Sonoro Gold Corp. — Management Reports 2020

Apr 30, 2020

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SONORO METALS CORP.

(An Exploration Stage Company)

MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED DECEMBER 31, 2019

Suite 1112 – 409 Granville Street, Vancouver, BC V6C-1T2

SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

INTRODUCTION

This Management’s Discussion and Analysis (“MD&A”) includes financial information from, and should be read in conjunction with, Sonoro Metals Corp (the “Company” or “Sonoro”) audited consolidated financial statements and notes thereto for the year ended December 31, 2019. This MD&A was prepared with information available to April 29, 2020. Additional information and disclosure relating to the Company can be found on SEDAR at www.sedar.com.

FORWARD LOOKING STATEMENTS

This MD&A contains “forward-looking statements” within the meaning of applicable Canadian securities legislation, which include all statements other than statements of historical fact that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future. These include, without limitation:

• the Company’s anticipated results and developments in the Company’s operations in future periods;

• • planned exploration and development of its mineral properties;

• planned expenditures and budgets;

• evaluation of the potential impact of future accounting changes;

• estimates concerning share-based compensation and carrying value of properties; and

• other matters that may occur in the future.

These statements relate to analyses and other information that are based on expectations of future performance and planned work programs.

Statements concerning mineral resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the related property is developed.

With respect to forward-looking statements and information contained herein, the Company has made a number of assumptions with respect to, including among other things, the price of gold and other metals, economic and political conditions, and continuity of operations. Although the Company believes that the assumptions made and the expectations represented by such statements or information are reasonable, there can be no assurance that forward-looking statements or information contained or incorporated by reference herein will prove to be accurate.

Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ materially from those expressed or implied by the forward-looking statements, including, without limitation:

• fluctuations in mineral prices;

• the Company’s dependence on a limited number of mineral projects;

• the nature of mineral exploration and mining and the uncertain commercial viability of certain mineral deposits;

• the Company’s lack of operating revenues;

• the Company’s ability to obtain necessary financing to fund the development of its mineral properties or the completion of further exploration programs;

• jurisdiction operating risks which can over time include changes in political, economic, regulatory and taxation regimes;

• governmental regulations and specifically the ability to obtain necessary licenses and permits;

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SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS

For the year ended December 31, 2019

• risks related to the Company’s mineral properties being subject to prior unregistered greements, transfers, or claims and other defects in title;

• fluctuations in the currency markets;

• changes in environmental laws and regulations which may increase costs of doing business and restrict the Company’s operations;

• risks related to the Company’s dependence on key personnel; and

• estimates used in the Company’s consolidated financial statements proving to be incorrect.

This is not an exhaustive list of the factors that may affect the Company’s forward-looking statements. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. The Company’s forward-looking statements are based on beliefs, expectations and opinions of management on the date the statements are made. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.

DESCRIPTION OF BUSINESS

Sonoro was incorporated in Ontario on November 30, 1944 under the Company Act of Ontario. On January 15, 2007, the Company was issued a Certificate of Continuation by the Province of British Columbia. The Company’s principal business activity is the acquisition, exploration and development of exploration and evaluation assets. The Company is a publicly–traded company listed on the TSX Venture Exchange under the symbol “SMO”.

The Company has financed its current exploration and development activities principally by the issuance of common shares. The Company intends to continue relying upon the issuance of securities to finance its future activities but there can be no assurance that such financing will be available on a timely basis under terms acceptable to the Company.

HIGHLIGHTS

• On April 2, 2019, the Company closed a non-brokered private placement for gross proceeds of $650,718.

• On July 3, 2019, the Company announced the completion of a 2-phase drill program totaling 10,328 m over 96 drill holes.

• On July 26, 2019 the Company filed a National Instrument 43-101 technical report for its Cerro Caliche gold project in Sonora, Mexico.

• On August 2, 2019, the Company closed a non-brokered private placement for gross proceeds of $750,060.

• On September 3, 2019, the Company engaged New Tigers Technologies Ltd., (“NTT”) to act as the Company’s China branch office representative.

• In December 2019, the Company, received proceeds of $875,000 from the sale of the 1% net smelter returns royalty (the “Royalty”) on the Chipriona property located in the Mulatos Mining District in Sonora, Mexico. The Royalty originated from the sale of the Chipriona property by the Company to Agnico Sonoro, S.A. de C.V., a subsidiary of Agnico Eagle Mines Limited (“Agnico”) in December 2016. Sonoro has no further interest in the Chipriona property.

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SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

PROJECT UPDATE

Cerro Caliche Project

Cerro Caliche Option Agreements

On January 23, 2018, the Company through its wholly owned Mexican subsidiary, MMP, entered into an option agreement (the “Cerro Caliche Option Agreement”) with a resident of Sonora, Mexico (the “Cerro Caliche Vendor”), to acquire a 100% interest (the “Cerro Caliche Option”) in the Cerro Caliche Group of Concessions (“Cerro Caliche”) located in the municipality of Cucurpe, in northern Sonora state, Mexico.

The Cerro Caliche Option Agreement provides for the Company to acquire a 100% interest in Cerro Caliche over a 72-month period for total consideration of US$2,977,000 payable in instalments.

Following exercise of the Cerro Caliche Option, the Cerro Caliche Vendor will be entitled to a 2% net smelter returns royalty (“Cerro Caliche NSR”) from the proceeds of the sale of minerals from the Cerro Caliche project. The Company has been granted an option to purchase the Cerro Caliche NSR at any time for US$1,000,000 for each one percent of the Cerro Caliche NSR.

On March 14, 2018, the Company through its wholly owned Mexican subsidiary, MMP, entered into an option agreement (the “Rosario Option Agreement”) with a resident of Tucson Arizona (the “Rosario Vendor”), to acquire a 100% interest (the “Rosario Option”) in the Rosario Group of Concessions (“Rosario”) located in the municipality of Cucurpe, in northern Sonora state, Mexico. The Rosario Option Agreement provides for the Company to acquire a 100% interest in Rosario over a 72- month period for total consideration of US$1,600,000 payable in instalments.

Following exercise of the Rosario Option, the Rosario Vendor will be entitled to a 2% net smelter returns royalty (“Rosario NSR”) from the proceeds of the sale of minerals from the Rosario project. The Company has been granted an option to purchase the Rosario NSR at any time for US$1,000,000 for each one percent of the Rosario NSR.

