Oroco Resource Corp. — Management Reports 2020

Jan 30, 2020

This "Management’s Discussion and Analysis" has been prepared as of January 29, 2020 and should be read in conjunction with the Company’s condensed interim consolidated financial statements and related notes for the six months ended November 30, 2019 and the audited consolidated financial statements and related notes thereto for the year ended May 31, 2019 (the “Financial Statements”). Those financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. All amounts in the financial statements and in this discussion and analysis are expressed in Canadian dollars, unless otherwise indicated.

FORWARD LOOKING INFORMATION

This management discussion and analysis (“MD&A”) contains certain forward-looking statements and information relating to Oroco Resource Corp. (“Oroco” or the “Company”) that are based on the beliefs of its management as well as assumptions made by and information currently available to the Company. When used in this document, the words “anticipate,” “believe,” “estimate,” “expect” and similar expressions, as they relate to the Company or its management, are intended to identify forward looking statements. This MD&A contains forward-looking statements relating to, among other things, regulatory compliance, the sufficiency of current working capital and the estimated cost and availability of funding for the continued exploration and development of the Company’s exploration properties. Such statements reflect the current views of management with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements.

THE COMPANY

The Company was incorporated under the British Columbia Business Corporations Act on July 7, 2006. The Company’s head office is located at Suite 1201 - 1166 Alberni Street, Vancouver, B.C., V6E 3Z3. The Company and its subsidiaries are engaged in the acquisition, exploration and development of mineral properties in Mexico with a primary focus on the assembly of the mineral concessions which make up the Santo Tomas porphyry copper project in Sinaloa State, Mexico.

The Company is listed on the TSX Venture Exchange (“TSX-V”) under the symbol “OCO”, and it also trades on the Frankfurt Stock Exchange Open Market under the trading symbol “OR6” and the US OTC exchange under the trading symbol “ORRCF.PK”. The Company’s website address is: “www.orocoresourcecorp.com”.

The Company has two wholly owned subsidiaries: Minera Xochipala S.A. de C.A. (“Minera Xochipala”) and 0973496 B.C. Ltd. Minera Xochipala is used to hold the Company’s Mexican mining concessions and to conduct business in Mexico. 0973496 B.C. Ltd. holds 98% (49 of 50 shares) in Minera Xochipala, with the remaining 2% (1 share of 50) being held directly by the Company. The Company also holds an inactive, nominative subsidiary incorporated in Canada and a majority interest in Aztec Copper Inc. (“Aztec”), an inactive subsidiary incorporated in the United States.

1

MINERAL PROPERTIES

Santo Tomas Properties, Sinaloa State, Mexico

The Company is focused on the assembly of mineral concessions which make up the Santo Tomas porphyry copper project in Sinaloa State, Mexico. The Santo Tomas project is a copper porphyry deposit defined by a total of 106 diamond drill and reverse circulation drill holes totaling approximately 30,000 m.

The Company holds a 77.5% interest in each of the Papago 17, La China II and AMP Santo Tomas Red 1 concessions and an 80% interest in the Rossy concession (collectively, the “Santo Tomas Properties”) located in Sinaloa, Mexico, which are contiguous to the concessions which cover the known core of the Santo Tomas mineralized structure (the “Core Concessions”).

The Company’s interest in AMP Santo Tomas Red 1 and La China II concessions were acquired for a total cash payment of $40,544 (MXN$600,000). The interest in Papago 17 was acquired for a cash payment of $6,703 (MXN$100,000) and the issuance of 2,000,000 common shares, valued at $240,000. The Company’s interest in the Rossy concession was acquired for consideration of US$125,000, payable over two years, the issuance of 300,000 common shares and the grant to third parties of an aggregate 1.5% net smelter royalty.

