RMESF Red Metal Resources Ltd (PK)

CONDENSED INTERIM

CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED – PREPARED BY MANAGEMENT

(Expressed in Canadian Dollars)

FOR THE THREE AND SIX MONTHS ENDED

JULY 31, 2023 & 2022

NOTICE OF NO AUDITOR REVIEW

OF THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2023 & 2022

The accompanying unaudited condensed interim consolidated financial statements of Red Metal Resources Ltd. (the “Company”) for the three and six months ended July 31, 2023 and 2022, 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 consolidated 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 consolidated 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.

Nature and continuance of operations (Note 1)

Approved on behalf of the Board of Directors:

/s/ Caitlin Jeffs                                                                         /s/ Joao (John) da Costa

Director                                                                             Director

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

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

1.NATURE AND CONTINUANCE OF OPERATIONS 

The Company’s head office is located at 1130 West Pender Street, Suite 820, Vancouver, British Columbia, V6E 4A4. Its registered office address is 700 - 595 Burrard Street, Vancouver, British Columbia, V7X 1S8. The Company’s mailing address is 278 Bay Street, Suite 102, Thunder Bay, Ontario, P7B 1R8. Polymet’s head office is located in Vallenar, III Region of Atacama, Chile.

These condensed interim consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As at July 31, 2023, the Company has not advanced its mineral properties to commercial production and is not able to finance day to day activities through operations. The Company’s continuation as a going concern is dependent upon the successful results from its mineral property exploration activities and its ability to attain profitable operations and generate funds there from and/or raise equity capital or borrowings sufficient to meet current and future obligations. As at July 31, 2023, the Company had $17,341 cash and working capital deficit of $3,019,222. The Company raises financing for its exploration and development activities in discrete tranches to finance its activities for limited periods only. The Company has identified that further funding may be required for working capital purposes, and to finance the Company’s  exploration program and development of mineral assets. These conditions may cast substantial doubt on the Company’s ability to continue as a going concern.

These condensed interim consolidated financial statements do not give effect to any adjustment which would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the consolidated financial statements and such adjustments may be material.

2.BASIS OF PREPARATION 

These condensed interim consolidated financial statements were authorized for issue on September 27, 2023, by the directors of the Company. 

a) Statement of Compliance and Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations  Committee which the Canadian Accounting Standards Board has approved for incorporation into Part 1 of the CPA Canada Handbook - Accounting including IAS 34 Interim financial reporting. The condensed interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended January 31, 2023.

The condensed interim consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments which have been measured at fair value.

Balance sheet items are classified as current if receipt or payment is due within twelve months. Otherwise, they are presented as non-current.

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b) Significant accounting policies

The accounting policies applied in these condensed interim consolidated financial statements are consistent with those applied in the preparation of the Company’s annual consolidated financial statements for the year ended January 31, 2023.

c) Accounting standards issued but not yet effective

Accounting standards, amendments to standards, or interpretations have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s condensed interim consolidated financial statements.

3.SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS 

The preparation of these condensed interim consolidated financial statements in conformity with IFRS requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of income and expenses during the reporting period. These condensed interim consolidated financial statements include estimates which, by their nature, are uncertain. These assumptions and associated estimates are based on historical experience and other factors that are considered to be relevant. The current market conditions introduce additional uncertainties, risks and complexities in management’s determination of the estimates and assumptions used to prepare the Company’s financial results. As volatility in financial markets is an evolving situation, management cannot reasonably estimate the length or severity of the impact on the Company. As such, actual results may differ from estimates and the effect of such differences may be material. The impacts of such estimates are pervasive throughout the financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both current and future periods.

The following are critical judgments that management has made in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the condensed interim consolidated financial statements:

·classification/allocation of expenses as exploration and evaluation expenditures; 

·classification and measurement of the Company’s financial assets and liabilities; 

·determination that the Company is able to continue as a going concern; and 

·determination whether there have been any events or changes in circumstances that indicate the impairment of the Company’s exploration and evaluations assets. 

Key sources of estimation uncertainty include the following:

·the carrying value and recoverability of exploration and evaluation assets; 

·recoverability and measurement of deferred tax assets; 

·provisions for restoration and environmental obligations and contingent liabilities; and 

·measurement of share-based transactions. 

4.FINANCIAL INSTRUMENTS AND RISKS 

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels at the fair value hierarchy are:

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. 

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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 statement of financial position, using level 1 inputs

Categories of financial instruments

Assets and liabilities measured at fair value on a recurring basis:

Accounts payable, accrued liabilities, due to related parties, and notes payable approximate their fair value due to the short-term nature of these instruments.

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 institutions in Canada and in Chile. 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 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 offices in Canada and Chile, and holds cash in Canadian, United States, and Chilean

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Peso currencies. A significant change in the currency exchange rates between the Canadian dollar relative to US dollar and Chilean Peso could have an effect on the Company’s results of operations, financial position, and/or cash flows. At July 31, 2023, the Company had no hedging agreements in place with respect to foreign exchange rates. As the majority of the transactions of the Company are denominated in CAD and Chilean Peso currencies, movements in the foreign exchange rates are not expected to have a material impact on the consolidated statements of comprehensive loss.

iii.Equity price risk: 

Equity price risk is the risk that the fair value of equity/securities 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 does not have any investments in marketable securities.

Liquidity risk:

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. Historically, the Company's sources of funding have been through equity financings and loans from the Company’s management and its major shareholder; however, the Company cannot be certain that it will be able to raise sufficient funds to meet its short-term business requirements.

The following table details the remaining contractual maturities of the Company’s financial liabilities as of July 31, 2023.

(1)Payments denominated in foreign currencies have been translated using the July 31, 2023, exchange rate. 

5.EXPLORATION AND EVALUATION ASSETS 

As of July 31, 2023, and January 31, 2023, the Company’s interest in exploration and evaluation assets consisted of three active copper-gold projects on two properties, namely the Farellón and Perth Projects both located on the Carrizal Property, and the Mateo Project located on the Mateo Property. The Company capitalizes acquisition costs incurred on the Company’s exploration and evaluation properties; the costs associated with exploration and drilling programs as well as property tax payments are expensed as period costs in the period they are incurred. Following tables present, as of July 31, 2023 and January 31, 2023, acquisition costs associated with each property:

Exploration and evaluation assets at July 31, 2023

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Exploration and evaluation assets at January 31, 2023

(1)As at January 31, 2023, the Company assessed its mineral properties for impairment in accordance with IFRS Accounting Standard 36. Since the Company has no immediate plans to explore or develop its Perth Project included within Carrizal Property, the Company impaired  the Perth Property to $Nil.  

During the six-month periods ended July 31, 2023 and 2022, the Company incurred the following costs associated with the exploration activities on its mineral properties:

Exploration costs for the six-month period ended July 31, 2023

Exploration costs for the six-month period ended July 31, 2022

In addition to the costs listed in the tables above, during the six-month period ended July 31, 2023, the Company incurred $3,256 in regulatory fees associated with claim maintenance (2022 - $2,407).

