of the future rehabilitation costs, the timing of these expenditures, inflation, and the impact of changes in discount rates, interest rates and foreign exchange rates. The actual future expenditures may differ from the amounts currently provided if the estimates made are significantly different than actual results or if there are significant changes in environmental and/or regulatory requirements in the future.

3. SIGNIFICANT ACCOUNTING POLICIES

a) Cash and Cash Equivalents

Cash and cash equivalents comprise cash on deposit with banks, and highly liquid short-term interest-bearing investment, which are subject to an insignificant risk of change in value. Cash and cash equivalents consist of cash of $916,286 at December 31, 2021 (December 31, 2020 - $824,705).

b) Foreign Currencies

Transactions in currencies other than the functional currency are recorded at rates of exchange prevailing on the transaction dates. At each financial position reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the date of the statement of financial position. Non-monetary items that are measured of historical cost in a foreign currency are not retranslated.

c) Restricted Cash

Cash is considered to be restricted as it is subject to rights of a government agency.

d) Property, Plant and Equipment

On initial recognition, property, plant, and equipment (“ PPE ”) are valued at cost, being the purchase price and directly attributable costs of acquisition or construction required to bring the asset to the location and condition necessary to be capable of operating in the manner intended

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

by the Company, including appropriate borrowing costs and the estimated present value of any future unavoidable costs of dismantling and removing items.

PPE is subsequently stated at cost less accumulated depreciation, less any accumulated impairment losses, apart from land, which is not depreciated.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably. The carrying amount of a replaced asset is derecognized when replaced. Repairs and maintenance costs are charged to the statement of operations and comprehensive loss during the financial period in which they are incurred.

The Company allocates the amount initially recognized in respect of an item of PPE to its significant parts and depreciates separately each part. Residual values, method of depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate.

Gains and losses on disposal of an item of PPE are determined by comparing the proceeds from disposal with the carrying amount of the asset and are recognized within operating expenses in the statement of operations and comprehensive loss. During the period, no depreciation was recognized on the mill or related assets.

PPE are depreciated using the following methods:

Mill 20 years straight-line Furniture and office equipment 20% declining balance Computers 20% declining balance Camp, and other, site infrastructure 5 years straight-line Heavy machinery and equipment 5 years straight-line

e) Right-of-use Assets and Lease Liabilities

The Company has applied IFRS 16, Leases since January 1, 2019. The Company assesses whether a contract is or contains a lease inception of a contract. The Company recognize a rightof-use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Company recognizes the lease payments as an operating expense on a straight-line basis over the term unless another systematic basis is more representative of the usage of the economic benefits from the leased asset.

The lease liability is initially measured at a present value of the future lease payments at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrow rate. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, payments made on or before the lease commencement and any direct costs. They are subsequently measured at cost less depreciation and any impairment losses. Right-of-use assets are depreciated over the shorter period of the lease term and useful life of the underlying asset.

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

f) Commercial and Pre-commercial Production

Commercial production is deemed to have commenced when management determines that the operational commissioning of major mine plant components is complete, operating results are being achieved consistently for a determined period, and that there are indicators that these operational results will continue. The following factors may indicate that commercial production has commenced:

• substantially all major capital expenditures have been completed to bring the plant or mine to the condition necessary for it to be capable of operating in the manner intended by management,

• a significant portion of plant throughput capacity is achieved, and

• all facilities are operating at a steady state of production.

g) Impairment of Non-financial Assets

At the date of each statement of financial position, the carrying amounts of the Company’s nonfinancial assets are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment, if any. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cashgenerating unit to which the asset belongs.

An asset’s recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in the statement of operations and comprehensive loss for the period.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cashgenerating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in the statement of operations and comprehensive loss.

h) Mineral Interests

The Company follows the method of accounting for its mineral interests whereby all costs related to acquisition and site restoration are capitalized by project, net of recoveries received. The amounts shown as mineral interests represent costs incurred to date less amounts written off, and do not necessarily represent present or future values. These costs will be amortized against revenue from future production or written off if the interest is abandoned or sold. The ultimate recoverability of amounts capitalized for mineral interests is dependent upon the delineation of economically recoverable ore reserves, the Company’s ability to obtain the necessary financing to complete development and realize profitable production or proceeds from the disposition thereof.

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

i) Exploration and Evaluation Expenditures

Exploration and evaluation expenditures (“ E&E ”) excluding mineral interest acquisition and site restoration costs are charged to the statement of operations and comprehensive loss as incurred. When it has been established that a mineral deposit is commercially mineable, and a decision has been made to formulate a mining plan (which occurs upon completion of a positive economic analysis of the mineral deposit), the costs subsequently incurred to develop the mine on the property prior to the start of the mining operations is capitalized. Any recoveries received that relate to exploration costs are recorded as a recovery of such costs.

j) Revenue Recognition

Revenue from the sale of gold and silver concentrate is recognized at the fair value of the consideration received and when all significant risks and rewards of ownership pass to the purchaser including delivery of the product, there is a fixed or determinable selling price and collectability is reasonably assured. Gold, and silver revenue are recorded at the time of physical delivery and transfer of title. Sales prices are fixed at the delivery date based on the terms of the contract or at spot prices.

Revenue from the sale of gravel, ash, soil, and other income is recognized at the fair value of the consideration received and when all significant risks and rewards of ownership pass to the purchaser including delivery of product, there is a fixed or determinable selling price and collectability is reasonably assured.

k ) Financial Instruments

Financial assets

The Company will now classify 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:

Financial assets at FVTPL: Financial assets carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statement of (loss) income. 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 (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 in they 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,

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

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	Classification
Cash and cash equivalents	Fair value through profit or loss
Accounts receivable and other assets	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, secured convertible debentures, equipment loan, and lease liabilities all of 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 income (loss) immediately, while transaction costs associated with all other financial instruments are included in the initial measurement of the financial instrument.

l) Share Capital

Common shares are classified as shareholders’ equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of tax, from the proceeds.

