HARTE GOLD CORP. Management s Discussion and Analysis of Financial Condition and Results of Operations for the 12 months ended December 31, 2017

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1 The following discussion of the results of operations and financial condition of Harte Gold Corp. ( Harte Gold or the Company ) prepared as of December 31, 2017 summarizes management s review of the factors that affected the Company s financial and operating performance for the twelve months ended December 31, 2017, and the factors reasonably expected to impact on future operations and results ( or MD&A ). This MD&A is intended to supplement and complement the Company s audited financial statements as at and for the twelve months ended December 31, 2017 ( Financial Statements ) and the notes thereto, which were prepared in accordance with International Financial Reporting Standards ( IFRS ) and its interpretations adopted by the International Accounting Standards Board ( IASB ). Certain information and discussion included in this MD&A constitutes forward-looking information, which should be considered in view of the cautionary notes contained in the section Forward-Looking Statements at the end of this MD&A. The 2017 Audited Financial Statements and the Company s Annual Information Form are available at and at the Company s website All amounts disclosed are in Canadian dollars. HIGHLIGHTS Completed 148,020 meters of drilling at the Sugar Zone, Middle Zone and certain step out targets. Drilling completed in 2017 was incorporated into the Company s Mineral Resource Estimate announced February 15, 2018 and summarized below 1 : o o Indicated Resources: 714,200 ounces of contained gold at a grade of 8.52 g/t; and Inferred Resources: 760,800 ounces of contained gold at a grade of 6.59 g/t. Mineralization at the Sugar and Middle Zones is highly continuous. Grade for the Inferred Resources is believed to be lower than Indicated Resources due to the limited number and wider spacing of pierce points, and the Company expects the Inferred Resources grade to increase through further infill drilling. Increased land position by over 100% since 2015, to 79,355 hectares as of the current date. Property wide exploration program completed, including airborne geophysical surveying (MAG, HTEM), ground IP, geochemical and field mapping and grab sampling, leading to the discovery of a number of new zones. Mined 100,000 tonnes of mineralized materials for processing at Barrick s Hemlo mill and for stockpiles. Phase I Commercial Production ( Phase I ) Permit issued and mine development, including underground workings, completed to five levels. 79,000 tonnes of stope material is now accessible for the next phase of commercial production. 40,000 tonnes of stockpiled material grading 5.1 g/t is available on surface for initial feed to the processing plant Started mill construction, now 60% overall completed with full commissioning on schedule for Q Based on a 3.0 g/t Au cut-off 1

2 OUTLOOK Commissioning of the process plant is scheduled for July and staff will be hired during April through June. The Company will be using contract miners for underground mining during the first few years, and proposals are presently being evaluated, with mobilization expected in May. Stope ore production is scheduled to begin in August. The Company expects to declare commercial production in Q The Company is working closely with various government departments and expects permits to be in place in June to provide for commercial production. Engaged P&E Mining Consultants Inc. ("P&E") to prepare an updated Preliminary Economic Assessment ("PEA") to include both Indicated and Inferred Resources. The Company expects to release a summary of its PEA in a press release during April, with the full report available 45 days later. A significant 80,000 meter drill program is planned for 2018, comprised of both regional and near mine exploration. The near mine drilling strategy for 2018 is focused initially on in-fill drilling at the Upper Middle Zone to upgrade Inferred Resources in this area to the Indicated Resource category, plus drilling for extensions. Near-mine drilling continues, returning several discoveries the Company is following up on, including the Footwall Zone discovery approximately 50 meters into the footwall of the Middle Zone. In the case of general exploration drilling, the following regional targets have been prioritized as high potential: o o o Fisher, Wolf, Lynx and Moose Zones on strike to Sugar Zone and exhibiting similar characteristics to current mineralization; Marten Zone located west of Dayohessarah Lake, identified as an IP anomaly, featuring host rock similar to Barrick s Hemlo Mine; and Eagle Zone located southwest of the Sugar Zone, identified in property-wide geophysics surveying as a strong electromagnetic anomaly with VMS potential Funding for the Company s increased activities has been achieved as a result of a $25 million equity raise in December 2016, a $25 million equity raise in July 2017, and a $32 million equity raise in December 2017/January 2018, plus the exercise of options and warrants. The Company will require additional funding to move into commercial production and is currently exploring various funding alternatives. 2

