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Highland Gold Mining Ltd.MURCHISON MINERALS LTD. CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2022 AND 2021 (Expressed in Canadian Dollars) Independent Auditor’s Report To the Shareholders of Murchison Minerals Ltd. Opinion We have audited the consolidated financial statements of Murchison Minerals Ltd. and its subsidiary (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2022 and 2021, and the consolidated statements of loss and comprehensive loss, consolidated statements of equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2022 and 2021, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”). 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 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company incurred a net loss during the year ended December 31, 2022 and is not generating positive cash flows from operations. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that material uncertainties exist that cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were 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. Except for the matter described in the material uncertainty related to going concern section, we have determined that there were no additional key audit matters to communicate in our report. Other information Management is responsible for the other information. The other information comprises 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 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. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. 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. 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 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 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 judgement 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 risks 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. 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. 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 of the audit resulting in this independent auditor’s report Koko Yamamoto. McGovern Hurley LLP Chartered Professional Accountants Licensed Public Accountants Toronto, Ontario April 10, 2023 MURCHISON MINERALS LTD. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Expressed in Canadian Dollars) As at December 31, ASSETS Current Assets Cash Amounts receivable and prepaid expenses (Note 6) Total current assets Investment (Note 7) Property and equipment (Note 8) Total assets LIABILITIES Current Liabilities Accounts payable and accrued liabilities (Note 14) Loans payable (Note 16) Flow-through share premium liability Total current liabilities Loans payable (Note 16) Total liabilities EQUITY Share capital (Note 10) Reserves (Notes 11 and 12) Deficit Total equity Total equity and liabilities 2022 2021 $ 1,706,952 $ 870,515 1,792,033 319,396 2,577,467 2,111,429 - 183,777 2,584 110,864 $ 2,761,244 $ 2,224,877 $ 357,895 $ 51,578 - 211,305 10,578 191,896 409,473 413,779 21,685 29,385 431,158 443,164 41,612,477 2,411,789 (41,694,180) 35,881,469 1,876,352 (35,976,108) 2,330,086 1,781,713 $ 2,761,244 $ 2,224,877 Nature and Continuance of Operations (Note 1) Commitments and Contingencies (Notes 9 and 15) Subsequent events (Note 17) Approved on Behalf of the Board: "signed" "signed" Jean-Charles Potvin Director Denis Arsenault Director MURCHISON MINERALS LTD. CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (Expressed in Canadian Dollars) For the years ended December 31, EXPENSES Exploration expenses (Note 9) Professional fees Management fees and salaries (Note 14) Office and general Regulatory and transfer agent Investor relations Share-based payments (Notes 12 and 14) Loss before other income and expenses Interest income Other income Flow-through shares premium (Note 10) Loss on investment (Note 7) Loss for the year Loss per share - basic and diluted Weighted average number of common shares outstanding - basic and diluted $ 2022 2021 5,662,334 $ 80,804 534,201 116,202 88,487 464,311 570,874 4,099,155 40,122 345,217 58,274 16,511 171,318 435,905 7,517,213 5,166,502 (62,003) (33,000) (1,321,035) 841 (4,958) - (399,632) 818 $ 6,102,016 $ 4,762,730 $ 0.03 $ 0.04 192,181,756 115,846,480 The accompanying notes are an integral part of these consolidated financial statements - 2 - MURCHISON MINERALS LTD. CONSOLIDATED STATEMENTS OF EQUITY (Expressed in Canadian Dollars) Balance, December 31, 2020 Loss for the year Issuance of common shares (net of issue costs) Issuance of stock options / share-based compensation Expiry of stock options Issuance of warrants Exercise of warrants Expiry of warrants Balance, December 31, 2021 Balance, December 31, 2021 Net loss for the year Issuance of common shares (net of issue costs) Issuance of stock options / share-based compensation Issuance of warrants Exercise of warrants Expiry of warrants Reserves Equity settled share-based payments reserve Share Capital Warrants reserve Deficit Total $ 32,305,495 - 3,566,424 - - - 9,550 - $ 833,830 - - 435,905 (107,710) - - - $ 185,875 $ (31,327,782) $ - - - - 544,696 (9,550) (6,694) (4,762,730) - - 107,710 - - 6,694 1,997,418 (4,762,730) 3,566,424 435,905 - 544,696 - - $ 35,881,469 $ 1,162,025 $ 714,327 $ (35,976,108) $ 1,781,713 $ 35,881,469 - 5,400,626 - - 330,382 - $ 1,162,025 - - 570,874 - - - $ 714,327 $ (35,976,108) $ - - - 678,889 (330,382) (383,944) (6,102,016) - - - - 383,944 1,781,713 (6,102,016) 5,400,626 570,874 678,889 - - Balance, December 31, 2022 $ 41,612,477 $ 1,732,899 $ 678,890 $ (41,694,180) $ 2,330,086 The accompanying notes are an integral part of these consolidated financial statements - 3 - MURCHISON MINERALS LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in Canadian Dollars) For the years ended December 31, CASH (USED IN) PROVIDED BY: OPERATING ACTIVITIES Loss for the year Share-based payments Flow-through shares premium Loss on investment Amortization Net change in non-cash working capital items: Amounts receivable and prepaid expenses Accounts payable and accrued liabilities Net cash flows used by operating activities INVESTING ACTIVITIES Acquisition of property and equipment Proceeds from sale of investment Net cash flows used by investing activities FINANCING ACTIVITIES Issuance of common shares and warrants exercise Issue costs Loan repayments Net cash flows provided by financing activities NET CHANGE IN CASH CASH, BEGINNING OF THE YEAR CASH, END OF THE YEAR SUPPLEMENTAL CASH FLOW INFORMATION Finders’ warrants issued Property and equipment purchase financed through loan 2022 2021 $ (6,102,016) $ (4,762,730) 435,905 (399,632) 818 25,852 570,874 (1,321,035) 841 47,470 (6,803,866) (4,699,787) (551,119) 146,590 (228,473) 110,866 (7,208,395) (4,817,394) (70,383) 1,743 (21,550) - (68,640) (21,550) 7,475,495 (266,841) (16,700) 4,852,394 (280,205) (3,623) 7,191,954 4,590,602 (85,081) 1,792,033 (270,378) 2,062,411 $ 1,706,952 $ 1,792,033 $ 31,120 50,000 $ 41,110 43,586 The accompanying notes are an integral part of these consolidated financial statements - 4 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 1. NATURE AND CONTINUANCE OF OPERATIONS Murchison Minerals Ltd. (the "Company" or “Murchison”) was incorporated under the Canada Business Corporations Act on July 25, 2001. The principal business of the Company is the acquisition, exploration and evaluation of mineral property interests. The primary office is located at 5063 North Service Road, Suite 100, Burlington, Ontario, Canada, L7L 5H6. The consolidated financial statements were approved by the Board of Directors on