Stuhini Exploration — Interim / Quarterly Report 2020

Jan 30, 2020

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STUHINI EXPLORATION LTD. FINANCIAL STATEMENTS (expressed in Canadian Dollars) FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2019 AND 2018

NOTICE OF NO AUDITOR REVIEW

OF THE CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2019 & 2018

The accompanying unaudited condensed interim financial statements of Stuhini Exploration Ltd. (the “Company”) for the three and nine months ended November 30, 2019 and 2018, have been prepared by, and are the responsibility of, the Company’s management.

The Company’s independent auditor has not performed a review of these condensed interim financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of the condensed interim statements by an entity’s auditor. These unaudited condensed interim financial statements include all adjustments, consisting of normal and recurring items, that management considers necessary for a fair presentation of the financial position, results of operations and cash flows.

TUHINI EXPLORATION LTD. STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (Expressed in Canadian Dollars)

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		November 30,	February 28,
As at	Note	2019	2019
ASSETS
Current
Cash		$ 755,261	$ 14,163
GST receivable		17,587	18,326
Prepaid expenses		8,958	21,605
Total current		781,806	54,094
Exploration and evaluation assets	3	448,914	395,064
Reclamation bond	3	42,000	42,000
Property, plant,and equipment	4	1,037	1,536
Total assets		$1,273,757	$492,694
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable		$ 38,196	$ 8,027
Accrued liabilities		14,139	28,132
Due to related parties	6	34,586	73,720
Notespayable to relatedparties	7	-	111,745
Total liabilities		86,921	221,624
Shareholders’ equity
Share capital	5	1,611,443	460,000
Reserves	5	100,085	37,654
Deficit		(524,692)	(226,584)
Total shareholders’ equity		1,186,836	271,070
Total liabilities and shareholders’ equity		$1,273,757	$492,694

Nature and continuance of operations (Note 1) Subsequent events (Note 9)

Approved and authorized for issuance on behalf of the Board of Directors on January 29, 2020:

“David O’Brien” David O’Brien, Director	“Josef Anthony Fogarassy”
	Josef Anthony Fogarassy, Director

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

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STUHINI EXPLORATION LTD.

STATEMENTS OF NET AND COMPREHENSIVE LOSS (UNAUDITED)

(Expressed in Canadian Dollars)

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			Three months ended	Three months ended	Three months ended	Nine months ended	Nine months ended	Nine months ended	Nine months ended
			November	30,		November 30,
	Note		2019		2018	2019		2018
Expenses:
Advertising and promotion		$	2,770	$	-	$ 15,611	$		3,907
Amortization	4		197		133	499			266
Consulting fees	6		16,954		-	30,619			-
Office expenses			1,505		207	6,223			1,230
Project investigation costs	3,6		39,709		500	78,958			500
Professional fees	6		50,016		54,660	78,366			75,863
Regulatory fees			7,449		7,567	25,389			7,567
Share-based compensation	5,6		39,744		-	55,667			21,097
Travel, meals, and
entertainment			187		31	4,833			3,980
Operating expenses			(158,531)		(63,098)	(296,165)		(114,410)
Other items
Interest expense	7		-		(641)	(1,943)			(641)
Net and comprehensive loss		$	(158,531)	$	(63,739)	$ (298,108)	$	(115,051)
Loss per share, basic and diluted		$	(0.01)	$	(0.01)	$ (0.03)	$		(0.02)
Weighted average number of
common shares outstanding, basic
and diluted			12,198,495		5,700,000	9,438,687		5,690,211

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

STUHINI EXPLORATION LTD. STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (Expressed in Canadian Dollars)

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(UNAUDITED) (Expressed in Canadian Dollars)
		Number	Share
	Note	of Shares	Capital	Reserves		Deficit		Total
Balance, February 28, 2018		5,054,000	$ 395,400	$ -	$	(47,271)		$ 348,129
Private placements		646,000	64,600	-			-	64,600
Share-based compensation		-	-	21,097			-	21,097
Net and comprehensive loss for the period		-	-	-		(115,051)		(115,051)
Balance, November 30, 2018		5,700,000	460,000	21,097		(162,322)		318,775
Share-based compensation		-	-	16,557			-	16,557
Net and comprehensivelossforthe period		-	-	-		(64,262)		(64,262)
Balance, February 28, 2019		5,700,000	460,000	37,654		(226,584)		271,070
Initial public offering	5	4,083,000	816,600	-			-	816,600
Share issuance costs	5	-	(164,152)	24,412			-	(139,740)
Private placement	5	2,500,000	500,000	-			-	500,000
Share issuance costs	5	-	(59,653)	-			-	(59,653)
Shares issued on exercise of options	5	410,000	58,648	(17,648)			-	41,000
Share-based compensation	5,6	-	-	55,667			-	55,667
Net and comprehensive loss for the period		-	-	-		(298,108)		(298,108)
Balance, November 30, 2019		12,693,000	$1,611,443	$100,085	$	(524,692)		$1,186,836