3 BACKGROUND Harte Gold is involved in the acquisition and exploration of mineral resource properties, with a current focus on gold properties located in the Province of Ontario, Canada. The Company was incorporated in Ontario, on January 22, 1982 and is a reporting issuer in the Provinces of Ontario, Alberta and British Columbia. The common shares of the Company are listed for trading on the Toronto Stock Exchange under the symbol HRT and on the Frankfurt Stock Exchange under the symbol H4O. The Company currently has interests in two gold exploration projects: the 100% owned Sugar Zone Property, located 60 km east of the Hemlo area gold mines and northeast of the town of White River and the Stoughton-Abitibi Property (formerly Stoughton-Porcupine), located 110 km east of Timmins and 50 km north-east of Kirkland Lake held as to 100% for the majority of the claims and 90% for the remaining claims. The Company s exploration activities are focused on the Sugar Zone Property which comprises approximately 79,335 hectares as of the current date. During 2015, Harte Gold was granted four (4) mining leases over 1,467 hectares, which include the Sugar and Middle Zone deposits. As of the current date, the remaining ground consists of 549 unpatented mining claims. Exploration work on the Stoughton-Abitibi Property has been limited in recent years as the Company focused on the Sugar Zone Property. EXPLORATION AND EVALUATION EXPENDITURES The Company s accounting policy is to capitalize exploration and evaluation expenditures on its balance sheet. The Sugar Zone Deposit was the principle exploration and evaluation asset of the Company at December 31, In view of the contiguous nature of the Middle Zone and the likely development of the Middle Zone in conjunction with the Sugar Zone, the Company now considers both the Sugar and Middle Zones to be part of the Sugar Zone Deposit. Feasibility studies and permitting are in progress and once completed, expected to be Q2 2018, the Sugar Zone Deposit will be reclassified from Exploration and Evaluation Expenditures to Mine Property and Development Projects. Exploration and evaluation expenditures for 2016 and 2017 were as follows: December 31, December 31, Opening Balance $ 44,170,665 $ 29,397,307 Expenditures incurred during the year Land costs 326, ,650 Environmental Rehabilitation Provision 348,029 1,022,854 Bulk Sample revenues (10,004,718) (17,707,193) Bulk Sample costs 3,676,501 21,311,214 Phase 1 excavation costs 17,091,160 1,839,328 Exploration 18,790,583 2,376,908 Site costs 7,821,278 5,046,154 Processing plant construction 20,834,796 - Stock-based compensation 407, ,519 Amortization of site assets 96,476 15,924 Total for this year 59,387,759 14,773,358 Closing Balance end of year $ 103,558,424 $ 44,170,665 3

4 Exploration and evaluation expenditures, net of revenues earned, were $59.4 million in 2017, a significant increase from the $14.8 million incurred during This increase was made possible by the $25 million equity raise in December 2016 and a further $25 million equity raise in July Accordingly, the Company was able to pursue a three-fold strategy of increased exploration expenditures, at the same time as the south ramp and sills were completed and substantial mill construction took place in preparation for commercial production. Exploration Expenditures In 2017, Harte Gold incurred $18.8 million exploration expenditures compared to $2.4 million in Major components of these expenditures comprised: Increase of claims and leases comprising the Company s land interests to 66,395 hectares at the end of 2017, compared to 29,435 hectares at the end of $8 million was spent on drilling the Sugar Zone Deposit in 2017 to both in-fill the upper 600 meters to classify mineralization as Indicated Resources, as well as wider-spaced drilling on the deeper parts of the Sugar Zone that identified Inferred Resources down to 1,000 meters below surface. $7.3 million was spent on drilling the Middle Zone, located approximately 500 meters north of the Sugar Zone Deposit and discovered in 2016 through a drill program designed to follow up on targets generated by a Geophysical / Induced Polarization survey. A property-wide airborne magnetometer survey and data compilation which resulted in the identification of four new exploration regions: the Lynx, Moose, Marten and Fisher zones. Airborne Magnetics Survey 4