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6.EQUIPMENT 

Changes in equipment cost, depreciation and net book value of the equipment at July 31, 2023 and January 31, 2023 are as follows:

7.PREPAIDS AND OTHER RECEIVABLES 

Prepaids and other receivables consisted of the following as at July 31, 2023 and at January 31, 2023:

8.WITHHOLDING TAXES PAYABLE 

On July 31, 2020, the Company reclassified $146,237 in Chilean withholding taxes payable from current liabilities to long-term liabilities. As at July 31, 2023 and January 31, 2023, the Company had $154,067 and $158,814 in Chilean withholding taxes payable, respectively. The change in Chilean withholding taxes payable resulted strictly due to fluctuation in foreign exchange rates.

9.SHARE CAPITAL 

The Company is authorized to issue an unlimited number of common shares without par value (the “Shares”).

During the six-month period ended July 31, 2023, the Company did not have any transactions that resulted in issuance of the Company’s Shares of common stock.

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Warrants

The changes in the number of warrants outstanding during the six-month period ended July 31, 2023, and for the year ended January 31, 2023, are as follows:

Details of warrants outstanding as at July 31, 2023, are as follows:

(1)Broker warrants 

At July 31, 2023, the weighted average life of the warrants was 0.57 years.

Options

On July 13, 2021, the Company adopted an incentive stock option plan (the “Option Plan”) which provides that the Board of Directors of the Company may, from time to time, at their discretion and in accordance with the CSE requirements, grant stock options to directors, officers and technical consultants for up to 10% of the issued and outstanding common Shares of the Company.  Such options are exercisable for a period of up to ten years from the date of grant.  Exercise price and vesting terms are determined at the time of grant by the Board of Directors.

The changes in the number of options outstanding during the six-month period ended July 31, 2023, and for the year ended January 31, 2023, are as follows:

At July 31, 2023, the Company had 1,670,000 share purchase options issued and exercisable. All options were exercisable at $0.25 per share, with the weighted average life of 3.32 years.

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10.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 those having authority and responsibility for planning, directing and controlling the activities of the Company as a whole.

Transactions with Related Parties

During the three- and six-month periods ended July 31, 2023 and 2022, the Company incurred the following expenses with related parties:

Amounts due to Related Parties

The following amounts were due to related parties as at:

(a)Amounts are unsecured, due on demand and bear no interest. 

The NSR will be paid quarterly once commercial exploitation begins and will be paid on gold, silver, copper and cobalt sales. If, within two years from the registration of the NSR Agreements against the land title, the Company does not commence commercial exploitation of the mineral properties, an annual payment of $10,000 per purchaser will be paid.

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Pursuant to Chilean law, the NSR Agreements will come in force only when registered against the land title in Chile. Due to safety restrictions associated with COVID-19 pandemic, the registration of the NSR Agreements has been deferred, therefore the payments made by the CEO, CFO, and the major shareholder have been recorded as advances on the books of the Company and will be applied towards the NSR Agreements, once they are fully legalized.

The following amounts were due under the notes payable the Company issued to related parties:

The above notes payable to related parties accumulate interest at a rate of 8% per annum and are unsecured. On August 31, 2021, the Company and the note holders agreed to defer the repayment of the notes payable until January 31, 2023. Since the Company did not pay the amounts due under the notes payable on their maturity, as of January 31, 2023, these amounts were included in current liabilities and are also due on demand.

During the three-month period ended July 31, 2023, the Company accrued $46,664 (July 31, 2022 - $41,168) in interest expense on the notes payable to related parties.

During the six-month period ended July 31, 2023, the Company accrued $90,218 (July 31, 2022 - $77,005) in interest expense on the notes payable to related parties.

11.SEGMENTED INFORMATION 

The Company has one operating segment, the exploration of mineral properties, and two geographical segments with all current exploration activities being conducted in Chile. All of the Company’s equipment and exploration and evaluation assets are located in Chile as follows:

12.SUBSEQUENT EVENTS 

Subsequent to July 31, 2023, the Company entered into a loan agreement with Fairtide Ventures, an entity controlled by Ms. Jeffs, the Company’s CEO, for $6,000. The loan accumulates interest at a rate of 8% per annum, is unsecured, and payable on demand.

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MANAGEMENT’S DISCUSSION AND ANALYSIS FOR

THE THREE AND SIX MONTHS ENDED

JULY 31, 2023 & 2022

INTRODUCTION

The following Management’s Discussion and Analysis (“MD&A”) of Red Metal Resources Ltd. (the “Company” or “Red Metal”), has been prepared by management, in accordance with the requirements of National Instrument 51-102 as of September 27, 2023, and should be read in conjunction with condensed interim consolidated financial statements for the three- and six-month periods ended July 31, 2023 and 2022, and the related notes contained therein which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations  Committee which the Canadian Accounting Standards Board has approved for incorporation into Part 1 of the CPA Canada Handbook - Accounting including IAS 34 Interim financial reporting.  The information contained herein is not a substitute for detailed investigation or analysis on any particular issue. The information provided in this document is not intended to be a comprehensive review of all matters and developments concerning the Company. The Company is presently a “Venture Issuer” as defined in National Instrument 51-102.  Additional information relevant to the Company’s activities can be found on SEDAR at www.sedar.com and the Company’s website at http://www.redmetalresources.com.

References to “Red Metal”, the “Company”, “we”, “us”, “our” or similar terms refer to Red Metal Resources Ltd. and its wholly-owned subsidiary, Minera Polymet SpA, which owns a 100% interest in three active copper-gold projects on two properties, namely the Farellón and Perth Projects both located on the Carrizal Property, and the Mateo Project located on the Mateo Property. All of the Company’s mineral properties are located in the Candelaria iron oxide copper-gold (IOCG) belt of the coastal cordillera, in the Carrizal Alto Mining District, Atacama Region, Chile.

All financial information in this MD&A has been prepared in accordance with IFRS and all dollar amounts are quoted in Canadian dollars, the reporting and functional currency of the parent Company, unless specifically noted. The functional currency for the Company’s Chilean subsidiary is the Chilean peso.

FORWARD-LOOKING STATEMENTS

Except for statements of historical fact relating to the Company, certain statements in this MD&A may constitute forward-looking information, future oriented financial information, or financial outlooks (collectively, “forward-looking information”) within the meaning of Canadian securities laws. Forward-looking information may relate to this MD&A, the Company’s future outlook and anticipated events or results and, in some cases, can be identified by terminology such as “may”, “could”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “projects”, “predict”, “potential”, “targeted”, “possible”, “continue” or other similar expressions concerning matters that are not historical facts and include, but are not limited in any manner to, those with respect to commodity prices, mineral resources, mineral reserves, realization of mineral reserves, existence or realization of mineral resource estimates, the timing and amount of future production, the timing of construction of any proposed mine and process facilities, capital and operating expenditures, the timing of receipt of permits, rights and authorizations, and any and all other timing, development, operational, financial, economic, legal, regulatory and political factors that may influence future events or conditions, as such matters may be applicable.

