MANAGEMENT S DISCUSSION & ANALYSIS QUARTERLY HIGHLIGHTS MARCH 31, 2018
1. OVERVIEW Gldsurce Mines Inc. (the Cmpany r Gldsurce ) is headquartered in Vancuver, BC and its cmmn shares trade n the TSX Venture Exchange ( TSX V ) under the symbl GXS. This Interim Management s Discussin and Analysis Quarterly Highlights ( Interim MD&A ) is an verview f all material infrmatin abut the Cmpany s peratins, liquidity and capital resurces fr the three mnths ended March 31, 2018. The Interim MD&A shuld be read in cnjunctin with the unaudited cndensed cnslidated interim financial statements fr the three mnths ended March 31, 2018 and 2017 and the related ntes cntained therein which have been prepared under Internatinal Accunting Standard 34 Interim Financial Reprting as issued by the Internatinal Accunting Standards Bard. The fllwing shuld als be read in cnjunctin with the audited cnslidated financial statements fr the years ended December 31, 2017 and 2016, and the related ntes cntained therein. All amunts are stated in Canadian dllars unless therwise indicated. Additinal infrmatin related t the Cmpany is available fr view n SEDAR at www.sedar.cm and n the Cmpany s website www.gldsurcemines.cm. The first, secnd, third, and furth quarters f the Cmpany s fiscal years are referred t as Q1, Q2, Q3, and Q4, respectively. All amunts are stated in Canadian dllars unless therwise indicated. The effective date f this Interim MD&A is May 29, 2018. This Interim MD&A cntains frward lking infrmatin. Reference t 7. Cautinary Statements and Disclaimers is advised. 2. HIGHLIGHTS The Cmpany s key events and highlights during Q1, 2018 and t date include the fllwing: a. Eagle Muntain Gld Prject Overview The Cmpany s main fcus is its Eagle Muntain Gld Prject ( Eagle Muntain ) lcated n its 100% wned Eagle Muntain Prperty (the Prperty ), which cnsists f an area f apprximately 5,050 hectares (12,480 acres) in central Guyana, Suth America. Gldsurce s current bjective is t increase saprlite resurces t a minimum f 600,000 unces grading 1.0 t 1.5 grams per tnne ( gpt ) gld ( Au ) with a strip rati f less than 1:1 (waste:re). The Cmpany believes that this will supprt the cmpletin f a Pre Feasibility Study ( PFS ) n a lw cst large scale, 4,000 t 5,000 tpd, pen pit gravity cyanidatin peratin. Currently, the Cmpany s resurces 1 at Eagle Muntain are as fllws: Categry Tnnes Gld Grade (gpt)* Cntained Ounces Gld Indicated 3,921,000 1.49 188,000 Inferred 20,635,000 1.19 792,000 The fllwing table shws nly saprlite resurces: Categry Tnnes Gld Grade (gpt)* Cntained Ounces Gld Indicated 1,590,000 1.45 74,100 Inferred 7,202,000 1.32 305,600 *Estimated at 0.5 gpt cut ff fr gld. T expand ttal saprlite resurces as per abve and re categrize current saprlite resurces frm the Inferred categry t the Indicated categry, Gldsurce has defined explratin targets within the Prperty and cmmenced a drill prgram as f May 2017. 1 Refer t Technical Reprt titled Preliminary Ecnmic Assessment f the Eagle Muntain Saprlite Gld Prject, Guyana, effective June 14, 2014 and dated September 12, 2014 ( PEA ). The Cmpany cautins that the PEA is preliminary in nature in that it is based n inferred mineral resurces which are cnsidered t speculative gelgically t have the ecnmic cnsideratins applied t them that wuld enable them t be characterized as mineral reserves, and there is n certainty that the results r recmmendatin f the PEA will be realized. Mineral resurces that are nt mineral reserves d nt have demnstrated ecnmic viability. 2
Eagle Muntain Activities During Q1, 2018, the Cmpany entered int an ptin agreement t acquire a 100% interest in the Bishp Grwler Prperty, lcated three kilmetres alng the mineralized trend frm Eagle Muntain, by making ttal payments f US$525,000 ver three years, with an additinal US$500,000 due upn the exercise f the ptin. The first payment f $92,073 (US$75,000) was paid in March 2018 upn executin f a definitive agreement. In January 2018, the diamnd drill rig, which was purchased in Q3, 2017, became peratinal and was added t the Eagle Muntain explratin prgram. During Q1, 2018, the Cmpany drilled an additinal 39 Geprbe Snic drill cre hles, 18 diamnd drill cre hles, and Nil auger hles. Frm May 2017 t May 22, 2018, the Cmpany has drilled a cumulative 201 Geprbe cre hles, 35 diamnd cre