5 A property-wide HTEM survey with a total of 9,797 line km of Magnetometer and 3,186 line km of HTEM was also flown and when the results were interpreted in combination with the compilation work, five new significant anomalies were identified on the property (please see map below). The strongest conductor identified is on the west side of the property and is hosted at the contact of a volcanic and sedimentary unit, now referred to as the Eagle Zone. Field inspection of the anomaly has confirmed a major gossan approximately 650 meters in length, containing significant pyrite/pyrrhotite, as well as chalcopyrite (copper) and sphalerite (zinc). Grab samples taken confirm the low grade Zinc and Copper present and it is envisaged that deeper drilling may hit more significant grades at depth as we may only be in the mineralized halo of the main zone at surface. The Company is awaiting permits, expected in Q2 2018, to enable drill testing of the Eagle and Highway Zones. The other significant HTEM anomalies in the new Eastern portion of the property between Namiegos and Bruce Lakes are also in Mag lows, suggesting possible alteration mineralogy. There are known historic gold and zinc prospects that need to be re-located. This area has had minimal work as it is fly in only and will be looked at in detail this coming field season. 5

6 Resource Update P&E were engaged to update the Company s Resource Estimate and the related NI resource report will be filed on SEDAR concurrent with this MD&A. The resource report includes resources of both the Sugar and Middle Zones, substantially increasing both the Indicated and Inferred Resources previously estimated in Mineral Resource Estimate At Various Cut-Off Grades Category Indicated Inferred Cut-off Grade (g/t Au) Tonnes Grade (g/t Au) Contained Gold (ounces) ,110, , ,218, , ,338, , ,466, , ,607, , ,763, , ,908, , ,781, , ,966, , ,164, , ,404, , ,590, , ,825, , ,128, ,000 (1) Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability. (2) The estimate of Mineral Resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues. (3) The Inferred Mineral Resource in this estimate has a lower level of confidence than that applied to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration. (4) The Mineral Resources in this report were estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council. (5) Advanced Exploration Bulk Sample mined out area removed from the model. (6) The 3g/t Au cut-off was derived from US1250 Au price, US$0.80 exchange rate, C$86/t mining cost, C$28/t processing cost, C$10/t sustaining Capex, C$5/t G&A cost, US$5/oz refining cost, 96% processing recovery and USD115/oz shipping, smelting and royalty charges (averaged across total production). The resource was modelled by Indicator Modified Ordinary Kriging, validated by Ordinary Kriging, Inverse Distance Cubed and Nearest Neighbor (block size was 2 x 4 x 1.5 meters). Grade capping was 75 g/t Au for the Lower Sugar Zone mineralization, 20 g/t Au for the Upper Sugar Zone mineralization, and 40 g/t Au for the Middle Zone mineralization). Variograms show continuity out to 75 meters. Indicated Resources were based on nominal drill spacing of 43 meters and further de-risked by an Advanced Exploration Bulk Sample, underground development and channel sampling. Inferred Resources were based on nominal drill spacing of 86 meters (maximum 120 meters). A minimum of two drill holes were used to estimate each block. The Figure below illustrates the areas of mineralization incorporated into the Company s Resource Update at the Sugar and Middle Zones. 6

