Pasinex Resources : Quarter 2 June 2022 Management Discussion and Analysis

Pasinex Resources Limited

Management's Discussion & Analysis

For the Three and Six Months Ended June 30, 2022 and 2021

Discussion dated: August 29, 2022

Introduction

The following interim Management Discussion & Analysis ("Interim MD&A") of Pasinex Resources Limited (the "Company" or "Pasinex") for the three and six months ended June 30, 2022, has been prepared to provide material updates to the business operations, liquidity, and capital resources of the Company since its last annual management discussion & analysis, being the Management Discussion & Analysis ("Annual MD&A") for the fiscal year ended December 31, 2021. This Interim MD&A does not provide a general update to the Annual MD&A, or reflect any non- material events since the date of the Annual MD&A.

This Interim MD&A has been prepared in compliance with section 2.2.1 of Form 51-102F1, in accordance with National Instrument 51-102 - Continuous Disclosure Obligations. This discussion should be read in conjunction with the Company's Annual MD&A, audited annual consolidated financial statements for the years ended December 31, 2021 and 2020, together with the notes thereto, and the unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2022, together with the notes thereto. Results are reported in Canadian dollars, unless otherwise noted. Where the Turkish Lira is reported it is referenced as TRY.

The Company's unaudited condensed interim financial statements and the financial information contained in this Interim MD&A have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") in effect for the fiscal period beginning January 1, 2022. The unaudited condensed interim financial statements have been prepared on a historical basis and compliance with IFRS applicable to the preparation of interim financial statements, including IAS 34 Interim Financial Reporting. Accordingly, the information contained herein is presented as of August 29, 2022, unless otherwise indicated.

For the purposes of preparing this MD&A, management, in conjunction with the Board of Directors (the "Board"), considers the materiality of information. Information is considered material if: (i) such information results in or would reasonably be expected to result in a significant change in the market price or value of the Company's common shares; (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) it would significantly alter the total mix of information available to investors. Management, in conjunction with the Board, evaluates materiality with reference to all relevant circumstances, including potential market sensitivity.

Further information about the Company and its operations can be obtained from the Secretary of the Company or on SEDAR at www.sedar.com.

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this Interim MD&A constitute forward-looking statements; as such term is defined under applicable securities laws. These statements relate to future events or future performance and reflect management's expectations and assumptions regarding the growth, results of operations, performances and business prospects and opportunities of the Company. All statements other than statements of historical fact are forward-looking statements. The use of any of the words "anticipate", "plan", "continue", "estimate", "expect", "may", "intend", "will", "project", "could", "believe", "predict", "potential", "should" or the negative of these terms or other similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, achievements or events to differ materially from those anticipated, discussed or implied in such forward-looking statements. The Company believes the expectations reflected in such forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this Interim MD&A should be considered carefully and investors should not place undue reliance on them as the Company cannot assure investors that actual results will be consistent with these forward-looking statements.

These statements speak only as of the date of this Interim MD&A. Such statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions about: (i) general business and

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Pasinex Resources Limited

Management's Discussion & Analysis

For the Three and Six Months Ended June 30, 2022 and 2021

Discussion dated: August 29, 2022

economic conditions; (ii) timing and amount of estimated future production (iii) the supply and demand for, deliveries of, and the level and volatility of prices of zinc and other precious metals; (iv) the timing of the receipt of any outstanding regulatory and governmental approvals for the Company's projects; (v) the ability to meet social and environmental standards and expectations; (vi) the availability of financing for the Company's development of its properties on reasonable terms; (vii) the ability to procure equipment and operating supplies in sufficient quantities and on a timely basis; (viii) the ability to attract and retain skilled staff; (ix) exploration and development timetables; and (x) capital expenditure and operating cost estimates.

Since March 2020, the outbreak of the novel strain of coronavirus, specifically identified as "COVID-19", has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 pandemic is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future period.

While operations were not materially impacted by COVID-19 for the six months ended June 30, 2022, uncertainty remains surrounding COVID-19 and the extent and duration of the impacts that it may have on the Company's ability to operate on prices for zinc, on logistics and supply chains, on the Company's employees and on global financial markets. In Turkey, all employees have been vaccinated against COVID-19 by Horzum AS medical staff with approved vaccines and have been able to continue running two shifts throughout the quarter, notwithstanding the restrictions and negative impacts caused by COVID-19.

