Nicola Mining — Interim / Quarterly Report 2020

Aug 27, 2020

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NICOLA MINING INC.

Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2020 and 2019

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORTING

The accompanying unaudited condensed consolidated interim financial statements of Nicola Mining Inc. (“the Company”) have been prepared by management in accordance with International Reporting Standards (“IFRS”). Management acknowledges responsibility for the preparation and presentation of the condensed consolidated interim financial statements, including responsibility for significant accounting estimates and the choice of accounting principles and methods that are appropriate to the Company’s circumstances.

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

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

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

Note	Note	June 30, 2020 December 31, 2019
Assets Current assets Cash and cash equivalents Amounts receivable 4 Prepaid expenses and other assets		$ 90,736 $ 500,797 251,516 241,014 104,641 25,955
Non-current assets Property, plant and equipment 5 Right-of-use-Assets 8 Mineral interests 6 Restricted cash 9		446,893 767,766 9,154,275 9,058,532 18,866 28,424 3 3 1,210,100 1,210,100
Total assets		$ 10,830,137 $ 11,064,825
Liabilities Current liabilities Accounts payable and accrued liabilities Current portion of lease liabilities 8 Current portion of equipment loan 10 Secured convertible debenture 11		$ 551,146 $ 644,071 20,669 22,500 42,154 - - 256,426
Non-current liabilities Asset retirement obligation 7 Lease liabilities 8 Equipment loan 10 Secured convertible debenture Received in advance Secured convertible debenture 11		613,969 922,997 3,582,308 3,674,785 - 7,712 90,028 - - 160,000 6,407,809 5,354,118
Total liabilities		10,694,114 10,119,612
Equity Shareholders' deficiency Share capital 13 Warrants 13 Equity component of convertible debentures Contributed surplus Accumulated deficit		76,653,441 76,640,941 1,692,331 1,692,331 2,171,568 2,063,082 7,591,331 7,518,860 (87,972,648) (86,970,001)
Totalshareholders’deficiency		136,023 945,213
Total liabilities and shareholders’ deficiency		$ 10,830,137 $ 11,064,825
	Peter Espig (signed) Director	Frank Hogel(signed) Director

Nature of operations and going concern (Note 1) Subsequent events (Note 18)

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

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

		Three Months Ended June 30,	Three Months Ended June 30,	Three Months Ended June 30,	Three Months Ended June 30,		Six Months Ended	Six Months Ended	Six Months Ended
							June 30,
	Note		2020		2019		2020		2019
Operating Expenses
Exploration costs	6	$	93,486	$	595,740	$	183,867	$	749,716
Mill costs			228,757		127,935		383,783		283,854
Accretion of asset retirement obligation	7		19,016		18,582		38,032		37,164
Salaries and benefits	15		38,126		34,982		71,430		68,464
Share-based compensation	14		--		-		72,470		-
Professional fees			68,471		61,785		96,090		92,279
Consulting fees	15		65,000		13,630		138,674		48,297
Office and general			15,409		9,927		31,240		25,784
Travel and investor relations			3,867		1,678		17,615		26,756
Rent			6,945		3,615		13,781		7,605
Regulatory and transfer agent fees			8,851		9,581		14,321		16,709
Vehicle expenses			3,358		183		4,264		652
Depreciation	5		435		354		822		708
Operating Loss			(551,721)		(877,992)		(1,066,389)		(1,357,988)
Gain (loss) on property, plant and equipment			-		-		-		6,628
Gravel and other income			232,959		161,424		608,147		226,640
Flow-through obligation recovery	17		-		4,106,780		-		4,106,780
Finance Costs	12		(320,937)		(344,423)		(615,146)		(710,882)
Part X11.6 tax, recovery, tax penalties and
indemnification	17		-		208,224		(8,439)		193,190
Flow-through share premium	13		-		166,176		-		199,666
Write-off of accounts payables			39,055		-		39,055		-
Income (Loss) before income taxes			(600,644)		3,420,189		(1,042,772)		2,664,034
Deferredincome tax recovery			16,719		-		40,125		-
Net Income (Loss) and Comprehensive income (Loss)
for the period		$	(583,925)	$	3,420,189	$	(1,002,647)	$	2,664,034
Net Income(Loss) Per Share – Basic and Diluted		$	(0.00)	$	0.01	$	(0.00)	$	0.01
Weighted Average Number of Common Shares Outstanding
Basic			246,907,106		230,568,938		246,875,991		230,523,243
Diluted			246,907,106		230,770,128		246,875,991		230,724,433