On May 29, 2018, the Company entered into an option agreement to acquire a 100% interest in the Tres Amigos concessions in Sonora, Mexico. The Tres Amigos concessions are contiguous to the Company’s Cerro Caliche concessions. The Company can acquire the 100% interest for total consideration of US$130,000, which is payable in nine equal instalments over 48 months from the date of signing.

On August 10, 2018, the Company entered into an option agreement to acquire a 100% interest in the El Colorado concessions, which are located within the perimeter of the Cerro Caliche concessions. The Company can acquire its 100% interest in the El Colorado concessions by paying US$100,000, of which US$50,000 ($63,810) has been paid and the balance is due six months from the signing of the agreement. Subsequent to December 31, 2018 the Company paid the remaining balance of US$50,000 and completed the acquisition of the El Colorado concessions.

On October 5, 2018, the Company entered into an option agreement to acquire a 100% interest in the Cabeza Blanca concession, located within the perimeter of the Cerro Caliche concessions. The Company can acquire its 100% interest in the Cabeza Blanca concession by paying US$175,000 in staged payments over five years from the date of signing and by issuing 250,000 common shares.

In June 2018, the company entered into a surface access agreement with the owners of El Cerro Prieto Ranch, which has ownership of the surface rights above the Cerro Caliche concession. In Mexico, mineral concessions do not grant the rights over the surface where they are located, the concession holder must negotiate directly for the use of land with the owners of the surface rights.

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SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

Under the Sonoro agreement with El Cerro Prieto Ranch, the company has access to the land for mineral exploration and development for an annual fee of US$48,000.

RESULTS OF PHASE ONE DRILL PROGRAM AT CERRO CALICHE

Following the assaying of over 2,000 rock chip samples collected by Sonoro’s geological field crews and the analysis of over 4,000 surface samples conducted by prior operators, Sonoro carried out the first phase of a two-phase drilling program for 10,000 meters of reverse-circulation drilling, between late September and December 2018.

A total of 45 reverse circulation holes totaling 4,604 meters were drilled during the program confirming a cluster of eight northwest trending gold-dominant structures surrounded by parallel sheeted veinlets and stockwork veinlets. Highlights from the final 14 holes include 12.2 meters of 11.3 grams per tonne AuEq, 4.6 meters of 4.69 grams per tonne AuEq and 12.2 meters of 0.95 grams per tonne AuEq.

The combined results from the phase one drilling program confirm shallow, low grade, bulk tonnage gold mineralized zones in supergene oxidized sedimentary and igneous rock units. Subject to metallurgical confirmation, the gold mineralized zones appear amenable to heap leach extraction of precious metals with deep oxidation. The average gold grade of intervals reported is observed to be similar to other gold heap leaching mining operations in the region.

Sonoro has also received and analyzed the databases from Corex Gold Corp. and other operators that carried out historical drilling programs at Cerro Caliche since 2007. Sonoro’s phase one drill program successfully corroborated the sampling and drill results generated by the prior operators, thereby considerably enhancing management’s confidence in the significant potential of Cerro Caliche. Sonoro continues to utilize the newly expanded database to increase the zones of gold mineralization within the current target area and to drill additional highly prospective mineralized zones identified through the ongoing exploration program.

The mineralized zones are named after historic mine workings situated within each zone, from east to west, as follows; Las Abejas, Chinos NW, Japoneses, Los Cuervos, El Quince, Cabeza Blanca, Guadalupe, and El Colorado.

Results from 19 drill holes in the Cabeza Blanca/El Colorado/Guadalupe zones outline a linear central vein structure with sheeted to stockwork associated mineralization. Results also confirm lateral continuity of over 500 meters for both the Cabeza Blanca zone and its parallel companion, the Guadalupe zone.

The 19 holes completed in the Japoneses and Cuervos zones indicate one continuous structure extending approximately 1.2 kilometers. A multiple-vein mineralized zone, Japoneses-Cuervos is the largest area of mineralization on the Cerro Caliche property.

RESULTS OF PHASE TWO DRILL PROGRAM AT CERRO CALICHE

On July 3, 2019, Sonoro announced the completion of its reverse circulation program at the 100% owned Cerro Caliche gold project in Sonora, Mexico. The Phase Two drill program further expanded Cerro Caliche’s mineralized gold zones while showing continuity of grade and continuing to support the existence of a broadly mineralized low-sulphidation epithermal vein system with the potential to develop a large tonnage resource suitable for open pit mining. Again, the company noted that the average gold grades of intervals reported are similar to existing heap leach mining operations in the region.

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SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

To date, over 2,000 rock chip samples and 96 drill holes, totaling 10,328 meters, have been completed and assayed confirming 17 northwest trending gold-dominant structures and three shallow, bulk-tonnage, gold mineralized zones with supergene oxidized metasedimentary and igneous rock units. The combination of historic and current exploration drilling now totals 23,679 meters in 212 drill holes in addition to more than 6,000 surface samples.

Results from the initial 15 Phase Two dill holes match the characteristics of the Phase One results, thus extending the mineralized zones by over 1.25 kilometers to the northwest of the Central Zone in four new clusters. Assays from the final 15 Phase Two drill holes continued the expansion of the gold and silver mineralization in and around the previously identified Central Zone and confirmed the continuity of mineralization between these zones and in areas within these zones not previously drilled.

Within the Central Zone, drilling has demonstrated a sector measuring 1.3 km long by up to 0.6 km wide, comprised of Japoneses, Chinos NW, Cuervos and Buena Vista, with shallow, gold mineralized zones and gold grades and intervals similar to operating heap leach mines in the region. The Cabeza Blanca-El Colorado-Guadalupe zone located 750 meters west of the Central Zone demonstrates similar mineralization over a 1 km strike length. An additional seven mineralized zones have been drilled within a 1.5 km radius of the Central Zone, all showing potential for expansion.

This drilling program has shown that the mineralized zones have good continuity along strike and the zones are open for extension potential. All drill holes completed are RC type drill holes with 45 degrees inclination to either the southwest or northeast within vertical section planes with north 60° east orientation. True drill intercept widths are considered near the reported drill widths ranging to 75% of drilled widths unless noted otherwise. Most vein zones trend north 30° west trends with 45° to 70° dips to the northeast.