Pursuant to an option agreement dated September 27, 2018 between the Company, Altamura Copper Corp. (“Altamura”), a British Columbia company, and the shareholders of Altamura other than the Company (the “Other Altamura Shareholders”), the Company holds an option (the “Altamura Option”) to acquire all of the Other Shareholders’ shares of Altamura (the “Altamura Shares”) in consideration for 39,800,000 common shares of the Company (the “Option Shares”). The Altamura Option has a three year term. The Company holds a 13% equity interest in Altamura. An officer of the Company and a private company owned by the spouse of a director and officer of the Company are also shareholders of Altamura. The Company and Altamura have no common directors, officers or control persons.

In consideration for the granting of the Altamura Option, the Company also entered into a loan agreement, as amended, (the “Loan Agreement”) with Altamura to advance (the “Advances”) for working capital purposes, an aggregate amount of up to US$700,000, of which US$612,747 has already been advanced to Altamura. Each individual Advance is subject to the approval of the Company.

On October 22, 2019, pursuant to a Voting Control Agreement amongst the Company and certain shareholders of Altamura who hold an aggregate total of 51% of the issued and outstanding shares of Altamura, those shareholders agreed to vote their respective shares of Altamura as directed by the board of directors of the Company. With the 13% of Altamura’s issued shares held by the Company, the Company now holds voting control of 64% of Altamura’s issued and outstanding shares.

In November, 2019, the Altamura Option Agreement was amended such that the pooling arrangements for the Option Shares issued upon exercise of the Option was amended to the following: (i) 20,991,600 of the Option Shares issued to ATM Mining, David Rose and Adam Smith will be subject to pooling legends permitting 10% of such Option Shares to be released from the pooling agreement and be transferable every annual anniversary over the nine-year period from the date of issuance; and (ii) 13,180,800 of the Option Shares issued to the remaining optionors will be subject to pooling legends permitting 20% of such Common Shares to be released from the pooling agreement and be transferable every six months over the 24-month period from the date of issuance.

On December 19, 2019, 100% of the voting disinterested shareholders of the Company approved the Altamura Option and the Loan Agreement.

2

MINERAL PROPERTIES (cont’d)

Santo Tomas Properties, Sinaloa State, Mexico (cont’d)

Altamura holds a 100% interest in Xochipala Gold S.A de C.V. (“XG”), the registered holder of a 100% interest in the Core Concessions. Altamura’s interest in XG will be reduced to 66.7% now that the Core Concessions have been registered to it. Altamura also holds, through its wholly owned subsidiary, Desarrollos Copper, S.A. de C.V., an option to acquire for US$16,000,000, all of the direct and indirect interest that the holder of the other 33.3% of XG (the “Desarrollos Option”), subject to a 1% net smelter royalty (the “Desarrollos Option NSR”), 0.5% of which may be bought back for US$2,000,000.

Altamura’s interest in the Core Concessions is subject to net smelter royalties of 1.5% in favour of ATM Mining Corp., a company owned by the spouse of the Company’s president, Craig Dalziel, and an arm’slength third party (the “Altamura NSR”). 0.5% of the Altamura NSR will be cancelled if a net smelter royalty is granted pursuant to the exercise of the Desarrollos Option, with the result that the Core Concessions will, upon the buy-back of half of the Desarrollos Option NSR, be subject to a maximum 1.5% net smelter royalty.

Altamura’s interest in XG may be increased in stages to 90%, by funding up to $30,000,000 in property related expenditures, with no minimum funding obligations. XG’s interest in the Core Concessions is subject to agreements with third parties granting these parties a non- registerable, contractual, aggregate 15% interest in the Core Concessions, dilutable in stages down to 10% by the same $30,000,000 funding in property related expenditures, with no minimum funding obligations. Consequently, upon the funding of up to $30,000,000 in property related expenditures, Altamura will hold up to an 81% net interest in the Core Concessions.

