MASON GRAPHITE INC.s1.q4cdn.com/722223210/files/doc_financials/MDA_Q4... · On June 3, 2013, Mason Graphite Inc. and Mason Holdings Corp. amalgamated their activities in order to

MASON GRAPHITE INC.

Management’s Discussion and Analysis For the year ended June 30, 2014

MASON GRAPHITE INC. Management’s Discussion and Analysis For the year ended June 30, 2014

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The following Management’s Discussion and Analysis (“MD&A”) relates to the financial position and results of operations of Mason Graphite Inc. (“we”, “our”, “us”, “Mason Graphite” or the “Company”) as at June 30, 2014. This MD&A should be read in conjunction with the audited financial statements (“Financial Statements) for the years ended June 30, 2014 and 2013. This MD&A reports on our activities through October 24, 2014 unless otherwise indicated. The Company’s Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Company has consistently applied the accounting policies used in the preparation of its IFRS financial statements, including the comparative figures. All amounts included in the MD&A are in Canadian dollars, unless otherwise specified. Additional information, including our press releases, has been filed electronically through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and is available online under our profile at www.sedar.com.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This MD&A contains “forward-looking information” which may include, but is not limited to, statements with respect to targeted milestones to achieve development of the Lac Guéret Project, successfully obtaining project financing, the future financial or operating performance of the Company and its projects, the future price of and supply and demand for graphite, the estimation of mineral reserves and resources, the realization of mineral reserves and resources estimates, the timing and amount of estimated future production, costs of production, capital, operating and exploration expenditures, costs and timing of the development of new and existing deposits, costs and timing of future exploration, requirements for additional capital, management’s belief that the Company will have sufficient funds to meet its obligations and planned expenditures for the ensuing twelve months, government regulation of mining operations, environmental risks, reclamation expenses, the success of mining operations, permitting, economic return estimates and potential upside. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “does not anticipate” or “believes” or variations (including negative variations) of such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Readers should not place undue reliance on forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Even with the completion of the positive feasibility study, there are no assurances that the Lac Guéret Project will be placed into production. Factors that could affect the outcome include, among others: the actual results of development activities; project delays; inability to raise the funds necessary to achieve the milestones or complete development; general business, economic, competitive, political and social uncertainties; future prices of metals; availability of alternative graphite sources or substitutions; actual graphite recovery; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; the future cost of capital to the Company; possible variations of ore grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labor disputes and other risks of the mining industry; political instability, terrorism, insurrection or war; delays in obtaining governmental approvals, necessary permitting or in the completion of development or construction activities, as well as those factors discussed in the section entitled “Risk and uncertainties”. Such forward-looking statements are also based on a number of material factors and assumptions, including: the availability of financing at rates and on terms and conditions otherwise acceptable to the Company; future graphite prices; permitting and development consistent with the Company’s expectations; foreign exchange rates; prices and availability of equipment; that contracted parties provide goods and/or services on the agreed timeframes; that the current tax credit receivable from the Quebec government is collected in a timely manner; that on-going contractual negotiations will be successful and progress and/or be completed in a timely manner; and that no unusual geological or technical problems occur. Although the Company has attempted to


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identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as of the date of this MD&A and the Corporation disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable securities laws. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. 1. DESCRIPTION OF BUSINESS AND OVERVIEW The Company is engaged in the exploration and evaluation of its 100% owned Lac Guéret graphite property located in Québec, Canada. Substantially all of the Company's efforts are devoted to financing and developing this property. There has been no determination whether the Company's exploration and evaluation assets contains mineral reserves which are economically recoverable. The Company has a National Instrument 43-101 compliant mineral resource estimate and a preliminary economic assessment on the Lac Guéret property. Mason Graphite was incorporated under the laws of the Province of Ontario, Canada by Articles of Incorporation dated March 15, 2011. On October 15, 2012, Mason Graphite, formerly POCML 1 Inc (“POCML1”), a capital pool company listed on the TSX Venture Exchange, a wholly-owned subsidiary of POCML1, 2331417 Ontario Inc. (“Subco”) and Mason Graphite Corp. (“Mason”) amalgamated, whereby POCML1 acquired all of the issued and outstanding shares of Mason, Mason amalgamated with Subco and all the outstanding common shares of Mason have been exchanged for common shares of POCML1 on a one to one basis. Pursuant to the amalgamation, Mason changed its name to Mason Holdings Corp. and POCML1 changed its name to Mason Graphite Inc. The Company is subject to the Business Corporations Act (Ontario). On June 3, 2013, Mason Graphite Inc. and Mason Holdings Corp. amalgamated their activities in order to continue exclusively under the name of Mason Graphite Inc. The Company’s head office is located at 3030, Boul. Le Carrefour, suite 600, Laval, H7T 2P5, Canada and the registered address is at 65 Queen Street West, Suite 800, Toronto, Ontario, Canada M5H 2M5 Lac Guéret Property Mason Graphite has a 100% interest in the Lac Guéret graphite property consisting of 11,630.34 hectares, located in the Côte-Nord region in northeastern Québec. Exploration Program and Resources On December 5, 2013, Mason Graphite announced significant resource growth in an updated mineral resource estimate for its 100%-owned Lac Guéret graphite project. (see press release dated December 5, 2013) Highlights from the updated mineral resource estimate

Measured & Indicated ("M&I") mineral resources increased from 7.6 million tonnes ("Mt") to 50 Mt Inferred mineral resources increased from 2.8 Mt to 11.9 Mt Overall M&I grade of 15.6% Cg; the main parameters of the preliminary economic assessment for

the Lac Guéret project (the "PEA") are still valid: 22 years of production at 27.4% with a low stripping ratio at 0.76:1 and low operating costs at $390/tonne

Enlarged mineral resource could lead to optimized pit design and improved economics


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1. DESCRIPTION OF BUSINESS AND OVERVIEW (continued) Large increase in the Mineral resources The new mineral resource estimate, as calculated by Roche Ltd. Consulting Group ("Roche''), includes assay data from 170 holes (approximately 26,500 metres) drilled in the GC Zone and now totals 50,024,000 tonnes grading 15.6% Cg, including 6,672,000 tonnes grading 32.4% Cg, in the Measured and Indicated categories and 11,861,000 tonnes grading 17.1% Cg, including 2,637,000 tonnes grading 30.5% Cg, in the Inferred category (See Table 1 below). The enlarged mineral resource envelope offers opportunities to further optimize the mine plan and the project's economics as set out in the PEA in the next phase of technical studies. Table 1 - December 5, 2013 - Updated Mineral Resource Estimate, GC Zone

Categories Unit Tonnes Grade (Cg)

Measured (M)

U1/U2 (5 to 25 % Cg) U3 (> 25 % Cg)

4,052,000465,000

13.4% 33.8%

All units 4,517,000 15.5%

Indicated (I)

U1/U2 (5 to 25 % Cg) U3 (> 25 % Cg)

39,300,0006,207,000

13.0% 32.3%

All units 45,507,000 15.6%

M + I

U1/U2 (5 to 25 % Cg) U3 (> 25 % Cg)

43,352,0006,672,000

13.0% 32.4%

All units 50,024,000 15.6%

Inferred

U1/U2 (5 to 25 % Cg) U3 (> 25 % Cg)

9,224,0002,637,000

13.3% 30.5%

All units 11,861,000 17.1%

Note: A cut-off grade of 5% Cg was used for this mineral resource estimate.

