management’s discussion and analysis … · 1.3 joint venture with osisko metals inc. on october...

MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended February 28, 2019 and February 28, 2018

SPHINX RESOURCES LTD. Management’s Discussion and Analysis Years ended February 28, 2019 and February 28, 2018 Table of content

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1. CORPORATE OVERVIEW ........................................................................................................................................ 3

2. EXPLORATION PROJECTS ....................................................................................................................................... 6

3. SELECTED ANNUAL INFORMATION ..................................................................................................................... 17

4. RESULTS OF OPERATIONS ................................................................................................................................... 17

5. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES ........................................................................... 19

6. SELECTED QUARTERLY INFORMATION ................................................................................................................ 20

7. SUBSEQUENT EVENTS ......................................................................................................................................... 22

8. RELATED PARTY AND KEY MANAGEMENT TRANSACTIONS ................................................................................ 22

9. OUTSTANDING SHARE DATA ............................................................................................................................... 22

10. STOCK OPTION PLAN ........................................................................................................................................... 22

11. CHANGES IN ACCOUNTING POLICIES .................................................................................................................. 23

12. FINANCIAL INSTRUMENTS ................................................................................................................................... 23

13. OFF-BALANCE SHEET ARRANGEMENTS............................................................................................................... 23

14. RISKS AND UNCERTAINTIES ................................................................................................................................. 23

15. FORWARD-LOOKING STATEMENTS ..................................................................................................................... 24

SPHINX RESOURCES LTD. Management’s Discussion and Analysis Years ended February 28, 2019 and February 28, 2018

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This Management’s Discussion and Analysis (“MD&A”) reviews the activities, results of operations and financial position of Sphinx Resources Ltd. (“Sphinx” or the “Corporation”) for the fiscal year ended February 28, 2019, together with certain trends and factors that are expected to have an impact in the future. The following abbreviations are used to describe the periods under review throughout this MD&A:

Abbreviation Period Q1-18 March 1, 2017 – May 31, 2017 Q2-18 June 1, 2017– August 31, 2017 Q3-18 September 1, 2017 – November 30, 2017 Q4-18 December 1, 2017 - February 28, 2018

Fiscal 2018 March 1, 2017 – February 28, 2018 Q1-19 March 1, 2018 – May 31, 2018 Q2-19 June 1, 2018– August 31, 2018 Q3-19 September 1, 2018 – November 30, 2018 Q4-19 December 1, 2018 - February 28, 2019

Fiscal 2019 March 1, 2018 – February 28, 2019 Fiscal 2020 March 1, 2019 – February 28, 2020

Sphinx was incorporated on June 28, 2005 and is governed by the Canada Business Corporations Act. The Corporation is a reporting issuer in Alberta, British Columbia, Ontario and Québec and its shares are listed on the TSX Venture Exchange (the “Exchange”) under the symbol SFX. The following MD&A should be read in conjunction with the Corporation’s audited financial statements for Fiscal 2017, which are prepared in accordance with International Financial Reporting Standards (“IFRS”). All dollar amounts are expressed in Canadian dollars, the functional currency of the Corporation, unless otherwise stated. The effective date of this MD&A is June 10, 2019. The Corporation’s projects and their history are disclosed in press releases, technical reports and other continuous disclosure filings which may be viewed on the internet on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com and on the Corporation’s website at www.sphinxresources.ca. The technical information contained in this MD&A has been reviewed and verified by Sphinx’s Director, Normand Champigny (ing., B.A.Sc., M.A.Sc.), who is a qualified person for the purpose of National Instrument 43-101, Standards of Disclosure for Mineral Projects. 1. CORPORATE OVERVIEW 1.1 Strategy

Sphinx is a mineral exploration company that focuses its activities in southwestern Quebec in search of deposits of base metals (zinc, copper, lead) and precious metals (palladium, platinum, gold and silver). Sphinx is particularly active in the MRC Pontiac where its President and Chief Executive Officer resides. It has a strong local shareholding that contributes towards social acceptability. To support this strategy Sphinx has formed two partnerships:

• with SOQUEM INC. (“SOQUEM”), a subsidiary of Ressources Québec and a leading player in mineral exploration in Québec, on the Calumet-Sud zinc project; and

• with Osisko Metals, Inc. (“Osisko”), with the objective to explore for zinc in highly prospective areas of the Grenville geological province in southern Québec (the “Grenville Zinc Project”) (see section 2.3).


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1. CORPORATE OVERVIEW (CONT’D)

1.2 Financing On June 15, 2018, the Corporation closed a private placement totalling $250,000 by issuing 5,000,000 common shares at a price of $0.05 per common share. In addition on June 15 and July 13, 2018, the Corporation closed a private placement totalling $230,850 by issuing 3,551,538 flow-through shares at a price of $0.065 per flow-through share. On December 11, 2018, the Corporation closed a private placement totalling $405,000 by issuing 8,100,000 units at a price of $0.05 per unit. Each unit is comprised of one common share and one half of one common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one common share at a price of $0.07 until December 11, 2021. On December 11 and 27, 2018, the Corporation closed a private placement totalling $761,980 by issuing 11,722,769 flow-through shares at a price of $0.065 per flow-through. Management and directors of the Corporation subscribed for an amount of $45,000 of the private placement in units. In connection with the financing, the Corporation has agreed to pay finder’s fees in the aggregate amount of $53,339. On May 14, 2019, the Corporation closed a private placement totalling $71,500 by issuing 1,430,000 units at a price of $0.05 per unit. Each unit is comprised of one common share and one half common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one common share at a price of $0.07 until May 14, 2022. Also, the Corporation closed a private placement totalling $120,250 by issuing 1,850,000 flow-through shares at a price of $0.065 per share.