The Company may issue units including common shares and warrants. To value these units, the Company uses residual value method. Under this method the Company values the common share, the easier component to value, and assigns the residual value to the warrant.

m) Share-based Payments

The Company has a stock option plan (the “ Stock Option Plan ”) that is described in Note 15(a). The Stock Option Plan allows directors, officers, employees, and consultants of the Company to acquire shares of the Company. The fair value of stock options granted is recognized as an employee or consultant expense with a corresponding increase in shareholders’ equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee.

Page 15

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Options issued to Employees and others providing similar services

The fair value of employee stock options is measured at grant date, and each tranche is recognized using the graded vesting method over the period during which the stock options vest. The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the stock option, the impact of dilution, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the stock option.

Options issued to non-Employees

Options issued to non-employees are measured based on the fair value of the goods or services received, at the date of receiving those goods or services. If the fair value of the goods or services cannot be estimated reliably, the stock options are measured by determining the fair value of the stock options granted, using a Black-Scholes option pricing model.

n) Provisions

Provisions are recognized where a legal or constructive obligation has been incurred because of past events; it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made. If material, provisions are measured at the present value of the expenditures expected to be required to settle the obligation. The increase in any provision due to passage of time is recognized as finance costs in the statement of operations and comprehensive income (loss).

o) Asset Retirement Obligation

The Company records the present value of estimated costs of legal and constructive obligations required to restore the site in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling, and removing structures, rehabilitating mines and the tailings dam, dismantling facilities, closure of plant and waste sites and restoration, reclamation and re-vegetation of affected areas.

The obligation for mine closure activities is estimated by the Company using mine closure plans or other similar studies which outline the requirements that will be carried out to meet the obligations. Since the obligations are dependent on the laws and regulations of the countries in which the mines operate, the requirements could change because of amendments in the laws and regulations relating to environmental protection and other legislation affecting resource companies.

As the estimate of the obligations is based on future expectations, several assumptions and judgments are made by management in the determination of closure provisions. The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out.

The present value of decommissioning and site restoration costs are recorded as a non-current liability. The provision is discounted using a real, risk free pre-tax discount rate. Charges for accretion and restoration expenditures are recorded as operating activities. In subsequent periods, the carrying amount of the liability is accreted by a charge to the statement of operations and comprehensive income (loss) to reflect the passage of time and the liability is adjusted to reflect any changes in the timing of the underlying future cash flows.

Changes to the obligation resulting from any revisions to the timing or amount of the original estimate of undiscounted cash flows are recognized as an increase or decrease in the decommissioning provision, and a corresponding change in the carrying amount of the related longlived asset. Where rehabilitation is conducted systematically over the life of the operation,

Page 16

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

rather than at the time of closure, or provision is made for the estimated outstanding continuous rehabilitation work at each statement of financial position date the cost is charged to the statement of operations and comprehensive income (loss).

Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and charged against the statement of operations and comprehensive loss as extraction progresses.

p) Flow-Through Shares

Current Canadian tax legislation permits mining entities to issue flow-through shares to investors. Flow-through shares are securities issued to investors whereby the deductions for tax purposes related to exploration and evaluation expenditures may be claimed by investors instead of the entity. The issue of flow-through shares is in substance an issue of ordinary shares and the sale of tax deductions. At the time the Company issues flow-through shares, the sale of tax deductions is deferred and presented as other liabilities in the statement of financial position to recognize the obligation to incur and renounce eligible resource exploration and evaluation expenditures. The tax deduction is measured as the difference, if any, between the current market price of the Company’s common shares and the issue price of the flow-through shares. Upon incurring eligible resource exploration and evaluation expenditures, the Company recognizes the sale of tax deductions as a flow-through share premium on the statement of operations and comprehensive income (loss) and reduces the liability.

q) Secured Convertible Debentures

Convertible debentures are financial instruments which are accounted for separately dependent on the nature of their components: a financial liability and an equity instrument. The identification of such components embedded within a convertible debenture requires significant judgement given that it is based on the interpretation of the substance of the contractual arrangement. Where the conversion option has a fixed conversion rate, the financial liability, which represents the obligation to pay coupon interest on the convertible debentures in the future, is initially measured at its fair value and subsequently measured at amortized cost. The residual is accounted for as an equity instrument at issuance.

r) Income and Loss per Share

Income (loss) per share is based on the weighted average number of common shares outstanding for the year.

Diluted income (loss) per common share is calculated by adjusting the weighted average number of common shares outstanding for the effect of conversion of all potentially dilutive share equivalents, such as stock options and warrants, and assumes that the receipt of proceeds upon exercise of the options are used to repurchase common shares at the average market price during the period. The net effect of the shares issued less the shares assumed to be repurchased is added to the basic weighted average shares outstanding. For convertible instruments, the common shares to be included in the diluted per share calculation assumes that the instrument is converted at the beginning of the period (or issue date if later). The profit or loss attributable to common shareholders is adjusted to eliminate related interest costs recognized in profit or loss for the period.

In a period when the Company reports a loss, the effect of potential issuances of shares under options and warrants outstanding would be anti-dilutive and, therefore basic and diluted loss and comprehensive per share are the same.

Page 17

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

s) Related Party Transactions

Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties may be individuals or corporate entities. A transaction is a related party transaction when there is a transfer of resources, services, or obligations.

t ) Operating Segments

The Company operates in one segment being the exploration and development of its mineral exploration properties. All the Company’s assets are in Canada.

u) Standards Issued or Amended but not yet effective

The Company has not applied the following revised IFRS that has been issued but was not yet effective at December 31, 2021. This accounting standard is not currently expected to have a significant effect on the Company’s accounting policies or financial statements.

