Xanadu Mines Ltd — Management Reports 2021

Apr 1, 2021

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Xanadu Mines Ltd Management Discussion & Analysis

For the year ended December 31, 2020 Dated March 31, 2021

(stated in Australian dollars, unless otherwise stated)

Corporate Directory

Directors	Colin Moorhead - Independent Non-Executive Chairman
	Andrew Stewart - Chief Executive Officer
	Ganbayar Lkhagvasuren - Executive Director
	Michele Muscillo - Independent Non-Executive Director
Company secretary	Phil Mackey
Registered Office - Australia	c/o Company Matters Pty Limited
	Level 12, 680 George Street
	Sydney NSW 2000
	Tel: +61 2 8280 7497
	Fax: +61 2 9287 0350
Registered Office - Mongolia	Suite 23, Building 9B
	Olympic Street, Khoroo 1, Sukhbaatar District
	Ulaanbaatar 14240
	Tel: +976 11 7012 0211
Share register	Computershare Investor Services Pty Limited
	Level 3, 60 Carrington Street
	Sydney NSW 2000
	Tel: +61 1300 855 080
Auditor	Ernst and Young
	200 George Street
	Sydney NSW 2000
Stock exchange listing	Xanadu Mines Ltd shares are listed on the Australian Securities Exchange
	and Toronto Stock Exchange (ASX and TSX code: XAM)
Website	www.xanadumines.com
ABN	92 114 249 026
Corporate Governance Statement	The Company's Corporate Governance Statement can be found on the
	Company's website: www.xanadumines.com/site/about/corporate-
	governance

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Year Ended 31 December 2020

Management Discussion and Analysis

General

This Management Discussion and Analysis ( MD&A ) is current to 31 March 2021 and is Management’s assessment of the operations and the financial results together with prospects of Xanadu Mines. This MD&A should be read in conjunction with the Company’s audited consolidated financial statements for the years ended 31 December 2020 and 2019 and notes thereto, prepared in accordance with International Financial Reporting Standards ( IFRS ). Management is responsible for the preparation of the financial statements and this MD&A.

All dollar figures in this MD&A are expressed in Australian dollars ( $ ) unless stated otherwise.

This MD&A contains forward-looking statements and should be read in conjunction with the risk factors described in the “Risks and Uncertainties” and the “Cautionary Note Regarding Forward-Looking Information” sections at the end of this MD&A.

Additional information relating to the Company, including the Company’s most recent financial reports, are available on the Canadian System for Electronic Document Analysis and Retrieval ( SEDAR ) at www.sedar.com, on the ASX Announcements platform under the Company’s code XAM and on the Company’s website at www.xanadumines.com.

The information in this MD&A relating to the broader Kharmagtai project is supported by the technical report titled Independent Technical Report on the Kharmagtai Property, Mongolia prepared by Andrew Vigar and Rod Graham of Mining Associates Limited, dated 8 June 2018.

The information in this MD&A that relates to exploration results is based on information compiled by Dr Andrew Stewart who is responsible for the exploration data, comments on exploration target sizes, QA/QC and geological interpretation and information. Dr Stewart, who is an employee of Xanadu and is a Member of the Australian Institute of Geoscientists, has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as the “Competent Person” as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” and the National Instrument 43-101. Dr Stewart consents to the inclusion in the report of the matters based on this information in the form and context in which it appears.

Forward-looking statements

This MD&A contains forward-looking statements , which are based on certain assumptions and analyses made by the Company derived from its experience and perceptions. The forward-looking statements in this MD&A are subject to important risks, uncertainties, and assumptions, which are difficult to predict and which may affect the Company’s operations that may include, amongst other things, statements regarding targets, estimates and assumptions in respect of mineral reserves and mineral resources and anticipated grades and recovery rates, production and prices, recovery costs and results, capital expenditures and are or may be based on assumptions and estimates related to future technical, economic, market, political, social and other conditions. These forward–looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by Xanadu, are inherently subject to significant technical, business, economic, competitive, political and social uncertainties and contingencies and involve known and unknown risks and uncertainties that could cause actual events or results to differ materially from estimated or anticipated events or results reflected in such forwardlooking statements. The words believe , expect , anticipate , indicate , contemplate , target , plan, intends , continue, budget , estimate , may , will , schedule and similar expressions identify forward-looking statements. The forward-looking statements included in this MD&A are made as of the date of this MD&A and other than as required by law, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Description of Business

Xanadu is an Australian incorporated public company with its shares listed on the ASX and TSX under the code XAM. The principal activity of the Company (and its subsidiaries) is copper-gold exploration in Mongolia. During 2020, the Company held interests in three tenements: (a) the Kharmagtai copper-gold project; (b) the Red Mountain copper-gold project; and (c) the Yellow Mountain copper-gold project ( Figure 1 ). The lease expired in May 2020 for the early stage project at Yellow Mountain.

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Year Ended 31 December 2020

Management Discussion and Analysis

Review of Operations

The 12 months ended 31 December 2020 comprised a year of renewal and refocus for Xanadu Mines. The Company controls one of the most promising porphyry copper and gold projects in Asia with Kharmagtai and has an advanced district-scale exploration project at Red Mountain ( Figure 1 ).

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FIGURE 1: Location of Xanadu’s copper-gold projects, within Mongolia’s highly mineralised and vastly underexplored mineral belts. The resource figure above (598 million tonnes ( Mt )) includes both indicated (129.3Mt) and inferred (468.9Mt) resource categories. Both at the same 0.3eCu cut-off grade (refer to Xanadu’s ASX/TSX Announcement dated 31 October 2018).

Exploration drilling targeted the discovery of additional copper-gold deposits on the Company’s South Gobi porphyry projects at Kharmagtai and Red Mountain, where a total of 32,779 metres ( m ) of diamond drilling were completed during the calendar year ( Figure 2 ).

Kharmagtai Copper-gold Project (Xanadu 76.5%)

The flagship Kharmagtai project has continued to emerge as one of the premier undeveloped copper and gold assets globally. The project is located within the Omnogovi Province, approximately 420 kilometres ( km ) southeast of Ulaanbaatar and 120 km north of the Rio Tinto-controlled Oyu Tolgoi deposit. Xanadu and its joint venture partner, Mongol Metals LLC, announced the acquisition of a 90% interest in the Kharmagtai porphyry copper-gold project from Turquoise Hill Resources in February 2014. Under the Mongol Metals LLC joint venture terms, Xanadu earned an 85% interest in Mongol Metals LLC, equivalent to a 76.5% effective interest in the Kharmagtai project, by funding acquisition and exploration costs.

Exploration during 2020 focused on growing and defining significant porphyry gold-copper project. The oxide gold study was completed and determined to be uneconomic as an independent project and better used to compliment to a larger copper project.

Exploration at Kharmagtai during 2020 focused on extensions to high-grade mineralisation at Stockwork Hill and expanding the known mineralisation at White Hill, Zaraa and numerous other exploration targets across the Mining Lease with a total of 27,950m of diamond drilling was conducted during 2020. A large-scale controlled source audiomagnetotellurics “CSAMT”

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Year Ended 31 December 2020

Management Discussion and Analysis

survey was conducted across the lease to assist in mapping the location and orientations of key structural features across the lease.