hles, and 269 auger hles ver 4,810 metres and sampled 31 trenches ver 713 metres. Refer t 2018 Drilling and Trenching Summary sectin belw. The Cmpany cllected 24 representative samples, ttaling 500 kilgrams in late 2017. The samples were sealed and, in January 2018, were exprted t SGS Canada Inc., fr nging PFS wrk. Subsequent t March 31, 2018, gravity and cyanidatin metallurgical results shwed average ttal gld recveries f 97.3%. The labratry head assays shwed sample grades ranging frm 0.39 t 1.29 gpt gld (average f 0.98 gpt) fr the drill cre samples, 0.77 gpt gld fr the existing gravity tailings, and 1.99 gpt gld fr the stckpiled carse materials (+2 mm). Refer t the Cmpany s news release dated May 17, 2018 fr mre infrmatin. 2018 Drilling and Trenching Summary A summary f cmpleted drill hles and trenches frm May 2017 t May 2018 is as fllws: 2017 Prgram (May t December) 2018 Prgram (January t May 22 th ) Ttal Prgram t May 22 th 2018 Time Perid and Type f Drilling Number f Hles r Trenches Metres Geprbe Cre Drilling 119 1,172 Auger Drilling 226 830 Diamnd Cre Drilling 35 947 Geprbe Cre Drilling 82 956 Auger Drilling 43 75 Sampling alng Trenches 31 713 Ttal Cre Drilling 236 3,905 Ttal Auger Drilling 269 905 Ttal Trenching 31 713 The Cmpany annunced initial drill results fr its drill prgram n August 28, 2017, Nvember 16, 2017, and May 24, 2018. The mst significant results frm initial drilling and trenching are: Hle EMCR17 32, with 19.0 metres grading 3.04 gpt gld; Hle EMCR17 06, with 6.7 metres grading 7.51 gpt gld; Hle EMCR17 26, with 12.0 metres grading 1.31 gpt gld; Hle EMCR17 83, with 11.0 metres grading 1.99 gpt gld; Hle EMCR17 86, with 10.5 metres grading 1.35 gpt gld; Hle EMD18 011, with 6.0 metres grading 1.51 gpt gld; Hle EMD18 018, with 21.4 metres grading 1.22 gpt gld; Hle EMC18 057, with 8.0 metres grading 2.65 gpt gld; and Trench TRSB18 002, with 123.0 metres (hrizntal width) grading 1.92 gpt gld. Please refer t August 28, 2017, Nvember 16, 2017, and May 24, 2018 news releases available n Gldsurce s website www.gldsurcemines.cm fr mre details. Given the success f the explratin prgram t date, the Cmpany has extended its drill prgram t fllw up n newly discvered mineralized saprlite areas, at a minimum f 1,500 metres. Subsequent t cmpletin f this drilling prgram, the Cmpany plans t release an updated resurce estimate in H2, 2018. 3
b. Crprate The Cmpany s Q1, 2018 crprate highlights since January 1, 2018, are as fllws: In January 2018, the Cmpany cmpleted a private placement f 36,418,000 units at a price f $0.05 per unit fr grss prceeds f $1.8 millin, f which $126,000 was received prir t December 31, 2017. Each unit cnsisted f ne cmmn share and ne cmmn share purchase warrant f Gldsurce, with each warrant being exercisable fr ne cmmn share f Gldsurce at a price f $0.10 per share until January 18, 2020. Finder s fees ttaling $51,930 were paid in cnnectin with the private placement, f which $39,930 was paid in cash. The remaining $12,000 was paid with 240,000 units at a price f $0.05 per unit. Each unit cnsisted f ne cmmn share and ne warrant, which are exercisable n the same terms as thse issued in the private placement except that they are nn transferrable. Prceeds frm the private placement have been and cntinue t be used fr the Cmpany s Eagle Muntain resurce expansin, pre feasibility study csts, and general crprate purpses. At May 29, 2018, the Cmpany had cash f apprximately $538,000. In January 2018, Gldsurce granted 1,800,000 stck ptins t directrs, fficers, emplyees, and cnsultants that can be exercised at a price f $0.10 per share until January 31, 2023. These stck ptins vest immediately except fr 100,000, which vest ver a ne year perid with 25% vesting after each f three mnths, six mnths, nine mnths, and twelve mnths after the grant date, respectively. In February 2018, the Cmpany annunced that N. Eric Fier, a Directr and the Chief Operating Officer ( COO ) f the Cmpany had als been appinted as the Executive Chairman f the Bard f Directrs. The frmer Chairman f the Bard f Directrs, Graham Thdy, remained an Independent Directr and Chairman f the Audit Cmmittee f Gldsurce and was appinted Lead Directr f the Cmpany. c. Subsequent Events Subsequent t March 31, 2018, 50,000 stck ptins expired unexercised. 