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

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

		Six Months Ended June 30	Six Months Ended June 30
		2020	2019
Operating Activities
Net income (loss) for the period	$	(1,002,647) $	2,664,034
Adjustments for:
Accretion of asset retirement obligation		38,032	37,164
Depreciation		60,965	60,777
Non-cash interest and finance expense		620,876	714,658
Gain and Loss on disposal of property, plant, and equipment		-	(6,628)
Flow-through premium		-	(199,666)
Share-based compensation		72,471	18,513
Flow-through obligation recovery		-	(4,106,780)
Deferred income tax recovery		(40,125)	-
Write-off of accounts payables		(39,055)	-
Changes in non-cash working capital items
Amounts receivable		(10,502)	(83,323)
Prepaid expenses and other assets		(78,686)	20,985
Accounts payable and accrued liabilities		(53,870)	161,086
Cash and Cash Equivalents(Used in) Operating Activities		(432,541)	(719,180)
Investing Activities
Purchase of property, plant, and equipment		(11,500)	-
Disposal of property, plant, and equipment		-	-
Reclamation expenditures incurred		(130,509)	(62,666)
Cash and Cash Equivalents(Used in) Investing Activities		(142,009)	(62,666)
Financing Activities
Exercise of stock options		-	9,000
Convertible debentures issued		440,000	-
Repayment of convertible debenture		(250,000)	-
Repayment of lease liabilities		(9,543)	(8,383)
Repayment of equipment loan		(3,468)	-
Interest payment		(12,500)	(12,500)
Cash and Cash Equivalents(Used in) Provided by Financing Activities		164,489	(11,883)
Net change in cash and cash equivalents for the period		(410,061)	(793,729)
Cash and cash equivalents, beginning ofperiod		500,797	1,362,775
Cash and cash equivalents, end ofperiod	$	90,736$	569,046

Non-cash transactions:
Flow-through premium (Note 13)	$	- $	199,666
Share-based compensation (Note 14 (b))		72,471	18,513
Flow-through obligation recovery (Note 17)		-	4,106,780
Deferred income tax recovery		40,125	-
Write-offofaccounts payables		39,055	-

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

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

							Equity
						Component
							of					Total
	Number of		Share				Convertible		Contributed	Accumulated		Equity
	Common Shares		Capital		Warrants		Debentures		Surplus	Deficit		(Deficiency)
Balance, January 1, 2019	230,477,549	$	75,102,831	$	1,692,331	$	808,230	$	7,505,581	$ (88,490,719)	$	(3,381,746)
Issuance of shares for interest on convertible debentures	125,000		12,500		-		-		-	-		12,500
Stock options exercised	150,000		14,234		-		-		(5,234)	-		9,000
Share-based compensation	-		-		-		-		18,513	-		18,513
Net income for the period	-		-		-		-		-	2,664,034		2,664,034
Balance, June 30, 2019	230,752,549	$	75,129,565	$	1,692,331	$	808,230	$	7,518,860	$ (85,826,685)	$	(677,699)
Balance, January 1, 2019	246,844,530	$	76,640,941	$	1,692,331	$	2,063,082	$	7,518,860	$ (86,970,001)	$	945,213
Issuance of convertible debenture	-		-		-		63,284		-	-		63,284
Issuance of Second Tranche Debentures	-		-		-		45,202		-	-		45,202
Share-based compensation	-		-		-		-		72,471	-		72,471
Issuance of shares for interest on convertible debentures	138,888		12,500		-		-		-	-		12,500
Net loss for the period	-		-		-		-		-	(1,002,647)		(1,002,647)
Balance, June 30, 2020	246,983,418	$	76,653,441	$	1,692,331	$	2,171,568	$	7,591,331	$ (87,972,648)	$	136,023

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

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NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

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.”