Drilling at Zaraa expanded mineralisation envelope by 200m to the north, 300m to the west and 300m to the south. Zaraa now represents a significant body of mineralisation 850m long, 550m across and 1000m high. Zaraa will be added to the global Mineral Resource Estimate during the next Mineral Resource update, planned in 2021.

Drilling at Stockwork Hill focused on expanding the high-grade zones of mineralisation within the tourmaline breccia zone and the high-grade bornite zone. These high-grade zones have been expanded by 100m to the east and 200m to the west. More importantly, the structural framework for the high-grade zones is being defined with sufficient confidence to target larger-scale offsets and drilling during 2021 is focused on these new, high-grade targets.

Regional exploration target drilling during 2020 has encountered broad zones of porphyry and tourmaline breccia mineralisation at Zephyr, Target 10, Pechko and Camarillo. These areas will be targeted during 2021 for additional highergrade zones in 2021.

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Figure 2 Drilling conducted at Kharmagtai during 2020

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Year Ended 31 December 2020

Management Discussion and Analysis

Red Mountain Project (Xanadu 90%)

The Red Mountain copper-gold project is located in the Dornogovi Province of southern Mongolia, approximately 70km west of the future industrial centre of Sainshand. Red Mountain is a highly prospective porphyry copper-gold project. The project comprises a large and underexplored porphyry district (covering approximately 40km²) and consists of multiple co-genetic porphyry copper-gold centres, mineralised tourmaline breccia pipes and copper-gold/base metal magnetite skarns, which occur within the central part of Mining Licence 17129A ( Figure 3 ).

In March 2020, Xanadu and Japan Oil, Gas and Metals National Corporation (JOGMEC) commenced an exploration earn-in agreement over Xanadu’s Red Mountain project, located in the south Gobi region of Mongolia. Exploration objectives are discovery of a Tier-1 porphyry copper-gold discovery. The key terms of the earn-in and joint venture agreement are as follows:

• JOGMEC may earn a 51% interest in the project by sole funding $USD7.2 million of expenditure over four years;

• During the earn-in, Xanadu will be the Manager of the Project;

• Upon JOGMEC completing the earn-in, a joint venture will be formed, and the parties must contribute funds based on their percentage interest to maintain their respective interests; and

• Standard dilution clauses will apply to the parties’ interests. Should a party’s interest dilute to below 10%, it shall automatically convert to a net smelter royalty.

Exploration during 2020 at Red Mountain, continued to define the project’s potential through a combination of mapping, geophysics, surface whole-rock geochemistry and drilling. A large-scale Induced Polarisation (IP) survey was conducted at Red Mountain to complement the existing ground magnetics and gravity data. A total of 4,829m of diamond drilling was conducted at Red Mountain targeting large-scale porphyry targets at Diorite, Bavuu, Target 10 and Stairy.

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Figure 3 Drilling conducted at Red Mountain during 2020

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Year Ended 31 December 2020

Management Discussion and Analysis

Yellow Mountain Project (Xanadu 100%)

Sharchuluut Uul (Yellow Mountain) was an inactive project in 2020 due to its overlap with environmentally protected areas. The lease expired without renewal in May 2020, and discussions are underway with the Government of Mongolia regarding compensation for the loss of this lease.

Competent Person’s Statements

The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code 2012 ) sets out minimum standards, recommendations and guidelines for Public Reporting in Australasia of Exploration Results, Mineral Resources and Ore Reserves. The Information contained in this MD&A has been presented in accordance with the JORC Code 2012.

The information in this MD&A that relates to Mineral Resources is based on information compiled by Dmitry Pertel who is responsible for the Mineral Resource Estimate. Mr Pertel is a full-time employee of CSA Global and is a Member of the Australian Institute of Geoscientists, has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as the Qualified Person as defined in the CIM Guidelines and NI 43-101. Mr Pertel consents to the inclusion in the Scoping Study report of the matters based on this information in the form and context in which it appears.

The information in this MD&A that relates to the Scoping Study is based, and fairly reflects, information compiled by Gordon Zurowski, P.Eng is a registered Professional Engineer in Ontario, Canada. Mr Zurowski is employed by CSA Global. Mr Zurowski has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the JORC Code 2012. Mr Zurowski consents to the inclusion in the Scoping Study report of the matters based on his information in the form and context in which it appears.

The information in this MD&A that relates to metallurgical test work is based on a summary of results compiled by Andrew Holloway who is responsible for metallurgical and process engineering aspects of the project. Mr. Holloway, who is a principal of AGP and is a Professional Engineer in Ontario, Canada, has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as the Competent Person as defined in JORC Code 2012 and NI 43-101. Mr Holloway consents to the inclusion in the Scoping Study report of the matters based on this information in the form and context in which it appears.

The information in this MD&A that relates to exploration results is based on information compiled by Dr Andrew Stewart who is responsible for the exploration data, comments on exploration target sizes, QA/QC and geological interpretation and information. Dr Stewart, who is an employee of Xanadu and is a Member of the Australasian Institute of Geoscientists, has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as the Competent Person as defined in JORC Code 2012 and NI 43-101. Dr Stewart consents to the inclusion in the Scoping Study report of the matters based on this information in the form and context in which it appears.

Resource reporting governance arrangements

Xanadu Mines reporting of resource estimates are governed by the following:

• Reporting in accordance with the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code 2012 ); and

• By suitably qualified and experienced persons

The Company confirms it is not aware of any new information or data that materially affects the information included in this MD&A relating to exploration activities and all material assumptions and technical parameters underpinning the exploration activities in the market announcements referenced continue to apply and have not been changed. The Company confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original market announcements.

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Year Ended 31 December 2020

Management Discussion and Analysis

Results of Operations

Selected annual information

Selected annual information
Gross exploration expenditure Kharmagtai Red Mountain Yellow Mountain Exploration expenditures capitalised Impairment of deferred exploration expenditure Corporate general and administration Share-based payments Depreciation and amortisation Loss after income tax attributable to owners of XAM Basic loss per share Diluted loss per share	Year ended Year ended Year ended Year ended 31 Dec 2020 $’000 31 Dec 2019 $’000 31 Dec 2018 $’000 31 Dec 2017 $’000
	5,097 2,896 8,000 6,199 1,337* 229 196 792 - 94 94 95 5,028 3,219 8,290 7,086 - 4,425 - - 3,330 3,720 4,630 3,208 - (215) 1,696 326 55 60 81 91 2,932 7,920 6,181 3,842 0.33 1.17 1.01 0.72 0.33 1.17 1.01 0.72

• Red Mountain exploration in 2020 was primarily funded by JOGMEC Joint Venture and not capitalised.

Deferred exploration expenditures Total assets Total liabilities Net assets Kharmagtai drilling Red Mountain drilling Yellow Mountain drilling	Year ended Year ended Year ended Year ended 31 Dec 2020 metres 31 Dec 2019 metres 31 Dec 2018 metres 31 Dec 2017 metres
	26,650 5,434 40,445 32,718 4,321 - 199 4,299 - - - -
	As at As at As at As at 31 Dec 2020 $’000 31 Dec 2019 $’000 31 Dec 2018 $’000 31 Dec 2017 $’000
	43,317 43,352 45,903 37,157 51,716 44,995 52,076 47,213 1,010 161 814 1,421 50,706 44,834 51,262 45,792

The Company is in the exploration stage and does not generate operating revenue.

