Aquila Resources : 2021 Q2 MD&A

MANAGEMENT DISCUSSION & ANALYSIS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021

Table of Contents
FORWARD-LOOKING STATEMENT ..................................................................................................................	3
GENERAL .........................................................................................................................................................	3
SECOND QUARTER HIGHLIGHTS .....................................................................................................................	4
OUTLOOK ........................................................................................................................................................	4
COMPANY OVERVIEW.....................................................................................................................................	5
OVERVIEW OF ACTIVE PROJECTS ....................................................................................................................	6
Back Forty Project .......................................................................................................................................	6
Letter of Intent for the Sale of the Reef and Bend Properties....................................................................	9
Reef Gold Project ........................................................................................................................................	9
Bend Project..............................................................................................................................................	10
RESULTS OF OPERATIONS .............................................................................................................................	11
LIQUIDITY AND CAPITAL RESOURCES............................................................................................................	14
MARKET TRENDS...........................................................................................................................................	17
OFF-BALANCE SHEET ARRANGEMENTS ........................................................................................................	17
TRANSACTIONS WITH RELATED PARTIES......................................................................................................	18
CRITICAL ACCOUNTING ESTIMATES..............................................................................................................	18
SIGNIFICANT ACCOUNTING POLICIES ...........................................................................................................	19
NON-GAAP FINANCIAL MEASURES ...............................................................................................................	19
FINANCIAL INSTRUMENTS ............................................................................................................................	20
DISCLOSURE CONTROLS................................................................................................................................	21
INTERNAL CONTROL OVER FINANCIAL REPORTING .....................................................................................	21
ADDITIONAL INFORMATION .........................................................................................................................	21

AQUILA RESOURCES INC.

MANAGEMENT DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED JUNE 30, 2021

FORWARD-LOOKING STATEMENT

This MD&A contains certain forward-looking statements, such as statements regarding potential mineralization, resources and exploration results and future plans and objectives of the Company, which are subject to various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements contained are made as of the date of this MD&A and the Company disclaims, other than as required by law, any obligation to update any forward-looking statements whether as a result of new information, results, future events, circumstances, or if management's estimates or opinions should change, or otherwise.

GENERAL

The following management discussion and analysis ("MD&A") of financial results is dated August 13, 2021 and reviews the business of Aquila Resources Inc. (the "Company" or "Aquila") for the three and six months ended June 30, 2021 and should be read in conjunction with the consolidated financial statements and related notes for the three and six months ended June 30, 2021. This MD&A and the accompanying consolidated financial statements and related notes for the three and six months ended June 30, 2021, have been reviewed by the Company's Audit Committee and approved by the Company's Board of Directors.

The technical content of this MD&A has been read and approved by Andrew Boushy, Technical Advisor to Aquila. Mr. Boushy is a Qualified Person as defined by National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101").

This MD&A contains references to both United States dollars and Canadian dollars. All dollar amounts referenced, unless otherwise indicated, are expressed in United States dollars, and Canadian dollars are referred to as "C$".

Mineral resources that are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, or other relevant issues. The quantity and grade of reported inferred resources in this estimation are uncertain in nature and there has been insufficient exploration to define these inferred resources as an indicated or measured mineral resource and it is uncertain if further exploration will result in upgrading them to an indicated or measured mineral resource category. The inclusion of inferred mineral resources are considered too speculative geologically to have the economic considerations applied to enable them to be categorized as mineral reserves. The mineral resources in this M&DA were reported using Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") Standards.

Additional information regarding the Company, including the risks related to the Company's business and those that are reasonably likely to affect the Company's financial statements in the future, is contained in

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our continuous disclosure materials, including our most recent Annual Information Form ("AIF"), audited consolidated financial statements and Management Information Circular available on SEDAR at www.sedar.com.