Altamura’s net interest in the Core Concessions to result from funding of property related expenditures:

Total Investment $1,000,000	Total Investment $1,000,000	$3,000,000	$10,000,000	$20,000,000	$30,000,000
Concession interest via XG equity
Altamura 56.7%		64.7%	72.9%	77.6%	81.0%
Other 28.3%		21.6%	14.6%	11.1%	9.0%
Third party contractual interest
Third parties	15.0%	13.7%	12.5%	11.3%	10.0%
Total	100%	100%	100%	100%	100%

The registration in the Mexican Public Registry of Mining (the “PRM”) of XG’s interest in the Core Concessions had been impeded by a 2016 judgment (the “Judgment”) of the Thirteenth Civil Court of Mexico City from a claim by Aztec and its Mexican subsidiary, Prime Aztec Mexicana, S.A. de C.V., against CMR, Fierce Investments Ltd. (“Fierce”), and Ruero International Ltd. (“Ruero”) and an annotation of that Judgment in the PRM. In May 2019, the First Collegiate Tribunal For Civil Matters of the First Circuit in Mexico City granted “amparo” protection to Fierce, and ordered nullification of the Judgment. The Thirteenth Civil Court nullified the Judgment in June, 2019, which resulted in the removal of the annotation in the PRM. Registration in the PRM of XG’s 100% interest in the Core Concessions was completed on December 20, 2019, following the extension of the term of two of the seven Core Concessions on December 19, 2019.

3

MINERAL PROPERTIES (cont’d)

Santo Tomas Properties, Sinaloa State, Mexico (cont’d)

Pursuant to an agreement dated April 9, 2019, Altamura has also acquired an exclusive option (the “Aztec Share Option”) to purchase 40,000,000 common shares (the “Aztec Shares”) of Aztec held by Fierce at any time within the next three years. The Aztec Shares constitute the primary consideration paid by Aztec in the transaction which was the basis of the claim that resulted in the Judgement. The Aztec Shares represent in excess of 90% of the currently issued and outstanding equity of Aztec. Fierce took legal action in Arizona, the jurisdiction of Aztec’s incorporation and residence, to secure its ownership rights in the Aztec Shares and to cause a general meeting of Aztec shareholders.

Pursuant to an assignment agreement dated September 3, 2019, Altamura assigned its rights under the Aztec Share Option to the Company in consideration for the reimbursement of Fierce’s legal fees related to Fierce’s legal action in Arizona, and of the consideration paid for the grant of the Aztec Share Option. Pursuant to a court order, the meeting of the shareholders of Aztec was held on October 1, 2019. Fierce exercised its rights as a shareholder support the election of Craig Dalziel, president, CEO and director of the Company, as the new sole director of Aztec.

On November 8, 2019, the Company exercised the Aztec Share Option and acquired the Aztec Shares, resulting in the Company holding more than 90% of the issued and outstanding shares of Aztec. The Company has recorded $202,459 as acquisition costs for the Aztec Shares.

In furtherance of its land assembly process, which involved numerous legal challenges, and the acquisition of its interest in the Core Concessions, Altamura agreed to pay certain contingency fees totaling up to US$7,700,000, of which US$600,000 is payable six months after the registration of XG’s concession rights, and up to US$7,100,000 is payable upon the sale, as a final disposition, of Altamura’s interest in the Core Concessions to a third party. This sale contingent obligation of up to US$7,100,000 is comprised of two components, the first being 10% of such sale proceeds to a maximum of US$3,600,000, inclusive of the first US$600,000, and, the second being 1.5% of such proceeds to a maximum of US$4,100,000 (including up to US$1,000,000 payable to David Rose, an officer of the Company).