3. RESULTS OF OPERATIONS AND FINANCIAL CONDITION The net lss and cmprehensive lss was $978,322 fr Q1, 2018, cmpared t $1,029,491 fr the same perid in 2017. The principal differences and significant amunts t nte are as fllws: Brrwing csts decreased t $Nil (Q1, 2017 $22,443) in Q1, 2018 as the Cmpany had a significantly lwer lan balance as cmpared t Q1, 2017. During Q1, 2018, the Cmpany repaid the remaining $100,000 lan with prceeds frm the private placement. Explratin and evaluatin expenditures increased t $655,178 (Q1, 2017 $571,740) fr Q1, 2018. This difference was due t increased explratin activity at the Eagle Muntain Gld Prject as the Cmpany fcused wrk n expanding the Cmpany s saprlite resurce thrugh drilling. During Q1, 2018, when cmpared t the same perid in 2017, the Cmpany increased assay csts by $16,171, drilling by $23,495, salaries by $43,563 and technical services by $32,984. These increases were ffset by the decrease in peratins and general by $63,899 and sales f gld by $50,636. Remuneratin expense decreased t $92,939 (Q1, 2017 $127,595) in Q1, 2018. The change was primarily frm the decrease in allcatin f crprate staff time that was shared between the Cmpany and SilverCrest Metals Inc. ( SilverCrest ) in Q1, 2018. Share based cmpensatin decreased t $112,049 (Q1, 2017 $207,482) fr Q1, 2018. The Cmpany granted 1,800,000 (Q1, 2017 2,325,000) incentive stck ptins during Q1, 2018, with a weighted average fair value per ptin granted f $0.07 (Q1, 2017 $0.10) fr ttal value f $131,675 (Q1, 2017 $233,424). Sharehlder and investr relatins increased t $23,966 (Q1, 2017 $5,582) fr Q1, 2018 as the Cmpany engaged in a larger amunt f marketing activity and cntracted additinal investr relatins cnsultants, as cmpared t Q1, 2017. 4. LIQUIDITY AND CAPITAL RESOURCES a. Assets At March 31, 2018, Gldsurce held cash and cash equivalents f $929,034 (December 31, 2017 $268,849). Gldsurce cntinues t mnitr cash resurces against anticipated expenditures assciated with advancing Eagle Muntain. Other current assets ttalling $139,526 cnsist primarily f prepaid expenses f $96,060 (December 31, 2017 $86,888). The Cmpany has a depsit f $251,234 (US$194,540) which is pledged as a reclamatin site bnd in the frm f a nn interest bearing bank guarantee depsit t the Guyana Gelgy and Mines Cmmissin fr explratin permits n the Prperty. 4
Mineral prperty increased t $6,668,318 (December 31, 2017 $6,575,508) as the Cmpany entered int an agreement t acquire a 100% interest in the Bishp Grwler Prperty (see sectin 2. Highlights, abve, and Nte 4 f the unaudited cndensed cnslidated interim financial statements fr the three mnths ended March 31, 2018). Prperty, plant and equipment decreased t $4,153,572 (December 31, 2017 $4,330,903), primarily due t depreciatin ffsetting equipment purchases. The significant additins during Q1, 2018 were the purchase f additinal equipment fr the prtable snic drill rig, and ther equipment, ttalling $38,643. In cmparisn, during Q1, 2017, significant additins included the purchase and installatin f the Krebs cyclne, Mark pump, and ther equipment ttalling $163,160. b. Liabilities At March 31, 2018, current liabilities include accunts payable and accrued liabilities f $294,167 (December 31, 2017 $352,018), which relate t varius cntractual cmmitments in the nrmal curse f business. A prmissry nte f $100,000 utstanding as f December 31, 2017 was fully repaid in January 2018. As at March 31, 2018, the Cmpany recrded rehabilitatin prvisin f $389,014 (December 31, 2017 $380,712), which was als included in prperty, plant and equipment. The present value f the rehabilitatin prvisin was calculated using an effective discunt rate f 5% (December 31, 2017 5%) and reflects anticipated cash flws t be incurred ver apprximately the next fur years. The undiscunted value f these bligatins is $413,041 (US$319,750) (December 31, 2017 $410,828 (US$318,000)), calculated using a lng term inflatin rate assumptin f 2.2% (December 31, 2017 2.1%). c. Liquidity Outlk and Risks As at March 31, 2018, the Cmpany had cash and cash equivalents f $929,034 (December 31, 2017 $268,849), accumulated lsses f $48.8 millin (December 31, 2017 $47.9 millin) and wrking capital f $774,393 (December 31, 2017 deficiency f $62,814). During Q1, 2018, the Cmpany received grss prceeds f $1.8 millin upn the clsing f