As at June 30, 2020, the Company had an accumulated deficit of $87,972,648 (December 31, 2019 - $86,970,001) and a working capital deficiency of $167,076 (December 31, 2019 - $155,231). In order to continue operations, the Company will be required to raise funds through the issuance of equity or debt, or be successful recommencing operations at the Treasure Mountain project (“ Treasure Mountain Property ”) and/or 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.

The unaudited condensed consolidated interim financial statements for the period ended June 30, 2020 were prepared using International Financial Reporting Standards (“ IFRS ”). These unaudited 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.

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 effected 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 ability to raise funds.

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NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

2. BASIS OF PRESENTATION

a) Statement of Compliance with International Financial Reporting Standards

The unaudited condensed consolidated interim 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 unaudited condensed consolidated interim financial statements have been authorized for release by the Company’s Board of Directors on August, 27 2020.

b) Basis of Consolidation

These unaudited condensed consolidated interim financial statements include the accounts of the Company and its wholly owned subsidiary, Huldra Properties Inc.

c) Basis of Measurement

These unaudited condensed consolidated interim 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.

d) Use of Estimates and Judgments

The preparation of the unaudited condensed consolidated interim financial statements in conformity with IFRS requires management to make judgments and estimates which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements 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 is capable of operating in the manner intended by management, which requires significant judgement in its determination.

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NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

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 investments which are subject to an insignificant risk of change in value. Cash and cash equivalents consists’ of cash of $90,736 at June 30, 2020 (December 31, 2019 - $500,797).

b) Restricted Cash

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

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

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NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

PPE is subsequently stated at cost less accumulated depreciation, less any accumulated impairment losses, with the exception of 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

d) Right-of-use Assets and Lease Liabilities

The Company has applied IFRS 16, Leases since its inception. The Company assesses whether a contract is or contains a lease inception of a contract. The Company recognize a right-of-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.

During the period ended June 30, 2020, the Company incurred $20,583 for short-term leases not included in lease liabilities.

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NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

e) 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 period of time, and that there are indicators that these operating 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.

f) 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 in order 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 cash-generating 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 it’s 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.

g) 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 the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

h) 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 are capitalized. Any recoveries received that relate to exploration costs are recorded as a recovery of such costs.

i) Revenue Recognition

Revenue from the sale of gold and silver 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 is 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.

j) Financial Instruments

On January 1, 2018 the Company adopted IFRS 9, Financial Instruments . This new standard replaces International Accounting Standards (“IAS”) 39. Financial Instruments: Recognition and Measurement.

IFRS 9 uses a single approach to determine whether a financial asset is classified and measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments and contractual cash flow characteristics of the financial asset. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9 and, therefore, the accounting policy with respect to financial liabilities is unchanged.

The following is the new accounting policy for financial assets and liabilities under IFRS 9:

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

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NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

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.

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

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 and are initially recognized at fair value and subsequently carried at amortized cost less any impairment.

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

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

Financial asset	IFRS 9 Classification
Cash and cash equivalents	Fair value through profit or loss
Accounts receivable	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 and flow-through obligation, 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 losses immediately, while transaction costs associated with all other financial instruments are included in the initial measurement of the financial instrument.

k) Share Capital

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NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

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.

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

l) Share-based Payments

The Company has a stock option plan (the “ Stock Option Plan ”) that is described in Note 14(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.

Options issued to Employees and others providing similar services

The fair value of employee stock options are 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.

m) Provisions

Provisions are recognized where a legal or constructive obligation has been incurred as a result 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 loss.

n) 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 are 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 as a result of amendments in the laws

Page 14

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

and regulations relating to environmental protection and other legislation affecting resource companies.

As the estimate of the obligations is based on future expectations, a number of 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.

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

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 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 long-lived asset. Where rehabilitation is conducted systematically over the life of the operation, 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 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.

o) 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 loss and reduces the liability.

p) Convertible secured debentures

Page 15

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars)

For the six months ended June 30, 2020 and 2019

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.