IAS 16 , Property, Plant and Equipment – Proceeds before Intended Use (effective January 1, 2022). The amendment prohibits deducting from the cost of property, plant and equipment amounts received from selling items produced while preparing the asset for its intended use. Instead, a company will recognize such sale proceeds and related cost in profit or loss.

4. AMOUNTS RECEIVABLE

	December 31, 2021	December 31, 2020
Gravel, ash, soil, and other
receivables	$ 750,513	$98,379
GST -(net)	(15,643)	2,502
	$ 734,870	$ 100,881

Page 18

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

5. PROPERTY, PLANT AND EQUIPMENT

				Heavy	Computers
			Camp and Site	Machinery	and Office
	Land	Mill	Infrastructure	and Equipment	Equipment	TOTAL
	$	$	$	$	$	$
Cost
Balance at January 1, 2020	7,756,507	1,605,299	52,585	282,469	30,220	9,727,080
Additions	-	-	-	145,150	2,000	147,150
Balance at December 31,2020	7,756,507	1,605,299	52,585	427,619	32,220	9,874,230
Additions	-	81,697	175,000	32,500	6,689	295,886
Disposals	-	-	(75,000)	-	-	(75,000)
Recoveries from sale of
concentrate	-	(40,012)	-	-	-	(40,012)
Balance at December 31,2021	7,756,507	1,646,984	152,585	460,119	38,909	10,055,104

Accumulated Depreciation
Balance at January 1, 2020	-	359,287	24,688	260,817	23,756	668,548
Depreciation for theyear	-	80,264	10,142	23,085	1,743	115,234
Balance at December 31, 2020	-	439,551	34,830	283,902	25,499	783,782
Depreciation for the year	-	80,265	29,036	38,782	2,703	150,786
Disposals	-	-	(8,750)	-	-	(8,750)
Balance at December 31,2021	-	519,816	55,116	322,684	28,202	925,818
Carrying Amounts
At January1,2020	7,756,507	1,246,012	27,897	21,652	6,464	9,058,532
At December 31,2020	7,756,507	1,165,748	17,755	143,717	6,721	9,090,448
At December 31, 2021	7,756,507	1,127,168	97,469	137,435	10,707	9,129,286

The Company entered into an agreement for the sale of concentrate. Sales relating to the mill feed used during the mill commissioning process are credited against the cost of the mill as recoveries. Amounts associated with the sale of concentrate are recognized when all significant risks and rewards of ownership of the concentrate are transferred to the customer, which occurs when the concentrate has been delivered to the customer and collectability is reasonably assured.

The Company’s concentrate sales contract provided for a provisional payment based upon provisional assays and quoted metal prices. Final settlement is based on applicable commodity prices set on specified quoted periods, which occur two months after the shipment arrives at the smelter and is based on average metal prices. For this purpose, the selling price can be measured reliably for the Company’s gold and silver sales as there exists an active and freely traded commodity exchange such as the London Metals Exchange and the value of product sold by the Company is directly linked to the form in which it is traded on the market.

For the year ended December 31, 2021, the Company received $425,835 in recoveries from the sale of concentrate and incurred processing costs of $385,823 for net recoveries of $40,012.

Page 19

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

5. PROPERTY, PLANT AND EQUIPMENT (cont’d)

During the year ended December 31, 2021, the Company received $144,000 in proceeds on the sale of mobile equipment with a net book value at date of sale of $60,250 resulting in a gain on sale of mobile equipment of $77,750.

Mill costs (including care and maintenance costs) incurred is as follows:

MILL COSTS Costs incurred during the year Amortization and depreciation Pow er and fuel Mill supplies and rentals Mill repairs Mill insurance Property taxes Reclamation of mill site Salaries and w ages Share based compensation Water sampling and reports Permitting and regulatory fees Total costs incurred during the year	Years Ended December 31, 2021 2020 $ $
	147,275 113,584 77,708 49,225 71,266 35,141 343,107 99,304 191,469 177,662 40,856 32,947 59,984 185,371 519,176 271,223 3,579 - 25,009 36,835 727 32,894
	1,480,156 1,034,186

6. MINERAL INTERESTS

The Company holds a 100% interest in 30 mineral claims and 1 mineral lease at the Treasure Mountain Property, located near Hope, B.C. The properties are subject to a 2% net smelter royalty.

The Company holds a 100% interest in New Craigmont Property comprising 22 mineral claims and 10 mineral leases located in Lower Nicola, BC. The properties are subject to a 2% net smelter royalty.

The Company took an impairment write-down in relation to its Treasure Mountain Property in 2014 The property remains in good standing, and further carrying charges and evaluation costs are being charged to the consolidated statement of operations and comprehensive loss as an operating expense.

Dominion Creek Property

On May 31, 2021, the Company entered into a Mineral Property Purchase Agreement and acquired a 50% interest in 8 mineral claims known as the Dominion Creek Property (“Gold Project”) from High Range Exploration Ltd ( “High Range” ). The Dominion Creek Property is located 110 kilometers eastsoutheast of Prince George, BC. The Company acquired the 50% by paying $225,000, $75,000 of which was used to commence work on a 10,000-tonne bulk sample permit application.