Pursuant to an agreement dated September 27, 2018 (the “Advances Conversion Agreement”) between the Company and Altamura, in the event the Company does not exercise the Altamura Option, the Company may convert the Advances (the “Conversion Option”) into common shares of Altamura at a price of US$0.057 per share at any time during the six month period following the expiry of the Altamura Option, if not exercised. The Advances Conversion Agreement supersedes and replaces the September 26, 2017 agreement between the Company and Altamura, as amended, pursuant to which the Company held the option to purchase up to 3,500,000 common shares of Altamura at a price of US$0.057 per share and to pay for such shares from the Advances. The Company and Altamura subsequently amended the Advances Conversion Agreement to include the fees Oroco charges Altamura for management services in the amount that the Company may elect to convert into common shares of Altamura.

The Company incurred $280,926 in deferred exploration expenditures on the Santo Tomas Properties during the six months ended November 30, 2019

4

MINERAL PROPERTIES (cont’d)

Xochipala Property, Guerrero State, Mexico

The Xochipala Property, comprised of the Celia Gene (100 ha) and the contiguous Celia Generosa (93 ha) concessions, is located in the Municipality of Eduardo Neri, Guerrero, Mexico at the southern end of the Guerrero Gold Belt (the “GGB”). This region encompasses a northwest trend of intrusions with associated gold bearing iron skarn deposits. The GGB is currently the focus of aggressive exploration, delineation, development, and mining by a number of mining companies who have to date delineated gold reserves and measured and indicated resources in excess of 20 million ounces. The discovery of these deposits, beginning in the late 1980s, has led to the development of a predictable exploration model along the trend of the GGB.

The gold mineralization in each of these deposits is found in the contact (skarn) area between felsic to intermediate intrusives and the overlying calcareous sediments. Each of these deposits has a geophysical signature consisting of a strong high magnetic anomaly caused by iron mineralization in the endoskarn (skarn in the intrusive) and exoskarn (skarn in the sediments) in the contact zone between the intrusive and the overlying sediments. All of the major gold deposits in the GBB are hosted in extensive mineralized endoskarn and exoskarn zones associated with similar geological conditions. The Xochipala Property has geological characteristics similar to the known deposits, including the existence of a strong magnetic signature and areas of endoskarn and exoskarn.

The Xochipala Property, which is surrounded by concessions owned by Goldcorp Inc., lies approximately four kilometres southeast of Goldcorp.’s Los Filos mine, just one kilometre from the town of Xochipala and 30 kilometres by good paved road from the state capital of Chilpancingo. The area is well served by a network of local roads. The district is served with hydroelectric power from the Caracol Dam and water is locally available.

During 2014 the Company conducted an exploration program consisting of mapping; road cuts, outcrop chip sampling, and confirmed location of infrastructure, historic showings, and drill holes. The focus of the mapping and sampling program is the extensive areas of marbleized limestones (exoskarns) and highly altered, ferruginous intrusives (endoskarns) that have been identified on the property and which are indicative of potential mineralization in the vicinity of the two kilometres of identified contact zone. Preliminary mapping and assay results indicate that high grade gold mineralization exists at the Xochipala Property in the endoskarn and exoskarn. The Company continues to assess the appropriate next stage of exploration.

The Company incurred $28,916 in deferred exploration expenditures on the Xochipala Property during the six months ended November 30, 2019.

Salvador Property, Guerrero State, Mexico

The Salvador Property is a 100 hectare mining concession 100% owned by Minera Xochipala which lies approximately 25 kilometers to the west of the Xochipala Property and approximately 30 kilometers west of Chilpancingo, Guerrero. The Salvador property also hosts skarn mineralization associated with felsic intrusions similar to mineralization in the known ore deposits in the area.

The Company did not conduct exploration on the Salvador Property during the six months ended November 30, 2019.

5

CERRO PRIETO ROYALTY

Pursuant to the sale of the Company’s interest in the Cerro Prieto Property to Goldgroup Mining Inc. (“Goldgroup”) in fiscal 2013, Goldgroup agreed to pay to the Company a production royalty (the “Production Royalty”) quarterly in arrears. The Production Royalty, payable for each month in which the monthly average of the daily PM London gold fix is in excess of US$1,250 per ounce, is calculated at the rate of 20% of the dollar value of that excess for each ounce of gold produced from the property during that month, to a maximum royalty of US$90 per ounce. This Production Royalty will be payable for each and every ounce of the greater of:

• i) the first 90,000 ounces of gold produced from the Property; and

ii) all ounces of gold produced from the Property until the completion of five full years of commercial production, which period commenced on March 1, 2014.