See additional notes on mineral resource estimation methodology at the end of this news release. Excellent PEA Results Maintained On April 22, 2013, Mason Graphite reported positive results in the PEA for the Lac Guéret project, which included 22 years of production at 27.4% Cg considering a strip ratio of 0.76:1 and operating costs of $390 per tonne. This technical study used data from the previous July 2012 mineral resource estimate, which covers only a small portion of the updated mineral resource area. The block model that was created for the mineral resource update was provided to Met-Chem Canada Inc. ("Met-Chem''), the firm responsible for the completion of the PEA. Met-Chem was able to verify and confirm that conclusions of the PEA are still relevant and valid for the updated model. The Company expects the scale and grade of the new mineral resource to positively affect the project economics in the next phase of technical studies. An updated NI 43-101 technical report outlining the procedures for estimation of the mineral resource estimate presented herein was filed on SEDAR on January 17, 2014.


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1. DESCRIPTION OF BUSINESS AND OVERVIEW (continued) 2nd exploration program at Lac Guéret With the completion of the $5 million private placement financing (see press release dated June 28, 2013), Mason Graphite initiated in November 2013 its second exploration program at its Lac Guéret graphite property. This exploration program consisted of 97 holes totaling 15,108 metres and was designed to pursue three objectives:

to explore for mineral extensions to the North-East and beyond the defined resource envelope of the GC Zone (18 holes totaling 2,085 metres);

to explore for mineral continuity within the defined resource envelope of the GC Zone (68 holes totaling 11,323 metres); and

to conduct exploration drilling on graphite showings on the property outside the areas where drilling was conducted in the past (11 holes totaling 1,700 metres).

On July 29, 2014, the Company reported positive assay results from the 1st objective of this exploration program which consisted to explore for mineral extensions to the North-East and beyond the defined resource envelope of the GC Zone (18 holes totaling 2,085 metres); These results confirmed continuity of N-E Extension in GC Zone. Intercept highlights from the assay results in the North-East extension of the GC Zone, included:

Hole LG-459 intersected 73 metres at 28.5% Cg close to surface (9 metres), including 41 metres at 39.0% Cg;

Hole LG-469 intersected 86 metres at 27.8% Cg, including 31 metres at 42.3% Cg; Hole LG-472 intersected 70 metres at 28.8% Cg close to surface (4 metres), including 25 metres

at 42.0% Cg; Hole LG-489 intersected 66 metres at 30.0% Cg close to surface (4 metres), including 46 metres

at 38.3% Cg; Hole LG-491 intersected 98 metres at 29.8% Cg close to surface (4 metres), including 56 metres

at 36.2% Cg. On October 8, 2014, the Company reported the second batch of assay results from this exploration program initiated in November 2013 which consisted to explore for mineral continuity within the defined resource envelope of the GC Zone (68 holes totaling 11,323 metres). The results confirmed presence of high grade areas in the GC Zone. The drilling was performed in a quincunx pattern, with new holes drilled roughly in the middle of four (4) existing holes, resulting in an average distance of 35 metres between holes. The former drilling followed a grid pattern with average spacing of 50 x 50 metres. Intercept highlights from the second batch drilling conducted inside the PEA open pit envelope in the GC Zone included:

Hole LG-403 intersected 76 metres at 27.5 % Cg, including 38 metres at 39.3 % Cg; Hole LG-421 intersected 46 metres at 28.7 % Cg, including 27 metres at 40.3 % Cg; Hole LG-424 intersected 86 metres at 32.7 % Cg, including 73 metres at 36.1 % Cg; and Hole LG-471 intersected 50 metres at 23.9 % Cg near the surface (4 metres), including 21 metres

at 37.4 % Cg. Intercept highlights from the second batch drilling conducted outside the PEA open pit envelope in the GC Zone included:

Hole LG-420 intersected 42 metres at 24.6 % Cg, including 17 metres at 34.7 % Cg near the surface (7 metres);

Hole LG-439 intersected 58 metres at 20.2 % Cg, including 14 metres at 36.6 % Cg; Hole LG-455 intersected 202 metres at 21.6 % Cg, including 3 intersections of 17, 24 and 46

metres at 30.7 % Cg to 33.3 % Cg, respectively;


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1. DESCRIPTION OF BUSINESS AND OVERVIEW (continued)

Hole LG-458 intersected 91 metres at 25.3 % Cg, including 30 metres at 40.8 % Cg; and Hole LG-463 intersected 130 metres at 26.7 % Cg, including 57 metres at 39.0 % Cg.

The remaining drilling results which consisted to conduct exploration drilling on graphite showings on the property outside the areas where drilling was conducted in the past (11 holes totaling 1,700 metres) will be reported in the upcoming months. Metallurgical and purification test results The Company achieved purity of 99.9% graphitic carbon from preliminary purification trials (see press release dated September 24, 2013). The graphite concentrate of 99.9% Cg was achieved using a conventional hydrometallurgical process conducted at SGS Canada Inc., Canada (“SGS”). The purification trials were conducted on graphite concentrates that were produced by SGS during recently completed lock cycle tests. The trials were carried out on three coarse size fractions of graphite: +48, +80 and +150 mesh. The table below presents the complete results for the caustic bake process trial. Size fraction Graphite (% Cg)

+48 mesh 99.6

+80 mesh 99.7

+150 mesh 99.9 Mason Graphite will now move forward with larger scale testing designed to optimize the purification process and further improve these excellent results. The metallurgical testing of the ore is continuing. After characterizing the metallurgical behavior of the different geological units, work has been started to optimize the concentration process. Work is being done at COREM in Quebec City and Mason has hired the consulting firm Soutex, also of Quebec City, to supervise the test work and help with the design of the process. On October 21, 2014, the Company announced that a pilot plant test for the Lac Guéret graphite project has been initiated at COREM’s research facility in Quebec City. The operations are under the supervision of engineering firm Soutex. The pilot program is planned to operate for a six week period, during which COREM will test a bulk sample of approximately 60 tonnes of graphite mineralization obtained from Mason Graphite’s Lac Guéret property. The average head grade of the bulk sample is 29.1% Cg. The pilot program is designed to test the concentration process developed at the laboratory level by Mason Graphite, COREM and Soutex. Samples collected during the pilot will serve multiple purposes, including:

Testing of additional processing technologies; Characterization for the upcoming environmental impact assessment; Testing to create value added products such as spherical graphite used in lithium-ion batteries

(these tests will be part of a complete technical study program for value added graphite products); and

Testing with key potential customers. The results of the pilot plant program will also be used for the upcoming feasibility study. Environmental studies Environmental baseline studies have been carried out since summer 2012. The following environmental components have been characterized and described in summer 2012: climatology, soil quality, surface