1.3 Joint venture with Osisko Metals Inc. On October 15, 2018, the Corporation signed a definitive agreement to form a 50-50% joint venture with Osisko with the objective to explore for zinc in the Grenville geological province in southern Québec (the “Grenville Zinc Project”). Under the terms of this joint venture agreement, the Corporation and Osisko agreed to:

• each spend a minimum of $1,250,000 over the next five years including $100,000 during the first year; • create a joint management committee to design and oversee the exploration program; • have the Corporation act as operator of the Grenville Zinc Project; • a provision whereby if a party's interest dilutes to 10% or less, its interest shall be converted to a 2%

Net Smelter Return (“NSR”) royalty. If at any time, the NSR royalty holder receives a bona fide offer to purchase all or a portion of the NSR royalty and the NSR royalty holder is prepared to accept such offer, the non-diluted party shall have the right of first refusal to purchase the NSR royalty (or, if the offer is for less than all of the NSR royalty, the portion of the NSR royalty to which the offer relates), at the same price and on the same terms and conditions; and

• Pursuant to the joint venture agreement, all other mining claims already held by Osisko Metals and Sphinx in the province of Quebec are excluded from this agreement. The excluded claims comprise the claims held by Sphinx in the large “Ziac” (abbreviation for “zinc-Pontiac”) zinc district and those of the joint venture between Sphinx and SOQUEM on the Calumet-Sud project.

1.4 Sale of three gold assets

To create shareholder value from Sphinx’s gold projects, the Corporation sold, on June 27, 2018, its gold assets (namely the Chemin Troïlus project, Somanike project and its 50% interest in the Cheechoo-Éléonore Trend project) to Canada Strategic Metals Inc. (“Canada Strategic”), pursuant to an April 25, 2018 asset purchase agreement. Immediately after, Canada Strategic merged with Matamec Explorations Inc. (“Matamec”) by way of a court approved plan of arrangement (the “Arrangement”) to form Québec Precious Metals Corporation (“QPM”). The Corporation received 1,200,000 common shares of QPM (on a post-consolidation basis) (valued at


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1. CORPORATE OVERVIEW (CONT’D) $524,160) in exchange for its gold assets. Contemporaneously, Goldcorp Inc. (“Goldcorp”) and Caisse de dépôt et placement du Québec invested in QPM through private placements for gross proceeds of $3,701,960 and $1,400,000, respectively. The Corporation incurred $173,883 of transaction costs. Normand Champigny, CEO of the Corporation at the time of the transaction, became the CEO and a director of QPM, and the interim CEO of Matamec who is also a Director of the Corporation became a Director of QPM. The Corporation’s financial advisor for the transaction was Paradigm Capital Inc. The completion of these transactions was conditional on the approval of the Arrangement by the Québec Superior Court and the shareholders of Matamec, the approval of the Canada Strategic share consolidation by the shareholders of Canada Strategic, the closing of the $3,701,960 Goldcorp investment in QPM, which in turn was conditional on numerous conditions including the raising of gross proceeds of a minimum of $5,000,000 by Canada Strategic and Exchange approval. All of the aforementioned conditions were achieved.

1.5 Director and Officer update 1.5.1 Jeremie Ryan On December 19, 2018, Jeremie Ryan was appointed as CEO, President and Director of Sphinx. Mr. Normand Champigny has resigned as CEO and President, but remains a Director. Mr. Ryan is a resident of Mansfield-Pontefract, in the Pontiac region and is a shareholder of Sphinx. In November 2018, he had been appointed VP Corporate Development of Sphinx. Throughout his career, he has worked in a variety of business roles. He will maintain a constructive relationship with the community of the Pontiac area, where the Corporation’s current key assets are located. 1.5.2 Lawrence Cannon On May 14, 2019, the Honourable Lawrence Cannon was appointed to the Corporation’s Board of Director as an independent director. Mr. Cannon was born in Québec and has a long history of public service at the municipal, provincial and federal levels. He was the Canadian Ambassador to the French Republic from 2012 to 2017. He was an influential member of the Cabinet of Prime Minister Stephen Harper, serving from 2008 to 2011 as Minister of Foreign Affairs. From 2006 to 2008, he was Minister of Transport, Infrastructure and Communities and Minister responsible for Québec in the Government of Canada. In the Quebec government, between 1985 and 1994, Mr. Cannon was Minister of Communications, Deputy Speaker of the National Assembly, Parliamentary Secretary to the Minister of External Trade and Technological Development and also Parliamentary Secretary to the Minister of Tourism. From 1971 to 1976, he was the executive assistant to Premier Robert Bourassa. At the municipal level, he was Municipal Councillor for the City of Gatineau from 2001 to 2005 and for the City of Cap-Rouge from 1979 to 1985. In early October 2011, he was appointed Chair and Senior Member of the Gowlings Government Affairs Group in Ottawa. He also served on the Board of Directors of the Oceanic Iron Ore Corporation. Mr. Cannon resigned from both these positions when he was appointed Ambassador of Canada to France. From 1994 to 2001, he was Vice President of Government Affairs with Unitel, consultant for Groupe Cannon & Associates. Mr. Cannon holds an M.B.A. from the Université Laval (Québec City) and a Bachelor’s Degree from Loyola College in Montréal.

1.6 Eco-Niobium update On July 17, 2016, the Corporation signed a promissory note with Eco-Niobium Resources Inc. (“Eco-Niobium”) whereby the Corporation lent $85,000 to Eco-Niobium. The Exchange approved this transaction. The loan bears


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1. CORPORATE OVERVIEW (CONT’D) interest at the rate of 3% per annum and matures in 36 months. The promissory note is not convertible into Eco-Niobium Shares and is secured by a movable hypothec on all present and future movable assets of Eco- Niobium. As of February 28, 2019, there has been no measurable progress with the project. The Corporation was informed by the management of Eco-Niobium that considering the current status of this project and the various approvals that Eco-Niobium has to achieve to successfully move this project forward, including obtaining the legal mineral rights, Eco-Niobium has suspended its activities for the time being.