Expenditures arising from exploration and evaluation activities relating to an area of interest are carried forward, provided such costs are expected to be recouped through successful development, or by sale, or where exploration and evaluation activities have not, at balance date, reached a stage to allow a reasonable assessment regarding the existence of economically recoverable resources. Rights of tenure must be current to carry forward deferred exploration and evaluation expenditure. Costs carried forward in respect of an area of interest that is abandoned are written off in the year in which the decision to abandon is made.

The 2019 impairment of deferred exploration expenditure relates to the following deferred exploration expenditure assets (‘000): Yellow Mountain $3,442 and Red Mountain $983.

Corporate general and administration expenses decreased with measures taken to cut expenses. Share-based payments were zero following the expiry and forfeiture of all share performance rights.

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Year Ended 31 December 2020

Management Discussion and Analysis

Selected quarterly information

Selected quarterly information
Gross Exploration Expenditure Kharmagtai Red Mountain * Yellow Mountain Exploration expenditures capitalised Impairment of deferred exploration expenditure Corporate general and administration Share-based payments Depreciation and amortisation Loss after income tax attributable to owners of XAM Basic loss per share Diluted loss per share	Quarter ended 31 Dec 2020 $’000 Quarter ended 30 Sep 2020 $’000 Quarter ended 30 Jun 2020 $’000 Quarter ended 31 Mar 2020 $’000
	2,457 1,534 538 568 242 832 233 30 - - - - 2,345 1,545 540 598 - - - - 939 937 766 688 - - - - 15 12 14 14 931 642 653 706 0.09 0.07 0.08 0.09 0.09 0.07 0.08 0.09

• Red Mountain exploration in 2020 was funded by JOGMEC Joint Venture and not capitalised

Kharmagtai Drilling Red Mountain Drilling Yellow Mountain Drilling Exploration expenditures Impairment of deferred exploration expenditure Corporate general and administration Share-based payments Depreciation and amortisation Loss after income tax attributable to owners of XAM Basic loss per share Diluted loss per share	Quarter ended 31 Dec 2020 metres Quarter ended 30 Sep 2020 metres Quarter ended 30 Jun 2020 metres Quarter ended 31 Mar 2020 metres
	14,380 7,209 2,598 2,463 393 3,627 301 - - - - -
	Quarter ended 31 Dec 2019 $’000 Quarter ended 30 Sep 2019 $’000 Quarter ended 30 Jun 2019 $’000 Quarter ended 31 Mar 2019 $’000
	554 1,393 283 989 4,425 - - - 833 725 1,272 890 - 7 (293) 71 15 19 13 13 5,226 739 1,046 909 0.76 0.11 0.17 0.14 0.76 0.11 0.17 0.14

Share-based payments are measured by reference to the fair value at the date at which they are granted. The fair value of the options is determined by an independent written valuation. Share-based payments expense is amortised over the vesting period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition.

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Year Ended 31 December 2020

Management Discussion and Analysis

Capital Management

The Company had $7.7 million cash on hand as at 31 December 2020 (31 December 2019: $1.2 million).

On 18 January 2020 the Company closed a non-brokered placement of 78,326,311 New Shares, raising $2.6 million, for a price of $0.033 per share. On 21 May 2020, the Company closed a brokered placement of 34,000,000 New Shares, raising $1.1 million, for a price of $0.033 per share. On 10 August 2020, the Company announced a two-tranche placement to raise $12.0 million. The first tranche, completed 18 August 2020, included the issue of 123,776,228 New Shares, raising $5.6 million at $0.045 per share. The second tranche, completed 9 October 2020, included the issue of 142,890,439 New Shares, raising $6.4 million at $0.045 per share.

The primary use of funds over 2021 will be the continuation of exploration activities at the Company’s Kharmagtai coppergold project and for working capital purposes. The Company may need to raise additional capital for its exploration activities or seek joint venture partners. There is a risk that capital or joint venture partners may not be available or available on acceptable terms. Capital management is a priority of Management and the Company retains the flexibility to reduce its cost base while preserving its exploration projects if required.

Financial Instruments and Risk Management

The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group.

The Board of Directors is responsible for the determination of the Company's risk management objectives and policies. The Board has delegated to the Company's management, the authority for designing and operating processes that ensure the effective implementation of the objectives and policies.

The overall objective of the Board is to set policies that seek to reduce risk as much as possible without unduly affecting the Company's competitiveness and flexibility. Further details regarding these policies are set out below.

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices are comprised of four types of risk: foreign currency risk, commodity price risk, equity price risk and interest rate risk.

Foreign currency risk

The Company is exposed to foreign exchange fluctuations with respect to Australian Dollars ('A$'), US Dollars ('US$'), Mongolian Tughrik ('MNT'), and Canadian Dollars ('C$'). The Company’s financial results are reported in A$. Salaries for certain local employees in Mongolia may be paid in MNT. The Company’s operations are in Mongolia and some of its payment commitments and exploration expenditures under the various agreements governing its rights are denominated in MNT and US$. As a result, the Company’s financial position and results are impacted by the exchange rate fluctuations among A$, US$, MNT and C$. Such fluctuations may materially affect the Company’s financial position and results.

The Group's currency risk to US$ and MNT foreign denominated financial assets and liabilities at the end of the reporting period, expressed in Australian Dollars, was as follows:

Consolidated Cash and cash equivalents denominated in US$ Cash and cash equivalents denominated in MNT Other financial assets denominated in MNT Financial liabilities denominated in MNT	Assets 31 Dec 2020 31 Dec 2019 $'000 $'000 3,403 391 14 9 39 43 - -	Assets 31 Dec 2020 31 Dec 2019 $'000 $'000 3,403 391 14 9 39 43 - -	Liabilities 31 Dec 2020 31 Dec 2019 $'000 $'000 - - - - - - 286 3	Liabilities 31 Dec 2020 31 Dec 2019 $'000 $'000 - - - - - - 286 3
	3,456	443	286	3

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Year Ended 31 December 2020

Management Discussion and Analysis

The following sensitivity is based on the foreign currency risk exposures in existence at the balance date:

A$ strengthened A$ weakened Consolidated - 31 Dec 2020 % change Effect on profit before tax Effect on equity % change Effect on profit before tax A$/US$ '000 10% 340 340 (10%) (340) A$/MNT '000 10% 1 1 (10%) (1) 341 341 (341) A$ strengthened A$ strengthened A$ weakened Consolidated - 31 Dec 2019 % change Effect on profit before tax Effect on equity % change Effect on profit before tax A$/US$ '000 10% 39 39 (10%) (39) A$/MNT '000 10% 1 1 (10%) (1) 40 40 (40)	A$ weakened Effect on profit before tax (340) (1)	Effect on equity (340) (1)
	(341)	(341)
		A$ weakened Effect on equity (39) (1)
	(40)	(40)

Commodity price risk

Even if commercial quantities of mineral deposits are discovered, there is no guarantee that a profitable market will exist for the sale of the metals produced. Factors beyond the control of the Company may affect the marketability of any minerals discovered. The prices of various metals have experienced significant movement over short periods of time, and are affected by numerous factors beyond the control of the Company, including, among other things, international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production methods. The Company is particularly exposed to the risk of movement in the price of copper and gold.