7 Mineral Resource Illustration Mineral Resource and Estimate at 3.0 g/t Au Cut-Off Grade 1-6 Zone Classification Tonnes Grade (g/t Au) Contained Gold (ounces) Sugar Indicated 2,148, ,700 Middle Indicated 460, ,500 Total Indicated 2,607, ,200 Sugar Inferred 1,802, ,300 Middle Inferred 1,788, ,500 Total Inferred 3,590, ,800 (1) Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability. (2) The estimate of Mineral Resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, or other relevant issues. (3) The Inferred Mineral Resource in this estimate has a lower level of confidence than that applied to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration. (4) The Mineral Resources in this report were estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council. (5) Advanced Exploration Bulk Sample mined out area removed from the model. (6) The 3g/t Au cut-off was derived from US1250 Au price, US$0.80 exchange rate, C$86/t mining cost, C$28/t processing cost, C$10/t sustaining Capex, C$5/t G&A cost, US$5/oz refining cost, 96% processing recovery and USD115/oz shipping, smelting and royalty charges (averaged across total production). Recent Resource Drilling Results Drilling between the Sugar and Middle Zones confirms potential for convergence of the two zones at depth, with hole SZ returning 4.43 g/t over 1.96 meters, including 8.59 g/t over 1.00 meter. 7

8 Middle Zone assays from hole WZ returned g/t over 4.78 meters and hole WZ returned g/t over 6.55 meters, suggesting potential to materially improve the grade of current Inferred Resources. A major new Footwall Zone was discovered east of the Middle Zone. The Footwall Zone is 23 meters in width with anomalous gold grades up to 1 g/t throughout and a high grade core of 5.41 g/t over 7.66 meters including g/t over 2.12 meters. The current infill drilling program at the Middle Zone will be modified with deeper holes to continue delineating this new zone. The Footwall Zone, 50 meters east of the Middle Zone, though previously intersected at the south end of the Sugar Zone consists of a much wider alteration and anomalous gold zone than previously discovered at the Sugar Zone Property. This wider alteration is likely an indicator of other parallel gold zones en echelon to the Sugar Zone and Middle Zone Deposits. Deeper drilling and extending previous drill holes are planned. Longitudinal Section Summary 8

9 Footwall Zone Discovery Advanced Exploration Bulk Sample Program The Advanced Exploration Bulk Sample Program ( Bulk Sample ) was completed in March A total of 67,425 dry tonnes of material, grading 8.28 grams/tonne were shipped to Barrick Gold Inc. s Hemlo mill for processing, generating $27.7 million in revenue ($10 million in 2017 and $17.7 million in 2016). Proceeds were re-invested in the Sugar Zone Property to continue surface and underground development in preparation for commercial production. Harte Gold incurred direct costs to generate such revenues, comprising contract mining costs, crushing and trucking to Barrick s Hemlo mill, treatment charges, and royalties. Total direct costs were $3.7 million in 2017 and $21.3 million in Phase I Commercial Production Harte Gold received its first production permit on January 12, The Phase I permit allowed the Company to mine an additional 30,000 tonnes of mineralized material. Under the Phase I permit, Harte continued excavation of the south ramp in 2017 and excavated five ore sills to confirm ore grade and continuity. Work under the Phase I permit was largely completed by the end of November 2017 and the mined material stockpiled on surface. The schematic below illustrates the Bulk Sample and Phase I Production areas. 9

10 Underground Mine Excavation Completed With the completion of Phase I, approximately 79,000 tonnes of mineable stope material is now ready to be mined once final permits are received. Mining production will begin in the Phase I stopes, while ramp and sill excavation continues, to facilitate uninterrupted production mining. 1,678 meters of ramp and 963 meters of sill access excavations have also been completed todate. The north ramp has been excavated to 140 meters below surface and the south ramp has been excavated to 150 meters below surface. At the end of 2017, a stockpile of approximately 40,000 tonnes grading 5.1 grams/tonne was stored on surface and is available for the processing facility upon commissioning. $18.9 million has been spent on Phase I work, including $17.1 million during P&E have been engaged to provide an updated PEA, which is expected to be completed by June During the first two years of mining production, the Company will retain contract miners and assess the merits of transitioning to in-house mining during that period of time. Process Flow Sheet and Plant Construction The process flowsheet is not overly complex. Several metallurgical test programs have been undertaken by SGS Canada Inc. (Lakefield) since 2010 to develop and refine the flow sheet, as a result metallurgical risk is considered limited. The flowsheet initially involves a gravity circuit to recover gold in Nelson concentrators. This gold will be sent to a shaker table and smelted into dore bars and sold. Gold that is not recovered in the gravity circuit will be processed through a series of flotation cells and recovered as a gold concentrate. The Company is currently evaluating alternative markets for its gold concentrate and expects to make a final determination shortly. Metallurgical studies indicate a combined gravity and flotation gold recovery rate of 96%. 10