Page 20

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

6. MINERAL INTERESTS (cont’d)

The Company’s group of claims consists of the following:

a) The Treasure Mountain group of claims located in the Similkameen Mining Division of British Columbia b) A Crow n Grant mineral claim (Lot 1210) in the Yale Mining Division contiguous to the Treasure Mountain Claims know n as the "Eureka" c) The surface rights to Lot 1209 located in the Yale Mining Diversion of British Columbia know n as the “Whynot Fraction” d) Acquisition of 50% interest in Dominion Creek Property, located in the Cariboo Mining Diversion of British Columbia	December 31, 2021 $ December 31, 2020 $
	1 1 1 1 1 1 225,000 -
	225,003 3

Exploration costs incurred is as follows:

Note EXPLORATION COSTS Costs incurred during the year New Craigmont Property Assay Drilling and related costs Field supplies and rentals First Nations liaison consulting 16 Geological consulting and technical fees Mapping Tenure lease Share-based compensation (Note 15) BC Mining exploration tax credit Treasure Mountain Property First Nations liaison consulting Property taxes Water sampling Permitting Soil sampling Tenure lease Total costs incurred during the year	Years Ended December 31, 2021 2020 $ $
	44,540 35,592 299,534 651 70,543 40,728 68,553 1,960 217,725 87,728 68,282 8,750 12,444 1,637 56,751 - (100,504) (13,853)
	737,868 163,193
	16,588 - 10,304 7,409 63,466 72,424 3,308 17,000 95,669 6,700 6,700
	114,058 185,510
	851,926 348,703

Page 21

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

7. ASSET RETIREMENT OBLIGATION

Opening balance Accretion expense Closing balance	December 31, 2021 $ December 31, 2020 $ 3,831,834 3,674,785 77,845 157,049
	3,909,679 3,831,834

Merritt Mill

The Merritt Mill reclamation costs were adjusted using a long-term inflation rate of 1.4% (2020 – 1.4%) and then discounted using a risk-free rate of 2.34% (2020 – 2.34%)

The Company estimates the reclamation costs associated with the Merritt Mill to be $3,326,734 (December 31, 2020 - $3,326,734). The Company anticipates it will settle these obligations over 25 years (2020 – 25 years).

To obtain its milling permits, the Company posted security bonds and deposits of $700,000.

Treasure Mountain

The Company discounted the estimated costs relating to the reclamation of the Treasure Mountain Property using a real discount rate of 0% since the short-term inflation and risk-free rates are similar.

The Company’s estimated reclamation costs associated with the Treasure Mountain Property is $505,100 (December 31, 2020 - $505,100). To obtain its final permits, the Company posted security bonds and deposits of $505,100 with the government of British Columbia. The Company anticipates it will settle these obligations over the next 3 to 5 years.

Ash and Material Disposal Remediation Contracts

On March 15, 2020, the Company amended the August 15, 2017, thirty-year ash management contract with Merritt Operations Services Limited Partnership that was terminated as of November 30, 2021, following the sale of the Cogen plant to Nicola Clean Energy Power Ltd as of December 1, 2021. The ash management services continue on a month-to-month basis until further notice and the discharge rate remains the same. On June 18, 2020, the Company received an amendment approving the import and storage of fly ash and remediated soil from Ministry of Energy, Mines and Low Carbon Innovation. The Company accepts ash which are blended with fill soils and plant seeds to assist with the remediation of the Merritt Mill site. The Company received on October 21, 2020, a Notice of Departure from Ministry of Energy, Mines and Low Carbon Innovation to receive Trans Mountain material for reclamation purposes. Net proceeds from the receipt of ash and soil materials for remediation purposes are recorded in Gravel, ash, soil, and other income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Page 22

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

8. RIGHT OF USE ASSETS AND LEASE LIABILITIES

Right-of-Use Assets Opening balance Additions Disposals Depreciation Lease Liabilities Opening balance Additions Disposals Payments Accrued interest Current portion Non-current portion	December 31, December 31, 2021 2020 $ 69,845 $ 28,424 - 75,295 - (14,087) (18,828) (19,787)
	51,017 69,845
	$ 71,068 $ 30,212 - 75,295 - (14,087) (24,240) (25,375) 8,290 5,023
	55,118 71,068
	$17,553 $ 15,927 37,565 55,141

The lease liabilities were discounted at a discount rate of 13% as at January 1, 2019.

As at December 31, 2021, the remaining payments over the term of the leases are due as follows: $24,240 in 2022, and 2023 plus $15,438 in 2024.

9. RESTRICTED CASH

The Company has in place deposits amounting to $1,211,367 at December 31, 2021 (December 31, 2020 - $1,211,013) registered in the name of the British Columbia Ministry of Finance as security for its mining permits and for reclamation clean up at the Treasure Mountain Property, the Merritt Mill and decommissioned tailings, and the New Craigmont Property.

10. EQUIPMENT LOAN

On June 1, 2020, the Company financed the purchase of used equipment (Note 5) with a third-party leasing company. The loan will incur interest at a rate of 7.4% per annum and will be repaid over a three-year term.

Principal amount Accrued interest Less payment of principal Less payment of interest (Note 13) Subtotal Current portion Non-current portion	December 31, 2021 December 31, 2020 $ 111,494 $ 135,650 6,787 5,317 (43,739) (24,156) (6,787) (5,317)
	$ 67,755 $ 111,494
	$ 57,087 $ 43,739 $ 10,668 $ 67,755

Page 23

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

11. WORKING CAPITAL LOAN

On April 6, 2021, the Company signed a purchase contract for the sale of gold and silver concentrate to Ocean Partners UK Limited. The purchase contract includes a USD$500,000 clause that allows the Company to draw down funds for the purpose of working capital. On April 27, 2021, the Company drewdown USD$250,000 (CAD$310,245). The funds are expected to be allocated towards preparing the mill for production and potential acquisitions. The loan bears interest at 5.5% plus the three-month LIBOR rate per annum which is payable monthly and repayable in six months. The loan has been designated a financial liability at amortized costs. The loan was repaid on October 14, 2021.

