Lundin Gold
Annual Report 2020

Plain-text annual report

Annual Report 2020 Message from the President Dear Shareholders, The COVID-19 pandemic made 2020 a very challenging year for us all and has tested our strength and resilience. While the challenges of COVID 19 are not behind us, I am proud of how Lundin Gold responded to it and performed last year. 2020 was a year of two parts for Lundin Gold. Early on in the year, Fruta del Norte (“FDN”) operations ramped up and we declared commercial production in February 2020, ahead of schedule, only to temporarily suspend site activities in response to the COVID-19 pandemic, less than one month later. By pro-actively prioritizing the well-being of our workforce through the design and implementation of strict COVID protocols in the second quarter, on July 1st mining and milling restarted at site. Since then FDN has achieved excellent results, highlighted by second half of the year production of 191,080 ounces (“oz”) of gold, and average all-in sustaining costs (“AISC”)1 of $740 per oz gold sold. Both gold production and AISC exceeded our second half of 2020 guidance of 150,000-170,000 oz and $770-850 per oz. Alongside these encouraging operational results, the Company generated positive operating cash flow in 2020, allowing us to build steady-state working capital while at the same time satisfying planned capital expenditures and loan facility obligations. I cannot emphasize enough what a testament this is to the fantastic team at Lundin Gold. With the first year of production now behind us, Lundin Gold is focused on delivering strong results in 2021 2. Lundin Gold expects to continue generating strong operating cash flow based on its 2021 production and AISC guidance at current gold prices. We will continue to optimize our operations, still under strict COVID protocols, and have identified four key pillars to drive future shareholder value: 1.) Our first pillar is operational excellence. In line with this we have guided towards 2021 production between 380,000-420,000 oz, based on an average head grade of 10.4 g/t gold and average gold recovery of 90%, and AISC between $770-830 per oz gold sold. We always strive to maximize production and minimize costs, and we will continue to push the operation towards what we believe is achievable. 2.) The second pillar is throughput expansion, the capital project which aims at increasing mine and mill throughput by 20% from 3,500 tonnes per day (“tpd”) to 4,200 tpd. This entails a capital expenditure of $18.6 million. The program is well underway and completion is expected in Q4 2021. 3.) We also see an opportunity to increase our current resources to provide further upside. In line with this, a 10,000 metre underground drill program is underway at FDN to define additional resources, by focusing on opportunities within the existing current resource boundaries and on the southern extension of FDN, where the Company has currently estimated inferred mineral resources. 4.) Finally, we believe significant exploration upside exists within our extensive land package in Ecuador, with FDN located at the north end of a major under explored mineralized trend. With all the necessary permits now in place, we expect to initiate a 9,000 metre drill program targeting Barbasco and nearby Puente-Princesa, two high priority targets located 7 kilometres south of FDN along the 16 kilometre long Suarez Pull-Apart Basin structure. Our objective is to discover another Fruta del Norte. Our achievements in 2020 and outlook for 2021 and beyond would not be possible without Lundin Gold’s commitment to responsible mining and our strategy in response to the COVID-19 pandemic. Throughout 2020, Lundin Gold has continued to invest in local development with a wide range of partners, but, due to the COVID-19 pandemic, priorities shifted early in the year. From the beginning of the pandemic, Lundin Gold has worked closely with government and health authorities at the national, provincial and local levels to mitigate its impact, and has contributed to the response effort though a variety of donations and investments. A few examples of these include medical supplies donated to local hospitals, disinfection equipment to local authorities, transportation services for doctors to reach rural areas, and food 1 Refer to “Non-IFRS Measures” in the MD&A for FY2020. 2 Refer to “Forward Looking Statements” in the MD&A for FY2020. support for vulnerable groups. These efforts to help our local communities were amplified through our communication campaign run during the year in conjunction with local government to promote COVID-19 protective measures in communities. Heading into 2021, I am optimistic about Lundin Gold’s future. Lundin Gold is well positioned for another strong year, and we believe that there is a lot more value to be realized. The future is bright for Lundin Gold! Thank you for your continued support. Yours truly, Ron F. Hochstein President and Chief Executive Officer Vancouver, BC March 15, 2021 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) INTRODUCTION This Management’s Discussion and Analysis (“MD&A”) of Lundin Gold Inc. and its subsidiary companies (collectively, “Lundin Gold” or the “Company”) provides a detailed analysis of the Company’s business and compares its financial results for the year ended December 31, 2020 with those of the same period from the previous year. This MD&A is dated as of February 24, 2021 and should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto for the fiscal years ended December 31, 2020 and 2019. The audited consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). References to the “2020 Year” and “2019 Year” relate to the years ended December 31, 2020 and December 31, 2019, respectively. Other continuous disclosure documents, including the Company’s news releases, quarterly and annual reports and annual information form, are available through its filings with the securities regulatory authorities in Canada at www.sedar.com. Lundin Gold, headquartered in Vancouver, Canada, owns 29 metallic mineral concessions and three construction materials concessions covering an area of approximately 64,609 hectares in southeast Ecuador, including the Fruta del Norte gold mine (“Fruta del Norte” or the “FDN”). Fruta del Norte is comprised of seven concessions covering an area of approximately 5,566 hectares and is located approximately 140 km east-northeast of the City of Loja. Fruta del Norte is among the highest-grade operating gold mines in the world. The Company’s board and management team have extensive expertise in mine operations and are dedicated to operating Fruta del Norte responsibly. The Company operates with transparency and in accordance with international best practices. Lundin Gold is committed to delivering value to its shareholders, while simultaneously providing economic and social benefits to impacted communities, fostering a healthy and safe workplace and minimizing the environmental impact. The Company believes that the value created through the operation of Fruta del Norte will benefit its shareholders, the Government and the citizens of Ecuador. HIGHLIGHTS 2020 was a year of two parts for Lundin Gold. In the first half of the year, the operation ramped up and achieved commercial production in February 2020, ahead of schedule. Less than one month later, operations were temporarily suspended in response to the COVID-19 pandemic. Operations were restarted on July 1, 2020 and since then, Fruta del Norte achieved excellent operating results. These are highlighted by the production and sale of 191,080 and 168,345 ounces (“oz”) of gold, respectively, and average all-in sustaining costs (“AISC”)¹ of $740 per ounce (“oz”) of gold sold since the restart of operations on July 1, 2020. Both gold production and AISC exceeded guidance of 150,000- 170,000 oz and $770-850 per oz for the same period, as provided by the Company in early July 2020. This resulted in revenues, net income after tax, and cash flow from operations of $308.2 million, $26.5 million, and $118.4 million, respectively, for the second half of the year. Following changes in planned mining method, the Company updated its estimates of Probable Mineral Reserves for Fruta del Norte ("2020 Reserve") to 5.41 million oz, an increase of 427,000 oz compared to the 2019 year end reconciliation of Probable Mineral Reserves presented in the Company's Annual Information Form (the "AIF"), dated March 24, 2020. The following two tables provide an overview of key operating and financial results during the fourth quarter of 2020, and the 2020 Year. In addition, operating results are provided for the ten-month operating period from March 1, 2020, following declaration of commercial production, to December 31, 2020 (the “2020 Operating Period”). 1 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Tonnes mined (tonnes) Tonnes milled (tonnes) Average head grade (g/t) Average recovery (%) Average mill throughput (tpd) Gold ounces produced Gold ounces sold Three months ended December 31, 2020 2020 Operating Period 350,474 337,146 10.1 88.6 3,665 96,830 106,190 672,906 724,007 10.0 87.2 3,448 202,830 199,256 During the 2020 Year, which includes the pre-commercial production period from January 1 to February 28, a total of 242,400 oz of gold was produced and 234,464 oz were sold, including 35,208 oz sold prior to declaration of commercial production. Net revenues ($’000) Income from mining operations ($’000) Net loss ($’000) Operating cash flow ($’000) Average gold sale price ($/oz sold)2 Average cash operating cost ($/oz sold)2 Average all-in sustaining costs ($/oz sold)2 Operating cash flow per share ($)2 Adjusted net earnings ($‘000)2 Adjusted net earnings per share ($)2 Three months ended December 31, 2020 Year ended December 31, 2020 189,250 94,857 (1,233) 95,019 1,850 627 747 0.41 76,224 0.33 358,1561 172,3861 (47,158) 113,644 1,8661 6671 773 0.50 105,914 0.47 Results for the year are impacted by non-cash derivative gains and losses associated with fair value accounting for the gold prepay and stream facilities. These non-cash items are driven by numerous factors including anticipated forward gold prices and yields. Non-cash derivative losses associated with anticipated increasing forward gold prices are recorded in the statement of operations, while non-cash derivative gains associated with increasing yields are recorded in the statement of other comprehensive income. These non-cash gains and losses are derived from complex valuation modelling and accounting treatment which are more fully explained later in the MD&A. Revaluation of these obligations may result in considerable period-to-period volatility in the Company’s net income, comprehensive income, current and long term liabilities. 1 Amount relates to the 2020 Operating Period. 2 Refer to “Non-IFRS Measures” section. 2 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 2020 Year (unless 2020 Operating Period, as indicated) • The mine delivered a combined 672,906 tonnes of ore to the plant or stockpile during the 2020 Operating Period. • Underground mine development remains in line with plan with a total of 4,808 metres of development completed during the 2020 Operating Period. Good ground conditions allowed for the conversion from drift and fill mining methods to long-hole stoping in key high-grade areas. The mill operated at an average throughput of 3,448 tonnes per day during the 2020 Operating Period, resulting in 724,007 tonnes milled. The average grade of ore milled during the 2020 Operating Period was 10.0 grams per tonne (g/t) with average recovery at 87.2%. • • • Gold production for the 2020 Operating Period was 202,830 oz, comprised of 133,153 oz of concentrate and 69,677 oz of doré. • During the 2020 Operating Period, the Company sold a total of 199,256 oz of gold, consisting of 136,756 oz of concentrate and 62,500 oz of doré at an average realized gold price1 of $1,866 per oz for total revenues from gold sales of $371.8 million. Net of treatment and refining charges, revenues for the 2020 Operating Period and the 2020 Year were $358.2 million. • Cash operating costs1 and AISC1 for the 2020 Operating Period were $667 and $773 per oz of gold sold, • respectively. Income from mining operations was $172.4 million and the Company generated cash flow from operations of $113.6 million, or $0.50 per share1 The Company recorded a net loss of $47.2 million, after deducting finance, corporate, exploration, and other costs of $66.5 million, as well as derivative losses of $137.0 million and suspension of operations of $29.3 million, from income from mining operations and offset by a deferred income tax recovery of $13.2 million. • Adjusted earnings¹, which exclude suspension of operations costs and derivative losses, were $105.9 million, • or $0.47 per share. Fourth Quarter 2020 • During the fourth quarter, the mine continued to operate according to plan, resulting in 350,474 tonnes of ore mined. • Underground mine development also continued as planned with a total of 2,201 metres of development completed during the quarter with development rates averaging 23.9 metres per day in December. The mill processed 337,146 tonnes of ore at an average throughput of 3,665 tonnes per day during the quarter. The average grade of ore milled was 10.1 grams per tonne with average recovery at 88.6% which is higher than previous periods. • • • Gold production during the quarter was 96,830 oz, comprised of 56,900 oz of concentrate and 39,930 oz of doré. • During the fourth quarter, the Company sold a total of 106,190 oz of gold, consisting of 70,540 oz of concentrate and 35,650 oz of doré at an average realized gold price¹ of $1,850 per oz for total gross revenues from gold sales of $196 million. Net of treatment and refining charges, revenues for the quarter were $189.3 million. • Cash operating costs1 and AISC1 for the quarter were $627 and $747 per oz of gold sold, respectively. Higher than planned recovery rates combined with the processing of high grade ore during the quarter contributed to these good results. Income from mining operations was $94.9 million and the Company generated cash flow of $95.0 million from operations, or $0.41 per share1. • • Net loss after tax was $1.2 million, after deducting corporate, exploration and finance costs, and derivative losses, partially offset by the income tax recovery recognized during the period. Adjusted earnings¹ for the quarter, which excludes derivative losses, were $76.2 million, or $0.33 per share. 1 Refer to “Non-IFRS Measures” section. 3 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Increase in Mineral Reserves The 2020 Reserve is primarily the result of converting a significant portion of sections of the ore body originally to be mined by drift and fill to long-hole stoping, due to the good ground conditions experienced in the mine to date. This resulted in a reserve increase as well as a slight increase in dilution and decrease in average grade. There was no increase in estimates of Mineral Resources for Fruta del Norte. Probable Mineral Reserves(1)(2)(3)(4)(5)(6)(7) December 31, 2019 2020 Reserve Mt Au (g/t) Au (Moz) Ag (g/t) Ag (Moz) 17.6 8.74 4.99 12.1 6.92 20.8 8.1 5.41 11.8 7.68 Notes to Table: Probable Mineral Reserves (1) The 2020 Reserve has been estimated in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) and NI 43-101. The 2020 Reserve is as at July 31, 2020 and reflects mill feed from January 1, 2020 to July 31, 2020. (2) Additional information on Mineral Resource and Mineral Reserve estimates for Fruta del Norte is contained in the in the Technical Report which is available under the Company's profile at www.sedar.com. Except as set out below, the assumptions, parameters and risks associated with the Company's Mineral Reserve estimates set out herein are as set out in the Technical Report. (3) All Mineral Reserves in this table are Probable Mineral Reserves. No Proven Mineral Reserves were estimated. (4) Mineral Reserves were estimated using key inputs listed in the table below: Key Input Gold Price TS D&F Process, Surface Ops, G&A Dilution Factor Concentrate Transport & Treatment Royalty Gold Recovery Metallurgical December 31, 2019 1,250 48 81 58 2020 Reserve 1,400 47 69 57 Unit $/oz $/t $/t $/t 10 68 71 91.7 8 92 77 91.7 percent $/oz $/oz percent (5) Gold cut-off grades for the different mining methods are listed in the table below: 2020 Reserve 3.8 4.4 December 31, 2019 3.8 5.0 Gold Cut-off Grade Transverse Stope Drift and Fill (6) Silver was not considered in the calculation of the cut-off grade. (7) Tonnages are rounded to the nearest 1,000 t, gold grades are rounded to two decimal places, and silver grades are rounded to one decimal place. Tonnage and grade measurements are in metric units; contained gold and silver are reported as thousands of troy ounces. Rounding as required by reporting guidelines may result in summation differences. 4 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Health and Safety and Community Health and Safety • • • The health and safety of personnel at site is of paramount importance, and stringent procedures were put in place prior to the re-start of operations in July 2020 to minimize the impact of COVID-19 on the workforce. These procedures include off-site quarantine followed by a Polymerase Chain Reaction (PCR) test for all employees and contractors before accessing Fruta del Norte, mandatory use of masks, health monitoring, physical distancing, and enhanced disinfection and restricted access to common areas. To date, only 34 cases have been identified at site, with no cases identified at site since August 2020. These enhanced protocols continue to remain in place. There were two lost time incidents and five medical aid incidents during the year. The Total Recordable Incident Rate for the year was 0.41 per 200,000 hours worked. Community • In response to the COVID-19 pandemic, the Company’s community activities in 2020 shifted to supporting the local government and Ministry of Health initiatives. An example of one of the many programs being undertaken in this respect was the Neighbourhood Doctor program whereby the Company provides transportation for medical professionals, allowing them to access families in rural areas. Moreover, Lundin Gold also provides essential equipment to frontline workers in the communities surrounding the Mine. • During the fourth quarter of 2020, a public bridge over the Zamora River, which connected local communities and was used in part for access to Fruta del Norte, collapsed, with no reported injuries. Lundin Gold is supporting the affected communities by assisting with transportation of people and supplies and has reaffirmed its commitment to fund the replacement of the public bridge being constructed under the authority of the provincial government, estimated at $3.0 million. Following the collapse of the bridge, a group of local residents erected an illegal blockade on the public road used to access Fruta del Norte. A resolution was reached through the efforts of the Company and the national government and the blockade was removed after 15 days. The blockade had little impact on site operations. • Exploration • In September, the Company received the permit for drilling two of its priority targets, Barbasco and Puente- Princesa, located 7 kilometres (“km”) from Fruta del Norte along the 16 km long Suarez Pull-Apart Basin structure. Plans for a 9,000 metre drilling campaign, which involves establishing COVID-19 protocols for these activities, are underway. The Company is targeting a start date for this regional exploration in the first quarter of 2021. 5 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) SELECTED ANNUAL FINANCIAL INFORMATION (Expressed in thousands of U.S. dollars, except share and per share amounts) Revenues 2020 2019 2018 Income from mining operations 172,386 $ 358,156 $ - $ - - - Derivative loss for the year (136,984) (93,120) (15,731) Net loss for the year (47,158) (118,945) (22,068) Basic and diluted loss per share $ (0.21) $ (0.54) $ (0.12) Weighted-average number of common shares outstanding Total assets Long-term debt Working capital 227,500,029 221,247,101 191,390,673 $ 1,505,360 $ 1,408,961 $ 1,012,461 857,094 56,603 878,586 32,800 364,252 153,186 Year ended December 31, 2020 compared to the year ended December 31, 2019 The 2020 Year marked the start of operations at Fruta del Norte which resulted in net revenues of $358.2 million and income from mining operations of $172.4 million. With this said however, in the 2020 Year the Company generated a loss of $47.2 million (2019: $118.9 million), principally as a result of a derivative loss of $137.0 million (2019: $93.1 million), due to a change in fair value of the Company’s gold prepay and stream credit facilities (explained in more detail below) and costs of $29.3 million incurred during the suspension of operations in the second quarter of 2020. In addition, following the achievement of commercial production, the Company began expensing the cost of its loan facilities, which has resulted in a finance expense of $44.9 million compared to a finance income of $1.8 million in 2019. Finance costs were previously capitalized during the construction period. With the cumulative gains in other comprehensive income driven by derivative gains from changes to the Company’s credit risk, a deferred income tax recovery of $13.2 million was also recognized in the 2020 Year as an offset to a deferred income tax expense in other comprehensive income, driven by the derivative gains recorded as part of the fair value calculation of the gold prepay and stream obligations. Income from mining operations Effective March 1, 2020, following declaration of commercial production in February 2020, net proceeds from sales of mineral material and expenditures of an operating nature were recognized as revenues and cost of sales, instead of being deducted from or added to the capitalized cost of FDN, as applicable, during the final few months of construction, commissioning and ramp up of Fruta del Norte. As a result, revenues of $358.2 million were recognized during the 2020 Year based on sales of 199,256 oz of gold. After deducting cost of goods sold of $185.8 million, the Company generated income from mining operations during the 2020 Year of $172.4 million. More generally, revenues and net income from mining operations for the 2020 Year were significantly impacted by the suspension of operations for the entire second quarter of 2020 due to the COVID-19 pandemic. Corporate administration Corporate administration costs of $17.8 million were incurred during the 2020 Year compared to $23.0 million during the 2019 Year. The decrease of $5.2 million is mainly attributable to training costs, which decreased by $3.1 million during the 2020 Year due to the training program for operations being completed in the third quarter of 2019, as well as lower professional fees and certain costs now being classified as operating expenses as a result of reaching commercial production. These are partly offset by the payment of $2.8 million in milestone bonuses to the Company’s senior employees for achieving commercial production. 