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

STUHINI EXPLORATION LTD. STATEMENTS OF CASH FLOWS (UNAUDITED) (Expressed in Canadian Dollars)

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	Nine months ended November 30,	Nine months ended November 30,
	2019	2018
Cash flows used in operating activities
Loss for the period	$ (298,108)	$ (115,051)
Items not affecting cash used in operations
Amortization	499	266
Accrued interest	1,943	641
Share-based compensation	55,667	21,097
Changes in non-cash working capital items
GST receivable	739	(13,903)
Prepaid expenses	12,647	-
Accounts payable	30,169	31,207
Accrued liabilities	(13,993)	(13,789)
Net cash used in operating activities	(210,437)	(89,532)
Cash flows used in investing activities
Exploration and evaluation assets	(53,850)	(236,452)
Cash paid for security bond	-	(42,000)
Acquisition of property, plant and equipment	-	(1,935)
Net cash used in investing activities	(53,850)	(280,387)
Cash flows provided by financing activities
Issuance of common shares for cash, net of issuance costs	1,117,207	64,600
Issuance of common shares on exercise of options	41,000	-
Due to related parties	(39,134)	31,780
Related party loans	(113,688)	50,000
Net cashprovided byfinancing activities	1,005,385	146,380
Increase/(decrease) in cash	741,098	(223,539)
Cash, beginning	14,163	236,598
Cash, ending	$ 755,261	$13,059

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

STUHINI EXPLORATION LTD. NOTES TO THE INTERIM UNAUDTED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED NOVEMBER 30, 2019 AND 2018 (UNAUDITED) (Expressed in Canadian Dollars)

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1. NATURE AND CONTINUANCE OF OPERATIONS

Stuhini Exploration Ltd. (the “Company”), was incorporated under the Business Corporations Act (British Columbia) on July 7, 2017. The Company is focused on acquisition, exploration, and development of mineral properties in British Columbia. On May 21, 2019, the Company’s common shares were listed on the TSX Venture Exchange (“TSX-V or the “Exchange”) under the symbol “STU”.

The Company’s head office and registered office address is 1245 W Broadway, Unit 105, Vancouver, BC V6H 1G7.

These interim financial statements have been prepared with the going concern assumption, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company’s ability to realize its assets and discharge its liabilities is dependent upon the Company obtaining the necessary financing and ultimately upon its ability to achieve profitable operations. These material uncertainties may cast significant doubt on the Company’s ability to continue as a going concern.

Failure to arrange adequate financing on acceptable terms and/or achieve profitability may have an adverse effect on the financial position, results of operations, cash flows and prospects of the Company. These financial statements do not give effect to adjustments to assets or liabilities that would be necessary should the Company be unable to continue as a going-concern. These adjustments could be material.

2. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION

a) Statement of Compliance and Basis of Presentation

These unaudited condensed interim financial statements have been prepared in accordance with accounting policies consistent with International Financial Reporting Standards (“IFRS”) IAS 34 – Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). The unaudited condensed interim financial statements, prepared in conformity with accounting policies consistent with IAS 34, follow the same accounting principles and methods of application as the most recent audited annual financial statements. Since the unaudited condensed interim financial statements do not include all disclosures required by the IFRS for annual financial statements, they should be read in conjunction with the Company’s audited annual financial statements for the reporting period ended February 28, 2019.

b) Basis of Measurement and Use of Estimates

The unaudited condensed financial statements of the Company have been prepared on an accrual basis and are based on historical costs except for cash flow information. All amounts are expressed in Canadian dollars, the Company’s functional and reporting currency.

The preparation of financial statements in compliance with IFRS requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported expenses during the period. Actual results could differ from these estimates.

c) Accounting standards issued but not yet effective

A number of new accounting standards, amendments to standards, and interpretations have been issued but not yet effective up to the date of issuance of the Company's unaudited condensed interim financial statements. The Company intends to adopt the standards when they become effective. The Company has not yet determined the impact of these standards on its financial statements but does not anticipate that the impact will be significant.