2. EXPLORATION PROJECTS

For mineral projects that have not reached technical feasibility, exploration and evaluation expenditures are charged to operations as they are incurred. The Corporation’s exploration and evaluation expenditures incurred are as follows:

Q4-19 Q4-18 Fiscal 2019 Fiscal 2018

$ $ $ $ Calumet-Sud Project acquisition and maintenance 658 - 924 525 Share issuance - - - 128,077 Drilling 492,090 113,275 510,876 119,729 Trenching 22,075 - 157,455 30,852 Geology 17,704 56,769 118,074 165,349 Geochemistry 4,993 - 35,422 56,938 Geophysics - - 6,380 - Recharge to partner (265,561) (83,576) (412,139) (185,129) Tax credits - 5,332 - (25,923) 271,959 91,800 416,992 290,418 Tessouat Project acquisition and maintenance - - 433 26,000 Shares issuance - - - 5,500 Geology - - - 672 Geochemistry - - - 14,158 Tax credits - 833 - (4,049) - 833 433 42,281 Tessouat-Sud Project acquisition and maintenance 1,139 401 1,139 19,747 Geology - 348 - 4,041 Tax credits - 142 - (692) 1,139 891 1,139 23,096 Obwondiag Project acquisition and maintenance - - - 6,418 Geology - - - 219 Tax credits - 12 - (56) - 12 - 6,581 Grenville Zinc Project acquisition and maintenance - - 83 - Geology - - 16,650 - Geochemistry - - 415 - Recharge to partner - - (8,533) - - - 8,615 -


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2. EXPLORATION PROJECTS (CONT’D)

Q4-19 Q4-18 Fiscal 2019 Fiscal 2018 $ $ $ $ GPd Project acquisition and maintenance 245 174 4,484 1,096 Drilling - 3,700 - 160,194 Geology 422 4,820 4,184 60,590 Geophysics - - - 24,952 Geochemistry - 1,930 - 12,964 Tax credits - 13,073 - (63,549) 667 23,697 8,668 196,247 Cheechoo-Éléonore Trend Project acquisition and maintenance - - 41,524 - Geology - 8,233 6,396 210,330 Geochemistry - - 130 38,847 Recharge to partner - - - (50,303) Tax credits - 9,304 - (73,578) - 17,537 48,050 125,296 Chemin Troïlus Project acquisition and maintenance - - 4,388 1,632 Drilling - - - 108,775 Geology - - 4,862 91,834 Geophysics - - - 30,400 Line cutting - - - 12,259 Geochemistry - - - 54,050 Tax credits - 14,510 - (114,750) - 14,510 9,250 184,200 Somanike Project acquisition and maintenance - 671 557 5,787 Geology - 590 970 4,993 Tax credits - 232 - (1,127) - 1,493 1,527 9,653 Project Generation Project acquisition and maintenance - - - 560 Geology - - 358 2,500 Tax credits - 132 - (640) - 132 358 2,420 Total Project acquisition and maintenance 2,042 1,246 53,532 61,765 Share issuance - - - 133,577 Drilling 492,090 116,975 510,876 388,698 Trenching 22,075 - 157,455 30,852 Geology 18,126 70,760 151,494 544,837 Geophysics - - 6,380 55,352 Line cutting - - - 12,259 Geochemistry 4,993 1,930 35,967 172,648 Recharge to partner (265,561) (83,576) (420,672) (235,432) Tax credits - 43,570 - (284,364) Total exploration and evaluation expenditures 273,765 150,905 495,032 880,192


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Ziac District The Ziac district is an emerging zinc play, located in a 40-km long northwest trending corridor located in the Pontiac regional county municipality (the “Pontiac MRC”) in southwestern Québec, defined by zinc-bearing dolomitic marbles typical of the Balmat-Edwards-Pierrepont zinc district, located in the state of New York, United States. The Ziac district also covers meta-volcanic rocks that host the historic mine of New Calumet Mines Limited (the “New Calumet Mine”) zinc-lead-silver-gold mine, which produced 3.8 million tonnes of ore at a grade of 5.8% Zn, 1.6% Pb, 65 g/t Ag et 0.4 g/t Au from 1944 to 1968. The Ziac district includes the following projects: Calumet-Sud, Tessouat, Tessouat-Sud, Obwondiag and GPd.


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2. EXPLORATION PROJECTS (CONT’D) 2.1 Calumet-Sud zinc project a) Project description

The project consists of 21 claims (1,214 hectares) located in the Pontiac MRC in southwestern Quebec. SOQUEM, has acquired an undivided 50% interest in the project on September 22, 2017 and a joint venture has been created between Sphinx and SOQUEM. Sphinx is the manager of the joint venture. The project is immediately adjacent to Sphinx’s 100% owned GPd project and adjacent and south of the former New Calumet mine. In the 1980s, Lacana Mining Ltd. discovered significant gold mineralization immediately below the underground workings of the former mine. The project is part of the larger Ziac district. The project was acquired in 2015 from Gardin Inc. (“Gardin”) (a company controlled by Michel Gauthier, a director of the Corporation), by issuing 1,384,615 common shares, valued at $41,538. Subsequently, 1,923,077 and 2,846,231 common shares were issued in August 2016 and July 2017, valued at $76,923 and $128,077 respectively. A 2% NSR royalty was granted to Gardin.

b) Exploration work on the project On March 20, 2018, the Corporation reported the complete results of an 11-hole diamond drilling program completed earlier this year on the project. The results include 13.1% zinc over 1.0 m in hole CS-18-02 within a stratiform and shallow-dipping mineralized horizon that graded 3.8% zinc over a 5.0 m length beginning at a depth of 15 m. This is in addition to hole CS-18-07 that returned 6.6% zinc over 1.4 m within 3.0% zinc over a 6.8 m length beginning at a depth of 18 m and to hole CS-18-06 that returned 9.0% zinc over 1 m within 3.1% zinc over a 6.4 m length beginning at a depth of 15.6 m. Table 1 presents the summary results and mineralized intervals. At the Sonny West Zone, hole CS-18-09 intersected the mineralized horizon that graded 1.7 % zinc over 2.7 m length beginning at a depth of 15 metres. The other two (2) holes intersected a karstic barren breccia that truncates the mineralized horizon. Based on outcrop measurements taken on the mineralized bands and drill holes orientation, the true thickness is estimated to range from 91% to 100% of the drilled length. Table 1 - 2018 Drill hole assay results. Length weighted composite intervals.

