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Spanish Mountain Gold Ltd. — Interim / Quarterly Report 2021
Nov 27, 2021
44380_rns_2021-11-26_3d38ac69-9dc3-4482-b440-ec2bef73f3d4.pdf
Interim / Quarterly Report
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SPANISH�MOUNTAIN�GOLD�LTD.�
Management�Discussion�&�Analysis
For�the�Period�Ended�September�30,�2021
Dated:��November�26,�2021
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
The�following�is�management’s�discussion�and�analysis�(“MD&A”)�of�the�financial�condition�and�results�of� operations�of�Spanish�Mountain�Gold�Ltd.�(the�“Company”).��This�MD&A�should�be�read�in�conjunction�with�the� condensed�consolidated�interim�financial�statements,�including�the�notes�thereto,�for�the�period�ended�September� 30,�2021�and�2020�(“Financial�Statements”) as�well�as�the�audited�consolidated�financial�statements�of�the� Company�for�the�years�ended�December�31,�2020�and�2019.�
The�accompanying�Financial�Statements�and�related�notes�are�presented�in�accordance�with�International�Financial� Reporting�Standards�(“IFRS”)�and�in�accordance�with�International�Accounting�Standard�34,�Interim�Financial� Reporting�as�issued�by�the�International�Accounting�Standards�Board�(“IASB”).��These�Financial�Statements,� together�with�the�following�MD&A�dated�November�26,�2021�(“Report�Date”),�are�intended�to�provide�investors� with�a�reasonable�basis�for�assessing�the�financial�performance�of�the�Company�as�well�as�potential�future� performance.��Please�refer�to�the�cautionary�notices�at�the�end�of�this�MD&A,�especially�in�regard�to�forward� looking�statements.��All�dollar�amounts�are�in�Canadian�dollars�unless�otherwise�noted.�
Additional�information�relating�to�the�Company�including�its�Financial�Statements�may�be�found�on�the�Company’s� website�at� www.spanishmountaingold.com �as�well�as�under�the�Company’s�profile�on�SEDAR�at� www.sedar.com .
These�MD&A�were�reviewed�by�the�Audit�Committee�and�approved�and�authorized�for�issue�by�the�Board�of� Directors�on�November�26,�2021.��The�information�contained�within�this�MD&A�is�current�to�the�same�date.�
OVERVIEW�
The�Company’s�September�30,�2021�Financial�Statements�reflect�the�financial�position�and�results�for�the�period� ended�including�those�for�its�wholly�owned�subsidiary,�Wildrose�Resources�Ltd.�(“Wildrose”).��All�material�inter� company�transactions�have�been�eliminated.�
The�Company�is�an�exploration�stage�company�engaged�in�the�acquisition,�exploration�and�development�of�mineral� properties.��The�Company’s�primary�asset�is�the�Spanish�Mountain�property�located�approximately�180�kilometres� (km)�north�of�Kamloops,�British�Columbia.��The�Spanish�Mountain�property�refers�to�the�contiguous�mineral�and� placer�claims�the�Company�holds�while�the�Spanish�Mountain�gold�project�(the�“Project”)�refers�to�the�mineral� resource�that�the�Company�has�defined�in�an�area�within�the�property.��The�Company’s�immediate�focus�is�to� advance�the�development�of�the�Main�Zone�Reserve,�which�is�comprised�of�the�higher�grade/�near�surface�portion� of�the�Mineral�Resource.�The�Company�also�expects�to�conduct�strategic�resource�drilling�in�order�to�further� expand�its�multi�million�ounce�Mineral�Resource.���
On�May�11,�2021,�the�Company�announced�the�results�of�a�Pre�Feasibility�Study�(PFS)�along�with�a�Mineral�Reserve� estimate�and�an�updated�Mineral�Resource�estimate.��The�PFS�is�based�on�a�20,000�tonnes�per�day�(tpd)�milling� rate�to�process�the�delineated�Proven�&�Probable�Reserves�as�a�standalone�open�pit�operation�for�14� years.�Additional�details�of�the�PFS�are�presented�in�the�sections�below.��The�NI�43�101�Technical�Report�for�the�PFS� was�filed�on�SEDAR�on�June�3,�2021�and�is�summarized�in�the�sections�below:�
-
Proven�&�Probable�Mineral�Reserves�of�2.3�million�ounces�(Moz)�of�gold�and�2.2�Moz�of�silver.�Details�of� the�tonnages�and�grades�are�presented�under�"Mineral�Reserves"�below.�
-
Measured�&�Indicated�(M&I)�Mineral�Resources�of�4.7�Moz�of�gold�and�6.8�Moz�of�silver,�an�increase�of�0.6� Moz�of�gold�from�previous�estimates�due�to�optimization�and�an�increased�gold�price�assumption.��Details� for�the�tonnages�and�grades�for�Mineral�Resources�are�presented�under�"Mineral�Resources"�below.��
-
Life�of�mine�(LOM)�production�of�2.1�Moz�of�gold�and�0.9�Moz�of�silver�over�14�years�
-
Average�annual�gold�production:�183,000�oz�(first�6�years)�and�150,000�oz�(LOM)�with�peak�production�of� 210,000�oz�in�year�6�
-
Average�all�in�sustaining�cost�(AISC)�of�production:�US$707�per�oz�(first�6�years)�and�US$801�per�oz�(LOM)�
��2���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
-
Pre�tax�project�economics:�NPV(5%)�of�$848M,�IRR�of�25%�and�payback�of�construction�capital�in�3.2�years� @�US$1,600�gold�(“Base�Case”);�NPV(5%)�of�$1,209M,�IRR�of�31%�and�payback�in�2.7�years�@�US$1,800� gold�
-
Post�tax�project�economics:�NPV(5%)�of�$655M,�IRR�of�22%�and�payback�of�construction�capital�in�3.3� years�@�US$1,600�gold;�NPV(5%)�of�$888M,�IRR�of�27%�and�payback�in�2.8�years�@�US$1,800�gold�
-
Post�tax�average�annual�free�cashflow�from�operations:�$189M�(first�6�yr)�and�$128M�(LOM)�@�US$1,600� gold;�$220M�(first�6�yr)�and�$153M�(LOM)�@�US$1,800�gold�
-
Post�tax�LOM�cumulative�tax�free�cashflow�from�operations�:�$1,797M�@US$1,600�gold;�$2,140M� @US$1,800�gold�
-
An�initial�capital�cost�of�$607�million�(US$461�million),�including�a�contingency�of�$75�million�
On�July�6,�2021,�the�Company�announced�the�assay�results�from�the�latest�resource�drilling�program,�which�is� comprised�of�28�holes�over�4,485�metres.��The�program�tested�four�broad�areas�of�the�deposit�in�which�there�had� been�relatively�limited�drilling�in�the�past.��A�majority�of�the�drill�holes�were�selected�in�the�proximity�of�the� previous�resource�pit�boundary�where�management�believes�additional�drilling�may�lead�to�increases�in�the�strike� lengths�of�the�Mineral�Resource.��Notably,�the�assay�results�report�long�intercepts�(up�to�68.58�m�in�length)�in�all� four�tested�areas�with�grades�higher�than�the�economic�cut�off�established�in�the�latest�resource�estimate� (published�along�with�the�PFS).��Particularly�encouraging�are�the�results�near�the�northern�boundary�of�the� resource�pit�where�eight�out�of�a�total�of�nine�drill�holes�return�intercepts�longer�than�10�m�with�the�farthest�west� drill�hole�reporting�intercepts�up�to�32�m�in�length.��It�appears�that�this�entire�northern�area�of�the�deposit�with�a� strike�length�over�1,000�m�shows�potential�both�along�strike�and�at�depth.�
Given�the�lengthy�and�intricate�processes�for�environmental�assessment�and�permitting,�the�Company�has� prioritized�certain�activities�for�completion�well�ahead�of�the�formal�application�in�order�to�minimize�potential� delays�or�disruptions.��The�Company�values�the�supports�from�its�First�Nations�and�surrounding�communities�and� has�a�comprehensive�engagement�plan�to�reach�out�to�the�communities.��An�Engagement�Protocol�Agreement�was� signed�in�October�2021�with�Xat��ll�First�Nation�following�a�management�presentation�about�the�proposed�project� to�the�Chief�and�Council�and�other�members.�
The�Company�has�active�field�programs�to�support�the�ongoing�environmental�assessment/�permitting�process�and� to�further�optimize�the�Project�in�a�number�of�areas�including�metallurgical�process,�water�management�and� treatment,�environmental�strategies�and�pit�optimization�in�order�to�capture�all�potential�benefits�in�a�feasibility� study�in�due�course.���
In�accordance�with�the�health�and�safety�protocols�mandated�by�the�health�authorities,�company�personnel�have� put�in�place�various�safety�features�and�procedures�that�are�strictly�enforced�by�management�on�site�throughout� the�duration�of�the�field�program.��The�camp�and�the�enhanced�operating�procedures�have�been�inspected�and� approved�by�the�provincial�health�agency.��Management�believes�that�the�necessary�precautions�have�been�taken� to�safeguard�the�health�of�our�employees,�consultants�and�community�members�and�to�avoid�potential� interruptions�to�the�field�work.��To�date,�there�have�been�no�cases�of�COVID�19�diagnosis�and�transmission� throughout�the�Company’s�field�programs.�
Morris�Beattie�retired�as�a�director�and�Chairman�from�the�Company’s�Board�of�Directors�effective�June�30,�2021.� Concurrently,�W.�Terry�MacLean�has�been�appointed�as�the�Chairman.��Darryl�Steane�and�Larry�Yau�joined�the� Board�of�Directors�effective�October�1,�2021.�
��3���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
MINERAL�ASSET�
Spanish�Mountain�Gold�Project,�B.C.�
The�Spanish�Mountain�property�is�located�in�the�Cariboo�region�of�central�British�Columbia,�6�km�east�of�the�village� of�Likely,�and�66�km�northeast�of�the�City�of�Williams�Lake,�a�key�supply�hub�for�multiple�mines�and�projects�in�the� region.�The�property,�which�comprises�approximately�50�contiguous�mineral�claims�and�6�placer�claims�and�covers� an�area�of�approximately�10,000�hectares,�is�100%�owned�by�the�Company.�
The�property�can�be�reached�from�Williams�Lake�via�a�paved�secondary�road�that�leaves�Highway�97�at�150�Mile� House,�approximately�16�km�south�of�Williams�Lake,�and�continues�for�87�km�to�the�village�of�Likely.��From�Likely,� the�property�is�accessed�from�the�Spanish�Mountain�Forest�Service�Road�1300.�
The�Company�has�been�actively�conducting�drilling�and�other�exploration�activities�on�the�property�since�2005.��The� Spanish�Mountain�gold�deposit�is�a�bulk�tonnage,�gold�system�of�finely�disseminated�gold.��The�largest�zone� carrying�significant�gold�mineralization�is�called�the�Main�Zone,�which�has�been�traced�by�drilling�over�a�length�of� approximately�900�metres�(m)�north�south�and�a�width�of�800�metres.��The�mineralization�of�the�Main�Zone� extends�northward�covering�another�area�of�about�400m�north�south�with�a�similar�width.��Gold�mineralization� occurs�predominately�as�disseminated�within�the�black,�graphitic�argillite.��Gold�grain�size�is�typically�less�than�30� microns,�and�is�often,�but�not�always,�associated�with�pyrite.��Gold�mineralization�also�occurs�within�quartz�veins�as� free,�fine�to�coarse�(visible)�gold.��Although�the�highest�grades�have�come�from�coarse�gold�within�quartz�veins,� disseminated�gold�within�the�argillite�units�is�the�most�economically�important�type�of�mineralization.��The�area�of� gold�enrichment�has�been�traced�for�over�2�km,�occurring�in�multiple�stratigraphic�horizons.��
The�Spanish�Mountain�gold�deposit�is�classified�as�sediment�hosted�vein�(“SHV”)�deposit,�as�it�has�many�of�the� features�common�to�these�deposits,�including�some�of�the�structural�characteristics,�regional�extent�of�alteration,� alteration�mineralogy,�mineralization�style�and�gold�grade.�
The�Company�is�focused�on�advancing�the�Project’s�Mineral�Reserve�through�environmental�assessment/� permitting,�optimization�and�a�feasibility�study�towards�a�construction�decision.��Concurrently,�strategic�drilling� programs�will�be�planned�and�executed�in�order�to�further�expand�the�Project’s�multi�million�ounce�Mineral� Resource.���
The�following�highlights�the�key�recent�developments�in�respect�of�the�Spanish�Mountain�gold�project:�
Pre�Feasibility�Study
The�PFS�is�based�on�a�20,000�tpd�milling�rate�to�process�the�delineated�Proven�&�Probable�Reserves�as�a�standalone� open�pit�operation�for�14�years.���
(a) Mineral�Reserves�
The�Project’s�Mineral�Reserves,�which�are�a�subset�of�the�M&I�Mineral�Resources,�are�based�on�the�mine� plan�developed�for�the�PFS.��Mineral�Reserves�are�estimated�in�accordance�with�the�CIM�2019�Best� Practices�Guidelines�and�are�classified�using�the�2014�CIM�Definition�Standards.�
| Reserve | MillFeed | MillFeedGold | ContainedGold | MillFeedSilver | Contained |
|---|---|---|---|---|---|
| Class | (Mt) | Grade | (Moz) | Grade | Silver |
| (g/t) | (g/t) | (Moz) | |||
| Proven | 40.8 | 0.79 | 1.03 | 0.67 | 0.88 |
| Probable | 55.1 | 0.74 | 1.31 | 0.74 | 1.30 |
| Total | 95.9 | 0.76 | 2.34 | 0.71 | 2.18 |
��4���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
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The Mineral Reserve estimates were prepared by Marc Schulte, P.Eng. (who is also the independent Qualified Person for these Mineral Reserve estimates), reported using the 2014 CIM Definition Standards, and have an effective date of September 30, 2021.
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Mineral Reserves are based on the PFS Life of Mine Plan.
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Mineral Reserves are mined tonnes and grade, the reference point is the mill feed at the primary crusher and includes consideration for operational modifying factors
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Mineral Reserves are reported at a cut-off grade of 0.3 g/t Au.
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Cut-off grade assumes US$1,500/oz. Au and US$20/oz Ag at a currency exchange rate of 0.76 US$ per C$; 99.8% payable gold; 95.0% payable silver; $5.00/oz Au offsite costs (refining, transport and insurance); a 1.5% NSR royalty; and uses a 91% metallurgical recovery for gold and 25% recovery for silver.
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The cut-off grade equates to incremental operating costs of $17/t, which covers process, G&A and site, stockpile reclaim, and sustaining and closure capital costs.
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Mined tonnes and grade are based on a selective mining unit (SMU) of 15mx15mx5m, including additional estimates for mining loss (3%) and dilution between ore and waste zones (6.6%, 0.24 g/t Au, 0.6 g/t Ag).
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Factors that may affect the Mineral Reserve estimates include metal prices, changes in interpretations of mineralisation geometry and continuity of mineralisation zones, geotechnical and hydrogeological assumptions, ability of the mining operation to meet the annual production rate, process plant and mining recoveries, the ability to meet and maintain permitting and environmental licence conditions, and the ability to maintain the social licence to operate.
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Numbers have been rounded as required by reporting guidelines.