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1. DESCRIPTION OF BUSINESS AND OVERVIEW (continued) water quality, sediment quality, groundwater quality, vegetation and wetlands, fish and fish habitats, herpetofauna, archaeological potential and social and economic aspects. In winter, spring and summer 2013, Roche Consulting performed large and small mammal surveys and avifauna surveys. The Environmental Baseline studies report has been completed and results are available in section 20 of the technical report NI 43-101 filed on Sedar on January 17, 2014. First Nation relations The Lac Guéret property is located on the territory of the Pessamit Innus First Nation. The community is located more than 300km from the Lac Guéret. No one is residing near the planned operations or in vicinity of the Lac Guéret property. Consent for drilling was originally obtained in April 2012. Mason has established a successful dialogue with the community since early 2012. Consent for additional exploration and regulatory permit was successfully obtained for the 2013-2014 drill campaign. On July 23, 2014, the Company and the Conseil des Innus de Pessamit signed a cooperation agreement for the pre-construction phase of Mason Graphite's 100% owned graphite Lac Guéret project, part of the Nitassinan (traditional lands) of the Pessamit First Nation. This agreement is an important first step in establishing the kind of relationships Mason Graphite seeks to have with the Pessamit community and all the people of Manicouagan. Mason Graphite plans to hold information and consultation activities in the coming months to establish and build lasting ties with the regional community. Technical studies In preparation for the upcoming feasibility study, trade-off studies have been started during summer 2014. The consulting firm Hatch of Montreal has been retained to perform these studies; completion is expected during last civil quarter of 2014. These studies cover topics such as plant localization, energy strategy, mining strategy, etc. Also in preparation for the feasibility study, geotechnical, hydrogeological and hydrological field work will be performed during fall 2014. The management of these operations was also contracted to Hatch. The feasibility study is scheduled to begin during fall 2014. CORPORATE MATTERS Corporate matters - Acquisition On February 14, 2014, the Company purchased a 20% interest in Group NanoXplore Inc. (“NanoXplore”) in consideration for $350,000. NanoXplore is a privately held research and development company focused on developing low cost, large-scale production of graphene from natural flake graphite, and integrating it into several industries including energy and textiles. Graphene can be produced using a variety of processes, including Chemical Vapor Deposition (CVD) and liquid exfoliation, however many of them are not scalable and are associated with higher processing costs. NanoXplore's proprietary technique is a low cost, low energy, safe and scalable electrochemical conversion method which turns natural flake graphite into graphene. Upon the completion of this interest in NanoXplore, Mason Graphite was appointed as NanoXplore’s sales, marketing and distribution agent, Benoit Gascon, President and CEO of Mason Graphite, was appointed as the Chairman of the Board of Directors of NanoXplore, and Luc Veilleux, Mason


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1. DESCRIPTION OF BUSINESS AND OVERVIEW (continued) Graphite’s Executive Vice-President and Chief Financial Officer, was appointed as a Director and Chief Financial Officer of NanoXplore. On April 30, 2014, the Company has completed the second tranche of its investment NanoXplore by investing $350,000 for an additional 20% interest in NanoXplore. The Company has acquired 40% of the issued and outstanding shares of NanoXplore for a total of $700,000. NanoXplore appointed the Company as its supplier of graphite. Corporate matters - Financing On October 29, 2013, Mason Graphite has completed a non-brokered private placement of common shares. Mason Graphite issued 153,000 common shares at a price of $0.40 per share for gross proceeds of $61,200. The proceeds were used for general corporate purposes. In connection with the total investment in NanoXplore, on January 22, 2014, the Company closed a private placement financing by issuing 875,000 common shares at a price of $0.80 per common share for gross proceeds of $700,000. On April 28, 2014, the Company issued, on a bought deal basis, a total of 17,692,319 units (the “Units”) at a price of $0.65 per Unit, which includes the exercise of the underwriters option (the “Underwriter’s Option”) in full for aggregate gross proceeds of $11,500,007 (the “Offering”). Each Unit is comprised of one common share and one-half of one share purchase warrant. Each whole warrant will entitle the holder to acquire one common share at a price of $0.85 for a period of 24 months following the closing of the Offering. The net proceeds of the Offering will be used to fund the continued development of the Lac Guéret project and for general corporate purposes. As part of the Offering, Ressources Québec, a subsidiary of Investissement Québec subscribed for 4,615,385 Units for gross proceeds of $3,000,000. Ressources Québec have a right of first refusal to participate in any future securities offerings by Mason Graphite. On June 11, 2014, the Company completed a private placement financing through convertible debentures (the “Debentures”) for aggregate gross proceeds of $4,150,000 with three renowned Québec-based institutions: Sodémex Développement, s.e.c. ($3,000,000), a subsidiary of the Caisse de dépôt et placement du Québec, the Fonds de solidarité FTQ ($950,000) and the Fonds régional de solidarité FTQ Côte-Nord ($200,000). The Debentures have the following features:

The Company can trigger the conversion of the Debentures and anticipate the redemption under certain conditions;

If the Company completes a construction project financing for the Lac Guéret project and if the Company issues common shares under such financing at a price per common share that is greater than $1.00 (the “Construction Financing Price”), the Company shall have the right to force the full conversion of the Debentures at the conversion price equal to the Construction Financing Price less a 10% discount.

The Debentures are set to mature on June 11, 2019 and bear interest at a fixed annual rate of 12%, payable semi-annually on June 11 and December 11 of each year;

The Debentures holders are entitled to convert the principal amount of the Debentures into common shares at a conversion price of $0.845 per common share and all accrued and unpaid interest at a conversion price to be determined by the market price of the common shares at the time of settlement;

In the event that the Company, before the repayment of principal amount of the Debentures, proceeds with the issuance of common shares or other convertible securities at a price that is less than $0.65 per security (the “Subsequent Financing”), the conversion price of the Debentures


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1. DESCRIPTION OF BUSINESS AND OVERVIEW (continued) will be the price per security in the Subsequent Financing, plus a 30% premium, provided that such conversion price shall in no case be lower than $0.63;

The uses of proceeds of the Debentures are dedicated to the next payment to Quinto Mining Corporation regarding the Lac Guéret property, feasibility study of the Lac Guéret project and general working capital purposes;

In connection with this financing, the Company issued an aggregate of 2,075,000 common share

purchase warrants (the “Warrants”) to the debentures’ holders, each of which entitles the holder to purchase one common share of the Company (“Common Shares”) at a price of $0.91 for a period of 24 months following the closing of the transaction.

Corporate matters - Options and warrants transaction On July 2nd, 2013, the Company granted 885,000 options to officers and consultants of the Company with an exercise price of $0.60. On July 23th, 2013, the Company granted 100,000 options to a consultant of the Company with an exercise price of $0.60. On October 4, 2013, the Company granted 100,000 and 60,000 options to consultants of the Company with an exercise price of $0.41 and $0.60 per share respectively. On October 10, 2013, the Company has extended the term of 12,614,989 common share purchase warrants (the “Warrants”) previously set to expire on October 30, 2013 to October 30, 2014. Each Warrant is exercisable for one common share in the capital of the Company for an exercise price of $1.00. Under the amended terms of the warrants, if at any time after October 30, 2013 the common shares of the Company trade at or above $1.40 per share (on a volume weighted adjusted basis) for a period of 30 consecutive days, the Company will have the right to accelerate the expiry date of the Warrants to the date that is 30 days after the Company issues a news release announcing that it has elected to exercise this acceleration right. On October 29, 2013, the Company granted 665,000 options to officers and consultants of the Company with an exercise price of $0.38. Corporate matters - General matters The Company began on November 12, 2013 trading on the prestigious international segment of the U.S. OTCQX marketplace, under the ticker symbol "MGPHF". OTCQX is a highly visible trading market that should provide Mason Graphite with greater access to the U.S. capital markets. On November 25, 2013, the Company constituted an independent Compensation Committee and approved a charter of the Compensation Committee of the Board of Directors. In November 2013, Mason moved its head office in Laval, Québec at 3030, Boul. Le Carrefour, suite 600. On May 20, 2014, the Company and Forbes & Manhattan Inc. (« F&M ») have terminated the consulting agreement. On June 10, 2014, the Company and F&M agreed to amend certain terms of the amended and restated assignment agreement dated October 1, 2012 (the “Assignment Agreement”) between F&M and the Company. The Company engaged F&M, on a non-exclusive basis, to source and identify Interested