a private placement. The Cmpany used part f the prceeds t fully repay a prmissry nte f $100,000. Gldsurce has and cntinues t use the remaining prceeds fr perating, explratin and imprvements at Eagle Muntain and fr wrking capital. Despite the cmpletin f the private placement, the Cmpany will require substantial additinal funds t maintain its peratins and meet its wrking capital requirements in the immediate future. These factrs represent a material uncertainty that may cast a significant dubt abut the Cmpany s ability t cntinue as a ging cncern. Please refer t Nte 1 f the unaudited cndensed cnslidated interim financial statements fr the three mnths ended March 31, 2018. In rder t facilitate the management f its capital requirements, the Cmpany prepares annual expenditure budgets which are revised peridically based n the results f its explratin and develpment prgrams, availability f financing, and industry cnditins. The Cmpany s ability t cntinue as a ging cncern is dependent n its ability t raise debt r equity financing, prfitably perate Eagle Muntain, and discver additinal ecnmically viable mineral depsits. Onging explratin wrk at Eagle Muntain may be delayed r disrupted, will require substantial additinal financing, and is subject t a number f factrs many f which are beynd the Cmpany s cntrl. Althugh the Cmpany has been successful in raising funds t date, there is n assurance that future equity capital r debt facilities will be available t the Cmpany in the amunts r at the times desired by the Cmpany r n terms that are acceptable t it, if at all. 5. COMMITMENT, EVENTS AND UNCERTAINTIES Other than disclsed belw, there was n cmmitment, event r uncertainty which materially affected the Cmpany s peratins, liquidity and capital resurces during Q1, 2018, r which may have a material effect ging frward. On Octber 1, 2015, as amended May 7, 2018, the Cmpany entered int an perating lease agreement fr ffice space which required the Cmpany t make the fllwing lease payments: 2019 2020 2021 2022 2023 Office lease 60,132 60,132 60,132 60,132 35,077 6. RELATED PARTY TRANSACTIONS During Q1, 2018, the Cmpany entered int the fllwing transactins with related parties: Legal fees Legal fees f $414 (Q1, 2017 $6,394), included in prfessinal fees, legal fees f $737 (Q1, 2017 $Nil), capitalized as acquisitin csts, and capital stck issuance csts f $37,375 (Q1, 2017 $45,396) were paid r accrued t Kffman Kalef LLP, a law firm f which an fficer f the Cmpany is a partner, f which $3,862 (December 31, 2017 $12,782) was payable at March 31, 2018. 5
Key management cmpensatin The Cmpany s key management persnnel have the authrity and respnsibility fr planning, directing, and cntrlling the activities f the Cmpany and include the Cmpany s President, COO, and Chief Financial Officer ( CFO ). Key management persnnel cmpensatin is summarized as fllws: Three mnths ended Three mnths ended March 31, 2018 March 31, 2017 Management remuneratin (1) $ 55,875 $ 72,708 Share based cmpensatin (2) 92,778 186,428 $ 148,653 $ 259,136 (1) During Q1, 2018, the Cmpany paid management fees t cmpanies cntrlled by the COO and the President f the Cmpany, and paid remuneratin and shrt term benefits t the CFO. During Q1, 2017, the Cmpany paid management fees t cmpanies cntrlled by the CFO and the President f the Cmpany. (2) Share based cmpensatin is the fair value f the vested prtin f stck ptins that have been granted t directrs and fficers f the Cmpany. Other transactins The Cmpany paid remuneratin f $1,125 (Q1, 2017 $12,537) and recgnized share based cmpensatin f $4,862 (Q1, 2017 $6,778) t Nathan Fier, an emplyee wh is an immediate family member f the COO. Remuneratin and share based payments incurred were recrded as explratin and evaluatin expenditures. The Cmpany has a cst sharing agreement with SilverCrest, which is related by the cmmn directrs and fficers Graham Thdy, N. Eric Fier, and Nichlas Campbell, whereby the Cmpany shares salaries, administrative services, and ther reimbursable expenses. During Q1, 2018, the Cmpany was allcated $45,118 (Q1, 2017 $49,375) fr its share f these expenses, f which $60,168 (December 31, 2017 $61,104) was payable t SilverCrest at March 31, 2018. During Q1, 2018, the Cmpany fully repaid a prmissry nte t a cmpany cntrlled by the COO. During Q1, 2017, the Cmpany incurred interest csts f $22,443 n, and fully repaid, the Lan with Mitan Hldings Ltd., a cmpany cntrlled by a frmer directr f the Cmpany. 