April 10, 2023. The business of mining and exploring for minerals involves a high degree of risk and there can be no assurance that planned exploration and evaluation programs will result in profitable mining operations. The continuance of the Company is dependent upon completion of the acquisition of the exploration and evaluation properties, the discovery of economically recoverable reserves, confirmation of the Company's interest in the underlying mineral claims, the ability of the Company to obtain necessary financing to complete the development and future profitable production or, alternatively, upon disposition of such property at a profit. Changes in future conditions could require material write downs of the carrying values of the Company's assets. Although the Company has taken steps to verify title to its exploration and evaluation properties, in accordance with industry standards for the current stage of exploration of such property, these procedures do not guarantee the Company's title. Property title may be subject to unregistered prior agreements and noncompliance with regulatory and, environmental requirements. The Company's assets may also be subject to increases in taxes and royalties, renegotiation of contracts, currency exchange fluctuations and restrictions and political uncertainty. As at December 31, 2022, the Company has a cumulative deficit of $41,694,180 (December 31, 2021 - $35,976,108), continuing losses and is not yet generating positive cash flows from operations. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue its operations as a going concern. These consolidated financial statements were prepared on a going-concern basis in accordance with International Financial Reporting Standards ("IFRS"). Funding for operations has been obtained primarily through private share offerings. Future operations are dependent upon the Company's ability to finance expenditure requirements and upon the achievement of profitable operations. Management believes it will be successful in raising the necessary funding to continue operations in the normal course of operations; however, there is no assurance that these funds will be available on terms acceptable to the Company or at all. These consolidated financial statements do not include adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue operations. Such adjustments could be material. 2. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance These consolidated financial statements, including comparatives, have been prepared in accordance with IFRS. Basis of presentation These consolidated financial statements have been prepared on a historical cost basis except for investment which has been presented at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information. - 5 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of consolidation Subsidiaries are entities over which the Company has control, where control is defined to exist when the Company is exposed to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated from the date control is transferred to the Company, and are de-consolidated from the date control ceases. The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. All intercompany transactions, balances, income and expenses are eliminated upon consolidation. The following companies have been consolidated within these consolidated financial statements: Company Murchison Minerals Ltd. Flemish Gold Corp. Exploration and evaluation properties Registered Principal activity Ontario, Canada Ontario, Canada Parent company Exploration company The acquisition costs of exploration and evaluation properties are expensed the consolidated statements of loss in the period incurred, as permitted under IFRS 6, Exploration for and Evaluation of Mineral Resources. The acquisition costs of exploration and evaluation properties include the cash consideration and the estimated fair market value of share-based payments issued for such property interests. Exploration costs are expensed in the period incurred. Option payments which are solely at the Company’s discretion are recorded as acquisition costs as they are made. Administrative expenditures are expensed in the period incurred. Government grants and assistance The Company expects to be entitled to a refundable tax credit on qualified mining exploration expenses incurred in the province of Quebec and to a refundable duties credit for losses, which are estimated and recorded against the exploration and evaluation expenses to which they relate. Government grants and assistance are transfers of resources to an entity by government in return for past or future compliance with certain conditions relating to the operating activities of the entity. Government assistance is action by government designed to provide an economic benefit that is specific to an entity or range of entities qualifying under certain criteria. Government grants and assistance are recognized where there is a reasonable assurance that the grants and assistance will be received, and conditions will be complied with. Government grants and assistance are recognized as an offset to the expenses to which they relate. Property and equipment Property and equipment are carried at cost, less accumulated amortization and accumulated impairment losses. The cost of an item of property and equipment consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary 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. Repairs and maintenance costs are charged to profit or loss during the period in which they are incurred. - 6 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and equipment (Continued) An asset's residual value, useful life and amortization method are reviewed, and adjusted if appropriate, on an annual basis. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss. Where an item of property and equipment consists of major components with different useful lives, the components are accounted for as separate items of property and equipment. Expenditures incurred to replace a component of an item of property and equipment that is accounted for separately, including major inspection and overhaul expenditures, are capitalized. Amortization is recognized based on the cost of an item of property and equipment, less its estimated residual value, over its estimated useful life at the following rates: Detail Exploration equipment Computer equipment Buildings Financial instruments Rate 3 years 5 years 20 years Method Straight-line Straight-line Straight-line Financial assets at amortized cost are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured using the effective interest method, less any impairment losses. A financial asset is classified as fair value through profit and loss (“FVPL”) if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated as FVPL if the Company manages such investments and makes purchases and sale decisions based on their fair value in accordance with the Company’s documented risk management or investment strategy. Realized and unrealized gains and losses are reflected in the consolidated statement of loss. Transaction costs associated with FVPL financial assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial carrying amount of the asset. The Company has designated its investment as FVPL. Financial liabilities at amortized cost are recognized initially at fair value net of any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest and any transaction costs over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or (where appropriate) to the