To view a map of all the drill holes, precise locations of each hole and a table of assay results, please visit the Sonoro website at www.sonorometals.com and view the Cerro Caliche page.

Quality Assurance/Quality Control (“QA/QC”) Measures and Analytical Procedures

Drill samples are collected with an airstream cyclone and passed into a splitter that divides each sample into quarters. The quartered samples are then bagged and sealed with identification. The sample group has blanks, standards and duplicates inserted into the sample stream. ALS-Chemex collects the samples and transports them directly to the preparation laboratory in Hermosillo, Sonora.

At the laboratory, part of each sample is reduced through crushing, splitting and pulverization from which 200 grams is sent to the ALS-Chemex assay laboratory in Vancouver. Thirty grams undergoes fire assay for gold with the resulting concentrated button of material produced is dissolved in acids, and the gold is determined by atomic absorption. Another quantity of the sample is dissolved in four acids for an ICP multielement analysis.

NATIONAL INSTRUMENT 43-101 TECHNICAL REPORT FILED

An independent technical report titled “NI 43-101 Technical Report on the Cerro Caliche Gold Project, Cucurpe Mining District of Sonora State, Northwestern Mexico”, dated July 26, 2019 (the “Technical Report”) was prepared by independent Qualified Persons, Derrick Strickland, P.Geo., and Robert Sim, P.Geo., Sim Geological Inc. The Technical Report was filed both on SEDAR at www.sedar.com, and on the Company’s website at www.sonorometals.com.

The report’s estimated resources are based on certain mineralized zones identified on the property including 21,091 meters of reverse circulation drilling in 200 holes. Of these, 10,328 meters in 96 holes were drilled by Sonoro, plus 7,725 meters in 86 holes were drilled by Corex Gold and 3,038 meters in 18 holes were drilled by Paget Southern, both previous operators of the Cerro Caliche project

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SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

While exploration continues on the numerous other mineralized zones identified by scout drilling, surface mapping and surface geochemical rock sampling, the report notes that the majority of the rocks that host the mineral resources at Cerro Caliche are highly oxidized and likely amenable to low-cost heap leach extraction methods.

Estimate of Mineral Resources for the Cerro Caliche Project

Category	Tonnes (000)	Average Grade	Average Grade	Average Grade	Contained Metal	Contained Metal	Contained Metal
		AuEq (g/t)	Au (g/t)	Ag (g/t)	AuEq (koz)	Au (koz)	Ag (koz)
Inferred	11,470	0.545	0.495	4.3	201	183	1,601

The estimates in the above table are limited inside the $1,500/oz Au pit shell. The base case cut-off grade is 0.25 g/t gold equivalent (AuEq), where AuEq = Au g/t + (Ag g/t x 0.01133). Mineral resources are not mineral reserves because the economic viability has not been demonstrated. There are no mineral reserve estimates for the Cerro Caliche project. It is reasonably expected that a majority of Inferred mineral resources could be upgraded to Indicated (or Measured) mineral resources with continued exploration.

The estimate of mineral resources is constrained within a pit shell to establish reasonable prospects for eventual economic extraction. The pit shell was generated using the following projected technical and economic parameters:

• Mining (open pit) US$1.75/t

• Processing US$6.80/t

• G&A US$1.50/t

• Gold price US$1,500/oz

• Silver price US$17.00/oz

• Gold process recovery 72%

• Silver process recovery 30%

• SG 2.50

• Pit slope 50 degrees

• Gold Equivalent calculation AuEq = Au g/t + (Ag g/t x 0.1133)

• Base case Cut-off grade 0.25 g/t AuEq

Based on the evaluation of the data available from the Cerro Caliche Project, the authors of the Technical Report have drawn the following conclusions:

• The Cerro Caliche deposit exhibits features that are typical of low-sulphidation epithermal style deposits. Mineralized zones are often structurally controlled and extend for strike lengths of up to 1 km and to depths approaching 200 m below surface.

• Many of the mineralized zones remain “open” along strike and at depth. Numerous other mineralized zones have been identified by surface mapping and surface geochemical rock sampling.

• Exploration activities conducted by Sonoro and the previous operators of the property followed industry standards, and the resulting database is considered to be reliable to support estimates of mineral resources.

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For the year ended December 31, 2019

SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS

• Drilling to date has outlined an estimated Inferred mineral resource of 11.5M tonnes at an average grade of 0.495 g/t gold and 4.3 g/t silver. It is assumed that the mineral resource is potentially amenable to open pit extraction methods.

• Preliminary metallurgical test work has only recently been initiated by Sonoro. The majority of the rocks that host the mineral resources at Cerro Caliche are highly oxidized and it is likely that the deposit is amenable to low-cost heap leach extraction methods. There are several proximal deposits that have similar geologic characteristics that are currently extracting gold and silver through heap leach extraction.

• The authors of the Technical Report are not aware of any known factors related to metallurgical, environmental, permitting, legal, title, taxation, socio-economic, marketing or political issues which could materially affect the mineral resource estimates.

Recommendations

Based on the review of the data provided, the authors recommend the following next steps to advance the Cerro Caliche project:

• Conduct a drilling program that includes:

• A 500 m infill drilling program comprising large diameter (PQ) core to provide valuable structural and mineralization information.

• A 6,500 m reverse-circulation drilling program to increase the confidence of the known mineral resource and identify potential expansion of known mineralization.

• Conduct a detailed metallurgical analysis of the known mineralized area.

• Review the existing data to integrate the geology, alteration, observations, and known structure into a 3D model. This will help target areas for potential expansion.

• Continue to explore for extensions of existing mineralized zones.

• Drill a series of diamond drill holes in each mineralized zone to gain additional information related to geologic and metallurgical characteristics.

• Conduct a suite of cyanide soluble gold assays on a select suite of samples to better understand the nature and distribution of soluble gold.

• Attempt to locate the older drilling data generated by Cambior.

Geologic Description

Cerro Caliche is located 45 kilometers east southeast of Magdalena de Kino in the Cucurpe-Sonora Megadistrict of Sonora, Mexico. Multiple historic underground mines were developed in the concession including Cabeza Blanca, Los Cuervos, Japoneses, Las Abejas, Boluditos, El Colorado, Veta de Oro and Espanola. Mineralization types of the Cucurpe-Sonora Mega-district include variants of epithermal low sulfidation veins and related mineralized dikes and associated volcanic domes. Local altered felsic dikes cut the mineralized meta-sedimentary rock units and may be associated with mineralization both in the dikes and metasedimentary rocks. The Cucurpe-Sonora Mega-district has historically been regarded as vein dominated, but recently, open pit mining operations have been developed on disseminated and stockwork style gold mineralization.