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)

q) Flow-Through Obligation

Flow-through obligations are comprised of the Company’s various tax penalties and indemnification liabilities relating to the deficiencies in incurring on a timely basis the appropriate amount of qualifying exploration expenditures required related to past flow-through share issuances. The Company may also be required to indemnify the holders of such shares for any tax and other costs payable by them in the event the Company has not made required exploration expenditures.

Flow-through obligations have been created based on the Company’s internal estimates of the maximum tax penalties and indemnification liabilities the Company could be subject to. Assumptions, based on the current tax regulations, have been made which management believes are a reasonable basis upon which to estimate the future liability.

r) Loss per Share

Basic and diluted loss per share is calculated by dividing the loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. For all periods presented, the loss available to common shareholders equals the reported loss. Diluted loss per share does not adjust the loss attributable to common shareholders when the effect is anti-dilutive.

As the Company incurred net losses for the periods presented, the stock options and share purchase warrants, as disclosed in Notes 14 and 13(b) respectively, were not included in the computation of diluted loss per share as their inclusion would be anti-dilutive.

s) Related Party Transactions

Parties are considered to be 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 considered to be a related party transaction when there is a transfer of resources, services or obligations.

t) Operating Segments

Page 16

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

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

4. AMOUNTS RECEIVABLE

	June 30, 2020	December 31, 2019
Gravel and other
receivables	$242,219	$ 217,872
GST receivable (net)	9,297	23,142
	$251,516	$ 241,014

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, 2019	7,756,507	1,605,299	52,585	286,535	30,220	9,731,146
Additions	-	-	-	1,284	-	1,284
Disposals	-	-	-	(5,350)	-	(5,350)
Balance at December 31, 2019	7,756,507	1,605,299	52,585	282,469	30,220	9,727,080
Additions (1)	-	-	-	145,150	2,000	147,150
Balance at June 30, 2020	7,756,507	1,605,299	52,585	427,619	32,220	9,874,230
**Accumulated Depreciation **
Balance at January 1, 2019	-	279,022	14,288	254,983	21,804	570,097
Depreciation for the year	-	80,265	10,400	9,312	1,952	101,929
Disposals	-	-	-	(3,478)	-	(3,478)
Balance at December 31, 2019	-	359,287	24,688	260,817	23,756	668,548
Depreciation forthe period	-	40,132	5,071	5,382	822	51,407
Balance at June 30, 2020	-	399,419	29,759	266,199	24,578	719,955
Carrying Amounts
At January 1, 2019	7,756,507	1,326,277	38,297	31,552	8,416	9,161,049
AtDecember31,2019	7,756,507	1,246,012	27,897	21,652	6,464	9,058,532

Page 17

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

At June 30, 2020 7,756,507 1,205,880 22,826 161,420 7,642 9,154,275

• (1) Included in heavy equipment is a Dozer which cost $135,650 and was secured with equipment loan from John Deer Financial Inc. (Note 10).

Page 18

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

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 Company holds a 100% interest in New Craigmont Property comprising 21 mineral claims and 10 mineral leases. The properties are subject to a 2% net smelter royalty.

Upon repayment by the Company of all amounts owed to Waterton on November 24, 2018, the holders of the First Tranche Debentures were granted an aggregate 2% net smelter returns royalty with respect to the Treasure Mountain Property (Note 11 - the “ First Tranche Royalty ”), 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.

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.

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 Crown Grant mineral claim (Lot 1210) in the Yale Mining Division contiguous to the Treasure Mountain Claims known as the "Eureka" c) The surface rights to Lot 1209 located in the Yale Mining Division of British Columbia known as the “Whynot Fraction”	June 30, 2020 $ December 31, 2019 $
	1 1 1 1 1 1
	3 3

Page 19

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

6. MINERAL INTERESTS (cont’d)

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

EXPLORATION COSTS Costs incurred during the period Assaying Drilling and related costs Field supplies and rentals Geological consulting (Note 15) Mapping & surveying Tenure lease Share-based compensation (Note 14) Treasure Mountain Property Property taxes Water sampling and reports Environmental and permitting Tenure lease Mapping and soil surveying Total costs incurred during period	Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 $ $ $ $ - 6,965 26,279 21,072 - 336,871 651 337,591 11,187 55,445 30,343 81,447 28,084 162,549 70,829 241,858 6,000 32,411 7,550 32,411 1,637 870 1,637 2,320 - - - 18,513
	46,908 595,111 137,289 735,212
	3,704 2,623 3,704 4,498 7,614 (8,694) 7,614 3,306 20,844 - 20,844 - 6,700 6,700 6,700 6,700 7,716 - 7,716 -
	46,578 629 46,578 14,504
	93,486 595,740 183,867 749,716