6 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Suspension of operations In response to the COVID-19 pandemic, operations at Fruta del Norte were suspended throughout the second quarter of 2020. The Company continued to pay all personnel during the period of temporary suspension and retained a minimal number of staff at Fruta del Norte to undertake necessary care and maintenance, as well as other activities to ensure the efficient restart of operations. Suspension costs of $29.3 million were principally comprised of wages, site maintenance activities, COVID-19 related costs and ongoing fixed costs such as insurance and property taxes. Finance expense (income) With the start of commercial production, finance expense is recognized in the Company’s consolidated statement of loss. This resulted in a finance expense of $44.9 million during the 2020 Year which includes interest of $33.9 million on the Company’s loan facilities as well as other finance costs of $7.7 million in support of the loan facilities. Derivative gains or losses Derivative losses and gains in the statements of operations or other comprehensive income, respectively, are driven by the Company’s debt obligations classified as financial liabilities measured at fair value. During the 2020 Year, the Company made the first scheduled principal and interest repayments totaling $18.3 million under its gold prepay facility and $18.0 million under its stream facility, based on gold and silver prices at the time of repayment. However, the reduction in the amount of these debt obligations on the balance sheet is smaller due to a change in their estimated fair values during the 2020 Year. This variation is recorded as a derivative gain or loss in the statements of operations and other comprehensive income in the applicable period. The fair values calculated under the Company’s accounting policies are based on numerous estimates noted below as of the balance sheet date and are, therefore, subject to further future variations until the debt obligations are repaid by the Company. These balances are valued using Monte Carlo simulation valuation models. The key inputs used by the Monte Carlo simulation include: the gold and silver forward prices, the Company’s expectation about long-term gold yields, gold and silver volatility, risk-free rate of return, risk-adjusted discount rate, and production expectations. Relatively small variations in some of these inputs can give rise to significant variations in the fair value of financial liabilities; hence, the large derivative gains and losses recorded in the accounts to date. Two key drivers of current fair values are gold and silver prices and the Company’s risk adjusted discount rate: • • Future repayments under the gold prepay and stream credit facilities are based on forward gold and silver price estimates at time of repayment. During periods of increasing gold and silver prices, their forecast forward prices will also generally increase. This, combined with a factor for volatility, results in a higher estimated fair value of the debt obligations at the current balance sheet date and the recognition of derivative losses in the statement of operations, although it does not necessarily reflect the amounts that will actually be repaid when the obligations become due in the future. The potentially more significant impact of the same change in forward gold and silver prices on the value of future production and revenue forecasts to be generated during the same periods when the debt obligations will be repaid cannot be recognized because of the inherent uncertainty and risks associated with actually realizing such production and sales. The discount rate used to determine the current fair value of future payments under the gold prepay and stream credit facilities is dependent not only on the Company’s own weighted average cost of capital, but also on market conditions. These include inflation, economic conditions, both local and industry specific, and other factors outside of the Company’s control like the COVID-19 pandemic. The pandemic has negatively impacted global financial markets in 2020, and may continue to do so, causing an increase and higher volatility in yields and credit risk. An increase in yields would generally cause a decrease in the fair value of financial instruments like the gold prepay and stream credit facilities. This decrease in fair value must be recorded as a gain in Other Comprehensive Income rather than offsetting the derivative loss in the statement of operations. The tax impact of this cumulative gain to December 2020 must also be recorded, resulting in an offsetting tax recovery in the statement of operations in the 2020 Year. On a net basis, after accounting for the 2020 repayments under the two facilities, this results in a $10.5 million increase in their fair value during the 2020 Year. 7 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) SUMMARY OF QUARTERLY FINANCIAL RESULTS The Company’s quarterly financial statements are reported under IFRS as issued by the IASB as applicable to interim financial reporting. The following table provides highlights from the Company’s financial statements over the past eight quarters (unaudited). Revenues Income from mining operations Derivative loss for the period Net income (loss) for the period Basic income (loss) per share Diluted income (loss) per share Weighted-average number of common shares outstanding Basic Diluted 2020 Q4 2020 Q3 2020 Q2 2020 Q1 $ $ $ $ $ $ 189,250 $ 118,904 $ 13,146 $ 36,856 94,857 $ 62,751 $ 4,442 $ 10,336 (90,673) $ (18,010) $ (25,732) $ (2,569) (1,233) $ 27,780 $ (64,374) $ (9,331) (0.01) $ (0.01) $ 0.12 $ 0.12 $ (0.29) $ (0.29) $ (0.04) (0.04) 230,039,327 230,039,327 229,936,873 233,264,544 225,724,679 225,724,679 224,244,554 224,244,554 Additions to property, plant and equipment $ 23,307 $ 3,790 $ 9,386 $ 5,347 Total assets Long-term debt Working capital Revenues Derivative gain (loss) for the period Net income (loss) for the period Basic income (loss) per share Diluted income (loss) per share Weighted-average number of common shares outstanding Basic Diluted $ $ $ $ $ $ $ $ 1,505,360 $ 1,452,070 $ 1,407,231 $ 1,403,192 857,094 $ 808,770 $ 790,285 $ 808,251 56,603 $ 31,172 $ (7,205) $ 39,581 2019 Q4 2019 Q3 2019 Q2 2019 Q1 - $ - $ - $ (35,120) $ (33,723) $ (24,745) $ - 468 (40,765) $ (39,672) $ (30,797) $ (7,711) (0.18) $ (0.18) $ (0.18) $ (0.18) $ (0.14) $ (0.14) $ (0.04) (0.04) 223,339,447 223,339,447 222,953,642 222,953,642 222,535,083 222,535,083 216,061,503 216,061,503 Additions to property, plant and equipment $ 98,642 $ 109,996 $ 118,520 $ 124,069 Total assets Long-term debt Working capital $ $ $ 1,408,961 $ 1,344,528 $ 1,343,799 $ 1,062,931 878,586 $ 772,526 $ 722,689 $ 388,106 32,800 $ 124,586 $ 222,056 $ 59,889 8 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Three months ended December 31, 2020 compared to the three months ended December 31, 2019 The Company generated a net loss of $1.2 million during the fourth quarter of 2020 compared to a net loss of $40.8 million during the fourth quarter of 2019. Net income was generated from the recognition of revenues of $189.3 million and income from mining operations of $94.9 million. This is offset by a derivative loss of $90.7 million and finance expense of $12.9 million. In addition, a deferred income tax recovery of $13.2 million was recognized to offset the deferred income tax expense relating to derivative gains in other comprehensive income. Ramp up of operations commenced in the third quarter of 2020 following the temporary suspension of operations in the second quarter of 2020 in response to the COVID-19 pandemic. Prior to that, Fruta del Norte was under construction and therefore, the Company did not generate income. The loss in the fourth quarter of 2019 was mainly driven by a derivative loss of $35.1 million and corporate administration costs of $4.1 million. Income from mining operations During the fourth quarter of 2020, the Company recognized revenues of $189.3 million from the sale of 106,190 oz of gold. This is offset by cost of goods sold of $94.4 million which is comprised of operating expenses of $55.5 million; royalties of $11.1 million; and depletion and amortization of $27.8 million. During the same period in 2019, revenues and cost of sales were deducted from or added to the capitalized cost of FDN, as applicable, considering that the Company was in the final few months of construction, commissioning and ramp up of Fruta del Norte. Corporate administration Corporate administration costs decreased from $4.1 million during the fourth quarter of 2019 to $2.8 million during the fourth quarter of 2020. This decrease is attributable to lower professional fees and the classification of certain costs to operating expenses after the start of commercial production. Finance expense (income) Finance expense of $12.9 million was incurred during the fourth quarter of 2020, which is comprised of costs under the Company’s loan facilities including accrued interest expense totaling $9.6 million and related fees of $2.3 million. These amounts were previously capitalized during the construction period. Derivative loss Derivative loss of $90.7 million was recorded during the fourth quarter of 2020 compared to a derivative loss of $35.1 million in the fourth quarter of 2019. The derivative loss is due to the change in estimated fair values of the gold prepay, stream, and offtake facilities which are accounted for as financial liabilities measured at fair value and is more fully explained above. LIQUIDITY AND CAPITAL RESOURCES As at December 31, 2020, the Company had cash of $79.6 million and a working capital balance of $56.6 million compared to cash of $75.7 million and a working capital balance of $32.8 million at December 31, 2019. The change in cash in the 2020 Year was primarily due to cash proceeds from operating activities of $113.6 million and net proceeds from a bought deal equity financing which closed on June 11, 2020 of $41.4 million. This is offset by principal and interest repayments under the loan facilities totaling $77.7 million and costs incurred for the development of Fruta del Norte of $79.6 million which includes recoverable VAT paid on development costs. Trade receivables The majority of trade receivables represent the value of concentrate sold as at period end for which the funds are not yet received. Consistent with industry standards, these sales have relatively long payment terms and are not fully settled until concentrates are received by the customer and related final assays confirmed, generally two to four months after the export sale occurs. There is no recorded allowance for credit losses. In determining the recoverability of trade receivables, the Company assesses the credit quality of the counterparty, with the concentration of the credit risk limited due to the nature of the counterparties involved and a history of no credit losses. 9 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) VAT receivables VAT paid in Ecuador by the Company after January 1, 2018 will be refunded or applied as a credit against other taxes payable based on export sales. As the Company is starting to generate sales, a portion of the VAT recoverable has been reclassified as current assets based on the Company’s assessment of the estimated time for processing current VAT claims and forecast future sales. Advanced royalties Advance royalties are deductible against future royalties on sales payable to the Government of Ecuador at a rate equal to the lesser of 50% of the actual future royalties payable in a six-month period or 10% of the total advance royalty payment. As the Company is generating sales, a portion of the advance royalty payment is classified as current assets. Inventories Gold inventory is recognized in the ore stockpiles and in production inventory, comprised principally of concentrate and doré at site or in transit to port or the refinery, with a small component of gold-in-circuit. The high value of material and supplies, comprised of consumables and spare parts, reflects the Company’s assessment of the procurement cycles due to the remoteness of FDN. Inventories are now at expected levels. Investment activities Investment activities for the 2020 Year are comprised principally of costs for the construction and development of Fruta del Norte, as well as some costs incurred to date on sustaining capital. In the 2020 Year, the remaining work on FDN focused on the following: • The South Ventilation Raise (“SVR”), for which construction resumed in June following the temporary suspension of operations and is ongoing. Progress is slower than anticipated and the Company continues to expect its completion in the second quarter of 2021. The timing of this work does not currently impact planned production. • Commissioning and ramp up of the paste plant which were completed during the fourth quarter of 2020, resulting in the plant being fully operational by year end and paste poured in the mine. • Construction of the Company’s Zamora River bridge which commenced with strict COVID-19 protocols in place to minimize health risks to the nearby communities. The bridge is expected to be completed in the second quarter of 2021. Liquidity and capital resources The Company’s treasury was sufficient to support the Company during the first half of the year, which included the temporary suspension and re-start of operations in July 2020. The treasury was supplemented by an equity financing of $41.4 million in June 2020 when the Company closed a bought deal equity offering for gross proceeds of C$57.5 million, by issuing a total of 4,772,500 common shares at a price of C$12.05 per share. Following the re-start of operations in early July, the Company generated $118.4 million of net cash from its operating activities, which also involved an increase in working capital while at the same time satisfying planned capital expenditures and loan facilities obligations. For the 2020 Year, the Company made scheduled principal and interest payments under its debt facilities totaling $77.7 million, which included monthly payments under the stream facility that commenced in February 2020 and totaled $18.0 million. In December, a payment under the gold prepay facility totaling $18.3 million and principal repayments totaling $22.8 million under the senior debt facilities were also made, as scheduled. Repayments of the gold prepay and senior debt facilities are due quarterly. 10 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) The Company expects to generate strong operating cash flow during 2021 based on its production and AISC guidance at current gold prices. This strong operating cash flow will support debt repayments, exploration program costs, and planned capital expenditures, including an expansion project to increase the mill throughput from 3,500 to 4,200 tonnes per day. Monthly payments under the stream facility will be based on 7.75% and 100% of gold and silver ounces sold, respectively, calculated at the current gold and silver prices at the end of each month, less $400 and $4 per oz, respectively. Quarterly payments under the gold prepay facility are expected to be based on the current value of 9,7751 oz of gold at the end of each quarter. Scheduled variable quarterly principal repayments of the senior debt facilities will total $59.5 million for 2021. The Company is working towards achieving construction completion, as defined under the senior debt facilities, in 2021. Depending on the timing of this milestone, additional quarterly principal repayments based on 30% of Fruta del Norte’s free cash flow could also occur. An accelerated reduction in the senior facilities would reduce the Company’s related finance cost going forward. Notwithstanding forecasting strong cash flows from operations, the Company cannot be certain that an escalation of the COVID-19 pandemic will not have an impact on operations or on the Company’s financial position in the future. The Company’s continuing operations and the underlying value and recoverability of the amount shown for the mineral interests and property, plant and equipment are ultimately dependent upon the ability of the Company to operate FDN without extended interruptions and on future profitable production. TRANSACTIONS WITH RELATED PARTIES During the 2020 Year, the Company paid $0.4 million (2019 – $0.3 million) to Namdo Management Services Ltd. (“Namdo”), a private corporation associated with an officer of the Company in 2020. The Company occupies office space in the Namdo offices in Vancouver for the Company’s management, investor relations personnel and support staff. Namdo charges a service fee and recovers out of pocket expenses related to the Company. FINANCIAL INSTRUMENTS The Company’s financial instruments consist of cash, cash equivalents and receivables, which are categorized as financial assets at amortized cost, and accounts payable and accrued liabilities, which are categorized as financial liabilities at amortized cost. The fair value of these financial instruments approximates their carrying values due to the short-term nature of these instruments. In addition, the gold prepay credit facility; stream loan credit facility; and offtake commitment have been classified as financial liabilities measured at fair value. The senior debt facilities have been classified as a financial liability at amortized cost. The Company’s financial instruments are exposed to a variety of financial risks by virtue of its activities. Currency risk Lundin Gold is a Canadian company, with foreign operations in Ecuador. Revenues generated and expenditures incurred in Ecuador are primarily denominated in U.S. dollars, as are its loan facilities. However, equity capital, if needed, is typically raised in Canadian dollars. As such, the Company is subject to risk due to fluctuations in the exchange rates of foreign currencies. Although the Company does not enter into derivative financial instruments to manage its exposure, the Company tries to manage this risk by maintaining most of its cash in U.S. dollars. Credit risk Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. The majority of the Company’s cash is held in large financial institutions with a high investment grade rating. The Company is also subject to credit risk associated with its trade receivables. The Company manages this risk by only selling to a small group of reputable customers with strong financial statements. 1 This parameter increases to 11,500 oz and 13,225 if the gold price during the immediately preceding quarter is less than $1,436 and less than $1,062, respectively. 11 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Interest rate risk The Company is subject to interest rate risk with respect to the fair value of long-term debt which are accounted for at fair value through profit or loss and on the senior debt facilities for which interest payments are affected by movements to the LIBOR rate. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. Cash flow forecasting is performed regularly to monitor the Company’s liquidity requirements to ensure it has sufficient cash to meet its operational needs at all times. In addition, management is actively involved in the review, planning and approval of significant expenditures and commitments. Commodity price risk The Company is subject to commodity price risk from fluctuations in the market prices of gold and silver. Commodity price risks are affected by many factors that are outside the Company’s control including global or regional consumption patterns, the supply of and demand for metals, speculative activities, the availability and costs of substitutes, inflation, and political and economic conditions. The Company has not hedged the price of any commodity at this time. The fair value of the gold prepay and the stream credit facilities, which is accounted for at fair value through profit or loss, is impacted by fluctuations of commodity prices. COMMITMENTS Significant capital expenditures contracted as at December 31, 2020 but not recognized as liabilities are as follows: 2021 2022 2023 Total Development costs $ $ 11,009 - - 11,009 The Company’s sales are subject to a 5% net smelter royalty payable to the Government of Ecuador and a 1% net revenue royalty payable to third parties. OFF-BALANCE SHEET ARRANGEMENTS During the years ended December 31, 2020 and December 31, 2019 there were no off-balance sheet transactions. The Company has not entered into any specialized financial arrangements to minimize its currency risk. OUTSTANDING SHARE DATA As at the date of this MD&A, there were 230,604,087 common shares issued and outstanding and outstanding warrants to purchase a total of 411,441 common shares. There were also stock options outstanding to purchase a total of 5,720,500 common shares, 148,000 restricted share units with a performance criteria, 3,100 restricted share units settled by issuance of shares, and 1,639 deferred share units. 12 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) OUTLOOK Guidance for 2021 remains unchanged with expected production of 380,000 to 420,000 oz of gold at Fruta del Norte based on an average head grade of 10.4 g/t and average gold recovery of 90%. AISC is forecasted between $770 and $830 per oz of gold sold, calculated on a basis consistent with prior periods. The following capital project activities, which are still part of the construction scope of Fruta del Norte, are planned for completion in 2021: • • the construction of the Company’s bridge over the Zamora River early in the second quarter of 2021. the SVR in the second quarter of 2021. Engineering and procurement of additional equipment are underway on the expansion project designed to increase the mill throughput from 3,500 to 4,200 tpd, which is expected to be completed before the end of 2021. The throughput expansion modifications are also expected to improve mill recoveries through the addition of retention time in the flotation process of the plant. Under its sustaining capital activities for 2021, the Company has also planned a 10,000 metre drill program, targeting conversion and expansion of the Fruta del Norte mineral resource, and the completion of the first and second raises of the FDN tailings dam. Furthermore, the reactivation of the exploration program, focused on drilling the Barbasco and Puente-Princesa targets, has commenced and drilling of these targets is expected to start in the first quarter of 2021. NON-IFRS MEASURES This MD&A refers to certain financial measures, such as average realized gold price, cash operating cost per oz. and all-in sustaining cost per oz, which are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS. These measures may differ from those made by other companies and accordingly may not be comparable to such measures as reported by other companies. These measures have been derived from the Company’s financial statements because the Company believes that, with the achievement of commercial production, they are of assistance in the understanding of the results of operations and its financial position. Average realized gold price per oz sold Average realized gold price is a metric used to better understand the gold price realized during a period. This is calculated as revenues for the period plus treatment and refining charges less silver sales divided by gold oz sold. October 1 to December 31, 2019 2020 March 1 to December 31, 2019 2020 Revenues $ 189,250 $ - $ 358,156 $ Treatment and refining charges Less: silver revenues 9,290 (2,133) Gold sales Gold oz sold $ 196,407 $ 106,190 Average realized gold price $ 1,850 $ - - - - - 17,608 (3,985) $ 371,779 $ 199,256 $ 1,866 $ - - - - - - 13 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Adjusted Earnings and adjusted basic earning per share Adjusted earnings and adjusted basic earnings per share can be used to measure and may assist in evaluating operating earning trends in comparison with results from prior periods by excluding specific items that are significant, but not reflective of the underlying operating activities of the Company. Presently, these include: the second quarter suspension of operations and derivative losses, and related income tax effects, from accounting for the gold prepay and stream facilities at fair value. Adjusted basic earnings per share is calculated using the weighted average number of shares outstanding under the basic method of earnings per share as determined under IFRS. Three months ended December 31, 2020 2019 Year ended December 31, 2020 2019 Net income (loss) for the period $ (1,233) $ (40,765) $ (47,158) $ (118,945) Adjusted for: Suspension of operations Derivative loss Deferred income tax recovery - 90,673 (13,216) - 35,120 - 29,304 136,984 (13,216) - 93,120 - Adjusted earnings (loss) $ 76,224 $ (5,645) $ 105,914 $ (25,825) Basic weighted average shares outstanding Adjusted basic earnings (loss) per share Cash operating cost per oz 230,039,327 223,339,447 227,500,029 221,247,101 $ 0.33 $ (0.03) $ 0.47 $ (0.12) Cash operating cost per oz sold, combined with revenues, can be used to evaluate the Company’s performance and ability to generate operating income and cash flow from operating activities. Cash operating costs include operating expenses and royalty expenses from March 1, 2020 after the achievement of commercial production. For the three months ended December 31, 2020 For the six months ended December 31, 2020 2020 Operating Period Operating expenses Royalty expenses Cash operating costs Gold oz sold Cash operating cost per oz sold $ $ $ 55,527 11,030 $ 87,908 17,914 $ 66,557 $ 105,822 $ 106,190 168,345 627 $ 629 $ 112,132 20,750 132,882 199,256 667 14 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) All-in sustaining cost AISC provides information on the total cost associated with producing gold since March 1, 2020. The Company calculates AISC as the sum of total cash operating costs (as described above), corporate social responsibility costs, treatment and refining charges, accretion of restoration provision, and sustaining capital, less silver revenue, all divided by the gold ounces sold to arrive at a per oz amount. Other companies may calculate this measure differently as a result of differences in underlying principles and policies applied. For the three months ended December 31, 2020 For the six months ended December 31, 2020 2020 Operating Period $ $ $ $ 66,557 197 9,290 10 5,374 (2,133) $ 105,822 392 15,258 19 6,638 (3,568) 79,295 $ 124,561 $ 106,190 168,345 747 $ 740 $ 132,882 814 17,608 39 6,638 (3,985) 153,996 199,256 773 Cash operating costs Corporate social responsibility Treatment and refining charges Accretion of restoration provision Sustaining capital Less: silver revenues All-in sustaining costs Gold oz sold All-in sustaining cost per oz sold Operating cash flow per share Operating cash flow per share can be used to evaluate the Company’s ability to generate cash flow from operations. The Company calculates operating cash flow per share as net cash provided by or used for operating activities divided by its basic weighted-average number of common shares outstanding. Three months ended December 31, 2020 2019 Year ended December 31, 2020 2019 Net cash provided by (used for) operating activities Basic weighted average shares outstanding $ 95,019 $ (2,873) $ 113,644 $ (18,433) 230,039,327 223,339,447 227,500,029 221,247,101 Operating cash flow per share $ 0.41 $ (0.01) $ 0.50 $ (0.08) CRITICAL ACCOUNTING ESTIMATES The Company's significant accounting policies are presented in Note 3 in the Notes to the audited consolidated financial statements for the year ended December 31, 2020. 