		December 31,		December	31,
		2021		2020
Principal amount	$	310,245	$		-
Accrued interest (Note 13)		9,763			-
Less payment of interest		(7,774)			-
Less payment of principal		(310,245)			-
Foreign Exchange		(1,989)			-
	$	-	$		-

12. SECURED CONVERTIBLE DEBENTURE

The outstanding principal and interest of the Debentures and Second Tranche Debentures are secured against the assets of Nicola.

In fiscal 2019, the holders of the First Tranche Debentures in aggregate principal amount of $7,000,882 were granted an aggregate 2% net smelter returns royalty with respect to the Treasure Mountain Property (the “ First Tranche Royalty ”) in exchange for retirement of the First Tranche Debentures, provided that each holder of the First Tranche Debentures shall only be entitled to their pro rata share of such royalty based on their individual investment pursuant to the First Tranche.

On November 21, 2019, the Company agreed to pay all interest owing on the First Tranche Debentures by issuance of 7,321,981 common shares at a value of $0.095 in settlement of interest of $695,588.

On November 21, 2019, the Company closed a first tranche of the Debentures totaling $7,000,882, of which $45,000 was by issuance of a new Debenture and $6,955,882 was debt extinguishment and refinanced with the previous $6,955,882 First Tranche Debenture holders. The Debentures bear interest at a rate of 10% per annum, which is payable annually, in cash or in common shares at market price at the option of the Company and mature on November 21, 2022. The principal amount of the Debentures may be converted into common shares prior to the maturity date, at the option of the holder, at a price of $0.10 per share. Repayment of the outstanding principal and interest of the Debentures will be secured against the assets of the Company.

For accounting purposes, the proceeds received of $7,000,882 have been allocated based on the relative fair values of the debt. The fair value of the debentures was determined to be $5,266,867 using a discount rate of 20%. Residual value of $1,734,015 has been allocated as $1,254,852 to the equity component net of $468,184 deferred income tax recovery and $10,980 relating to the equity component of transaction costs. Transaction costs of $44,331 have been allocated to the Debentures.

Page 24

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

12. SECURED CONVERTIBLE DEBENTURE (cont’d)

On January 9, 2020, the Company closed the second and final tranche of the Debentures of $350,000 raising total proceeds of $7,350,882 from the closing of the first and second tranches.

For accounting purposes, the proceeds of $350,000 have been allocated based on the relative fair values of debt. The fair value of the debentures was determined to be $263,310 using a discount rate of 20%. Residual value of $86,690 has been allocated as $63,284 to the equity component net of $23,406 deferred income tax recovery.

On May 20, 2020, the Company issued in $250,000 secured convertible debentures on expiry of the original debentures. The Debentures bear interest at a rate of 10% per annum, which is payable annually, in cash or in common shares at market price at the option of the Company and mature May 20, 2023. The principal amount may be converted into common shares prior to maturity date, at the option of the holder, at a price of $0.10 per share. Repayment of the outstanding principal and interest of the Debentures will be secured against the assets of the Company.

For accounting purposes, the principal value of $250,000 has been allocated first to the fair value of the debt portion. The fair value of the debentures was determined to be $188,079 using a discount rate of 20%. Residual value of $61,921 has been allocated as $45,202 to the equity component net of $16,719 deferred income tax recovery.

On May 20, 2020, the Company issued 138,888 common shares at a value of $0.09 per share in settlement of interest of $12,500 of Second Tranche Debentures.

On August 4, and August 13, 2020, a January 9, 2020, Debenture holder elected to convert a total of $20,000 at a conversion price of $0.10 and issued 200,000 common shares in accordance with terms of the Debenture. For accounting purposes, the fair value of the Debenture on conversion dates of $16,818 and the residual equity component of $3,616 were transferred to share capital.

On November 24, 2020, the Company issued 5,600,705 common shares at a value of $0.125 per share in settlement of interest of $700,088 of November 21, 2019 $7,000,882 convertible debentures.

On January 12, 2021, the Company issued 264,000 common shares at a value of $0.125 per share in settlement of interest of $33,000 of January 9, 2020 $330,000 convertible debentures.

On February 2, 2021, a November 21, 2019 Debenture holder elected to convert a total of $45,000 at a conversion price of $0.10 and issued 450,000 common shares in accordance with terms of the Debenture. For accounting purposes, the fair value of the Debenture on conversion date of $38,405 and residual equity component of $8,136 were transferred to share capital.

On February 2, 2021, a May 20, 2020 Debenture holder elected to convert a total of $20,000 at a conversion price of $0.10 and issued 200,000 common shares in accordance with terms of the Debenture. For accounting purposes, the fair value of the Debenture on conversion date of $17,390 and the residual equity component of $3,616 were transferred to share capital.

On June 1, 2021, the Company issued 143,750 common shares at a value of $0.16 per share in settlement of interest of $23,000 of May 20, 2020 convertible debentures.

On November 5, 2021, a November 21, 2019 Debenture holder elected to convert a total of $13,000 at a conversion price of $0.10 and issued 130,000 common shares in accordance with terms of the Debenture. For accounting purposes, the fair value of the Debenture on conversion date of $11,600 and residual equity component of $2,381 were transferred to share capital.

Page 25

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

12. SECURED CONVERTIBLE DEBENTURE (cont’d)

On November 22, 2021, the Company issued 6,942,882 common shares at a value of $0.10 per share in settlement of interest of $694,288 of November 21, 2019 $6,942,882 convertible debentures.

The outstanding principal and interest of the Debentures and Second Tranche Debentures are secured against the assets of Nicola.