In particular, this MD&A contains forward-looking statements pertaining to the following:

·expectations regarding revenue, expenses and operations; 

·the Company having sufficient working capital and being able to secure additional funding necessary for the continued exploration of the Company’s mineral interests; 

·expectations regarding the potential mineralization, geological merit and economic feasibility of the Company’s projects; 

·expectations regarding drill programs and potential impacts thereof; 

·expectations regarding any environmental issues that may affect planned or future exploration programs and the potential impact of complying with existing and proposed environmental laws and regulations; 

·treatment under applicable governmental regimes for permitting and approvals; and 

·key personnel continuing their employment with the Company. See “Risk Factors”. 

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Such forward-looking statements are based on a number of material factors and assumptions, and include the ultimate determination of mineral reserves, if any, the availability and final receipt of required approvals, licenses and permits, sufficient working capital to develop and operate any proposed mine, access to adequate services and supplies, economic conditions, commodity prices, foreign currency exchange rates, interest rates, access to capital and debt markets and associated costs of funds, availability of a qualified work force, and the ultimate ability to mine, process and sell mineral products on economically favourable terms.

While the Company considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. Actual results may vary from such forward-looking information for a variety of reasons, including but not limited to risks and uncertainties disclosed in this MD&A. Forward-looking statement are based upon management’s beliefs, estimates and opinions on the date the statements are made and, other than as required by law, the Company does not intend, and undertakes no obligation to update any forward-looking information to reflect, among other things, new information or future events.

Investors are cautioned against placing undue reliance on forward-looking statements.

COMPANY OVERVIEW

Background

Red Metal Resources Ltd. was incorporated under the Nevada Business Corporations Act on January 10, 2005. On February 10, 2021, the Company changed its corporate jurisdiction from the State of Nevada to the Province of British Columbia. Upon the Company’s continuation to British Columbia, the Articles of Incorporation and Bylaws of the Company, under the Nevada Revised Statutes, were replaced with the Articles of the Company, under the Business Corporations Act (British Columbia). The authorized capital of the Company was amended to an unlimited number of common shares without par value.

On November 18, 2021, the Company filed a final non-offering prospectus (the “Prospectus”) with the B.C. Securities Commission and became a reporting issuer in the province of British Columbia. The common shares of the Company were approved for listing on the Canadian Securities Exchange (the “CSE”) and began trading under the symbol “RMES” as of market open on November 25, 2021, and the Company automatically became a reporting issuer in the province of Ontario. The Company’s common shares continue to trade on the OTC Link alternative trading system on the OTC PINK marketplace under the symbol “RMESF”.

The Company’s head office is located at 1130 West Pender Street, Suite 820, Vancouver, British Columbia, V6E 4A4. Its registered office address is 595 Burrard Street, Suite 700, Vancouver, British Columbia, V7X 1S8. The Company’s mailing address is 278 Bay Street, Suite 102, Thunder Bay, Ontario, P7B 1R8.

On August 21, 2007, the Company formed Minera Polymet Limitada (“Polymet”) as a limited liability company, under the laws of the Republic of Chile. On September 28, 2015, the Company changed Polymet’s incorporation from Limited Liability Company to a Closed Stock Corporation (“SpA”). As of the date of this MD&A the Company owns 100% of Polymet, which holds its Chilean mineral property interests.

The Company is engaged in the business of mineral exploration in Chile with the objective to explore and, if warranted, develop mineral properties. All of the Company’s mineral concessions are located in the Candelaria iron oxide copper-gold (IOCG) belt of the coastal cordillera, in the Carrizal Alto Mining District, Atacama Region, Chile. The Company has three active copper-gold projects on two properties, namely the Farellón and Perth Projects both located on the Carrizal Property, and the Mateo Project located on the Mateo Property. In addition to holding these active properties, as an exploration company, the Company periodically stakes, purchases or options claims to allow time and access to fully consider the geological potential of claims.

The Company’s flagship project, the Farellón Project, is an early-stage exploration property consisting of eight mining concessions totaling 1,234 hectares.

Consistent with the Company’ historical practices, the Company’s management continues to monitor its costs in

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Chile by reviewing the Company’s mineral claims to determine whether they possess the geological indicators to economically justify the capital to maintain or explore them. As at the time of this MD&A, Polymet has one employee and engages independent consultants on as needed basis. Most of the Company’s support - such as vehicles, office, and equipment - is supplied under short-term contracts. The only long-term commitments that the Company has are for royalty payments on four of its mineral concessions - Farellón Alto 1 - 8, Quina 1 - 56, Exeter 1 - 54, and Che. These royalties are payable once exploitation begins. The Company is also required to pay property taxes that are due annually on all the concessions that are included in its properties.

The cost and timing of all planned exploration programs are subject to the availability of qualified mining personnel, such as consulting geologists, geo-technicians and drillers, and drilling equipment. Although Chile has a well-trained and qualified mining workforce from which to draw and few early-stage companies such as Red Metal are competing for the available resources, if the Company is unable to find the personnel and equipment needed at the prices that were budgeted for the programs, the Company might have to revise or postpone its exploration plans.

OVERVIEW OF MINERAL PROPERTIES

As of the date of this MD&A the Company has three active copper-gold projects on two properties, namely the Farellón and Perth Projects both located on the Carrizal Property, and the Mateo Project located on the Mateo Property (see Figure 1 below)

Figure 1 - Location and access to active properties (accessible by road from Vallenar)

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Mineral Tenure

Chile’s current mining and land tenure policies were incorporated into laws in 1982 and amended in 1983. The laws were established to secure the property rights of both domestic and foreign investors to stimulate mining development in Chile. While the state owns all mineral resources, exploration and exploitation of these resources is permitted by acquiring mining concessions which are granted by the courts according to the law.

Concessions are defined by UTM coordinates representing the centre-point of the concession and dimensions (in metres) in north-south and east-west directions. There are two kinds of concessions, mining and exploration, and three possible stages of a concession to get from an exploration concession to a mining concession: ‘pedimento’, ‘manifestacion’, and ‘mensura’ (see below for descriptions). An exploration concession (‘pedimento’) can be placed on any area, whereas the survey to establish a permanent exploitation concession (‘mensura’) can only be effected on “free” areas where no other mensuras exist.

Pedimento

A pedimento is an initial exploration concession with well-defined UTM coordinates delineating the north-south and east-west boundaries. The minimum size of a pedimento is 100 ha and the maximum is 5,000 ha, with a maximum length-to-width ratio of 5:1. A pedimento is valid for a maximum period of 2 years. At the end of the 2-year period it can either be reduced in size by at least 50% and renewed for an additional 2 years or, entered into the process to establish a permanent concession by converting it into a manifestacion. New pedimentos are allowed to overlap pre-existing pedimentos, however, the pedimento with the earliest filing date always takes precedence providing the concession holder maintains their concession in accordance with the Mining Code of Chile and the applicable regulations.

Manifestacion

Before a pedimento expires, or at any stage during its two-year life (including the first day the pedimento is registered), it may be converted to a manifestacion. A manifestacion is valid for 220 days, and then prior to the expiry date, the owner must request an upgrade to a mensura.