net carrying amount on initial recognition. Financial liabilities are de-recognized when the obligations are discharged, cancelled or expired. Impairment of financial assets: Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the financial assets have been negatively impacted. Evidence of impairment could include: - 7 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial instruments (continued) • • • significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or the likelihood that the borrower will enter bankruptcy or financial re-organization. The carrying amount of financial assets is reduced by any impairment loss directly for all financial assets with the exception of amounts receivable, where the carrying amount is reduced through the use of a provision for expected credit losses. When an account receivable is considered uncollectible, it is written off against the provision for expected credit losses account. Changes in the carrying amount of the provision for expected credit losses are recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the consolidated statement of loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. Financial instruments recorded at fair value: Financial instruments recorded at fair value on the consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: • • • Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 - valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs). As at December 31, 2022, the Company’s Investment on the consolidated statement of financial position was $nil (see note 7). As at December 31, 2021, the Company’s Investment on the consolidated statement of financial position was recorded at Level 1 with a fair value of $2,584. Impairment of non-financial assets At the end of each reporting period, the Company reviews the carrying amounts of its non-financial assets with finite lives to determine whether there is any indication that those assets have suffered an impairment loss. Where such an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. The recoverable amount is the higher of an asset’s fair value less cost to sell or its value in use. In addition, long-lived assets that are not amortized are subject to a periodic impairment assessment. The Company evaluates impairment losses for potential reversals when events or circumstances warrant such consideration. Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at banks, on hand and short-term money market investments with original maturities of 90 days or less which are readily convertible into a known amount of cash. The Company’s cash and cash equivalents are invested with major financial institutions in business accounts and are available on demand by the Company. When cash and cash equivalents include an amount to be incurred in relation to a flow-through commitment, an amount equal to the minimum commitment is kept in a separate bank account. As at December 31, 2022 and 2021, the Company had no cash equivalents. - 8 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Interest income Interest income is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. Provisions A provision is recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The Company had no material provisions at December 31, 2022 and December 31, 2021. Share-based payment transactions The fair value of stock options granted to employees is recognized as an expense over the vesting period with a corresponding increase in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee, including directors of the Company. The fair value is measured at the grant date and recognized over the period during which the options vest. The fair value of the options granted is measured using the Black-Scholes option-pricing model, taking into account the terms and conditions upon which the options were granted. At each reporting date, the amount recognized as an expense is adjusted to reflect the actual number of stock options that are expected to vest. Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification. Unexercised expired and modified stock option values are transferred to deficit. Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received in the statement of comprehensive loss. When the value of goods or services received in exchange for the share-based payment cannot be reliably estimated, the transaction is measured at the fair value of the equity instrument granted. Income taxes Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax expense is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years. - 9 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Deferred tax is for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes and the initial recognition of assets or liabilities that affect neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Equity Share capital, stock options, warrants and broker units are classified as equity. Incremental costs directly attributable to the issuance of shares, warrants and broker units are recognized as a deduction from equity and allocated between share capital and warrants. Expired stock options and warrants are transferred to deficit. Flow-through shares The Company finances some exploration expenditures through the issuance of flow-through shares. The resource expenditure deductions for income tax purposes are renounced to investors in accordance with the appropriate income tax legislation. When the common shares are offered, the difference (“premium”) between the amount recognized in common shares and the amount the investors pay for the shares is recognized as a flow-through share related liability which is reversed into the consolidated statement of loss when the eligible expenditures are incurred. The amount recognized as a flow-through share related liability represents the difference between the quoted price of the common shares and the amount the investor pays for the flow-through shares. The Company indemnifies the subscribers of flow-through shares for additional taxes payable by the subscribers if the Company does not meet its expenditure requirements. Restoration, rehabilitation and environmental obligations A legal or constructive obligation to incur restoration, rehabilitation and environmental costs may arise when environmental disturbance is caused by the exploration, development or ongoing production of a property interest. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for and capitalized at the start of each project to the carrying amount of the asset, as soon as the obligation to incur such costs arises. Discount rates using a pretax rate that reflects the time value of money are used to calculate the net present value. These costs are charged against profit or loss over the economic life of the related asset, through amortization using either a unit-of-production or the straight-line method as appropriate. The related liability is adjusted for each period for the unwinding of the discount rate and for changes to the current market-based discount rate, amount or timing of the underlying cash flows needed to settle the obligation. Costs for restoration of subsequent site damage that is created on an ongoing basis during production are provided for at their net present values and charged against profits as extraction progresses. The Company has no material restoration, rehabilitation and environmental costs as at December 31, 2022 and December 31, 2021 as the disturbance to date is minimal. Loss per share The Company presents basic and diluted loss per share data for its common shares, calculated by