Similar to COVID-19, the Company has not been materially impacted by the ongoing conflict in the Ukraine, but uncertainty remains surrounding the conflict and the extent and duration of the impacts that it may have on the Company's ability to operate, on prices for zinc, on logistics and supply chains, on the Company's employees and on global financial markets.

The Pinargozu zinc mine was placed into production without a feasibility study of mineral reserves demonstrating economic and technical viability, and as such, any forward-looking statements related to the performance of the Pinargozu mine may differ materially from actual results. The decision to operate a mine without a technical report or feasibility study creates increased uncertainty. Economic or technical results of the Pinargozu zinc mine may differ materially from forward-looking statements due to reduced zinc grade, variation in estimated mineral resources, increased difficulty in mining and other risks associated with the reliability of internal analytical results, geological interpretation and statistical inferences drawn from drilling and sampling.

These forward-looking statements involve risks and uncertainties relating to, among other things, exploration and development risks, changes in commodity prices, particularly the zinc price, expectations regarding currency fluctuations, possible variation in mineral resources or grade, counter party risk associated with sales of zinc material, access to skilled mining personnel, results of exploration and development activities, uninsured risks, regulatory changes, defects in title, availability of materials and equipment, timeliness of government approvals, changes to government regulation and unanticipated environmental impacts on operations. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors contained in this Interim MD&A. Investors should not place undue reliance on forward-looking statements as the plans, intentions or expectations upon which they are based might not occur. The Company cautions that the foregoing list of important factors is not exhaustive. The forward- looking statements contained in this Interim MD&A are expressly qualified by this cautionary statement. The Company does not undertake any obligation to publicly update or revise any forward-looking statements except as expressly required by applicable securities law.

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Pasinex Resources Limited

Management's Discussion & Analysis

For the Three and Six Months Ended June 30, 2022 and 2021

Discussion dated: August 29, 2022

Description of Business

Pasinex Resources Limited ("Pasinex" or the "Company") is a publicly listed company incorporated in British Columbia. The Company's shares are listed on the Canadian Securities Exchange ("CSE") under the symbol "PSE" and on the Frankfurt Stock Exchange ("FSE") under the symbol "PNX". The head office, principal address and registered and records office of the Company are located at 82 Richmond Street East, Toronto, Ontario, Canada, M5C 1P1.

Pasinex owns 50% of Horzum Maden Arama ve Isletme Anonim Sirketi ("Horzum AS") which holds the producing Pinargozu high grade zinc mine, through its 100% owned subsidiary Pasinex Arama ve Madencilik Anonim Sirketi ("Pasinex Arama"). The other 50% owner is Akmetal Madencilik Sanayi ve Ticaret A.S. ("Akmetal"), a private Turkish company. Horzum AS sells directly to zinc smelters and refiners or through commodity brokers. The Company also holds an option to acquire 80% of the Gunman high grade zinc exploration project in Nevada ("Gunman Project" - formerly the "Spur Zinc Project") through its wholly owned subsidiary Pasinex Resources Nevada Limited ("Pasinex Nevada").

Selected Quarterly Information

Three Months Ended June 30,

2022 2021

Six Months Ended June 30,

2022 2021

Financial:
Equity gain from Horzum AS	$	-	$	-		$	-	$	32,232
Dividend and other receivables collected from Horzum AS	$	1,167,464	$	-		$	3,401,084	$	32,232
Dividend income from Horzum AS	$	-	$	-		$	4,072,320	$	-
Consolidated net (loss) income	$	(890,345)	$	(595,616)		$	2,743,999	$	(805,262)
Basic and diluted net income per share	$	(0.01)	$	(0.01)		$	0.02	$	(0.01)
Net cash provided by (used in) operating activities	$	1,313,517	$	(221,457)		$	2,083,338	$	(456,000)
Weighted average shares outstanding		144,554,371		144,554,371			144,554,371		144,554,371
As at:							June 30,	December 31,
							2022		2021
Total assets						$	4,733,212	$	2,871,768
Total liabilities						$	3,601,400	$	3,993,880
Total shareholders' equity (deficiency)						$	1,131,812	$	(1,122,112)
		Three Months Ended		Six Months Ended
				June 30,				June 30,
		2022		2021			2022		2021
Horzum AS operational data (100% basis):
Zinc product mined (wet) tonnes		3,264		2,676			7,804		5,256
Zinc product sold (wet) tonnes		3,155		2,287			6,119		4,659
Zinc oxide product average grade sold		42%		34%			38%		32%
Zinc sulphide product average grade sold		50%		40%			51%		40%
Gross margin (1)		82%		50%			78%		35%
CAD cost per tonne mined (1)	$	413	$	319		$	358	$	373
USD cash cost per pound of zinc mined (1)	$	0.29	$	0.35		$	0.27	$	0.43