Host rocks include Jurassic-Cretaceous meta-sedimentary rock units including argillite, shale, quartzite, limestone, quartz pebble conglomerate and andesite. Younger intrusive rock consisting of medium coarsegrained granodiorite-granite is present in the westerly parts of the concessions near the historic Cabeza

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SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

Blanca mine. It is apparent that veining cuts and pervasively alters the intrusive stock. Rhyolite occurs in irregular bodies distributed in higher elevations in the northerly part of the concession, including the Rincon area, where it occurs as flows, sills, dikes and rhyolite domes. Part of the rhyolite is mineralized and appears to be related to epithermal gold mineralization throughout the property.

San Marcial Property

The Company’s wholly-owned subsidiary Minera Breco, S.A. de C.V. (“Breco”) holds the San Marcial project, located in Sonora State, Mexico, which consists of three contiguous mineral concessions and option rights to acquire an additional contiguous concession.

The San Marcial concessions are situated at the southern end of the prolific Sonora-Mojave Megashear, a regional scale structural system measuring approximately 50 km in width and 500 km in length. Gold mines in the Megashear have produced over 10 million ounces with about 25 million ounces remaining in resources.

Mines in this trend include New Gold’s Mesquite Mine near Yuma, Arizona, in addition to several mines located in the northwest corner of Sonora State, including La Herradura (Fresnillo and Newmont); El Chanate (Au Rico Gold); and San Francisco (Alio Gold).

Gold mineralization in the San Marcial concession is hosted in Jurassic sedimentary rocks consisting of quartzite, shale and limestone, in addition to younger porphyritic intrusive rocks. Previous work on the San Marcial concessions and in the immediate area date back to the late 1980s when Cominco’s Mexican subsidiary performed work that culminated in the drilling of 4 RC holes, results of which are not available. Other small programs were undertaken by Barrick and Campbell Resources, with the latest work done by Queenstake in the mid 1990s. Sonoro initiated a comprehensive program on the property beginning with a thorough data compilation followed by a property scale soil geochemical sampling program to aid in delineating anomalous zones in this structurally complex region.

In 2015, the Company initiated exploration at San Marcial with a Phase One exploration program consisting mainly of a wide spaced soil geochemical survey to delineate anomalous zones in this structurally complex region. Soil lines have been established on north-south lines 200 meters apart and samples taken at 50meter intervals over three lines. Seven specific mineralized structural zones were identified and crossed in the soil sampling, including the old mine prospect areas at San Marcial and Soledad. Underground workings in these two areas have characterization rock chip sample values ranging from .3 to over 4 g/t gold and 7 to over 50 g/t silver; lead values from 700 ppm to over 2 percent; with additional anomalous values of arsenic and mercury. These samples were previously collected by the former owner and analyzed at commercial laboratories, but do not represent a resource.

Sonoro proposes to conduct a reverse circulation drill program at San Marcial in due course. The timing for the start of the drill program will be dependent on the availability of Sonoro’s technical team which is currently focused on conducting a drilling program at the nearby Cerro Caliche project.

CHINA BRANCH OFFICE

On September 3, 2019, the Company announced it had entered into an agreement with New Tigers Technologies Ltd., (“NTT”), a wholly owned subsidiary of New Tigers Consulting Ltd. of Suzhou, Jiangsu Province, P. R. China. NTT acts as Sonoro’s representative and has establish a representative office for the Company at NTT. A key NTT function is to identify and introduce Sonoro to China-based engineering, procurement and construction (“EPC”) companies considered to be a good potential fit for Sonoro’s project requirements. NTT has already assisted with initial introductions, enabling Sonoro to advance discussions to the point of executing two Memorandum of Understanding agreements regarding the development and debt finance of its proposed Cerro Caliche heap leach pilot operation.

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SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

According to the agreement with NTT, following any future joint development between Sonoro and any China-based entities, NTT will continue to act as the Company’s China branch office representative.

NTT acts as a liaison for Western companies who wish to do business with China-based entities in areas ranging from, but not limited to, EPC agreements, project financing and related structuring, joint ventures, commodity off-take agreements and the establishment of manufacturing facilities. NTT has served more than 1,400 international clients over the past 21 years. In consideration of NTT’s services, Sonoro pays a fixed monthly cash fee which includes providing the Company with a representative office in China, support staff and translation services. Future China-based agreements secured by the Company

because of NTT’s efforts may carry a success-fee obligation to be determined based on the applicable agreement terms. Over the past decade, two of four EPC companies which the Company is currently in discussions with have previously financed, and developed mining projects introduced by NTT.

During July 2019, on an exploratory business tour organized by NTT and exclusive to the Company, Chairman John Darch and Director of Finance Neil Maedel travelled to Beijing, Yantai, Shanghai and Hong Kong to meet with corporate executives and initiate discussions regarding potential EPC and project development and structuring agreements. The Company subsequently entered into confidentiality agreements and commenced formal discussions with five China-based EPC companies regarding potential EPC contracts, and opportunities for project financing.

In October 2019 Chairman John Darch and Director of Finance Neil Maedel were invited back to China for a series of follow-up meetings in Tianjin and Beijing with those EPC companies, organized by NTT under the direction of Dr. Wei Qian. Two of those EPC companies have successfully financed and developed mining projects introduced by NTT in the past decade, and they have been proactive in their approach with the Company. Meetings with four of the companies’ senior executives were held to discuss the various aspects of the proposed pilot plant, including permitting requirements and processes, and the dispatch of their technical staff to the Cerro Caliche project site.

Subsequently, two Memorandums of Understanding (“MOU”) have been executed for project debt financing and EPC services for the development and operation of the Company’s proposed Cerro Caliche Pilot Project. Two additional MOU’s are currently under consideration, however their completion has been delayed as a consequence of the COVID-19 related restrictions.