Principal amount Conversion of Convertible Debenture Less payment of interest Less payment of interest in shares Retirement of Second Tranche Debentures Issuance of Debentures Accrued interest and accretion (Note 13) Current portion Non-current portion	December 31, 2021 December 31, 2020 $ 6,369,276 $ 5,610,544 (67,395) (16,818) - (12,500) (750,288) (712,588) - (250,000) - 451,389 1,366,345 1,299,249
	$ 6,917,938 $ 6,369,276
	6,372,891 - 545,047 6,369,276
	$ 6,917,938 $ 6,369,276

13. FINANCE COSTS

Equipment loan (Note 10) Working capital loan (Note 11) Secured convertible debentures (Note 12) Lease liability (Note 8) Other	2021 2020 $ $ 6,787 5,317 9,763 - 1,366,345 1,299,249 8,290 5,023 (6,328) (10,558)
	1,384,857 1,299,031

14. SHARE CAPITAL AND RESERVES

a) Common Shares

Authorized

The authorized capital stock of the Company is an unlimited number of common shares without par value.

Issued

Common shares issued and outstanding at December 31, 2021 were 291,363,854 (December 31, 2020 – 263,314,888).

Page 26

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

14. SHARE CAPITAL AND RESERVES (cont’d)

On May 20, 2020, the Company issued 138,888 common shares at a value of $0.09 per share in settlement of interest of $12,500 (Note 12).

On August 4 and 13, 2020, the Company issued a total of 200,000 common shares on conversion of $20,000 of the convertible debentures issued January 9, 2020, at an exercise price of $0.10 (Note 12).

On September 2, 2020, the Company issued 5,769,230 units at a price of $0.13 per unit for gross proceeds of $750,000. Each unit consisted of one common share and one-half one common share purchase warrant. Each whole warrant is exercisable into one common share at a price of $0.20 per share for a period of two years from the date of issuance.

On November 24, 2020, the Company issued 5,600,705 common shares at a value of $0.125 per share in settlement of interest of $700,088 (Note 12).

On December 22, 2020, the Company issued 4,761,535 flow-through units at a price at $0.13 per unit for gross proceeds of $618,999. Each unit consisted of one common share and one-half one common share purchase warrant, with each whole warrant exercisable into one additional common share at a price of $0.17 per share for a period of 2 years. The Company also paid finders fees of $40,144 and issued 66,500 share purchase warrants. The finder’s share purchase warrants had a fair value of $2,163 estimated using the Black-Scholes option pricing model with a volatility of 77.63%, risk-free interest rate of 0.23%, dividend rate of 0%, and expected life of 2 years. The flowthrough share premium liability associated with this issuance was $95,231.

On January 6, 2021, the Company issued 900,000 common shares at a value of $0.10 per share in connection with the exercise of 900,000 stock options and $73,827 was transferred from contributed surplus to share capital.

On January 11, 2021, the Company issued 264,000 common shares at a value $0.125 per share in settlement of interest of $33,000 (Note 12).

On January 21, 2021, the Company issued 500,000 common shares at a value of $0.10 per share in connection with the exercise of 500,000 stock options and $40,989 was transferred from contributed surplus to share capital.

On February 2, 2021, the Company issued 650,000 common shares on conversion of $45,000 of the convertible debentures issued November 21, 2019, and $20,000 of the convertible debentures issued May 20, 2020, both conversions exercised at $0.10 (Note 12).

On April 12, 2021, the Company issued 500,000 common shares at a value of $0.12 per share in connection with the exercise of 500,000 stock options and $26,814 was transferred from contributed surplus to share capital.

On April 16, 2021, the Company issued 125,000 common shares at a value of $0.10 per share in connection with the exercise of 125,000 stock options and $10,235 was transferred from contributed surplus to share capital.

On April 27, 2021, the Company issued 13,333,334 common shares at a price of $0.15 per share for gross proceeds of $2,000,000.

Page 27

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

14. SHARE CAPITAL AND RESERVES (cont’d)

On May 17, 2021, the Company issued 135,000 common shares at a value of $0.175 per share in connection with the exercise of 135,000 stock options and $21,125 was transferred from contributed surplus to share capital.

On June 1, 2021, the Company issued 143,750 common shares at a value of $0.16 per share in settlement of interest of $23,000 (Note 12).

On June 7, 2021, the Company issued 50,000 common shares at a value of $0.10 per share in connection with the exercise of 50,000 stock options and $4,075 was transferred from contributed surplus to share capital.

On October 14, 2021, issued 4,375,000 flow-through shares at a price of $0.12 per share for gross proceeds of $525,000. The Company also paid finders fees of $34,999. No flow-through share premium liability is associated with the issuance.

On November 5, 2021, a November 21, 2019 Debenture holder elected to convert a total of $13,000 at a conversion price of $0.10 and issued 130,000 common shares in accordance with terms of the Debenture. For accounting purposes, the fair value of the Debenture on conversion date of $13,981 and the residual equity component of $2,381 were transferred to share capital (Note 12).

On November 22, 2021, the Company issued 6,942,882 common shares at a value of $0.10 per share in settlement of interest of $694,288 of November 21, 2019 $6,942,882 convertible debentures (Note 12).

Flow-Through Premium Liability:

The following is a continuity schedule of the liability portion of the flow-through share issuances:

Balance as of December 31, 2019 Flow-through premium liability Balance as of December 31, 2020 Settlement of flow through share premium liability pursuant to qualified expenditures Balance as of December 31, 2021	$ - 95,231
	95,231 (95,231)
	$ -

The Company raised in 2021 $525,000 flow-through financing of which $124,854 has been expended in eligible exploration expenditures to December 31, 2021 with $400,146 remaining in fiscal 2022.