Equity price risk

Equity risk is the uncertainty associated with the valuation of assets arising from changes in equity markets. The Company is exposed to this risk through its equity holdings.

Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company does not have any borrowings at variable rates. Interest rate risk is limited to potential decreases on the interest rate offers on cash and cash equivalents held with chartered financial institutions. The Company considers this risk to be immaterial.

The Company’s exposure to market risk for changes in interest rates relates primarily to its cash held in variable interest accounts.

As at the reporting date, Xanadu had the following cash and cash equivalents and variable rate borrowings outstanding:

	31 Dec	2020	31 Dec	2019
	Weighted		Weighted
	average		average
	interest rate	Balance	interest rate	Balance
Consolidated	%	$'000	%	$'000
Cash and cash equivalents	0.04%	7,687	0.20%	1,209
Net exposure to cash flow interest rate risk		7,687		1,209

The following sensitivity is based on the interest rate risk exposures in existence at the balance date:

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Year Ended 31 December 2020

Management Discussion and Analysis

	Basis points increase	Basis points increase	Basis points increase	Basis points decrease	Basis points decrease	Basis points decrease
		Effect on			Effect on
	Basis points	profit before	Effect on	Basis points	profit before	Effect on
Consolidated - 31 Dec 2020	change	tax	equity	change	tax	equity
Net interest rate risk exposure	100	77	77	(100)	(77)	(77)
	Basis points increase			Basis points decrease
		Effect on			Effect on
	Basis points	profit before	Effect on	Basis points	profit before	Effect on
Consolidated - 31 Dec 2019	change	tax	equity	change	tax	equity
Net interest rate risk exposure	100	12	12	(100)	(12)	(12)

The movements in post-tax profit are due to the movements in interest amounts from higher cash balances held that balance date in comparison to the prior period.

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments which are potentially subject to credit risk for the Company consist primarily of cash and amounts receivable. Cash is maintained with financial institutions of reputable credit and may be redeemed upon demand.

The Company's maximum exposure to credit risk at the reporting date is the carrying value of its cash and cash equivalents of $7,687,000 (31 December 2019 $1,209,000).

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The primary source of funds available to the Company is from equity financing. The Company has in place a planning and budgeting process to help determine the funds required to support the Company's normal operating requirements on an ongoing basis, to support its exploration plans, and to ensure that it will have sufficient liquidity to meet its liabilities when due. To the extent the Company does not believe it has sufficient liquidity to meet these obligations, management will consider securing additional funds through equity or debt transactions. The Company does not have unlimited financial resources and there is no assurance that sufficient additional funding or financing will be available to the Company or its direct and indirect subsidiaries on acceptable terms, or at all, for further exploration or development of its properties or to fulfil its obligations under any applicable agreements.

Failure to obtain such additional funding could result in the delay or indefinite postponement of the exploration and development of the Company's properties.

Other business risks

Political and legal risks

The Company's mineral projects are located in Mongolia, where mineral exploration and mining activities may be affected in varying degrees by political instability, economic conditions, expropriation or nationalization of property and changes in government regulations such as foreign investment laws, tax laws, business laws, environmental laws and mining laws, affecting the Company's business in that country. Government policy may change to discourage foreign investment, nationalization of the mining industry may occur and other government limitations, restrictions or requirements may be implemented. There can be no assurance that the Company's assets will not be subject to nationalization, requisition, expropriation or confiscation, whether legitimate or not, by any authority or body.

The regulatory environment is in a state of continuing change, and new laws, regulations and requirements may be retroactive in their effect and implementation. There can be no assurance that Mongolian laws protecting foreign investments will not be amended or abolished or that existing laws will be enforced or interpreted to provide adequate protection against any or all of the risks described above.

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Year Ended 31 December 2020

Management Discussion and Analysis

License risks

The Company has active licenses covering the Kharmagtai project and Red Mountain project. The Government of Mongolia could revoke either of these licenses if the Company fails to satisfy its obligations, including payment of royalties and taxes to the Government of Mongolia and the satisfaction of certain mining, environmental, health and safety requirements. A termination of the Company's mining licenses by the Government of Mongolia could materially and adversely affect the Company's reputation, business, prospects, financial conditions and results of operations. In addition, the Company would require additional licenses or permits to conduct the Company's mining or exploration operations in Mongolia. There can be no assurance that the Company will be able to obtain and maintain such licenses or permits on terms favourable to it, or at all, for the Company's future intended mining or exploration targets in Mongolia, or that such terms would not be subject to various changes.

Yellow Mountain License

As reported previously, on 16 July 2009, the Mongolian Parliament enacted legislation to Prohibit Mineral Exploration and Mining Operations in Headwaters of Rivers, Protected Zones of Water Reservoirs and Forested Areas (the Long Name Law ) which prohibits minerals exploration and mining in areas such as headwaters of rivers and lakes, forest areas as defined in the Mongolian Law on Forest and areas adjacent to rivers and lakes as defined in the Law of Mongolia on Water . New exploration licenses and mining licenses overlapping with the defined prohibited areas will not be granted, and previously granted licenses that overlap with the defined prohibited areas, will be terminated within five months following the adoption of the Long Name Law. The Company’s license for the Yellow Mountain project overlaps with the border zone of a forested area and zones allocated to the protection of water basins/reservoirs under the Long Name Law. Pursuant to the Law of Mongolia on Minerals (the Minerals Law ) and the Long Name Law, minerals licenses which overlap with restricted areas will be revoked by the mineral’s authority only if, and when, compensation is paid in full to the holder of the relevant license.

Yellow Mountain was fully impaired on 31 December 2019 due to an inability to explore on the tenement as a result of overlap with protected areas. During 2020, the Company sought confirmation from the Government of Mongolia that it could either renew the license to commence exploration or receive compensation. The license has since expired without renewal, and discussions regarding compensation are ongoing.

Mineral resource assumptions risk

The Company's Mineral Resource Estimate and Mineral Reserve Estimate for the Kharmagtai project are based on a number of assumptions. There are numerous uncertainties inherent in estimating quantities of mineral reserves and grades of mineralization, including many factors beyond the control of the Company. There can be no assurance that the mineral resources and mineral reserve estimates will be recovered in the quantities, qualities or yields presented in this prospectus or set out in the Kharmagtai Technical Report.

Copper and gold mineral resource and mineral reserve estimates are inherently prone to variability. They involve expressions of judgment with regard to the presence and quality of mineralization and the ability to extract and process the mineralization economically. These judgments are based on a variety of factors, such as knowledge, experience and industry practice.

Environmental risk

Existing and possible future environmental legislation, regulations and actions could cause significant expense, capital expenditures, restrictions and delays in the activities of the Company, the extent of which cannot be predicted and which may well be beyond the capacity of the Company to fund. Failure to comply with applicable environmental laws and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions.

Operational risk

The Company's activities are subject to a number of operational risks and hazards, some of which are beyond its control. These risks and hazards include unexpected maintenance or technical problems, periodic interruptions due to inclement or hazardous weather conditions, natural disasters such as earthquakes, industrial accidents, power, water or fuel supply interruptions or the increase in the price of such supplies, critical equipment failure, malfunction and breakdowns of information management systems, fires, and unusual or unexpected variations in mineralization, geological or mining conditions.