Mensura

Prior to the expiration of a manifestacion, the owner must request a survey (mensura). After acceptance of the Survey Request (‘Solicitud de Mensura’), the owner has approximately 12 months to have the concession surveyed by a government licensed surveyor. The surrounding concession owners may witness the survey, which is subsequently described in a legal format and presented to the National Mining Service of Chile (Sernageomin) for technical review, which includes field inspection and verification. Following the technical approval by Sernageomin, the file returns to a judge of the appropriate jurisdiction, who dictates the constitution of the claim as a mensura (equivalent to a patented claim in Canada). Once constituted, an abstract describing the claim is published in Chile’s official mining bulletin (published weekly), and 30 days later the claim can be inscribed in the appropriate Mining Registry (Conservador de Minas).

Once constituted, a mensura is a permanent property right, with no expiration date. As long as the annual fees (‘patentes’) are paid in a timely manner (from March to May of each year), clear title and ownership of the mineral rights is assured in perpetuity. Failure to pay the annual patentes for an extended period can result in the concession being listed for ‘remate’ (auction sale), wherein a third party may acquire a concession for the payment of back taxes owed (plus a penalty payment). In such a case, the claim is included in a list published 30 days prior to the auction and the owner has the possibility of paying the back taxes plus penalty and thus removing the claim from the auction list.

Due to the complicated nature of the land tenure system in Chile, Red Metal has engaged a land tenure specialist who sends a monthly report on the status of all claims in the areas we are working in.  This report includes a list of any new concessions in our area along and any obligation on our part to notify new concession holders of our existing concessions.

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Table 1 - Active Properties

(a)Irene and Irene II overlap each other; the net area of both claims is 50 hectares. 

Table 2 - Property acquisition costs

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Table 3 - Exploration costs for the six-month period ended July 31, 2023 (excluding regulatory fees associated with claim maintenance of $3,256).

Table 4 - Exploration costs for the six-month period ended July 31, 2022 (excluding regulatory fees associated with claim maintenance of $2,407).

Carrizal Property - Farellón And Perth Projects

Property Description and Location

The Carrizal Property is located approximately 700 km north of Chile’s capital city of Santiago, Atacama Region. The Carrizal Property lies within the Carrizal Alto Mining District, straddling the border between Huasco and Copiapo provinces, approximately 75 km northwest of the City of Vallenar, 150 km south of Copiapo, and 20 km west of the Pan-American Highway. The centre of the Carrizal Property is situated at coordinates 308750 mE and 6895000 mN (PSAD56 UTM Zone 19, Southern Hemisphere).

The Carrizal Property has historically been subdivided into two separate projects, namely the Perth and Farellón project areas, representing roughly the northern and southern halves of the Carrizal Property, respectively. The Carrizal Property consists of 21 mining concessions (“mensuras”) covering a total area of 3,278 hectares (2,044 ha in the Perth Project and 1,234 ha in the Farellón Project) (Figure 2).

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Figure 2 - Location of the Farellón and Perth projects claim blocks of the Carrizal Property, Atacama Region, northern Chile

2022 Drill Program on Farellón Alto 1-8

During January - February 2022, the Company successfully completed a nine-hole 2,010m drill program on Farellón Alto 1-8 concession. The drill program targeted down dip extensions of known mineralized zones as well as testing new zones.

Highlights

·First hole on new zone intercepted six meters of vein with strong visible copper sulphides; further 1.5 km of untested strike length;  

·All holes have intercepted visible copper sulphide mineralization and alteration associated with IOCG deposits; and  

·Diamond drill core provided valuable alteration and structural information not seen in previous RC drilling. 

Diamond Drilling

First five drillholes were focused at the northern end of the previously drilled Farellón project close to the artisanal mine workings. All five drill holes intercepted zones of sulphide mineralization including chalcopyrite and chalcocite, zones of strong alteration associated with IOCG deposits and breccia zones up to 20m in width.  Significant elements noted in initial observations included widespread potassic and argillic alteration and significant amounts of iron oxides transitioning from hematite into magnetite at depth.

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The final four drillholes of the program targeted the south and north end of the Farellón zone and tested a previously undrilled structure parallel to the Farellón zone. These four drillholes intercepted zones of sulphide mineralization including chalcopyrite and chalcocite and zones of strong alteration associated with IOCG deposits.

Table 5 - Summary of holes ⁽¹⁾

(1)Widths are drill-indicated core length as insufficient drilling has been undertaken to determine true widths at this time. 

New Zone Drill Tested

The newly tested parallel structure lies approximately 250 metres west of the Farellón vein and was mapped and sampled on surface in 2012. Mapping completed in 2012 traced the vein continuously over approximately 1.5km.  All six surface samples taken along the structure in 2012 are listed below and all samples returned significant copper, gold and cobalt. The structure was tested with one drillhole and a six-metre quartz calcite vein was intercepted from 142m to 142.6m with visible chalcopyrite mineralization, intense pyrrhotite, albite and actinolite alteration.

Table 6 - Historic 2012 surface sampling on new zone

In June 2022, the Company announced the assay results for four of the nine holes drilled.

Highlights

·Results for four drillholes were proven to be consistent with historic drilling; 

·FAR-22-020: 5.7m of 1.10% Cu, 0.12% Co and 0.25 g/t Au, a first intercept on a new vein previously only sampled at surface, the Gordal Vein 

·FAR-22-017: 3.6m of 1.36% Cu, 0.01% Co and 0.42 g/t Au, this intercept confirms continuity of the mineralized structure and extends mineralization approximately 25 metres down dip to a vertical depth of approximately 200 metres on the south Farellón zone 

·Mineralization remains open down dip on all areas drilled 

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Table 7 - Assay Results

Mapping Program

The 2022 mapping and prospecting program on Farellón project focused on detailed mapping of veins along strike of, and to the east of the main Farellón structure with the goal of developing new drill targets. New veins mapped and sampled include the Gorda vein which was drilled in Hole FAR-22-020. The Gorda vein lies 250 metres east of the Farellón structure which was mapped and sampled along strike for a full kilometre.  A further five veins were mapped and sampled in detail to develop future drill targets throughout the property.

Highlights

·A high sample return of 5.77% Cu, 1.55% Co and 0.11 g/t Au two kilometres along strike to the north of the recent drilling on the Farellón structure; and 

·Three veins mapped in detail, each demonstrating over a kilometre of prospective strike length with mineralized grab samples 

Table 8 - Grab Sample Highlights⁽¹⁾⁽²⁾.

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(1)Management cautions that prospecting surface rock samples and associated assays, as discussed herein, are selective by nature and represent a point location, and therefore may not necessarily be fully representative of the mineralized horizon sampled.  

(2)Table 8 represents a selection of highlights including 41 samples out of 102 samples taken 

Sample Preparation, Analysis, and Security

There have been no exploration or drilling samples collected by Red Metal, and as such, there are no preparation, analysis, or security details to describe.

Data Verification

During the site visit for purposes of preparing the Technical Report, the Qualified Person verified that the Carrizal Property contains widespread underground workings. The Qualified Person examined all historical data made available relating to historic sampling and drilling within the Carrizal Property, and took six mineralized rock grab samples from the artisanal mine working and investigated underground, in order to verify the typical grades of Cu, Au, and Co encountered on the Carrizal Property.

A description of the samples is provided in Table 9 and assay results in Table 10. Assays from grab rock samples collected on the Carrizal Property confirmed the presence of copper (oxide and sulfide phases), gold, silver, and cobalt. In the opinion of the Qualified Person, this verification data was adequate for the purpose of the Technical Report to provide an independent review of the Company’s Carrizal Property and verify the validity of the historical database.