15 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period, that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that the actual results differ from assumptions made, relate to, but are not limited to, the following: Mineral reserves and resources The Company estimates its mineral reserves and resources based on information compiled and reviewed by qualified persons as defined in accordance with NI 43-101 requirements. The estimation of mineral reserves and resources requires judgment to interpret geological data and metallurgical testing, design of appropriate mining methods, recovery methods and establishment of a life of mine production schedule. The estimation of recoverable reserves is also based on assumptions such as capital costs, operating costs and metal pricing. New geological data or changes in the above assumptions may change the economic viability of reserves and may, ultimately, result in the reserves being revised. Changes in the reserve or resource estimates may impact the fair value of financial instruments, the valuation of property, plant and equipment and mineral properties, the depletion and depreciation of property, plant and equipment and mineral properties, utilization of tax losses and decommissioning and site restoration provisions. Fair value of financial instruments The fair value of financial instruments that are not traded in an active market are determined using valuation techniques. The Company uses its judgment to select a variety of methods and makes significant assumptions that are mainly based on market conditions existing at initial recognition and at the end of each reporting period. Refer to Note 20 of the audited consolidated financial statements for the year ended December 31, 2020 for further details on the methods and assumptions utilized. Commercial production The determination of when a mine is operating in the manner intended by management (referred to as “commercial production”) is a matter of significant judgement. In making this determination, management considered specific facts and circumstances. These factors included, but were not limited to, whether substantially all construction development activities had been completed in accordance with design and a period of commissioning which achieved consistent operating results for a period of time in relation to design capacity. Valuation of mineral properties The Company carries the acquisition costs of its mineral properties, property, plant, and equipment at cost less depletion and depreciation and any impairment losses. The Company undertakes a periodic review of the carrying values of these assets and whenever events or changes in circumstances indicate that their carrying values may exceed their recoverable amount. In undertaking this review, management of the Company is required to make significant judgments, including estimates of mineral reserves and resources. These judgments are subject to various risks and uncertainties, which may ultimately have an effect on the expected recoverability of the carrying values of these assets. 16 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Utilization of tax losses The Company is subject to income taxes in a number of jurisdictions and has had a history of tax losses. These tax losses are only recognized to the extent that expected future taxable profits are available. Judgment is required in assessing whether deferred tax assets and certain deferred tax liabilities are recognized on the balance sheet and what tax rate is expected to be applied in the year when the related temporary differences reverse. Deferred tax liabilities arising from temporary differences are recognized unless the reversal of the temporary differences is not expected to occur in the foreseeable future and can be controlled. As the Company has not yet had a history of taxable profits as at December 31, 2020, the Company has not recognized any tax losses on its financial statements except those expected to be utilized as a result of cumulative derivative gains within other comprehensive income. Stock-based compensation The fair value of stock options is determined using the Black-Scholes option pricing model and are expensed over their vesting periods. In estimating fair value, management of the Company is required to make certain assumptions and estimates regarding the life of the options, volatility and forfeiture rates. Changes in the assumptions used could result in materially different results. Decommissioning and site restoration The Company has obligations for site restoration and decommissioning related to Fruta del Norte. The future obligations for decommissioning and site restoration activities are estimated by the Company using mine closure plans or other similar studies which outline the requirements that will be carried out to meet the obligations. Because the obligations are dependent on the laws and regulations of the country in which the project is located, the requirements could change as a result of amendments in the laws and regulations relating to environmental protection and other legislation affecting resource companies. As the estimate of obligations is based on future expectations, a number of assumptions and judgments are made by management in the determination of closure provisions. The decommissioning and site restoration provisions are more uncertain the further into the future the mine closure activities are to be carried out. QUALIFIED PERSON The technical information relating to Fruta del Norte contained in this MD&A, including the 2020 Reserve, has been reviewed and approved by Ron Hochstein P. Eng, Lundin Gold’s President & CEO who is a Qualified Person under NI 43-101. The disclosure of exploration information contained in this MD&A was prepared by Stephen Leary, MAusIMM CP(Geo), a consultant to the Company, who is a Qualified Person in accordance with the requirements of NI 43-101. FINANCIAL INFORMATION The report for the three months ended March 31, 2021 is expected to be published on or about May 12, 2021. DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING Disclosure controls and procedures Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in the securities legislation and include controls and procedures designed to ensure that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted under securities legislation is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. 17 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. As of December 31, 2020, the Chief Executive Officer and Chief Financial Officer have each concluded that the Company’s disclosure controls and procedures, as defined in NI 52-109 - Certification of Disclosure in Issuer’s Annual and Interim Filings, are effective to achieve the purpose for which they have been designed. Internal controls over financial reporting Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. Management is also responsible for the design of the Company’s internal control over financial reporting in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The Company’s internal controls over financial reporting include policies and procedures that: pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and disposition of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s internal controls over financial reporting. As of December 31, 2020, the Chief Executive Officer and Chief Financial Officer have each concluded that the Company’s internal controls over financial reporting, as defined in NI 52-109 - Certification of Disclosure in Issuer’s Annual and Interim Filings, are effective to achieve the purpose for which they have been designed. Because of their inherent limitations, internal controls over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. RISKS FACTORS There are a number of factors that could negatively affect Lundin Gold’s business and the value of the common shares, including the factors listed below. The following information pertains to the outlook and conditions currently known to Lundin Gold that could have a material impact on the financial condition of the Company. Other factors may arise that are not currently foreseen by management of Lundin Gold that may present additional risks in the future. Current and prospective security holders of Lundin Gold should carefully consider these risk factors. Pandemic Virus Outbreak Global markets have been adversely impacted by COVID-19 and could be impacted by other emerging infectious diseases and/or the threat of outbreaks of viruses, other contagions or epidemic diseases in the future. The COVID-19 pandemic has resulted in a widespread crisis that has adversely affected the economies and the financial markets of many countries, resulting in an economic downturn which could adversely affect the Company’s business and the market price of its Shares. Many industries, including the mining industry, have been impacted by these market conditions. Continuing or increased levels of volatility or a rapid destabilization of global economic conditions could result in a material adverse effect on commodity prices, demand for metals, availability of credit, investor confidence and general financial market liquidity, all of which may adversely affect the Company’ business and the market price of its Shares. 18 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) In 2020, aspects of the Company’s operations were impacted by COVID-19 for a variety of reasons, such as government and other restrictions on transportation and the mobility of personnel and mandatory quarantine periods and border closures. Until such time as countries around the world successfully contain the spread of COVID-19, significant restrictions imposed by governments will likely remain in place and could increase. Possible impacts of the continuing or worsening spread of COVID-19, including new variants of the virus, may include mandated or voluntary closures of operations, illness among the Company’s workforce, restricted mobility of personnel, interruptions in the Company’s logistics and supply chain, delay at or closure of the Company’s refining and smelting service providers and global travel restrictions, all of which could disrupt the Company’s operations and negatively impact its financial performance of the value of its Shares. The ultimate economic viability of the Company’s business is impacted by its ability to operate Fruta del Norte and/or to maintain adequate liquidity through potential sources of financing. Instability in Ecuador The Company is subject to certain risks and possible political and economic instability specific to Ecuador, arising from change of government, political unrest, labour disputes, invalidation of government orders, permits or property rights, local legal proceedings and referendums seeking to suspend mining activities, unsupportive local and regional governments, risk of corruption, military repression, war, civil disturbances, criminal and terrorist acts, hostage taking, changes in laws, expropriation, nationalization, renegotiation or nullification of existing concessions, agreements, licenses or permits and changes to monetary or taxation policies. The occurrence of any of these risks may adversely affect the mining industry, mineral exploration and mining activities generally or the Company and could result in the impairment or loss of mineral concessions or other mineral rights. Exploration, development or operations may also be affected to varying degrees by government regulations with respect to, but not limited to, restrictions on future exploitation and production, price controls, export controls, income taxes, labour and immigration, and by delays in obtaining or the inability to obtain necessary permits, opposition to mining from environmental and other non-governmental organizations, limitations on foreign ownership, expropriation of property, ownership of assets, environmental legislation, labour relations, limitations on repatriation of income and return of capital, high rates of inflation, increased financing costs and site safety. These factors may affect both Lundin Gold’s ability to undertake exploration and development activities in respect of future properties in the manner contemplated, as well as its ability to continue to explore, develop and operate those properties in which it has an interest or in respect of which it has obtained exploration and development rights to date. Ecuador is holding presidential elections this year, which will result in a change in government. Any shifts in political attitudes or changes in laws that may result in, among other things, significant changes to mining laws or any laws, regulations or policies are beyond the control of Lundin Gold and may adversely affect its business. The Company faces the risk that governments may adopt substantially different policies, which might extend to the expropriation of assets or increased government participation in the mining sector. In addition, changes in resource development or investment policies, increases in taxation rates, higher mining fees and royalty payments, revocation or cancellation of mining concession rights or shifts in political attitudes in Ecuador may adversely affect Lundin Gold’s business. Production Estimates Forecasts of future production are estimates based on interpretation and assumptions, and actual production may be less than estimated. Unless otherwise noted, the Company’s production forecasts are based on full production being achieved from Fruta del Norte. Lundin Gold’s ability to achieve and maintain full production rates at Fruta del Norte is subject to a number of risks and uncertainties. The Company’s production estimates are dependent on, among other things, the completion of the south ventilation raise, the completion of the Expansion Project, the accuracy of Mineral Reserve and Mineral Resource estimates, the accuracy of assumptions regarding ore grades and recovery rates, ground conditions, physical characteristics of ores, such as hardness and the presence or absence of particular metallurgical characteristics, the accuracy of estimated rates and costs of mining and processing and mill availability, and the receipt and maintenance of permits. The Company’s actual production may vary from its estimates for a variety of reasons, including those identified under the heading “Operating Risks”. The failure of the Company to achieve its production estimates could have a material adverse effect on the Company’s prospects, results of operations and financial condition. 19 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Mining Operations The first few years of operations from Fruta del Norte are subject to a number of inherent risks. It is not unusual in the mining industry for new mining operations to experience unexpected problems during the early stages of the production phase, including failure of equipment, insufficient inventory of spare parts, machinery, the processing circuit or other processes to perform as designed or intended, insufficient ore stockpile or grade, and failure to deliver adequate tonnes of ore to the mill, any of which could result in delays, slowdowns or suspensions and require more capital than anticipated. In addition, estimated mineral reserves and mineral resources and anticipated costs, including, without limitation, operating expenses, cash costs and all-in sustaining costs, anticipated mine life, projected production, anticipated production rates and other projected economic and operating parameters may not be realized, and the level of future metal prices needed to ensure commercial viability may deteriorate. Beyond the initial years of operations, the Company’s operations will continue to be subject to risks and hazards that are inherent in the mining industry, including, but not limited to, unanticipated variations in grade and other geological problems, surface and ground water conditions, water balance and water chemistry, backfill quality or availability, underground conditions, metallurgy, ore hardness and other processing issues, critical equipment or process failure, the lack of availability of input materials and equipment, disruption to power supply, geotechnical incidents such as ground subsidence or landslides, accidents, labour force disruptions, supply chain/logistics disruptions, force majeure events, unanticipated transportation disruptions or costs, consumable prices or availability and weather conditions, any of which can materially and adversely affect, among other things, the safety of personnel, production quantities and rates, costs and expenditures, contractual obligations and financial covenants. Consequently, there is a risk that Fruta del Norte may encounter problems or be subject to delays or suspensions resulting from these operating risks which could occur both during the initial few years of operations and beyond and which may have material adverse consequences for Lundin Gold, including its operating results, cash flow and financial condition. Community Relations The Company’s relationships with communities near where it operates and other stakeholders are critical to ensure the future success of Fruta del Norte and the exploration and development of the Company’s other concessions. The Company’s mineral concessions, including Fruta del Norte, are located near rural communities, some of which contain groups that have been opposed to mining activities from time to time in the past, which may affect the operations at Fruta del Norte and its exploration and development activities on its other concessions in the short and long term. Furthermore, local communities may be influenced by external entities, groups or organizations opposed to mining activities. In recent years, anti-mining nongovernmental organization (“NGO”) and indigenous group activities in Ecuador have increased. These communities, NGOs and indigenous groups have taken such actions as civil unrest, road closures and work stoppages. Such actions may have a material adverse effect on Lundin Gold’s operations at Fruta del Norte and on its exploration activities and on its financial position, cash flow and results of operations. While the Company is committed to operating in a socially responsible manner, there can be no assurance that the Company’s efforts in this respect will mitigate against this potential risk. Ability to Maintain Obligations or Comply with Debt Lundin Gold is subject to restrictive covenants under the gold prepay and stream facilities, the senior debt facility and the cost overrun facility. The Company’s project financing is secured by a first ranking charge over the assets of the subsidiaries related to Fruta del Norte (collectively, the “Operating Subsidiaries”), by a pledge of the shares of the Operating Subsidiaries and by guarantees of Lundin Gold and the Operating Subsidiaries. In addition, Lundin Gold may from time to time enter into other arrangements to borrow money to fund its operations at Fruta del Norte or the exploration and development activities on its other concessions, and such arrangements may include covenants that have similar obligations or that restrict its business in some way. Events may occur in the future, including events out of Lundin Gold's control, that could cause Lundin Gold to fail to satisfy its obligations under the gold prepay and stream facilities, the senior debt facility or other debt instruments that may arise. In such circumstances, amounts drawn under Lundin Gold's debt agreements may become due and payable before the agreed maturity date, and Lundin Gold may not have the financial resources to repay such amounts when due. If Lundin Gold were to default on its obligations under either the gold prepay and stream facilities, the senior debt facility, the cost overrun facility or other secured debt instruments in the future, the lender(s) under such debt instruments could enforce their security and seize Lundin Gold’s assets. 20 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Financing Requirements A substantial portion of Lundin Gold’s revenues and cash flows are committed to satisfying its obligations under the Prepay and Stream Loans and the Senior Facility. To the extent that Lundin Gold does not generate sufficient revenues and operating cash flow to satisfy its debt obligations, it will require additional capital to fund its debt obligations and costs and activities not related to Operations, respectively. If Lundin Gold raises additional capital by issuing equity, such financing may dilute the interests of shareholders and reduce the value of their investment. Moreover, Lundin Gold may not be successful in locating suitable additional or alternate financing when required or at all or, if available, Lundin Gold may incur substantial fees and costs and the terms of such financing might not be favourable to Lundin Gold. A failure to raise capital when needed could have a material adverse effect on Lundin Gold’s business, financial condition and results of operations. Gold Price The Company’s earnings, cash flow and financial condition are subject to risk due to fluctuations in the market price of gold. Gold prices have historically fluctuated widely. The price of gold is affected by numerous factors beyond Lundin Gold’s control, including levels of supply and demand, global or regional consumptive patterns, purchases or sales by government central banks, increased production due to new mine developments and improved mining and production methods, speculative activities related to the sale of metals, availability and costs of metal substitutes, international economic and political conditions, interest rates, currency values and inflation. A significant decline in the gold price could cause Fruta del Norte operations to be uneconomic. Depending on the price of gold, the Company’s cash flow may be insufficient to meet its operating needs, debt obligations and capital expenditures, and as a result the Company could experience financial difficulties and may suspend some or all of mining activities or otherwise revise its mine plan and exploration and development plans. In addition, (i) there is a time lag between the shipment of gold and final pricing, and changes in pricing can impact the Company’s revenue and working capital position, and (ii) cash costs and all-in sustaining costs of gold production are calculated net of silver by- product credits, and therefore may also be impacted by downward fluctuations in the price of silver. Any of these factors could result in a material adverse effect on the Company’s results of operations and financial condition. The estimation of economically viable identified Mineral Reserves requires certain assumptions, including gold price. A revised estimate of identified Mineral Reserves due to a substantial decline in the gold price could result in the decrease in the estimates of the Company’s Mineral Reserves, subsequent write downs and negative impact on mine life. Shortages of Critical Resources Disruptions in the supply of products or services required for the Company’s activities could adversely affect the Company’s operations, financial condition and results of operations. This may be the result of industry-wide shortages of certain goods or services, interruption in supplier operations or in transportation methods of certain goods, the risk of failure of certain long-lead items or the failure to obtain necessary permits for the supply of regulated goods. The Company’s costs may also be affected by the prices of commodities and other inputs it consumes or uses in its operations. The prices and availability of such commodities and inputs are influenced by supply and demand trends affecting the mining industry in general and other factors outside the Company’s control. Increases in the price for materials consumed in the Company’s mining and production activities could materially adversely affect the Company’s results of operations and financial condition. Environmental Compliance All of Lundin Gold’s exploration, development and production activities are subject to extensive environmental regulation. These regulations address, among other things, the emissions into the air, discharges into water, management of waste, management of tailings, management and shipment of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. 