Page 20

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

7. ASSET RETIREMENT OBLIGATION

Opening balance Reclamation expenditures incurred Accretion expense Closing balance	June 30, 2020 $ December 31, 2019 $ 3,674,785 3,832,001 (130,509) (231,544) 38,032 74,328
	3,582,308 3,674,785

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 Merritt Mill reclamation costs were adjusted using a long-term inflation rate of 1.4% (2019 – 1.4%) and then discounted using a risk-free rate of 2.34% (2019 – 2.34%).

Merritt Mill

The Company estimates the reclamation costs associated with the Merritt Mill to be $3,415,114 (December 31, 2019 - $3,545,623). The Company anticipates it will settle these obligations over 15 years (2019 – 15 years).

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

Treasure Mountain

The Company’s estimated reclamation costs associated with the Treasure Mountain Property is $505,100 (December 31, 2019 - $505,100). In order 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 Disposal Contract

On March 15, 2020 the Company amended the August 15, 2017 thirty-year ash management contract with Merritt Operations Services Limited Partnership. The Company accepts ash which are blended with fill soils and plant seeds to assist with the remediation of the Merritt Mill site. The net proceeds from the receipt of ash are recorded in Gravel and Other Income in the Condensed Consolidated Interim Statements of Operations and Comprehensive Loss.

Page 21

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

8. RIGHT OF USE ASSETS AND LEASE LIABILITY

Right of Use Assets

Cost: At December 31,2018 Adjustment on initial adoption of IFRS 16 At June 30, 2020 Depreciation: At December 31, 2018 Charge for the year At December 31, 2019 Charge for the period At June 30,2020	$ - 47,540
	$ 47,540
	$ - 19,116
	19,116
	9,558
	$ 28,674
Net book value: At December 31, 2019 At June 30,2020	$ 28,424 $ 18,866
Lease liability
Lease liabilities recognized January 1, 2019 Lease payments made Interest expense on lease payments (Note 12) Balance, at January 1, 2020 Lease payments made Interest expense on lease payments (Note 12) Balance at June 30,2020	$ 47,540 (22,500) 5,172
	$ 30,212 (11,250) 1,707
	20,669
Current portion Non-Currentportion	$ 20,669 $-

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

9. RESTRICTED CASH

The Company has in place deposits amounting to $1,210,100 as at June 30, 2020 (December 31,2019 - $1,210,100) 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.

Page 22

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

10. EQUIPMENT LOAN

On June 1, 2020 the Company financed the purchase of one used John Deere dozer (Note 5) with John Deere Financial Inc. The cost of the dozer was $135,650. The loan will incurs interest at a rate of 7.4% per annum and will be repaid over a three-year term.

Principal amount Less payment of principal Subtotal Current portion Non-current portion	June 30, 2020 December 31, 2019 $ 135,650 $ - (3,468) -
	$ 132,182 $ -
	$ 42,154 $ - $ 90,028 $ -

11. SECURED CONVERTIBLE DEBENTURE

On November 26, 2018, the Company agreed to pay all the interest owing on the First Tranche Debentures by issuance of common shares. The Company issued 6,048,593 common shares at a price of $0.115 per share in settlement of interest of $695,588 as at November 21, 2018.

During 2018 a First Tranche Debenture holder elected to convert $45,000 at a conversion price of $0.22 and the Company issued 204,543 common shares in accordance with the terms of the debenture. For accounting purposes the fair value of the convertible debenture on the conversion dates of $41,012 and the residual equity component of $4,113 were transferred to share capital.

The outstanding principal and interest of the First Tranche Debentures and Second Tranche Debentures are secured against the assets of Nicola following the repayment of debt owing to Waterton repaid in full on November 24, 2018.

