DOLLY VARDEN SILVER CORPORATION
Management's Discussion and Analysis
As of December 31, 2021
This Management Discussion and Analysis ("MD&A") of Dolly Varden Silver Corporation (the "Company" or "Dolly Varden")
is for the year ended December 31, 2021, and is prepared by management using information available as of March 28, 2022. This MD&A should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2021 and 2020, and the notes thereto, prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board. This MD&A complements and supplements, but does not form part of, the Company's financial statements.
This MD&A contains forward-looking statements. Statements regarding the adequacy of cash resources to carry out the
Company's exploration programs or the need for future financing are forward-looking statements. All forward-looking statements, including those not specifically identified herein, are made subject to cautionary language on page 19. Readers are advised to refer to the cautionary language when reading any forward-looking statements.
This MD&A is prepared in conformity with National Instrument ("NI") 51-102F1 Continuous Disclosure Obligations. All dollar amounts referred to in this MD&A are expressed in Canadian dollars, except where indicated otherwise.
Overview
Dolly Varden is a mineral exploration company focused on exploration advancing the Kitsault Valley project ("KV Project") which includes the Dolly Varden property and the Homestake Ridge property located in the Golden Triangle of British Columbia, Canada, 25kms by road to tide water. The 163 sq. km. project hosts the high-grade silver and gold resources of Dolly Varden and Homestake Ridge along with the past producing Dolly Varden and Torbrit silver mines. It is considered to be prospective for hosting further precious metal deposits, being on the same structural and stratigraphic belts that host numerous other, on-trend, high-grade deposits, such as Eskay Creek and Brucejack. The KV Project also contains the Big Bulk property which is prospective for porphyry and skarn style copper and gold mineralization, similar to other such deposits in the region (Red Mountain, KSM, Red Chris).
The Company presently has two current NI 43-101 reports published on May 8, 2019 for the Dolly Varden property and January 20, 2022 for the Homestake Ridge property. The KV Project hosts the high-grade silver and gold resources of Dolly Varden and Homestake Ridge with combined resources of 34,731,000 ounces of silver and 165,993 ounces of gold in the Indicated category and 29,277,000 ounces of silver and 816,719 ounces of gold in the Inferred category.
The Company currently has no producing mines and consequently no revenue or cash flow from operations. The recovery of the amounts comprising exploration and evaluation assets are dependent upon (1) the ability of the Company to obtain necessary financing to successfully complete the exploration and development of those resources; (2) the confirmation of economically recoverable reserves; and (3) future profitable production or on selling the project. It is the intention of the Company to obtain financing through access to public equity markets, debt and partnerships or joint ventures as sources of funding for its exploration expenditures and to meet ongoing working capital requirements.
Homestake Ridge Project Acquisition
On December 6, 2021, the Company and Fury Gold Mines Ltd. ("Fury") entered into a definitive agreement pursuant to which the Company agreed to acquire all of the outstanding common shares of Fury's wholly owed subsidiary, Homestake Resource Corporation ("HRC"), which holds a 100% interest in the Homestake Ridge property, in exchange for a $5 million cash payment and the issuance of 76,504,590 common shares of the Company for a total value of $65.4 million when the transaction was completed on February 25, 2022. The transaction was approved by the Company's shareholders on
February 22, 2022. Fury now owns approximately 35% of the Company on an issued and outstanding share basis.
Consolidation of the Dolly Varden and Homestake Ridge properties is the next logical step in the advancement of both properties because it consolidates one mineralized trend, allows for potential co-development opportunities combined with capital and operating economies of scale. It also increases the resources of precious metals of the Company nearly threefold, making the combined project larger and therefore more attractive to be acquired and developed. The KV Project is now among the largest high-grade, undeveloped precious metal assets in Western Canada.
DOLLY VARDEN SILVER CORPORATION
Management's Discussion and Analysis
As of December 31, 2021
Outlook
In 2021 the Company successfully completed over 10,000 metres of diamond drilling on the Dolly Varden property, located in Northwest British Columbia's Golden Triangle Mining Camp. The drilling was predominantly focused on expansion and extension of the Company's Torbrit silver deposit ("Torbrit Deposit"), where over 18 million ounces of silver were produced historically. 25 million ounces of silver have been incorporated into the Indicated category of the Company's 2019, NI 43-101 compliant mineral resource estimate with an additional 10.5 million ounces silver in the Inferred category. There are an additional 3 deposits that contribute to the total resource estimate in addition to Torbrit.
