Canaf Investments : Audited Year End Report Management Discussion & Analysis

For the Year Ended 31st October 2021

Management Discussion & Analysis

(Expressed in U.S. dollars)

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the year ended October 31, 2021

Expressed in U.S Dollars

INTRODUCTION

Date Prepared: 24th February 2022

This Management Discussion and Analysis, ("MDA") covers the operations of Canaf Investments Inc. ("Canaf" or the "Corporation") for the twelve months ended October 31, 2021 and should be read in conjunction with the audited consolidated Financial Statements for the twelve months ended October 31, 2021 and related notes. The Financial Statements are presented in accordance with International Financial Reporting Standards ("IFRS"). Canaf's accounting policies are described in Note 2 of the audited Financial Statements for the twelve months ended October 31. The financial statements together with this MDA are intended to provide investors with a reasonable basis for assessing the financial performance of the Corporation.

All dollar amounts are expressed in US dollars, the functional currency of the Corporation, unless otherwise stated. The Corporation's listing on the TSX-V however, is quoted in Canadian Dollars. Additional information relating to the Corporation is available on SEDAR at www.sedar.com. or at Corporation's website at www.canafinvestments.com.

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the year ended October 31, 2021

Expressed in U.S Dollars

DESCRIPTION OF BUSINESS

Canaf is incorporated in the Province of Alberta with two wholly owned subsidiaries in South Africa, Quantum Screening and Crushing (Pty) Limited ("Quantum"), and Canaf Investments (Pty) Ltd, ("Canaf Ltd").

Quantum, through its 70% owned subsidiary, Southern Coal (Pty) Ltd. ("Southern Coal"), processes anthracite coal into de-volatised anthracite (calcined anthracite) for sale mostly to steel and ferromanganese manufacturers as a substitute product for coke.

Canaf Investments (Pty) Ltd, incorporated in 2019, acts as Canaf's South African holding company with the intention of creating a diverse Corporation focused on sustainable and long-term growth sectors within South Africa. Canaf Investments (Pty) Ltd owns 100% of Canaf Estate Holdings (Pty) Ltd., ("CEH"). Canaf Investments (Pty) Ltd., is also exploring new sectors to invest in within South Africa, whilst continuing to develop and expand CEH and Southern Coal.

Southern Coal - Calcined Anthracite, South Africa

Southern Coal produces calcined anthracite, which is primarily sold as a substitute to coke in sintering processes, by feeding anthracite coal through its rotary kilns, at temperatures between 900 and 1100 degrees centigrade; the volatiles are driven off and the effective carbon content increased.

Southern Coal's clients are world leaders in steel and ferromanganese production. Southern Coal's three kilns operate near Newcastle, KwaZulu Natal.

Canaf Estate Holdings - Property Investments, South Africa

CEH is a property investment company focused on acquiring, redeveloping and renting properties primarily within the suburbs of the old Johannesburg CBD. CEH made its first property acquisition in August 2019 and is on track to own 3 properties, with a total value of approximately R4million by the end Q2, 2022, generating net pre-tax returns in excess of 15%.

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the year ended October 31, 2021

Expressed in U.S Dollars

OVERALL PERFORMANCE AND OUTLOOK

The year ending October 31, 2021 reflects another strong financial year for the Corporation and demonstrates its ability to generate positive back-to-back year end results. Shareholder equity grew to a record high of US$5.2m, or CAN$6.4m, which relates to a book value per share of CAN$0.135/share.

For the year ended October 31, 2021 the Corporation reports Sales of US$14,204,848 which is 4.9% higher than the year ended October 31, 2020 (US$13,541,667), and net income of US$945,417 (2020: US$897,413) or CAN$1,189,301 (2020: CAN$1,207,548). Gross margins continue to hold strong and currently sit at 11.1% for the year; a decrease of 0.8% from last year. EBITDA for the year was recorded at US$1,291,007 or CAN$1,624,129.

During the year, demand for Southern Coal's products remained strong throughout; indications are for YE2022 to reflect an overall annual increase in sales volumes in excess of 5%. The Corporation does however expect to report a reduced level of sales in Q1, 2022 due to a major shutdown at one of its main customers' sintering facility during the period, which reduced the Q1 sales by approximately 35%. Q2 2022 is expected to see a return to strong levels of sales.

