Discovery Silver : Earnings Document

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the three months ended March 31, 2024, and 2023

Dated May 14, 2024

DISCOVERY SILVER CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED March 31, 2024, and 2023

(Expressed in Canadian dollars, except where otherwise noted)

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited condensed interim consolidated financial statements, and their related notes, of Discovery Silver Corp. ("Discovery Silver" or "the Company"), as at and for the three months ended March 31, 2024 and 2023 (the "Interim Financial Statements") which are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards"). Additional information relating to the Company, including the most recent Annual Information Form ("AIF") for the year ended December 31, 2023, and the Company's audited consolidated financial statements for the year ended December 31, 2023 (the "Annual Financial Statements"), are available on SEDAR+ at www.sedarplus.ca. The information provided herein supplements, but does not form part of, the Interim Financial Statements and includes financial and operational information from the Company's subsidiaries.

This document contains forward-looking statements and forward-looking information. Refer to the cautionary language under the section entitled "Cautionary Statement on Forward-Looking Statements" in this MD&A. All dollar ($) amounts are expressed in Canadian dollars ("CAD"), the Company's reporting currency, except where otherwise noted. References to United States dollars are denoted as ("USD"). All information contained in this MD&A is current and has been reviewed by management and approved by the Board of Directors ("Board") of the Company as of May 14, 2024, unless otherwise stated.

DESCRIPTION OF BUSINESS

The Company's Common Shares are listed on the Toronto Stock Exchange ("TSX") under the symbol "DSV", on the OTCQX under the symbol "DSVSF", and on the Frankfurt Stock Exchange under the symbol "1CU0".

Discovery's flagship asset is the 100%-owned Cordero silver project ("Cordero" or the "Cordero Project") located in Chihuahua State, Mexico. The Cordero Project has all the attributes of a quality project: grade, scale, significant organic growth opportunities, and well located in mining-friendly Chihuahua state on a prolific silver belt. Since acquiring Cordero in August 2019, Discovery's focus has been on defining the economic potential of the Cordero Project primarily through two extensive drill programs and two detailed metallurgical testwork programs. Following the completion of a Feasibility Study titled the "Cordero Silver Project: NI 43-101Technical Report & Feasibility Study (Chihuahua State, Mexico)" (the "FS") with an effective date of February 16, 2024, published on March 28, 2024, the focus during the remainder of 2024 is now on further de-risking the project through the advancement of the construction permitting process, studies on water, power and land, alongside property-wide exploration. The FS demonstrates that Cordero is a tier-one project with the potential to be developed into one of the largest silver mines globally.

NON-GAAP PERFORMANCE MEASURES

Discovery uses non-GAAP (generally accepted accounting principles) performance measures throughout this MD&A as it believes that these generally accepted industry performance measures provide a useful indication of the Company's operational performance. These non-GAAP performance measures do not have standardized meanings defined by IFRS Accounting Standards and may not be comparable to information in other Company reports and filings. 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 Accounting Standards.

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DISCOVERY SILVER CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED March 31, 2024, and 2023

(Expressed in Canadian dollars, except where otherwise noted)

The non-GAAP performance measures can include - cash cost per silver equivalent payable ounce, all-in sustaining cost per silver equivalent payable ounce ("AISC"), and free cash flow.

For further information, refer to the section entitled "Financial Information and Non-GAAP Measures" in this MD&A.

Q1 2024 HIGHLIGHTS

CORDERO

On February 20, 2024, the Company announced results from its Feasibility Study ("FS") on the Cordero Project.

Highlights include (all figures are in USD unless otherwise noted):

• Large-scale, long-lifeproduction: 19-year mine life with average annual production of 37 Moz AgEq in Year 1 to Year 12.
• Low costs, high margins: average AISC of less than $12.50 over the first eight years of the mine life placing Cordero in the bottom half of the cost curve.
• Low capital intensity: initial development capital expenditures of $606 million resulting in an attractive after-taxNPV-to-capex ratio of 2.0.
• Attractive project economics: Base Case after-tax Net Present Value at 5% ("NPV") of $1.2 billion and IRR of 22% with NPV expanding to $2.2 billion in Year 4.
• Tier 1 reserve base: Reserves of Ag - 302 Moz, Au - 840 koz, Pb - 3.0 Blb and Zn - 5.2 Blb, positioning Cordero as one of the largest undeveloped silver deposits globally.
• Clear upside potential: 240Mt of Measured & Indicated Resource sit outside the FS pit highlighting the potential to materially extend the mine life at modestly higher silver prices.
• Substantial socio-economiccontribution: an initial investment of over $600 million, 2,500 jobs created during construction, $4 billion of goods and services purchased and estimated tax contributions of over $1.4 billion within Mexico.
• Environmental standards: third-party reviews of proposed environmental practices to ensure adherence to both Mexican regulatory standards and Equator Principles 4. The Study also incorporates investment in infrastructure and technology to recycle wastewater from local communities with discharged water representing the primary source of water for mine operations.