7. CAUTIONARY STATEMENTS AND DISCLAIMERS a. Risk Factrs In additin t liquidity risks described in sectin 4, readers f this Interim MD&A are directed t read the Risk Factrs cntained in the Cmpany s Annual MD&A dated April 4, 2018, available n www.gldsurcemines.cm and under the Cmpany s SEDAR prfile n www.sedar.cm. Imprtant risk factrs t cnsider amng thers are: Risks inherent in the mining business; N histry f peratins r earnings; Licenses and permits; Mineral resurce estimates; Mining capital and perating csts; Financing risks; Key emplyees; and Envirnmental risks and hazards. b. Frward Lking Statement This Interim MD&A cntains frward lking statements within the meaning f Canadian securities legislatin. Such frward lking statements invlve a number f knwn and unknwn risks, uncertainties and ther factrs which may cause the actual results, perfrmance r achievements f the Cmpany t be materially different frm any future results, perfrmance r achievements expressed r implied by such frward lking statements. In particular, the Interim MD&A cntains frward lking statements pertaining t the fllwing: explratin and drilling prgrams at Eagle Muntain and Bishp Grwler; infrmatin regarding high grade areas prjected frm sampling results; timing and cmpletin f a preliminary feasibility study n a lw cst large scale pen pit gravity cyanidatin peratin; infrmatin with respect prjected capital and perating csts, the amunt f future prductin f gld ver any perid, the amunt f expected grades and unces f metals, gld recveries mine life and gld prductin rates f Eagle Muntain; and expectatins regarding the Cmpany s ability t manage capital resurces and meet wrking capital requirements. 6
Such frward lking statements r infrmatin are based n a number f assumptins which may prve t be incrrect. Assumptins have been made regarding, amng ther things: the cnditins in general ecnmic and financial markets; precius metals prices; ability t realize the PEA and develp and finance the prject; accuracy f the interpretatins and assumptins used in calculating inferred mineral resurce estimates; availability f mining equipment; availability f skilled labur; timing and amunt f capital expenditures; perfrmance f available labratry and ther related services; effects f regulatin by gvernmental agencies; and future perating csts. The actual results culd differ materially frm thse anticipated in these frward lking statements as a result f the risk factrs set frth belw and elsewhere in this Interim MD&A: the availability f funds; the timing and cntent f wrk prgrams; results f explratin activities and develpment f mineral prperties; the interpretatin f drilling results and ther gelgical data; the uncertainties f resurce estimatins; receipt, maintenance and security f permits and mineral prperty titles; envirnmental and ther regulatry risks; prject cst verruns r unanticipated csts and expenses; uncertainty as t actual capital csts, perating csts, prductin and ecnmic returns; uncertainty that develpment will result in a prfitable mining peratin at Eagle Muntain; reliance n the PEA; perating and hazards risks and limitatins n insurance; fluctuatins in precius metals prices; currency fluctuatins; plitical and ecnmic risks; and general market and industry cnditins. Frward lking statements are based n the expectatins and pinins f the Cmpany s management n the date the statements are made. The assumptins used in the preparatin f such statements, althugh cnsidered reasnable at the time f preparatin, may prve t be imprecise and, as such, readers are cautined nt t place undue reliance n these frward lking statements, which speak nly as f the date the statements were made. The Cmpany undertakes n bligatin t update r revise any frward lking statements included in this Interim MD&A if these beliefs, estimates and pinins r ther circumstances shuld change, except as therwise required by applicable law. c. Qualified Persn Technical infrmatin cntained in this Interim MD&A has been prepared by r under the supervisin f N. Eric Fier, CPG, P.Eng, and Executive Chairman and Chief Operating Officer fr Gldsurce, wh is a Qualified Persn fr the purpse f NI 43 101. 7