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1. DESCRIPTION OF BUSINESS AND OVERVIEW (continued) Parties that will agree to a Transaction with the Company, commencing on the date hereof and terminating on the date that is 36 months following the public announcement of a positive feasibility study by the Company. In the event an off-take agreement or off-take related agreement is entered by the Company with any person or company identified and referred by F&M to the Company other than the designated party (“Designated”), the Company shall pay a cash fee equal to 2.0% of the proceeds raised by the Company and/or its Affiliates from the material sold pursuant to such agreement for a period equal to the term of the Off-Take Agreement (the “Off-Take Sales Fee”), payable on receipt of payment by the Company and/or its Affiliates for the material sold; provided, however, that the Off-Take Sales Fee shall also be payable for each renewal period of the Off-Take Agreement. F&M and the Company agree that in the event a Transaction is completed by the Company with the Designated party, the Company shall: (a) with respect to any off-take agreement or off-take related agreement (an “Off-Take Agreement”) entered with the Designated party, pay a cash fee equal to 2.0% of the proceeds raised by the Company and/or its Affiliates from the material sold pursuant to the Off-Take Agreement for a period equal to the term of the Off-Take Agreement (the “Off-Take Sales Fee”), payable on receipt of payment by the Company and/or its Affiliates for the material sold; provided, however, that the Off-Take Sales Fee shall also be payable for each renewal period of the Off-Take Agreement; (b) if the Designated party makes an equity investment in the company or purchases an interest in the Lac Guéret Property (the “Off-Take Investment”), a fee equal to 5.0% of the gross amount of such Off-Take Investment shall be payable to F&M on the closing of the Off-Take Investment; (c) if the Designated party provides debt financing to the Company (“Off-Take Debt Financing”) a fee equal to 1.5% of the gross proceeds of the Off-Take Debt Financing shall be payable to F&M on closing of the Off-Take Debt Financing; and (d) in respect of any merger, amalgamation, arrangement, reorganization or other business combination transaction whereby the Designated party acquires more than 20% of the common shares of the company, a fee equal to 1.5% of the total transaction value shall be payable to F&M on the closing of such transaction. 2. SELECTED ANNUAL FINANCIAL INFORMATION The following selected financial data derived from the Financial Statements of the Company for the following period:

For the year ended June 30,

2014

For the year ended June

30, 2013

From incorporation

on March 14 to June 30, 2012

Loss and comprehensive loss $5,307,840 $7,506,030 $1,305,988Loss per share (basic and fully diluted) $0.08 $0.14 $0.04Exploration and evaluation assets $22,694,352 $17,717,112 $11,816,640Total assets $38,865,933 $24,856,926 $16,787,518Non-current liabilities $8,306,771 $4,595,023 $3,651,258

Mason Graphite has not, since the date of its incorporation, declared or paid dividends on its common shares. For the foreseeable future, Mason Graphite anticipates that it will retain future earnings and other cash resources for the operation and development of its business. The Company’s functional and presentation currency is the Canadian dollars. Variation explanations of the selected annual financial information are as follows:

1. Loss and comprehensive loss: see below section 3) Results of operations 2. Exploration and evaluation assets: the increase is explained by the expenditures incurred for the

Lac Guéret project.


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2. SELECTED ANNUAL FINANCIAL INFORMATION (continued)

3. Total assets: the increase is explained by financings completed during the Q4-2014: $11.5 million Bought Deal private placement and $4.15 million for the Debentures mainly kept in cash balance.

4. Non-current financial liabilities: the increase is mainly due to the Debentures issued through the financing during the Q4-2014 and the recognition of a deferred income tax liability during the year..

3. RESULTS OF OPERATIONS Year ended June 30, 2014, compared with year ended June 30, 2013 The Company’s loss totalled $5.3 million for the year ended June 30, 2014. This compares with a loss of $7.5 million for the year ended June 30, 2013. The loss decrease by $2.2 million is primarily due to:

last year RTO transaction costs ($3.9 million) and; other income of this year ($0.3 million) which is coming from the flow through shares premium

liability amortization, partially offset by:

an increase of deferred income tax expenses ($1.3 million). During the year, the Company reviewed its estimate with respect to the expected manner of recovery of its mining assets, as there are indications that its exploration and evaluation assets would probably be recovered “through use of the assets” than “through sale of the assets. Accordingly, the Company recorded a deferred income tax liability of $1.3 million with respect to Quebec mining duties and a corresponding deferred taxes expense.

higher salaries, director and consulting fees ($0.6 million) due to this year incentive accrual (nil, last year) and additional personnel and;

higher communication and promotion expenses ($0.3) due to the visibility campaign implemented in fall 2013.

4. SUMMARY OF QUARTERLY RESULTS

30-Jun-14 31-Mar-14 31-Dec-13 30-Sep-13Q4 Q3 Q2 Q1

Loss for the period $2,265,342 $981,960 $1,207,771 $852,767Loss per share (basic and fully diluted) $0.01 $0.01 $0.02 $0.01

30-Jun-13 31-Mar-13 31-Dec-12 30-Sep-12Q4 Q3 Q2 Q1

Loss for the period $1,297,181 $1,477,784 $4,477,651 $253,414Loss per share (basic and fully diluted) $0.02 $0.03 $0.09 $0.01


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4. SUMMARY OF QUARTERLY RESULTS (continued) Three months ended June 30, 2014, compared with three months ended June 30, 2013 The Company’s loss totalled $2.3 million for the three months ended June 30, 2014. This compares with a loss of $1.3 million for the three months ended June 30, 2013. The loss increase by $1.0 million is primarily due:

an increase of deferred income tax expenses ($1.3 million); higher salaries and consulting fees ($0.5 million) mainly due to this quarter incentive accrual (nil,

last year quarter); partially offset by:

share-based compensation decrease ($0.3 million) and; during this year quarter, the Company recorded a net gain on foreign exchange of $0.3 million

compared to a loss of $0.2 million during last year quarter. Those foreign exchange variations are originated from the long-term debt with Quinto Mining Corp. which is labelled in $US.

5. CASH FLOW

Sources and uses of cash 2014 2013 2014 2013

Cash used in operations prior to (1,027,605) (597,273) (3,061,671) (2,393,792) changes in working capitalChanges in non-cash working capital 604,417 636,271 813,268 (738,825) Cash used in operations activites (423,188) 38,998 (2,248,403) (3,132,617) Cash provided by financing activities 14,498,100 4,614,250 15,459,030 10,084,610 Cash used in investing activities (818,248) (605,371) (3,751,238) (6,445,046) Change in cash 13,256,664 4,047,877 9,459,389 506,947

Three months ended June 30 Years ended June 30,

Operating Activities For the three months ended June 30, 2014, cash used in operating activities before changes in non-cash working capital was $1.0 million compared to $0.6 million for the same period of last year. The increase is primarily coming from higher salaries and consulting fees (incentive accrual). For the three months ended June 30, 2014, non-cash working capital decreased by $0.6 million compared to a decrease of $0.6 million for the same period of last year. This quarter cash increase of $0.6 million mainly reflects by unpaid incentive and last year cash increase came from sales tax refund. For the year ended June 30, 2014, cash used in operating activities before changes in non-cash working capital was $3.1 million compared to $2.4 million for the same period of last year. More cash was used this period for salaries, consulting fees and promotion expenses as mentioned in above section “Results of operations”. For the year ended June 30, 2014, non-cash working capital decreased by $0.8 million compared to an increase of $0.7 million for the same period of last year. This year variation mainly reflects the reimbursement of sales taxes refund claims, advance payment done last year regarding office expenses and exploration and evaluation expenditures and timing difference for payables.