11 Construction of the Company s processing plant and related infrastructure began in Q As of December 31, 2017, $20.8 million had been spent, excluding site and other indirect costs. As of the date hereof overall construction of the processing plant is approximately 60% complete and on schedule for commissioning by early Q Processing Plant Ball Mill Installation The construction of the Mill Building is complete. Civil works are substantially complete with only the paste backfill plant area outstanding. Mechanical and electrical contractors are installing equipment in the plant, and cold commissioning is scheduled to be completed by the end of June. Long lead items related to the paste backfill plant have been ordered, construction is scheduled for the June August period. The tailings dam will also be constructed during the June August period. The project will run on grid power provided from the nearby town of White River. The power line is currently under construction, site transformers will be delivered in early June and connection to the grid is scheduled for the end of June. Process Flowsheet 11

12 Site Costs In connection with exploration, the Bulk Sample, Phase I production and construction of the processing plant, Harte Gold has incurred various site costs, including surface works, power, heating, personnel, permitting, road maintenance, etc. As construction activities have increased, these costs have increased to $7.8 million in 2017 from $5 million in The Company now has a full complement of senior operations personnel to manage its transition into commercial production. Property and Equipment 12

13 To support its increased activities, the Company purchased property and equipment of $2.1 million in Approximately $0.3 million of this was incurred for office equipment, furniture and site vehicles. The balance was incurred to acquire three properties in White River. Harte Gold acquired one property with multiple cabins, a trailer park zoned for 200 people on full town services and a drill core preparation and storage facility. A portable camp and mess facility have been installed in the trailer park, providing accommodation and food for 100 people. The camp currently supports construction workers building and outfitting the mill processing facility. Upon completion, the camp will provide accommodation for contract miners and mill processing facility employees in support of commercial production. RESULTS OF OPERATIONS The Financial Statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and the interpretations of the IFRS Interpretations Committee. Results of Operations 12 Months Ended December 31, Months Ended December 31, 2016 Net Income (Loss) $ (2,048,228) $ (3,007,587) Income / (Loss) per weighted average share (0.004) (0.009) During the 12 months ended December 31, 2017, the Company recorded a net loss of $2.0 million compared to a net loss of $3.0 million during the 12 months ended December 31, The Company s policy is to capitalize all exploration and evaluation expenditures until a property becomes a producing mine or circumstances lead the Company to conclude that there has been an impairment in value. Revenues generated during the Bulk Sample program are credited to the exploration and evaluation asset on the statement of financial position. Accordingly, the results of operations reflect a relatively small part of total costs incurred, being the Company s corporate expenses that are not capitalized to exploration and evaluation projects. The following summarizes the major components of corporate expenses: Expenses 12 Months Ended December 31, Months Ended December 31, 2016 Stock-based compensation $ 483,421 $ 1,534,893 Office and general 551, ,524 Promotion and travel 261, ,171 Management and consulting 1,137, ,000 Professional fees 182, ,587 Interest and accretion expense 674, ,802 Shareholder information 407, ,283 Flow-through share premium (4,680,385) (60,000) 13