The 2021 exploration program built upon 2020s successful work season with a strong emphasis on enhancing the Torbrit Deposit through infill and step out drilling. The goal at Torbrit was to increase the confidence level in the mineral resources and to continue to grow and expand the mineralization footprint. In addition to drilling on the Torbrit Deposit, several exploration targets along the Torbrit horizon were drill tested.
The goal of the exploration drilling was to discover another Torbrit-like deposit along the highly prospective trend. While silver exploration remains the primary focus, management is highly encouraged with the geological and geochemical results for gold and copper mineralization northwest of the silver deposits and plans further exploration of this area.
The Company plans to complete an aggressive 30,000 metres or more of drilling on the combined KV Project during the 2022 field season in preparation for filing an updated 43-101 technical report. Seventy-five percent of the drilling is expected to be on existing deposits including infill drilling to upgrade resources from Indicated and Inferred to Measured and Indicated, and to discover new mineralization by completing step out and down plunge holes on deposits that remain open.
The remaining 25% of the 30,000 metres is expected to be completed on exploration targets along the 5.4km underexplored ground between the South Reef and Wolf deposits.
An updated global resource technical report for the KV Project is planned for Q2 2023 which will unify the resources of the Dolly Varden property and Homestake Ridge property into one KV Project 43-101 report.
Highlights
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On February 16, 2021, the Company released results from the remaining assays from the 2020 drill program. Highlights demonstrate consistent intervals of high-grade silver mineralization at Torbrit:
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• DV20-222: 310 g/t silver over 6.00 metres;
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• DV20-244: 304 g/t silver over 45.82 metres, including 648 g/t silver over 6.06 metres; and
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• DV20-246: 306 g/t silver over 5.10 metres, including 1,290 g/t silver over 0.60 metre.
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On July 3, 2021, the drilling program commenced, which had a planned surface diamond drill program of 10,000 metres split 50/50 between infill and expansion of the high-grade, potentially bulk-mineable silver resource at the Torbrit Deposit and regional exploration of multiple, highly prospective targets throughout the Dolly Varden property. The 2021 Drilling Program is the first phase of a two-year goal to aggressively expand and upgrade the Torbrit Deposit.
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On November 1, 2021, Andrew Hamilton joined the team as Senior Geologist. Mr. Hamilton has exploration experience in the Golden Triangle, including Homestake Ridge, and expertise in the design of drill programs for resource delineation and expansion, as well as project evaluation skills.
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On December 6, 2021 the Company entered into a definitive agreement to purchase 100% interest in the Homestake Project from Fury Gold Mines Ltd ("Fury"). The transaction completed on February 25, 2022.
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DOLLY VARDEN SILVER CORPORATION
Management's Discussion and Analysis
As of December 31, 2021
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On December 20, 2021 the Company released results from regional exploration and reconnaissance drilling on the
Dolly Varden property. Highlights from two separate areas include:
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- DV21-273: 1,532 g/t Ag over 1.22m, including 214 g/t Ag over 17.50m core length from a 94m step out from the Wolf Vein deposit.
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- DV21-267, 268 and 269 intercepted substantial intervals of gold and copper mineralization from the western gold zone including DV21-269: 0.15 g/t Au over 303.00m drill length.
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On January 31, 2022 the Company released results from Resource infill and expansion drilling in and around the Torbrit Deposit (including the Kitsol Vein ("Kitsol"). Silver mineralization was encountered in most areas tested, usually with significant accessory zinc and lead values and commonly over widths suggesting potential amenably to bulk underground mining. Highlights include:
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- DV21-274: 12.28m true width averaging 354 g/t Ag at Kitsol;
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- DV21-275: 18.27m true width averaging 230 g/t Ag at Kitsol;
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- DV21-275: 0.70m drilled length averaging 1,220 g/t Ag at Torbrit North Zone;
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- DV21-277: 16.00m drilled length averaging 212 g/t Ag (incl. 4.70m of 507g/t Ag) at Torbrit: and
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- DV21-278: 5.10m drilled length averaging 364 g/t Ag at Torbrit Main.