SECOND QUARTER HIGHLIGHTS

• As at June 30, 2021, Aquila had cash of $0.9 million and negative working capital of $2.1 million. This compared to cash of $1.8 million and negative working capital of $0.8 million at December 31, 2020. The decrease in working capital is primarily due to permitting and legal activities at its Back Forty Project. The Company is actively evaluating financing and strategic alternatives and continues to take measures to preserve liquidity including cutting discretionary spending, reducing salaries for management, and working with service providers to manage and defer spend wherever possible.
• On April 28, 2021, the Michigan State Senate unanimously approved resolution SR0016: A resolution to express support for mining and the mining industry and encourage the Governor, state agencies, local governments, members of the public, and labor organizations to support mining by taking certain actions (the "Resolution"). The Resolution passed with bipartisan support.
• On June 1, 2021, Aquila announced that it had entered into a non-binding letter of intent (the "LOI") to sell its interest in the Bend and Reef exploration properties located in Wisconsin, USA to a private company ("Newco") (the "Transaction"). Subject to necessary approvals, Newco intends to list on the TSX Venture Exchange concurrent with the closing of the Transaction. Total consideration of C$7,000,000 payable to Aquila will consist of cash consideration of C$3,000,000, of which C$1,000,000 was immediately advanced as a deposit and shares in Newco with an estimated value on completion of the go-public transaction of C$4,000,000. Aquila and Newco are working towards the execution of definitive agreements.
• On May 26, 2021, Aquila announced the results of its Annual Meeting of Shareholders and confirmed that the six nominees listed in the management information circular were elected as directors of Aquila.

OUTLOOK

• The Company will continue to advance its Back Forty Project in Michigan, where the main objectives are completing an optimized Feasibility Study (the "Feasibility Study") and securing the remaining permits required for construction and operations. The Feasibility Study will incorporate both the open pit and underground mine plans and will reflect Aquila's commitment to sustainability and responsible mining employing industry best practices.
• A key objective of the Feasibility Study is to incorporate feedback from the Michigan Department of Environment, Great Lakes & Energy ("EGLE") and the local community since the original permits were issued. By incorporating the underground mine plan and modifying the Project footprint, the Company expects to demonstrate substantially reduced surface impact, including wetland impacts, and a longer mine life for the benefit of all stakeholders.
• The Company will continue to work with EGLE to finalize the Back Forty groundwater model. Aquila is pleased with the significant progress made in this regard and continues to collect the required site-specific data.
• Following the completion of the Feasibility Study, Aquila will seek to permit the optimized Project design.
• The Company will continue to advance the Transaction to sell its Bend and Reef properties in Wisconsin.

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• The Company will continue its efforts to secure additional financing and, in parallel, will evaluate various strategic alternatives to maximize shareholder value. As the Company is in active discussions with several parties, the Board of Directors has formed a Special Committee tasked with examining the strategic alternatives for the Company which include evaluating and implementing financing alternatives, considering possible joint venture and other strategic transactions, and assessing potential merger and acquisition proposals.

COMPANY OVERVIEW

Aquila Resources Inc. was incorporated in the Province of Ontario as 1223068 Ontario Limited by Articles of Incorporation dated February 17, 1997. The Company is listed on the Toronto Stock Exchange under the symbol "AQA". Substantially all of the efforts of the Company are devoted to the business activities of exploring for and developing mineral properties.

The principal asset of the Company is its 100% interest in the Back Forty Project located in Menominee County, Michigan. The Back Forty Project is a polymetallic (zinc, gold, copper, silver, lead) Volcanogenic Massive Sulphide ("VMS") deposit.

The Company has two other exploration projects: Reef Gold Project located in Marathon County Wisconsin and the Bend Project located in Taylor County, Wisconsin. Reef is a gold-copper property and Bend is a volcanogenic massive sulfide occurrence containing copper and gold. On June 1, 2021, the Company announced the LOI to sell its interests in Reef and Bend for total consideration of C$7,000,000.

The Company is subject to the risks and challenges experienced by other companies at a comparable stage. These risks include, but are not limited to, continuing losses, dependence on key individuals and the ability to secure adequate financing or to complete corporate transactions to meet the minimum capital required to successfully complete its projects and fund other operating expenses. Advancing the Company's projects through exploration and development to the production stage will require significant capital. Given the current economic climate, the ability to raise funds may prove difficult. Refer to the "Liquidity" and "Capital Resources" sections below, and "Risk Factors" in the Company's AIF for additional information.

The rapid spread of the COVID-19 virus, which was declared by the World Health Organization to be a pandemic on March 11, 2020, and actions taken globally in response to COVID-19, have significantly disrupted business activities throughout the world. The Company's business relies, to a certain extent, on free movement of goods, services, and capital within Canada and the United States, which has been significantly restricted as a result of the COVID-19 pandemic.

Given the ongoing and dynamic nature of the circumstances surrounding COVID-19, it is difficult to predict how significant the impact of COVID-19, including any responses to it, will be on the economy and the Company's business in particular, or for how long any disruptions are likely to continue. The extent of such impact will depend on future developments, which are highly uncertain, rapidly evolving and difficult to predict, including new information which may emerge concerning the severity of COVID-19 and additional actions which may be taken to contain COVID-19, as well as the timing of the re-opening of the economy in Canada. Such further developments could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows.

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