While Chinese health authorities report having successfully suppressed the COVID pandemic, many restrictions remain in an effort to prevent a second wave of the outbreak. The Company is encouraged by the lifting of restrictions that are allowing businesses there to slowly resume commercial activities. International travel, however, continues to be sharply curtailed. On March 28, 2020, China suspended the entry of most foreign nationals, including those with valid visas, while international travel by Chinese citizens continues to be heavily restricted. Any individual traveling to China must be quarantined for 14 days on arrival. The consequence of these travel restrictions is to delay Company executives plans to visit with the executives of the EPC companies in China regarding EPC and debt proposals. In addition, the EPC companies have been prevented from conducting site visits to Cerro Caliche as part of the bidding process. Dr. Wei continues to maintain an active dialogue with the senior executives and project directorsmanagers of each EPC company and reports their continued enthusiasm regarding the Company’s HLPO opportunity. At this time, however, resumption of the Company’s negotiations with the EPC companies’ remains dependent on China’s government easing restrictions regarding international travel.

COVID-19 PANDEMIC

Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and physical distancing, have caused material disruption to business globally resulting in an

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SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

economic slowdown. Global equity markets have experienced significant volatility and weakness. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company in future periods.

RESULTS OF OPERATIONS

Year ended December 31, 2019, compared to the year ended December 31, 2018.

The Company recorded net loss and comprehensive loss of $1,756,410 ($0.05 loss per common share) for the year ended December 31, 2019 (the “Current Year”) compared to net loss and comprehensive loss of $2,479,504 ($0.10 loss per common share) during the year ended December 31, 2018 (the “Comparative Year”). Significant differences in operating expenses for the Current Year versus the Comparative Year, were:

• Exploration expenditures were $1,890,101 in the Current Year compared to $915,238 in the Comparative Year. The Company incurred additional exploration expenditures in the Current Year as it undertook an extensive exploration program that included a phase 2 drill program, at the Company’s Cerro Caliche project.

• Interest income was negligible in the Current Year ($847) when compared to the Comparative Year ($78,934), which is a result of the Company holding minimal cash balances held in Mexico throughout the year.

• Travel and promotion expenses increased to $453,864 in the Current Year compared to $127,199 in the Comparative Year, which is a result of the Company undertaking additional marketing efforts related to its increased activity on its Mexican based assets.

• Share-based payments, a non-cash expense, was $87,500 in the Current Year compared to $127,288 in the Comparative Year, which is a result of the Company granting 800,000 stock options that fully vested during the current year, compared to 1,575,000 in the Comparative Year.

• During the Current Year, the Company received proceeds of $875,000 from the sale of the 1% Royalty on the Chipriona property.

• The Company wrote off the tax liability of $725,270 in the Current Year compared to the Comparative Year ($nil) based on discussions with Servicio de Administración Tributaria (“SAT”), the Mexican tax authorities. Subsequent to the year ended December 31, 2019, the Company filed all the outstanding tax returns in Mexico and paid $133,000 in withholding taxes, which the Company believes was the amount owed. The Company is currently waiting for the notice of assessment from SAT.

FOURTH QUARTER

Three months ended December 31, 2019, compared to the three months ended December 31, 2018.

The Company recorded a net income and comprehensive income of $880,487 ($0.02 income per common share) for the three months ended December 31, 2019 (the “current quarter”) compared to a net loss and comprehensive loss of $1,611,107 ($0.06 loss per common share) during the three months ended December 31, 2018 (the “comparative quarter”). Significant differences in operating expenses for the current quarter versus the comparative quarter were:

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SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

• Exploration expenditures were $351,475 in the current quarter compared to $915,238 in the comparative quarter. The Company incurred lower exploration expenditures in the current quarter as it had already completed the phase 2 drill program in the third quarter of 2019 at the Company’s Cerro Caliche project.

• Share-based payments, a non-cash expense was $40,300 in the current quarter compared to $127,288 in the comparative quarter due to lower number of options vesting in the current quarter.

• During the current quarter, the Company received proceeds of $875,000 from the sale of the 1% Royalty on the Chipriona property (comparative quarter - $nil).

• The Company wrote off the tax liability of $725,270 in the current quarter compared to the comparative quarter ($nil) based on discussions with Servicio de Administración Tributaria (“SAT”), the Mexican tax authorities. Subsequent to the year ended December 31, 2019, the Company filed all the outstanding tax returns in Mexico and paid $133,000 in withholding taxes, which the Company believes was the amount owed. The Company is currently waiting for the notice of assessment from SAT.

SELECTED ANNUAL INFORMATION

The following table summarizes information regarding the Company’s operations on a yearly basis for the last three years in accordance with IFRS. The Company’s reporting currency is Canadian dollars

	2019	2018	2017
Total revenues(interest & other income)	$ 875,847	$ 78,934	$ 2,429
(Loss)income for theyear	$ (1,756,410)	$ (2,479,504)	$ 591,677
(Loss)incomeper share,basic and diluted	(0.05)	(0.10)	0.02
Total assets	$2,762,229	$1,918,991	$3,436,308

The nature of the Company’s operations has remained unchanged from prior years.

SUMMARY OF QUARTERLY RESULTS (unaudited)

The following table summarizes selected information from the Company’s unaudited condensed interim consolidated financial statements, prepared in accordance with International Financial Reporting Standards (“IFRS”), for the last eight quarters.

FRS”), for the last eight quarters.
Total revenues (interest and other income) Income (loss) for the quarter Income (loss) for the quarter per share Total revenues (interest income) Income (loss) for the quarter Income (loss) for the quarter per share	Dec 31, 2019	**Sep 30, 2019 **	Jun 30, 2019	Mar 31, 2019
	$875,006	$44	$4	$793
	$991,527	($1,074,999)	($945,874)	($616,025)
	$0.02	($0.03)	($0.03)	($0.02)
	Dec 31, 2018	Sep 30, 2018	**Jun 30, 2018 **	Mar 31, 2018
	$21,381	$19,343	$19,781	$18,429
	($1,611,107)	($296,649)	($411,049)	($160,699)
	($0.06)	($0.01)	($0.02)	($0.01)

The Company only earns interest income (except for the sale of a royalty in the current quarter) from its cash and cash equivalents, which will vary from period to period depending on their relative balances.