Hole name

From (m)

To (m)

Drilled width

(m)

Estimated true

width (m)

Zinc %

Horizon name

CS-18-01 7.70 14.40 6.70 6.70 2.74 Sonny including 9.00 11.36 2.36 2.36 5.66

CS-18-02 14.00 19.00 5.00 5.00 3.81 Sonny including 16.00 17.00 1.00 1.00 13.05

CS-18-03 14.00 19.20 5.20 5.20 0.75 Sonny

CS-18-04 20.00 25.00 5.00 5.00 0.51 Sonny


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Hole name

From (m)

To (m)

Drilled width

(m)

Estimated true

width (m)

Zinc %

Horizon name

CS-18-05 25.50 32.00 6.50 6.50 1.11 Sonny

CS-18-06 15.60 22.00 6.40 6.40 3.13 Sonny

including 17.00 18.00 1.00 1.00 9.02

CS-18-07 18.00 24.80 6.80 6.60 2.99 Sonny

including 22.75 24.10 1.35 1.31 6.63

CS-18-08 28.00 38.23 10.23 9.97 1.17 Sonny

CS-18-09 10.00 18.00 7.70 7.00 0.94 Sonny West

including 15.00 17.70 2.70 2.46 1.72

CS-18-10 No significant mineralization, barren karstic breccia Sonny West

CS-18-11 No significant mineralization, barren karstic breccia Sonny West Since the discovery of zinc mineralization at surface in 2014, the exploration work, revealed the presence of at least two zinc-bearing horizons (sphalerite). This mineralization is of the SEDEX-type (SEDimentary EXhalative, more than half of the world’s zinc and lead production is from this type of deposit). The zinc mineralization is defined by the presence of massive sphalerite bands ranging from one centimetre to several centimetres in thickness, as well as disseminated sphalerite, pyrite and pyrrhotite, all hosted in dolomitic marble. The results of channel sampling from 13 new trenches completed last fall extend up to 1,500 m north of the Sonny zone. Grades greater than one percent, up to 21.2% Zn, were obtained. Beyond the drilled and channel sampled zones, the zinc mineralization can be traced on the basis of strongly anomalous zinc values in soils and limited drilling conducted by Sphinx and SOQUEM. In January 2019, a new diamond drilling campaign was completed on the project. The campaign consisted of 29 holes totaling approximately 3,483 metres. The objective of the drilling campaign was to test the depth extension of the best channel samples and to increase the understanding of the structural setting of zinc-rich zones from the Sonny deposit in the south towards the north along the identified axis. The results of the campaign are presented below. Minor corrections on the information disclosed in previous press releases of May 13, April 18, March 14 and May 17 have been incorporated.


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Table 1 – Composite interval values from all 29 drill holes, winter 2019 drilling Composites weighted by sample length.

Hole number

From (m)

To (m)

Mineralized intersection

(m)

% Zinc

CS-19-01 19.0 21.0 2.0 2.44

CS-19-02 56.2 58.7 2.5 0.35

CS-19-03 23.0 26.0 3.0 0.41

CS-19-04 5.8 15.0 9.2 1.35

CS-19-05 5.0 6.0 1.0 2.63

66.0 68.0 2.0 2.06

CS-19-06 32.0 34.0 2.0 2.11

CS-19-07 27.0 35.0 8.0 1.04

59.0 61.0 2.0 3.74

CS-19-08 37.0 38.0 1.0 1.48

CS-19-09 45.0 49.0 4.0 2.29

CS-19-10 50.0 52.0 2.0 4.58

CS-19-11 41.0 51.0 10.0 2.18

88.0 93.0 5.0 2.08

CS-19-12 60.0 62.0 2.0 2.64

CS-19-13 68.0 71.0 3.0 1.24

CS-19-14 82.0 85.0 3.0 2.21

121.0 127.0 6.0 1.05

CS-19-15 109.0 111.0 2.0 1.44

CS-19-16 70.0 72.0 2.0 4.87

Incl. 71.0 72.0 1.0 8.49

CS-19-17 33.0 34.0 1.0 1.31

74.0 79.0 5.0 1.46

CS-19-18 63.0 65.0 2.0 2.69

CS-19-19 38.0 41.0 3.0 2.64

CS-19-20 52.0 55.0 3.0 0.52

83.0 86.0 3.0 0.62

CS-19-21 65.0 66.0 1.0 2.06

73.0 76.0 3.0 1.81

CS-19-22 18.8 21.0 2.2 3.18

96.0 98.0 2.0 1.58

103.0 104.0 1.0 1.93

CS-19-23 81.0 84.0 3.0 3.58

CS-19-24 84.0 87.0 3.0 2.10


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CS-19-25 65.0 67.0 2.0 2.19

CS-19-26 70.0 72.0 2.0 4.87

incl. 74.0 76.0 2.0 1.50

82.0 84.0 2.0 0.78

CS-19-27 107.0 108.0 1.0 1.68

CS-19-28 77.0 79.0 2.0 1.72

CS-19-29 117.0 122.0 5.0 2.19

The management committee, composed of SOQUEM members and the Corporation, will meet shortly to review the 2019 results and conduct a field visit to plan and approve the next Calumet-Sud exploration program.


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2. EXPLORATION PROJECTS (CONT’D) 2.2 Tessouat project a) Project description

The Tessouat project is located 5 km northeast of the municipality of Waltham in the Pontiac regional county municipality in southwestern Québec, at the northern end the Ziac district. Excellent road access throughout the year is available. On August 1, 2017 and as amended on May 23, 2019, the Corporation entered into an agreement with Ressources Tranchemontagne Inc. (“Tranchemontagne”, a company controlled by Michel Gauthier, a director of the Corporation) and Gardin to acquire a 100% undivided interest in 22 claims (1,316 hectares), held by Tranchemontagne. Under the terms of this agreement, Sphinx acquired the project for a consideration that consists of: a cash payment of $26,000 (completed in September 2017); the issuance of 100,000 common shares of Sphinx (valued at $5,500, completed in September 2017); carrying out exploration work totaling $70,000 over a period of two years with work completed prior to September 25, 2021 ($15,263 completed as at February 28, 2019); and the grant of a 2% NSR to Gardin.

b) Exploration work on the project No exploration work was done in Fiscal 2019.