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5. CASH FLOW (continued) Financing Activities For the three months ended June 30, 2014, cash provided from financing activities was $14.5 million compared to $4.6 million for the same period of last year. During this actual quarter, the Company completed the following private placement: 1) the Bought Deal of $11.5 million and 2) the Debentures of $4.15 million. For the same period of last year, the Company completed a private placement of $5.0 million. For the year ended June 30, 2014, cash provided from financing activities was $15.5 million compared to $10.1 million for the same period of last year. During this year, the Company completed the following financing: 1) the Bought Deal private placement of $11.5 million, 2) the Debentures of $4.15 million, 3) a private placement of $0.06 million and 4) a private placement of $0.7 million and warrants and options were also exercised ($0.2 million). During last year period, the Company completed 2 private placements of $5.0 million and $5.1 million, warrants and options were exercised ($0.1 million) and cash was acquired on the RTO transaction ($0.6 million). Investing Activities For the three months ended June 30, 2014, cash used in investing activities was $0.8 million compared to $0.6 million for the same period of last year. During this actual quarter, the Company continued its exploration and evaluation program at the Lac Guéret and took an additional participation of 20% in NanoXplore for a consideration of $0.35 million. During last year quarter, cash was used for exploration and evaluation expenditures of the Lac Guéret project. For the year ended June 30, 2014, cash used in investing activities was $3.8 million compared to $6.4 million for the same period of last year. During this year, the Company took a participation of 40% in NanoXplore for a total consideration of $0.7 million. Also, cash was used for exploration and evaluation expenditures of the Lac Guéret project and the Company received a refund of $0.8 million from Revenu Québec for tax credit related to resources. During last year, cash was used for exploration and evaluation expenditures of the Lac Guéret project. 6. FINANCIAL POSITION

June 30, 2014 June 30, 2013Cash $14,410,142 $4,950,753Other current assets $1,110,739 $2,189,061Total current assets $15,520,881 $7,139,814Investment in associate $650,700 $0Exploration and evaluation assets $22,694,352 $17,717,112Total assets $38,865,933 $24,856,926Total liabilities $11,920,206 $5,729,709Equity $26,945,727 $19,127,217 The total current assets increased between June 30, 2014 and June 30, 2013 mainly because of the 2 private placements completed during the last quarter of 2014: $11.5 million Bought deal and $4.15 million Debentures. On June 11, 2014, the Company completed a private placement through the issuance of the Debentures for aggregate gross proceeds of $4,150,000 (details are provided in note 10 of the financial


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6. FINANCIAL POSITION (continued) statements). As required under the terms of this financing, an amount of US$2,500,000 (note 7) was reserved for the next payment to Quinto Mining Corporation regarding the Lac Guéret property as at June 30, 2014. As at June 30, 2014, an amount of $1,017,989 is also reserved to eligible expenditures pursuant to a flow-through financing. Investment in an associate: the Company took a participation of 40% in NanoXplore for a consideration of $700,000. Exploration and evaluation assets: the Company continued to invest into the Lac Guéret project which explains the increase of the exploration and evaluation assets. The liabilities increase is mainly due to the financing of the Debentures and the deferred tax income tax liability recorded during the year. 7. LIQUIDITY AND CAPITAL RESOURCES The Lac Guéret property is in the exploration and evaluation stage and as result the Company has no current source of operating revenue and is dependent on external financing to fund its continued exploration and development program. The company principal sources of funding have been the issuance of equity securities for cash, debt, funds from the government of Quebec with respect to tax credit related to resource based on eligible exploration expenditures and funds obtained from warrants and options exercised. As at June 30, 2014, the Company had a working capital of $11,907,446. Working capital included cash of $ 14,410,142 of which $1,017,989 is reserved to eligible expenditures pursuant to a flow-through financing and US$2,500,000 is reserved for the next payment to Quinto Mining Corporation. Management believes that the Company has sufficient funds to meets its obligations and planned expenditures for the ensuing twelve months as they fall due. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period. The Company’s ability to continue future operations and funds its explorations and evaluation activities is dependent on management’s ability to secure additional financing in the future, which may be completed in a number of ways including, but not limited to, a combination of strategic partnerships, joint ventures arrangements, project debt finance, royalty financing and other capital markets alternatives. Management will pursue such additional financial sources when required, and while management has been successful in securing 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 Company or that they will be available on terms which are acceptable to the Company. 8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below. Fair value All financial assets classified as loans and receivables, as well financial liabilities classified as other liabilities, are initially measured at their fair values and subsequently at their amortized cost using the effective interest method. All financial assets and financial liabilities classified as held for trading are


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8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) measured at their fair values. Gains and losses related to periodic revaluations are recorded in net earnings (loss). The Company has determined that the carrying value of its short-term financial assets and financial liabilities, including cash, long-term debt due within one year, and accounts payable and accrued liabilities approximates their carrying value due to the short-term maturities of these instruments. As at June 30, 2014, the fair values of the long-term debt (Quinto) and of the Debentures (host and derivative) approximate their carrying amounts. The following table presents financial assets and financial liabilities measured at fair value in the statements of financial position in accordance with the fair value hierarchy. This hierarchy group’s financial assets and financial liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and financial liabilities. The fair value hierarchy has the following levels:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2: Inputs other than quoted prices included within 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: Inputs for the asset or liability that are not based on observable market data (unobservable inputs). The level in which the financial asset or financial liability is classified is determined based on the lowest level of significant input to the fair value measurement. The financial assets and financial liabilities measured at fair value in the statements of financial position are grouped into the fair value hierarchy as follows as at June 30, 2014: Debentures (Derivative): Level 3: $1,021,846 This financial instrument is classified as a Level 3 financial instrument, since the implied volatility and the credit spread are considered unobservable inputs on the market. A derivative loss of $8,563 was recognized in the statement of loss and comprehensive loss for the year ended June 30, 2014, all of which is unrealized. An increase (decrease) of 5% in the volatility would have decreased (increased) the fair value of the derivative, as at June 30, 2014, by $4,171 ($7,130). An increase (decrease) of 5% in the credit spread would have increased (decreased) the fair value of the derivative, as at June 30, 2014, by $283,480 ($329,877). Credit The majority of the Company’s cash is held in accounts with Chartered Canadian banks. The Company has no significant concentration of credit risk arising from operations. Management believes that the credit risk with respect to these financial instruments is remote. Liquidity The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Company’s accounts payable have contractual maturities of less than 30 days and are subject to normal trade terms. The Debentures mature in 2019 and the Company has the ability


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8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) to settle interest payments by issuing common shares (up to 50% of total interest payable). The Company regularly evaluates its cash position to ensure preservation and security of capital and maintain liquidity. Currency (foreign exchange) The Company is exposed to currency risk by incurring certain expenditures and debt in currencies other than the Canadian dollar. The Company has determined that there is limited currency risk at this time. As at June 30, 2014, almost all of the Company’s cash balances were held in Canada in Canadian dollars, except for an amount of $13,320 which is held in US dollars. Assuming that all other variables are constant, a variation of 10% in the Canadian dollar exchange rate would generate an impact of $1,332. As at June 30, 2014, the Company has a long-term debt (including long-term debt due within one year) that is labeled in US dollars (note 7). Assuming all other variables are constant, a variation of 10% in the Canadian dollar exchange rate would generate an impact of $530,694 The Company does not have other significant monetary assets and liabilities in currencies other than its functional currency. Interest rate The Company’s cash balance is subject to interest rate cash flow risk as it carries a variable rate of interest. The Company’s interest rate risk management policy is to purchase highly liquid investments with a term to maturity of one year or less on the date of purchase. Based on the cash balance at June 30, 2014, a 1% change in interest rates could result in a corresponding change in the annual net loss of approximately $145,000. The Company’s accounts payable and accrued liabilities are non-interest bearing. The Company’s long-term debt consists of property payments owing (note 7) and Debentures (note 10). The Company is not exposed to interest rate risk with respect to its long-term debt as these future payments are non-interest bearing, and is not exposed to interest rate risk with respect to its Debentures since the interest rate risk was fixed at inception. 9. COMMITMENTS The Company’s financial commitments consisting of a lease agreement covering his office are as follow:

As at June 30, 2014

Within 1 year $39,260 1 to 5 years 39,260

During the year ended June 30, 2013, the Company entered into flow-through share subscription agreements, whereby it agreed to renounce to investors a total of $4,490,000 of qualifying Canadian Exploration Expenses as described in the Income Tax Act of Canada, with an effective date of December 31, 2013. The Company is committed to incur the expenditures on or before December 31, 2014. The Company has indemnified subscribers of flow-through shares against tax related amounts that may become payable if the Company does not meet its flow-through shares expenditure commitments. The Company will be required to pay an interest penalty of approximately 1% per year on the unspent amount between February 28, 2014 and December 31, 2014. As at June 30, 2014, the Company had a commitment of $1,017,989.


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10. OFF-BALANCE SHEET ARRANGEMENTS As of the date of this MD&A, the Company did not have any off-balance sheet arrangements. 11. PROPOSED TRANSACTIONS There is no proposed transaction of a material nature being considered by the company. 12. RELATED PARTY TRANSACTIONS During the years ended June 30, 2014 and, 2013, the Company entered into the following transactions with related parties:

Incurred rent and administration expenses with Copper One Inc. of $64,291 (2013: $68,073) with respect to the Company’s Montréal office (a Company’s director is related to the party).

Incurred rent expenses with Lacroix Gascon, s.e.n.c., avocats of $35,176 (2013: $nil), respectively, with respect to the Company’s Laval office (a Company’s officer is related to the party)

Received a credit for geology consulting service expenditures from Copper One Inc. of $50,000 for the year ended June 30, 2014 and incurred geology consulting service expenditures to Copper One Inc. of $100,000 for the year ended June 30, 2013 with respect to the Lac Guéret project (a Company director is related to the party).

Incurred labour expenditures to Gestion GBG Inc. of $85,840 (2013: $225,229) to a payroll services company controlled by the spouse of a director and officer of the Company.

Incurred rent and other office overhead expenses to 2227929 Ontario Inc. of $285,000 (2013: $300,000) with respect to the Company’s Toronto office (a Company director is related to the party).

Incurred consulting fees with Forbes & Manhattan Inc. of $350,000 (2013: $300,000) (a Company’s director is related to the party).

Officers and related parties of the Company subscribed for 25,000 shares of the January 22, 2014 private placement.

Directors, officers and related parties of the Company subscribed for 868,818 FT units of the June 28, 2013 private placement.

As at June 30, 2014, the balance due to the related parties amounted to $575,379 (2013: $256,998). The amounts outstanding are non-interest bearing, unsecured and due on demand. The remuneration of directors and key management personnel during the period was as follows:

Years ended June 30,2014 2013

Salaries, consulting fees & other benefits $1,220,116 $922,243Directors’ fees 111,314 71,667Share-based compensation - Management 614,393 842,632Share-based compensation - Director 216,249 274,627 $2,162,072 $2,111,169

In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company.


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12. RELATED PARTY TRANSACTIONS (continued) The Company is party to certain management contracts. Minimum commitments under these contracts are approximately $876,000.These contracts require that additional minimum payments of approximately $2,156,000 be made upon the occurrence of certain events such as a change of control. As a triggering event has not taken place, the contingent payments have not been reflected in these financial statements. 13. CRITICAL ACCOUNTING JUDGMENT 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 financial statements and related notes to the financial statements. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results may differ from those estimates and these differences could be material. The areas which require management to make significant judgments, estimates and assumptions include, but are not limited to:

1. Impairment of exploration and evaluation assets

The recoverable amounts with respect to exploration and evaluation assets are based on numerous assumptions and may differ significantly from actual recoverable amounts. The recoverable amounts are based, in part, on certain factors that may be partially or totally outside of the Company’s control. This evaluation involves a comparison of the estimated recoverable amounts of non-financial assets to their carrying values. The recoverable amount estimates may differ from actual recoverable amounts and these differences may be significant and could have a material impact on the Company’s financial position and results of operations. Asset groups are reviewed for an indication of impairment at each consolidated statement of financial position date or when a triggering event is identified. This determination requires significant judgment. Factors which could trigger an impairment review include, but are not limited to, an expiry of the right to explore in the specific area during the period or will expire in the near future, and is not expected to be renewed; substantive exploration and evaluation expenditures in a specific area is neither budgeted nor planned; exploration for and evaluation of mineral resources in a specific area have not led to the discovery of commercially viable quantities of mineral resources and the Company has decided to discontinue such activities in the specific area; sufficient data exists to indicate that, although a development in a specific area is likely to proceed, the carrying amount of the assets is unlikely to be recovered in full from successful development or by sale; significant negative industry or economic trends; interruptions in exploration and evaluation activities; and a significant drop in current or forecasted graphite prices.

2. Income taxes and recoverability of potential deferred tax assets and flow-through shares

In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable tax planning opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. The Company considers whether relevant tax planning opportunities are within the Company’s control, are feasible, and are within management’s ability to implement. Examination by applicable tax authorities is supported based on individual facts and circumstances of the relevant tax position examined in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these


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13. CRITICAL ACCOUNTING JUDGMENT AND ESTIMATES (continued)

estimates can occur that materially affect the amounts of income tax assets recognized. Also, future changes in tax laws could limit the Company from realizing the tax benefits from the deferred tax assets. The Company reassesses unrecognized income tax assets at each reporting period. The determination of income tax expense and deferred income tax involves judgment and estimates as to the future taxable earnings, expected timing of reversals of deferred tax assets and liabilities, and interpretations of laws in the countries in which the Company operates, including the rules and laws related to flow through shares financings. The Company is subject to assessments by tax authorities who may interpret the tax law differently. Changes in these estimates may materially affect the final amount of deferred income taxes or the timing of tax payments.

3. Fair value of embedded derivative

The convertible debentures issued by the Company included conversion and early redemption options, which are considered as a Level 3 financial instruments. A derivative valuation model is required, and includes management’s assumptions, to estimate the fair value. On June 11, 2014, the Company issued convertible Debentures, and details about assumptions used in the model provided in note 10 on the assumptions used to determine the fair value of the derivative, upon inception and as at June 30, 2014. The convertible Debentures contain a compound embedded derivative which consists of conversion and early redemption options. The derivative is measured at fair value through profit and loss, and its fair value must be measured at each reporting period, with subsequent changes in fair value recorded in the statement of loss and comprehensive loss.