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Table 9 - Description of verification samples collected on the Farellón claims of the Carrizal Property

Table 10 - Assay results for verification samples collected on the Farellón claims of the Carrizal Property

Northern Section of the Farellón Project Area

Samples FN-01 through FN-04 were collected from an ore dump near the portal to the North Mine. The ore, reported to be from Level 7 of the mine (hypogene/enriched supergene zones), contained mainly chalcopyrite with lesser bornite.

Mineral Processing and Metallurgical Testing

No mineral processing or metallurgical testing programs have been undertaken on the Carrizal Property.

Mineral Resource Estimates

No mineral resource estimates have been done for the Carrizal Property. As discussed in the “CARRIZAL PROPERTY – FARELLÓN AND PERTH PROJECTS – Exploration History” section of this MD&A, some documentation exists for historical resource estimates on the Farellón Project prior to February 1, 2001. However, the historical estimates do not conform to the presently accepted CIM standards and definitions for resource estimates, as required by NI 43-101 regulations. As such, the Company is not relying on the historical resource estimates as justification for a program of compilation work and further exploration.

As exploration progress on the Farellón Project, further economic and technical evaluation of the resource potential for the project will need to be performed in accordance with present industry practices and standards, as set out in NI 43-101.

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MATEO PROPERTY

Property Description and Location

The Mateo Property is composed of five mineral concessions covering 182 hectares in the Atacama Region of Chile. The Mateo Property is situated 10 kilometres east of the City of Vallenar with the highest point at approximately 1,050m above sea level. The Mateo property is located close to power, water, and the urban centre of Vallenar, with a readily available mining workforce.

During the six-month periods ended July 31, 2023 and 2022, the Company did not have any exploration activities on the Mateo Property.

Capital Resources

The Company’s ability to acquire and explore its Chilean claims is subject to the Company’s ability to obtain the necessary funding. The Company’s management expects to raise funds through any combination of debt financing and/or sale of its securities. The Company has no committed sources of capital. If management is unable to raise funds as and when needed, the Company may be required to curtail, or even to cease, its operations.

Contingencies and Commitments

As of the date of this MD&A, the Company has the following long-term contractual obligations and commitments, notwithstanding $2,926,903 the Company owes to its related parties under notes and amounts payable that are due on demand, and $154,067 in Chilean withholding taxes payable:

Farellón royalty. The Company is committed to paying the vendor a royalty equal to 1.5% on the net sales of minerals extracted from the Farellón Alto 1 - 8 concession up to a total of US$600,000. The royalty is payable monthly and is subject to a monthly minimum of US$1,000 when mining operations are active.

Quina royalty. The Company is committed to paying a royalty equal to 1.5% on the net sales of minerals extracted from the Quina concession. The royalty payments are due semi-annually once commercial production begins and are not subject to minimum payments.

Exeter royalty. The Company is committed to paying a royalty equal to 1.5% on the net sales of minerals extracted from the Exeter concession. The royalty payments are due semi-annually once commercial production begins and are not subject to minimum payments.

Che royalty. The Company is committed to paying a royalty equal to 1% of the net sales of minerals extracted from the concessions to a maximum of US$100,000 to the former owner. The royalty payments are due monthly once exploitation begins and are not subject to minimum payments.

Mineral property taxes. To keep its mineral concessions in good standing the Company is required to pay mineral property taxes of approximately US$35,000 per annum.

QUALIFIED PERSON

Caitlin Jeffs, P. Geo., President and Chief Executive Officer of the Company, is a “qualified person” as defined by NI 43-101 and has reviewed and approved, or has prepared, as applicable, the disclosure of the scientific and technical information contained in this document.

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SELECTED FINANCIAL INFORMATION

Table 11 - Comparison of financial condition

RESULTS OF OPERATIONS

For the three-month periods ended July 31, 2023 and 2022

During the three-month period ended July 31, 2023, the Company reported a net loss of $152,430 as compared to net loss of $371,353 the Company incurred during the three-month period ended July 31, 2022. The Company’s total operating expenses during the three-month period ended July 31, 2023, were $115,839, a decrease of $214,236 as compared to $330,075 the Company reported for the three-month period ended July 31, 2022. The largest factor that contributed to the decrease in operating expenses was attributed to $37,792 the Company incurred in exploration expenses, representing a decrease of $80,651 as compared to $118,443 the Company incurred in exploration expenses during the three-month period ended July 31, 2022, which were associated with the drill program on the Company’s Farellón Alto 1 - 8 concession, wich was finalized during the fiscal 2023 year. The Company’s general and administrative expenses decreased by $84,101 to $14,474 during the period ended July 31, 2023, as compared to $98,575 for the period ended July 31, 2022. The largest  component of general and administrative expenses during the comparative period ended July 31, 2022 was associated with $84,758  the Company spent on advertising and promotion fees, as compared to $1,125, the Company spent on the advertising and IR activity during the current period ended July 31, 2023. This decrease was further affected by a decrease in office expenses, which for the three-month period ended July 31, 2023, amounted to $1,181, as compared to $6,966 for the period ended July 31, 2022, a decrease of $5,785;  and a decrease in value added tax (“IVA”), which during the period ended July 31, 2022, was determined to be $3,649, as compared to $2,908 the Company incurred during the three-month period ended July 31, 2023. The Company expenses its Chilean IVA as this tax can only be offset against tax payable by the Company on revenue-generating activities, which the Company does not expect to start generating in the foreseeable future.  The administrative expenses offset the above decreases by $6,965, as during the comparative period ended July 31, 2022, the Company did not incur any administrative expenses.

In addition to the above noted expenses, the Company incurred $30,000 in consulting fees to its management, the companies controlled by them, and to external consultants, a decrease of $15,400, as comapred to $45,400 the Company incurred for the three-month period ended July 31, 2022; and $10,466 in professional fees, a decreaese of $13,786, as compared to $24,252 the Company incurred during the three-month period ended July 31, 2022. The regulatory fees and salaries, wages and  benefits amounted to $11,079 and $7,727, respectively, representing decreases of $9,883 and $9,548, respectively, as compared to $20,962 and $17,275 the Company incurred during the comparative period. The above decreases were directly associated with decreased operating activity during the three-month period ended July 31, 2023, as the exploration programs on Farellon Alto Project ended during the year ended January 31, 2023.

In addition to the regular business operating expenses, the Company’s overall net loss for the three-month period ended July 31, 2023, was effected by $46,664 in interest payable on the notes payable the Company issued to its related parties (July 31, 2022 - $41,168), which was in part offset by $10,073 gain on foreign exchange fluctuations (July 31, 2022 - $110 loss).