dividing the loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. The diluted loss per share is determined by adjusting the loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all warrants, finders’ warrants and stock options outstanding that may add to the total number of common shares. Diluted loss per share does not include the effect of stock options, warrants and finders’ warrants as they are anti-dilutive. See Notes 11 and 12. - 10 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Warrants Warrants are recognized at fair value on the date of grant and are measured using the Black-Scholes option pricing model. Unexercised expired warrants are transferred to deficit. Significant accounting judgments and estimates The preparation of financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and related notes to the financial statements. Although these estimates are based on management’s best knowledge of the amounts, events or actions, actual results may differ from those estimates. The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to: - Assets’ carrying values and impairment charges In the determination of carrying values and impairment charges, management looks at the recoverable amount, being the higher of value in use and fair value less costs to sell in the case of non-financial assets and at objective evidence, significant or prolonged decline of fair value on financial assets indicating impairment. These determinations and their individual assumptions require that management make a decision based on the best available information at each reporting period. - Income and other taxes The Company is subject to income, value added, withholding and other taxes. Significant judgment is required in determining the Company's provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company's income, value added, withholding and other tax liabilities requires interpretation of complex laws and regulations. The Company's interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the period in which such determination is made. - Share-based payments Management determines costs for share-based payments using market-based valuation techniques. The fair value of the market-based and performance-based non-vested share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgment is used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviors and corporate performance. Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates. The Company currently estimates the expected volatility of its common shares based on historical volatility taking into consideration the expected life of the options and warrants. Contingencies See Note 15. New and future accounting policies During the year ended December 31, 2022, the Company adopted a number of amendments and improvements of existing standards. These included amendments to IAS 16 and IAS 37. These new standards and amendments did not have any material impact on the Company’s consolidated financial statements. - 11 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) New and future accounting policies (Continued) IAS 16 – Property, Plant and Equipment (“IAS 16”) was amended. The amendments introduce new guidance, such that the proceeds from selling items before the related property, plant and equipment is available for its intended use can no longer be deducted from the cost. Instead, such proceeds are to be recognized in profit or loss, together with the costs of producing those items. IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets (“IAS 37”) was amended. The amendments clarify that when assessing if a contract is onerous, the cost of fulfilling the contract includes all costs that relate directly to the contract – i.e. a full-cost approach. Such costs include both the incremental costs of the contract (i.e. costs a company would avoid if it did not have the contract) and an allocation of other direct costs incurred on activities required to fulfill the contract – e.g. contract management and supervision, or depreciation of equipment used in fulfilling the contract. Certain pronouncements were issued by the IASB or the IFRIC that are mandatory for accounting periods commencing on or after January 1, 2023. Many are not applicable or do not have a significant impact to the Company and have been excluded. The Company is currently assessing the impact of these standards on the consolidated financial statements. IAS 1 – Presentation of Financial Statements (“IAS 1”) was amended in January 2020 to provide a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at the reporting date. The amendments clarify that the classification of liabilities as current or noncurrent is based solely on a company’s right to defer settlement at the reporting date. The right needs to be unconditional and must have substance. The amendments also clarify that the transfer of a company’s own equity instruments is regarded as settlement of a liability, unless it results from the exercise of a conversion option meeting the definition of an equity instrument. The amendments are effective for annual periods beginning on January 1, 2023. 3. CAPITAL MANAGEMENT The Company manages its capital with the following objectives: • • to ensure sufficient financial flexibility to achieve the ongoing business objectives including funding of future growth opportunities, and pursuit of accretive acquisitions; and to maximize shareholder return through enhancing the share value. The Company monitors its capital structure and makes adjustments according to market conditions in an effort to meet its objectives given the current outlook of the business and industry in general. The Company may manage its capital structure by issuing new shares, repurchasing outstanding shares, adjusting capital spending, or disposing of assets. The capital structure is reviewed by management and the Board of Directors on an ongoing basis. The Company considers its capital to consist of equity, comprising share capital, reserves and deficit which at December 31, 2022 totalled $2,330,086 (December 31, 2021 - $1,781,713). The Company manages capital through its financial and operational forecasting processes. The Company reviews its working capital and forecasts its future cash flows based on operating expenditures, and other investing and financing activities. The forecast is regularly updated based on its exploration and development activities. Selected information is regularly provided to the Board of Directors of the Company. The Company’s capital management objectives, policies and processes have remained unchanged during the years ended December 31, 2022 and 2021. The Company is not subject to any capital requirements imposed by a regulator or lending institution. 