14 Stock-based compensation awards of 12.8 million options were made in 2016, compared to 2.65 million options in Of these, 4.0 million options were capitalized to exploration and evaluation expenses in 2016 (1.25 million options in 2017). Expenses have generally increased commensurate with increased activity involving the Bulk Sample, Phase I production, increased exploration, and processing plant construction. Interest expense includes both cash interest paid and non-cash loan accretion expense on the $2.5 million note that was issued in Q and repaid at the end of 2017 In 2017, the Company acquired three properties in White River for a total of $1.3 million. The vendors took back mortgages of $0.8 million in total, so a portion of interest expense relates to these mortgages. In Q1 2016, the Company renounced expenses related to a portion of the 2015 flow-through share issuances, resulting in an income amount of $60,000. $4.7 million was recognized in Q as a result of renouncing expenses related to the 2016 flow-through share issuances. FINANCIAL CONDITION The Company s financial position at December 31, 2017 and 2016 is summarized as follows: Financial Position December 31, 2017 December 31, 2016 Current assets $ 26,581,330 $ 30,035,355 Long term assets 107,337,026 45,811,193 Total assets $ 133,918,356 $ 75,846,548 Current liabilities $ 20,675,563 $ 15,064,937 Long term liabilities 6,227,354 4,199,880 Total liabilities 26,902,917 19,264,817 Shareholders' equity 107,015,439 56,581,731 Total liabilities & shareholders' equity $ 133,918,356 $ 75,846,548 For the year ended December 31, 2017, the Company s cash and cash equivalent position decreased to $24.8 million from $27.2 million at December 31, Cash was used to fund exploration, Phase I production, construction of the processing plant, and general corporate expenses. Remaining current assets largely comprise HST and in 2016, gold receivables. Long term assets mainly comprise the restricted cash of $1.7 million ( $1.5 million) for closure costs, property and equipment, and capitalized exploration and evaluation expenditures. In 2017, the Company acquired properties in White River to provide accommodations, as well as a core shack building that had previously been leased. Total cost of these property acquisitions was $1.3 million. Exploration and evaluation expenditures increased by $59.4 million to $103.6 million in 2017, compared to an increase of $14.8 million in The increase in 2017 is net of $10.0 million ( $17.7 million) bulk sample revenues for ore processed at the Hemlo mill during the year. Current liabilities have increased along with greater activity in Long term liabilities have increased as a result of mortgages on the three White River properties, an increased environmental rehabilitation provision, and increased deferred tax liability, offset in part by the repayment of the secured notes. 14

15 LIQUIDITY AND CAPITAL RESOURCES The Company had a working capital surplus of $7.1 million at December 31, 2017 (working capital surplus of $19.7 million at December 31, 2016) excluding the liabilities for flow-through share premiums. During the year ended December 31, 2017, $59.4 million was incurred on exploration and evaluation costs for the Sugar Zone Property. ($14.8 million during the year ended December 31, 2016). These costs are net of $10.0 million Bulk Sample revenues during 2017 ($17.7 million in 2016) that offset some of the expenditures. In Q1/Q2 2016, the Company completed a non-brokered private placement of $2.5 million secured notes and $2.0 million in a non-brokered flow-through unit private placement. In Q3 2016, the Company raised $4.0 million gross proceeds in a non-brokered private placement of units. In Q4 2016, the Company raised gross proceeds of $25.0 million in a brokered private placement of $10.0 million common shares and $15.0 million flow-through common shares. As a result of this financing, Appian Natural Resource Fund LP ( Appian ) through a subsidiary fund, became the largest shareholder in Harte Gold holding approximately 16.5 % of the issued and outstanding common shares on closing of the financing. In Q3 2017, the Company raised gross proceeds of $25.0 million in a brokered private placement of common shares. This equity issue included Appian increasing its interest to 19.99%. In Q4 2017, the Company raised gross proceeds of $24.8 million in a brokered private placement of $19.3 million common shares and $5.5 million flow-through common shares. In early January 2018, Appian invested $7.7 million in common shares of the Company to maintain its 19.99% interest. Orion Mine Finance II LP ( Orion ) was a significant investor in the Q raise and after the Appian investment, Orion held approximately 7.2% of the issued and outstanding common shares of the Company. Both Appian and Orion have a right to maintain their pro rata interests in any future equity financings. During the year ended December 31, 2017, the Company realized proceeds of $5.1 million as a result of the exercise of warrants and stock options ($3.6 million in 2016). The cash balance at December 31, 2017 was $24.8 million. However, additional funding will be required to move into commercial production. The Company is evaluating various funding alternatives. There can be no assurance that such financing will be available in sufficient amount or on commercially acceptable terms. SUMMARY OF QUARTERLY RESULTS Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Total Revenue $ 38,709 $ 86,806 $ 50,229 $ 62,513 $ 18,918 $ 4,711 $ 837 $ 308 Net Income / (Loss) (4,417,044) (700,735) (858,538) 3,928,089 (1,725,729) (484,952) (502,364) (294,542) Income / (Loss) per Share - basic and fully diluted (0.010) (0.001) (0.002) (0.005) (0.001) (0.002) (0.001) Results of operations can vary significantly by quarter, as a result of a number of factors. The Company s level of activity and expenditures during a specific quarter are influenced by the level of working capital, the availability of external financing, the time required to gather, analyze and report on geological data related to its properties and the number of personnel required to advance each project. 15