For the six-month periods ended July 31, 2023 and 2022

During the six-month period ended July 31, 2023, the Company reported a net loss of $349,623 as compared to net loss of $1,208,200 the Company incurred during the six-month period ended July 31, 2022. The Company’s total operating expenses during the six-month period ended July 31, 2023, were $263,009, a decrease of $862,730 as compared to $1,125,739 the Company reported for the six-month period ended July 31, 2022. The largest factor that

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contributed to the decrease in operating expenses was attributed to $39,646 the Company incurred in exploration expenses, representing a decrease of $600,058 as compared to $639,704 the Company incurred in exploration expenses during the six-month period ended July 31, 2022, which were associated with the drill program on the Company’s Farellón Alto 1 - 8 concession, wich was finalized during the fiscal 2023 year. The Company’s general and administrative expenses decreased by $163,204 to $95,770 during the period ended July 31, 2023, as compared to $258,974 for the period ended July 31, 2022. The largest  component of general and administrative expenses during the comparative period ended July 31, 2022 was associated with $125,091  the Company spent on advertising and promotion fees, as compared to $74,011, the Company spent on the advertising and IR activity during the current period ended July 31, 2023. This decrease was further affected by a decrease in office expenses, which for the six-month period ended July 31, 2023, amounted to $2,451, as compared to $12,369 for the period ended July 31, 2022, a decrease of $9,918;  and a decrease in value added tax (“IVA”), which during the period ended July 31, 2022, was determined to be $106,326, as compared to $3,425 the Company incurred during the six-month period ended July 31, 2023. The Company expenses its Chilean IVA as this tax can only be offset against tax payable by the Company on revenue-generating activities, which the Company does not expect to start generating in the foreseeable future.  The administrative expenses offset the above decreases by $6,965, as during the comparative period ended July 31, 2022, the Company did not incur any administrative expenses.

In addition to the above noted expenses, the Company incurred $65,000 in consulting fees to its management, the companies controlled by them, and to external consultants, a decrease of $32,520, as compared to $97,520 the Company incurred for the six-month period ended July 31, 2022; and $12,400 in professional fees, a decreaese of $31,674, as compared to $44,074 the Company incurred during the six-month period ended July 31, 2022. The regulatory fees and salaries, wages and  benefits amounted to $18,492 and $22,845, respectively, representing decreases of $21,931 and $12,654 as compared to $40,423 and $35,499 the Company incurred during the comparative period. The above decreases were directly associated with decreased operating activity during the six-month period ended July 31, 2023, as the exploration programs on Farellon Alto Project ended during the year ended January 31, 2023.

In addition to the regular business operating expenses, the Company’s overall net loss for the six-month period ended July 31, 2023, was effected by $90,218 in interest payable on the notes payable the Company issued to its related parties (July 31, 2022 - $77,005), which was in part offset by $3,604 gain on foreign exchange fluctuations (July 31, 2022 - $5,456 loss).

Summary of Quarterly Results

Results for the most recently completed financial quarters are summarized in the table below:

Table 12 - Summary of quarterly results

During the quarter ended July 31, 2023, the Company recorded a net loss of $152,430. The Company’s total operating expenses during the three-month period ended July 31, 2023, were $115,839 with the largest expense associated with $37,792 the Company incurred in exploration expenses, which were associated with the payment of 2023/24 year property taxes. The second largest expense was associated with $30,000 the Company incurred in consulting fees, followed by $14,474 in general and administrative expenses, of which $6,965 were associated with administrative expenses, which resulted from reorganization of the Company’s operations, as the Company moved one of its employees from the salaried position to an administrative position as a self-employed consultant. The Company’s

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salaries, wages and benefits decreased as a result of the above-mentioned reorganization to $7,727. The Company’s interest on current debt during the second quarter of fiscal 2024 increased to $46,664, and fluctuation in foreign exchange rates resulted in $10,073 gain. Overall, the second quarter of the fiscal 2024 saw decrease in net loss due to decreased exploration activity, as the Company’s drilling and mapping programs wrapped up during the fiscal 2023.

During the quarter ended April 30, 2023, the Company recorded a net loss of $197,193. The Company’s total operating expenses during the three-month period ended April 30, 2023, were $147,170 with the largest expense associated with 72,886 the Company incurred in advertising and promotion costs included in general and administrative expenses. The second largest expense was associated with $35,000 the Company incurred in consulting fees, followed by $15,118 in salaries, wages and benefits, which decreased as a result of the Company having to let go its temporary staff, who were hired for the time of the exploration programs on its Farellón Alto 1 - 8 concession. The Company’s interest on current debt during the first quarter of fiscal 2024 increased to $43,554, and fluctuation in foreign exchange rates resulted in further $6,469 increase to the overall net loss for the period. Overall, the first quarter of the fiscal 2024 saw decrease in net loss due to decreased exploration activity, as the Company’s drilling and mapping programs wrapped up during the fiscal 2023.

During the quarter ended January 31, 2023, the Company recorded a net loss of $350,757. The Company’s total operating expenses during the three-month period ended January 31, 2023, were $288,129 with the largest expense associated with $112,593 the Company recorded in mineral exploration costs, which were associated with reclassification of value added tax on exploration expenses from general and administrative fees to mineral exploration costs. The second largest expense was associated with $90,498 the Company incurred in advertising and promotion expenses mainly associated with the Company’s efforts to raise awareness about Red Metal and its projects. The Company records its advertising and promotion expenses as part of general and administrative fees. In addition, the Company incurred $55,885 impairment charge recognized on the Perth Project, $45,000 in consulting fees, $44,937 in professional fees, $10,052 in regulatory fees, and $14,192 in salaries, wages and benefits, which decreased as a result of the Company having to let go its temporary staff, who were hired for the time of the exploration programs on its Farellón Alto 1 – 8 concession. The Company’s interest on current debt during the 4th quarter of fiscal 2023 increased to $43,396, and fluctuation in foreign exchange rates resulted in further $19,232 increase to the overall net loss for the period.

During the quarter ended October 31, 2022, the Company recorded a net loss of $210,544. The Company’s total operating expenses during the three-month period ended October 31, 2022, were $168,245 with the largest expense associated with $81,218 the Company recorded in general and administrative fees, of which $76,815 were attributed to advertising and promotion expenses mainly associated with the Company’s efforts to raise awareness about Red Metal and its projects. In addition, the Company incurred $45,000 in consulting fees, $14,137 in professional fees, $7,845 in regulatory fees, and $12,750 in salaries, wages and benefits, which decreased as a result of the Company having to let go its staff, who were hired for the time of the exploration programs on its Farellón Alto 1 – 8 concession. The Company’s interest on current debt during the 3rd quarter of fiscal 2023 increased to $42,323.

During the quarter ended July 31, 2022, the Company recorded a net loss of $371,353. The Company’s total operating expenses during the three-month period ended July 31, 2022, were $330,075 with the largest expense associated with $118,443 the Company recorded in mineral exploration costs associated with the mapping program on its Farellón Alto 1 – 8 concession and payment of 2022/23 property taxes, and $98,575 the Company recorded in general and administrative fees which included $84,758 in advertising and promotion expenses mainly associated with the Company’s efforts to raise awareness about Red Metal and its projects. The Company’s consulting fees, which were associated with the services provided to Red Metal by its management, the companies owned by them, and third-party consultants, amounted to $45,400. In addition, the Company incurred $24,252 in professional fees, $20,962 in regulatory fees, and $17,275 in salaries, wages and benefits, which increased as a result of the Company hiring additional staff. The Company’s interest on current debt during the 2nd quarter of fiscal 2023 increased to $41,168.