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Year Ended 31 December 2020

Management Discussion and Analysis

In March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization, and during 2020 this had a significant impact on the global economy and the mining industry. Despite this and due to a cautious approach by the Government of Mongolia, exploration and mining activities in the South Gobi were minimally impacted during 2020. The ongoing scale and duration of the pandemic remains uncertain as at the date of this report and may yet have an impact on our forecast cash flow and financial condition.

Contractual risk

Xanadu’s key project (the Kharmagtai project) is held pursuant to a joint venture arrangement. Additionally, the Company may wish to develop its projects or future projects through further joint venture arrangements.

As in any contractual relationship, the ability for Xanadu to ultimately receive benefits from these contracts is dependent upon the relevant third party complying with its contractual obligations. Specifically, Xanadu’s ability to further its flagship Kharmagtai project therefore depends upon the strength and enforceability of these contracts and the ability to enforce them against the relevant counterparties, under relevant laws.

Further, the under the terms of the Company’s original acquisition of the Kharmagtai project, the Company agreed to assume certain royalty obligations, the precise terms of which are unclear or not in existence. There is therefore some doubt as to the precise nature of the Company’s obligations to the extent they exist.

In respect of these agreements and obligations, it may be necessary for Xanadu to enforce its rights under any of the contracts or pursue legal action to clarify their terms. Such legal action may be costly and no guarantee can be given by Xanadu that a legal remedy will ultimately be granted on appropriate terms.

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Year Ended 31 December 2020

Directors’ Report

The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of Xanadu Mines Ltd (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 31 December 2020.

Directors

The following individuals were directors of Xanadu Mines Ltd during the whole of the financial period and up to the date of this report, unless otherwise stated:

Colin Moorhead Independent Non-Executive Chairman Andrew Stewart Chief Executive Officer Ganbayar Lkhagvasuren Executive Director Michele Muscillo Independent Non-Executive Director Stephen Motteram (resigned 30 June 2020) Non-Executive Director

Principal activities

Xanadu Mines Ltd is an Australian incorporated public company with its shares listed on the ASX and TSX under the code XAM. The principal activity of the Company (and its subsidiaries) is copper-gold exploration in Mongolia. During 2020, the Company held interest in three tenements:

• (a) the Kharmagtai copper-gold project;

• (b) the Red Mountain copper-gold project; and

• (c) the Yellow Mountain copper project.

Dividends

There were no dividends paid, recommended or declared during the current or previous financial year.

Review of operations

The loss for the Group after providing for income tax and non-controlling interest amounted to $2,932,000 (31 December 2019: $7,920,000).

A more detailed 'review of operations' and 'results of operations' is included in the Management Discussion and Analysis ('MD&A').

Significant changes in the state of affairs

There were no significant changes in the state of affairs of the Group during the financial year.

Matters subsequent to the end of the financial year

Subsequent to the financial year ending 31 December 2020, Xanadu announced high-grade drilling intercepts at both its Kharmagtai and Red Mountain project. These results are described in ASX announcements dated 15 February 2021, 23 March 2021 and 24 March 2021, and they are available on the Xanadu Mines website.

During the first quarter of 2021, Mongolia embarked on an aggressive vaccination campaign against COVID-19, supported by the World Health Organisation, with execution of over 10,000 vaccinations a day and targeting full coverage of the population by July 2021. Xanadu operations were minimally impacted by COVID-19 in 2020, and this is positive news for the future.

No other matter or circumstance has arisen since 31 December 2020 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years.

Likely developments and expected results of operations

Information on likely developments in the operations of the Company and the expected results of operations have been included in the MD&A. Xanadu intends to continue to invest and explore the projects described in this MD&A.

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Year Ended 31 December 2020

Directors’ Report

Off balance sheet arrangements

The Company has not entered into any off-balance sheet transactions.

Environmental regulation

Entities in the extractive industries incur rehabilitation obligations which are imposed under contractual or licensing arrangements, or by legislation, or are undertaken on the basis of entity policy or in accordance with industry best practice. While the Company’s activities are still in the exploration phase, no provision for rehabilitation work has been recognised in relation to expenditures for dismantling and removing structures, rehabilitating quarries and mines, dismantling operating facilities and restoring affected areas expected to be incurred as the level of disturbance to date has been minimal. However, the Company recognises that such remedial work will be required should mining operations commence and is committed to the adoption of industry best practice in regard to any remediation required. The Company has adopted a Sustainability Policy that guides all field operations in which the Company engages.

Information on directors

Name: Colin Moorhead Title: Independent Non-Executive Chairman Qualifications: B.Sc (Hons) FAusIMM (CP) GAICD Experience and expertise: Mr Moorhead is an experienced industry executive with a demonstrated track record of over three decades building value in mining companies through innovation, discovery, project development and safe, efficient operations. Mr Moorhead has extensive experience in development and financing significant mining projects internationally. He also has experience with global mining operations as well as experience in successful mergers and acquisitions.

A geologist by training, Mr Moorhead is known for strong leadership, strategy and execution that saw him rise through the ranks from a graduate with BHP in 1987 to an executive level manager responsible for global exploration and resource development at Newcrest Mining from 2008 to 2015, a period of significant growth for the company. Mr Moorhead has significant relevant experience as CEO of emerging Indonesian listed producer PT Merdeka Copper Gold Tbk from 2016 to 2018, where he built and led the team that constructed and commissioned the highly successful Tujuh Bukit Gold Mine.

Mr Moorhead is a Fellow, Chartered Professional and a Past President of AusIMM, a graduate of AICD and Harvard Business School Advanced Management Program (AMP).

Other current directorships: Aeris Resources (ASX:AIS) Coda Minerals Limited (ASX:COD) Sihayo Gold Limited (ASX:SIH) Former directorships (last 3 years): Merdeka Copper Gold (IDX:MDKA) (from January 2016 to July 2020) Finders Resources Limited (ASX:FND) (from August 2018 to October 2019) Special responsibilities: Member of the Audit and Risk Committee, Nomination and Remuneration Committee and Safety, Health and Environment Committee Interests in shares: 1,000,000 Interests in rights: None Name: Dr Andrew Stewart Title: Chief Executive Officer Qualifications: BSc, PhD, MAIG, MSEG, MAICD Experience and expertise: Dr Stewart is a geologist with over 15 years’ experience in mineral exploration; primarily focussed on project generation, project evaluation and exploration strategy development throughout Asia and Eastern Europe. Dr Stewart has particular expertise in porphyry copper and epithermal gold deposits and has worked across a diverse range of commodities. He holds a BSc (Hons) from Macquarie University and a PhD from the Centre of Ore Deposits and Exploration Studies at the University of Tasmania.