2.3 Tessouat-Sud and Obwondiag a) Project description

In the summer 2017, the Corporation staked the Tessouat-Sud project, located in the Pontiac MRC in southwestern Quebec. The project consists of 296 claims (17,697 hectares). Also in the summer 2017, the Corporation staked the Obwondiag project, located in the Pontiac MRC in southwestern Quebec. The project consists of 96 claims (5,731 hectares).

b) Exploration work on the project In May 2019, the Corporation started a 2-month geochemical survey. The exploration program consists on collecting B horizon soil samples along a 200 m spacing. The area of interest covers a 15.4 km2 on Tessouat-Sud and 12.9 km2 on Obwondiag representing a total of 780 planned samples. The soil samples were collected, dried for 3 days in a ventilated space to be subsequently sifted and prepared for analysis performed with a portable device with X-ray fluorescence (Niton XL3t GOLDD+). The program is ongoing with 406 samples collected to date.

2.5 Grenville Zinc a) Project description

See section 1.3.

b) Exploration work on the project The Osisko and Sphinx representatives of the management committee of the joint venture had held meetings to plan an exploration program to be carried out during the summer of 2019. The minimum work commitment is $100,000 by each party.


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2. EXPLORATION PROJECTS (CONT’D) 2.6 GPd project

a) Project description

On March 12, 2015, the Corporation signed a definitive agreement with Amixam Resources Inc. (“Amixam”) for the acquisition of 100% of the Green Palladium project, located in the Pontiac MRC, adjacent to the Quebec Abitibi-Temiscamingue region. Under the terms of this agreement, the Corporation acquired the Green Palladium project by issuing 4,000,000 common shares, valued at $160,000 based on the Exchange share price of $0.04 on the date of the share issuance. Another 461,536 common shares were issued in February 2016, valued at $6,923 based on the Exchange price of $0.015 on the date of the share issuance. Amixam was granted with a 2% NSR royalty. Michel Gauthier, president of Gardin, was elected director of the Corporation on August 27, 2015. On November 2, 2015, Gardin announced it had acquired from Amixam on a private placement basis for an aggregate purchase price of $75,000 direct ownership of the 4,000,000 common shares of the Corporation and the rights to receive the additional 461,536 shares pursuant to the Green Palladium project acquisition agreement, representing a price of approximately $0.01681 per share of the Corporation. The 2% NSR was also transferred from Amixam to Gardin. As at November 30, 2018, the Corporation has satisfied the $750,000 exploration commitments as per the March 12, 2015 definitive agreement, as amended on January 19, 2018 and owns 100% of the GPd project.

b) Exploration work on the project

In 2015, Sphinx carried out IP, electromagnetic and magnetic ground surveys on the project that significantly improved the understanding of the geology and related mineralization. The surveys were followed by diamond drilling on priority geophysical targets outlined in the vicinity of the Pd-Cu-rich 1958 blasted test pit. Drill hole assay results from the 2015 and 2017 drilling campaigns (19 holes totaling 1,931 m) support the extension of the stratabound PGE reef over a distance of 800 metres. The reef remains open in all directions. Regional compilation suggests an interpreted surface expression of the target horizon over an estimated 11 kilometres. The mineralized reef, returned 3.44 g/t Pd+Pt+Au over 40 cm at the main showing area and was intersected in 12 of the 19 drill holes completed to date.

This discovery occurs in a previously unrecognized layered igneous complex now named the “Obwondiag layered igneous complex”. Mineralization is hosted in an interpreted “reef” horizon of metamorphosed and sulphide – mineralized pyroxenite and melanogabbro. This horizon exhibits disseminated sulphides with local sulphide percentages high enough to produce net-textured sulphides. The sulphides are comprised primarily of pyrrhotite (iron sulphide) and chalcopyrite (copper sulphide). Mineralized breccias exhibiting magmatic textures with centimeter-scale rounded pyroxenite xenoliths contained in a massive sulphide constitute the stratigraphic top of the reef. There appears to be a strong correlation between the presence of chalcopyrite and high palladium values. The highest palladium, platinum and gold values are in the sulphide-poor basal section of the intersected reef. Exploration results obtained to date are encouraging and must be put into the perspective that at producing PGE mines only two out of three drill holes show economic grades along the same reef. Sphinx is currently seeking for a partner to continue to advance the project.


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3. SELECTED ANNUAL INFORMATION

Fiscal 2019 Fiscal 2018 Fiscal 2017 $ $ $

Financial Results Interest income 1,843 2,454 302 Loss (756,900) (1,581,470) (686,252) Basic and diluted loss per share (0.01) (0.02) (0.01) Financial Position Working capital 953,209 273,158 1,645,145 Total assets 1,484,792 619,063 1,887,439 Total non-current liabilities - - 113,897 Total equity 953,209 316,728 1,559,923

The main variation in loss is explained by the level of exploration and evaluation expenditures (recorded as expenses in the statement of loss): $495,032 in Fiscal 2019, $880,192 in Fiscal 2018 and $381,600 in Fiscal 2017.