4. FINANCIAL RISK FACTORS The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate, foreign exchange rate and commodity price risk). - 12 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 4. FINANCIAL RISK FACTORS (Continued) Risk management is carried out by the Company’s management team under policies approved by the Board of Directors. The Board of Directors also provides regular guidance for overall risk management. There have been no changes in the risks, objectives, policies and procedures during the years ended December 31, 2022 and 2021. Credit risk Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash balances and amounts receivable. Cash is held with reputable banks, from which management believes the risk of loss to be remote. Financial instruments included in amounts receivable consist of sales tax receivable and refundable tax credits from government authorities in Canada. Management believes that the credit risk concentration with respect to financial instruments included in amounts receivable is remote. Liquidity risk The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at December 31, 2022, the Company had a cash balance of $1,706,952 (December 31, 2021 - $1,792,033) to settle accounts payable, accrued liabilities and loans payable of $431,158 (December 31, 2021 - $251,268). All of the Company’s financial liabilities generally have contractual maturities of less than 30 days and are subject to normal trade terms, except for the loans payable as disclosed in Note 16. Market risk Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity prices. Interest rate risk The Company has cash balances and no interest-bearing debt other than the loans payable at a fixed interest rate. The Company’s current policy is to invest excess cash in certificates of deposit or interest bearing accounts at major Canadian chartered banks. The Company periodically monitors the investments it makes and is satisfied with the creditworthiness of its Canadian chartered banks. Management believes that interest rate risk is minimal as cash investments have maturities of three months or less. Commodity price risk Commodity price risk could adversely affect the Company. In particular, the Company’s future profitability and viability of development depends upon the world market price of commodities. Commodity prices have fluctuated widely in recent years. There is no assurance that, even as commercial quantities of base and/or precious metals may be produced in the future, a profitable market will exist for them. A decline in the market price of commodities may also require the Company to reduce its mineral resources, which could have a material and adverse effect on the Company’s value. As at December 31, 2022, the Company is not a commodities producer. As a result, commodity price risk may affect the completion of future equity transactions such as equity offerings and the exercise of stock options and warrants. This may also affect the Company’s liquidity and its ability to meet its ongoing obligations. Sensitivity analysis Based on management’s knowledge and experience, the Company believes the following movements are “reasonably possible” over a one-year period: (i) Based on cash balances earning interest at December 31, 2022, a 1% change in interest rates would result in a corresponding interest income change of approximately $17,100 for the one-year period. - 13 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 5. CATEGORIES OF FINANCIAL INSTRUMENTS Financial assets: Amortized cost Cash FVPL Investment Financial liabilities: Amortized cost Accounts payable and accrued liabilities Loans payable December 2022 December 2021 $ 1,706,952 $ 1,792,033 - 2,584 $ 357,895 $ 73,263 211,305 39,963 As of December 31, 2022 and December 31, 2021, the fair value of all the Company's current financial instruments approximates the carrying value, due to their short-term nature. 6. AMOUNTS RECEIVABLE AND PREPAID EXPENSES Sales tax receivable Tax credits receivable Prepaid expenses and advances 7. INVESTMENT December 2022 December 2021 $ 558,810 $ 260,242 51,463 247,327 - 72,069 $ 870,515 $ 319,396 The Company's investment is classified as fair value through profit and loss (“FVPL”) and is carried at fair value. The balance is comprised of the following: Number of shares December 2022 December 2021 First Mining Gold Corp. nil / 8,612 $ - $ 2,584 In 2022, the Company sold the 8,612 common shares of First Mining Gold Corp. and recognized a loss of $841 on the consolidated statement of loss. In 2021, the Company recognized an unrealized loss of $818 on the consolidated statement of loss. - 14 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 8. PROPERTY AND EQUIPMENT Year ended December 31, 2021 Opening net book amount Additions Amortization for the year Closing net book amount At December 31, 2021 Cost Accumulated amortization Net book amount Year ended December 31, 2022 Opening net book amount Additions Amortization for the year Closing net book amount At December 31, 2022 Cost Accumulated amortization Net book amount Computer equipment Buildings Exploration equipment Total - $ - - 46,715 $ - (2,440) 24,865 $ 65,136 (23,412) 71,580 65,136 (25,852) - $ 44,275 $ 66,589 $ 110,864 - $ - 48,866 (4,591) $ 107,173 $ 156,039 (40,584) (45,175) - $ 44,275 $ 66,589 $ 110,864 - $ 6,602 (1,210) 44,275 $ 50,000 (3,065) 66,589 $ 63,781 (43,195) 110,864 120,383 (47,470) 5,392 $ 91,210 $ 87,175 $ 183,777 6,602 $ (1,210) 98,866 (7,656) $ 170,954 $ 276,422 (83,779) (92,645) 5,392 $ 91,210 $ 87,175 $ 183,777 Exploration equipment with a net book value of $19,657 as at December 31, 2022 (2021 - $33,533) and a building with a net book value of $49,375 as at December 31, 2022 (2021 - $nil) are used as security for the loans payable described in Note 16. 9. EXPLORATION AND EVALUATION PROPERTIES Brabant Lake Property – Saskatchewan As at December 31, 2022, the Company holds a 100% interest in certain claims forming the Brabant Lake property in Saskatchewan. HPM Property - Quebec As at December 31, 2022, the Company holds a 100% interest in certain claims forming the HPM property in Quebec. Barraute-Landrienne Property - Quebec On April 28, 2021, the Company entered into an agreement with Gestion Aline Leclerc Inc. (“GAL”) granting Murchison an option to earn 100% in 75 mineral claims, by making payments totaling $500,000 and property expenditures of $1.0 million over a 6-year period. The first payment of $20,000 was due and paid on April 28, 2022. GAL would retain a royalty of 1% of net smelter returns (NSR) on future production. The 1% NSR could be acquired anytime by the Company for $1.0 million. See Note 17. - 15 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 9. EXPLORATION AND EVALUATION PROPERTIES (Continued) The following table sets out the exploration expenses for the last two years: Brabant Lake Amortization Drilling (less government assistance) General Administrative Geology Geophysics Metallurgy Acquisition and Staking Total Brabant Lake HPM Drilling Geology Geophysics Metallurgy Acquisition and Staking Tax Credits Receivable Total HPM Barraute-Landrienne Geology Geophysics Acquisition and Staking Option Payment Total Barraute-Landrienne Total exploration expenses December 31, 2022 December 31, 2021 $ $ $ $ $ 27,794 10,870 3,500 112,546 107,979 - 7,150 269,839 3,166,390 1,407,200 1,032,296 4,937 16,232 (267,873) 5,359,182 3,510 8,728 1,075 20,000 33,313 5,662,334 $ $ $ $ $ 24,546 1,531,547 5,084 96,283 71,277 66,451 300 1,795,488 1,619,833 209,622 254,453 - 80,166 - 2,164,074 39,663 97,430 2,500 - 139,593 4,099,155 Government Assistance and Tax Credits The Company is entitled to a credit on duties refundable for losses under the Quebec Mining Duties Act. This credit on duties refundable for losses on mineral exploration expenses incurred in the Province of Quebec at the rate of 12% has been applied against the costs incurred. These amounts have been recorded as a reduction of the HPM exploration expenditures. Also, the Company is entitled to the refundable tax credit for resources for mineral companies on qualified expenditures incurred in the Province of Quebec. The refundable tax credit for resources may reach 35% or 38.75% of qualified expenditures incurred. This tax credit has been applied against the costs incurred. These amounts have also been recorded as