During 2018 a First Tranche Debenture holder elected to convert $45,000 at a conversion price of $0.22 and the Company issued 204,543 common shares in accordance with the terms of the debenture. For accounting purposes the fair value of the convertible debenture on the conversion dates of $41,012 and the residual equity component of $4,113 were transferred to share capital.

On May 20, 2019, the Company issued 125,000 common shares at a value of $0.10 per share in settlement of interest of $12,500.

Repayment by the Company of all amounts owed to Waterton on November 24, 2018, 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 ”), 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

Page 23

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars)

For the six months ended June 30, 2020 and 2019

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

11. SECURED CONVERTIBLE DEBENTURE (cont’d)

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.

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 closed $250,000 secured convertible 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 proceeds of $250,000 have been allocated based on the relative fair values of debt. 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.

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

Page 24

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

11. SECURED CONVERTIBLE DEBENTURE (cont’d)

Principal amount Less payment of interest Less payment of interest in shares Retirement of First Tranche Debentures Retirement of Second Tranche Debentures Issuance of Debentures Issuance of Second Tranche Debentures Less transaction costs Accrued interest Accretion Subtotal Current portion Non-current portion	June 30, 2020 December 31, 2019 $ 5,610,544 $ 6,671,179 (12,500) (12,500) (12,500) (708,088) - (6,955,664) (250,000) - 263,310 5,266,649 188,079 - - (31,628) 615,318 1,359,276 5,558 21,320
	$ 6,407,809 $ 5,610,544
	$ - $ 256,426 $ 6,407,809 $ 5,354,118

12. FINANCE COSTS

Equipment loan (Note 10) Secured convertible debentures (Note 11) Flow-through share obligation (Note 17) Lease liability (Note 8) Other	June 30, 2020 June 30, 2019 $ $ 743 - 620,876 676,275 - 38,383 1,707 2,867 (8,180) (6,643)
	615,146 710,882

Page 25

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

13. 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 June 30, 2020 were 246,983,418 (December 31, 2019 – 246,844,530).

On November 26, 2018, the Company agreed to pay all the interest owing on the First Tranche Debentures by issuance of common shares. The Company issued 6,048,593 common shares at a price of $0.115 per share in settlement of interest of $695,588 as at November 21, 2018.

On November 26, 2018 the Company closed the first tranche of a financing and issued 7,430,000 units at a price of $0.10 per unit for gross proceeds of $743,000. 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 $0.15 per share for a period of two years. The Company also paid finders fees of $10,500 and issued 87,500 finders warrants. The finder’s warrants are exercisable at a price of $0.15 per share for a period of two years. The finder’s share purchase warrants had a fair value of $2,240 estimated using the Black-Scholes option pricing model with a volatility of 67%, risk-free interest rate of 2.24%, dividend rate of 0% and expected life of 2 years. On December 12, 2018 the Company closed a second tranche and issued 1,820,000 units at a price of $0.10 per unit for gross proceeds of $182,000. The Company also paid finders fees of $5,250 and issued 70,000 finders warrants. The finder’s warrants are exercisable at a price of $0.15 per share for a period of two years. The finder’s share purchase warrants had a fair value of $1,804 estimated using the Black-Scholes option pricing model with a volatility of 68% risk-free rate of 2.06%, dividend rate of 0% and expected life of two years.

On December 21, 2018, the Company issued 10,040,000 flow-through units at $0.125 per unit for gross proceeds of $1,255,000. 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 $0.15 per share for a period of two years. The Company also paid finder’s fees of $81,900 and issued 655,200 share purchase warrants. The finder’s warrants are exercisable at a price of $0.15 per share for a period of two years. The finder’s share purchase warrants had a fair value of $12,134 estimated using the Black-Scholes option pricing model with a volatility of 68%, risk-free interest rate of 1.94%, dividend rate of 0% and expected life of 2 years. The flow-through share premium liability associated with this issuance was $351,400. The Company renounced $39,289 and incurred $140,321 in flow-through expenditures resulting in a flow-through obligation recovery of $39,289 in fiscal 2018. During the year ended December 31, 2019, the Company incurred the remaining $1,114,679 in flow-through expenditures resulting in a flow-through obligation recovery of $312,111.