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14. NEW SIGNIFICANT ACCOUNTING POLICIES Compound instruments and embedded derivatives The convertible debentures issued by the Company are considered to be a compound financial instrument that can be converted into common shares of the Company at the option of the holder, where the number of shares to be issued does vary, depending different scenarios of future financings as described in note 10. The compound financial instrument is recognized as a liability, with the initial carrying value of the debenture (host) being the residual amount of the proceeds, after separating the derivative component, which is recognized at fair value, and also the warrants issued with the instruments. Any directly attributable transaction costs are allocated to the host and to the warrants issued. The embedded derivative that constitutes the convertible debentures (derivative) is recorded at fair value separately from the host contract as its economic characteristics and risks are not clearly and closely related to those of the host contract. Subsequent to initial recognition, the host component of the compound financial instrument is measured at amortized cost using the effective interest method. The derivative component of the compound financial instrument is measured at fair value through profit and loss. Subsequent changes in fair value are recorded in the statement of loss and comprehensive loss (Finance costs). Investments in associates Associates are entities over which the Company has significant influence, but not control, generally accompanying a shareholding between 20% and 50% of the voting rights. The financial results of the Company’s investments in its associates are included in the Company’s results according to the equity method. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the Company’s share of profits or losses of associates after the date of acquisition. The Company’s share of profits or losses is recognized in the statement of loss and comprehensive loss and its share of other comprehensive income or loss of associates is included in other comprehensive income or loss. Unrealized gains on transactions between the Company and an associate are eliminated to the extent of the Company’s interest in the associate. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Dilution gains and losses arising from changes in interests in investments in associates are recognized in the statement of loss and comprehensive loss. The amounts included in the IFRS financial statements of the associates (note 6) are adjusted to reflect adjustments made by the Company, when using the equity method, such as fair value adjustments made at the time of acquisition. The Company assesses at each period-end whether there is any objective evidence that its investments in associates are impaired. If impaired, the carrying value of the Company’s share of the underlying assets of associates is written down to its estimated recoverable amount (being the higher of fair value less costs of disposal and value in use) and charged to the statement of loss and comprehensive loss.


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15. OUTSTANDING SHARE DATA As of the date of this MD&A, the Company has: a) 85,786,034 common shares issued and outstanding; b) 31,329,019 warrants and broker warrants outstanding with expiry dates ranging between October

30, 2014 and June 11, 2016, with exercise prices ranging from $0.60 to $1.00 (weighted average exercise price: $0.86). If all the warrants and broker warrants were exercised, 32,181,216 shares would be issued for proceeds of $27,660,198;

c) 6,210,000 options outstanding with expiry dates ranging between April 23, 2018 and October 29, 2018 with exercise price from $0.38 to $0.60 (weighted average price: $0.57). If all the options were exercised, 6,210,000 shares would be issued for proceeds of $3,560,700;

d) A $4,150,000 Debenture is convertible into common shares at a conversion price of $0.845 maturing June 11, 2019. If the Debenture were converted, 4,911,243 would be issued.

e) 13,694,693 Escrow shares outstanding. 16. RISKS AND UNCERTAINTIES The operations of the Company are speculative due to the high-risk nature of its business, which is the acquisition, financing, exploration, evaluation, development and operation of mining properties. These risk factors could materially affect the Company’s future operating results and could cause actual events to differ materially from those described in forward–looking information relating to the Company. Nature of Mining, Mineral Exploration and Development Projects Mining operations generally involve a high degree of risk. The Company’s operations are subject to the hazards and risks normally encountered in the mineral exploration, development and production, including environmental hazards, explosions, unusual or unexpected geological formations or pressures and periodic interruptions in both production and transportation due to inclement or hazardous weather conditions. Such risks could result in damage to, or destruction of, mineral properties or producing facilities, personal injury, environmental damage, delays in mining, monetary losses and possible legal liability. Development projects have no operating history upon which to base estimates of future cash operating costs. For development projects, resource and reserve estimates and estimates of cash operating costs are, to a large extent, based upon the interpretation of geological data obtained from drill holes and other sampling techniques, and feasibility studies, which derive estimates of cash operating costs based upon anticipated tonnage and grades of ore to be mined and processed, ground conditions, the configuration of the ore body, expected recovery rates of minerals from the ore, estimated operating costs, anticipated climatic conditions and other factors. As a result, actual production, cash operating costs and economic returns could differ significantly from those estimated. Indeed, current market conditions are forcing many mining operations to increase capital and operating cost estimates. It is not unusual for new mining operations to experience problems during the start-up phase, and delays in the commencement of production often can occur. Mineral exploration is highly speculative in nature. There is no assurance that exploration efforts will be successful. Even when mineralization is discovered, it may take several years until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish proven and probable mineral reserves through drilling. Because of these uncertainties, no assurance can be given that exploration programs will result in the establishment or expansion of mineral resources or mineral reserves. There is no certainty that the expenditures made by the Company towards the search and evaluation of mineral deposits will result in discoveries or development of commercial quantities of ore.


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16. RISKS AND UNCERTAINTIES (continued) No Revenues

To date the Company has recorded no revenues from operations and the Company has not commenced commercial production on any property. There can be no assurance that significant losses will not occur in the near future or that the Company will be profitable in the future. The Company’s operating expenses and capital expenditures may increase in subsequent years as consultants, personnel and equipment associated with advancing exploration, development and commercial production of the Company’s properties. The Company expects to continue to incur losses unless and until such time as it enters into commercial production and generates sufficient revenues to fund its continuing operations. The development of the Company’s properties will require the commitment of substantial resources to conduct time-consuming development. There can be no assurance that the Company will generate any revenues or achieve profitability. Liquidity Concerns and Future Financings The Company will require significant capital and operating expenditures in connection with the development of its property. There can be no assurance that the Company will be successful in obtaining required financing as and when needed. Volatile markets may make it difficult or impossible for the Company to obtain debt financing or equity financing on favourable terms, if at all. Failure to obtain additional financing on a timely basis may cause the Company to postpone or slow down its development plans, forfeit rights in some or all of its properties or reduce or terminate some or all of its activities. Foreign Exchange Mineral commodities are sold in United States dollars and consequently, the Company is subject to foreign exchange risks relating to the relative value of the Canadian dollar as compared to the US dollar. To the extent Mason generates revenue upon reaching the production stage on its properties, it will be subject to foreign exchange risks as revenues will be received in US dollars while operating and capital costs will be incurred primarily in Canadian dollars. A decline in the US dollar would result in a decrease in the real value of Mason’s revenues and adversely affect its financial performance. The Company is exposed to currency risk by incurring certain expenditures and debt in currencies other than Canadian dollar. Mineral Resource and Mineral Reserve Estimates May be Inaccurate There are numerous uncertainties inherent in estimating mineral resources and mineral reserves, including many factors beyond the control of the Company. The accuracy of any mineral resource or mineral reserve estimate is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. These amounts are estimates only and the actual level of mineral recovery from such deposits may be different. Differences between management’s assumptions, including economic assumptions such as metal prices and market conditions, could have a material adverse effect on the Company’s financial position and results of operations. Licences and Permits, Laws and Regulations The Company’s exploration and development activities, including mine, mill, road, rail and other transportation facilities, require permits and approvals from various government authorities and cooperation from certain First Nations groups, and are subject to extensive federal, provincial, state and local laws and regulations governing prospecting, development, production, exports, taxes, labour standards, occupational health and safety, mine safety and other matters. Such laws and regulations are