Further to the announcement in June 2021 regarding the securing of further land tenure for Quantum, management can confirm that its formal Environmental Application process, which will include a full Environmental Impact Assessment for the construction of 2 new coal charring plants at a new site, was submitted in February 2022. A decision to the application is expected to be issued by the end of September 2022, at which point the Corporation will announce how it intends to proceed to the next stage of construction.

CEH delivered operating profits of 30% for the year which equates to an 8.5% net pre-tax return on investment; this return on investment will increase quarter on quarter as the portfolio grows, up to forecast net return on investment in excess of 15% by Q3, 2022. During the year, CEH committed to purchase a second property which transferred in Q1, 2022. A third property is expected to transfer during Q2, 2022, which will bring the total property portfolio value to approximately R4 million.

During the year, the Corporation invested US$162,650 in new plant and equipment for Quantum, which included a new crushing plant and conveyors to increase its product sizing capacity.

The Corporation continued to support the local community, businesses and students via various social development programs, learnerships, and enterprise funding schemes for new businesses. Total donations for the year amounted to approximately US$87,775.

The board believes the Corporation to be in a very strong financial position as it looks to explore new opportunities both aligned to the existing calcining business, as well as in new sectors. The Corporation remains focused on long-term sustainable, and socially responsible growth, within sub-Saharan Africa.

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the year ended October 31, 2021

Expressed in U.S Dollars

Selected Financial Information

Due to the Corporation being listed on the TSX-V and its share price being quoted in Canadian Dollars, the Corporation has converted some key financial information included in this report to Canadian Dollars. The following financial information is derived from the Corporation's audited financial statements for the year ended October 31, 2021, with a comparison in Canadian Dollars.

	12 Months Ended		12 Months Ended
		Oct 31		Oct 31
	2021	2020	2021	2020
	US$	US$	CAN$	CAN$
Conversion 1.00 US (av. 12 months)			1.258	1.346
Revenue from Sales	14,204,848	13,541,667	17,869,197	18,221,503
Cost of Sales	(12,625,631)	(11,931,532)	(15,882,597)	(16,054,926)
Gross Profit	1,579,218	1,610,134	1,986,600	2,166,577
Expenses	(515,560)	(536,908)	(648,556)	(722,457)
Interest Income	177,718	151,798	223,563	204,257
Other Income	44,825	23,479	56,388	31,593
Gain from Sale of Vehicle	6,763	0	8,507	0
Net Income for the year (before tax)	1,292,963	1,248,503	1,626,502	1,679,971
Income Tax Recovery (Expense)	(347,546)	(351,091)	(437,201)	(472,423)
Net Income for the year	945,417	897,413	1,189,301	1,207,548
Attributable to the Shareholders	724,430	680,488	911,307	915,656
Attributable to the Non-Controlling Interest	220,987	216,925	277,994	291,892
Adjusted EBITDA	1,291,077	1,289,442	1,624,129	1,735,057
Conversion 1.00 US (Closing position Oct 2021)	2021	2020	1.251	1.320
Total Assets	6,959,105	5,580,049	8,707,838	7,366,960
Total Equity	5,435,686	4,353,015	6,801,604	5,101,399

Non- GAAP Performance Measures

The Corporation has included additional financial performance measures in this MD&A, such as adjusted EBITDA. The Corporation believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Corporation's underlying performance of its core operations and its ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

*Reconciliation of Adjusted EBITDA and Profit

		12 Months Ended		12 Months Ended
		Oct 31		Oct 31
	2021	2020	2021	2020
	US$	US$	CAN$	CAN$
Conversion 1.00 US Dollar Rate			1.258	1.346
Net Income for the year	945,417	897,413	1,189,301	1,207,548
Interest Paid	0	0	0	0
Interest Received	(177,718)	(151,798)	(223,563)	(204,257)
Foreign Exchange Gain/ (Losses)	(7,729)	217	(9,723)	291
Depreciation	183,561	192,520	230,913	259,052
Income Taxes	347,546	351,091	437,201	472,423
Adjusted EBITDA	1,291,077	1,289,442	1,624,129	1,735,057

Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, foreign exchange gain (loss) and other revenues (expenses) as historically calculated by the Corporation.

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