16 Overall, expenses have generally increased in 2017 over the prior year as a result of increased activities in support Phase I development and the mill construction project. Q through Q include interest expense for the cash interest and non-cash accretion on the secured notes that were issued at the end of March The timing and amount of stock option grants affects the quarters. $43,524 stock-based compensation expense was recorded in Q and $1,491,369 was recorded in Q In 2017, recorded stockbased compensation expense was $149,445 in Q1, $217,544 in Q2 and $58,216 in each of Q3 and Q4. Q includes an expense of $3,266,032 for deferred income taxes recognized for the year compared to a recovery of $555,491 recognized in Q RELATED PARTY TRANSACTIONS Management services by the Company s officers are provided on a contract basis, either directly or through corporate entities related to such officers. Additionally, the Company shares its premises and the costs of certain support personnel with related companies, and reimburses these related companies for its share. These transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Note 17 to the Financial Statements provides a summary of related party transactions. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES (a) Accounting Policies The Company prepares its financial statements in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and interpretations of the IFRS Interpretations Committee. The significant accounting policies of the Company are summarized in Note 3 to the Company s Financial Statements. Also included therein is a discussion of new accounting standards and amendments issued but not yet adopted. As described therein, the Company does not expect the adoption of such new standards and amendments to have any material impact on its Financial Statements. (b) Critical Accounting Estimates The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, incomes and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. During the year ended December 31, 2017, there were no material revisions to accounting estimates made in prior periods. Information regarding significant areas of estimation, uncertainty and critical judgements made in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are described in the notes to the Financial Statements in respect of the following: measurement of flow-through share premium measurement of the recoverable amounts of exploration and evaluation projects environmental rehabilitation provision 16

17 measurement of compound financial instruments utilization of tax losses provisions and contingencies measurement of share-based compensation and warrants The Company has completed an Advanced Exploration and Bulk Sample program on its Sugar Zone Property to determine the recoverability and economics of its resource. An in-fill drilling program was also undertaken during 2017 to further support its interpretation of the resource. Subsequent to year end, an independent updated resource estimate was prepared and is the basis for completion of a feasibility study. The Company is also pursuing permit applications that would enable commercial production from the Sugar Zone Property. As such, the Company continues to be in the exploration and evaluation stage. Operations may move to a development stage, subject to the results of additional economic and feasibility studies that are being completed, as well as positive responses to its permit applications. FINANCIAL INSTRUMENTS As at December 31, 2017 and 2016, the estimated fair values of cash and cash equivalents, receivables (excluding HST receivable), subscription receivable, restricted cash, and accounts payable and accrued liabilities approximate their carrying values due to the short nature of these instruments. The fair value of the Secured Notes and mortgages also approximates their carrying value due to the fact that the effective interest rate is not significantly different from market rates. The Company s cash and cash equivalents are held through a Canadian chartered bank. The Company s current policy is to invest excess cash in a money market fund administered by the brokerage subsidiary of a Canadian chartered bank or in short term deposit instruments of a Canadian chartered bank. As described in the notes to the financial statements, the secured notes included both a liability and equity component. As such, they have been accounted for as a compound financial instrument. MANAGEMENT OF CAPITAL The Company s objectives when managing capital, being equity plus debt, are (1) to safeguard the Company s ability to continue operations to pursue the development of its mineral properties and provide returns for shareholders and (2) to maintain a flexible capital structure which optimizes the cost of capital at an acceptable risk. The Company considers its levels of debt and shareholders equity in its management of capital, as well as its existing cash position. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets or adjust the amount of cash and cash equivalents and short-term investments. To facilitate the management of its capital requirements, the Company prepares forecasts or expenditure budgets for its activities that are used to monitor performance. Variances to plan will result in adjustments to capital deployment subject to various factors and industry conditions. The Company is not subject to any externally imposed capital requirements limiting or restricting the use of capital. In order to maximize ongoing development efforts, the Company does not pay out dividends at this time. The Company s investment policy is to invest its cash in highly liquid, short-term, interest-bearing investments with maturities of less than a year from the original date of acquisition, selected with regard to the expected timing of expenditures from operations. 17