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

14. SHARE CAPITAL AND RESERVES (cont’d)

b) Share Purchase Warrants

The following is summary of warrant transactions:

		Weighted	Weighted
	Number of	Average Exercise
	Warrants		Price
Balance at January 1, 2020	18,227,698	$	0.16
Issued warrants	5,331,882		0.19
Expired warrants	(10,936,033)		0.15
Balance at December 31, 2020	12,623,547		0.18
Expired warrants	(2,625,000)		0.15
Balance at December 31, 2021	9,998,547		0.18

As of December 31, 2021, the Company had outstanding warrants (and exercisable) as follows:

Number 4,666,665 2,884,615 2,380,767 66,500 9,998,547	Exercise Price $0.18 $0.20 $0.17 $0.17	Expiry Date July 23, 2022 September 2, 2022 December 22, 2022 December 22, 2022

15. SHARE-BASED PAYMENTS

a) Stock Option Plan

The Company’s Board of Directors approved the adoption of the Stock Option Plan in accordance with the policies of the TSX-V. The Board of Directors is authorized to grant stock options to directors, officers, consultants and or employees. The exercise price of stock options granted under the Stock Option Plan shall be as determined by the Board of Directors when such stock options are granted, subject to any limitations imposed by any relevant stock exchange or regulatory authority.

The Company shall not grant stock options under the Stock Option Plan which will, when exercised, exceed 10% of the issued and outstanding shares, and further subject to the applicable rules and regulations of all regulatory authorities to which the Company is subject, including the TSX-V, provided that the number of shares reserved for issuance, within any twelve-month period:

• i) to any one option holder shall not exceed 5% of the total number of issued shares,

• ii) to any one consultant shall not exceed 2% in the aggregate of the total number of issued shares, and

• iii) to all persons employed or engaged to provide investor relations activities shall not exceed 2% in the aggregate of the total number of issued shares. In addition, stock options issued to consultants performing investor relations activities must vest in stages over 12 months with no more than ¼ of the options vesting in any three-month period.

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

15. SHARE-BASED PAYMENTS (cont’d)

If any stock option expires or otherwise terminates for any reason without having been exercised in full, the number of shares which would have been acquired on the exercise of such stock option shall again be available for the purposes of the Stock Option Plan.

The Company’s 2020 annual general, and special meeting of its shareholders was held on June 15, 2021. At such meeting, the motion to permit the Stock Option Plan to continue as a rolling plan was approved.

The following is a summary of changes in stock options:

Balance at January 1, 2020 Issued options Expired options Cancelled options Balance December 31, 2020 Cancelled options Expired options Issued options Exercised options Balance at December 31, 2021	Number of Options Weighted Average Exercise Price 11,075,000 $ 0.14 1,350,000 0.12 (1,550,000) 0.11 (200,000) 0.10 10,675,000 0.14 (400,000) 0.13 (3,415,000) 0.17 5,750,000 0.14 (2,210,000) 0.11 10,400,000 $ 0.14

As at December 31, 2021, the following stock options were outstanding and exercisable:

			Weighted
			Average
Number	Number	Exercise	Contractual
Outstanding	Exercisable	Price	Life (Years)	Expiry Date
2,650,000	2,650,000	$0.165	.99	December 27, 2022
1,350,000	1,350,000	$0.10	1.99	December 28, 2023
850,000	850,000	$0.12	3.06	January 20,2025
3,650,000	3,650,000	$0.15	4.02	January 8, 2026
300,000	300,000	$0.16	4.33	April 28, 2026
1,600,000	1,600,000	$0.11	4.75	October 5, 2026
10,400,000	10,400,000

.

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

15. SHARE-BASED PAYMENTS (cont’d)

b) Fair Value of Stock Options Issued During the Year ended

The weighted average fair value at grant date of stock options granted during the year ended December 31, 2021, was $0.14 per stock option.

The model inputs for options granted during the year ended December 31, 2021:

		Share
		Price at	Exercise
	Expiry	Grant Date	Price	Risk-Free		Volatility	Dividend
Grant Date	Date	$	$	Interest Rate	Expected Life	Factor	Yield
01/08/2021	01/08/2026	0.15	0.15	0.44%	60 months	77.51%	0%
04/28/2021	04/28/2026	0.16	0.16	0.93%	60 Months	73.33%	0%
10/05/2021	10/05/2026	0.10	0.11	1.10%	60 months	96.92%	0%

The Company recorded share-based payment expense of $499,008 (2020 - $72,471) during the year ended December 31, 2021, of which $438,678 (2020 - $72,471) has been included in operating expenses, $56,751 (2020 - $Nil) has been included in exploration costs and $3,579 (2020 - $Nil) included in mill expenses.

16. RELATED PARTY TRANSACTIONS

Key management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities of the Company, directly or indirectly, and consist of its directors, the Chief Executive Officer, and the Chief Financial Officer.

The following is a summary of the Company’s key management compensation:

Consulting fees Salaries and benefits Share-based compensation	Year Ended December 31, 2021 2020 $ $
	180,000 220,000 120,000 120,000 182,206 32,209
	482,206 372,209

Included in convertible debentures is $Nil (December 31, 2020 – $65,000) owing to the Chief Executive Officer of the Company.

Page 31

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

17. FINANCIAL and CAPITAL RISK MANAGEMENT

Fair Value

Cash and cash equivalents are carried at fair value using level 1 fair value measurement. The carrying value of receivables, and accounts payable and accrued liabilities and other payables, with the exceptions of convertible debentures, lease liabilities, and equipment loans, approximate their fair value because of the short-term nature of these instruments.

The Company records its financial instruments at amortized cost.

The financial instruments have been characterized on a fair value hierarchy based on whether the inputs to those valuation techniques are observable (inputs reflect market data obtained from independent sources) or unobservable (inputs reflect the Company’s market assumptions).

The three levels of fair value estimation are:

Level 1 – quoted prices in active markets for identical instruments.

Level 2 – quoted prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Risk Exposure and Management

Overview

The Company has exposure to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives. The principal financial risks to which the Company is exposed are credit risk, interest rate risk, liquidity risk, commodity and equity price risk, and currency risk.