There�are�no�other�known�factors�or�issues�that�materially�affect�the�Mineral�Reserve�estimate�other�than� normal�risks�faced�by�mining�projects�in�the�province�in�terms�of�environmental,�permitting,�taxation,� socio�economic,�marketing,�and�political�factors�and�additional�risk�factors�as�listed�in�the�accompanying� cautionary�note�regarding�forward�looking�statements�below.�
(b) Operations�
The�proposed�mine�is�expected�to�be�owner�operated�using�a�conventional�open�pit�mining�method�to� produce�a�total�of�96�million�tonnes�(Mt)�of�ore�with�an�average�diluted�gold�grade�of�0.88�grams�per� tonne�(g/t)�for�the�first�six�years�and�0.76�g/t�LOM.��Stockpiling�of�some�material�is�utilized�to�maximize� mill�feed�grade�early�in�the�project�life.��This�material�is�reclaimed�for�processing�over�the�course�of�the� operation.����
The�milling�process�involves�a�primary�crushing�circuit�followed�by�a�SAG�mill�and�ball�mill�to�produce�a� relatively�coarse�grind�of�180�microns�which�is�concentrated�by�gravity�concentration�and�flotation�to� produce�concentrates�for�fine�grinding�and�CIL�cyanidation�at�an�overall�LOM�average�gold�recovery�of� 90%�and�silver�recovery�of�40%.��Doré�will�be�produced�on�site�as�an�end�product.�����
Tailings�from�the�processing�plant�are�stored�in�a�tailings�storage�facility�that�has�been�designed�to� minimize�water�held�within�the�tailings�facility.��All�of�the�site�water�is�managed�through�a�separate�water� management�pond�that�includes�a�water�treatment�plant�for�any�water�to�be�discharged�during�the�LOM.�
- Selected�operational�and�cost�metrics:��
| Yrs1�6 | LOM | |||
|---|---|---|---|---|
| Unit | Avg. | Avg. | ||
| GoldGrade | g/t | 0.88 | 0.76 | |
| AnnualGoldProduction | Koz | 183 | 150 | (peakproduction211Koz) |
| AnnualSilverProduction | Koz | 68 | 63 | |
| CashCost/oz | US$ | $602 | $696 | |
| All�in�sustainableCost/oz | US$ | $707 | $801 | |
| TotalCost/oz | US$ | $974 | $1,068 |
��5���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
- Unit�costs�of�production:�
| Unit | CAD | USD | |
|---|---|---|---|
| Mining | $/tmined | $2.22 | $1.69 |
| Mining | $/tmilled | $10.80 | $8.21 |
| Processing | $/tmilled | $6.58 | $5.00 |
| G&A | $/tmilled | $1.36 | $1.04 |
| TSF | $/tmilled | $0.17 | $0.13 |
| Watertreatment | $/tmilled | $0.47 | $0.36 |
| Total | $/tmilled | $19.38 | $14.73 |
(c) Project�Economics�&�Sensitivities�
For�the�purpose�of�presenting�the�Project’s�economics�and�investment�returns,�a�constant�LOM�gold�price� of�US$1,600�per�ounce�and�silver�price�of�US$24�per�ounce�are�used�as�the�base�case�with�an�exchange� rate�of�C$1=US$0.76.��The�gold�price�assumption�has�the�most�significant�impact�on�the�Project’s�financial� results.���
The�Project’s�financial�metrics�and�their�sensitivity�to�gold�price�are�shown�below.��These�metrics�are� widely�used�by�the�mining�industry�to�evaluate�mineral�projects.�
| Pre�taxEconomics NPV(@5%) $M IRR % Payback Yrs CumulativeFreeCashflow fromOperations $M |
GoldPrice(USD) |
|---|---|
| $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 |
|
| $125 $487 $848 $1,209 $1,570 $1,932 $2,293 9% 18% 25% 31% 36% 42% 47% 5.4 4.0 3.2 2.7 2.4 2.1 1.9 $1,040 $1,583 $2,127 $2,670 $3,214 $3,758 $4,301 |
| Post�taxEconomics NPV(@5%) $M IRR % Payback Yrs CumulativeFreeCashflow fromOperations $M |
GoldPrice(USD) |
|---|---|
| $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 |
|
| $129 $415 $655 $888 $1,119 $1,350 $1,580 9% 16% 22% 27% 31% 36% 39% 5.5 4.0 3.3 2.8 2.5 2.2 2.0 $1,041 $1,454 $1,797 $2,140 $2,484 $2,828 $3,173 |
(d) Capital�Expenditures�
Project�construction�is�expected�to�be�completed�over�a�period�of�approximately�two�years�at�a�total�cost� of�$607M�(US$461M),�including�an�allowance�of�$75M�for�contingencies.��The�PFS�assumes�leasing�of�the� mining�fleet�in�order�to�reduce�the�upfront�capital�required.��Although�the�PFS�assumes�an�owner� operated�mining�fleet,�the�Company�believes�that�the�Project’s�proximity�to�contractors/suppliers�makes� contract�mining�a�potentially�compelling�option�providing�another�opportunity�to�further�reduce�the�initial� capital.��The�breakdown�of�initial�capital�expenditures�by�major�category�is�as�follows:�
��6���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
| InitialCapital | C$M | US$M |
|---|---|---|
| OverallSite | $26 | $19 |
| OpenPitMining | $73 | $56 |
| OreHandling | $34 | $26 |
| Process | $125 | $95 |
| TailingsandWaterManagement | $40 | $30 |
| EnvironmentalMonitoring | $2 | $2 |
| On�siteInfrastructures | $42 | $32 |
| Off�siteInfrastructures | $64 | $49 |
| WatertreatmentPlant | $10 | $7 |
| TOTALDIRECTCOSTS | $416 | $316 |
| ProjectIndirects | $102 | $78 |
| Owner'sCosts | $14 | $10 |
| Contingencies | $75 | $57 |
| TOTAL | C$607 | US$461 |
Sustaining�capital�expenditures�required�to�support�the�ongoing�production�of�gold�and�silver�are� estimated�to�be�$290M,�to�be�incurred�over�the�mine�life�of�14�years.���
Following�the�standards�required�by�NI�43�101,�the�PFS�has�been�prepared�on�the�basis�of�mining�and� processing�of�the�Mineral�Reserves�as�a�standalone�operation�over�the�mine�life�of�14�years�in�accordance� with�environmental�laws�and�industry’s�best�practice.��As�such,�closure�costs�totalling�$130M�(net�of� salvage�value�of�$30M)�have�been�included�in�the�cashflow�model�reflecting�a�scenario�under�which�the� operations�would�cease�after�14�years�with�the�mine�site�then�being�reclaimed�and�restored�based�on� current�environmental�regulations.���
(e) Mineral�Resource�
As�part�of�the�PFS,�an�update�of�the�Mineral�Resources�has�been�prepared�based�on�the�pit�shell� developed�using�assumed�cost�parameters�and�assumptions.��The�Project’s�Mineral�Resources,�inclusive�of� the�Mineral�Reserves�reported�above,�are�as�follows:�
| Classification | RunofMine (Mt) |
GoldGrade (g/t) |
SilverGrade (g/t) |
Contained Gold(Moz) |
Contained Silver(Moz) |
|---|---|---|---|---|---|
| Measured | 68.4 | 0.59 | 0.67 | 1.3 | 1.5 |
| Indicated | 225.7 | 0.47 | 0.73 | 3.4 | 5.3 |
| M&IResources | 294.2 | 0.50 | 0.72 | 4.7 | 6.8 |
| InferredResource | 18.3 | 0.63 | 0.76 | 0.4 | 0.4 |
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The�Mineral�Resource�Estimates�were�prepared�by�Marc�Jutras,�P.Eng.;�M.A.Sc.�(who�is�also�the�independent�Qualified�Person�for� these�Mineral�Resource�Estimates),�in�accordance�to�the�2014�Canadian�Institute�of�Mining,�Metallurgy�and�Petroleum�(“CIM”)� Definition�Standards�for�Mineral�Resources�and�Mineral�Reserves,�with�an�effective�date�of�February�3,�2021.�
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The�Mineral�Resource�Estimates�are�reported�at�a�cutoff�grade�of�0.15�g/t�Au.�
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Cut�off�grade�assumes�US$1,600/oz.�Au�at�a�currency�exchange�rate�of�0.75�C$�per�US$;�99.8%�payable�gold;�$4.00/oz.�offsite� costs�(refining�and�transport),�a�1.5%�royalty;�and�uses�a�91%�metallurgical�recovery�for�Au�and�a�25%�recovery�for�Ag.��The�cut� off�grade�covers�processing�costs�of�$7.33/t�and�general�and�administrative�(G&A)�costs�of�$2.67/t.�
-