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16. RISKS AND UNCERTAINTIES (continued) subject to change, can become more stringent and compliance can therefore become more costly. In addition, the Company may be required to compensate those suffering loss or damage by reason of its activities. There can be no guarantee that Mason will be able to maintain or obtain all necessary licences, permits and approvals that may be required to explore and develop its properties, commence construction or operation of mining facilities. Mineral Commodity Prices The profitability of the Company’s operations will be dependent upon the market price of mineral commodities. Mineral prices fluctuate widely and are affected by numerous factors beyond the control of the Company. The level of interest rates, the rate of inflation, the world supply of mineral commodities and the stability of exchange rates can all cause significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems and political developments. The price of mineral commodities has fluctuated widely in recent years, and future price declines could cause commercial production to be impracticable, thereby having a material adverse effect on the Company’s business, financial condition and result of operations. Environmental The Company’s activities are subject to extensive federal, provincial state and local laws and regulations governing environmental protection and employee health and safety. Environmental legislation is evolving in a manner that is creating stricter standards, while enforcement, fines and penalties for non-compliance are also increasingly stringent. The cost of compliance with changes in governmental regulations has the potential to reduce the profitability of operations. Further, any failure by the Company to comply fully with all applicable laws and regulations could have significant adverse effects on the Company, including the suspension or cessation of operations. Title to Properties The acquisition and maintenance of titles to resource properties is a very detailed and time-consuming process. The Company holds its interest in certain of its properties through mining claims. Title to, and the area of, the mining claims may be disputed. There is no guarantee that such title will not be challenged or impaired. There may be challenges to the title of the properties in which the Company may have an interest, which, if successful, could result in the loss or reduction of the Company’s interest in the properties. Dependence on Management and Key Personnel The Company is dependent on the services of key executives, including a small number of highly skilled and experienced executives and personnel. The Company’s development to date has largely depended, and in the future will continue to depend, on the efforts of key management and other key personnel to develop its projects. Loss of any of these people, particularly to competitors, could have a material adverse impact upon the Company. Uninsured Risks The Company maintains insurance to cover normal business risks. In the course of exploration and development of mineral properties, certain risks, and in particular, unexpected or unusual geological operating conditions including explosions, rock bursts, cave-ins, fire and earthquakes may occur. It is not


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16. RISKS AND UNCERTAINTIES (continued) always possible to fully insure against such risks as a result of high premiums or other reasons. Should such liabilities arise, they could reduce or eliminate any future profitability and result in increasing costs and a decline in the value of the common shares of the Company. Competition Mason competes with other mining companies that have interesting resources. Such competition may result in the Company being unable to acquire desired properties, recruit or retain qualified employees or acquire the capital necessary to fund its operations and develop its properties. The Company’s inability to compete with other mining companies for these resources would have a material adverse effect on the Company’s results of operation and business. Dependence on Outside Parties Mason has relied upon consultants, engineers and others and intends to rely on these parties for development, construction and operating expertise. Substantial expenditures are required to construct mines, to establish mineral reserves through drilling, to carry out environmental and social impact assessments, to develop metallurgical processes and, in the case of new properties, to develop the exploration and plant infrastructure at any particular site. If such parties’ work is deficient or negligent or is not completed in a timely manner, it could have a material adverse effect on Mason. Qualified Personnel Recruiting and retaining qualified personnel in the future is critical to the Company’s success. As the Company develops the Lac Guéret property toward commercial production, the need for skilled labour will increase. The number of persons skilled in the exploration and development of mining properties is limited and competition for this workforce is intense. The development of the Company’s properties may be significantly delayed or otherwise adversely affected if the Company cannot recruit and retain qualified personnel as and when required. Share Price Fluctuations The market price of securities of many companies, particularly development stage companies, experience wide fluctuations in price that are not necessarily related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that fluctuations in the Company’s share price will not occur. Conflicts of Interest Certain of the Company’s directors and officers serve or may agree to serve as directors or officers of other companies and, to the extent that such other companies may participate in ventures in which the Company may participate, the directors of Mason may have a conflict of interest in negotiating and concluding terms respecting such participation. Litigation Mason has entered into legally binding agreements with various third parties on a consulting and partnership basis. The interpretation of the rights and obligations that arise from such agreements is open to interpretation and Mason may disagree with the position taken by the various other parties


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16. RISKS AND UNCERTAINTIES (continued) resulting in a dispute that could potentially initiate litigation and cause Mason to incur legal costs in the future. Given the speculative and unpredictable nature of litigation, the outcome of any such disputes could have a material adverse effect on Mason. Uncertainties and Risks Relating to Preliminary Economic Assessments Preliminary economic assessments are used to estimate the economic viability of a deposit. The economic assessment results of the PEA are preliminary and do not reflect the same level of certainty as a definitive feasibility study. Generally accepted levels of confidence are plus or minus 35-40% for a preliminary economic assessment. The level reflects the level of confidence that exists at the time the study is completed. The PEA includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA will be realized. While the PEA is based on the best information available to the Company, it cannot be certain that actual costs will not significantly exceed the estimated cost. While the Company incorporates what it believes is an appropriate contingency factor in cost estimates to account for this uncertainty, there can be no assurance that the contingency factor is adequate. Many factors are involved in the determination of the economic viability of a mineral deposit, including the achievement of satisfactory mineral reserve estimates, the level of estimated metallurgical recoveries, capital and operating cost estimates and estimates of future metal prices. Resource estimates are based on the assay results of many intervals from many drill holes and the interpolation of those results between holes and may also be materially affected by metallurgical, environmental, permitting, legal title, socio- economic factors, marketing, political and other factors. In addition, development of a mining operation at the Lac Guéret property is dependent on a number of factors including, but not limited to, the acquisition and/or delineation of economically recoverable mineralization, favorable geological conditions, receiving the necessary approvals from all relevant authorities and parties, seasonal weather patterns, unanticipated technical and operational difficulties encountered in extraction and production activities, mechanical failure of operating plant and equipment, shortages or increases in the price of consumables, spare parts and plant and equipment, cost overruns, access to the required level of funding and contracting risk from third parties providing essential services. If a mine is developed, actual operating results may differ from those anticipated in the PEA. If the Company commences production, its operations may be disrupted by a variety of risks and hazards which are beyond its control, including environmental hazards, industrial accidents, technical failures, labor disputes, unusual or unexpected rock formations, flooding and extended interruptions due to inclement or hazardous weather conditions and fires, explosions or accidents. There is no certainty that metallurgical recoveries obtained in bench scale or pilot plant scale tests will be achieved in commercial operations. Capital and operating cost estimates are based upon many factors, including anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, ground and mining conditions, expected recovery rates of the metals from the ore and anticipated environmental and regulatory compliance costs. Each of these factors involves uncertainties, and as a result, the Company cannot give any assurance that the PEA results will not be subject to change and revisions. In addition, no assurance can be given that the Company will achieve commercial viability through the development or mining of its projects and treatment of ore.


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17. MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS The information provided in this MD&A, including the financial statements, is the responsibility of management. In the preparation of these statements, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgments and have been properly reflected in the accompanying financial statements. In contrast to the certificate required under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”), the Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of:

controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Company’s GAAP

The Company’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost-effective basis. DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation. 18. APPROVAL The Board of Directors oversees management’s responsibility for financial reporting and internal control systems through an Audit Committee. This Audit Committee meets quarterly with management and annually with the independent auditors to review the scope and results of the annual audit and to review the financial statements and related financial reporting and internal control matters before the financial statements are approved by the Board of Directors and submitted to the shareholders. The Board of Directors has approved the annual audited financial statements and the disclosure contained in this MD&A. 19. SUBSEQUENT EVENTS In October 2014, the Board of Directors approved the Company’s decision to grant to its employees incentive stock options to purchase up to an aggregate of 1,760,000 common shares. The final terms will be determined at the grant date.

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MASON GRAPHITE INC.s1.q4cdn.com/722223210/files/doc_financials/MDA_Q4... · On June 3, 2013, Mason Graphite Inc. and Mason Holdings Corp. amalgamated their activities in order to