a reduction of the HPM exploration expenditures. The Saskatchewan Targeted Mineral Exploration Incentive (“TMEI”) supports the diversification of Saskatchewan's mineral sector by encouraging exploration for base metals, precious metals, and diamonds as well as other components such as airborne geophysical data and complementary ground-based geoscience investigations. The TMEI provides up to $50,000 financial assistance in the form of a grant to eligible exploration companies that undertake exploration drilling for base metals, precious metals, or diamonds. In 2022 and 2021, the Company received $50,000 each year under the TMEI in relation to the drilling completed at the Brabant Lake project in Saskatchewan. These amounts have been recorded as a reduction of the Brabant Lake exploration drilling expenses on the statement of loss for the years ended December 31, 2022 and 2021. - 16 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 10. SHARE CAPITAL (a) Authorized Share Capital The Company’s authorized share capital consists of an unlimited number of common shares. (b) Issued Balance - December 31, 2020 Issuance of common shares (i)(ii) Issuance of flow-through shares (ii) Exercise of warrants Flow-through premium (ii) Warrants (i)(ii) Issue costs (i)(ii) Balance – December 31, 2021 Balance - December 31, 2021 Exercise of warrants-net of issue costs (iii) Private placement (iv) Issue costs – private placement(iv) Flow-Through Premium (iv) Warrants issued(iii)(iv) Balance – December 31, 2022 Number Amount 98,936,177 23,500,000 30,737,571 436,037 - - - 153,609,785 Number 153,609,785 17,682,550 46,919,622 - - - 218,211,957 $ $ $ $ 32,305,495 1,880,000 2,920,069 61,874 (461,069) (544,697) (280,203) 35,881,469 Amount 35,881,469 2,465,961 5,353,589 (249,753) (1,129,139) (709,650) 41,612,477 (i) On March 5, 2021, Murchison completed a non-brokered private placement and issued 10,000,000 common share units at a price of $0.08 per unit for gross proceeds of $800,000. Each unit consisted of one common share of the Company and one-half common share purchase warrant. Each full warrant entitled the holder to acquire one additional common share until September 5, 2022 at an exercise price of $0.12 per common share. The fair value of the warrants was estimated at $120,670 using the Black-Scholes option model pricing with the following assumptions: expected dividend yield of 0%, expected volatility of 109%, risk-free interest rate of 0.29%, expected life of 1.5 year and share price of $0.07. Issue costs of $6,313 were allocated to the warrants. Finder’s fees totaling $18,000 were paid under the private placement. Insiders of the Company acquired an aggregate of 4,150,000 units in the private placement for a total of $332,000. (ii) On October 21, 2021, the Company completed a $4,000,069 private placement by issuing issued 13,500,000 common share units at a price of $0.08 per unit and 30,737,571 flow-through units at a price of $0.095 per flow-through unit. Each common share unit consisted of one common share of the Company and one-half common share purchase warrant. Each full warrant entitled the holder to acquire one additional common share for a period of twelve months at an exercise price of $0.12 per warrant. Each FT unit consisted of one flow-through common share and one-half non flow-through common share purchase warrant with each full warrant being exercisable under the same terms. Finders’ fees of $198,005 were paid in relation to the private placement and 2,178,997 finder’s warrants valued at $41,110 were issued under the same terms as the warrants issued as part of the units. Also, $461,069 was allocated to the flow-through premium. - 17 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 10. SHARE CAPITAL (Continued) The fair value of the warrants issued as part of the common share units and flow-through units was estimated at $538,010 using the Black-Scholes option model pricing with the following assumptions: expected dividend yield of 0%, expected volatility of 109% based on historical trading of the Company’s shares, risk-free interest rate of 0.77%, expected life of 1 year and share price of $0.071. An officer and a director of the Company acquired, in aggregate, 10,000,000 units and 4,863,100 flow-through units for total gross proceeds of $1,261,995. See Note 14. (iii) Between January 10 and February 10, 2022, 7,025,000 warrants exercisable at $0.12 and expiring on January 23 and February 13, 2022 were exercised for gross proceeds of $843,000. Between March 23 and April 15, 2022, following the implementation of a warrant exercise incentive program, 10,657,550 warrants at a price of $0.12 were exercised for gross proceeds of $1,278,906. As part of the incentive program, the Company issued 5,328,775 incentive warrants exercisable at $0.18 until April 15, 2023. The fair value of the incentive warrants was estimated at $85,260 using the Black-Scholes option model pricing with the following assumptions: expected dividend yield of 0%, expected volatility of 82%, risk-free interest rate of 2.27%, expected life of 1 year and share price of $0.10 and reflected as a cost of issue. (iv) On June 30, 2022, the Company completed a non-brokered private placement and issued 10,166,666 units at a price of $0.09 per unit, 20,195,002 Quebec flow-through units at a price of $0.105 and 16,557,954 charity flow-through units at a price of $0.14 for aggregate gross proceeds of $5,353,589. Each unit, Quebec flow-through unit and charity flow-through unit was comprised of one common share of the Company and one-half of a common share purchase warrant. Each whole warrant is exercisable to acquire one additional common share at a price of $0.18 for a period of 18 months expiring December 30, 2023. In the event that, the 20-day volume weighted average price of the common shares on the TSX Venture Exchange is greater than $0.225 ($0.24 for the unit), the Company may give notice to the holders of the warrants that the expiry time of the warrants has been accelerated and the warrants will expire on the 30th business day following the date of such notice to subscribe for and purchase the number common shares of the Company set forth above on the basis of one common share at a price of $0.18 for each warrant exercised. The fair value of the warrants was estimated at $593,270 using the Black-Scholes option model pricing with the following assumptions: expected dividend yield of 0%, expected volatility of 115%, risk-free interest rate of 3.10%, expected life of 1.5 year and share price of $0.08. Issue costs of $30,760 were allocated to the warrants. Finder’s fees totaling $149,150 were paid under the private placement and 1,230,471 finders’ warrants valued at $31,120 with the same terms as described above. Two directors of the Company acquired a 7,944,444 units and 142,857 flow-through units respectively for aggregate gross proceeds of $730,000. - 18 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 11. WARRANTS AND FINDERS’ WARRANTS The following summarizes the warrants and finders’ warrants activity for the years ended December 31, 2022 and 2021: Balance - December 31, 2020 Issued Exercised Expired Balance – December 30, 2021 Balance - December 31, 2021 Exercised Expired Issued Number of Warrants Grant Date Weighted Average Fair Value Exercise Price $ 9,723,833 29,297,785 (436,037) (278,196) 38,307,385 $ 185,875 544,696 (9,550) (6,694) 714,327 $ $ 0.12 0.12 0.12 0.12 0.12 Number of Warrants Grant Date Weighted Average Fair Value Exercise Price $ 38,307,385 (17,682,550) (20,624,835) 