18 The Company expects its current capital resources are sufficient for near term operations. However, significant additional capital will be required to complete the exploration and development of the Company s projects. RISKS AND UNCERTAINTIES Mineral exploration and development involves several risks which experience, knowledge and careful evaluation may not be sufficient to overcome. Large capital expenditures are required in advance of anticipated revenues from operations. Many exploration programs do not result in the discovery of mineralization; moreover, mineralization discovered may not be of sufficient quantity or quality to be profitably mined. Unusual or unexpected formations, formation pressures, fires, power outages, labour disruptions, flooding, explosions, tailings impoundment failures, cave-ins, landslides and the inability to obtain adequate machinery, equipment or labour are some of the risks involved in the conduct of exploration programs and the operation of mines. The commercial viability of exploiting any precious metal deposit is dependent on a number of factors including infrastructure and governmental regulations, in particular those respecting the environment, price, taxes, and royalties. No assurance can be given that minerals of sufficient quantity, quality, size and grade will be discovered on any of the Company s properties to justify commercial operation. Risks and uncertainties are discussed in greater detail in the Company s Annual Information Form available on OUTSTANDING SHARE DATA AS OF MARCH 29, 2018 Issued and outstanding common shares 572,212,795 Share purchase warrants 15,943,853 Options 32,850,000 Fully Diluted shares 621,006,648 SUBSEQUENT EVENTS On January 9, 2018, Harte Gold completed the final closing of its bought deal private placement, comprising 16,284,143 common shares at a price of $0.47 per share for gross proceeds of $7,653,547. Subsequent to year end, 6,121,000 warrants have been exercised for proceeds of $988,150. Subsequent to year end, an additional 12,960 hectares were added to the Sugar Zone Property, bringing the total to 79,355 hectares. MANAGEMENT S RESPONSIBILITY FOR FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. There have been no material changes in the Company s internal control over financial reporting during the year ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting. CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION 18

19 This MD&A includes "forward-looking statements", within the meaning of applicable securities legislation, which are based on the opinions and estimates of Management and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar words suggesting future outcomes or statements regarding an outlook. Such risks and uncertainties include, but are not limited to, risks associated with the mining industry, including operational risks in exploration, development and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections in relation to production, costs and expenses; the uncertainty surrounding the ability of the Company to obtain all permits, consents or authorizations required for its operations and activities; and health, safety and environmental risks, the risk of commodity price and foreign exchange rate fluctuations, the ability of Harte Gold to fund the capital and operating expenses necessary to achieve the business objectives of Harte Gold, the uncertainty associated with commercial negotiations and negotiating with foreign governments and risks associated with international business activities, as well as those risks described in public disclosure documents filed by the Company. Due to the risks, uncertainties and assumptions inherent in forward-looking statements, prospective investors in securities of the Company should not place undue reliance on these forward-looking statements. Statements in relation to "reserves" or resources are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves or resources described may be profitably produced in the future. Readers are cautioned that the foregoing list of risks, uncertainties and other factors are not exhaustive. The forward-looking statements contained in this document are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or in any other documents filed with Canadian securities regulatory authorities, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws. The forward-looking statements are expressly qualified by this cautionary statement. March 29, 2018 Stephen G. Roman Stephen G. Roman Chairman, President and CEO Rein A. Lehari Rein A. Lehari CPA, CA Chief Financial Officer 19