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STUHINI EXPLORATION LTD. NOTES TO THE INTERIM UNAUDTED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED NOVEMBER 30, 2019 AND 2018 (UNAUDITED) (Expressed in Canadian Dollars)

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3. EXPLORATION AND EVALUATION ASSETS

Metla Property

On July 7, 2017, the Company entered into a purchase and sale agreement (the “Agreement”) with Barry Arthur Hanslit, a co-founder and major shareholder of the Company, whereby the Company issued 883,333 common shares, with a fair value of $53,000, in exchange for title to the Metla Creek Claims (the “Metla Property”). The Metla Property consists of seven contiguous mineral claims, located south of the town of Atlin, BC.

The Company incurred the following acquisition and deferred exploration costs in association with the Metla Property:

	Nine months ended	Year ended	Year ended
	November 30,	February 28,
	2019		2019
Total exploration and evaluation assets, beginning	$ 395,064	$	158,612
Deferred exploration costs:
Camp and travel	35,041		61,939
Claim maintenance costs	255		-
Equipment use/rental	300		5,785
Exploration tax credit	(13,227)		-
Geology	31,481		168,728
Sub-total, deferred exploration costs	53,850		236,452
Total exploration and evaluation assets,ending	$448,914	$	395,064

In connection with the Metla Property, during the year ended February 28, 2019, the Company deposited $42,000 as a reclamation bond with the BC Ministry of Energy, Mines & Petroleum Resources.

Ruby Creek Property

On July 30, 2019, the Company entered into an option agreement (the "Option Agreement") with Global Drilling Solutions Inc. ("Global Drilling"), a private BC Company wholly owned by Mr. Hanslit, whereby the Company was granted a right to acquire a 100% interest in Global Drilling's Ruby Creek Property (the "Ruby Creek Property"), located in north western BC (the "Option"). The Ruby Creek Property is 26,735 hectares in size, is road accessible and is located 20 kilometres from the town of Atlin, BC. The Option Agreement was conditional on approval by the disinterested shareholders of the Company, which was received at the annual general meeting (the “AGM”) the Company held on November 28, 2019, and by the TSX Venture Exchange (the “Exchange”), which was received on December 31, 2019 (the “Approval Date”).

Based on the Option Agreement, to fully exercise its Option, the Company is required to issue a total of 7,300,000 common shares of the Company’s common stock and make cash payments for a total of $1,060,000 over a four-year term, as detailed in the table below. Upon exercise of the Option, Global Drilling would be entitled to a 1% net smelter returns royalty on the Ruby Creek Property.

Date	Shares	Cash	Payment
December 31, 2019 (the “Approval Date”) (shares issued)	800,000	$	-
On or before December 31, 2020	1,250,000		-
On or before December 31, 2021	1,750,000		120,000
On or before December 31, 2022	1,750,000		300,000
On or before December 31, 2023	1,750,000		640,000
Total	7,300,000	$	1,060,000

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STUHINI EXPLORATION LTD. NOTES TO THE INTERIM UNAUDTED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED NOVEMBER 30, 2019 AND 2018 (UNAUDITED) (Expressed in Canadian Dollars)

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3. EXPLORATION AND EVALUATION ASSETS (CONTINUED)

Ruby Creek Property (Continued)

At November 30, 2019, the Exchange approval was not received, therefore the Company expensed $52,583 associated with acquisition and due-diligence costs of the Ruby Creek Property as part of project investigation costs.

4. PROPERTY, PLANT AND EQUIPMENT

Continuity of the Company’s equipment is as follows:

		Office		Total
		Equipment
Cost
Balance, February 28, 2018	$	-	$	-
Additions		1,935		1,935
Balance, February 28, 2019		1,935		1,935
Additions		-		-
Balance, November 30, 2019	$	1,935	$	1,935
Accumulated Amortization
Balance, February 28, 2018	$	-	$	-
Additions		399		399
Balance, February 28, 2019		399		399
Additions		499		499
Balance, November 30, 2019	$	898	$	898
As at February 28, 2019	$	1,536	$	1,536
As at November 30, 2019	$	1,037	$	1,037

5. SHARE CAPITAL

Authorized share capital

Unlimited number of common shares without par value.