4. RESULTS OF OPERATIONS

General and administration expenses details are as follows:

Q4-19 Q4-18 Fiscal 2019 Fiscal 2018 $ $ $ $ Directors fees 14,000 12,000 50,000 48,000 Filing and transfer agent fees 8,913 4,162 40,901 32,097 Management fees 18,313 (3,126) 54,013 48,414 Office and miscellaneous 10,110 6,906 33,855 35,551 Professional fees 57,770 64,350 81,752 114,214 Promotion 9,050 32,737 139,524 245,940 Salaries and benefits 29,232 36,546 134,948 144,277 Share-based payments 16,813 - 50,107 - Travel 12,007 19,626 47,128 67,921 General and administration 176,208 173,201 632,228 736,414

Finance costs details are as follows: Q4-19 Q4-18 Fiscal 2019 Fiscal 2018 $ $ $ $ Provision on promissory note receivable - - - - Accretion sublease reserve - - - 365 Accretion of convertible debentures - 626 13,372 19,200 Issuance costs on convertible debentures - - - - Common shares issued in lieu of interest payment on convertible debentures - 17,993 14,696 17,993 Reversal of interest accrued on convertible debentures - (9,200) - - Finance costs 28,068 9,419 28,068 37,558


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4. RESULTS OF OPERATIONS (CONT’D) 4.1 Discussion on Q4-19 financial position and results of operations

For Q4-19, the Corporation reported a loss and comprehensive loss of $258,024 (Q4-18 – loss of $272,548). The Corporation’s loss per share was $0.002 (Q4-18 – loss per share of $0.003). See Section 2 for details of the exploration work done on the different projects totalling $273,765 (Q4-18 – $150,905).

a) General and Administrative

During Q4-19, general and administrative expenses increased to $176,208 (Q4-18 - $173,201) and highlights are as follows:

• Management fees. In Q4-18, expenses for $15,000 were reclassified as professional fees to better align with the current presentation.

• Promotion. In Q4-18, several actions were launched to increase awareness of the Corporation’s activities and the level of promotion activities in Q4-19 was lower.

• Share-based payment. In August 2018 and January 2019, 1,775,000 and 750,000 stock options respectively were granted and the share-based payment is recording according to the vesting period.

b) Finance costs

On October 18, 2018, the Corporation reached an agreement with SIDEX and issued, at a deemed price per common share of $0.05, 3,000,000 common shares in settlement of the principal in the amount of $150,000 and 293,918 common shares were issued as settlement of the accrued interest.

c) Others Change in fair value – listed shares. In Q4-19, a $76,030 favorable change in fair value – listed shares was

recorded (none in Q4-18) on the QPM shares following the sale of three gold projects in June 2018 (see section 1.4).

Current tax recovery. In Q4-19, the Corporation reversed a $15,248 provision on credits on duties refundable for losses; based on recent tax audits, management assessed this provision was not required anymore. In Q4-18, $43,570 credit on duties refundable for losses was accrued on the Fiscal 2019 exploration work.

4.2 Discussion on Fiscal 2019 financial position and results of operations

For Fiscal 2019, the Corporation reported a loss and comprehensive loss of $756,900 (Fiscal 2018 - $1,581,470). The Corporation’s loss per share was $0.01 (Fiscal 2018 - $0.02). See Section 2 for details on the exploration work done on the different projects totalling $495,032 in Fiscal 2019 (Fiscal 2018 – $880,192).


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4. RESULTS OF OPERATIONS (CONT’D) a) General and Administrative

General and administrative expenses decreased to $632,228 in Fiscal 2019 (Fiscal 2018 - $736,414) and highlights are as follows:

• Promotion. In Fiscal 2018, several actions were launched to increase awareness of the Corporation’s activities, while the level of promotion activities in Fiscal 2019 was lower. In June 2018, the Corporation had engaged FronTier Flex Marketing to assist in increasing market awareness for a 12-month period at $87,000.

• Share-based payment. In August 2018 and January 2019, 1,775,000 and 750,000 stock options, respectively, were granted and the share-based payments are recorded according to the vesting period.

b) Finance costs

On October 18, 2018, the Corporation reached an agreement with SIDEX and issued, at a deemed price per common share of $0.05, 3,000,000 common shares in settlement of the principal in the amount of $150,000 and 293,918 common shares were issued as settlement of the accrued interest.

c) Others

A $350,227 net gain was recorded on the disposal of three gold projects to QPM (section note 2.4). A $194,160 unfavourable change in fair value on the 1,200,000 listed shares received from QPM was recorded as of February 28, 2019. Change in fair value – listed shares. In Q4-19, a $76,030 favorable change in fair value – listed shares was recorded (non in Q4-18) on the QPM shares following the sale of 3 gold projects in June 2018 (see section 1.4). Current tax recovery. In Q4-19, the Corporation reversed a $15,248 provision on credits on duties refundable for losses. In Q4-18, $43,570 credit on duties refundable for losses was accrued on the Fiscal 2019 exploration work. In Fiscal 2019, a $128,307 ($17,510 in Fiscal 2018) recovery of deferred income taxes was recognized to record the amortization, in proportion of the work completed, of the premium related to flow-through shares renunciation following the June-July and December 2018 private placements (in Fiscal 2018, for the November 2017 private placement).

5. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Corporation recorded a loss of $756,900 in Fiscal 2019 and has an accumulated deficit of $72,620,137 as at February 28, 2019. In addition to ongoing working capital requirements, the Corporation must secure sufficient funding to meet its other obligations, existing commitments for the exploration and evaluation programs and pay general and administration costs. As at February 28, 2019, the Corporation had an improved working capital of $953,209 versus $273,158 as at February 28, 2018. While the Corporation has secured financing in the past, there can be no assurance it will be able to do so in the future or that these sources of funding or initiatives will be available for the Corporation or that they will be available on terms which are acceptable to the Corporation. If new funding is not obtained, the Corporation may be unable to continue its operations, and amounts realized for assets might be less than amounts reflected in these financial statements and this could have a significant impact on the financial position of the Corporation, its financial performance and its cash flows.


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5. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONT’D) Major sources of cash during Fiscal 2019 were the issuance of units for $655,000 and flow-through shares for $992,830. Also the Corporation cashed $114,901 of Québec refundable credits on mining duties and of refundable tax credit for resources. Finally, $145,930 was generated through the sale of QPM shares. The Corporation used cash flows in operating activities for $993,048 mainly as follows: $495,032 for exploration and evaluation expenditures (see section 2) and $582,121 for general and administration ($632,228 less $50,107 share-based payments (see section 4)).