1. see non-GAAP measures

The Company has a 50% joint venture interest in Horzum AS, which is equity accounted. This means in the Pasinex consolidated financial statements:

• Horzum AS net income is shown on one line in the income statement - Equity gain from Horzum AS.

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Pasinex Resources Limited

Management's Discussion & Analysis

For the Three and Six Months Ended June 30, 2022 and 2021

Discussion dated: August 29, 2022

Highlights

• Pasinex recorded a net loss of approximately $0.89 million for the three months ended June 30, 2022, and a net income of approximately $2.7 million for the six months ended June 30, 2022, compared with net losses of approximately $0.6 million and $0.8 million for the same periods in 2021. Pasinex Arama recorded a dividend income of approximately $4.1 million in the first quarter of 2022. There was no similar amount in 2021.
• The operating income in Horzum AS increased to $4.8 million and $8.1 million for the three and six months ended June 30, 2022, versus operating income of $0.8 million and $1.1 million for the same periods in 2021. This increase was due to higher revenue generated from higher sales prices. The increased sales prices were the result of higher worldwide zinc prices in 2022 along with selling a greater proportion of high-grade zinc sulphide product in 2022 compared with 2021. The higher sales prices also resulted in the gross margin (see non-GAAP measures) for the three and six months ended June 30, 2022, increasing to 82% and 78% versus 50% and 35% in the same periods in 2021.
• Horzum AS declared a dividend to be paid to its shareholders of which Pasinex Arama was entitled to TRY 42.2 million. Pasinex Arama has received all of this amount as of the date of this Interim MD&A. Total cash received from Horzum AS was approximately $3.4 million during the first six months of 2022.
• On July 1, 2022, the Company announced that T.C. Maden ve Petrol Iserl Genel Mudurlugu ("MAPEG"), the mining ministry in Turkey, had not extended the principal mining operational license of Horzum AS beyond April 15, 2023, and the Akkaya operational exploration license of Pasinex Arama at that time. As a result, both Pasinex Arama and Horzum AS each filed a court action in Adana, Turkey challenging the denial of the license extensions. The actions were filed on July 1, 2022, in order to meet the legal statute of limitations in the mining law. Since the filing of the actions, representatives of Horzum AS and Pasinex Arama have met with MAPEG and the Ministry of Energy and Natural Resources. The meetings have been constructive and both agencies continue to work with Horzum AS and Pasinex Arama to arrive at a negotiated solution for the benefit of all.
• Horzum AS sold 3,041 and 5,571 tonnes of zinc sulphide product in the three and six months ended June 30, 2022, at average grades of 50% and 51% zinc and average sale prices of approximately US$1,353 and US$1,337 per tonne, respectively.
• Horzum AS mined 7,804 tonnes of zinc product in the first six months of 2022, at the Pinargozu mine.
• The CAD cost per tonne mined (see non-GAAP measures) was $413 and $358 for the three and six months ended June 30, 2022, respectively and the USD cash cost per pound of zinc product mined (see non-GAAP measures) was US$0.29 and US$0.27 for the three and six months ended June 30, 2022, respectively.
• During 2022, Horzum AS completed a total of 4,870 metres of underground and surface diamond core drilling, in 63 holes. It also completed 851 metres of exploration and development adit development, including 150 metres of adit development towards the Akkaya property.
• Horzum AS had another zero-fatality quarter at the Pinargozu Mine. There was 98,848 fatality free hours worked and no serious injuries were reported.
• The Company completed a helicopter magnetics survey of 218 line-kilometers, a mobile metal ion soil sampling program of 453 samples and a ground gravity program with 2,078 stations during and subsequent to the quarter ended June 30, 2022, at the Gunman Project in Nevada. A drill program of 3,000 to 4,000 meters is to commence in the third quarter of 2022.