21 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Some laws and regulations may impose penalties for environmental contamination, which could subject the Company to liability for the conduct of others or for its own actions that followed all applicable laws at the time such actions were taken. Environmental legislation is evolving in a manner that will result in stricter standards and enforcement, increased fines and penalties for non-compliance, potential to temporary shutdown of a portion or all of the operations at Fruta del Norte until non-compliance is corrected, more stringent environmental assessments of proposed projects and mine closure plans and a heightened degree of responsibility for companies and their officers, directors and employees. Any future changes in environmental regulation could adversely affect the Company’s ability to conduct its operations. The Company may need to address contamination at Fruta del Norte in the future, either for existing environmental conditions or for leaks or discharges that may arise from ongoing operations or other contingencies. Contamination from hazardous substances at Fruta del Norte may subject it to material liability for the investigation or remediation of contamination, as well as for claims seeking to recover for related property damage, personal injury or damage to natural resources. Infrastructure Mining, processing, development and exploration activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges, and power sources are important elements of infrastructure, which affect capital and operating costs. The lack of availability on acceptable terms or the delay in the availability of any one or more of these items could prevent or delay or otherwise adversely impact the Company’s exploration, development or operating activities. If adequate infrastructure is not available in a timely manner, there is a risk that (i) the operations at Fruta del Norte will not achieve anticipated production, (ii) the operating costs associated with Fruta del Norte will be higher than anticipated, or (iii) the Company’s exploration and development activities will be not carried out as anticipated, or at all. Furthermore, unusual or infrequent weather phenomena, sabotage, community uprisings, government or other interference in the maintenance or provision of necessary infrastructure could adversely affect the operations at Fruta del Norte, cash flow and Lundin Gold’s financial position. Dependence on Single Mine The only material property interest of the Company is Fruta del Norte. Unless the Company acquires additional property interests or advances its other exploration properties, any adverse developments affecting Fruta del Norte could have a material adverse effect upon the Company and would materially and adversely affect the profitability, financial performance and results of operations of the Company. While the Company may seek to develop and acquire additional mineral properties that are consistent with its business objectives, there can be no assurance that Lundin Gold will be able to identify suitable additional mineral properties or, if it does identify suitable properties, that it will have sufficient financial resources to acquire such properties or that such properties will be available on terms acceptable to the Company or at all. Title Matters and Surface Rights and Access There is a risk that title to the mining concessions, the surface rights and access rights comprising Fruta del Norte and its related infrastructure or the concessions and access rights relating to Lundin Gold’s exploration concessions may be deficient or subject to dispute. The procurement or enforcement of such rights can be costly and time consuming. In areas where there are local populations or landowners, it may be necessary, as a practical matter, to negotiate or enforce surface access. In addition, in circumstances where such access is denied, or no agreement can be reached, Lundin Gold may need to rely on the assistance of local officials or the courts in such jurisdictions, which may delay or impact exploration or mining activities as planned. There is also a risk that the Company’s exploration, development and mining authorizations and surface rights may be challenged or impugned by third parties. Finally, there is a risk that developing laws and movements respecting the acquisition of lands and other rights of indigenous communities may alter the arrangements made by prior owners of the lands where Fruta del Norte is located. Future laws and actions could have a material adverse effect on Lundin Gold’s operations at Fruta del Norte or on its financial position, cash flow and results of operations. 22 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Tax Regime in Ecuador Tax regimes in Ecuador may be subject to differing interpretations and are subject to change without notice. The Company’s interpretation of tax law as applied to its transactions and activities may not coincide with that of the tax authorities. As a result, the taxation applicable to transactions and operations may be challenged or revised by the tax authorities, which could result in significant additional taxes, penalties and/or interest. There is a risk that restrictions on the repatriation of earnings from Ecuador to foreign entities will be imposed in the future and Lundin Gold has no control over withholding tax rates. In addition, there is a risk that laws and regulations in Ecuador may result in a capital gains tax on profits derived from the sale of shares, ownership interests and other rights, such as exploration rights, of companies with permanent establishments in the country. It is unknown at this time what, if any, liability the Company or its subsidiaries may be subject to as a result of the application of this law. There is a risk that the Company’s access to financing may be limited as a result of the indirect taxation. Availability of Workforce and Labour Relations The Company’s gold production and its exploration and development activities depend upon the efforts of Lundin Gold’s employees and contractors. The Company competes with mining and other companies on a global basis to attract and retain employees at all levels with appropriate technical skills and operating experience necessary to operate its mines. The conduct of the Company’s operations is dependent on access to skilled labour. Access to skilled labour may prove particularly challenging for Lundin Gold given the remote location of Fruta del Norte and local laws which impose thresholds for the representation of certain groups of people on Lundin Gold’s workforce in Ecuador and the ability of foreign skilled labour to obtain visas to work in Ecuador. Shortages of suitably qualified personnel could have a material adverse effect on the Company’s business and results of operations. The Company’s operations personnel are working, stationed and travel to and from Fruta del Norte, which is located in a remote region of Ecuador. While at site, these personnel are exposed to concentrated groups of people for lengthy periods of time. Any personnel or visitor becoming infected with a serious illness that has the potential to spread rapidly, like the current COVID-19 virus, could place other personnel and the Company’s operations at risk. Although the Company takes every precaution to strictly follow health regulations and guidelines, there can be no assurance that COVID-19 or other infectious illnesses will not negatively impact Lundin Gold’s personnel or its operations. Lundin Gold’s operations at Fruta del Norte depend upon the efforts of its employees, and the Company’s operations would be adversely affected if it failed to maintain satisfactory labour relations. The Company’s labour force is not unionized, and the introduction of a labour union could result in a disruption to production and/or higher costs and reduced flexibility. In addition, relations between the Company and its employees may be affected by changes in labour and employment laws. Changes in such legislation or in the relationship between the Company and its employees may have a material adverse effect on the Company’s business, results of operations, financial condition or prospects. Health and Safety Exploration and mining development and operating activities represent inherent safety hazards and maintaining the health and safety of the Company’s employees and contractors is of paramount importance to the Company. Health and safety hazard assessments are carried out regularly throughout the lifecycle of the Company’s activities, and robust policies, procedures and controls are in place. Notwithstanding continued efforts to adhere to the Company’s “zero harm” policy, safety incidents may still occur. Significant potential risks include, but are not limited to, surface or underground fires, rock falls underground, blasting accidents, vehicle accidents, unsafe road conditions or events, fall from heights, contact with energized sources, and exposure to infectious or occupational disease. Employees involved in activities in remote areas may also be exposed to attacks by individuals or violent opposition by local communities that may place the employees at risk of harm. Any incident resulting in serious injury or death could result in litigation and/or regulatory action (including, but not limited to suspension of development activities and/or fines and penalties), or otherwise adversely affect the Company’s reputation and ability to meet its objectives. 23 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Government or Regulatory Approvals Lundin Gold’s exploration and development activities and its operations depend on its ability to obtain, maintain or renew various mineral rights, licenses, permits, authorizations and regulatory approvals (collectively, “Rights” and individually a “Right”) from various governmental and quasi-governmental authorities. Government work stoppages may also impact the Company’s ability to obtain, maintain or renew certain Rights. Lundin Gold’s ability to obtain, maintain or renew such Rights on acceptable terms and on a timely basis is subject to changes in regulations and policies and to the discretion of the applicable governmental and quasi-governmental bodies. Lundin Gold may not be able to obtain, maintain or renew its Rights or its Rights may not be obtainable on reasonable terms or on a timely basis. It is possible that previously issued Rights may become suspended or revoked for a variety of reasons, including through government or court action. A delay in obtaining any such Rights, the imposition of unfavourable terms or conditions on any Rights or the denial of any Right may have a material adverse effect on Lundin Gold’s business, financial condition, results of operations and prospects and, in particular, the development and operations of Fruta del Norte. Mineral Reserve and Resource Estimates Mineral Reserve and Mineral Resource figures are estimates, and there is a risk that any of the Mineral Resources and Mineral Reserves identified at Fruta del Norte to date will not be realized. Until a deposit is actually mined and processed, the quantity of Mineral Resources and Mineral Reserves and grades must be considered as estimates only. In addition, the quantity of Mineral Resources and Mineral Reserves may vary depending on, among other things, precious metal prices. Any material change in quantity of Mineral Resources, Mineral Reserves or percent extraction of those Mineral Reserves recoverable by underground mining techniques may affect the economic viability of any project undertaken by Lundin Gold. In addition, there is a risk that metal recoveries during production do not reach anticipated rates. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability, and there is a risk that they will never be mined or processed profitably. Further, there is a risk that Inferred Mineral Resources will not be upgraded to proven and probable Mineral Reserves as a result of continued exploration. Fluctuations in gold prices, results of drilling, metallurgical testing and preparation and the evaluation of studies, reports and plans subsequent to the date of any estimate may require revision of such estimate. Any material reductions in estimates of Mineral Reserves could have a material adverse effect on Lundin Gold’s results of operations and financial condition. Key Talent Recruitment and Retention Recruiting and retaining qualified personnel is critical to Lundin Gold’s success. Lundin Gold is dependent on the services of key executives, including its President and Chief Executive Officer, and other highly skilled and experienced executives and personnel focused on managing Lundin Gold’s interests. The number of persons skilled in the financing, development, operations and management of mining properties is limited and competition for such persons is intense. The inability of Lundin Gold to successfully attract and retain highly skilled and experienced executives and personnel could have a material adverse effect on Lundin Gold’s business, financial condition and results of operations. 24 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Market Price of the Company’s Common Shares Securities of mineral companies have always experienced substantial volatility, often based on factors unrelated to the financial performance or prospects of the companies involved. These factors include macroeconomic conditions in North America and globally, and market perceptions of the attractiveness of particular industries or sectors. The price of the Company’s common shares is also likely to be significantly affected by short-term changes in gold price, currency exchange fluctuations, or its financial condition or results of operations and exploration activities on its projects. Other factors unrelated to the performance of the Company that may have an effect on the price of the Company’s common shares include: the extent of analyst coverage available to investors concerning the business of the Company may be limited if investment banks with research capabilities do not follow the Company; lessening in trading volume and general market interest in the Company’s common shares may affect an investor's ability to trade significant numbers of common shares of the Company; the size of the Company's public float and whether it is included in market indices may limit the ability of some institutions to invest in the Company’s common shares; and the evaluation of the Company’s performance and practices by third party rating agencies on ESG matters, which may limit the ability of some institutions or other investors to invest in the Company’s common shares. If an active market for the Shares does not continue, the liquidity of an investor's investment may be limited, and the price of the Company’s common shares may decline. If an active market does not exist, investors may lose their entire investment in the Company. As a result of any of these factors, the market price of the Company’s common shares at any given point in time may not accurately reflect the long-term value of the Company. Securities class-action litigation often has been brought against companies following periods of volatility in the market price of their securities. The Company may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management's attention and resources. Control of Lundin Gold As at the date hereof, Newcrest Mining Limited and the Lundin Family Trust are control persons of Lundin Gold. As long as these shareholders maintain their significant positions in Lundin Gold, they will have the ability to exercise influence with respect to the affairs of Lundin Gold and significantly affect the outcome of matters upon which shareholders are entitled to vote. As a result of the holdings in the Company of control persons, there is a risk that the Company’s securities are less liquid and trade at a relative discount compared to circumstances where these persons did not have the ability to influence or determine matters affecting Lundin Gold. Additionally, there is a risk that their significant interests in Lundin Gold discourages transactions involving a change of control of Lundin Gold, including transactions in which an investor, as a holder of the Company’s securities, would otherwise receive a premium for its Company’s securities over the then- current market price. Measures to Protect Endangered Species and Critical Habitats Ecuador is a country with a diverse and fragile ecosystem and the national government, regional governments, indigenous groups and NGOs are vigilant in their protection of endangered species and critical habitats. The existence or discovery of an endangered species or critical habitats at Fruta del Norte or any of its exploration concessions may have a number of adverse consequences to the Company’s plans and operations. For instance, the presence of an endangered species could require the Company to take additional measures to protect the species or to cease its activities at Fruta del Norte temporarily or permanently, which would impact production from Fruta del Norte and would have an adverse economic impact on the Company, which could be material. The existence or discovery of an endangered species or critical habitat at Fruta del Norte or the Company’s exploration concessions could also ignite NGO and local community opposition to the Company’s activities, which could impact its plans and operations and the Company’s financial condition and global reputation. 25 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Information Systems and Cyber Security The Company's operations depend on information technology (“IT”) systems. These IT systems could be subject to network disruptions caused by a variety of sources, including computer viruses, security breaches and cyber-attacks, as well as disruptions resulting from incidents such as cable cuts, damage to physical plants, natural disasters, terrorism, fire, power loss, vandalism and theft. The Company's operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures. Any of these and other events could result in IT system failures, delays and/or increase in capital expenses. The failure of IT systems or a component of information systems could, depending on the nature of any such failure, adversely impact the Company's reputation and results of operations. Although to date the Company has not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that the Company will not incur such losses in the future. The Company's risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber security and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority. As cyber threats continue to evolve, the Company may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities. Non-Compliance and Compliance Costs Lundin Gold, its subsidiaries, its business and its operations are subject to various laws and regulations. The costs associated with compliance with such laws and regulations may cause substantial delays and require significant cash and financial expenditure, which may have a material adverse effect on the Company or the operation of Fruta del Norte. There is a risk that the Company may fail to comply with a legal or regulatory requirement, which may lead to the revocation of certain rights or to penalties or fees and in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. In addition, the Company may be required to compensate those suffering loss or damage arising from its non-compliant activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations and, in particular, environmental laws. Failure to comply strictly with applicable laws, regulations and local practices relating to mineral rights could result in loss, reduction or expropriation of entitlements. Any of the foregoing may have a material adverse effect on the Company or the operation of Fruta del Norte. Exploration and Development Risks The Company has the rights to 25 mineral concessions targeted for exploration outside of Fruta del Norte. The exploration for, and development of, new mineral deposits involves significant risks which, even with a combination of careful evaluation, experience and knowledge, may not be eliminated. Few exploration properties are ultimately developed into producing mines. Whether a mineral deposit will be commercially viable depends on a number of factors, including but not limited to: the particular attributes of the deposit, such as quantity and quality of the minerals, metallurgy and proximity to infrastructure and labour; mineral prices, which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals, and environmental protection. There is a risk that the exploration and development efforts and expenditures made by Lundin Gold will not result in any new discoveries of other mineral occurrences or new estimates of Mineral Resources or Mineral Reserves. Illegal Mining Mining by illegal miners occurs on and near some of Lundin Gold’s mineral concessions in Ecuador. While this activity is monitored by both the Company and the government, the operations of artisanal and illegal miners could interfere with Lundin Gold’s activities and could result in conflicts. These potential activities could cause damage to Fruta del Norte, including road blockages, pollution, environmental damage or personal injury or death, for which Lundin Gold could potentially be held responsible. The presence of illegal miners can lead to delays and disputes regarding the development or operation of gold deposits. Illegal mining can also result in mine stoppages, environmental issues and could have a material adverse effect on Lundin Gold’s results of operations or financial condition. 