Major sources of cash during Fiscal 2018 were the issuance of equity units for $185,680 and flow-through shares for $62,200. Also the Corporation received $1,622,696 of Québec refundable credits on mining duties and of refundable tax credit for resources. The Corporation used cash flows in operating activities for $1,895,787 mainly as follows: $752,115 for exploration and evaluation expenditures ($880,192 less share issuance of $128,077 for Calumet-Sud (see section 2)) and $736,414 for general and administration (see section 4).

5.1 Cash flow projection

Following is a table showing the cash flow projection up to February 28, 2020. This projection is a non IFRS measure.

Up to

February 28, 2020 $

February 2019 cash 750,000 Net tax credits to be received 327,000 May 2019 financing closed 191,000 Projected financing (including $700,000 are flow through financing)1 1,200,000 Sale of QPM shares 212,000 Share issue expenses (120,000) General and administration expenses (500,000) Exploration budget (836,000) Claim staking, project acquisition and maintenance (130,000) February 2020 projected cash 1,094,000 Cash reserved for flow through commitment as per projected financing (700,000) February 2020 projected available cash 394,000 1) While the Corporation has secured financing in the past, there can be no assurance it will be able to do so for the projected financings.

6. SELECTED QUARTERLY INFORMATION

The following table presents selected financial information for each of the most recent eight quarters:

Q4-19 Q3-19 Q2-19 Q1-19 $ $ $ $ Interest and project management income 14,621 5,794 1,523 788 Earnings (loss) (258,024) (214,014) 32,993 (317,855) Earnings (loss) per share (0.002) (0.002) - (0.004) Working capital 953,209 393,125 388,777 44,697 Total assets 1,484,792 868,183 824,616 425,475


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6. SELECTED QUARTERLY INFORMATION (CONT’D)

Q4-18 Q3-18 Q2-18 Q1-18 $ $ $ $ Interest and project management income 4,207 4,277 1,610 1,520 Loss (272,548) (352,524) (554,579) (401,819) Loss per share (0.003) (0.004) (0.006) (0.005) Working capital 273,158 669,384 809,864 1,246,066 Total assets 619,063 918,854 1,017,294 1,441,930 Highlights for each quarter are as follows.

Q4-19

In December 2018, the Corporation closed a private placement totalling $405,000 by issuing 8,100,000 units at a price of $0.05 per unit $761,980 by issuing 11,722,769 flow-through shares at a price of $0.065 per flow- through share.

Q3-19

On October 15, 2018, the Corporation signed a definitive agreement to form a 50-50% joint venture with Osisko with the objective to explore for zinc in the Grenville geological province in southern Québec. On October 18, 2018, the Corporation reached an agreement with SIDEX and issued, at a fair value of $0.05 per common share, 3,000,000 common shares in settlement of the convertible debenture principal in the amount of $150,000 and 293,918 common shares were issued as settlement of the accrued interest. Q2-19 On June 15, 2018, the Corporation closed a private placement totalling $250,000 by issuing 5,000,000 common shares at a price of $0.05 per common share. In addition on June 15 and July 13, 2018, the Corporation closed a private placement totalling $230,850 by issuing 3,551,538 flow-through shares at a price of $0.065 per flow-through share. On June 27, 2018, the Corporation sold its gold assets (namely the Chemin Troïlus project, Somanike project and its 50% interest in the Cheechoo-Éléonore Trend project) to Canada Strategic, pursuant to an April 25, 2018 asset purchase agreement. Immediately after, Canada Strategic merged with Matamec by way of a court approved plan of arrangement to form QPM. The Corporation received 1,200,000 common shares of QPM valued at $524,160. In Q2-19, the Corporation generated an income of 32,993 due to the QPM transaction.

Q3-18 On November 1, 2017, the Corporation closed a private placements totalling $62,200 by issuing 1,244,000 units at a price of $0.05 per unit and $185,680 by issuing 2,856,616 flow-through units at a price of $0.065 per unit.

Q2-18

On August 1, 2017, the Corporation signed an agreement with Ressources Tranchemontagne Inc. and Gardin to acquire 100% of the Tessouat project, located in the Pontiac MRC in southwestern Quebec, for a consideration that consists of: payment of $26,000 (completed in September 2017), issuance of 100,000 common shares (valued at $5,500, completed in September 2017), completion of $70,000 of exploration work prior to August 1, 2019 ($14,830 completed) and a 2% NSR royalty.


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7. SUBSEQUENT EVENTS

See sections 1.2, 9.1 and 10. 8. RELATED PARTY AND KEY MANAGEMENT TRANSACTIONS

In the normal course of operations, in Fiscal 2019: • Jeremie Ryan charged $2,000 during the one month period when he was vice president corporate

development. • Ingrid Martin CPA Inc., a company controlled by Ingrid Martin, CFO and corporate secretary, charged

$52,013 ($48,414 in Fiscal 2018) of management fees. Also $18,594 ($22,233 in Fiscal 2018) was charged for professional fees for the company’s staff.

• Gardin, a company controlled by a Michel Gauthier, charged exploration expenditures of $45,153 ($20,100 in the year ended February 28, 2018). This company also paid $110,500 for professional fees of Michel Gauthier ($49,250 in Fiscal 2018).

• As at February 28, 2019, the balance due to the related parties and key management amounted to $41,425 ($21,171 as at February 28, 2018). Amounts due to related parties are unsecured, non-interest bearing.

9. OUTSTANDING SHARE DATA

The Corporation had the following securities issued and outstanding:

June 10, 2019

February 28, 2019

Shares 126,184,261 122,904,261 Stock options 5,250,000 5,375,000 Warrants 46,662,088 45,947,088 Agent options and underlying warrants 1,185,228 1,185,228 179,281,577 175,411,577 In addition, on May 15, 2019, the Corporation reached an agreement with a service provider to issue, subject to prior approval of the Exchange, an aggregate of 1,149,740 common shares at a price per common share of $0.05 in settlement of an aggregate of $57,487 of outstanding debt. The shares will be issued once a 5-day VWAP of $0.05 is reached on the Exchange.