Share issuances

On May 21, 2019, the Company completed its initial public offering ("IPO") by issuing 4,083,000 common shares at a price of $0.20 per share for aggregate gross proceeds of $816,600. The Company paid a cash commission fee of $46,168 and issued non-transferable compensation options entitling the agent to purchase up to 230,840 shares at $0.20 per share expiring on May 21, 2021; these compensation options were valued at $24,412. In addition to the cash and equity commission, the Company paid the agent a corporate finance fee of $20,000 and reimbursed the agent $33,200 for legal and regulatory costs incurred in the course of the IPO. An additional $40,372 in legal and regulatory fees incurred by the Company and directly associated with the IPO were also recognized as share issuance costs.

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STUHINI EXPLORATION LTD. NOTES TO THE INTERIM UNAUDTED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED NOVEMBER 30, 2019 AND 2018 (UNAUDITED) (Expressed in Canadian Dollars)

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5. SHARE CAPITAL (CONTINUED)

Share issuances (Continued)

The following assumptions were used to estimate the grant date fair value for the compensation options granted:

	May 21, 2019
Expected Life of the Compensation Options	2 years
Risk-Free Interest Rate	1.67%
Expected Dividend Yield	Nil
Expected Stock Price Volatility	100%

On September 18, 2019, the Company completed its non-brokered private placement financing by issuing 2,500,000 common shares in the capital of the Company (the “September Financing”) for gross proceeds of $470,000. As part of the September Financing, the Company issued 1,000,000 shares to a strategic investor at a discounted price of $0.17 per share. The discount to the share price, being $30,000, was determined to constitute a transaction cost and was deducted from equity in accordance with paragraph 37 of IAS32. Remaining 1,500,000 shares were issued at $0.20 per share. In addition to the discount given to a strategic investor, the Company recognized further $29,653 incurred in legal and regulatory fees as part of transaction costs.

During the nine-month period ended November 30, 2019, the Company issued a total of 410,000 shares of its common stock upon exercise of options granted to senior officers, directors, and consultants of the Company for total proceeds of $41,000. These options had an initial fair value of $17,648.

Stock purchase option compensation plan

The Company has adopted a Rolling Stock Option Plan (the “Plan”) pursuant to which options may be granted to directors, officers, employees and consultants of the Company. Under the terms of the Plan, the Company can issue a maximum of 10% of the issued and outstanding common shares at the time of the grant. Options granted under the Plan, including vesting and the term, are determined by, and at the discretion of, the Board of Directors.

On April 15, 2018, the Company granted options to acquire up to 490,000 common shares to its officers and consultants. The options were exercisable for a period expiring on July 15, 2019, at $0.10 per share. The Company recorded $21,097 as share-based compensation associated with these options, which was determined using the BlackScholes option pricing model. On July 2, 2019, the Company issued a total of 80,000 shares of its common stock upon exercise of options to acquire 80,000 shares and on July 15, 2019, a further 330,000 shares were issued on exercise of options to acquire 330,000 shares, for total proceeds of $41,000. These options had an initial fair value of $17,648. Remaining options to acquire up to 80,000 shares expired unexercised.

On June 15, 2018, the Company resolved to grant to the officers, directors, and consultants of the Company options to acquire up to 400,000 common shares. The grant of options was contingent upon the successful closing of the IPO of a total of at least 4,000,000 common shares. On June 14, 2019, the Company received approval from the TSX-V to finalize these options; the Company considered the options to acquire up to 380,000 shares of the Company at $0.20 per share to be granted; options to acquire up to 20,000 shares were forfeited in September of 2018. These options expire on May 21, 2021. During the nine-month period ended November 30, 2019, the Company recorded $2,401 as share-based compensation associated with these options, which was determined using the Black-Scholes option pricing model (Note 6).

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STUHINI EXPLORATION LTD. NOTES TO THE INTERIM UNAUDTED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED NOVEMBER 30, 2019 AND 2018 (UNAUDITED) (Expressed in Canadian Dollars)

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5. SHARE CAPITAL (CONTINUED)

Stock purchase option compensation plan (Continued)

The following assumptions were used to estimate the weighted average grant date fair values for the options granted:

	May 21,	February 28,
	2019	2019
Expected Life of the Options	2.93 years	1.94 years
Average Risk-Free Interest Rate	1.66%	1.91%
Expected Dividend Yield	Nil	Nil
AverageExpected Stock Price Volatility	100%	100%

On August 6, 2019, the Company granted options to acquire up to 600,000 common shares to its officers, directors, and consultants. These options vest quarterly in equal amounts starting on November 6, 2019, over a 12-month period from the date of grant and expire on August 6, 2024. During the nine-month period ended November 30, 2019, the Company recognized $53,266 as share-based compensation associated with these options, which was determined using the Black-Scholes option pricing model (Note 6).