26 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Insurance and Uninsured Risks Exploration, development and production operations on mineral properties involve numerous risks including, but not limited to, unexpected or unusual geological operating conditions, rock bursts, cave-ins, fires, floods, landslides, earthquakes and other environmental occurrences, risks relating to the storage and shipment of precious metal concentrates or doré bars, and political and social instability. Such occurrences could result in damage to mineral properties, damage to underground development, damage to production or infrastructure facilities, personal injury or death, environmental damage to Lundin Gold’s properties or the properties of others, delays in the ability to undertake exploration and development, monetary losses and possible legal liability. Should such liabilities arise, they could reduce or eliminate future profitability and result in increasing costs and a decline in the value of the Company’s Common Shares. Although Lundin Gold maintains insurance to protect against certain risks in such amounts as it considers reasonable, its insurance policies do not cover all the potential risks associated with a mining company’s operations. The Company may also be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance coverage may not continue to be available or may not be adequate to cover any resulting liability. Moreover, insurance against risks such as environmental pollution or other hazards as a result of exploration, development and production may not be available to the Company on acceptable terms. Lundin Gold might also become subject to liability for pollution or other hazards which it may not be insured against or which the Company may elect not to insure against because of premium costs or other reasons. Insurance limits currently in place may also not be sufficient to cover losses arising from insured events. Losses from any of the above events may cause the Company to incur significant costs that could have a material adverse effect upon its financial performance and results of operations. Reclamation Obligations Reclamation requirements are designed to minimize long-term effects of mining exploitation and exploration disturbance by requiring the operating company to control possible deleterious effluents and to re-establish to some degree pre-disturbance land forms and vegetation. Lundin Gold is subject to such requirements in connection with its activities at Fruta del Norte and may be liable for actions and activities and disturbances caused by artisanal and illegal miners on the Company’s property. Any significant environmental issues that may arise, however, could lead to increased reclamation expenditures and could have a material adverse impact on Lundin Gold’s financial resources. Furthermore, environmental hazards may exist on the properties in which Lundin Gold holds interests which are unknown to Lundin Gold at present and which have been caused by previous or existing owners or operators of the properties. There can also be no assurance that closure estimates prove to be accurate. The amounts recorded for reclamation costs are estimates unique to a property based on estimates provided by independent consulting engineers and Lundin Gold’s assessment of the anticipated timing of future reclamation and remediation work required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could affect the extent of reclamation and remediation work required to be performed by Lundin Gold. Any such changes in future costs could materially impact the amounts charged to operations for reclamation and remediation. Violation of Anti-Bribery and Corruption Laws The Company’s operations are governed by, and involve interactions with, many levels of government in numerous countries. The Company is required to comply with anti-corruption and anti-bribery laws, including the Criminal Code, the Canadian Corruption of Foreign Public Officials Act and the U.S. Foreign Corrupt Practices Act, as well as similar laws in the countries in which Lundin Gold conducts its business. In recent years, there has been a general increase in both the frequency of enforcement and the severity of penalties under such laws, resulting in greater scrutiny and punishment to companies convicted of violating anti-corruption and anti-bribery laws. Furthermore, a company may be found liable for violations not only by its employees, but also by its contractors and third-party agents. Although Lundin Gold has adopted steps to mitigate such risks, such measures may not always be effective in ensuring that the Company, its employees, contractors and third-party agents will comply strictly with such laws. If the Company finds itself subject to an enforcement action or is found to be in violation of such laws, this may result in significant penalties, fines and/or sanctions imposed on the Company resulting in a material adverse effect on the Company’s reputation and results of its operations. 27 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Climate Change Changes in climate conditions could adversely affect Lundin Gold’s business and operations through the impact of (i) more extreme temperatures, precipitation levels and other weather events; (ii) changes to laws and regulations related to climate change; and (iii) changes in the price or availability of goods and services required in its business. Physical risks related to climate change may include more extreme temperatures, precipitation levels and other weather events. Extreme high or low temperatures could impact the operation of equipment and the safety of personnel at Fruta del Norte, which could result in damage to equipment, injury to personnel and production disruptions. Increased in precipitation levels or extreme weather events, such as severe storms or floods, which may be more probable and more extreme due to climate change, may negatively impact operations, disrupt production, lead to water management challenges, landslides or breach of containment facilities. Significant capital investment may be required to address these occurrences and to adapt to changes in average operating conditions caused by these changes to the climate. Increased environmental regulation and/or the use of fiscal policy by regulators in response to concerns over climate change and other environmental impacts, such as additional taxes levied on activities deemed harmful to the environment, could have a material adverse effect on Lundin Gold’s financial condition or results of operations. Climate change may lead to changes in the price and availability of goods and services required for Fruta del Norte’s operations, which requires the regular supply of consumables such as diesel, electricity, sodium cyanide and other supplies to operate efficiently. The Company’s operations also depend on service providers to transport these consumables and other goods to Fruta del Norte and to transport doré and concentrate produced by the Company to refiners and smelters, respectively. The effects of extreme weather described above and changes in legislation and regulation on the Company’s suppliers and their industries may cause limited availability or higher price for these goods and services, which could result in higher costs or production disruptions. The Company is working towards implementing the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD), the purpose of which is to provide a framework to assess and disclose climate resilience. Even after completing this undertaking, the Company cannot be certain that it will have adequately assessed the risks of climate change on its business or that its efforts to mitigate the risks of climate change will be adequate or effective. Claims and Legal Proceedings Lundin Gold may be subject to claims or legal proceedings in multiple jurisdictions covering a wide range of matters that arise in the ordinary course of its current business or the Company’s previous business activities which could materially adversely impact Lundin Gold. Internal Controls Internal controls over financial reporting are procedures designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use, and transactions are properly recorded and reported. A control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance with respect to the reliability of financial reporting and financial statement preparation. Security The Company is exposed to various levels of safety and security risks which could result in injury or death, theft or damage to property, work stoppages, or blockades of its mining operations. Risks and uncertainties include, but are not limited to, terrorism, hostage taking, local drug gang activities, military repression, labour unrest and war or civil unrest. Opposition to mining could arise and such opposition may be violent. Resistance or unrest in Ecuador could have a material adverse effect on our operations and profitability. 28 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) Conflicts of Interest Certain directors and officers of Lundin Gold are or may become associated with other mining and/or mineral exploration and development companies, which may give rise to conflicts of interest. Directors who have a material interest in any person who is a party to a material contract or a proposed material contract with the Company are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve such a contract. In addition, directors and officers are required to act honestly and in good faith with a view to the best interests of the Company. Some of the directors and officers of the Company have either other full-time employment or other business or time restrictions placed on them and, accordingly, the Company will not be the only business enterprise of these directors and officers. Further, any failure of the directors or officers of the Company to address these conflicts in an appropriate manner or to allocate opportunities that they become aware of to the Company could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows or prospects. Dividends Any payments of dividends on the common shares will be dependent upon the financial requirements of the Company to finance future growth, the financial condition of the Company, restrictions under gold prepay and stream facilities, and the senior debt facility, and other factors which the Board may consider appropriate in the circumstance. Social Media and Reputation As a result of the increased usage and the speed and global reach of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users, companies today are at much greater risk of losing control over how they are perceived in the marketplace. Damage to reputation can be the result of the actual or perceived occurrence of any number of events, and could include any negative publicity (for example, with respect to handling of environmental matters or Lundin Gold’s dealings with community groups), whether true or not. The Company places a great emphasis on protecting its image and reputation but does not ultimately have direct control over how it is perceived by others. Reputation loss may lead to increased challenges in developing and maintaining community relations, maintaining a positive relationship with government authorities, decreased investor confidence and an impediment to the overall success of Fruta del Norte in Ecuador, thereby having a material adverse impact on financial performance, cash flows and growth prospects. FORWARD LOOKING STATEMENTS Certain of the information and statements in this MD&A are considered “forward-looking information” or “forward-looking statements” as those terms are defined under Canadian securities laws (collectively referred to as “forward-looking statements”). Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, identified by words or phrases such as “believes”, “anticipates”, “expects”, “is expected”, “scheduled”, “estimates”, “pending”, “intends”, “plans”, “forecasts”, “targets”, or “hopes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “will”, “should” “might”, “will be taken”, or “occur” and similar expressions) are not statements of historical fact and may be forward-looking statements. By their nature, forward-looking statements and information involve assumptions, inherent risks and uncertainties, many of which are difficult to predict, and are usually beyond the control of management, that could cause actual results to be materially different from those expressed by these forward-looking statements and information. Lundin Gold believes that the expectations reflected in this forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct. Forward-looking information should not be unduly relied upon. This information speaks only as of the date of this MD&A, and the Company will not necessarily update this information, unless required to do so by securities laws. 29 LUNDIN GOLD INC. Management’s Discussion and Analysis Year Ended December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) This MD&A contains forward-looking information in a number of places, such as in statements pertaining to: estimates of gold production, grades and recoveries, expected sales receipts, cash flow forecasts and financing obligations, its capital costs and the expected timing of completion of capital projects including the SVR, the Company's bridge over the Zamora River and the throughput expansion project, the timing and the success of its drill program at Fruta del Norte and its other exploration activities, the completion of construction and the Company’s efforts to protect its workforce from COVID-19. Lundin Gold’s actual results could differ materially from those anticipated. Management has identified the following risk factors which could have a material impact on the Company or the trading price of its shares: risks relating to the impacts of a pandemic virus outbreak, political and economic instability in Ecuador, production estimates, mining operations, the Company's community relationships, ability to maintain obligations or comply with debt, financing requirements, volatility in the price of gold, shortages of critical supplies, compliance with environmental laws and liability for environmental contamination, lack of availability of infrastructure, the Company's reliance on one mine, deficient or vulnerable title to concessions, easements and surface rights, uncertainty with the tax regime in Ecuador, the Company’s workforce and its labour relations, inherent safety hazards and risks to the health and safety of the Company’s employees and contractors, the Company’s ability to obtain, maintain or renew regulatory approvals, permits and licenses, the imprecision of mineral reserve and resource estimates, key talent recruitment and retention of key personnel, volatility in the market price of the shares, the potential influence of the Company's largest shareholders, measures to protect endangered species and critical habitats, the reliance of the Company on its information systems and the risk of cyber-attacks on those systems, the cost of non-compliance and compliance costs, exploration and development risks, risks related to illegal mining, the adequacy of the Company’s insurance, uncertainty as to reclamation and decommissioning, the ability of Lundin Gold to ensure compliance with anti-bribery and anti- corruption laws, the uncertainty regarding risks posed by climate change, the potential for litigation, limits of disclosure and internal controls, security risks to the Company, its assets and its personnel, conflicts of interest, risks that the Company will not declare dividends and social media and reputation. There can be no assurance that such statements will prove to be accurate, as Lundin Gold's actual results and future events could differ materially from those anticipated in this forward-looking information as a result of the factors discussed under the heading “Risk Factors” in this MD&A. 30 Independent auditor’s report To the Shareholders of Lundin Gold Inc. Our opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Lundin Gold Inc. and its subsidiaries (together, the Company) as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS). What we have audited The Company’s consolidated financial statements comprise: • • • • • the consolidated statements of financial position as at December 31, 2020 and 2019; the consolidated statements of loss and comprehensive income (loss) for the years then ended; the consolidated statements of changes in equity for the years then ended; the consolidated statements of cash flows for the years then ended; and the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information. Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2020. These matters were PricewaterhouseCoopers LLP PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7 T: +1 604 806 7000, F: +1 604 806 7806 “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. 31 addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Fair value of the gold prepay credit facility, stream loan credit facility and offtake derivative liability Refer to note 3 – Summary of significant accounting policies, note 9 – Long-term debt and note 20 – Financial instruments and risk management to the consolidated financial statements. The Company has a gold prepay credit facility, a stream loan credit facility and an offtake derivative liability (together, fair value financial liabilities), which management measured as financial liabilities at fair value through profit or loss. As at December 31, 2020, these fair value financial liabilities were valued at $248.8 million, $268.5 million and $32.3 million, respectively, and management recorded a combined change in fair values of these liabilities of $137.0 million and ($128.1) million during the year in net loss and other comprehensive income (loss), respectively. Management used Monte Carlo simulation valuation models to determine the fair values of these fair value financial liabilities. The significant assumptions used in the Monte Carlo simulation valuation models include: the gold forward prices, gold price volatility, the risk-free rate of return, risk-adjusted discount rates and the projected life of mine production schedule. In addition, in valuing the stream loan credit facility, the silver forward prices, silver price volatility, and the gold/silver price correlation were also used as significant assumptions by management. The Monte Carlo simulation valuation models were prepared by an independent valuation specialist and the projected life of mine production schedule was based on information compiled and reviewed by qualified persons (together, management’s experts). Our approach to addressing the matter included the following procedures, among others: • With the assistance of professionals with specialized skill and knowledge in the field of financial instrument valuation, developed an independent point estimate of the fair values of the gold prepay credit facility, stream loan credit facility and offtake derivative liability, which included: − Independently developing expectations related to the gold forward prices, gold price volatility, the risk-free rate of return, the risk-adjusted discount rates, the silver forward prices, silver price volatility, and the gold/silver price correlation based on external market and industry data. − Comparing the independent point estimates to management’s estimates to evaluate the reasonableness of management’s estimates. • Developing the independent point estimates also involved assessing the reasonableness of the projected life of mine production schedule, which involved: − Comparing the gold and silver production volumes deducted from the stream loan credit liability up to December 31, 2020 to actual production volumes. − Comparing the future production volumes included in the projected life of mine production schedule on a total and annual basis, to the available quantities of recoverable reserves and resources. 32 Key audit matter How our audit addressed the key audit matter We considered this a key audit matter due to (i) the significant judgments made by management, including the use of management’s experts, when developing the key inputs used in the valuation of the fair value financial liabilities; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures related to the significant assumptions; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. − Using the work of qualified persons in performing the procedures to evaluate the reasonableness of the estimates associated with the available quantity of recoverable reserves and resources. As a basis for using this work, the qualified persons’ competence, capability and objectivity were evaluated, their work performed was understood and the appropriateness of their work as audit evidence was evaluated by considering the relevance and reasonableness of the assumptions and methods and findings. • Tested the disclosures, including the sensitivity analysis, made in the consolidated financial statements with regards to the valuation of the fair value financial liabilities. Other information Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. 33 In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. 34 • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Mark Platt. /s/PricewaterhouseCoopers LLP Chartered Professional Accountants Vancouver, British Columbia February 24, 2021 35 LUNDIN GOLD INC. Consolidated Statements of Financial Position (Expressed in thousands of U.S. Dollars) ASSETS Current assets Cash and cash equivalents Trade receivables and other current assets Inventories Advance royalty Non-current assets VAT recoverable and other long-term assets Advance royalty Property, plant and equipment Mineral properties LIABILITIES Current liabilities Accounts payable and accrued liabilities Current portion of long-term debt Non-current liabilities Long-term debt Other non-current liabilities Reclamation provisions EQUITY Share capital Equity-settled share-based payment reserve Accumulated other comprehensive income (loss) Deficit Commitments (Note 22) December 31, Note 2020 December 31, 2019 $ 4 5 7 4 7 6 $ 79,592 136,497 59,910 13,000 288,999 71,655 41,461 872,148 231,097 75,684 63,706 - 9,790 149,180 39,435 54,699 924,982 240,665 $ 1,505,360 $ 1,408,961 $ 8 9 53,821 178,575 $ 58,802 57,578 232,396 116,380 9 12 10 11 12 678,519 1,631 5,956 821,008 - 4,751 918,502 942,139 951,725 14,732 22,511 (402,110) 586,858 899,903 14,118 (92,247) (354,952) 466,822 $ 1,505,360 $ 1,408,961 Approved by the Board of Directors /s/ Ron F. Hochstein Ron F. Hochstein /s/ Ian W. Gibbs Ian W. Gibbs The accompanying notes are an integral part of these consolidated financial statements. 36 LUNDIN GOLD INC. Consolidated Statements of Loss and Comprehensive Income (Loss) (Expressed in thousands of U.S. Dollars, except share and per share amounts) Note Years Ended December 31, 2020 2019 Revenues 6(b) $ 358,156 $ Cost of goods sold Operating expenses Royalty expenses Depletion and depreciation Income from mining operations Other expenses (income) Corporate administration Exploration Suspension of operations Finance expense (income) Other expense Derivative loss Net loss before tax Income tax recovery Deferred income tax recovery 112,132 20,750 52,888 185,770 172,386 17,801 2,805 29,304 44,942 924 136,984 13 14 15 20(b) - - - - - - 23,013 3,733 - (1,763) 842 93,120 232,760 118,945 (60,374) (118,945) 17 13,216 - Net loss for the year $ (47,158) $ (118,945) OTHER COMPREHENSIVE INCOME (LOSS) Items that may be reclassified to net loss Currency translation adjustment Items that will not be reclassified to net loss Derivative gain (loss) related to the Company’s own credit risk 20(b) Deferred income tax expense on accumulated other comprehensive income Other 17 Comprehensive income (loss) for the year Basic and diluted loss per common share 194 4,134 128,089 (61,238) (13,216) (309) - 210 67,600 $ (175,839) (0.21) $ (0.54) $ $ Weighted-average number of common shares outstanding 227,500,029 221,247,101 The accompanying notes are an integral part of these consolidated financial statements. 37 LUNDIN GOLD INC. Consolidated Statements of Changes in Equity (Expressed in thousands of U.S. Dollars, except number of common shares) Number of common shares Note Share capital Equity-settled share-based payment reserve Other reserves Deficit Total Balance January 1, 2019 213,163,980 $ 857,279 $ 12,125 $ (35,353) $ (236,007) $ 598,044 Proceeds from equity financing, net Consideration for cost overrun facility Exercise of stock options Exercise of anti-dilution rights Stock-based compensation Other comprehensive loss Net loss for the year Balance December 31, 2019 Proceeds from equity financing, net Exercise of stock options Exercise of anti-dilution rights Stock-based compensation Other comprehensive loss Net loss for the year 11 9 12 11 12 11 12 11 12 8,625,000 300,000 1,121,800 420,432 - - - 33,940 1,221 5,340 2,123 - - - - 373 (2,010) 139 3,491 - - - - - - - (56,894) - - - - - - - (118,945) 33,940 1,594 3,330 2,262 3,491 (56,894) (118,945) 223,631,212 $ 899,903 $ 14,118 $ (92,247) $ (354,952) $ 466,822 4,772,500 1,074,650 609,975 - - - 41,419 5,318 5,085 - - - - (1,887) - 2,501 - - - - - - 114,758 - - - - - - (47,158) 41,419 3,431 5,085 2,501 114,758 (47,158) Balance December 31, 2020 230,088,337 $ 951,725 $ 14,732 $ 22,511 $ (402,110) $ 586,858 The accompanying notes are an integral part of these consolidated financial statements. 