12

SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

LIQUIDITY AND CAPITAL RESOURCES

As at December 31, 2019, the Company had a working capital deficit of $577,432 (December 31, 2018 – working capital of $13,361). The Company has recasted the Value Added Tax (“VAT”) receivables in the amount of $241,297 (2018-$228,736) as non-current. The VAT receivables are generated on the purchase of supplies and services and are receivable from the Mexican government. The Company classifies VAT receivables as non-current as it does not expect collection of amounts to occur within the next year. The recovery of VAT involves a complex application process and the timing of collection of VAT receivables is uncertain. Accordingly, this recasting of the VAT receivable has had an adverse effect on the Company’s working capital.

The Company’s cash and cash equivalents are highly liquid and held at a major Canadian financial institution.

The Company currently has no income from operations and relies on financing through the issuance of additional shares of its common stock. Management has been successful in accessing the equity markets in prior years, but there is no assurance that such sources will be available, on acceptable terms, or at all in the future. Factors which could impact management’s ability to access the equity markets include the state of capital markets, market prices for natural resources and the non-viability of the projects.

SHARE CAPITAL AND DISCLOSURE OF OUTSTANDING SHARE DATA

At the date of this MD&A, there were 42,469,317 common shares issued and outstanding and stock options and share purchase warrants to purchase an aggregate of 9,980,158 common shares expiring at various dates between August 2020 and May 2023, exercisable at various prices between $0.12 and $0.27 per share.

Most of the options and warrants are out of the money but if those were exercised, the maximum number of shares potentially issuable is therefore 9,980,158.

TRANSACTIONS WITH RELATED PARTIES

At December 31, 2019, $22,743 (2018 - $nil) is owing to related parties without interest and is payable on demand.

Compensation of key management

Key management comprises directors and executive officers. Compensation awarded to key management is as follows:

		For the year ended
		December 31,
	2019	2018
Consulting fees	$ 446,210	$ 235,000
Share-basedpayments	70,700	88,742
	$ 516,910	$ 323,742

The Company incurred no post-employment benefits, no long-term benefits and no termination benefits.

13

SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS

For the year ended December 31, 2019

During the year ended December 31, 2019, the Company issued promissory notes to related parties in the amount of $273,862 with annual interest rates of 8% to 10%. The promissory notes are due on demand and have no fixed terms.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements as of the date of this report.

PROPOSED TRANSACTIONS

Other than the previous disclosure, the Company has no proposed transactions.

CONTRACTUAL OBLIGATIONS

For the Company’s option agreements to remain in good standing, the Company has the following commitments:

Cerro Caliche Option Agreements

Cerro Caliche group of concessions:

December 13, 2019	US$30,000 (paid) (amended as
	discussion below)
January 13, 2020	US$135,000 (paid) (amended as
	per discussion below)
April 3, 2020	US$20,000 (paid) (amended as
	discussion below)
April 30, 2020	US$120,000
July 23, 2020	US$200,000
January 23, 2021	US$200,000
July 23, 2021	US$250,000
January 23, 2022	US$250,000
July 23, 2022	US$300,000
January 23, 2023	US$300,000
July 23, 2023	US$400,000
January23,2024	US$450,000

• On December 10, 2019, MMP entered into an amendment agreement with the Cerro Caliche Vendor to prepay US$30,000 of the January 23, 2020 payment by December 13, 2019. a. On January 13, 2020, MMP entered into a second amendment agreement with the Cerro Caliche vendor to split the balance of the January 23, 2020 payment such that MMP would pay US$135,000 by January 13, 2020 (paid) and an additional US$140,000 by March 31, 2020. Additionally, on April 3, 2020, MMP entered into a third amendment agreement with Cerro Caliche vendor to split the March 31, 2020 payment such that MMP would pay US$20,000 by April 3, 2020 and US$120,000 by April 30, 2020.

Rosario group of concessions:

March	14,	2020*	US$90,000
March	14,	2021	US$150,000
March	14,	2022	US$300,000
March	14,	2023	US$375,000
March	14,	2024	US$550,000

• Deferred

14

SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS

For the year ended December 31, 2019

Tres Amigos concession:

May 2, 2020	US$14,444
November 2, 2020	US$14,444
May 2, 2021	US$14,444
November 2, 2021	US$14,444
May2,2022	US$14,444
Cabeza Blanca concession:
October 5,2020	US$70,000

RISKS AND UNCERTAINTIES

The Company is in the mineral exploration and development business and has not commenced commercial operations and has no assets other than cash and mineral property agreements under option. It has no history of earnings, and it is not expected to generate earnings or pay dividends in the foreseeable future.

Precious and Base Metal Price Fluctuations

The profitability of the precious and base metal operations in which the Company has an interest will be significantly affected by changes in the market prices of precious and base metals. Prices for precious and base metals fluctuate on a daily basis, have historically been subject to wide fluctuations and are affected by numerous factors beyond the control of the Company such as the level of interest rates, the rate of inflation, central bank transactions, world supply of the precious and base metals, foreign currency exchange rates, international investments, monetary systems, speculative activities, international economic conditions and political developments. The exact

effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving adequate returns on invested capital or the investments retaining their respective values. Declining market prices for these metals could materially adversely affect the Company’s operations and profitability.

Fluctuations in the Price of Consumed Commodities

Prices and availability of commodities consumed or used in connection with exploration, development and mining, such as natural gas, diesel, oil, electricity, cyanide and other reagents fluctuate affecting the costs of exploration in our operational areas. These fluctuations can be unpredictable, can occur over short periods of time and may have a materially adverse impact on our operating costs or the timing and costs of various projects.

Foreign Exchange Rate Fluctuations

Operations may be subject to foreign currency exchange fluctuations. The Company to-date has raised its funds through equity issuances which are priced in Canadian dollars. The Company’s properties are located in Mexico and as a result exploration expenditures will be denominated in United States dollars and Mexican pesos. The Company may suffer losses due to adverse foreign currency fluctuations.

Competitive Conditions

Significant competition exists for natural resource acquisition opportunities. As a result of this competition, some of which is with large, well established mining companies with substantial capabilities and significant financial and technical resources, the Company may be unable to either compete for or acquire rights to exploit additional attractive mining properties on terms it considers acceptable. Accordingly, there can be no assurance that the Company will be able to acquire any interest in additional projects that would yield reserves or results for commercial mining operations.