The following assumptions were used to estimate the weighted average fair values for the options granted to the Company’s officers and directors:

Company’s officers and directors:
	November 30,	August 6,
	2019	2019
Expected Life of the Options	5 years	5 years
Average Risk-Free Interest Rate	1.21%	1.21%
Expected Dividend Yield	Nil	Nil
Average Expected Stock Price Volatility	100%	100%

The following assumptions were used to estimate the weighted average fair values for the options granted to the Company’s consultants:

Company’s consultants:
	November 30,	August 31,
	2019	2019
Expected Life of the Options	5 years	5 years
Average Risk-Free Interest Rate	1.49% - 1.53%	1.18%
Expected Dividend Yield	Nil	Nil
Average Expected Stock Price Volatility	100%	100%

A continuity of options for the nine-month period ended November 30, 2019, and for the year ended February 28, 2019, is as follows:

	Nine Months ended November 30, 2019 Year ended February 28, 2019
	Number of Options Weighted Average Exercise Price Number of Options Weighted Average Exercise Price
Options outstanding, beginning Granted Exercised Expired Forfeited	890,000 $0.14 - $ - 600,000 $0.20 890,000 $0.14 (410,000) $0.10 - $ - (80,000) $0.10 - $ - (20,000) $0.20 - $-
Options outstanding, ending	980,000 $0.20 890,000 $0.14
Options exercisable, ending	530,000 $0.20 890,000 $0.14

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STUHINI EXPLORATION LTD.

NOTES TO THE INTERIM UNAUDTED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED NOVEMBER 30, 2019 AND 2018 (UNAUDITED) (Expressed in Canadian Dollars)

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5. SHARE CAPITAL (CONTINUED)

Stock purchase option compensation plan (Continued)

The options outstanding and exercisable at November 30, 2019, are as follows:

Number of Options	Number of Options	Weighted Average	Weighted Average	Expiry Date
Outstanding	Exercisable	Exercise Price	Remaining Life(1)
380,000	380,000	$ 0.20	1.47	May 21, 2021
600,000	150,000	$ 0.20	4.69	August 6, 2024
980,000	530,000	$ 0.20	3.44

(1) Represents weighted average remaining life of options outstanding at November 30, 2019.

6. RELATED PARTY TRANSACTIONS

Related parties include the directors, officers, key management personnel, close family members and entities controlled by these individuals. Key management personnel are these having authority and responsibility for planning, directing and controlling the activities of the Company as a whole.

The Company incurred the following transactions with related parties, including key management personnel:

		Nine months	ended	November 30,
		2019		2018
Consulting fees paid or accrued to the Company’s CEO	$	12,710	$	-
Accounting fees paid or accrued to the Company’s CFO	$	4,500	$	4,500
Consulting fees paid to the Company’s Corporate Secretary	$	10,671	$	-
Project management fees paid or accrued to an entity controlled by
the common-law spouse of the Company’s co-founder and majority
shareholder	$	12,710	$	10,860
Share-based compensation for options granted to directors and
officers (Note 5)	$	45,380	$	13,129

Amounts due to related parties consist of amounts owed directly to the officers and directors of the Company for the professional services or for the expenses incurred on behalf of the Company. These amounts are unsecured, noninterest bearing, and due on demand. At November 30, 2019, the amount payable to related parties was $34,586 (February 28, 2019 - $73,720), of which $13,267 (February 28, 2019 - $50,669) represented reimbursable expenses.

7. NOTES PAYABLE TO RELATED PARTIES

On September 14, 2018, the Company’s CEO advanced the Company $50,000 under a loan agreement (the “First Bridge Loan”). The First Bridge Loan was unsecured, payable on demand, and accrued interest at 0.5% per month. During the nine-month period ended November 30, 2019, the Company recorded $888 in interest expense associated with the First Bridge Loan. The Company repaid the First Bridge Loan together with interest accrued up to February 28, 2019, on June 12, 2019. Remaining $888 in interest accumulated on the First Bridge Loan calculated as at June 12, 2019, was repaid during the quarter ended November 30, 2019. The outstanding interest did not accrue additional interest and was included in the amount payable to related parties.