38 LUNDIN GOLD INC. Consolidated Statements of Cash Flows (Expressed in thousands of U.S. Dollars) OPERATING ACTIVITIES Net loss for the year Item not affecting cash: Depletion and depreciation Stock-based compensation Derivative loss Unrealized foreign exchange loss Finance expense (income) Income tax recovery Other expense Changes in non-cash working capital items: Trade receivables and other current assets Inventories Advance royalty Accounts payable and accrued liabilities Interest received Note Years Ended December 31, 2020 2019 $ (47,158) $ (118,945) 12 20(b) 55,411 4,061 136,984 2,333 42,733 (13,216) - 130 3,491 93,120 2,637 (1,763) - 398 181,148 (20,932) (110,141) (11,158) 8,762 44,631 402 (2,726) - - 589 1,763 Net cash provided by (used for) operating activities 113,644 (21,306) FINANCING ACTIVITIES Net proceeds from equity financing Proceeds from long-term debt Repayments of long-term debt Interest paid Transaction costs paid Proceeds from exercise of stock options Proceeds from exercise of anti-dilution rights 11 9 9 9 9 11 41,419 - (35,412) (42,294) - 3,431 5,085 33,940 350,000 - (12,982) (5,541) 3,330 2,262 Net cash provided by (used for) financing activities (27,771) 371,009 INVESTING ACTIVITIES Acquisition and development of property, plant and equipment, net of sales Change in VAT receivable and other long-term assets 6 Net cash used for investing activities (58,766) (20,878) (404,093) (38,797) (79,644) (442,890) Effect of foreign exchange rate differences on cash (2,321) 1,358 Net increase (decrease) in cash and cash equivalents 3,908 (91,829) Cash and cash equivalents, beginning of year 75,684 167,513 Cash and cash equivalents, end of year $ 79,592 $ 75,684 Supplemental cash flow information (Note 18) The accompanying notes are an integral part of these consolidated financial statements. 39 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 1. Nature of operations Lundin Gold Inc. together with its subsidiaries (collectively referred to as “Lundin Gold” or the “Company”) is focused on its Fruta del Norte gold operation and developing its portfolio of mineral concessions in Ecuador. The common shares of the Company are listed for trading on the Toronto Stock Exchange (the “TSX”) and Nasdaq Stockholm under the symbol “LUG”. The Company was originally incorporated in British Columbia and continued under the Canada Business Corporations Act in 2002. The Company’s head office is located at Suite 2000, 885 W. Georgia Street, Vancouver, BC, and it has a corporate office in Quito, Ecuador. The Company substantially completed the development of Fruta del Norte and achieved commercial production in February 2020. The continued operations at Fruta del Norte are dependent on the extent to which the COVID-19 pandemic is being controlled, consequential actions by local, provincial, and national governments, and the effectiveness of the international supply chain and personnel travel. Therefore, the Company cannot be certain that an escalation of the COVID-19 pandemic would not have an impact on operations or on the Company’s financial position in the future. The Company’s continuing operations and the underlying value and recoverability of the amount shown for the mineral interests and property, plant and equipment are ultimately dependent upon the ability of the Company to operate the mine without extended interruptions and on future profitable production. 2. Basis of preparation These consolidated financial statements, including comparatives, have been prepared using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The principal accounting policies applied in the preparation of these consolidated financial statements are set out below and have been consistently applied to all the periods presented. These consolidated financial statements were approved for issue by the Board of Directors on February 24, 2021. The following entities are included in these consolidated financial statements: Aurelian Resources Inc. Aurelian Resources Corporation Ltd. Aurelian Exploration Inc. Aurelian Menor Inc. Condor Finance Corp. Aurelian Ecuador S.A. AurelianEcuador Holding S.A. Ecoaurelian Agricola S.A. Aurelianmenor S.A. SurNorte Ventures Pte. Ltd. SurNorte Holdings I Pte. Ltd. SurNorte Holdings II Pte. Ltd. SurNorte S.A. Country of incorporation Canada Canada Canada Canada Canada Ecuador Ecuador Ecuador Ecuador Singapore Singapore Singapore Ecuador Ordinary shares held December 31, December 31, 2020 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2019 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% The proportion of the voting rights held directly by the parent company does not differ from the proportion of ordinary shares held. 40 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 3. Summary of significant accounting policies The Company’s principal accounting policies are outlined below: (a) Basis of consolidation These consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. All significant intercompany transactions and balances have been eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company. (b) Foreign currency translation Transactions and balances In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each statement of financial position date, monetary assets and liabilities are translated using the period end foreign exchange rate. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. Non-monetary assets and liabilities that are stated at fair value are translated using the historical rate on the date that the fair value was determined. All gains and losses on translation of these foreign currency transactions are included in the statement of loss. Group companies The functional currency of the significant subsidiary of the Company, Aurelian Ecuador S.A., and certain other entities is U.S. dollars. Other entities which have a functional currency different from the presentation currency, including Lundin Gold Inc. whose functional currency is CAD, are translated into the presentation currency as follows: i. ii. iii. Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position. Income and expenses for each statement of loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions). All resulting exchange differences are recognized in other comprehensive loss as cumulative translation adjustments. (c) Critical accounting estimates and judgments The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period, that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that the actual results differ from assumptions made, relate to, but are not limited to, the following: 41 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 3. Summary of significant accounting policies (continued) Mineral reserves and resources – The Company estimates its mineral reserves and resources based on information compiled and reviewed by qualified persons as defined in accordance with NI 43-101 requirements. The estimation of mineral reserves and resources requires judgment to interpret geological data and metallurgical testing, design of appropriate mining methods, recovery methods and establishment of a life of mine production schedule. The estimation of recoverable reserves is also based on assumptions such as capital costs, operating costs and metal pricing. New geological data or changes in the above assumptions may change the economic viability of reserves and may, ultimately, result in the reserves being revised. Changes in the reserve or resource estimates may impact the fair value of financial instruments, the valuation of property, plant and equipment and mineral properties, the depletion and depreciation of property, plant and equipment and mineral properties, utilization of tax losses and decommissioning and site restoration provisions. Fair value of financial instruments – The fair value of financial instruments that are not traded in an active market are determined using valuation techniques. The Company uses its judgment to select a variety of methods and makes significant assumptions that are mainly based on market conditions existing at initial recognition and at the end of each reporting period. Refer to Note 20 for further details on the methods and significant assumptions used. Commercial production – The determination of when a mine is operating in the manner intended by management (referred to as “commercial production”) is a matter of significant judgement. In making this determination, management considered specific facts and circumstances. These factors included, but were not limited to, whether substantially all construction development activities had been completed in accordance with design and a period of commissioning which achieved consistent operating results for a period of time in relation to design capacity. Valuation of mineral properties, property, plant, and equipment – The Company carries the acquisition costs of its mineral properties, property, plant, and equipment at cost less depletion and depreciation and any impairment losses. The Company undertakes a periodic review of the carrying values of these assets and whenever events or changes in circumstances indicate that their carrying values may exceed their recoverable amount. In undertaking this review, management of the Company is required to make significant judgments, including estimates of mineral reserves and resources. These judgments are subject to various risks and uncertainties, which may ultimately have an effect on the expected recoverability of the carrying values of these assets. Utilization of tax losses – The Company is subject to income taxes in a number of jurisdictions and has had a history of tax losses. These tax losses are only recognized to the extent that expected future taxable profits are available. Judgment is required in assessing whether deferred tax assets and certain deferred tax liabilities are recognized on the balance sheet and what tax rate is expected to be applied in the year when the related temporary differences reverse. Deferred tax liabilities arising from temporary differences are recognized unless the reversal of the temporary differences is not expected to occur in the foreseeable future and can be controlled. As the Company has not yet had a history of taxable profits as at December 31, 2020, the Company has not recognized any tax losses on its financial statements except those expected to be utilized as a result of cumulative derivative gains within other comprehensive income. Stock-based compensation – The fair value of stock options is determined using the Black-Scholes option pricing model and are expensed over their vesting periods. In estimating fair value, management of the Company is required to make certain assumptions and estimates regarding the life of the options, volatility and forfeiture rates. Changes in the assumptions used could result in materially different results. 42 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 3. Summary of significant accounting policies (continued) Decommissioning and site restoration provisions – The Company has obligations for site restoration and decommissioning related to Fruta del Norte. The future obligations for decommissioning and site restoration activities are estimated by the Company using mine closure plans or other similar studies which outline the requirements that will be carried out to meet the obligations. Because the obligations are dependent on the laws and regulations of the country in which the project is located, the requirements could change as a result of amendments in the laws and regulations relating to environmental protection and other legislation affecting resource companies. As the estimate of obligations is based on future expectations, a number of assumptions and judgments are made by management in the determination of closure provisions. The decommissioning and site restoration provisions are more uncertain the further into the future the mine closure activities are to be carried out. (d) Segment reporting The Company’s primary reporting segments are based on the nature of its operations, being the operation of Fruta del Norte, exploration activities in Ecuador, and corporate activities in Canada. The office in Canada provides support to the operations in Ecuador with respect to treasury and finance, regulatory reporting and corporate administration. (e) Financial instruments Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities measured at fair value through profit or loss are recognized immediately in the statement of loss. Financial assets The Company classifies its financial assets according to the following measurement categories: i. Amortized cost Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. ii. Fair value through other comprehensive loss (“FVOCI”) Assets that are held for both collection of contractual cash flows and future potential sale, where the assets’ cash flows represent solely payments of principal and interest, are measured at fair value through other comprehensive loss. iii. Fair value through profit or loss (“FVPL”) Assets that do not meet the criteria for amortized cost or FVOCI are measured at fair value through profit or loss. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. 43 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 3. Summary of significant accounting policies (continued) Impairment of financial assets The Company assesses the expected credit losses associated with its financial assets carried at amortized cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Financial liabilities The Company classifies its financial liabilities according to the following measurement categories: i. FVPL Liabilities that are (i) held for trading or (ii) so designated, are measured at FVPL. A financial liability is classified as held for trading if: • It has been incurred principally for the purpose of repurchasing it in the near term; or • On initial recognition it is part of a portfolio of identified financial instruments that the Company may manage together and has a recent actual pattern of short-term profit-taking; or It is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument. • A financial liability that is not a financial liability held for trading may be designated as FVPL upon initial recognition if: • Such designation eliminates or significantly reduces a measurement or recognition • • inconsistency that would otherwise arise; or The financial liability forms part of a group of financial assets or liabilities or both, which is managed and its performance is evaluated on a fair value basis; or It forms part of a contract containing one or more embedded derivatives, and IFRS 9 permits the entire combined contract to be designated as FVPL. The amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognised in other comprehensive income. The remaining amount of change in the fair value of liability is recognised in the statement of loss. Changes in fair value attributable to a financial liability’s credit risk that are recognised in other comprehensive income are not subsequently reclassified to the statement of loss; instead, they are transferred to retained earnings upon derecognition of the financial liability. ii. Amortized cost Liabilities not measured at FVPL are measured subsequently at amortized cost using the effective interest method. Financial liabilities are derecognized when, and only when, the Company’s obligations are discharged, cancelled or have expired. (f) Cash Cash includes cash on hand and deposits held with banks. 44 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 3. Summary of significant accounting policies (continued) (g) Inventories Ore stockpiles, in-circuit and finished metal inventory are valued at the lower of weighted average production cost and net realizable value. Production costs include the cost of raw materials, direct labour, mine-site overhead expenses and applicable depreciation and depletion of mineral properties, plant and equipment. Net realizable value is calculated as the estimated price at the time of sale based on prevailing and long-term metal prices less estimated future production costs to convert the inventories into saleable form and estimated costs to sell. Ore stockpile inventory represents ore on the surface or underground that has been extracted from the mine and is available for further processing. In-circuit inventory represents material in the mill circuit that is in the process of being converted into a saleable form. Finished metal inventory represents doré and concentrate located at the mine, in transit to and at port and doré at refineries. Materials and supplies inventories are valued at the lower of weighted average cost and net realizable value. Replacement costs of materials and spare parts are generally used as the best estimate of net realizable value. Any write-downs of inventory to net realizable value are recorded within cost of sales in the statement of earnings. If there is a subsequent increase in the value of inventory, the previous write-downs to net realizable value are reversed up to cost to the extent that the related inventory has not been sold. (h) Property, plant and equipment Property, plant and equipment are carried at cost less accumulated depreciation and impairment losses. The cost of an asset consists of its purchase price, any directly attributable costs of bringing the asset to its present working condition and location for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. Depreciation of a majority of asset classes is calculated using the straight-line method to allocate its cost less its residual value over its estimated useful life. Mine and plant facilities are depleted using a unit of production method over the total recoverable ounces. The estimated useful lives of property, plant and equipment are as follows: Buildings Machinery and equipment Vehicles Furniture and office equipment Mine and plant facilities 15 to 20 years 10 years 5 years 3 to 10 years based on total recoverable reserves on a unit of production basis Depreciation methods and estimated useful lives and residual values are reviewed annually and when facts and circumstances require a re-estimate. The Company reviews the estimated total recoverable reserves annually and when events and circumstances indicate that such a review should be made. Changes to estimated total recoverable reserves are accounted for prospectively. Expenditures on major maintenance or repairs, including the cost of the replacement of parts of assets and overhaul costs or where an asset or part of an asset is replaced, the expenditure is capitalized and the remaining carrying amount of the item repaired, overhauled or replaced is derecognized when it is probable that future economic benefits associated with the item will be available to the Company. All other costs are expensed as incurred. 45 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 3. Summary of significant accounting policies (continued) An item of plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any related gain or loss is determined as the difference between the net disposal proceeds or residual value, as applicable, and the carrying amount of the asset, and is recognized in the statement of earnings. (i) Exploration and evaluation (“E&E”) expenditures and mineral properties Exploration and evaluation costs are those costs required to find a mineral property and determine commercial viability. E&E costs include costs to establish an initial mineral resource and determine whether Inferred mineral resources can be upgraded to Measured and Indicated mineral resources and whether Measured and Indicated mineral resources can be converted to Proven and Probable reserves. E&E costs consist of, but are not limited to: • • • • • gathering exploration data through topographical and geological studies; exploratory drilling, trenching and sampling; determining the volume and grade of the resource; test work on geology, metallurgy, mining, geotechnical and environmental; and conducting engineering, marketing and financial studies. Project costs in relation to these activities are expensed as incurred until such time that the project demonstrates technical feasibility and commercial viability. Technical feasibility and commercial viability generally coincides with the establishment of proven and probable mineral reserves. Upon demonstrating technical feasibility and commercial viability, and subject to an impairment analysis, any such future costs, including costs incurred to increase proven and probable reserves, are capitalized as development costs within mineral properties. After initial recognition, mineral properties are valued at cost less accumulated depletion and any impairment losses. Costs associated with acquiring a mineral property are capitalized as incurred. Upon commencement of commercial production, mineral properties are depleted based on total recoverable reserves on a unit of production basis. The Company reviews the estimated total recoverable reserves annually and when events and circumstances indicate that such a review should be made. Changes to estimated total recoverable reserves are accounted for prospectively. (j) Impairment of non-financial assets Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recorded immediately if the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Value in use is determined as the present value of the future cash flows expected to be derived from continuing use of an asset or cash generating unit in its present form. These estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit for which estimates of future cash flows have not been adjusted. Fair value is the price that would be received from selling an asset or cash generating unit in an orderly transaction between market participants at the measurement date. Costs of disposal are incremental costs directly attributable to the disposal of an asset or cash generating unit. Estimated future after tax cash flows are calculated using estimated future prices, mineral reserves and resources and operating and capital costs. All inputs used are those that an independent market participant would consider appropriate. 46 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 3. Summary of significant accounting policies (continued) Non-financial assets that have been impaired in prior periods are reviewed for possible reversal of the impairment at each reporting date. When identified, a reversal of an impairment loss is recognized in earnings immediately. (k) Provisions Asset retirement obligations The Company recognizes a liability for an asset retirement obligation on long-lived assets when a present legal or constructive obligation exists, as a result of past events and the amount of the liability is reasonably determinable. Asset retirement obligations are initially recognized and recorded as a liability based on estimated future cash flows discounted at a risk-free rate. This is adjusted at each reporting period for changes to factors including the expected amount of cash flows required to discharge the liability, the timing of such cash flows and the risk-free discount rate. Corresponding amounts and adjustments are added to the carrying value of the related long-lived asset and amortized or depleted to operations over the life of the related asset. (l) Current and deferred income tax Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case the tax is also recognized in other comprehensive income or directly in equity, respectively. i. Current tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the statement of financial position date in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. ii. Deferred tax Deferred income tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 47 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 3. Summary of significant accounting policies (continued) (m) Share capital Common shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds. (n) Stock-based compensation The Company has a stock-based compensation plan, under which the entity receives services from employees and non-employees as consideration for equity instruments (options and share units) of the Company. Stock options and share units granted to employees are measured on the grant date. Stock options granted to non-employees are measured on the date that the goods or services are received. The fair value of the employee and non-employee services received in exchange for the grant of the options and share units are recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the stock options and share units granted and the vesting periods. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. The cash subscribed for the shares issued when the options are exercised is credited to share capital, net of any directly attributable transaction costs. (o) Loss per share Basic loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of shares outstanding during the reporting period. Diluted loss per share is computed similar to basic loss per share except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during the reporting periods. For the years presented, this calculation proved to be anti-dilutive. (p) Comprehensive income (loss) Comprehensive income (loss) is the change in the Company’s net assets that results from transactions, events and circumstances from sources other than the Company’s shareholders and includes items that would not normally be included in net profit such as derivative gains (losses) related to the Company’s own credit risk on financial liabilities measured at fair value through profit or loss. The Company’s comprehensive income (loss), components of other comprehensive income (loss) and cumulative translation adjustments are presented in the consolidated statements of loss and comprehensive income (loss) and the statements of changes in equity. (q) Revenue recognition Revenues are recognized when all of the following criteria are met: • Control has been transferred to the customer; • Neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold, has been retained; The amount of revenue can be reliably measured; It is probable that the economic benefits associated with the sale will flow to the Company; and The costs incurred or to be incurred in respect of the sale can be reliably measured. • • • These conditions are generally satisfied when title passes to the customer. 48 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 3. Summary of significant accounting policies (continued) Doré sales Revenues are recorded at the time of physical delivery, which is also the date that title of the gold and silver passes to the customer. For gold, the sales price is determined in accordance with the terms of the offtake commitment (Note 9). For silver, the sales price is fixed on the date of sale based on the silver spot price. Concentrate sales Based on the terms of concentrate sales contracts with independent smelting companies, revenues are recorded when the concentrate is loaded on vessels for shipment to the customers, which is also the date that title passes to the customer. Sales prices are provisionally set at that time based on the then market prices and adjusted for variations between the provisional price and the actual final price determined approximately 30 to 60 days after concentrates are unloaded at the port of discharge in accordance with the smelting contracts. 4. Trade receivables and other current assets Trade receivables (a) VAT recoverable (b) Prepaid expenses and deposits Deferred transaction costs (c) Other current assets December 31, 2020 December 31, 2019 $ $ 93,023 16,711 23,059 3,704 - $ 136,497 $ 20,936 26,804 12,056 3,750 160 63,706 (a) Trade receivables represent the value of concentrate sold as at period end for which the funds are not yet received. Consistent with industry standards, these sales generally have relatively long payment terms and are not settled until two to four months after export. There is no recorded allowance for credit losses. In determining the recoverability of trade receivables, the Company considers any change in the credit quality of the counterparty, with the concentration of the credit risk limited due to the nature of the counterparties involved and a history of no credit losses. (b) VAT paid in Ecuador by the Company after January 1, 2018 will be refunded or applied as a credit against other taxes payable based on export sales. As the Company is generating sales, a portion of the VAT recoverable has been classified as current assets. (c) Deferred transaction costs include upfront and advisory fees incurred to secure the cost overrun facility (the “COF”). These costs will be reclassified to long-term debt on a pro-rata basis should the Company utilize the COF. Should the COF expire without being utilized, these costs will be expensed directly to the Company’s statement of loss. 49 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 5. Inventories Ore stockpile Gold in circuit Doré and concentrate Materials and supplies December 31, 2020 December 31, 2019 $ $ $ 1,979 3,320 13,786 40,825 59,910 $ - - - - 6. Property, plant and equipment Cost Balance, January 1, 2019 Additions Cumulative translation adjustment Balance, December 31, 2019 Additions (a) Reclassifications (b) Cumulative translation adjustment Balance, December 31, 2020 Construction- in-progress Mine and plant facilities Machinery and equipment Furniture and office equipment Vehicles Total $ 451,123 $ 4,458 $ 18,192 $ 11,903 $ 1,734 $ 487,410 415,735 369 257 - 26,478 7,994 763 451,227 - - 4 373 867,227 4,715 44,670 19,897 2,501 939,010 29,360 (890,488) - 841,073 10,211 - - 230 - 2,121 - - 138 - 2 41,830 (49,415) 232 $ 6,099 $ 846,018 $ 54,881 $ 22,018 $ 2,641 $ 931,657 50 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 6. Property, plant and equipment (continued) Accumulated depletion and depreciation Construction- in-progress Mine and plant facilities Machinery and equipment Furniture and office equipment Vehicles Total Balance, January 1, 2019 $ Depletion and depreciation Cumulative translation adjustment Balance, December 31, 2019 Depletion and depreciation Cumulative translation adjustment Balance, December 31, 2020 $ - $ 411 $ 3,330 $ 2,159 $ 589 $ 6,489 - - - - - 102 - 3,639 3,306 - - 488 4 7,535 4 513 6,969 5,465 1,081 14,028 36,200 4,806 3,884 - - - 589 2 45,479 2 - $ 36,713 $ 11,775 $ 9,349 $ 1,672 $ 59,509 Net book value As at December 31, 2019 As at December 31, 2020 $ 867,227 $ 4,202 $ 37,701 $ 14,432 $ 1,420 $ 924,982 $ 6,099 $ 809,305 $ 43,106 $ 12,669 $ 969 $ 872,148 (a) Included in the additions to Construction-in-Progress are the following: Depletion and depreciation Capitalized interest and accretion of transaction and derivative costs (Note 9) December 31, 2020 December 31, 2019 $ $ 1,507 $ 10,556 12,063 $ 7,405 35,257 42,662 Sales in January and February 2020 totaling $52.4 million (2019 – $20.9 million) have been recognized as a reduction of capitalized Construction-in-Progress costs. (b) The Company achieved commercial production at Fruta del Norte in February 2020. In making this determination, management considered a number of factors, including completion of substantially all construction development activities in accordance with design and a production ramp up period where mill feed, in terms of tonnes of ore, equalled an average of 70% of mill capacity over a 90 day period. With this achievement and continued handover of assets to operations, substantially all of Construction-in-Progress has either been reclassified to Mine and Plant Facilities ($841 million) or recognized as Opening Inventory as at February 29, 2020 ($49.4 million), as applicable, and depletion commenced on mine and plant facilities. Effective March 1, 2020, revenues, cost of goods sold, and debt service costs (Note 9 and 15) are recognized in the consolidated statements of loss and comprehensive income (loss). Costs of remaining areas of construction, not essential to operations, will continue to be captured as Construction-in-progress until ready for their intended use. 51 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 7. Advance royalty Advance royalties are deductible against royalties on sales payable to the Government of Ecuador at a rate equal to the lesser of 50% of the actual future royalties payable in a six-month period or 10% of the total advance royalty payment. As the Company is generating sales, a portion of the advance royalty payment has been classified as current assets. 8. Accounts payable and accrued liabilities Accounts payable Accrued liabilities 9. Long-term debt Gold prepay credit facility (a) Stream loan credit facility (b) Offtake derivative liability (c) Senior debt facility (d) Less: current portion Gold prepay credit facility Stream loan credit facility Offtake derivative liability Senior debt facility $ $ $ $ December 31, 2020 December 31, 2019 14,229 39,592 $ 53,821 $ 25,306 33,496 58,802 December 31, 2020 December 31, 2019 $ 248,828 268,471 32,308 307,487 234,917 290,124 26,856 326,689 857,094 $ 878,586 68,174 50,041 4,488 55,872 14,784 21,894 1,753 19,147 Long-term portion $ 678,519 $ 821,008 The gold prepay credit facility (the “Prepay Loan”), stream loan credit facility (the “Stream Loan”), and the offtake derivative liability are accounted for as financial liabilities at fair value through profit or loss and are comprised of the following as at December 31, 2020. Principal Interest accrued and capitalized at stated rate of 7.5% Transaction costs Derivative fair value adjustments Gold prepay credit facility Stream loan credit facility Offtake derivative liability Total $ 142,105 $ 145,233 $ - $ 287,338 27,114 (2,764) 82,373 23,867 (2,473) 101,844 - - 32,308 50,981 (5,237) 216,525 Total $ 248,828 $ 268,471 $ 32,308 $ 549,607 52 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 9. Long-term debt (continued) Derivative fair value adjustments reflect the revaluation of the financial instruments at fair value as at December 31, 2020, including a portion of the cost of derivatives which are part of the long-term debt. The derivative gain or loss related to the Company’s own credit risk recorded in other comprehensive income (loss) includes the impact of the difference between the Company’s own credit risk at the time of entering into the long-term debt and the balance sheet date (see also Note 20). (a) Gold prepay credit facility The Prepay Loan is a secured loan facility with a stated interest rate of 7.5% per annum with interest accruing based upon the outstanding balance. The Prepay Loan is amortized and repayable over 19 quarters starting December 31, 2020. Quarterly payments are equivalent to the value of 9,775 oz. of gold based on the gold spot price at the time of the payment date. The excess of the quarterly repayments over the principal due quarterly and the balance of interest accrued to that date, if any, is a variable additional charge (the “Finance Charge”). If the average gold price in the fiscal quarter prior to repayment date is less than $1,436 per oz. or less than $1,062 per oz., repayments will be based on 11,500 oz. or 13,225 oz. of gold, respectively. The Company made the first principal and interest payments under the Prepay Loan totaling $7.9 million and $10.4 million, respectively, on December 31, 2020 (see Note 20). The Company has elected to measure the Prepay Loan as a financial liability measured at fair value through profit or loss. (b) Stream loan credit facility The Stream Loan is a secured loan facility with a stated interest rate of 7.5% per annum with interest accruing based upon the outstanding balance. The Stream Loan is repayable in variable monthly instalments equivalent to the value of 7.75% of gold production less $400 per oz. (the “Gold Base Price”) and 100% of the silver production less $4 per oz. (the “Silver Base Price”) upon the start of commercial production at the Fruta del Norte Project, up to a maximum of 350,000 oz. of gold and six million oz. of silver. The Gold Base Price and Silver Base Price will increase by 1% per annum starting on the third anniversary of the commercial production date. The excess of the monthly repayments over the principal due monthly and the balance of interest accrued to that date, if any, will be a Finance Charge. With the start of commercial production in February 2020, the Company made principal and interest payments under the Stream Loan totaling $4.8 million and $13.2 million, respectively, to the end of December 31, 2020 (see Note 20). As at December 31, 2020, based on the projected life of mine production and other significant assumptions (see Note 20), the estimated fair value equivalent to 338,876 oz. of gold and 5,899,553 oz. of silver remains outstanding under the Stream Loan. The Company has the option to repay (i) 50% of the remaining Stream Loan on June 30, 2024 for $150 million and / or (ii) the other 50% of the remaining Stream Loan on June 30, 2026 for $225 million. The Company has elected to measure the Stream Loan as a financial liability measured at fair value through profit or loss. (c) Offtake Commitment The lender of the Prepay Loan and Stream Loan has been granted the right to purchase 50% of Fruta del Norte gold production, up to a maximum of 2.5 million oz., at a price determined based on monthly delivery dates and a defined quotational period. This obligation is satisfied first through the sale of doré and then, if required, financial settlement. 53 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 9. Long-term debt (continued) The Company has determined that the Offtake represents a derivative financial liability. Accordingly, the Offtake, which is primarily a function of the gold price option feature, is measured at fair value at each statement of financial position date, with changes in the derivative fair value being recorded in profit or loss. (d) Senior debt facility Tr anche A Tranche B Total Principal Accrued interest Transaction costs $ $ 233,750 36 (14,753) 93,500 $ 8 (5,054) 327,250 44 (19,807) Total $ 219,033 $ 88,454 $ 307,487 The Facility is a senior secured loan comprised of two tranches: a senior commercial facility (“Tranche A”) and a senior covered facility under a raw material guarantee (“Tranche B”) both of which were fully drawn as at December 31, 2020. The annual interest rate is the three or six-month LIBOR plus an average margin of approximately 5.05% for Tranche A and 2.50% for Tranche B. Tranche A and Tranche B are subject to risk mitigation and guarantee fees of 2.00% and 3.15%, respectively. The Facility is repayable in variable quarterly instalments starting December 31, 2020 and maturing in June 2026. In addition, accelerated quarterly principal repayments based on 30% of Fruta del Norte’s free cash flow apply after completion date as defined under the Facility (“Completion”), which is forecast to occur in 2021. During the year ended December 31, 2020, the Company paid $22.8 million of principal and $14.7 million (2019 – $5.3 million) of interest relating to the Facility. (e) Cost overrun facility (the “COF”) On March 29, 2019, the Company entered into a $75 million COF with a related party of the Company by virtue of its shareholding in the Company in excess of 20%. The COF can only be used to fund a potential cost overrun related to Fruta del Norte until Completion and is currently undrawn. In accordance with the terms of the COF, the Company issued the related party 300,000 common shares and 300,000 warrants ("Warrants") in lieu of fees. Each Warrant has a term of three years from the date of issue and is exercisable for a common share upon payment of the exercise price of CAD$5.98. The Company is required to issue an additional 300,000 common shares to the related party as a condition precedent to the first utilization of the COF. Under the long-term debt, the Company, together with its subsidiaries related to Fruta del Norte (collectively, the “FDN Subsidiaries”), are subject to a number of covenants while amounts remain outstanding. The long-term debt is secured by a charge over the FDN Subsidiaries’ assets, pledges of the shares of the FDN Subsidiaries and guarantees of the Company and the FDN Subsidiaries. 54 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 10. Reclamation provision The Company’s reclamation provision relates to the rehabilitation of Fruta del Norte. The reclamation provision has been calculated based on total estimated rehabilitation costs and discounted back to its present value. The pre-tax discount rate and inflation rate are adjusted annually and reflect current market assessments. At December 31, 2020, the Company applied a pre-tax discount rate of 9.4% (2019 – 9.1%) and an inflation rate of 1.8% (2019 – 2.5%). The estimated total future liability for reclamation and remediation costs on an undiscounted basis and adjusted for an estimate of future inflation is approximately $22.8 million (2019 – $22.5 million). December 31, 2020 2019 Balance, beginning of year $ 4,751 $ 4,353 Change in discount rate, amount, and timing of cash flows Accretion of liability component of obligations 1,166 39 - 398 $ 5,956 $ 4,751 11. Share capital Authorized: • Unlimited number of common shares without par value • Unlimited number of preference shares without par value A continuity summary of the issued and outstanding common shares and the associated dollar amounts is presented below: Balance at January 1, 2019 213,163,980 $ 857,279 Number of common shares Share capital Proceeds from equity financing, net Consideration for cost overrun facility Exercise of stock options Exercise of anti-dilution rights Balance at December 31, 2019 Proceeds from equity financing, net Exercise of stock options Exercise of anti-dilution rights 8,625,000 300,000 1,121,800 420,432 223,631,212 4,772,500 1,074,650 609,975 33,940 1,221 5,340 2,123 899,903 41,419 5,318 5,085 Balance at December 31, 2020 230,088,337 $ 951,725 (a) On March 1, 2019, the Company closed a CAD$46.6 million bought deal equity financing (the “2019 Bought Deal”) by issuing 8,625,000 shares, which included the exercise in full of the over-allotment option of an additional 1,125,000 shares, at a price of CAD$5.40 per share. Share issue costs of $1.2 million were paid resulting in net proceeds of $33.9 million received by the Company in relation to the 2019 Bought Deal. (b) On June 11, 2020, the Company closed a bought deal equity financing (the “2020 Bought Deal”) by issuing 4,772,500 shares of the Company at a price of CAD$12.05 per share for gross proceeds of CAD$57.5 million ($42.4 million), which included the exercise in full of the over-allotment option of an additional 622,500 shares. Share issue costs of $1.0 million were paid resulting in net proceeds of $41.4 million received by the Company in relation to the 2020 Bought Deal. 55 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 11. Share capital (continued) (c) During the year ended December 31, 2020, the Company issued 609,975 common shares to Newcrest Mining Limited (“Newcrest”) at a weighted average price of CAD$11.55 per share for total proceeds of $5.1 million. During the year ended December 31, 2019, 420,432 common shares were issued at a weighted average price of CAD$6.72 per share for total proceeds of $2.1 million. All issuances were completed in accordance with Newcrest’s anti-dilution rights granted as part of its initial investment in the Company. 12. Stock-based compensation and share purchase warrants (a) Stock-based compensation The Company has adopted an omnibus incentive plan (the “Omnibus Plan”) approved at the June 3, 2019 annual general and special meeting of shareholders which replaces its rolling stock-based compensation plan. The Omnibus Plan allows for the reservation of a maximum 8.5% of the common shares issued and outstanding at any given time for issuance under the Omnibus Plan. Under the Omnibus Plan, the Company may grant stock options, restricted share units and deferred share units (collectively, the “Awards”). Subject to specific provisions under the Omnibus Plan, the eligibility, vesting period, term, and number of Awards are granted at the discretion of the Company’s board of directors. Restricted share units entitle the recipient, upon settlement, to receive common shares or, subject to provisions under the Plan, the cash equivalent or a combination thereof. The Company’s board of directors may also grant restricted share units that include performance criteria which vests based on a multiplier (“PSUs”). Deferred share units may only be granted to non-employee directors and are payable after termination of the recipient’s service with the Company. Upon settlement, the recipient may receive common shares or, subject to provisions under the Plan, the cash equivalent or a combination thereof. i. Stock options Stock options granted and outstanding under a pre-existing stock option plan (the “Option Plan”) have an expiry date of five years and vest over a period of two years from date of grant. No additional stock options can be granted under the Option Plan. During the year ended December 31, 2020, 821,800 stock options were granted under the Omnibus Plan which have an expiry date of five years and vest over a period of three years from date of grant. Stock options are exercisable into one common share of the Company at the price specified in the terms of the option agreement. 56 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 12. Stock-based compensation and share purchase warrants (continued) A continuity summary of the stock options granted and outstanding under the Omnibus Plan and Option Plan is presented below: Year Ended December 31, 2020 Year Ended December 31, 2019 Number of Common Shares Weighted exercise price (CAD) Number of Common Shares Weighted exercise price (CAD) Balance, beginning of year 6,508,200 $ 4.91 5,902,900 $ Granted Cancelled / Expired Exercised(1) 821,800 (28,900) (1,074,650) 12.60 12.60 4.23 1,861,800 (134,700) (1,121,800) Balance outstanding, end of year 6,226,450 $ 6.00 6,508,200 $ 4.59 5.35 5.18 3.95 4.91 Balance exercisable, end of year 4.74 (1) The weighted average share price on the exercise date for the stock options exercised during the year ended December 31, 2020 was CAD$10.19 (2019 – CAD$6.81). 4,573,650 4,634,800 4.99 $ $ The following table summarizes information concerning outstanding and exercisable options at December 31, 2020: Outstanding options Exercisable options Range of exercise prices (CAD) Number of options outstanding Weighted average remaining contractual life (years) Weighted average exercise price (CAD) Number of options outstanding Weighted average remaining contractual life (life) Weighted average exercise price (CAD) $ 3.75 to 5.21 $ 5.22 to 12.60 3,319,850 2,906,600 $ 1.15 3.05 4.79 7.39 3,319,850 1,314,950 $ 1.15 2.32 6,226,450 2.04 $ 6.00 4,634,800 1.48 $ 4.79 5.49 4.99 The fair value based method of accounting was applied to stock options granted to employees, including directors, and non-employees on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: Risk-free interest rate Expected stock price volatility Expected life Expected dividend yield 2020 2019 1.38% 28.28% 5 years - 1.81% 57.18% 5 years - Weighted-average fair value per option granted (CAD) $3.46 $2.69 The equity-settled share-based payment reserve comprises the fair value of employee options measured at grant date and amortized over the period during which the employees become unconditionally entitled to the options. During the year ended December 31, 2020, the Company recorded stock-based compensation expense of $2.2 million (2019 – $3.5 million) relating to stock options. 