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Year Ended 31 December 2020

Directors’ Report

	During his time at Ivanhoe Mines and Vale, Dr Stewart held various technical and
	management positions in Mongolia and Indonesia and has been involved in several
	green field discoveries. After providing technical and program management for Vale in
	Indonesia and Mongolia, Dr Stewart joined Xanadu Mines as Chief Geologist leading
	the gold and base metals project generation and evaluation team in Mongolia.
Other current directorships:	Bastion Minerals (ASX:BMO)
Former directorships (last 3 years): Godolphin Resources Limited (ASX:GRL) (October 2019 to April 2020)
Special responsibilities:	Chief Executive Officer, Chair of the Safety, Health and Environment Committee
Interests in shares:	4,931,292
Interests in rights:	None
Name:	Ganbayar Lkhagvasuren
Title:	Executive Director
Qualifications:	M.IBL
Experience and expertise:	Mr Lkhagvasuren is a co-founder of Xanadu and has been a Director since 2006. He
	is the joint venture partner in Mongol Metals LLC and brings a vital Mongolian
	perspective to the Board of Directors.
Other current directorships:	None
Former directorships (last 3 years): None
Special responsibilities:	Member of the Safety, Health and Environment Committee
Interests in shares:	16,558,329
Interests in rights:	None
Name:	Michele Muscillo
Title:	Independent Non-Executive Director
Qualifications:	LL.B
Experience and expertise:	Mr Muscillo is a Partner with HopgoodGanim Lawyers in Brisbane. He has practised
	exclusively in corporate law for the duration of his legal career and has extensive
	experience in mergers and acquisitions and capital markets transactions, including the
	negotiation of significant commercial contracts and agreements. Mr Muscillo has
	significant experience as a Non-Executive Director of resources companies, including
	taking junior exploration companies through the full life cycle from listing to major
	discovery to sale. His key areas of practice include Corporate Advisory and
	Governance, Mergers and Acquisitions, Capital Markets and Resources and Energy.
Other current directorships:	Cardinal Resources Limited (ASX:CDV)
	Aeris Resources Limited (ASX:AIS)
	Mako Gold Limited (ASX:MKG)
Former directorships (last 3 years): None
Special responsibilities:	Chairman of the Audit and Risk Committee and Nomination and Remuneration
	Committee
Interests in shares:	59,441
Interests in rights:	None
Name:	Stephen Motteram (resigned 30 June 2020)
Title:	Non-Executive Director
Qualifications:	B.Ag Sci (Hons), MBA, GAICD, CPA
Experience and expertise:	Mr Motteram has over 20 years’ experience in financial institutions and trading houses,
	specialising in commodities trading, project & structured finance, equity and equity-
	linked investments. He has originated, executed and managed natural resource,
	energy and infrastructure transactions in Australia, Indonesia, Africa, India, Brazil and
	China.
	Mr Motteram has worked for Noble since January 2011 and prior to that, worked with
	National Austral Bank in Hong Kong and Australia for approximately 10 years, and
	previously was a trader with Louis Dreyfus.

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Directors’ Report

Mr Motteram holds a B. Agricultural Science (Honours) from the University of Melbourne and an MBA from the Melbourne Business School. He is a Certified Practicing Accountant and a Graduate of the Australian Institute of Company Directors.

	Mr Motteram holds a B. Agricultural Science (Honours) from Melbourne and an MBA from the Melbourne Business School Practicing Accountant and a Graduate of the Australian Ins Directors.
Other current directorships:	None
Former directorships (last 3 years): Cockatoo Coal Limited (ASX: COK) (March 2015 to August 2017)
Special responsibilities:	Member of the Audit and Risk Committee
Interests in shares:	59,441 (as at date ceased to be a director)
Interests in rights:	None

'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated.

‘Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated.

Company secretary

Phil Mackey, B Bus

Mr Mackey was appointed Company Secretary of Xanadu in May 2017. He has over four decades of listed and unlisted company secretarial and commercial experience, including multi-jurisdictional board practice as both a company secretary and a director.

Previously, Mr Mackey served as Company Secretary of ASX and SGX dual listed Australand Group Limited (a quadruple stapled group) and Deputy Company Secretary of AMP Limited (ASX:AMP). His commercial experience includes appointment as Chief Operating Officer (Specialised Funds) at Babcock & Brown.

Mr Mackey is a Fellow of the Governance Institute Australia and a Graduate Member of the Australian Institute of Company Directors.

Meetings of directors

The number of meetings of the Company's Board of Directors ('the Board') and of each Board committee held during the period ended 31 December 2020, and the number of meetings attended by each director were:

			Audit & Risk		Nomination &	Nomination &	Safety, Health and	Safety, Health and
	Full	Board	Committee		Remuneration Committee		Environment	Committee
	Attended	Held	Attended Held		Attended	Held	Attended	Held
Colin Moorhead	15	15	2	2	1	1	1	1
Andrew Stewart	15	15	2	2	-	-	-	-
Ganbayar
Lkhagvasuren	13	15	-	-	-	-	1	1
Michele Muscillo	15	15	2	2	1	1	-	-
Stephen Motteram	8	9	1	1	1	1	-	-

Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee.

As at the date of this report the Company has a Safety, Health and Environment Committee, an Audit and Risk Committee and a Nomination and Remuneration Committee. Further details are set out in the Corporate Governance Statement on the - Company’s website at www.xanadumines.com/site/about/corporate governance

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Directors’ Report

Remuneration report (audited)

The remuneration report details the key management personnel remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations.

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors.

The remuneration report is set out under the following main headings:

• Principles used to determine the nature and amount of remuneration

• Details of remuneration

• Service agreements

• Share-based compensation

• Additional information

• Additional disclosures relating to key management personnel

Principles used to determine the nature and amount of remuneration

Xanadu is a Mongolian-focused exploration company. Our strategy is to convert our South Gobi porphyry copper and gold projects into mineable deposits and build long-term value for shareholders by becoming the next internationally competitive mid-tier copper and gold company in Asia.

The Company’s remuneration philosophy is to ensure that the level and composition of remuneration is competitive, reasonable and appropriate to attract, retain and motivate the directors and employees with the skills required to deliver on the Company’s strategy. Our philosophy recognises the importance of people and a team approach.

Important attributes that impact on Xanadu’s success are:

• exploration and safety excellence, dedication and persistence;

• understanding of Mongolia and a strong national team;

• ability to communicate exploration success in the public markets to attract capital and increase shareholder value; and

• adherence to good corporate governance principles.

When considering remuneration matters, the Nomination and Remuneration Committee reviews and recommends to the Board on matters of remuneration policy, specific recommendations in relation to senior management and all matters concerning equity plans and awards.

Executive Remuneration

There are up to three categories of remuneration employed to reward employees depending on their role and responsibility within Xanadu:

1. Total Fixed Remuneration;

2. Short Term Incentive; and

3. Long Term Incentive.

The remuneration mix consists of fixed and variable or “at-risk” pay and of short and longer-term rewards.

Total Fixed Remuneration

Total Fixed Remuneration ('TFR') comprises base salary, any relevant allowances and statutory contributions that the Company is legally required to make in the local jurisdiction. TFR is set with reference to market data and will reflect the scope of the role and the size and activities of the Company.

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Directors’ Report

TFR is reviewed annually as part of the performance appraisals undertaken in the fourth quarter of the calendar year (prior to finalisation of the following year’s budget).

Within Mongolia, the term net and gross TFR is used. Net TFR is fixed remuneration net of all taxes including Personal Income Tax and Social Insurance Tax and the Company is responsible for paying these taxes. Gross TFR includes personal income tax but excludes employer social insurance tax. Within Australia, the term TFR is inclusive of personal income tax but excludes payroll tax.