On January 23, 2019, the Company’s Corporate Secretary advanced the Company $60,000 under a loan agreement (the “Second Bridge Loan”). The Second Bridge Loan was unsecured, payable on demand, and accrued interest at 0.5% per month. During the nine-month period ended November 30, 2019, the Company recorded $1,055 in interest expense associated with the Second Bridge Loan. The Company repaid the Second Bridge Loan together with interest accrued thereon on June 12, 2019.

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STUHINI EXPLORATION LTD. NOTES TO THE INTERIM UNAUDTED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED NOVEMBER 30, 2019 AND 2018 (UNAUDITED) (Expressed in Canadian Dollars)

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7. NOTES PAYABLE TO RELATED PARTIES (CONTINUED)

The table below summarizes the First and the Second Bridge Loans outstanding as at June 12, 2019, prior to repayments:

repayments:
	Principal	Interest	Accrued	Total Book
	Outstanding	Rate	Interest	Value
Frist Bridge Loan	$ 50,000	0.5% per month	$ 2,279	$ 52,279
Second Bridge Loan	60,000	0.5% per month	1,409	61,409
Total	$ 110,000		$ 3,688	$ 113,688

8. FINANCIAL INSTRUMENTS AND RISKS

The Company uses the following hierarchy for determining and disclosing fair value of financial instruments:

Level 1 — quoted prices in active markets for identical assets and liabilities. Level 2 — observable inputs other than quoted prices in active markets for identical assets and liabilities. Level 3 — unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

The Company has classified its cash as measured at fair value in the statements of financial position using level 1 inputs. Accounts payable and amounts due to related parties are classified as other liabilities, and their fair values approximate their carrying values due to the short terms to maturity.

Risk management

The Company has exposure to the following risks from its use of financial instruments: credit risk, market risk and liquidity risk. Management, the Board of Directors and the Audit Committee monitor risk management activities and review the adequacy of such activities.

Credit risk:

Credit risk is the risk of potential loss to the Company if a customer or counter party to a financial instrument fails to meet its contractual obligations. The Company’s credit risk is limited to the carrying amount on the statement of financial position and arises from the Company’s cash, which is held with a high-credit quality financial institution and amounts receivable from the Government of Canada. As such, the Company’s credit risk exposure is minimal.

Market risk:

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices.

i. Interest rate risk:

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company has minimal interest rate risk as it has no interest accumulating financial assets that may become susceptible to interest rate fluctuations.

ii. Currency risk:

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company has minimal financial risk arising from fluctuations in foreign exchange rates as the Company does not own foreign currency denominated financial assets or liabilities.

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STUHINI EXPLORATION LTD. NOTES TO THE INTERIM UNAUDTED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED NOVEMBER 30, 2019 AND 2018 (UNAUDITED) (Expressed in Canadian Dollars)

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8. FINANCIAL INSTRUMENTS AND RISKS (CONTINUED)

Risk management (Continued)

• iii. Equity price risk:

Equity price risk is the risk that the fair value of equities decreases as a result of changes in the levels of equity indices and the value of individual stocks. The Company is not exposed to equity price risk as it has no investments in marketable equity securities.

Liquidity risk:

Liquidity risk is managed by ensuring sufficient financial resources are available to meet obligations associated with financial liabilities. The Company manages liquidity risk through the management of its capital structure. As at November 30, 2019, the Company had cash of $755,261 to settle current financial liabilities of $86,921. The Company will need to source funds from either loans or private placements to meet other obligations as they arise.

9. SUBSEQUENT EVENTS

On December 20, 2019, the Company closed its non-brokered private placement financing by issuing 1,400,000 flowthrough common shares (the “Flow-through Shares”) at a price of $0.22 per Flow-through Share for aggregate gross proceeds of $308,000 (the "Flow-through Financing"). The Flow-through Shares are subject to a hold period that expires on April 21, 2020. The gross proceeds from the Flow-through Financing will be used to fund the Phase I exploration program on the Ruby Creek Property (Note 3).

On December 31, 2019, the Company received Exchange approval of the Option Agreement to acquire 100% interest in the Ruby Creek Property (Note 3). Upon obtaining the Exchange approval, the Company issued 800,000 common shares to Global Drilling.

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