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On February 25, 2022 the Company acquired the Homestake Ridge property from Fury and closed at $5.3 million financing with Helca Canada Ltd. pursuant to their Investor Rights Agreement, as defined later in this document. The
Company's KV Project now has combined resources of 47,180,475 oz Indicated and 90,530,925 oz Inferred of silver on
an equivalent basis using a gold/silver ratio of 75:1 comprised of silver and gold.
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On February 25, 2022, Tim Clark, the Chief Executive Officer of Fury, and Michael Henrichsen, the Senior Vice President, Exploration of Fury, joined the Dolly Varden board after Thomas Wharton, Don Birak and Annette Cusworth stepped down from the board.
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On February 25, 2022 Ivan Bebek joined the Dolly Varden team as an advisor.
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On March 7, 2022 the Company announced a $10 million flow through financing which is expected to close at the end of March, 2022.
Combined KV Project with deposits of Dolly Varden and Homestake Ridge properties:
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DOLLY VARDEN SILVER CORPORATION
Management's Discussion and Analysis
As of December 31, 2021
Mineral Properties: KV Project
The KV Project contains the Dolly Varden property with silver resources, the newly acquired Homestake Ridge property with gold, silver, copper and lead resources and the Big Bulk property. Together the consolidated KV Project creates one large, high grade precious metals project comprising 16,300 hectares which is 100% held by Dolly Varden. This provides the Company with economies of scale and exploration upside potential in the silver and gold-rich Dolly Varden Mining Camp, north of Alice Arm, within the regionally important and prolific Stewart Complex in northwestern BC.
Dolly Varden Property
The Dolly Varden property encompasses several historic underground workings, including production stopes from the Dolly Varden and Torbrit mines, exploration adits at North Star and Wolf, as well as several other showings and many mineralized prospects. The silver-rich deposits found on the Dolly Varden property are hosted in Jurassic-aged volcanic and sedimentary rocks (Iskut River Formation) of the Hazelton Group. They display textural and mineralogical similarity to mineralization found in the region in subaqueous, gold-and-silver-rich, hot spring-type volcanogenic massive sulfide (VMS) and epithermal style deposits, such as the Eskay Creek and Brucejack deposits, respectively. The nearby Big Bulk claims host porphyry copper-gold style mineralization.
Since acquiring the property in 2011, fieldwork was dedicated to confirming and expanding the known mineralization near the historic deposits to upgrade into a compliant and current Mineral Resource Estimate for the Wolf, Dolly Varden, Torbrit and North Star deposits. The Company's work consisted of surface and underground mapping, underground rehabilitation, detailed sampling, data compilation from reliable historic records and over 17,000 metres of core drilling. This data was used to complete an initial Mineral Resource Estimate in 2015.
During the years ended December 31, 2011 to 2018, the Company purchased the Dolly Varden property, consisting of fee simple titles, mineral claims and mineral tenures in respect of certain lands located in the Kitsault area of BC. The property is subject to a 2% net smelter return royalty ("NSR") of which one-half (or 1%) of the NSR can be repurchased by the
Company for $2,750,000 at any time.
During the year ended December 31, 2020, the Company acquired surface rights and fee simple lands where the exploration camp, offices, logging and sampling facilities are situated. The parcel of land is located at waterfront for shoreline access, current core storage areas and has related property water rights. The total property package had been previously leased annually by the Company from private owners. The transaction involved a payment of $153,000 in cash and issuance of 192,061 common shares of the Company with a value of $149,808 for a total cost of $302,808.
The Dolly Varden Property 2021 exploration program is described below.
Homestake Ridge Property
Subsequent to December 31, 2021, the date of this report, Dolly Varden acquired the Homestake Ridge property by acquiring HRC from Fury.