During the quarter ended April 30, 2022, the Company recorded a net loss of $836,847. The Company’s total operating expenses during the three-month period ended April 30, 2022, were $795,664 with the largest expense associated with $521,261 the Company recorded in mineral exploration costs associated with the drill program on its Farellón Alto 1-8 concession, and $160,399 the Company recorded in general and administrative fees which included $102,677 in IVA incurred on vendor payables, and $40,333 in advertising and promotion expenses mainly associated with the

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Company’s efforts to raise awareness about Red Metal and its projects. The Company’s consulting fees, which were associated with the services provided to Red Metal by its management, the companies owned by them, and third-party consultants, amounted to $52,120. In addition, the Company incurred $19,822 in professional fees, $19,461 in regulatory fees, and $18,224 in salaries, wages and benefits, which increased as a result of the Company hiring additional staff. The Company’s interest on current debt during the 1st quarter of fiscal 2023 increased to $35,837, and foreign exchange fluctuation resulted in an additional loss of $5,346.

During the quarter ended January 31, 2022, we recorded a net loss of $838,316. The Company’s total operating expenses during the three-month period ended January 31, 2022, were $826,167 with the largest expense associated with $327,070 we recorded in share-based compensation on options we granted to the Company’s officers, directors, and consultants to acquire up to 1,750,000 Shares. Further expenses were associated with $186,034 in mineral exploration costs associated with the drilling program on our Farellón Alto 1-8 concession, $91,822 in professional fees which included legal services, accounting and audit fees, as well as $73,947 we incurred in consulting fees which were associated with the Company’s listing on the CSE and with increased business operations. Our general and administrative fees were $113,175 and included $89,715 in advertising and promotion expenses mainly associated with our efforts to raise awareness about the Company and its operations. Our salaries, wages and benefits amounted to $9,007 and were associated with the payroll we pay to our employees working in Polymet. Our interest on current debt during the 4th quarter of fiscal 2022 increased to $30,872. The above expenses were in part offset by $13,858 gain we recorded associated with debt forgiven by our vendors, and by $4,865 in gain associated with foreign exchange fluctuation.

During the quarter ended October 31, 2021, we recorded a net loss of $227,225. The Company’s total operating expenses during the three-month period ended October 31, 2021, were $198,101 with the largest component of operating expenses represented by $66,224 the Company incurred in professional fees mainly associated with legal fees we incurred on preparing Prospectus to list our Shares on the CSE; our consulting fees amounted to $53,855 and were also connected with our listing on the CSE and therefore need to seek expert advise from external consultants. To prepare the investor community and to raise awareness about our Company we incurred $38,574 in advertising and promotional activities. Our salaries, wages and benefits amounted to $19,784 and were associated with the payroll we pay to our employees working in Polymet. These operating expenses were further increased by  $29,993 in interest on the notes payable we issued to our related parties.

Liquidity and Capital Resources

Table 13 - Liquidity and capital resources

As of July 31, 2023, the Company had a cash balance of $17,341, working capital deficit of $3,019,222 and cash used in operations totaled $102,038 for the period then ended.

During the six-month period ended July 31, 2023, the Company supported its operations mainly through cash borrowed from its CEO, and a company operated by our CEO and VP of Exploration. The Company did not generate cash flows from its operating activities to satisfy the cash requirements for the six-month period ended July 31, 2023. The amount of cash that the Company has generated from its operations to date is significantly less than its current and long-term debt obligations, including advances and notes payable to related parties. To service the Company’s debt, management relies mainly on attracting cash through debt or equity financing.

Transactions with Related Parties

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

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Table 14 details the transactions with related parties for the three- and six-month periods ended July 31, 2023 and 2022.

Table 14 - Related party transactions

The following table shows the amounts due to related parties as at July 31, 2023 and January 31, 2023

Table 15 - Amounts due to related parties

(a)Amounts are unsecured, due on demand and bear no interest. 

The NSR will be paid quarterly once commercial exploitation begins and will be paid on gold, silver, copper and cobalt sales. If, within two years from the registration of the NSR Agreements against the land title, the Company does not commence commercial exploitation of the mineral properties, an annual payment of $10,000 per purchaser will be paid.

Pursuant to Chilean law, the NSR Agreements will come in force only when registered against the land title in Chile. Due to safety restrictions associated with COVID-19 pandemic, the registration of the NSR Agreements has been deferred, therefore the payments made by the CEO, CFO, and the major shareholder have been recorded as advances on the books of the Company and will be applied towards the NSR Agreements, once they are fully legalized.

The following amounts were due under the notes payable the Company issued to related parties:

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Table 16 - Long-term related party notes payable

The above notes payable to related parties accumulate interest at a rate of 8% per annum and are unsecured. On August 31, 2021, the Company and the note holders agreed to defer the repayment of the notes payable until January 31, 2023. Since the Company did not pay the amounts due under the notes payable on their maturity, as of January 31, 2023, these amounts were included in current liabilities and are due on demand.

During the three-month period ended July 31, 2023, the Company accrued $46,664 (July 31, 2022 - $41,168) in interest expense on the notes payable to related parties.

During the six-month period ended July 31, 2023, the Company accrued $90,218 (July 31, 2022 - $77,005) in interest expense on the notes payable to related parties.

OUTSTANDING SHARE DATA

As at the date of this MD&A, the following securities were outstanding:

Table 17 - Outstanding share data

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

SIGNIFICANT ACCOUNTING POLICIES

All significant accounting policies adopted by the Company have been described in the notes to the audited consolidated financial statements for the year ended January 31, 2023.

New accounting standards and interpretations

Accounting standards, amendments to standards, or interpretations have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s condensed interim consolidated financial statements.

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RISKS AND UNCERTAINTIES

General

The Company is in the business of exploring and, if warranted, developing mineral properties, which is a highly speculative endeavor. A purchase of any of the common shares involves a high degree of risk and should be undertaken only by purchasers whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. An investment in the common shares should not constitute a significant portion of an individual’s investment portfolio and should be made only by persons who can afford a total loss of their investment. Prospective shareholders should evaluate carefully the following risk factors associated with an investment in the common shares.

The following risks and uncertainties could materially adversely affect the Company’s business, financial condition and results of operations. Additional risks and uncertainties not presently known to management of the Company or that are currently deemed immaterial may also impair the Company’s operations and financial condition.

Risks Relating to our recent Conversion and Continuation

We continue to be treated as a US corporation and taxed on our worldwide income after the conversion and continuation.

The conversion and continuation of our Company from the State of Nevada to the Province of British Columbia, Canada is considered a migration of our Company from the State of Nevada to the Province of British Columbia, Canada. Certain transactions whereby a US corporation migrates to a foreign jurisdiction can be considered by the United States Congress to be an abuse of the US tax rules because thereafter the foreign entity is not subject to US tax on its worldwide income. Section 7874(b) of the Internal Revenue Code of 1986, as amended (the “Code”), was enacted in 2004 to address this potential abuse. Section 7874(b) of the Code provides generally that certain corporations that migrate from the United States will nonetheless remain subject to US tax on their worldwide income unless the migrating entity has substantial business activities in the foreign country to which it is migrating when compared to its total business activities.