Credit Risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its obligations. As at December 31, 2021, the Company’s maximum exposure to credit risk is the carrying value of its cash and cash equivalents, and amounts receivables in the amount of $1,651,156.

All off the Company’s cash and cash equivalents are held with a major financial institution in Canada and management believes the exposure to credit risk with respect to such institutions is not significant. Those financial assets that potentially subject the Company to credit risk are primarily receivables. The Company considers the risk of material loss to be significantly mitigated due to the financial strength of the parties from whom the receivables are due, including government organizations.

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

17. FINANCIAL and CAPITAL RISK MANAGEMENT (cont’d)

Interest Rate Risk

The Company’s financial assets exposed to interest rate risk consist of cash and short-term investments balances. The interest earned on the cash balances approximates fair value rates, and the Company is not at a significant risk to fluctuating rates.

The Company’s Convertible Debenture debt which accrues interest is at a fixed rate and does not expose the Company to interest rate risk.

The Company’s advance prepayment loan is subject to interest rate risk, but the Company does not believe that it is exposed to material interest rate risk.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company has a planning and budgeting process in place by which it projects the funds required to support its operations.

Management anticipates that it may incur expenditures towards exploring the Treasure Mountain Property and New Craigmont Property and other Company assets. However, there is no assurance that the Company will operate profitably or will generate positive cash flow in the future. The Company has marginal working capital, no history of profitable operations and no assurance that additional funding will be available to it for further exploration and development of the Treasure Mountain Property and New Craigmont Property. The Company may also need further financing if it decides to obtain additional mineral properties. As such, the Company is subject to many risks common to exploration enterprises, including undercapitalization, cash shortages and limitations with respect to personnel, financial, access to other resources, and lack of revenues. Although the Company has been successful in the past in obtaining financing through credit facilities or the sale of equity securities, 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. Such means of financing typically result in dilution of the positions of existing shareholders, either directly or indirectly. Failure to obtain additional financing could result in the delay or indefinite postponement of further exploration of the Treasure Mountain Property and New Craigmont Property or the loss or substantial dilution of any of its property interests.

Foreign Exchange Rate Risk

The functional currency of the Company is the Canadian dollar. As at December 31, 2021, the Company has not entered into contracts to manage foreign exchange risk.

Commodity and Equity Price Risk

The ability of the Company to explore its exploration assets, recommence milling operations, and the future profitability of the Company are directly related to the market price of copper, gold, silver, and other precious metals. Equity price risk is defined as the potential adverse impact on the Company’s performance to movements in individual equity prices or general movements in the level of the stock market.

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

17. FINANCIAL and CAPITAL RISK MANAGEMENT (cont’d)

Capital Management

The Company considers capital to be the elements of shareholders equity. The Company’s primary objectives in capital management are to safeguard the Company’s ability to continue as a going concern to provide returns for shareholders and to maintain sufficient funds to finance the exploration and development of its mineral property interests and Merritt Mill operations. The Company manages its capital structure to maximize its financial flexibility by adjusting to changes in economic conditions, and the risk characteristics of the underlying assets and business opportunities. The Company does not presently utilize any quantitative measures to monitor its capital and is not subject to externally imposed capital requirements. There have been no changes to the management of capital during the current fiscal year.

Contingencies

During the year ended December 31, 2020, the Company received a demand from Clibetre Exploration Ltd. (“Clibetre”) for approximately $337,000 in relation to a claimed breach of a Profit-Sharing Agreement dated June 6, 2015. The Company and Clibetre sampled and tested the Clibetre material in May 2021. Following testing, Clibetre advised the Company that it had identified a potential buyer for the material and the material was removed from the Company’s Merritt Mill site by Clibetre in June 2021. No action is anticipated against the Company but the limitation period for any potential claim expires, at the latest on March 26, 2023.

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NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

18. INCOME TAXES

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

		2021	2020
Income (Loss) beforeincome taxes	$	(3,405,235) $	(2,930,489)
Expected income tax (recovery)		(919,000)	(791,000)
Change in statutory, foreign exchange rates and other		2,000	(125)
Permanent difference		119,000	25,000
Impact of flow through shares		202,000	3,000
Share issue costs		(9,000)	(11,000)
Adjustment to prior years provision versus statutory tax
returns and expiry of non-capital losses		164,000	(1,075,000)
Changeinunrecognized deductible temporary differences		441,000	1,809,000
Total income tax expense (recovery)	$	- $	(40,125)

The significant components of the Company’s deferred tax assets and liabilities are as follows:

		2021		2020
Deferred tax assets (liability)
Debt with accretion	$	(345,000)	$	(361,000)
Right of use assets		(14,000)		-
Lease liabilities		14,000		-
Non-capital losses		345,000		361,000
Net deferred tax liability	$	-	$	-

The significant components of the Company’s temporary differences, unused tax credits and unused tax losses that have not been included on the consolidated statement of financial position are as follows:

		Expiry
		Date
	2021	**Range **	2020
		No
		expiry
Exploration and evaluation assets	$4,367,000	date	$4,371,000
		2030
		to
Investment tax credit	$441,000	2032	$441,000
		No
		expiry
Property, plant, and equipment	$20,734,000	date	$20,590,000
		2040
		to
Share issue costs	$113,000	2045	$181,000
		No
		expiry
Asset retirement obligation	$3,910,000	date	$3,832,000
		2027
		to
Non-capital losses available for futureperiods	$41,626,000	2041	$40,163,000

Tax attributes are subject to review, and potential adjustment, by tax authorities.

Page 35

NICOLA MINING INC. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) For the years ended December 31, 2021 and 2020

19. SUBSEQUENT EVENTS

On January 10, 2022, the Company issued 388,236 common shares at a value of $0.085 per share in settlement of interest of $33,000 of January 9, 2020 Debentures.

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