The Homestake Ridge property consists of 7,500 hectare project area hosting three known deposits that make up the current Mineral Resource estimate. Mineralization in the main deposits is interpreted to be structurally controlled epithermal veins and breccia systems within the prospective Jurassic Hazelton, the formation hosting the deposits in the Dolly Varden property area. In addition to epithermal style mineralization, Homestake Ridge also hosts stratabound volcanogenic style mineralization and intrusion related alteration and stock work veining.
Gold mineralization was first discovered at the Homestake Ridge Project over 100 years ago with several exploration adits and trenches exposing vein and breccia style mineralization at surface. Mineralization was of significant grade and thickness that the property has been the subject of numerous exploration programs since the 1920s including prospecting, mapping, soil sampling, exploration drilling and airborne geophysics that have advanced the project and defined the trend of structurally controlled mineralization within the northern continuation of the Jurassic Hazelton formation from Dolly Varden Project. The 15 kilometers of prospective Hazelton formation on the combined Homestake Ridge and Dolly Varden projects has been the focus for historical exploration.
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DOLLY VARDEN SILVER CORPORATION
Management's Discussion and Analysis
As of December 31, 2021
Since 2008, significant diamond drilling at Homestake Ridge has led to definition of a current NI43-101 compliant Mineral Resource Estimate that is summarized in the Homestake Project section. The advanced stage project has had a previous economic analysis completed on it in 2020. The exploration potential along the Homestake Ridge trend was tested with deeper historic drilling near the mineral resource and indicates the mineralization continues to depth and along strike. Recent analysis of historic airborne geophysics data from Homestake Project has defined exploration targets along trend of Homestake deposits to the south.
The 5.4km distance between the deposits at Homestake Ridge and the deposits at Dolly Varden are, in the Company's opinion, prospective for further discovery of silver and gold mineralization as the area is on a magnetic, stratigraphic and anomalous silver and gold geochemical trend within the Kitsault Valley. Geophysics interpretation has defined several target zones below a sediment cover to test along this trend in future exploration.
Mineral Resource Estimates of Dolly Varden and Homestake Ridge Properties
Dolly Varden Resources
An updated NI 43-101 -compliant Mineral Resource Estimate was released on May 8, 2019 prior to the exploration season. The updated Mineral Resource Estimate was completed by Steven Nicholls, MAIG and Andrew J. Turner, P.Geo. of APEX Geosciences Ltd., independent geological consultants and Qualified Persons (as defined in NI 43-101) and covered the four known deposits on the Dolly Varden property. The data used was up to the end of the 2018 drilling campaign.
Category*DepositCut-off** (g/t Ag)TonnesSilver (g/t)Contained oz*** Ag
| Indicated | Torbrit | 150 | 2,623,000 | 296.8 | 25,025,000 |
| Dolly Varden | 150 | 156,000 | 414.2 | 2,078,000 |
| Wolf | 150 | 402,000 | 296.6 | 3,834,000 |
| North Star | 150 | 236,000 | 262.8 | 1,994,000 |
| Total Indicated | 3,417,000 | 299.8 | 32,931,000 |
| Inferred | Torbrit | 150 | 1,185,000 | 278.0 | 10,588,000 |
| Dolly Varden | 150 | 86,000 | 271.5 | 754,000 |
| Wolf | 150 | 9,500 | 230.6 | 70,000 |
| North Star | 150 | 4,800 | 223.6 | 35,000 |
| Total Inferred | 1,285,300 | 277.0 | 11,447,000 |
* Indicated and Inferred Mineral Resources are not Mineral Reserves. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. There has been insufficient exploration to define the inferred resource as an indicated or measured Mineral Resource, and it is uncertain if further exploration will result in upgrading the resource to a measured resource category. There is no guarantee that any part of the Mineral Resource discussed herein will be converted into a Mineral Reserve in the future.
** A 150 g/t Ag cut-off was chosen to reflect conceptual underground mining and processing cut-off grade.
*** Contained oz may not add due to rounding.
Please refer to the Company's continuous disclosure documents available on SEDAR for more detailed technical information regarding the Mineral Resource Estimate, which is subject to the qualification statements and notes set forth in the final report posted on www.sedar.com.
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