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Pasinex Resources Limited

Management's Discussion & Analysis

For the Three and Six Months Ended June 30, 2022 and 2021

Discussion dated: August 29, 2022

Going Concern

The application of the going concern concept assumes that the Company will continue in operation for at least the next twelve months and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at June 30, 2022, the Company has a net equity deficit of $9,601,496 (December 31, 2021 - $12,049,182) and has a working capital deficiency position of $719,845 (December 31, 2021 - working capital deficiency position of $2,956,668). The Company had a net loss of $890,345 for the three months ended June 30, 2022, and a net income of $2,743,999 for the six months ended June 30, 2022 (three and six months ended June 30, 2021 - net losses of $595,616 and $805,262, respectively) and positive cash flows from operations of $2,083,338 for the six months ended June 30, 2022 (six months ended June 30, 2021 - negative cash flows from operations of $456,00).

Subsequent to the quarter end the Company reported that MAPEG, the mining ministry in Turkey, had not extended the principal mining operational license of Horzum AS beyond April 15, 2023, and the Akkaya operational exploration license of Pasinex Arama at this time. As a result, both Pasinex Arama and Horzum AS each filed a court action in Adana, Turkey challenging the denial of the license extensions. The actions were filed on July 1, 2022, in order to meet the legal statute of limitations in the mining law. Since the filing of the actions, representatives of Horzum AS and Pasinex Arama have met with MAPEG and the Ministry of Energy and Natural Resources. The meetings have been constructive and both agencies continue to work with Horzum AS and Pasinex Arama to arrive at a negotiated solution for the benefit of all.

Notwithstanding the above action by MAPEG at this stage, Horzum continues its profitable operations. Pasinex Arama received approximately TRY 42 million (approximately $3.4 million using the exchange rates on the dates of the various transfers from Horzum AS) in dividend and other receivable collections from Horzum AS in the six months ended June 30, 2022, compared with TRY 200,000 (approximately $32,232 using the exchange rate on the date of the transfer from Horzum AS) for the same period in 2021. Pasinex Arama also received TRY 10 million (approximately $0.72 million using the exchange rates on the dates of the various transfers from Horzum AS), subsequent to June 30, 2022. Pasinex Arama has collected the full amount of the dividend that was declared in 2022, as of the date of these financial statements.

Approximately TRY 38.75 million (approximately $3.13 million using the exchange rates on the dates of the transfers) has been transferred to Pasinex Canada by Pasinex Arama in the first six months of 2022. Both Pasinex Canada and Pasinex Arama now have sufficient cash on hand to fund their ongoing activities for the next 12 months, but the Company does not have enough cash on hand to repay all of its outstanding obligations.

As at June 30, 2022, Horzum AS has a receivable owing from Akmetal of approximately $42.5 million. Management continues to work with Akmetal and the Kurmel family to resolve the collectability of this debt. Until strong credit worthiness is demonstrated by Akmetal, accounting principles require Pasinex to maintain an expected credit loss equivalent to the full balance of the receivable. Receipt of the Akmetal receivable would provide significant cash flow to Pasinex through additional dividends.

Horzum AS declared a dividend during the first quarter of 2022, totalling approximately TRY 60.3 million of which Pasinex Arama is entitled to TRY 30.15 million as a result of its 50% ownership in Horzum AS. In addition, Akmetal has assigned to Pasinex Arama, 20% of its entitlement to the declared dividend. The value of the assignment of the dividend was approximately TRY 12 million. This amount has been deducted from the value of the Akmetal receivable.

Horzum AS's operations have generated substantial positive cash flow in the first six months of 2022, however in the absence of the receipt of additional dividends from Horzum AS, the Company would need to secure funding from either equity financing or additional related party loans. There can be no assurance that the Company will be able to generate either sufficient dividends from Horzum AS or be able to generate funds from other sources.

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