On May 20, 2019 the Company issued 125,000 common shares at a value of $0.10 per share in settlement of interest of $12,500 owing on the May 20, 2018 secured convertible debentures (Note 11).

On June 6, 2019 the Company issued 150,000 common shares at a value of $9,000 in connection with the exercise of 150,000 stock options.

Page 26

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

13. SHARE CAPITAL AND RESERVES (cont’d)

On August 19, 2019, the Company closed a first tranche and on September 6, 2019 the Company closed a second tranche and issued an aggregate of 5,250,000 units at a price of $0.10 per unit for gross proceeds of $525,000. Each unit consisted of one common share and one-half of one purchase warrant. Each whole warrant is exercisable into one common share at a price of $0.15 per share for a period of two years from the date of issuance.

On November 21, 2019, the Company issued 7,321,981 common shares at a value of $0.095 in settlement of interest of $695,588 (Note 11) on the First Tranche Debentures.

On December 19, 2019, the Company issued 3,520,000 flow-through shares at $0.10 per share for gross proceeds of $352,000. The Company paid cash finder’s fees of $24,290. The flowthrough share premium liability associated with this issuance was $35,200. The Company renounced $35,200 and incurred $352,000 in flow-through expenditures resulting in a flowthrough obligation recovery of $35,200 in fiscal 2019.

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 owing on the May 20, 2018 secured convertible debentures (Note 11).

Flow-Through Premium Liability:

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

Balance as of January 31, 2019 Flow-through premium liability Settlement of flow-through premium Liability pursuant to qualified expenditures Balance as of December 21, 2019 and June 30, 2020	$ 312,111 35,200 (347,311)
	$ -

b) Share Purchase Warrants

: The following is summary of warrant transactions:

Balance at January 1, 2019 Issued warrants Expired warrants Balance at December 31, 2019 and June 30, 2020	Number of Warrants Weighted Average Exercise Price
	43,150,678 $ 0.20 2,625,000 0.15 (27,547,980) 0.22 18,227,698 $ 0.16

Page 27

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

13. SHARE CAPITAL AND RESERVES (cont’d)

As at June 30, 2020, the Company had outstanding warrants as follows:

Number 4,666,665 (1) 478,333 (2) 3,715,000 87,500 910,000 70,000 5,020,000 655,200 2,250,000 375,000 18,227,698	Exercise Price $0.18 $0.18 $0.15 $0.15 $0.15 $0.15 $0.15 $0.15 $0.15 $0.15	Expiry Date July 23, 2020 July 23, 2020 November 26, 2020 November 26, 2020 December 12, 2020 December 12, 2020 December 21, 2020 December 21, 2020 August 19, 2021 September 6, 2021

• (1) 4,666,665 share purchase warrants extended to July 23, 2022.

• (2) 478,333 share purchase warrants expired unexercised.

Page 28

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

14. 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 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 twelvemonth 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.

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 2019 annual general and special meeting of its shareholders was held on June 24, 2020. At such meeting, the motion to permit the Stock Option Plan to continue as a rolling plan was approved.

Page 29

NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

14. SHARE-BASED PAYMENTS (cont’d)

The following is a summary of changes in stock options:

Balance at January 1, 2019 Issued options Exercised options Expired options Cancelled options Balance at December 31, 2019 Issued options Expired options Balance at June 30, 2020	Number of Options Weighted Average Exercise Price 11,325,000 $ 0.14 200,000 0.10 (150,000) 0.06 (100,000) 0.06 (200,000) 0.10 11,075,000 0.14 1,350,000 0.12 (1,550,000) 0.12 10,875,000 $ 0.14

As at June 30, 2020, the following stock options were outstanding and exercisable:

As at June 30, 2020, the	following stock options were outstanding and exercisable:
Number Outstanding	Number Exercisable Exercise Price Weighted Average Contractual Life (Years) Expiry Date
2,600,000 550,000 400,000 2,650,000 3,125,000 200,000 1,350,000 10,875,000	2,600,000 $0.175 1.03 July 10, 2021 550,000 $0.14 1.07 July 26, 2021 400,000 $0.17 1.45 December 13, 2021 2,650,000 $0.165 2.49 December 27, 2022 3,125,000 $0.10 3.49 December 28, 2023 200,000 $0.10 3.62 February 12, 2024 1,350,000 $0.12 3.97 January 20, 2025 10,875,000

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NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

14. SHARE-BASED PAYMENTS (cont’d)

b) Fair Value of Stock Options Issued During the Period

The weighted average fair value at grant date of stock options granted during the six months ended June 30, 2020 was $0.10 per stock option.