During the six months ended November 30, 2019, the Company accrued $322,970 (2018 - $270) in royalty revenue.

RESULTS OF OPERATIONS

For the six months ended November 30, 2019, the Company recorded a loss from continuing operations of $986,689 (2018 - $779,978) for $0.01 per share (2018 - $0.01 per share). The Company has no income producing assets. The Company reported royalty revenues during the period from the Cerro Prieto Property. The Company is considered to be in the acquisition and exploration stage.

The Company is focused on the assembly of mineral concessions which make up the Santo Tomas porphyry copper project in Sinaloa State, Mexico. The Company will continue with the exploration of the Xochipala Property and the search for other resource assets and other business opportunities.

For the six months ended November 30, 2019, the Company recorded operating expenses of $1,341,923 (2018 - $734,771), which included consulting fees of $139,658 (2018 - $40,800), management and directors fees of $154,500 (2018 - $144,500), professional fees of $166,579 (2018 - $150,942), and share-based payment of $409,567 (2018 - $191,617) pursued the assembly of mineral concessions which make up the Santo Tomas porphyry copper project and the advancement of its Xochipala Property.

6

SELECTED QUARTERLY RESULTS

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November 30,
Quarter August 31, 2019 May 31, 2019 February 28, 2019
2019
Operating loss $697,370 $644,553 $683,191 $392,480
Other items $(224,636) $(130,598) $(320,125) $11,161
Loss for the period $472,734 $513,955 $363,066 $403,641
Loss per share $0.00 $0.01 $0.00 $0.00
Total assets $4,979,154 $4,142,773 $3,732,108 $2,944,722
Total liabilities $425,626 $420,664 $480,784 $401,077
November 30,
Quarter August 31, 2018 May 31, 2018 February 28, 2018
2018
Operating loss $457,443 $277,328 $305,090 $299,735
Other items $14,452 $30,755 $(21,950) $(52,749)
Loss for the period $471,895 $308,083 $283,140 $246,986
Loss per share $0.01 $0.00 $0.00 $0.00
Total assets $3,087,058 $2,696,911 $2,944,342 $2,126,671
Total liabilities $377,895 $343,418 $310,302 $293,179
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The most recent quarter was consistent with the prior quarter. There have been no significant changes in operations.

LIQUIDITY AND CAPITAL RESOURCES

As at November 30, 2019, the Company had working capital of $767,112 as compared with $71,328 at the year ended May 31, 2019.

As at November 30, 2019, the Company held marketable securities of $287,919, which included 5,601,250 shares of Goldgroup (the “Goldgroup Shares”) valued at $196,044.

During the six months ended November 30, 2019, the Company issued 3,000,000 units at a price of $0.45 per unit by way of a private placement for total proceeds of $1,350,000, with each unit consisting of one common share and one-half of one share purchase warrant. Each whole share purchase warrant will entitle the holder to acquire an additional common share at a price of $0.70 per common share, for a period of 24 months from the date of issue. The Company paid a total of $9,149 in cash for fees. The Company also issued 4,075,000 shares at a price of $0.16 per share, for total proceeds of $652,000, by way of the exercise of share purchase warrants.

Subsequent to November 30, 2019, the Company issued 50,000 common shares at a price of $0.32 per share, for total proceeds of $16,000, by way of the exercise of share purchase warrants, and 400,000 common shares at a price of $0.20, for proceeds of $80,000, by way of an exercise of incentive share purchase options.