10. STOCK OPTION PLAN The purpose of the stock option plan is to serve as an incentive for the directors, officers and service providers who will be motivated by the Corporation’s success as well as to promote ownership of common shares of the Corporation by these people. There is no performance indicator relating to profitability or risk attached to the plan. The maximum number of common shares that can be issued upon exercise of stock options granted under the Stock Option Plan was increased from 4,700,000 to 9,900,000 common shares on August 31, 2018. Such number represents less than 10% of the total number of shares issued and outstanding and the amendment was approved by the Exchange. On January 16, 2019, the Corporation granted 750,000 stock options to Mr. Ryan. The stock options have an exercise price of $0.10 with an expiry date of January 16, 2029, vesting 1/3 on the date of grant, 1/3 on the first anniversary of the grant and 1/3 on the second anniversary.


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10. STOCK OPTION PLAN (CONT’D) On May 17, 2019, the Corporation granted 175,000 stock options to Lawrence Cannon at an exercise price of $0.10 with an expiry date of October 13, 2026, vesting 1/3 on the date of grant, 1/3 on the first anniversary of the grant and 1/3 on the second anniversary.

11. CHANGES IN ACCOUNTING POLICIES

Refer to note 3 of the Fiscal 2019 financial statements.

12. FINANCIAL INSTRUMENTS

Refer to note 15 of the Fiscal 2019 financial statements. 13. OFF-BALANCE SHEET ARRANGEMENTS

The Corporation has not engaged in any off-balance sheet arrangements.

14. RISKS AND UNCERTAINTIES

The business of exploration and mining involves a high degree of risk and there can be no assurance that the Corporation’s exploration programs will result in profitable mining operations. Companies in this industry are subject to a variety of risks, including but not limited to, environmental and social acceptability issues, commodity prices, political and economic instability, with some of the most significant risks being:

a) Substantial expenditures are required to explore for mineral resources and the chances of identifying

economically recoverable reserves are extremely remote; b) Even if the Corporation's exploration programs are successful, factors beyond the control of the

Corporation may affect marketability of any minerals discovered. Metal prices have historically fluctuated widely and are affected by numerous factors beyond the Corporation's control, including international, economic and political trends, expectations for inflation, currency exchange fluctuations, interest rates, global or regional consumption patterns, speculative activities and worldwide production levels. The effect of these factors cannot accurately be predicted.

c) Substantial expenditures are required to develop mineral reserves; d) The junior resource market, where the Corporation raises funds, is extremely volatile and there is no

guarantee that the Corporation will be able to raise funds as it requires them; e) Although the Corporation has taken steps to verify ownership and legal title to the mineral projects in which

it has an interest, according to the usual industry standards for the stage of exploration and development of such projects, these procedures do not guarantee the Corporation’s title. Such projects may be subject to prior agreements or transfers and title may be affected by undetected defects;

f) The Corporation is subject to the laws and regulations relating to environmental matters, including provisions relating to reclamation, discharge of hazardous materials and other matters. The Corporation conducts its exploration activities in compliance with applicable environmental protection legislation and is not aware of any existing environmental problems related to its projects that may cause material liability to the Corporation;

g) Hazards such as unusual geological conditions are involved in exploring for and developing mineral deposits. The Corporation may become subject to liability for pollution or other hazards, which cannot be insured against or against which the Corporation may elect not to insure because of high premium costs or other reasons. The payment of any such liability could result in the loss of Corporation assets or the insolvency of the Corporation;


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14. RISKS AND UNCERTAINTIES (CONT’D)

h) The Corporation’s operations may require licenses and permits from various governmental authorities. There can be no assurance that the Corporation will be able to obtain all necessary licenses and permits that may be required to carry out exploration, development and mining operations at its projects;

i) No assurance can be made that Canada Revenue Agency and provincial agencies will agree with the Corporation's characterization of expenditures as Canadian exploration expenses or Canadian development expense or the eligibility of such expenses as Canadian exploration expense under the Income Tax Act (Canada) or any provincial equivalent.

j) Mining and milling operations are subject to government regulations. Operations may be affected in varying degrees by government regulations such as restrictions on production, price controls, tax and mining duty increases, expropriation of property, pollution controls or changes in conditions under which minerals may be mined, milled or marketed. The marketability of minerals may be affected by numerous factors beyond the control of the Corporation, such as government regulations. The Corporation undertakes exploration in areas that are or could be the subject of native land claims. Such claims could delay work or increase exploration costs. The effect of these factors cannot be accurately determined.

k) The mining industry is intensely competitive in all its phases. The Corporation competes with many companies possessing greater financial resources and technical facilities than itself for the acquisition of mineral interests as well as for recruitment and retention of qualified employees.

l) Management of the Corporation rests on a few key officers, the loss of any of whom could have a detrimental effect on its operations;

m) Certain directors and officers of the Corporation are also directors, officers or shareholders of other companies that are similarly engaged in the business of acquiring, developing and exploiting natural resource properties. Such associations may give rise to conflicts of interest from time to time. The directors or officers of the Corporation are required by law to act honestly and in good faith with a view to the best interests of the Corporation and to disclose any interest, which they may have in any project or opportunity of the Corporation. If a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter. In determining whether or not the Corporation will participate in any project or opportunity, the directors will primarily consider the degree of risk to which the Corporation may be exposed and its financial position at that time.

15. FORWARD-LOOKING STATEMENTS

This management’s discussion and analysis contains forward looking statements reflecting Sphinx’s objectives, estimates and expectations. These statements are identified by the use of verbs such as ‘’believe’’, ‘’anticipate’’, ‘’estimate’’, and ‘’expect’’. As well as the use of the future or conditional tense. By their very nature, these types of statements involve risk and uncertainty. Consequently, results could differ materially from the Corporation’s projections or expectations.

June 10, 2019 (s) Jeremie Ryan (s) Ingrid Martin Jeremie Ryan Ingrid Martin Chief Executive Officer Chief Financial Officer

management’s discussion and analysis … · 1.3 joint venture with osisko metals inc. on october...

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