We have determined that Section 7874(b) of the Code applies to the migration of our Company from the State of Nevada to the Province of British Columbia, Canada, and therefore we continue to be subject to United States federal income taxation on our worldwide income.

We may be classified as a Passive Foreign Investment Company as a result of the merger and continuation.

Sections 1291 to 1298 of the Code contain the Passive Foreign Investment Company (“PFIC”) rules. These rules generally provide for punitive treatment of “US holders” of PFICs. A foreign corporation is classified as a PFIC if more than 75% of its gross income is passive income or more than 50% of its assets produce passive income or are held for the production of passive income.

Because most of our assets after the conversion and continuation are in cash or cash equivalents and shares of our wholly-owned subsidiary, Minera Polymet SpA, we may in the future be classified as a PFIC. If we are classified as a PFIC, then the holders of shares of our Company who are US taxpayers may be subject to PFIC provisions which may impose US taxes, in addition to those normally applicable, on the sale of their shares of our Company or on distribution from our Company.

Holders of shares of the Company who are US taxpayers should consult their own tax advisors with respect to the application of the PFIC rules in their particular circumstances.

Negative Operating Cash Flow

Mineral exploration and development are very expensive. During the six-month periods ended July 31, 2023 and 2022, the Company earned no revenue while the net loss from operations totaled $349,623 and $1,208,200,

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respectively. The Company’s operating expenses totaled $263,009 (July 31, 2022 - $1,125,739), and were further increased by $90,218 (July 31, 2022 - $77,005) interest we accrued on our notes payable, which were in part offset by $3,604 gain on foreign exchange fluctuation (July 31, 2022 - $5,456 loss). Since inception, we have supported our operations through equity and debt financing and, to a minor extent, through option payments received on our option or joint venture agreements, and royalty payments from third-party vendors, who we allowed to mine our claims. Our ability to continue our operations, including exploring and developing our properties, will depend on our ability to generate operating revenue, obtain additional financing, or enter into joint venture agreements. Until we earn enough revenue to support our operations, which may never happen, we will continue to be dependent on loans and sales of our equity or debt securities to continue our development and exploration activities. If we do not find sources of financing as and when we need them, we may be required to severely curtail, or even to cease, our operations.

Insufficient Capital

The Company was incorporated on January 10, 2005, and to date has been involved primarily in organizational activities, acquiring and exploring mineral claims and obtaining financing. The Company’s financial statements have been prepared assuming that it will continue as a going concern. From the Company’s inception, on January 10, 2005, the Company has accumulated losses of $14,263,888. As a result, the Company’s management has expressed substantial doubt about the Company’s ability to continue as a going concern. The continuation of the Company’s operations depends on its ability to complete equity or debt financings as needed or generate capital from profitable operations. Such financings may not be available or may not be available on reasonable terms. The Company’s financial statements do not include any adjustments that could result from the outcome of this uncertainty. Whether the Company will be successful as a mining company must be considered in light of the costs, difficulties, complications and delays associated with its proposed exploration programs. These potential problems include, but are not limited to, finding claims with mineral deposits that can be cost-effectively mined, the costs associated with acquiring such properties and the unavailability of human or equipment resources.  The Company cannot provide assurance it will ever generate significant revenue from its operations or realize a profit. The Company expects to continue to incur operating losses during the next 12 months.

Debt Owing to Related Parties

As of July 31, 2023, the Company owed $543,417 to related parties that were due in the next 12-month period for the services and reimbursable expenses they have provided; in addition, the Company owed its related parties $2,383,486 on account of notes payable which are due on demand and accumulate interest at 8% per annum compounded monthly. The Company does not have the cash resources to pay its debt to related parties; therefore, it may decide to partially pay these individuals by issuing shares of the Company’s common stock. Because of the low market value of the Company’s common stock, the issuance of shares will result in substantial dilution to the percentage of the outstanding common stock owned by current shareholders.

Financing Risks

The Company has no history of significant earnings and, due to the nature of its business, there can be no assurance that the Company will be profitable. The Company has paid no dividends on its shares since incorporation and does not anticipate doing so in the foreseeable future. The only present source of funds available to the Company is through the sale of its securities. Even if the results of any future exploration are encouraging, the Company may not have sufficient funds to conduct the further exploration that may be necessary to determine whether or not a commercially mineable deposit exists on the Properties. While the Company may generate additional working capital through equity offerings or through the sale or possible syndication of the Properties, there is no assurance that any such funds will be available. If available, future equity financing may result in substantial dilution to shareholders.

Speculative Nature of Mineral Exploration

Resource exploration is a speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but also from finding mineral deposits that, though present, are insufficient in quantity and quality to return a profit from production. The

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marketability of minerals acquired or discovered by the Company may be affected by numerous factors which are beyond the control of the Company and which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection, the combination of which factors may result in the Company not receiving an adequate return of investment capital.

There is no assurance that the Company’s mineral exploration and development activities will result in any discoveries of commercial bodies of ore. The long-term profitability of the Company’s operations will, in part, be directly related to the costs and success of its exploration programs, which may be affected by a number of factors. Substantial expenditures are required to establish reserves through drilling and to develop the mining and processing facilities and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operations or that funds required for development can be obtained on a timely basis.

No Known Mineral Reserves

It is unknown whether the Properties contain viable mineral reserves. If the Company does not find a viable mineral reserve, or if it cannot exploit the mineral reserve, either because the Company does not have the money to do it or because it will not be economically feasible to do so, the Company may have to cease operations and you may lose your investment. Mineral exploration is a highly speculative endeavor. It involves many risks and is often non-productive. Even if mineral reserves are discovered on the Properties, the Company’s production capabilities will be subject to further risks and uncertainties including:

•Costs of bringing the property into production including exploration work, preparation of production feasibility studies, and construction of production facilities, all of which the Company has not budgeted for; 

•Availability and costs of financing; 

•Ongoing costs of production; and 

•Environmental compliance regulations and restraints. 

Market Factors May Affect Ability to Market Any Minerals Found

Even if the Company discovers minerals that can be extracted in a cost-effective manner, it may not be able to find a ready market for its minerals. Many factors beyond the Company’s control affect the marketability of minerals. These factors include market fluctuations, the proximity and capacity of natural resource markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting minerals and environmental protection. The Company cannot accurately predict the effect of these factors, but any combination of these factors could result in an inadequate return on invested capital.

Mineral Exploration is Hazardous

The search for minerals is hazardous. In the course of exploration, development and production of mineral properties, the Company could incur liability or damages as it conducts its business due to the dangers inherent in mineral exploration, including pollution, cave-ins, fires, flooding, earthquakes and other hazards. It is not always possible to fully insure against such risks or against which the Company may elect not to insure. The Company has no insurance for these types of hazards, nor does it expect to obtain such insurance for the foreseeable future. Should such liabilities arise, they could reduce or eliminate any future profitability and result in increasing costs and a decline in the value of the securities of the Company.

Government Regulations

The mining business is subject to various levels of government control and regulation, which are supplemented and revised from time to time. The Company cannot predict what legislation or revisions might be proposed that could affect its business or when any such proposals, if enacted, might become effective. The Company’s exploration activities are subject to laws and regulations governing worker safety, and, if it explores within the national park that

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