15

SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS

For the year ended December 31, 2019

Operating Hazards and Risks

Exploration activities may generally involve a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. These risks include, but are not limited to, the following: environmental hazards, industrial accidents, third party accidents, unusual or unexpected geological structures or formations, fires, power outages, labour disruptions, floods, explosions, cave-ins, land-s lides , ac ts of God, period ic interruptions du e to inc le ment or h az ardous weather conditions, earthquakes, war, rebellion, revolution, delays in transportation, inaccessibility to property, restrictions of courts and/or government authorities, other restrictive matters beyond the reasonable control of the Company, and the inability to obtain suitable or adequate machinery, equipment or labour and other risks involved in the normal course of exploration activities.

Operations in which the Company has a direct or indirect interest will be subject to all the hazards and risks normally incidental to exploration, development and production of precious and base metals, any of which could result in work stoppages, delayed production and resultant losses, increased production costs, asset write downs, damage to or destruction of mines and other producing facilities, damage to life and property, environmental damage and possible legal liability for any or all damages. The Company may become subject to liability for pollution, cave-ins or hazards against which it cannot insure or against which it may elect not to insure. Any compensation for such liabilities may have a material, adverse effect on the Company’s financial position.

Infrastructure

Mining, processing, development and exploration activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important determinants, which affect capital and operating costs. The lack of availability of acceptable terms or the delay in the availability of any one or more of these items could prevent or delay exploitation or development of the Company’s projects. If adequate infrastructure is not available in a timely manner, there can be no assurance that the exploitation or development of the Company’s projects will be commenced or completed on a timely basis, if at all.

Exploration and Development

There is no assurance given by the Company that its exploration and development programs and properties will result in the discovery, development or production of a commercially viable ore body or yield new reserves to replace or expand current reserves. The business of exploration for minerals and mining involves a high degree of risk. Few properties that are explored are ultimately developed into producing mines. At this time, none of the Company’s properties have any defined ore-bodies with proven reserves.

The economics of developing silver, gold and other mineral properties are affected by many factors including capital and operating costs, variations of the tonnage and grade of ore mined, fluctuating mineral markets, and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection. Depending on the prices of silver, gold or other minerals produced, the Company may determine that it is impractical to commence or continue commercial production. Substantial expenditures are required to discover an orebody, to establish reserves, to identify the appropriate metallurgical processes to extract metal from ore, and to develop the mining and processing facilities and infrastructure. The marketability of any minerals

acquired or discovered may be affected by numerous factors which are beyond the Company’s control and which cannot be accurately foreseen or predicted, such as market fluctuations, conditions for precious and base metals, the proximity and capacity of milling and smelting facilities, and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting minerals and environmental protection. In order to commence exploitation of certain properties presently held under exploration concessions, it is necessary for the Company to apply for an exploitation concession. There can be no guarantee that such a concession will be granted. Unsuccessful exploration or development programs could have a material adverse impact on the Company’s operations and profitability.

16

SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

Business Strategy

As part of the Company’s business strategy, it has sought and will continue to seek new exploration and development opportunities in the mining industry. In pursuit of such opportunities, it may fail to select appropriate acquisition candidates, negotiate appropriate acquisition terms, conduct sufficient due diligence to determine all related liabilities or to negotiate favourable financing terms.

The Company may encounter difficulties in transitioning the business, including issues with the integration of the acquired businesses or its personnel into the Company. The Company cannot assure that it can complete any acquisition or business arrangement that it pursues, or is pursuing, on favourable terms, or that any acquisitions or business arrangements completed will ultimately benefit its business.

Environmental Factors

All phases of the Company’s operations are subject to environmental regulation in the various jurisdictions in which it operates. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that any future changes in environmental regulation, will not adversely affect the Company’s operations. The costs of compliance with changes in government regulations have the potential to reduce the profitability of future operations. Environmental hazards that may have been caused by previous or existing owners or operators may exist on the Company’s mineral properties, but are unknown to the Company at the present.

Title to Assets

Although the Company has or will receive title opinions for any properties in which it has a material interest, there is no guarantee that title to such properties will not be challenged or impugned. The Company has not conducted surveys of the claims in which it holds direct or indirect interests and, therefore, the precise area and location of such claims may be in doubt. The Company’s claims may be subject to prior unregistered agreements or transfers, or native land claims, and title may

be affected by unidentified or unknown defects. The Company has conducted as thorough an investigation as possible on the title of properties that it has acquired or will be acquiring to be certain that there are no other claims or agreements that could affect its title to the concessions or claims. If title to the Company’s properties is disputed, it may result in the Company paying substantial costs to settle the dispute or clear title and could result in the loss of the property, which events may affect the economic viability of the Company.

Uncertainty of Funding

The Company has limited financial resources, and the mineral claims in which the Company has an interest or an option to acquire an interest require financial expenditures to be made by the Company. There can be no assurance that adequate funding will be available to the Company so as to exercise its option or to maintain its interests once those options have been exercised. Further exploration work and development of the properties in which the Company has an interest or option to acquire depend upon the Company’s ability to obtain financing through joint venturing of projects, debt financing or equity financing or other means. Failure to obtain financing on a timely basis could cause the Company to forfeit all or parts of its interests in mineral properties or reduce or terminate its operations.

Agreements with Other Parties

The Company has entered into agreements with other parties relating to the exploration, development and production of its properties. The Company may in the future, be unable to meet its share of costs incurred under agreements to which it is a party, and the Company may have its interest in the properties subject to such agreements reduced as a result. Furthermore, if other parties to such agreements do not meet their share of such costs, the Company may be unable to finance the costs required to complete recommended programs.

17

SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

Potential Conflicts of Interest

The directors and officers of the Company may serve as directors and/or officers of other public and private companies, and may devote a portion of their time to manage other business interests. This may result in certain conflicts of interest. To the extent that such other companies may participate in ventures in which the Company is also participating, such directors and officers of the Company may have a conflict of interest in negotiating and reaching an agreement with respect to the extent of each company’s participation. The laws of British Columbia, Canada, require the directors and officers to act honestly, in good faith, and in the best interests of the Company and its shareholders. However, in conflict of interest situations, directors and officers of the Company may owe the same duty to another company and will need to balance the competing obligations and liabilities of their actions.