7

OUTLOOK

The Company has as its main assets the Altamura Option, the Santo Tomas Properties, the Xochipala Property, 5,601,250 shares of Goldgroup and 5,950,000 common shares of Altamura (representing 13% of its equity, at a cost of $451,073) and, it holds an option to, in the event that the Company does not exercise the Altamura Option, convert Advances, interest thereon and management fees from the Company into shares of Altamura (the “Share Option”) at a price of US$0.057 per share for a period of six months. As at November 30, 2019, the Company had total Advances and interest receivable from Altamura of $873,073 and a management fee receivable of $346,500 in relation to management services provided by the Company to Altamura.

The Company also holds the Production Royalty, which is contingent upon the number of ounces of gold produced at Cerro Prieto and upon the monthly average price of gold being above US$1,250 per ounce in the month the gold is produced. There is no certainty that the Company will receive any further Production Royalty payments.

The Company also holds 375,000 common shares, at a cost of $75,000, in a private British Columbia company (“BC Co.”), which provides satellite based, geological services to the mining and other industries, which are able to identify, model and monitor subsurface geological structures. The Company and BC Co. have a common director. Subsequent to November 30, 2019, the Company sold its holdings of 75,000 shares of a public company whose shares are listed for trading on the TSX-V, for $20,990.

OFF BALANCE SHEET ARRANGEMENTS

The Company currently has no off-balance sheet arrangements that would potentially affect current or future operations, or the financial condition of the Company.

TRANSACTIONS WITH RELATED PARTIES

During the six months ended November 30, 2019, the Company entered into transactions with related parties as follows:

• (a) paid or accrued management and directors fees totalling $78,000 to a company controlled by Craig Dalziel, President and CEO of the Company, for management and other services, and to Mr. Dalziel directly for Mr. Dalziel’s services as director of the Company;

• (b) paid or accrued consulting fees totalling $12,000 to a company controlled by Craig Dalziel, for project research services;

• (c) paid or accrued professional and consulting fees totalling $66,000 to David Rose, Corporate Secretary of the Company, for legal and management consulting services provided to the Company;

• (d) paid or accrued consulting and directors fees totalling $21,500 to a company controlled by Steve Vanry, Chief Financial Officer of the Company, and to Mr. Vanry directly, for his services as Chief Financial Officer and director;

• (e) paid or accrued directors fees totalling $4,000 to Robert Friesen for Mr. Friesen’s services as a director; and

8

TRANSACTIONS WITH RELATED PARTIES (cont’d)

• (f) paid or accrued directors fees totalling $3,500 to Stephen Leahy for Mr. Leahy’s services as a director.

As at November 30, 2019, $222,645 was owing to officers and directors for directors, management, consulting, legal and accounting fees. These charges were measured by the exchange amount, which is the amount agreed upon by the related parties. The amounts owing are unsecured, non-interest bearing and have no fixed repayment terms. The above transactions were incurred in the normal course of operations and are recorded at the exchange amount, being the amount agreed upon by the transacting parties.

During the six months ended November 30, 2019, the Company advanced $223,146, accrued interest of $45,686, and received $76,355 for total outstanding Advances of $873,073, to Altamura, which is related by virtue of David Rose and a private company owned by the spouse of Craig Dalziel collectively having significant influence in Altamura.

CONTRACTUAL OBLIGATIONS

The Company has no material capital lease agreements and no material long term obligations other than those described above or in the description of mineral properties.

RISKS AND UNCERTAINTIES

The Company is in the mineral exploration and development business and, as such, is exposed to a number of risks and uncertainties that are not uncommon to other companies in the same business. Some of the possible risks include the following:

• (a) The industry is capital intensive and subject to fluctuations in metal prices, market sentiment, foreign exchange and interest rates. The recovery of the Company’s investment in resource properties and the attainment of profitable operations is dependent upon the discovery and development of economic ore reserves and the ability to arrange sufficient financing to bring the ore reserves into production.