57 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 12. Stock-based compensation and share purchase warrants (continued) ii. Restricted share units with performance criteria (“PSUs”) During the year ended December 31, 2020, the Company granted 148,000 PSUs to eligible employees which vest three years from date of grant subject to continued employment and certain performance conditions being met. The number of PSUs that vest will be adjusted using a multiplier that is based on total shareholder return by the Company’s shares over the three-year period relative to a peer group as defined by the Company’s board of directors. Each vested PSU entitles the recipient to a payment of one common share or cash with an equivalent market value, at the recipient’s option. If the recipient elects a cash payout, the market value is determined as the volume weighted average trading price of the Company’s shares on the TSX for the five trading days immediately preceding the vesting date. The fair value of PSUs was measured based on Monte Carlo simulation with the following weighted-average assumptions: Risk-free interest rate Average expected volatility of the Company and its peer group Expected life Expected dividend yield Weighted-average fair value per PSU outstanding December 31, 2020 December 31, 2019 0.53% 55.03% 3 years - $8.12 - - - - - The Company recorded a liability of $1.2 million to recognize the estimated fair value as at December 31, 2020 of the PSUs. iii. Restricted share units settled in cash (“Cash RSUs”) During the year ended December 31, 2020, the Company granted 29,500 Cash RSUs to eligible employees which vest three years from date of grant subject to continued employment of which 26,700 remain outstanding as at December 31, 2020. Each vested Cash RSU entitles the recipient to a payment in cash based on the market value of one common share at the end of the three-year period. The market value is determined as the volume weighted average trading price of the Company’s shares on the TSX for the five trading days immediately preceding the vesting date. The fair value of the Cash RSUs was measured based on the Black-Scholes option pricing model with the following weighted-average assumptions: Risk-free interest rate Expected stock price volatility Expected life Expected dividend yield Weighted-average fair value per Cash RSU outstanding December 31, 2020 December 31, 2019 0.26% 52.58% 2.15 years - $11.25 - - - - - The Company recorded a liability of $0.3 million to recognize the estimated fair value as at December 31, 2020 of the cash settled RSUs. 58 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 12. Stock-based compensation and share purchase warrants (continued) iv. Restricted share units settled in shares (“Share RSUs”) During the year ended December 31, 2020, the Company granted 34,600 Share RSUs to eligible employees. Of these, 31,500 Share RSUs vested on December 31, 2020. The remaining 3,100 Share RSUs vest three years from date of grant subject to continued employment. Each vested Share RSU entitles the recipient to a payment in shares shortly after vesting. The fair value of the Share RSUs was measured on the date of grant based on the Black-Scholes option pricing model with the following weighted-average assumptions: Risk-free interest rate Expected stock price volatility Expected life Expected dividend yield Weighted-average fair value per Share RSU outstanding December 31, 2020 December 31, 2019 0.29% 66.62% 0.49 years - $10.24 - - - - - The fair value of Share RSUs measured at grant date are being amortized over the period during which the employees become unconditionally entitled to the Share RSUs. During the year ended December 31, 2020, the Company recorded stock-based compensation expense of $0.3 million (2019 – nil). (b) Share Purchase Warrants A continuity summary of the warrants granted and outstanding is presented below: Year ended December 31, 2020 Year ended December 31, 2019 Number of warrants Weighted average exercise price (CAD) Number of warrants Weighted average exercise price (CAD) Balance, beginning of year 411,441 $ 5.98 - $ - Consideration for cost overrun facility (Note 9) Anti-dilution rights exercised by Newcrest - - - - 300,000 111,441 Balance outstanding, end of year 411,441 $ 5.98 411,441 $ 5.98 5.98 5.98 The Company issued 111,441 warrants to Newcrest at a price of CAD$1.66 per warrant for total proceeds of CAD$0.2 million under its anti-dilution rights following the issuance of Warrants to the COF provider (see Note 9). Each warrant has a term of three years from the date of issue and is exercisable for a common share upon payment of the exercise price of CAD$5.98. 59 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 12. Stock-based compensation and share purchase warrants (continued) The following table summarizes information concerning outstanding warrants at December 31, 2020: Exercise price (CAD) Number of warrants outstanding Remaining contractual life (years) $ 5.98 411,441 1.25 The fair value based method of accounting was applied to the warrants on date of grant using the Black- Scholes option pricing model with the following weighted-average assumptions: Risk-free interest rate Expected stock price volatility Expected life Expected dividend yield Weighted-average fair value per warrant granted (CAD) December 31, 2020 December 31, 2019 - - - - - 1.78% 50.63% 3 years - $1.66 The equity-settled share-based payment reserve includes the fair value of warrants as measured at grant date. 13. Administration Corporate social responsibility Depreciation Investor relations Municipal taxes Office and general Professional fees Regulatory and transfer agent Salaries and benefits Stock-based compensation Training Travel December 31, 2020 December 31, 2019 $ $ 814 - 219 48 2,021 2,280 321 7,654 4,061 216 167 1,140 96 281 1,225 2,578 4,510 338 5,269 3,491 3,359 726 $ 17,801 $ 23,013 60 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 14. Suspension of operations Salaries and benefits Maintenance Fixed administrative costs Site services COVID-19 expenditures Other costs Depletion and depreciation December 31, 2020 December 31, 2019 $ $ 13,003 4,364 4,062 2,197 1,455 1,734 2,489 $ 29,304 $ - - - - - - - - Due to growing concerns regarding the spread of COVID-19 in Ecuador and the impacts of increasing efforts by the governments at all levels to slow the spread of COVID-19, the Company temporarily suspended operations at Fruta del Norte on March 22, 2020. Following three months of suspension of operations in response to the COVID- 19 pandemic, the Company re-started operations in early July. Costs during this suspension period have been presented separately and are comprised principally of salaries and benefits, maintenance, COVID-19 related costs, and ongoing indirect fixed costs such as insurance and property taxes. 15. Finance expense (income) Interest expense Other finance costs Accretion of transaction costs Interest income December 31, 2020 December 31, 2019 33,940 7,714 3,690 (402) - - - (1,763) $ 44,942 $ (1,763) With the achievement of commercial production, effective March 1, 2020, debt service costs are recognized in the consolidated statements of loss and comprehensive income (loss) (Note 6(b)). 16. Related party transactions (a) Related party expenses During the years ended December 31, 2020 and December 31, 2019, the Company incurred the following: Payee Nature Note December 31, 2020 December 31, 2019 Namdo Management fees i $ 353 $ 298 i. Namdo Management Services Ltd. (“Namdo”), a company associated with an officer of the Company in 2020, provides services and office facilities to the Company pursuant to an agreement. 61 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 16. Related party transactions (continued) (b) Key management compensation Key management includes executive officers and directors of the Company. The compensation paid or payable to key management for employee services and directors is shown below. Salaries, bonuses and benefits Stock-based compensation December 31, 2020 December 31, 2019 $ $ 6,576 3,283 $ 9,859 $ 3,950 2,508 6,458 17. Income taxes (a) Income tax expense Income tax expense differs from the amount that would result from applying the Canadian federal and provincial income tax rates to net loss before tax. These differences result from the following items: December 31, 2020 2019 Net loss before tax $ (60,374) $ (118,945) Canadian federal and provincial income tax rates 27.00% 27.00% Expected income tax expense based on the above rates Increase (decrease) due to: (16,301) (32,115) Differences in foreign tax rates Non-deductible costs Losses and temporary differences for which an income tax asset has not been recognized Non-taxable portion of capital gains Benefits of previously unrecognized deferred income tax assets 2,270 7,308 1,233 35 (7,761) 5,220 2,180 24,743 (28) - Income tax recovery $ (13,216) $ - The Company recognized a deferred income tax recovery relating to deferred tax assets that are expected to be utilized as a result of cumulative derivative gains within other comprehensive income. 62 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 17. Income taxes (continued) (b) Deferred income taxes Deferred tax assets and liabilities have been recognized on the statement of financial position as follows: December 31, 2020 2019 Long-term debt Mineral properties and property, plant and equipment Net-capital losses – Canada Unrealized foreign exchange gains $ $ 13,762 (13,762) $ - - - - - 146 (146) $ - Deductible temporary differences for which no deferred taxes assets have been recognized are as follows: Non-capital losses - Canada Net-capital losses - Canada Non-capital losses - Ecuador Long-term debt Mineral properties and property, plant and equipment Share issuance costs Other $ December 31, 2020 2019 $ 28,921 14,604 8,210 153,972 24,536 3,049 18,437 23,360 8,924 - 224,094 111,506 3,766 2,383 $ 251,729 $ 374,033 As at December 31, 2020, the Company has the following tax losses which may be used to reduce future taxable income: Year of expiry Canada Ecuador 2021 2022 2023 2024 2025 and onwards $ $ - - - - 28,921 Total $ 28,921 $ - - - - 8,210 8,210 63 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 18. Supplemental cash flow information Change in trade receivables and other current assets related to: Sales recognized as a reduction of property, plant and equipment Change in accounts payable and accrued liabilities related to: Acquisition of property, plant and equipment December 31, 2020 2019 $ 20,936 $ (20,936) (49,935) 25,408 The following table sets forth the changes in liabilities arising from financing activities for the year ended December 31, 2020. Gold prepay credit facility Stream loan credit facility Offtake derivative liability Senior debt facility Total Balance, January 1, 2019 $ 167,524 $ 178,838 $ 17,890 $ - $ 364,252 Cash inflows Cash outflows Change in derivative fair values Other changes (1) - - 55,372 12,021 - - 99,702 11,584 Balance, December 31, 2019 $ Cash inflows Cash outflows Change in derivative fair values Other changes (1) $ 234,917 - (18,328) 20,238 12,001 $ 290,124 - (17,952) (15,194) 11,493 - - 8,966 - $ 26,856 - - 5,452 - 350,000 - - (23,311) 326,689 - (22,750) - 3,548 350,000 - 164,040 294 $ 878,586 - (59,030) 10,496 27,042 Balance, December 31, 2020 (1) Other changes include non-cash movements and interest accruals which are presented as investing activities in the statement of cash flows. 268,471 248,828 307,487 32,308 $ $ $ $ $ 857,094 19. Segmented information Operating segments are components of an entity that engage in business activities from which they incur expenses and whose operating results are regularly reviewed by a chief operating decision maker to make resource allocation decisions and to assess performance. The Chief Executive Officer is responsible for allocating resources and reviewing operating results of each operating segment on a periodic basis. The Company’s primary business activity is the Fruta del Norte operating mine in Ecuador. Materially all of the Company’s non-current assets and non-current liabilities relate to Fruta del Norte. In addition, the Company conducts exploration activities and maintains a number of concessions in Ecuador outside of Fruta del Norte. 64 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 19. Segmented information (continued) The following are summaries of the Company’s current and non-current assets, current and non-current liabilities, and net losses by segment: Fruta del Norte Other concessions Corporate and other Total As at December 31, 2020 Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities For the year ended December 31, 2020 Capital expenditures Revenues Income from mining operations Corporate administration Exploration expenditures Suspension of operations Finance income (expense) Other expense Derivative loss Deferred income tax recovery Net loss for the year As at December 31, 2019 Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities For the year ended December 31, 2019 Capital expenditures Corporate administration Exploration expenditures Finance income Other income (expense) Derivative loss Net loss for the year $ 240,991 $ 1,216,361 1,457,352 231,570 684,475 916,045 41,830 358,156 172,386 (4,231) - (29,304) (45,313) (7) (136,984) 13,216 (30,237) 968 - 968 170 - 170 - - - (46) (2,805) - - - - - (2,851) $ 47,040 $ - 288,999 1,216,361 47,040 1,505,360 656 1,631 2,287 232,396 686,106 918,502 - - - (13,524) - - 371 (917) - - 41,830 358,156 172,386 (17,801) (2,805) (29,304) (44,942) (924) (136,984) 13,216 (14,070) (47,158) Fruta del Norte Other concessions Corporate and other Total $ 96,653 $ 1,259,781 1,356,434 115,168 825,759 940,927 451,227 (11,870) - 401 2,202 (93,120) (102,387) 137 - 137 624 - 624 $ 52,390 $ - 149,180 1,259,781 52,390 1,408,961 588 - 588 116,380 825,759 942,139 - - 451,227 (39) (3,733) 8 - - (3,764) (11,104) - 1,354 (3,044) - (23,013) (3,733) 1,763 (842) (93,120) (12,794) (118,945) 65 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 20. Financial instruments and risk management The Company’s financial instruments include cash, cash equivalents and receivables, which are categorized as financial assets at amortized cost, and accounts payable and accrued liabilities, which are categorized as financial liabilities at amortized cost. The fair value of these financial instruments approximates their carrying values due to the short-term nature of these instruments. In addition, the Gold Prepay Loan; Stream Loan; and offtake commitment have been classified as financial liabilities measured at fair value and the senior debt facility as a financial liability at amortized cost. (a) Fair value measurements and hierarchy IFRS establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lower priority to unobservable inputs. The three levels of the fair value hierarchy are as follows: Level 1: Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2: Inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. 66 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 20. Financial instruments and risk management (continued) (b) Fair value measurements using significant unobservable inputs (Level 3) The following table sets forth the Company’s financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy for the year ended December 31, 2020. Each of these financial instruments are classified as Level 3 as their valuation includes significant unobservable inputs. Gold prepay credit facility Stream loan credit facility Offtake derivative liability Total Balance, January 1, 2019 $ 167,524 $ 178,838 $ 17,890 $ 364,252 Interest accrued and capitalized at stated rate of 7.5% Accretion of transaction costs Derivative fair value adjustments recognized in: Property, plant and equipment Derivative loss Other comprehensive loss Change in derivative fair values 11,406 615 4,460 31,806 19,106 55,372 11,406 178 5,222 52,348 42,132 99,702 - - 22,812 793 - 8,966 - 8,966 9,682 93,120 61,238 164,040 Balance, December 31, 2019 $ 234,917 $ 290,124 $ 26,856 $ 551,897 Principal paid Interest paid Interest accrued and capitalized at stated rate of 7.5% Accretion of transaction costs Derivative fair value adjustments recognized in: Property, plant and equipment Derivative loss Other comprehensive income Change in derivative fair values (7,895) (10,433) 11,387 614 735 59,961 (40,458) 20,238 (4,767) (13,185) 11,302 191 866 71,571 (87,631) (15,194) - - - - (12,662) (23,618) 22,689 805 - 5,452 - 5,452 1,601 136,984 (128,089) 10,496 Balance, December 31, 2020 $ 248,828 $ 268,471 $ 32,308 $ 549,607 (c) Significant assumptions in valuation and relationship to fair value The financial liabilities above were valued using Monte Carlo simulation valuation models. The significant assumptions used in the Monte Carlo valuation models include: the gold forward prices, gold price volatility, the risk-free rate of return, risk-adjusted discount rates, and the projected life of mine production schedule. In addition, in valuing the Stream Loan, the silver forward prices, silver price volatility, and the gold/silver price correlation were also used. 67 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 20. Financial instruments and risk management (continued) As the gold price and silver price volatilities and risk-adjusted discount rates are unobservable inputs, the financial liabilities above are classified within Level 3 of the fair value hierarchy. The following table summarizes the quantitative information about the significant unobservable inputs used in Level 3 fair value measurements. Fair value at December 31, 2020 $ 549,607 Financial liabilities measured at fair value Unobservable inputs Range of inputs Relationship of unobservable inputs to fair value Gold price and silver price volatilities 16% to 43% Risk-adjusted discount rates 13% to 15% An increase or decrease in the expected volatilities of 5% would increase or decrease the fair value of long-term debt and derivative loss by $5.4 million or $6.2 million, respectively An increase or decrease in risk- adjusted discount rates of 1% would decrease or increase the fair value of long-term debt and comprehensive income by $15.6 million or $16.6 million, respectively (d) Valuation processes The valuation of financial instruments classified as Level 3 of the fair value hierarchy were prepared by an independent valuation specialist under the direct oversight of the Vice President, Finance (“VP Finance”) of the Company. Discussions of valuation processes and results are held between the VP Finance, the Chief Financial Officer, and reported to the audit committee at least once every three months, in line with the Company’s quarterly reporting periods. (e) Financial risk management The Company’s financial instruments are exposed to a variety of financial risks by virtue of its activities. Currency risk Lundin Gold is a Canadian company, with foreign operations in Ecuador. Revenues generated and expenditures incurred in Ecuador are primarily denominated in U.S. dollars, as are its loan facilities. However, equity capital, if needed, is typically raised in Canadian dollars. As such, the Company is subject to risk due to fluctuations in the exchange rates of foreign currencies. Although the Company does not enter into derivative financial instruments to manage its exposure, the Company tries to manage this risk by maintaining most of its cash in U.S. dollars. Based on this exposure, a 2% change in the U.S. dollar exchange rate would give rise to an increase or decrease of approximately $0.8 million in net loss for the year. Credit risk Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. The majority of the Company’s cash is held in large financial institutions with a high investment grade rating. The Company is also subject to credit risk associated with its trade receivables. The Company manages this risk by only selling to a small group of reputable customers with strong financial statements. 68 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 20. Financial instruments and risk management (continued) Interest rate risk The Company is subject to interest rate risk with respect to the fair value of long-term debt which are accounted for at fair value through profit or loss and on the senior debt facilities for which interest payments are affected by movements to the LIBOR rate. Refer to Note 20(c) for the impact of changes in interest rates on the fair value of the Company’s long-term debt. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. Cash flow forecasting is performed regularly to monitor the Company’s liquidity requirements to ensure it has sufficient cash to meet its operational needs at all times. In addition, management is actively involved in the review, planning and approval of significant expenditures and commitments. The Company’s accounts payable and accrued liabilities are due within twelve months. For the Company’s long-term debt, terms of repayment are described in Note 9. Commodity price risk The Company is subject to commodity price risk from fluctuations in the market prices of gold and silver. Commodity price risks are affected by many factors that are outside the Company’s control including global or regional consumption patterns, the supply of and demand for metals, speculative activities, the availability and costs of metal substitutes, inflation and political and economic conditions. The Company has not hedged the price of any commodity at this time. The fair value of long-term debt accounted for at fair value through profit or loss is impacted by fluctuations of commodity prices. Based on this exposure, an increase or decrease of 5% in gold and silver prices would increase or decrease the fair value of long-term debt and the derivative loss by $28.8 million or $28.7 million, respectively. 21. Capital risk management The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern and operate Fruta del Norte and to maintain a flexible capital structure which optimizes the cost of capital at an acceptable risk. In the management of capital, the Company considers items included in shareholders’ equity and long-term debt. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the Company’s assets. In order to maintain or adjust the capital structure, the Company may attempt to issue new shares or debt instruments, acquire or dispose of assets, or to bring in joint venture partners. In order to facilitate the management of its capital requirements, the Company prepares annual expenditures budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Board of Directors. 69 LUNDIN GOLD INC. Notes to the consolidated financial statements as at December 31, 2020 (All dollar amounts are stated in U.S. dollars unless otherwise indicated. Tables are expressed in thousands of U.S. dollars, except share and per share amounts) 22. Commitments Significant capital expenditures contracted as at December 31, 2020 but not recognized as liabilities are as follows: Development costs $ $ 11,009 - - 11,009 2021 2022 2023 Total The Company’s sales are subject to a 5% net smelter royalty payable to the Government of Ecuador and a 1% net revenue royalty payable to third parties. 70 Corporate Information OFFICES CORPORATE HEAD OFFICE Lundin Gold Inc. 885 West Georgia Street, Suite 2000 Vancouver, British Columbia V6C 3E8 Telephone: 604-689-7842 Toll Free: 1-888-689-7842 Facsimile: 604-689-4250 REGIONAL HEAD OFFICE Aurelian Ecuador S.A., a subsidiary of Lundin Gold Inc. Av. Amazonas N37-29 y UNP Edificio Eurocenter, Piso 5 Quito, Pichincha Ecuador Telephone: 593-2-299-6400 COMMUNITY OFFICE Calle 01 de Mayo SN y de Febiero Los Encuentros, Zamora-Chinchipe, Ecuador STOCK EXCHANGE LISTINGS The Toronto Stock Exchange Trading Symbol: LUG Nasdaq Stockholm Trading Symbol: LUG SHARE REGISTRAR AND TRANSFER AGENT Computershare Investor Services Inc. 510 Burrard Street, 3rd Floor Vancouver, B.C. V6C 3B9 Telephone: 1-800-564-6253 AUDITOR PricewaterhouseCoopers LLP 250 Howe St #700 Vancouver, BC V6C 3S7 Telephone: 604-806-7000 ADDITIONAL INFORMATION Further information about Lundin Gold is available by contacting: Finlay Heppenstall Director, Investor Relations Telephone: 604-689-7842 Toll Free: 1-888-689-7842 info@lundingold.com BOARD OF DIRECTORS Lukas H. Lundin, Chairman Geneva, Switzerland Carmel Daniele London, United Kingdom Ian Gibbs Vancouver, Canada Chantal Gosselin Vancouver, Canada Ashley Heppenstall London, United Kingdom Ron F. Hochstein Vancouver, Canada Craig Jones Brisbane, Australia Paul McRae Algarve, Portugal Bob Thiele Balmoral, Australia Istvan Zollei New York City, United States OFFICERS Ron F. Hochstein President & Chief Executive Officer Alessandro Bitelli Executive Vice President & Chief Financial Officer Sheila Colman Vice President, Legal & Corporate Secretary David Dicaire Vice President, Projects and General Manager Nathan Monash Vice President, Business Sustainability Iliana Rodriguez Vice President, Human Resources Chester See Vice President, Finance 885 West Georgia Street, Suite 2000 Vancouver, British Columbia, V6C 3E8 Canada Av. Amazonas N37-29 y UNP Edificio Eurocenter, Piso 5 Quito, Pichincha, Ecuador Telephone: 604-689-7842 Toll Free: 1-888-689-7842 Telephone: 593-2-299-6400 info@lundingold.com www.lundingold.com @LundinGold @LundinGoldEC Lundin Gold Lundin Gold Lundin Gold Ecuador 

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