There is no assurance that the needs of the Company will receive priority in all cases. From time to time, several companies may participate together in the acquisition, exploration and development of natural resource properties, thereby allowing these companies to: (i) participate in larger properties and programs; (ii) acquire an interest in a greater number of properties and programs; and (iii) reduce their financial exposure to any one property or program. A particular company may assign, at its cost, all or a portion of its interests in a particular program to another affiliated company due to the financial position of the company making the assignment. In determining whether or not the Company will participate in a particular program and the interest therein to be acquired by it, it is expected that the directors and officers of the Company will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time.

Third Party Reliance

The Company’s rights to acquire interests in certain mineral properties may have been granted by third parties who themselves may hold only an option to acquire such properties. As a result, the Company may have no direct contractual relationship with the underlying property holder.

Assurance on the Consolidated Financial Statements

We prepare our financial reports in accordance with accounting policies and methods prescribed by IFRS. In the preparation of financial reports, management may need to rely upon assumptions, make estimates or use their best judgment in determining the financial condition of the Company. Significant accounting policies and practices are described in more detail in the notes to our consolidated financial statements for the year ended December 31, 2018. In order to have a reasonable level of assurance that financial transactions are properly authorized, assets are safeguarded against unauthorized or improper use and transactions are properly recorded and reported, we have implemented and continue to analyze our internal control systems for financial reporting. Although we believe our financial reporting and financial statements are prepared with reasonable safeguards to ensure reliability, we cannot provide absolute assurance in that regard.

General Economic Conditions

The unprecedented events in global financial markets during the last few years have had a profound effect on the global economy. Many industries, including the gold and silver mining industry, are affected by these market conditions. Some of the key effects of the current financial market turmoil include contraction in credit markets resulting in a widening of credit risk, devaluations and high volatility in global equity, commodity, foreign exchange and precious metal markets, and a lack of market liquidity. A continued or worsened slowdown in the financial markets or other economic conditions, including but not limited to, consumer spending, employment rates, business conditions, inflation, fuel and energy costs, consumer debt levels, lack of available credit, the state of the financial markets, interest rates, and tax rates may adversely affect the Company’s growth and profitability.

18

SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

Substantial Volatility of Share Price

In recent years, the securities markets have experienced a high level of price and volume volatility, and the securities of many mineral exploration companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. The price of the Company’s common shares is also likely to be significantly affected by shortterm changes in mineral prices or in the Company’s financial condition or results of operations as reflected in its yearly financial reports.

Potential dilution of present and prospective shareholdings

In order to finance future operations and development efforts, the Company may raise funds through the issue of common shares or the issue of securities convertible into common shares. The Company cannot predict the size of future issues of common shares or the issue of securities convertible into common shares or the effect, if any, that future issues and sales of the Company’s common shares will have on the market price of its common shares. Any transaction involving the issue of shares, or securities convertible into shares, could result in dilution, possibly substantial, to present and prospective holders of shares.

FINANCIAL INSTRUMENTS

The Company has classified its cash and cash equivalents as fair value through profit and loss; receivables (excluding input tax credits receivable) as loans and receivables, and accounts payable and accrued liabilities and due to related parties, as other financial liabilities.

Fair value

The carrying values of receivables, accounts payable and accrued liabilities and due to related parties approximate their fair values due to the short-term nature of these financial instruments. Cash and cash equivalents are measured at their market value in accordance with Level 1 of the fair value hierarchy.

Credit risk

The Company is exposed to credit risk with respect to its cash and cash equivalents and receivables. The risk arises from the non-performance of counterparties of contracted financial obligations. Credit risk is mitigated as cash and cash equivalents have been placed on deposit with major Canadian and Mexican financial institutions.

Concentration of credit risk exists with respect to the Company’s cash and cash equivalents and maximum exposure thereto is as follows:

exposure thereto is as follows:
	December 31,		December 31,
		2019		2018
Cash and cash equivalents held at major Canadian financial institutions	$	194,602	$	474,671
Cash held at major Mexican financial institutions		880,050		257,965
Total cash and cash equivalents	$	1,074,652	$	732,636

As at December 31, 2019, the Company held a cashable guaranteed investment certificate of $25,415 (2018 - $25,414) earning interest at 0.5% (2018 - prime less 0.05%), maturing May 12, 2020.

Liquidity risk

Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company’s approach to managing liquidity risk is to provide reasonable assurance that it will have sufficient funds to meet liabilities when due. The Company had working capital deficiency at December 31, 2019 in the amount of $577,432 (working capital on December 31, 2018 – $13,361) and will require additional sources of capital in order to extinguish liabilities as they become due.

19

SONORO METALS CORP MANAGEMENT DISCUSSION & ANALYSIS For the year ended December 31, 2019

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency risk and other price risk.

a) Interest rate risk

The Company’s cash and cash equivalents consist of cash held in bank accounts. Due to the short-term nature of these financial instruments, fluctuations in market rates do not have a significant impact on estimated fair values as of December 31, 2019 and 2018.

b) Foreign currency risk

The Company is exposed to foreign currency risk to the extent that monetary assets and liabilities held by the Company are not denominated in Canadian dollars.The Company is exposed to foreign currency risk with respect to cash and cash equivalents and accounts payable and accrued liabilities as a portion of these amounts are denominated in US dollars and Mexican pesos. The Company has not entered into any foreign currency contracts to mitigate this risk.

As at December 31, 2019 and 2018, the Company’s significant exposure to foreign currency risk, based on the consolidated statement of financial position carrying values, were to the Mexican peso and the US dollar, as follows:

dollar, as follows:
		December	31,	2019
		MXN		USD
Cash	$	153,297	$	770,012
Accounts receivable		3,340,603		-
Prepaid		17,660		-
Accountspayable and accrued liabilities	(14,343,056)			(15,945)
Total	(10,831,496)			754,067
Canadian dollar equivalent	$	(746,531)	$	979,383

		December 31, 2018	December 31, 2018
		MXN		USD
Cash	$	3,716,016	$	455
Accounts receivable		2,900,979		-
Accountspayable and accrued liabilities		(3,108,565)		-
Total		3,508,430		455
Canadian dollar equivalent	$	263,078	$	620

The sensitivity analysis of the Company’s exposure to foreign currency risk suggests that a 10% change in foreign exchange rates between the Mexican peso, US dollar and Canadian dollar would impact net income (loss) for the year ended December 31, 2019 by about $145,000 (2018 - $12,000).

c) Other price risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or foreign currency risk. The Company is not exposed to significant other price risk.

20