• (b) The only sources of future funds for further acquisitions and exploration programs, or if such exploration programs are successful, the development of economic ore bodies and commencement of commercial production thereon, which are presently available to the Company are the Goldgroup Transaction Consideration and the sale of equity capital or the offering by the Company of an interest in its properties to be earned by another interested party to carry out further exploration or development.

• (c) Any future equity financings by the Company for the purpose of raising additional capital may result in substantial dilution to the holdings of existing shareholders.

• (d) The Company’s capital resources are largely determined by the strength of the resource markets and the status of the Company’s projects in relation to these markets, and its ability to compete for investor support of its projects.

9

RISKS AND UNCERTAINTIES (cont’d)

• (e) The prices of metals greatly affect the value of and the potential value of its properties. This, in turn greatly affects its ability to raise equity capital, negotiate option agreements and form joint ventures;

• (f) The Company must comply with health, safety, and environmental regulations governing air and water quality and land disturbances and provide for mine reclamation and closure costs. The Company’s permission to operate could be withdrawn temporarily where there is evidence of serious breaches of such regulations, or even permanently in the case of extreme breaches. Significant liabilities could be imposed on the Company for damages, clean-up costs or penalties in the event of certain discharges into the environment, environmental damage caused by previous owners of acquired properties or noncompliance with environmental laws or regulations.

• (g) The operations of the Company will require various licenses and permits from various governmental authorities. There is no assurance that the Company will be successful in obtaining the necessary licenses and permits to continue exploration and development activities in the future.

• (h) Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by such undetected defects.

Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, then actual results may vary materially from those described on any forward looking statement.

The development and exploration activities of the Company are subject to various laws governing exploration, development, and labour standards which may affect the operations of the Company as these laws and regulations set various standards regulating certain aspects of health and environmental quality. They provide for penalties and other liabilities for the violation of such standards and establish, in certain circumstances, obligations to rehabilitate current and former facilities and locations where operations are or were conducted.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the condensed interim consolidated financial statements requires the Company to make estimates and assumptions concerning the future. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

Critical accounting estimates are estimates and assumptions made by management that may result in a material adjustment to the carrying amount of assets and liabilities within the next financial year and are, but are not limited to, the following:

Share-based payment - The fair value of stock options issued are subject to the limitation of the Black-Scholes option pricing model which incorporates market data and which involves uncertainty and subjectivity in estimates used by management in the assumptions. Changes in the input assumptions can materially affect the fair value estimate of stock options.

10

CRITICAL ACCOUNTING ESTIMATES (cont’d)

Valuation of marketable securities - The Company evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of, and near term business outlook for, the investee, including factors such as industry and sector performance, changes in technology, and operational and financing cash flow.

The carrying value and the recoverability of exploration and evaluation assets - Management has determined that exploration, evaluation and related costs incurred, which were capitalized may have future economic benefits and may be economically recoverable. Management uses several criteria in its assessments of economic recoverability and probability of future economic benefits including geologic and other technical information, history of conversion of mineral deposits with similar characteristics to its own properties to proven and probable mineral reserves, scoping and feasibility studies, accessible facilities and existing permits.

Valuation of production royalty - The Company is entitled to royalty income as disclosed in Note 5 of the condensed interim consolidated financial statements. The Company has estimated the value of the production royalty to be $Nil due to lack of certainty of future ongoing production and values.

CHANGES IN ACCOUNTING POLICIES

New accounting policies adopted

The following standards and amendments to existing standards have been adopted by the Company effective June 1, 2019:

IFRS 16, Leases

This standard sets out the principles for recognition, measurement, presentation, and disclosure of leases including guidance for both parties to a contract, the lessee and the lessor. It eliminates the classification of leases as either operating or finance leases as is required by IAS 17 and instead introduces a single lessee accounting model.