The�Mineral�Resources�are�constrained�by�an�open�pit�shell�generated�by�applying�the�Lerchs�Grossman�algorithm�to�the�Spanish� Mountain�deposit.�The�pit�shell�was�generated�using�the�same�inputs�as�the�cutoff�grade�determination,�as�well�as�a�$2.40/t� mining�cost�for�ore�and�a�$2.20/t�mining�cost�for�waste.��Overall�pit�slope�angles�range�from�21�degrees�to�35�degrees�and�are� estimated�based�on�geotechnical�analysis�of�various�zones�in�the�deposit.�
��7���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
-
Factors�that�may�affect�the�estimates�include:�metal�price�assumptions,�changes�in�interpretations�of�mineralization�geometry� and�continuity�of�mineralization�zones,�changes�to�kriging�assumptions,�metallurgical�recovery�assumptions,�operating�cost� assumptions,�confidence�in�the�modifying�factors,�including�assumptions�that�surface�rights�to�allow�mining�infrastructure�to�be� constructed�will�be�forthcoming,�delays�or�other�issues�in�reaching�agreements�with�local�or�regulatory�authorities�and� stakeholders,�and�changes�in�land�tenure�requirements�or�in�permitting�requirement.�Any�other�known�legal,�political,� environmental,�or�other�risks�that�could�materially�affect�the�potential�development�of�the�Mineral�Reserves�are�detailed�below� in�the�section�entitled�“Forward�Looking�Statements”.�
-
Estimates�have�been�rounded�and�may�result�in�summation�differences.�
Mineral�Resources,�which�are�not�Mineral�Reserves,�do�not�have�demonstrated�economic�viability.� Inferred�Mineral�Resources�have�insufficient�confidence�to�allow�the�meaningful�application�of�technical� and�economic�parameters�or�to�enable�an�evaluation�of�economic�viability�suitable�for�public�disclosure.�
(f) Technical�Team�
A�NI�43�101�compliant�Technical�Report�for�the�PFS�has�been�filed�on�SEDAR�under�the�profile�of�the� Company.��The�PFS�was�coordinated�and�prepared�by�Moose�Mountain�Technical�Services�(MMTS)�and�the� following�team�of�Qualified�Persons�and�independent�consultants.��Each�consultant�was�responsible�for� the�initial,�sustaining�and�closure�capital�and�operating�cost�estimate�for�their�area�of�responsibility�(with� the�exception�of�pHase�Geochemistry�who�did�not�contribute�any�cost�estimates�to�the�study):�
| Company | AreasofResponsibility | QualifiedPerson |
|---|---|---|
| MMTS | Overallco�ordinationofthereport | FrankGrills.,P.Eng. |
| MMTS | MineralReserves,MiningMethods,Economic Analysis |
MarcSchulte,P,Eng. |
| Ausenco | MineralProcessingRecoveryMethodsandSite | PaulStaples,P.Eng. |
| Infrastructure | ||
| GintoConsultingInc. | MineralResourceEstimate | MarcJustras,P.Eng. |
| DiscoveryConsultants | Geology,Exploration,andDrilling | BillGilmour,P.Geo. |
| LinkanEngineering | WaterTreatment | SamBillin.P.Eng. |
| KnightPiésoldLtd. | Tailings,WaterManagement,Environmental, | LesGalbraith,P.Eng. |
| andPermitting | ||
| MCAEngineering | PowerSupply | MalcolmCameron,P.Eng |
| pHaseGeochemistry | GeochemicalCharacterization | AndreaSamuels,P.Geo. |
| BGCEngineering | GeotechnicalandHydrogeological | |
| PricewaterhouseCoopers | TaxModelReview |
Current�and�Recent�Activities
In�addition�to�preparing�the�PFS,�the�Company�completed�a�summer�field�program�in�2020�and�winter�program�in� early�2021.��These�programs�comprised�a�series�of�geotechnical�drill�holes�and�test�pits�that�had�developed� additional�data�to�support�the�design�of�the�proposed�project�infrastructure.���
As�a�part�of�the�2020�field�program,�the�Company�began�a�drilling�campaign�designed�to�further�expand�the� Project’s�multimillion�ounce�gold�resource.��A�total�of�28�exploration�drill�holes�covering�approximately�4,500� metres�were�completed�and�the�assay�results�were�announced�in�July�2021.�
The�Company�has�active�field�programs�to�support�the�ongoing�environmental�assessment/�permitting�process�and� to�further�optimize�the�Project�in�a�number�of�areas�including�metallurgical�process,�water�management�and� treatment,�environmental�strategies�and�pit�optimization�in�order�to�capture�all�potential�benefits�in�a�feasibility� study�in�due�course.���
��8���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
Future�Opportunities:�Remaining�Resource�Ounces�and�Phoenix�Zone�
The�Company’s�current�project�strategy�is�intended�to�fast�track�the�Project�towards�a�construction�decision�within� a�compressed�timeline.��The�proposed�operations�as�presented�under�the�PFS�represent�the�mining�and�processing� of�the�Mineral�Reserve,�which�comprises�approximately�50%�of�the�measured�and�indicated�ounces�of�the�Project’s� Mineral�Resource.��The�Company�believes�that�certain�gold�ounces�within�the�total�resource,�while�not�included�in� the�PFS,�may�potentially�deliver�additional�value�over�time�as�they�could�be�conceptually�processed�using�the� infrastructure,�equipment�and�labour�put�in�place�as�a�result�of�the�development�of�proposed�operations.�� However,�there�is�no�assurance�that�all�or�any�part�of�these�ounces�will�be�incorporated�in�a�future�mine�plan.�
The�Phoenix�Zone�was�discovered�in�2011�by�the�Company�and�is�located�less�than�two�kilometres�from�the� proposed�open�pit�delineated�within�the�Main�Zone�of�the�Project.��Exploration�drilling�to�date�has�indicated�a� northwest�trend�to�the�mineralization�along�a�3,500m�long�corridor,�more�than�three�times�the�strike�length�of�the� Main�Zone.��This�broad�trend�of�gold�mineralization�is�not�primarily�associated�with�argillite�as�at�the�Main�Zone.�� The�trend�remains�open�and�untested�to�the�northwest�and�southeast.��Preliminary�metallurgical�test�work�has� shown�that�core�samples�from�this�area�are�amenable�to�the�same�gold�recovery�process�as�has�been�developed�for� the�Main�Zone.�
AGREEMENTS�WITH�FIRST�NATIONS�
The�Company�has�executed�Protocol�Agreements�with�Williams�Lake�First�Nation�in�March�2011�and�Xat��ll�First� Nation�in�March�2012;�and�a�Cooperation�Agreement�with�Lhtako�Dene�Nation�in�September�2012.��These� agreements�address�issues�in�relation�to�the�potential�development�of�the�Spanish�Mountain�gold�project.��
Under�the�agreements,�the�Company�recognizes�and�respects�the�First�Nations�groups’�asserted�aboriginal�rights� and�title�in�the�area�of�the�Spanish�Mountain�gold�project�and�the�First�Nation�groups�recognize�and�respect�the� Company’s�rights�and�interests�in�the�exploration�and�development�of�the�Company’s�properties.��They�also�reflect� commitments�by�the�parties�for�continued�engagement�in�a�respectful�and�collaborative�manner.�
As�part�of�the�ongoing�engagement�process,�management�presented�to�the�Chief�and�Council�of�Xat��ll�First�Nation� on�October�14,�2021�the�Company’s�plans�for�the�proposed�development�of�the�Project’s�resource�and�the� comprehensive�strategy�to�manage�and�mitigate�the�potential�environmental�impacts.��Management�also� addressed�various�concerns�raised�by�the�leadership�team�of�XFN�regarding�the�proposed�construction,�operations� and�closure�of�a�gold�mine�in�their�traditional�territory.��The�meeting�was�immediately�followed�by�the�execution�of� the�Agreement�for�Engagement�Protocol�with�Xat��ll�First�Nation.��The�signing�of�the�agreement�by�XFN�and�the� Company�marks�the�completion�of�the�first�phase�of�a�two�phase�process�to�negotiate�a�comprehensive� Relationship�Agreement�between�the�parties.�The�second�phase�negotiations�will�proceed�immediately�and�are�set� to�be�completed�within�90�days�based�on�the�timeline�established�by�the�agreement.��Once�completed,�the� comprehensive�Relationship�Agreement�will�guide�the�relationship�between�XFN�and�the�Company�and�the� participation�of�XFN�in�the�Project�as�the�Company�advances�the�Project�through�the�environmental�assessment/� permitting�process�and�later�through�the�construction,�operation,�and�closure�of�the�mining�project.��
ENVIRONMENTAL�ASSESSMENT�AND�PERMITTING�PROCESS�
The�Company�resumed�the�environmental�assessment�process�in�early�2021�and�will�build�on�significant�activities� initiated�since�2011,�which�includes�extensive�data�gathering,�baseline�environmental�studies�as�well�as� consultations�with�First�Nations�and�surrounding�communities.��Updated�environmental�data�are�being�gathered� and�compiled�on�an�ongoing�basis.��The�Company�expects�to�continue�extensive�field�work�for�the�foreseeable� future�and�to�make�formal�submissions�with�the�environmental�assessment�agencies�as�required.�
��9���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
For�further�details�on�the�Environmental�Assessment�and�Permitting�processes,�please�refer�to�the�websites�listed� below:�
| below: | ||||
|---|---|---|---|---|
| Website | ||||
| BritishColumbiaEnvironmentalAssessmentOffice | www.eao.gov.bc.ca | |||
| CanadianEnvironmentalAssessmentAgency | www.canada.ca/en/environmental�assessment�agency | |||
| GovernmentofCanadaMajorProjectsManagementOffice | www.mpmo�bggp.gc.ca |
A�comprehensive�archeological�impact�assessment�(completed�in�2017�and�2018)�concluded�that�no�further� archaeological�work�is�recommended�prior�to�any�project�activities�within�certain�project�areas�where�future� mining�infrastructure�has�been�proposed.���
RESULTS�OF�OPERATIONS�
Summary�of�Quarterly�Results�
The�selected�quarterly�consolidated�information�set�out�below�has�been�derived�from�and�should�be�read�in� conjunction�with�the�previous�eight�quarterly�consolidated�Financial�Statements�for�each�respective�financial� period.��
| PeriodEnded | Revenue $ |
G&AExpenses $ |
NetLoss $ |
Losspershare $ |
|---|---|---|---|---|
| September30,2021 June30,2021 March31,2021 December31,2020 September30,2020 June30,2020 March31,2020 December31,2019 |
Nil Nil Nil Nil Nil Nil Nil Nil |
(173,787) (363,032) (370,271) (485,996) (159,057) (82,451) (195,540) (222,081) |
(113,347) (320,522) (326,636) (471,531) (49,355) (73,050) (152,929) (321,825) |
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) |
In�accordance�with�IFRS,�general�and�administrative�(“G&A”)�items�are�charged�to�the�period’s�income�as�they�are� incurred.��Several�factors�tend�to�cause�variation�in�quarterly�results.��Seasonal�weather�conditions�affect�the� Company’s�operations�at�its�exploration�camp.��Typically�its�field�program�commences�in�spring�or�summer�and�is� completed�during�the�fourth�quarter�of�the�year.��As�a�result,�items�such�as�impairment�can�only�be�reasonably� determined�after�the�program�is�completed.��Additionally,�certain�tax�items�such�as�the�British�Columbia�Mining� Exploration�Tax�Credit�(“BC�METC”)�tend�to�be�processed�and�recognized�during�the�third�quarter�of�the�year,�when� the�Company�is�notified,�resulting�in�potential�adjustments�to�the�corporate�tax�provision�for�the�period.�� Furthermore,�the�timing�of�assessment�for�the�Company’s�filings�by�tax�authorities�may�lead�to�a�one�time� adjustment�to�the�period’s�tax�provision�resulting�in�potentially�significant�changes�to�the�net�income�or�loss.�� Expenditures�on�mineral�properties�are�capitalized�and�form�part�of�the�carrying�values�of�the�underlying�assets�in� accordance�with�the�Company’s�accounting�policy.��
Three�months�ended�September�30,�2021�compared�to�three�months�ended�September�30,�2020�
G&A�expenses�are�costs�associated�with�the�Company’s�corporate�head�office�and�other�expenditures�that�are�not� directly�attributable�to�the�Company’s�project�activities.��For�the�three�months�ended�September�30,�2021,�G&A� expenses�increased�by�$14,730�when�compared�with�the�same�period�in�the�previous�year�(2021���$173,787�vs.� 2020���$159,057).��The�prior�period’s�results�reflect�measures�taken�by�management�to�conserve�cash�in�response� to�business�uncertainty�caused�by�the�pandemic.��Salary�and�wages�increased�by�$24,046�(2021���$85,820�vs.�2020��� $61,774)�as�staff�wages�were�voluntarily�suspended�during�the�prior�period.��Office�and�administrative� expenditures�increased�by�$34,509�over�the�prior�year�(2021���$38,781�vs.�2020�–�$4,272)�as�the�sublease� arrangement�for�the�Company’s�office�premises�expired�in�November�2020�resulting�a�net�monthly�increase�of�
��10���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
approximately�$10,000�in�the�associated�cost�thereafter.��In�addition,�a�Director�charged�directors’�fees�totalling� $6,625�(2020��Nil).��Share�based�payment�compensation�(“SBC”)�decreased�by�$19,946�(2021�–�($5,901)�vs.�2020��� $14,045)�reflecting�the�forfeiture�of�stock�options�during�the�current�quarter�resulting�in�a�reversal�of�previous�SBC� expenses.��SBC�are�a�non�cash,�estimated�expense�related�to�stock�options�granted�by�the�Company.���
For�the�three�months�ended�September�30,�2021,�the�Company’s�recorded�a�deferred�income�tax�recovery�of� $47,076�(2020���$96,808).��The�current�period’s�net�loss�reflects�an�increase�of�non�deductible�expenses�totaling� $140,000,�which�does�not�impact�the�provision�for�tax�recovery.��Tax�recoveries�are�recorded�to�reflect�tax�losses� incurred�during�the�period�that�may�be�potentially�used�to�offset�future�taxable�income.���
For�the�quarter�ended�September�30,�2021�the�Company�incurred�gross�expenditures�of�$1,038,012�on�its�mineral� properties,�before�recoverable�tax�credits�and�impairment�loss.��The�increased�spending�reflects�accelerated� project�activities�which�began�during�the�summer�of�2020.��The�most�significant�expenditures�this�quarter�was�� $587,377�for�environmental�assessment,�$252,370�for�staff�wages,�geological�and�engineering�consulting�fees,�and� $126,528�for�geochemical�assaying.��Exploration�and�project�activity�expenditures�are�capitalized�in�accordance� with�the�Company’s�accounting�policies.�
Nine�months�ended�September�30,�2021�compared�to�nine�months�ended�September�30,�2020�
G&A�expenses�for�the�nine�months�ended�September�30,�2021�increased�by�$520,941�compared�to�the�same� period�in�the�previous�year�(2021���$957,990�vs.�2020�–�$437,049).��The�increase�is�primarily�due�to�an�increase�in� SBC�by�$250,656�(2021�–�$322,118�vs.�2020���$71,462)�reflecting�the�amortization�of�costs�associated�with�previous� stock�option�grants.��As�mentioned,�the�prior�period’s�results�reflect�measures�taken�by�management�to�conserve� cash�in�response�to�the�business�certainty�caused�by�the�pandemic.��Specifically,�salaries�and�wages�were� voluntarily�suspended�during�the�prior�period.��As�a�result,�these�costs�comparatively�show�an�increase�of�$122,766� (2021���$277,518�vs.�2020���$154,752)�in�the�current�year.��Office�and�administrative�expense�increased�during�the� current�period�by�$104,324�(2021���$111,434�vs.�2020���$7,110)�due�to�directors’�fees�of�$8,125�and��a�net�monthly� increase�of�approximately�$10,000�in�rental�expenses�following�the�termination�of�a�sublease�arrangement�of�the� office�premises�in�November�2020.���
For�the�nine�months�ended�September�30,�2021,�the�Company�recorded�a�deferred�income�tax�recovery�of� $133,221�compared�to�$150,103�(a�decrease�of�$16,882)�for�the�same�period�in�the�prior�year�reflecting�the�impact� of�the�timing�difference�resulting�from�higher�share�issue�costs�in�spite�of�lower�operating�losses�during�the�prior� period.��Tax�recoveries�are�primarily�generated�for�taxable�losses�incurred�during�the�period�reflecting�the�potential� benefits�of�offsetting�future�taxable�income.���
During�the�nine�months�ended�September�30,�2021�the�Company�expended�$4,092,781�on�its�mineral�properties.�� Significant�expenditures�this�period�were�related�to�the�2021�winter�geotechnical�drilling�program�which�began� during�the�first�quarter�of�2021�and�baseline�studies�related�to�the�environmental�assessment�process.�� Expenditures�comprise�of�the�following�$1,611,301�activities�related�to�the�environmental�assessment�process,� $940,968�for�staff�wages,�geological�and�engineering�consulting�fees,�and�$474,456�for�geochemical�assaying.�� Other�significant�expenditures�includes�$114,310�related�to�utilities�and�the�ongoing�maintenance�of�the� Company’s�exploration�camp�located�near�Likely,�BC.��
LIQUIDITY�AND�CAPITAL�RESOURCES�
At�September�30,�2021�the�Company�has�a�working�capital�of�$6,405,007�(December�31,�2020���$10,231,130)�and� $7,271,990�(December�31,�2020���$11,545,862)�in�cash,�cash�equivalents�and�short�term�investments.���
During�the�period�ended�September�30,�2021�the�company�issued�2,150,000�common�shares�from�the�exercise�of� stock�purchase�options�ranging�in�prices�from�$0.08�to�$0.16�for�gross�proceeds�of�$312,000�and�issued�3,860,000� common�shares�for�the�exercise�of�share�purchase�warrants�ranging�in�price�from�$0.12�to�$0.15�for�gross�proceeds� of�$465,000.�
��11���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
During�the�year�ended�December�31,�2020�the�Company�completed�three�non�brokered�private�placements,� further�details�below,�and�issued�68,571,427�common�share�units�for�aggregate�gross�cash�proceeds�of� $14,000,000.��
On�July�13,�2020�the�Company�completed�a�non�brokered�private�placement�and�issued�40,000,000�common�share� units�for�gross�proceeds�of�$4,000,000.��Each�unit�consisted�of�one�common�share�of�the�Company�and�one� common�share�purchase�warrant.��Each�warrant�entitles�its�holder�to�purchase�one�common�share�at�a�price�of� $0.15�per�share�expiring�July�13,�2022.��Cash�share�issue�costs�of�$120,002�were�incurred.�
On�July�27,�2020�the�Company�completed�a�non�brokered�private�placement�and�issued�16,666,666�common�share� units�for�gross�proceeds�of�$5,000,000.��Each�unit�consisted�of�one�common�share�of�the�Company�and�one� common�share�purchase�warrant.��Each�warrant�entitles�its�holder�to�purchase�one�common�share�at�a�price�of� $0.45�per�share�expiring�July�24,�2022.��Cash�share�issue�costs�of�$42,211�were�incurred.�
On�August�6,�2020�the�Company�completed�a�non�brokered�private�placement�and�issued�11,904,761�common� share�units�for�gross�proceeds�of�$5,000,000.��Each�unit�consisted�of�one�common�share�of�the�Company�and�one� common�share�purchase�warrant.��Each�warrant�entitles�its�holder�to�purchase�one�common�share�at�a�price�of� $0.60�per�share�expiring�August�5,�2022.��Cash�share�issue�costs�of�$36,478�were�incurred.�
During�the�year�ended�December�31,�2020�the�Company�received�a�refund�of�$241,615�for�BC�METC�related�to� previously�filed�claims�attributable�to�qualified�project�expenditures.���
The�Company�believes�that�its�current�cash�balance�is�sufficient�to�fund�its�operations�for�the�2021�fiscal�year.��On�a� case�by�case�basis,�the�Company�may�explore�financing�opportunities�including�those�involving�stock�or�flow� through�shares.��The�Company�is�also�exploring�non�equity�financing�arrangements�as�potential�sources�of�funding.�
Currently,�the�Company’s�budgeted�non�project�expenditures�are�approximately�$60,000�per�month�and�primarily� comprise�of�payroll�costs�for�current�level�of�staff�and�other�G&A�costs�for�its�head�office.��The�actual�expenditures� are�continuously�being�evaluated�and�adjusted�with�the�objective�of�preserving�cash�to�the�furthest�extent�possible.�� The�Company’s�expenditures�on�its�mineral�properties,�which�are�capitalized�in�accordance�with�its�accounting� policy,�typically�represent�the�most�significant�use�of�its�capital�resources.���
The�Company�is�at�an�exploration/development�stage�and�has�no�revenue�from�its�business�operations.��The� Company’s�ability�to�meet�its�future�obligations�and�maintain�operations�for�the�foreseeable�future�is�contingent� upon�successful�completion�of�additional�financing�arrangements.��Although�the�Company�has�been�successful�in� raising�funds�in�the�equity�markets,�there�is�no�assurance�that�additional�funding�will�be�available�in�the�future�at� reasonable�terms.��The�Company�also�evaluates�other�financing�opportunities�that�become�available�from�time�to� time.��As�a�prudent�business�practice�for�a�non�revenue�generating�enterprise,�management�carefully�monitors�its� cash�resources�and�explores�available�options�to�address�any�potential�shortfall.�
TRANSACTIONS�WITH�RELATED�PARTIES�
Compensation�of�key�management�personnel�for�the�period�ended�September�30,�2021�increased�by�$489,902� compared�with�the�prior�year�(2021���$799,906�vs.�2020���$310,004).��This�is�primarily�due�to�an�increase�in�SBC�of� $324,000�(2021���$395,002�vs.�2020���$71,002)�as�the�Company�granted�stock�options�in�the�fourth�quarter�of�2020.�� SBC,�which�is�an�estimated�non�cash�expenditure�recorded�upon�granting�of�stock�options,�is�deferred�and� recognized�in�accordance�with�the�scheduled�vesting�of�stock�options.��Consulting�fees,�related�to�increased�project� activity�over�the�prior�year,�increased�by�$45,574�(2021���$139,417�vs.�2020�–�$93,843)�while�salary�and�wages�were� restored�to�their�normal�levels�resulting�in�an�increase�of�$112,113�over�the�prior�year�(2021���$257,272�vs.�2020�–� $145,159).�
At�September�30,�2021�accounts�payable�and�accrued�liabilities�owed�to�related�parties�totaled�$300,571� (December�31,�2020���$317,112).��
��12���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
The�Company�does�not�have�current�employment�or�consulting�contracts�with�any�of�the�executive�officers� stipulating�termination�benefits�in�the�event�of�a�change�of�control�in�the�Company’s�ownership.��No�termination� benefits�were�paid�to�any�key�management�personnel�during�the�period�ended�September�30,�2021�and�2020.��The� Company�has�no�material�post�employment�benefits�and�other�long�term�employee�benefits�that�are�contractually� stipulated�but�will�be�subject�to�the�applications�of�employment�legislations�or�potential�litigations.�
All�related�party�transactions�were�recorded�at�the�amounts�agreed�upon�between�the�parties.��Any�balances�are� payable�on�demand�without�interest.�
FINANCIAL�INSTRUMENTS�AND�OTHER�INSTRUMENTS�
The�carrying�values�of�cash�and�cash�equivalents,�short�term�investments,�accounts�receivable�and�accounts� payable,�accrued�liabilities�and�loan�payable�approximate�their�fair�values�due�to�the�short�term�maturity�of�these� financial�instruments.�The�carrying�value�of�deposits�for�reclamation�also�approximates�fair�value�since�amounts� held�earn�interest�at�market�rates.��
The�Company’s�risk�exposure�and�the�impact�on�the�Company’s�financial�instruments�are�summarized�below:�
(a) Credit�risk�
Credit�risk�refers�to�the�potential�that�counterparty�to�a�financial�instrument�will�fail�to�discharge�its�contractual� obligations�and�arises�principally�from�the�Company’s�holdings�of�cash,�cash�equivalents�and�short�term� investments.��The�Company�manages�credit�risk,�in�respect�of�cash,�cash�equivalents�and�short�term�investments�by� holding�these�at�a�major�Canadian�financial�institution.���
Concentration�of�credit�risk�exists�with�respect�to�the�Company’s�cash,�cash�equivalents�and�short�term� investments�as�a�majority�of�amounts�are�held�at�a�single�major�Canadian�financial�institution.�
The�Company�maintains�an�outstanding�balance�on�it�trade�accounts�receivable�and�is�an�additional�source�of�credit� risk�as�the�balance�of�the�account�is�for�its�sub�tenant�who�leased�a�portion�of�the�Company’s�office�premise.��At� September�30,�2021�the�Company�maintains�a�provision�of�$239,741�for�doubtful�accounts�related�to�past�due�rent� payments.�
(b) Liquidity�risk�
Liquidity�risk�is�the�risk�that�the�Company�will�encounter�difficulty�in�satisfying�financial�obligations�as�they�become� due.��The�Company�manages�its�liquidity�risk�by�forecasting�cash�flows�from�operations�and�anticipated�investing� and�financing�activities.��At�September�30,�2021,�the�Company�had�cash�and�cash�equivalents�in�the�amount�of� $7,271,990.��Current�liabilities�of�$955,745�comprise�of�accounts�payable,�accrued�liabilities�and�current�portion�of� lease�liability�and�have�contractual�maturities�within�12�months.��
(c) Market�risk�
Market�risk�is�the�risk�that�the�fair�value�or�future�cash�flows�of�a�financial�instrument�will�fluctuate�because�of� changes�in�market�prices.��The�Company�is�exposed�to�interest�rate,�foreign�currency�risk,�and�other�price�risk�as� follows:�
i. Interest�rate�risk�
The�Company’s�cash,�cash�equivalents�and�short�term�investments�are�held�in�bank�accounts�earning� interest�at�variable�interest�rates.��Due�to�the�short�term�nature�of�these�financial�instruments�and�the� prevailing�interest�rate�environment,�fluctuations�in�market�rates�do�not�have�a�significant�impact�on� estimated�fair�values�as�of�September�30,�2021.�
��13���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
- ii. Foreign�currency�risk�
The�Company’s�operations�are�located�in�Canada�with�substantially�all�transactions�denominated�in� Canadian�dollars�and,�accordingly,�the�Company�is�not�exposed�to�significant�foreign�currency�risk.��
- iii. 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.�The�Company�is�not� exposed�to�significant�other�price�risk�with�respect�to�its�financial�instrument�as�their�fair�values�and� future�cash�flows�are�not�impacted�by�fluctuations�in�market�prices.�
OUTSTANDING�SHARE�DATA�
The�Company�had�the�following�common�shares,�stock�options�and�warrants�outstanding�at�September�30,�2021� and�the�Report�Date:�
| AtSeptember30, 2021 |
Exercise | AtReportDate | |
|---|---|---|---|
| Commonshares Stockoptions Warrants |
333,624,051 7,325,000 68,311,427 |
350,000 Nil (350,000) |
333,974,051 7,325,000 67,961,427 |
| FullyDilutedsharesoutstanding | 409,260,478 | Nil | 409,260,478 |
OFF�BALANCE�SHEET�ARRANGEMENTS�
The�Company�has�no�off�balance�sheet�arrangements.��
PROPOSED�TRANSACTIONS�
At�the�Report�Date,�the�Company�does�not�have�any�proposed�material�transactions.��All�material�transactions� including�those�completed�subsequent�to�the�financial�statement�date�are�fully�disclosed�in�the�Financial� Statements�for�the�period�ended�September�30,�2021.�
COMMITMENTS
In�February�2017�the�Company�signed�an�Extension�Agreement�to�renew�the�lease�of�its�office�premises.��The� agreement�commenced�June�1,�2017�and�will�expire�May�31,�2022.��The�total�lease�payment�pursuant�to�the� agreement�is�$730,678�(including�estimated�operating�expenses�of�$342,622).��Concurrently,�the�Company� renewed�an�agreement�to�sublease�a�portion�of�its�office�premises�to�a�third�party�sub�tenant.��The�agreement� commenced�June�1,�2017�and�expired�May�31,�2020�and�had�an�option�to�extend�until�May�31,�2022.��The�rental� recovery�is�expected�to�be�$272,902�(including�estimated�operating�expenses�of�$139,531).��The�sub�tenant�elected� to�terminate�the�sublease�arrangement�effective�November�1,�2020.�
COMMITMENTS�RELATED�TO�MINERAL�PROPERTIES�AS�FOLLOWS:�
Spanish�Mountain�Property,�British�Columbia�
Pursuant�to�the�purchase�agreement,�certain�mineral�claims�comprising�the�Spanish�Mountain�property�are�subject� to�various�net�smelter�returns�(“NSR”)�at�2.5%.��The�Company�may,�at�its�option,�reduce�the�NSR�to�1%�or�1.5%� dependent�on�the�underlying�mineral�claims�with�a�maximum�aggregate�payment�of�$1,000,000�to�the�vendors.�
��14���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
On�June�15,�2010,�the�Company�acquired�a�100%�undivided�interest�in�the�Cedar�Creek�property,�which�is� contiguous�to�the�Spanish�Mountain�property.��The�wholly�owned�property�is�subject�to�a�2.5%�NSR�in�favour�of�a� third�party.��The�NSR�may�be�purchased�by�the�Company�for�$500,000�per�1%�NSR.��On�May�23,�2011�the�Company� acquired�two�additional�mineral�claims�that�are�adjacent�to�the�Cedar�Creek�Property�for�$110,000�cash.��The� claims�are�subject�to�a�3%�NSR,�2.5%�of�which�may�be�purchased�for�$1,000,000.��
On�August�21,�2012,�the�Company�completed�the�acquisition�of�an�additional�group�of�mineral�claims�for� considerations�of�$500,000�in�cash�and�2,000,000�common�shares�of�the�Company.��The�property�is�subject�to�an� underlying�4%�NSR.��The�Company�has�the�option�to�reduce�the�net�NSR�to�2%�by�paying�a�onetime�cash�payment� of�$2,000,000�to�the�royalty�holders.�
SUBSEQUENT�EVENTS�
Subsequent�to�September�30,�2021,�350,000�share�purchase�warrants�with�an�exercise�price�of�$0.15�and�were� exercised�resulting�in�an�issuance�of�350,000�common�shares.�
OTHER�REQUIREMENTS�
Additional�disclosure�of�the�Company’s�technical�reports,�material�change�reports,�news�releases,�and�other� information�can�be�obtained�under�the�Company’s�profile�at�the�following�website:��www.sedar.com.�
RISKS�AND�UNCERTAINTIES�
The�Company’s�principal�activity� i s�mineral�exploration�and�development.��Companies�in�this�industry�are�subject�to� many�and�varied�kinds�of�risks,�including�but�not�limited�to,�environmental,�metal�prices,�political�and�economical.� Although�the�Company�has�taken�steps�to�verify�the�title�to�mineral�properties�in�which�it�has�an�interest,�in� accordance�with�industry�standards�for�the�current�stage�of�exploration�of�such�properties,�these�procedures�do� not�guarantee�the�Company’s�title.�Property�title�may�be�subject�to�unregistered�prior�agreements�or�transfers�and� title�may�be�affected�by�undetected�defects.�
The�Company�has�no�significant�source�of�operating�cash�flow�and�no�revenues�from�operations.��None�of�the� Company’s�mineral�properties�currently�have�reserves.��The�Company�has�limited�financial�resources.��Substantial� expenditures�are�required�to�be�made�by�the�Company�to�establish�ore�reserves.�
The�property�interests�owned�by�the�Company,�or�in�which�it�has�an�option�to�earn�an�interest�are�in�the� exploration�stages�only,�are�without�known�bodies�of�commercial�mineralization�and�have�no�ongoing�mining� operations.��Mineral�exploration�involves�a�high�degree�of�risk�and�few�properties,�which�are�explored,�are� ultimately�developed�into�producing�mines.��Exploration�of�the�Company’s�mineral�properties�may�not�result�in�any� discoveries�of�commercial�bodies�of�mineralization.��If�the�Company’s�efforts�do�not�result�in�any�discovery�of� commercial�mineralization,�the�Company�will�be�forced�to�look�for�other�exploration�projects�or�cease�operations.�
The�Company�is�subject�to�the�laws�and�regulations�relating�to�environmental�matters�in�all�jurisdictions�in�which�it� operates,�including�provisions�relating�to�property�reclamation,�discharge�of�hazardous�material�and�other�matters.�� The�Company�may�also�be�held�liable�should�environmental�problems�be�discovered�that�were�caused�by�former� owners�and�operators�of�its�properties�and�properties�in�which�it�has�previously�held�an�interest.��The�Company� conducts�its�mineral�exploration�activities�in�compliance�with�applicable�environmental�protection�legislation.��The� Company�is�not�aware�of�any�existing�environmental�problems�related�to�any�of�its�current�or�former�properties� that�may�result�in�material�liability�to�the�Company.��In�August�2014,�there�was�a�breach�of�the�tailings�dam�of�a� copper/�gold�mine,�owned�by�a�third�party,�located�near�Likely,�B.C.�resulting�in�significant�environmental�damages� in�the�area.��Although�the�Company’s�operations�have�not�been�directly�affected�by�the�incident,�the�long�term� impact,�if�any,�on�the�regulatory�or�permitting�process�in�connection�with�the�Company’s�project�cannot�be� determined�at�this�time.�
��15���
Spanish Mountain Gold Ltd. MD&A for the period ended September 30, 2021
CAUTIONARY�NOTICES
The�Company’s�Financial�Statements�for�the�period�ended�September�30,�2021,�and�2020�and�these�accompanying� MD&A�contain�statements�that�constitute�“forward�looking�statements”�within�the�meaning�of�National� Instrument�51�102,� Continuous�Disclosure�Obligations �of�the�Canadian�Securities�Administrators.��Forward�looking� statements�often,�but�not�always,�are�identified�by�the�use�of�words�such�as�“seek”,�“anticipate”,�“believe”,�“plan”,� “estimate”,�“expect”,�“targeting”�and�“intend”�and�statements�that�an�event�or�result�“may”,�“will”,�“should”,� “could”,�or�“might”�occur�or�be�achieved�and�other�similar�expressions.��Forward�looking�statements�in�this�MD&A� include�statements�regarding�the�Company’s�future�exploration�plans�and�expenditures,�the�satisfaction�of�rights� and�performance�of�obligations�under�agreements�to�which�the�Company�is�a�part,�the�ability�of�the�Company�to� hire�and�retain�employees�and�consultants�and�estimated�administrative�assessment�and�other�expenses.���The� forward�looking�statements�that�are�contained�in�this�MD&A�involve�a�number�of�risks�and�uncertainties.��As�a� consequence,�actual�results�might�differ�materially�from�results�forecast�or�suggested�in�these�forward�looking� statements.��Some�of�these�risks�and�uncertainties�are�identified�under�the�heading�“RISKS�AND�UNCERTAINTIES”�in� this�MD&A.�Additional�information�regarding�these�factors�and�other�important�factors�that�could�cause�results�to� differ�materially�may�be�referred�to�as�part�of�particular�forward�looking�statements.��The�forward�looking� statements�are�qualified�in�their�entirety�by�reference�to�the�important�factors�discussed�under�the�heading�“RISKS� AND�UNCERTAINTIES”�and�to�those�that�may�be�discussed�as�part�of�particular�forward�looking�statements.�
Forward�looking�statements�involve�known�and�unknown�risks,�uncertainties,�assumptions�and�other�factors�that� may�cause�the�actual�results,�performance�or�achievements�of�the�Company�to�be�materially�different�from�any� future�results,�performance�or�achievements�expressed�or�implied�by�the�forward�looking�statements.��Factors�that� could�cause�the�actual�results�to�differ�include�market�prices,�exploration�success,�continued�availability�of�capital� and�financing,�inability�to�obtain�required�regulatory�approvals�and�general�market�conditions.�These�statements� are�based�on�a�number�of�assumptions,�including�assumptions�regarding�general�market�conditions,�the�timing�and� receipt�of�regulatory�approvals,�the�ability�of�the�Company�and�other�relevant�parties�to�satisfy�regulatory� requirements,�the�availability�of�financing�for�proposed�transactions�and�programs�on�reasonable�terms�and�the� ability�of�third�party�service�providers�to�deliver�services�in�a�timely�manner.�Forward�looking�statements�contained� herein�are�made�as�of�the�date�of�this�MD&A�and�the�Company�disclaims�any�obligation�to�update�any�forward� looking�statements,�whether�as�a�result�of�new�information,�future�events�or�results�or�otherwise.�There�can�be�no� assurance�that�forward�looking�statements�will�prove�to�be�accurate,�as�actual�results�and�future�events�could� differ�materially�from�those�anticipated�in�such�statements.��Accordingly,�readers�should�not�place�undue�reliance� on�forward�looking�statements.�
As�of�the�report�date�the�COVID�19�pandemic�has�caused�significant�disruptions�to�the�global�economy�and� increased�volatility�in�the�global�financial�markets.�The�extent�to�which�COVID�19�may�adversely�impact�the� Company’s�business�and�financing�opportunities�will�depend�on�future�developments�such�as�the�geographic� spread�of�the�disease,�the�duration�of�the�outbreak,�travel�restrictions�and�social�distancing,�business�closures�or� business�disruptions,�and�the�effectiveness�of�actions�taken�in�Canada,�and�other�countries�to�contain�and�treat�the� disease.�To�date,�COVID�19�has�had�minimal�impact�on�the�Company’s�exploration�and�business�operating� activities.�Although�it�is�not�possible�to�reliably�estimate�the�length�or�severity�of�these�developments�and�their� financial�impact�to�the�date�of�approval�of�these�Financial�Statements,�there�may�be�further�significantly�adverse� impact�on�the�Company's�financial�position�and�results�of�operations�for�future�periods�if�the�pandemic�is�not� successfully�contained�or�the�effects�of�which�are�not�mitigated.��
��16���