Variable or At-Risk Incentive Remuneration

It is the Board’s policy to deliver at-risk incentive remuneration to employees as both a Short-Term Incentive ('STI') and a Long-Term Incentive ('LTI'). The payment of STIs and LTIs are linked to achievement of agreed performance measures and establishes a variable remuneration arrangement that links short- and long-term performance with short- and longer-term rewards. Any equity awarded will be governed by the Xanadu Equity Incentive Plan ('Plan'), and if awarded to a Director, the award will be subject to shareholder approval.

The Plan was initially approved by shareholders at the 2020 Annual General Meeting, reapproved at the 23 December 2020 Extraordinary General Meeting and permits and permits the award of a number of styles of awards including Options and Share Rights to employees. The issue of securities under the Plan is subject to the Xanadu Securities Trading Policy. Shares issued may be acquired on-market, transferred or issued from the capital of the Company.

Short Term Incentive ('STI')

Xanadu has established the STI to achieve the following objectives:

• focus employees on the achievements of annual key safety, financial and business targets that the Board believes will lead to sustained and improved business performance; and

• reward and recognise superior performance, if achieved.

The incentive offered under the STI will vary depending upon individual performance against key performance indicators (KPIs) and any discretion employed by the Board. KPIs for Chief Executive Officer (CEO) and CEO’s direct reports are approved by the Board upon recommendation from the Nomination and Remuneration Committee. KPIs for all other employees are approved by the CEO. Depending on the individual’s position, KPIs will include a range of metrics including health and safety, exploration results, corporate governance, financial stewardship, risk management, business development and leadership. Payment of STIs can be cash or shares which is also at the discretion of the Board.

STI payments were zero in 2020 due to non-achievement of objectives in the 2019 program and corresponded to a restructure of the Board and Executive team.

Long Term Incentive ('LTI')

The Board believes that an appropriately designed LTI is an important component of the Group’s remuneration arrangements. The LTI is a key tool to allow the Group to attract and retain talented directors, executive and managers and ensure the interests of LTI participants are aligned with those of shareholders in creating long-term shareholder value.

The Board’s policy is to design equity style awards as LTIs. The vesting of an LTI award is dependent on the achievement of longer-term objectives, including share price growth over a three-year performance period.

The current LTI program was approved by Shareholders at the Annual General Meeting on 30 July 2020, with modifications approved by Shareholders at an Extraordinary General Meeting on 23 December 2020.

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Directors’ Report

Total Reward Mix - Executives

As a guide, the proportion of remuneration attributable to each component of the Xanadu remuneration philosophy is dependent on the level of seniority of the employee. The target total reward mix on average is as follows:

	Total fixed	STI	LTI
	remuneration
	%	%of TFR	%of TFR
CEO	100	50		-
CEO's Direct Reports	100	30		-

The STI percentage of TFR is the target payable and the overall mix may vary depending on individual circumstances, legacy contracts and other benefits associated with expatriate allowances. The value of equity-based awards is determined at the time of grant using industry standard valuation techniques.

Xanadu executive remuneration includes an LTI component, however this is not measured on an annual basis. The Xanadu executive LTI program is a defined and deferred award based on specific technical and commercial strategic hurdles.

Non-Executive Remuneration

The aggregate cash remuneration for Non-Executive Directors will not exceed the maximum approved amount of $350,000. The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable by shareholders. Non-Executive Directors may also participate in the Plan if participation is approved by shareholders.

The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed annually. The Board considers fees paid and securities issued to Non-Executive Directors of comparable companies when undertaking the annual review as well as the time commitment of directors in discharging duties at Board, Committee work and additional assistance provided to the Company. Currently, the Non-Executive Director base fee is $52,000 per annum and a Committee Chairman receives $4,000 per annum per committee. The Non-Executive Chairman receives fee of $120,000 per annum plus per diem costs of $2,500 per day for assisting on roadshows if requested by the Chief Executive Officer.

Non-Executive Directors are encouraged by the Board to hold shares purchased on market in accordance with the Xanadu Securities Trading Policy. The Board considers that by holding shares in the Company, the Non-Executive Directors are aligning themselves with the best interests of the shareholders.

Details of remuneration

Amounts of remuneration

Details of the remuneration of key management personnel of the Group are set out in the following tables.

The key management personnel of the Group consisted of the following directors of Xanadu Mines Ltd:

• Colin Moorhead

• Andrew Stewart

• Ganbayar Lkhagvasuren

• Michele Muscillo

• Stephen Motteram (resigned 30 June 2020)

And the following persons:

• Munkhsaikhan Dambiinyam (Chief Operating Officer, appointed 1 June 2020; formerly Chief Financial Officer)

• • Spencer Cole (Chief Financial Officer, appointed 1 June 2020)

• Mat Brown (Chief Geologist)

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Year Ended 31 December 2020

Directors’ Report

Year Ended 31 Dec 2020	Short-term benefits Post- employme nt benefits Long-term benefits Share- based payments Cash salary Cash Non- Super- Long service Equity- and fees bonus monetary annuation leave settled Total $ $ $ $ $ $ $
Non-Executive Directors: Colin Moorhead Michele Muscillo Stephen Motteram Executive Directors: Andrew Stewart Ganbayar Lkhagvasuren Other Key Management Personnel: Munkhsaikhan Dambiinyam Spencer Cole * Mat Brown	129,589 - - 10,411 - - 140,000 60,000 - - - - - 60,000 - - - - - - - 345,025 - - 19,975 - - 365,000 384,847 - - - - - 384,847 242,526 - - - - - 242,526 161,984 - - 13,016 - - 175,000 267,696 - - - - - 267,696
	1,591,667 - - 43,402 - - 1,635,069

• resigned 30 June 2020 and did not receive remuneration

• ** appointed 1 June 2020

* resigned 30 June 2020 and did ** appointed 1 June 2020	not receive remuneration
Year Ended 31 Dec 2019	Short-term benefits Post- employment benefits Share-based payments Cash salary Cash Non- Super- Equity- and fee Bonus monetary annuation settled Total $ $ $ $ $ $
Non-Executive Directors: Colin Moorhead Michele Muscillo Stephen Motteram(i) Kevin Tomlinson Marcus Engelbrecht Hannah Badenach(i) Darryl Clark ** Executive Directors: Andrew Stewart Ganbayar Lkhagvasuren Other Key Management Personnel: Munkhsaikhan Dambiinyam Mat Brown	9,132 - - 868 - 10,000 60,000 - - - 11,205 71,205 - - - - - - 40,000 - - - (342,330) (302,330) 15,830 - - 1,504 - 17,334 - - - - - - 46,880 - - 4,454 11,205 62,539 394,265 122,358 58,628 4,564 51,730 631,545 381,217 78,489 - - 36,934 496,640 240,239 50,528 - - 7,989 298,756 155,454 - - - - 155,454 1,343,017 251,375 58,628 11,390 (223,267) 1,441,143

• appointed 28 November 2019

• ** ceased 30 April 2019 and forfeited share-based payments

• *** ceased 28 November 2019

• (i) Hannah Badenach and Stephen Motteram did not receive remuneration

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Year Ended 31 December 2020

Directors’ Report

The proportion of remuneration linked to performance and the fixed proportion are as follows:

	Fixed remuneration	Fixed remuneration	At risk - STI		At risk - LTI
Name	31 Dec 2020 31	Dec 2019 31	Dec 2020 31 Dec	2019 31	Dec 2020 31 Dec	2019
Non-Executive Directors:
Colin Moorhead	100%	100%	-	-	-	-
Michele Muscillo	100%	84%	-	-	-	16%
Stephen Motteram(i)	-	-	-	-	-	-
Kevin Tomlinson *	-	100%	-	-	-	-
Marcus Engelbrecht *	-	100%	-	-	-	-
Hannah Badenach(i)	-	-	-	-	-	-
Darryl Clark **	-	82%	-	-	-	18%
Executive Directors:
Andrew Stewart	100%	73%	-	19%	-	8%
Ganbayar Lkhagvasuren	100%	77%	-	16%	-	7%
Other Key Management
Personnel:
Munkhsaikhan Dambiinyam	100%	80%	-	17%	-	3%
Spencer Cole ***	100%	-	-	-	-	-
Mat Brown	100%	100%	-	-	-	-

• ceased 30 April 2019

• ** ceased 28 November 2019

• *** appointed 1 June 2020

• (i) Hannah Badenach and Stephen Motteram did not receive remuneration

Service agreements

Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows:

Name: Ganbayar Lkhagvasuren Title: Executive Director Details: Mr Lkhagvasuren’s fixed remuneration is an annual salary package of US$265,000 including compulsory taxes and social insurance applicable as an employee in Mongolia. In the event of Mr Lkhagvasuren’s employment being terminated other than in the case of misconduct, Mr Lkhagvasuren must give a minimum of 6 months' notice prior to termination, and the Company must give 9 months' notice prior to termination. The Company may, at its discretion, provide Mr Lkhagvasuren with payment of fixed remuneration in whole or in part in lieu of notice. For the avoidance of doubt, the Company’s right to make such a payment does not give Mr Lkhagvasuren any right to receive such a payment.

Name: Munkhsaikhan Dambiinyam Title: Chief Operating Officer (appointed 1 June 2020, formerly Chief Financial Officer) Details: Mr Dambiinyam's fixed remuneration is an annual salary package of US$167,000 including compulsory taxes and social insurance applicable as an employee in Mongolia. In the event of termination of Mr Dambiinyam’s employment other than in the case of misconduct, Mr Dambiinyam must give a minimum of 6 months’ notice prior to termination, and the Company must give 6 months’ notice prior to termination. The Company may, at its discretion, provide Mr Dambiinyam with payment of fixed remuneration in whole or in part in lieu of notice. For the avoidance of doubt, the Company’s right to make such a payment does not give Mr Dambiinyam any right to receive such a payment.

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Directors’ Report

Name: Spencer Cole Title: Chief Financial Officer (appointed 1 June 2020) Details: Mr Cole’s fixed remuneration is an annual salary package of A$300,000 including superannuation and any applicable taxes withheld. In the event of termination of Mr Cole’s employment other than in the case of misconduct, the executive must give a minimum of 6 months' notice prior to termination, and the Company must give 6 months' notice prior to termination. The Company may, at its discretion, provide Mr Cole with payment of fixed remuneration in whole or in part in lieu of notice. For the avoidance of doubt, the Company’s right to make such a payment does not give Mr Cole any right to receive such a payment.

Name: Mat Brown Title: Chief Geologist Details: Mr Brown’s remuneration is based on a daily contract rate of A$1,000, excluding GST, paid exclusively for days worked. In the event of termination of Mr Brown’s contract other than in the case of misconduct, the executive must give 30 days’ notice prior to termination, and the Company must give 30 days’ notice prior to termination. Mr Brown is eligible to participate in incentive plans at the discretion of the Board.

Key management personnel have no entitlement to termination payments in the event of removal for misconduct

Share-based compensation

Issue of shares

There were no shares issued to directors and other key management personnel as part of compensation during the year ended 31 December 2020.

Options

There were no options over ordinary shares issued to directors and other key management personnel as part of

compensation that were outstanding as at 31 December 2020.

There were no options over ordinary shares granted to or vested by directors and other key management personnel as part of compensation during the year ended 31 December 2020.

The Xanadu Long Term Incentive (‘LTI’) plan was approved by Shareholders during the 30 June 2020 Annual General Meeting (AGM), with additional vesting conditions approved by shareholders during the 21 December 2020 Extraordinary General Meeting (EGM). The Company expects to grant options under this LTI plan in the second quarter of 2021.

Share rights

There were no share rights over ordinary shares issued to directors and other key management personnel as part of compensation that were outstanding as at 31 December 2020.

There were no share rights over ordinary shares granted to or vested by directors and other key management personnel as part of compensation during the year ended 31 December 2020.

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Directors’ Report

Additional information

The section below contains further detail on how the Company’s performance has impacted on remuneration outcomes for executives under the Company’s incentive programs.

The table below contains a snapshot of the Company’s performance against annual financial Key Performance Indicators:

Share price at financial year end ($) Basic loss per share (cents per share) Diluted loss per share (cents per share)	2016 2017 2018 2019 2020
	0.210 0.280 0.105 0.030 0.038 (0.47) (0.72) (1.00) (1.17) (0.33) (0.47) (0.72) (1.00) (1.17) (0.33)

Additional disclosures relating to key management personnel

Shareholding

The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below:

Ordinary shares Colin Moorhead Andrew Stewart Ganbayar Lkhagvasuren Michele Muscillo Stephen Motteram (resigned 30 June 2020) Munkhsaikhan Dambiinyam Spencer Cole (appointed 1 June 2020) Mat Brown	Balance at Received Balance at the start of as part of Disposals/ the end of theyear remuneration Additions other theyear
	- - 1,000,000 - 1,000,000 4,721,292 - 210,000 - 4,931,292 16,558,329 - - - 16,558,329 59,441 - - - 59,441 - - - - - 1,478,578 - - - 1,478,578 - - 375,000 - 375,000 - - 1,232,821 - 1,232,821
	22,817,640 - 2,817,821 - 25,635,461

This concludes the remuneration report, which has been audited.

Shares under option

There were no unissued ordinary shares of Xanadu Mines Ltd under option outstanding at the date of this report.

Shares under share rights

There were no unissued ordinary shares of Xanadu Mines Ltd under share rights outstanding at the date of this report.

Shares issued on the exercise of options

There were no ordinary shares of Xanadu Mines Ltd issued on the exercise of options during the year ended 31 December 2020 and up to the date of this report.

Indemnity and insurance of officers

The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith.

A

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Year Ended 31 December 2020

Directors’ Report

During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

Indemnity and insurance of auditor

The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor.

During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity.

Proceedings on behalf of the Company

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.

Non-audit services

Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 24 to the financial statements.

The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

The directors are of the opinion that the services as disclosed in note 24 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons:

• all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and

• none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards.

Officers of the Company who are former partners of Ernst & Young

There are no officers of the Company who are former partners of Ernst & Young.

Rounding of amounts

The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.

Auditor's independence declaration

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report.

Auditor

Ernst & Young continues in office in accordance with section 327 of the Corporations Act 2001.

A

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Year Ended 31 December 2020