30,019,054 714,327 (330,382) (383,944) 678,889 $ 0.12 0.12 0.12 0.18 Balance – December 31, 2022 30,019,054 $ 678,890 $ 0.18 As at December 31, 2022, the Company had warrants and finders’ warrants outstanding as follows: Date of Issue April 15, 2022 June 30, 2022 Issue Price ($) 0.18 0.18 Number of Warrants 5,328,775 24,690,279 30,019,054 Fair Value ($) 85,260 593,630 678,890 Expiry Date April 15, 2023 December 30, 2023 Remaining Contractual Life (years) 0.29 1.00 0.87 12. STOCK OPTIONS The Company maintains a stock option plan whereby certain key employees, officers, directors and consultants may be granted stock options for common shares of the Company. The maximum number of common shares that is issuable under the plan was fixed at 10% of the number of common shares issued and outstanding (a maximum of 5% of the number of common shares issued and outstanding may be held by any one person). Options expire after a maximum period of five years following the date of grant. Vesting provisions are determined at the time of each grant. The following summarizes the stock option activity for the years ended December 31, 2022 and 2021: Balance - December 31, 2020 Granted (i)(ii)(iii)(iv)(v) Expired Balance – December 31, 2021 Number of Stock Options 9,255,000 5,525,000 (500,000) 14,280,000 Weighted Average Exercise Price 0.11 0.12 0.25 0.11 $ $ - 19 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 12. STOCK OPTIONS (Continued) Balance - December 31, 2021 Granted (vi)(vii)(viii) Balance – December 31, 2022 Number of Stock Options 14,280,000 7,215,000 21,495,000 Weighted Average Exercise Price 0.11 0.10 0.10 $ $ (i) On April 14, 2021, the Company granted 200,000 stock options exercisable at $0.095 for 5 years to an officer of the Company. The grant date fair value of these options of $9,800 was estimated using the Black Scholes valuation model with the following weighted average assumptions: share price of $0.07, risk free interest rate – 0.95%, expected volatility – 113%, expected dividend yield – 0%, expected forfeiture rate of – 0% and expected life – 5 years. The options vested immediately and the $9,800 fair value was recorded as share-based payment expense on the consolidated statement of loss for the year ended December 31, 2021. (ii) On May 25, 2021, the Company granted 500,000 stock options exercisable at $0.095 for 5 years to a director, an officer, a consultant and employees of the Company. The grant date fair value of these options of $26,000 was estimated using the Black Scholes valuation model with the following weighted average assumptions: share price of $0.07, risk free interest rate – 0.86%, expected volatility – 109%, expected dividend yield – 0%, expected forfeiture rate of – 0% and expected life – 5 years. The options vested immediately and the $26,000 fair value was recorded as share-based payment expense on the consolidated statement of loss for the year ended December 31, 2021. (iii) On July 2, 2021, the Company granted 200,000 stock options exercisable at $0.095 for 5 years to an advisor of the Company. The grant date fair value of these options of $10,800 was estimated using the Black Scholes valuation model with the following weighted average assumptions: share price - $0.075, risk free interest rate – 0.96%, expected volatility – 101%, expected dividend yield – 0%, expected forfeiture rate of – 0% and expected life – 5 years. The options vested immediately and the $10,800 fair value was recorded as share-based payment expense on the consolidated statement of loss for the year ended December 31, 2021. (iv) On October 11, 2021, the Company granted 1,000,000 stock options exercisable at $0.08 for 5 years to an officer of the Company. The grant date fair value of these options of $59,000 was estimated using the Black Scholes valuation model with the following weighted average assumptions: share price - $0.08, risk free interest rate – 1.20%, expected volatility – 98%, expected dividend yield – 0%, expected forfeiture rate of – 0% and expected life – 5 years. The options vested immediately for 700,000 options and 300,000 vesting on April 11,2022. The fair value of $50,150 of the vested options was recorded as share- based payment expense on the consolidated statement of loss for the year ended December 31, 2021. (v) On December 20, 2021, the Company granted 3,625,000 stock options exercisable at $0.13 for 5 years to directors, officers, consultants and employees of the Company. The grant date fair value of these options of $351,625 was estimated using the Black Scholes valuation model with the following weighted average assumptions: share price - $0.13, risk free interest rate – 1.22%, expected volatility – 101%, expected dividend yield – 0%, expected forfeiture rate of – 0% and expected life – 5 years. The options vested immediately except for 200,000 options to vest on May 1, 2022. The fair value of $332,225 of the vested options was recorded as share-based payment expense on the consolidated statement of loss for the year ended December 31, 2021. (vi) On January 24, 2022, the Company granted 200,000 stock options exercisable at $0.135 for 5 years to a consultant of the Company. The grant date fair value of these options of $19,600 was estimated using the Black Scholes valuation model with the following weighted average assumptions: share price - $0.135, risk free interest rate – 1.63%, expected volatility – 96%, expected dividend yield – 0%, expected forfeiture rate of – 0% and expected life – 5 years. The options vesting provisions were 1/3 immediately, 1/3 in 9 months and 1/3 in 18 months and $17,059 fair value was recorded as share-based payment on the consolidated statement of loss for the year ended December 31, 2022. - 20 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 12. STOCK OPTIONS (Continued) (vii) On July 29, 2022, the Company granted 4,700,000 stock options exercisable at $0.09 for 5 years to directors, officers, employees and consultants of the Company. The grant date fair value of these options of $314,900 was estimated using the Black Scholes valuation model with the following weighted average assumptions: share price - $0.09, risk free interest rate – 2.66%, expected volatility – 99%, expected dividend yield – 0%, expected forfeiture rate of – 0% and expected life – 5 years. The options vested immediately and the fair value was recorded as share-based payment on the consolidated statement of loss for the year ended December 31, 2022. (viii) On December 15, 2022, the Company granted 2,315,000 stock options exercisable at $0.12 for 5 years to directors, officers, employees and consultants of the Company. The grant date fair value of these options of $210,665 was estimated using the Black Scholes valuation model with the following weighted average assumptions: share price - $0.12, risk free interest rate – 2.90%, expected volatility – 101%, expected dividend yield – 0%, expected forfeiture rate of – 0% and expected life – 5 years. The options vested immediately and the fair value was recorded as share-based payment on the consolidated statement of loss for the year ended December 31, 2022. As at December 31, 2022, the Company had incentive stock options issued to directors, officers, employees and key consultants of the Company outstanding as follows: Date of Grant January 10, 2018 March 6, 2019 December 23, 2019 July 20, 2020 December 31, 2020 April 14, 2021 May 25, 2021 July 2, 2021 October 11, 2021 December 20, 2021 January 24, 2022(1) July 29, 2022 December 15, 2022 Options Outstanding(1) Exercise