The model inputs for options granted during the six months ended June 30, 2020:

		Share
		Price at	Exercise
	Expiry	Grant Date	Price	Risk-Free		Volatility	Dividend
GrantDate	Date	$	$	InterestRate	ExpectedLife	Factor	Yield
03/23/2020	01/20/2025	0.075	0.12	0.68%	58 months	109%	0%

The Company recorded share-based payment expense of $72,471 (2019 - $18,513) during the six months ended June 30, 2020, of which $72,471 (2019 - $Nil) has been included in operating expenses.

15. 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	Three Months Ended June 30 Six Months Ended June 30, 2020 2019 2020 2019 $ $ $ $
	55,000 45,000 110,000 90,000 30,000 30,000 60,000 60,000

Included in convertible debentures is $65,000 (December 31, 2019 – $65,000) owing to the Chief Executive Officer of the Company.

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NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

16. FINANCIAL and CAPITAL RISK MANAGEMENT

Fair Value

Cash and short-term investments 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 approximate their fair value because of the short-term nature of these instruments.

The Company records certain of its financial instruments at fair value using various techniques. These include estimates of fair values based on prevailing market prices (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or internal and external valuation models, such as discounted cash flow analyses, using, to the extent possible, observable market-based inputs.

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 risks, liquidity risk, metal 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. The Company’s maximum exposure to credit risk at June 30, 2020 under its financial instruments is $90,736.

All of 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

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NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

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

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.

Interest Rate Risk

The Company’s financial assets exposed to interest rate risk consist of cash and short-term investments balances. The Company’s current policy will be to invest excess cash in investmentgrade short-term deposit certificates issued by banking institutions. The Company periodically monitors the investments its makes and is satisfied with credit ratings of its banks.

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 a significant working capital deficiency, 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 and 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 Company currently is not subject to significant foreign exchange risk.

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 in order 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 making adjustments to it in response 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 has been no changes to the management of capital during the current fiscal year.

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NICOLA MINING INC. Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) (Expressed in Canadian dollars) For the six months ended June 30, 2020 and 2019

17. FLOW-THROUGH SHARE OBLIGATION

W-THROUGH SHARE OBLIGATION
Balance at January 31, 2019 Interest costs to March 31, 2019 Recovery of flow-through obligation Balance at December 31, 2019 and June 30, 2020	Flow-Through Obligation $
	4,068,397
	38,383 (4,106,780)
	-

The above provision related to the Company’s requirement to indemnify flow-through investors for the amount of increased tax and other costs payable by investors as a consequence of the CRA claiming the Company failed to incur qualifying exploration expenditures previously renounced to the flowthrough investors.

The Company filed a Notice of Objection on July 19, 2018. On July 11, 2019 the Company was advised by the CRA that sufficient CEE had in fact been incurred by the Company at the relevant times in order to allow a full renunciation of CEE to flow-through investors. The Company recorded a recovery for the full amount of the recorded flow-through obligation of $4,106,780. On September 24, 2019 the Company received a tax refund of previously paid Part X11.6 taxes in the amount of $328,730 from CRA less related tax penalties of $15,034.

18. SUBSEQUENT EVENTS

• a) On July 9, 2020 the Company extended the term of 4,666,665 warrants issued in connection with the Company’s private placement that closed on July 23, 2018 from July 23, 2020 to July 23, 2022. All other terms of the warrants will remain the same.

• b) On August 24, 2020 the Company announced a non-brokered private placement financing (the “Offering”) consisting of the issuance of up 5,000,000 units at a price of $0.13 per unit for gross proceeds of up to $650,000. Each unit consists 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 $0.20 for a period of two years from closing of the Offering.

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