FINANCIAL INSTRUMENT RISK AND CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to identify, pursue and complete the exploration and development of mineral properties, to maintain financial strength, to protect its ability to meet its on-going liabilities, to continue as a going concern, to maintain creditworthiness and to maximize returns for shareholders over the long term. The Company does not have any externally imposed capital requirements to which it is subject. Capital of the Company comprises of shareholders’ equity. There has been no significant change in the Company’s objectives, policies and processes for managing its capital during the six months ended November 30, 2019.

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FINANCIAL INSTRUMENT RISK AND CAPITAL MANAGEMENT (cont’d)

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares. The Company’s investment policy is to invest its cash in financial instruments in high credit quality financial institutions with terms to maturity selected with regards to the expected timing of expenditures from continuing operations.

Fair value hierarchy

The Company’s financial instruments recorded at fair value require disclosure about how the fair value was determined based on significant levels of inputs described in the following hierarchy:

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and value to provide pricing information on an ongoing basis.

Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1. Prices in level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the market place.

Level 3 - Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

Management of Industry Risk

The Company is engaged in mineral exploration and manages related industry risk issues directly. The Company may be at risk for environmental issues and fluctuations in commodity pricing as well as changes in foreign government policy. Management is not aware of and does not anticipate any significant environmental remediation costs or liabilities in respect of its current operations; however, it is not possible to be certain that all aspects of environmental issues affecting the Company, if any, have been fully determined or resolved.

Management of Financial Risk

The carrying value of cash, receivables, and trade payables and accrued liabilities approximated their fair value because of the short-term nature of these instruments. Cash is measured at a level 1 of the fair value hierarchy. The Goldgroup and Pub Co. shares recorded in marketable securities are measured at a level 1 of the fair value hierarchy and the BC Co. shares recorded in marketable securities are measured using level 3 of the fair value hierarchy. Investments classified within level 3 have significant unobservable inputs. As observable prices are not available for these securities, the Company has used valuation techniques to derive the fair value. The investments are based on cost at time of acquisition. The Company’s financial instruments are exposed to certain financial risks, which include credit risk, liquidity risk, and market risk.

Credit Risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its bank accounts. The bank accounts are mainly held with a major Canadian bank and this minimizes the risk to the Company.

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FINANCIAL INSTRUMENT RISK AND CAPITAL MANAGEMENT (cont’d)

Liquidity Risk

Liquidity risk is the risk that the Company will not have sufficient funds to meet its financial obligations when they are due. The Company manages liquidity risk through the management of its capital structure and financial leverage as outlined above. The Company monitors its ability to meet its short-term expenditures by raising additional funds through share issuance when required. All of the Company’s financial liabilities have contractual maturities of 30 days or due on demand and are subject to normal trade terms. The Company is exposed to liquidity risk.

Foreign Exchange Risk

The Company’s property interests in Mexico make it subject to foreign currency fluctuations, which may adversely affect the Company’s financial position, results of operations and cash flows. The Company is affected by changes in exchange rates between the Canadian dollar and foreign currencies. The Company does not invest in derivatives to mitigate these risks. The effect of a 1% change in the foreign exchange rate on the cash held in foreign currencies at November 30, 2019 is nominal.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to significant interest rate risk.

OTHER MD&A DISCLOSURE REQUIREMENTS

Disclosure by Venture Issuer without significant revenue

An analysis of the material components of the Company’s general and administrative expenses is disclosed in the Financial Statements to which this MD&A relates. An analysis of the material components of the acquisition and deferred exploration costs of the Company’s mineral properties is disclosed in the annual Financial Statements to which this MD&A relates.

Share Capital

As at January 29, 2020, the Company had 105,067,405 common shares, 7,300,000 incentive stock options, and 4,924,200 share purchase warrants outstanding.

Information Available on SEDAR

Additional information relating to the Company is available on the SEDAR website at www.sedar.com.

On behalf of the Board of Directors,

January 29, 2020

“ Craig Dalziel ” President

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