Price ($) Grant Date Fair Value ($) Expiry Date Weighted Average Remaining Contractual Life (years) 710,000 645,000 3,300,000 400,000 3,700,000 200,000 500,000 200,000 1,000,000 3,625,000 200,000 4,700,000 2,315,000 21,495,000 0.19 0.095 0.085 0.10 0.095 0.095 0.095 0.095 0.08 0.13 0.135 0.09 0.12 0.10 121,410 59,340 244,200 23,200 284,900 9,800 26,000 10,800 59,000 351,625 19,600 314,900 210,665 1,735,440 January 10, 2023 March 6, 2024 December 23, 2024 July 20, 2025 December 31, 2025 April 14, 2026 May 25, 2026 July 2, 2026 October 11, 2026 December 20, 2026 January 24, 2027 July 29, 2027 December 15, 2027 0.03 1.18 1.98 2.55 3.00 3.29 3.40 3.50 3.78 3.97 4.07 4.58 4.96 3.47 (1) All options are exercisable except for 200,000 options granted on January 24, 2022 of which 133,333 vested at December 31, 2022 and 66,667 valued at $2,541will vest on July 24, 2023. - 21 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 13. INCOME TAXES (a) Provision for income taxes Major items causing the Company’s income tax to differ from the combined Canadian federal and provincial statutory rate of 27% (2020 - 27%) were as follows: Combined Canadian statutory income tax rate Loss before income taxes Expected income tax recovery based on the statutory rate Adjustment to expected income tax benefit: Permanent differences and other Deferred tax assets not recognized Deferred income tax provision (recovery) (b) Deferred income tax 2022 $ 27% (6,102,016) 2021 $ 27% (4,762,730) (1,617,000) (1,276,000) 151,000 1,466,000 - 117,000 1,159,000 - Deferred income tax assets have not been recognized in respect of the following deductible temporary differences: Capital losses Non-capital losses Resource properties Share issue costs Other 2022 $ 20,209,000 19,917,000 5,575,000 513,000 110,000 2021 $ 20,209,000 18,735,000 5,675,000 390,000 74,000 Total 46,324,000 45,083,000 (c) As at December 31, 2022, the Company had approximately $5,575,000 (2021 - $5,675,000) of Canadian development and exploration expenses and foreign exploration and development expenses, which, under certain circumstances, may be utilized to reduce taxable income of future years. (d) Tax loss carry-forwards As at December 31, 2022, the Company had approximately $19,917,000 of non-capital losses in Canada, which may be used to reduce taxable income in future years. These losses expire from 2025 to 2042. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company can use the benefits. - 22 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 14. RELATED PARTY TRANSACTIONS a) Remuneration of directors and officers was as follows: Salaries and benefits Share-based payments 2022 2021 $ 544,723 355,305 $ 330,940 380,250 $ 900,028 $ 711,190 For the year ended December 31, 2022, the salaries and benefits amount above includes $183,323 (2021 - $144,875) for fees and bonuses invoiced by a corporation controlled by the CFO of the Company for his services and $86,400 (2021 - $138,000) for fees invoiced by the Executive Chairman (former CEO until October 11, 2021) of the Company for his services as CEO and Executive Chairman. The salaries and benefits also include $275,000 (2021 - $48,065) for fees invoiced by a corporation controlled by the CEO of the Company for his services as CEO. Included in accounts payable and accrued liabilities at December 31, 2022 is $13,325 (2021 - $5,923) owed to the CEO. The amount payable is unsecured, non-interest bearing and have no fixed terms of repayment. b) Warrants Exercised and Warrant Incentive Program In January 2022, two directors exercised 4,187,500 warrants at a price of $0.12 for aggregate gross proceeds of $502,500. Also, as part of the warrant exercise incentive program implemented on March 17, 2022, officers and directors of the Company exercised 9,436,550 warrants at a price of $0.12 for gross proceeds of $1,132,386. As part of this incentive program, the Company issued 4,718,275 warrants to the officers and directors exercisable at $0.18 until April 15, 2023. The fair value of these incentive warrants was $75,492. c) Private Placements As part of the private placement completed on March 5, 2021, a director and officers of the Company subscribed for 4,150,000 units pursuant to this private placement for aggregate gross proceeds of $332,000. As part of the private placement completed on October 21, 2021, a director and an officer of the Company acquired, in aggregate, 10,000,000 common share units and 4,863,100 flow-through units for total gross proceeds of $1,261,995. As part of the private placement completed on June 30, 2022, a director of the Company acquired 7,944,444 common share units for total gross proceeds of $715,000 and another director acquired 142,857 flow-through units for gross proceeds of $15,000. - 23 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 15. COMMITMENTS AND CONTINGENCIES Management Contracts The Company entered into consulting and employment agreements for the services of its key executives. Under the agreements, additional payments totalling $1,363,750 are be made upon the occurrence of a change of control. As a triggering event has not taken place, the contingent payments have not been reflected in the consolidated financial statements. The commitment upon termination of the agreements is $366,250, in aggregate. The minimum commitment due within one year under the terms of the agreements is $678,900, in aggregate. Property Option Agreement On April 28, 2021, the Company optioned certain claims forming the Barraute-Landrienne property whereby Murchison can earn 100% in 75 mineral claims, by making payments totaling $500,000 and property expenditures of $1.0 million over a 6- year period. In February 2023, the Company terminated the agreement. See Note 17. Flow-Through Indemnification The flow-through agreements require the Company to renounce certain tax deductions for Canadian exploration expenditures incurred on the Company’s mineral properties to flow-through participants. The Company indemnified the subscribers for any related tax amounts that become payable by the subscribers as a result of the Company not meeting its expenditure commitments. Environmental The Company's mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. 16. LOANS PAYABLE In June 2021, the Company financed the purchase of an exploration vehicle in the amount of $43,586. The loan bears an interest rate of 7.89% and is repayable over 60 monthly payments of $881 and is secured by the vehicle. The balance payable at December 31, 2022 was $32,264 of which $10,578 is due within the next 12 months. On October 1, 2022, the Company entered into an agreement to purchase an accommodation building in Saskatchewan for $50,000. Under the agreement, the Company will pay $3,000 per month from October 2022 to September 2023 and a lump sum $14,000 on October 1, 2023. Undiscounted payments over successive years are as follows: 2023 2024-2026 Total contractual cash flows Less: interest $ $ Vehicle 10,578 26,445 37,023 (4,760) $ $ Building 41,000 - 41,000 - $ $ Total 51,578 26,445 78,023 (4,760) Obligation at December 31, 2022 $ 32,263 $ 41,000 $ 73,263 - 24 - MURCHISON MINERALS LTD. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 (Expressed in Canadian Dollars) 17. SUBSEQUENT EVENTS Stock Options On January 10, 2023, 710,000 stock options at an exercise price of $0.19 expired. GAL Agreement On February 3, 2023, the Company terminated the GAL agreement as disclosed in Note 9. End of Notes to Financial Statements - 25 -
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