Project Economics

The economics for the FS were based on the following metal prices: Ag - $22.00/oz, Au - $1,600/oz, Pb - $1.00/lb and Zn - $1.20/lb. A 10% increase in metal prices results in a 40% increase in the Project NPV to over $1.6 billion.

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DISCOVERY SILVER CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED March 31, 2024, and 2023

(Expressed in Canadian dollars, except where otherwise noted)

The payback is 5.2 years due to the expansion of the processing plant from 26,000 tpd to 51,000 tpd in Year 3 at a capital cost of $291 million. This expansion is expected to be funded from operating cash flow.

				Base Case			Base Case
	Units	Base Case		Metal Prices			Metal Prices
				+10%			-10%
After-Tax NPV (5% discount rate)	(US$ M)	$1,177	$1,647		$707
Internal Rate of Return	(%)	22.0%	27.2%		16.1%
Payback	(yrs)	5.2	4.3		6.5

Resource Update

In conjunction with the FS, the Mineral Resource Estimate for Cordero has been updated to incorporate an additional 34,957 m of drilling in 103 holes since the release of the PFS (Mineral Resource Estimate now includes total drilling of 310,861 m in 793 drill holes). The Measured & Indicated Resource has grown by 70 Moz AgEq to 1,202 Moz AgEq with the Inferred Resource being reduced by 12 Moz AgEq to 155 Moz AgEq as summarized below. The overall expansion of the resource was largely driven by exploration success at depth and in the northeast part of the deposit.

• Measured & Indicated Resource of 1,202 Moz AgEq at an average grade of 52 g/t AgEq (719 Mt grading 21 g/t Ag, 0.06 g/t Au, 0.31% Pb and 0.60% Zn)
• Inferred Resource of 155 Moz AgEq at an average grade of 32 g/t AgEq (149 Mt grading 14 g/t Ag, 0.03 g/t Au, 0.18% Pb and 0.35% Zn)

Mineral resources that are not mineral reserves do not have demonstrated economic viability.

CORPORATE

2024 Workplan

On January 24, 2024, the Company announced the workplan for 2024 with the objective of reaching a construction decision later this year or early 2025. Refer to details in the "Outlook" section of this MD&A.

OUTLOOK

Following release of the FS, the Company is executing a work program in 2024 aimed at further advancing and de-risking the Cordero Project. The program includes extensive engineering and design work, additional permitting, the acquisition or lease of additional surface rights where appropriate, further exploration work and the continuation of the Company's ESG and community outreach programs as it works through the permitting process.

Further details about the 2024 work program are provided below.

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DISCOVERY SILVER CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED March 31, 2024, and 2023

(Expressed in Canadian dollars, except where otherwise noted)

Engineering

The Company plans to conduct Front-End Engineering Design ("FEED") work for the Project. This engineering work consists of early project planning and will advance engineering definition to a higher degree, offering more certainty in estimated capital costs. It will also enable the Company to place orders for long lead-time items and to define and tender the EPCM scope in more detail.

Permitting

The two principal environmental permits required for the construction, operation and closure of Cordero are: the Environmental Impact Assessment ("Manifestacion de Impacto Ambiental" or "MIA"); and the Change of Land Use ("Cambio de Uso de Suelo" or "CUS"). Both permits are subject to review and approval by the Secretaría de Medio Ambiente y Recursos Naturales ("SEMARNAT"), Mexico's federal agency for natural resources and the environment.

The Company formally submitted for evaluation its MIA in August 2023.

The CUS submission is supported by a Change of Land Use Study known as an Estudio Tecnico Justificativo ("ETJ"). Compilation of the ETJ by the Company and third-party consultants will be largely completed during the first half of 2024 with formal submission of the CUS targeted for the third quarter of 2024.

Project De-Risking

Power: Work in 2024 for the powerline will consist of finalizing the powerline route, surface rights access negotiations, permitting and engineering for both the upgrade to the existing Camargo II substation and the new powerline to site. The option to use renewable energy sources at site to supplement grid power will also be evaluated.

Surface rights: After securing surface rights corresponding with the planned open pit and key infrastructure locations at Cordero in 2023, the Company will focus on acquiring ancillary surface rights where appropriate as well as securing long-term access and lease agreements for nearby land as required.

Water: In 2024, the Company will initiate the permitting process for the zoning of the groundwater rights it already owns. The Company also plans to advance engineering work for the planned major upgrade to local water treatment infrastructure and accompanying water pipeline in addition to drilling and testing more pumping well holes and monitoring wells.

Exploration

Exploration work in 2024 is expected to include mapping and sampling of new target areas. Key target areas include La Perla (10 km south of Cordero), Dos Mil Diez (immediately southwest of Cordero) and Porfido Norte (10 km north of Cordero).

• La Perla - work will focus on a zone of anomalous silver from rock sampling within a very large alteration footprint and high chargeability / low resistivity anomalies defined by the geophysics program completed in 2022. Historical mine workings are also present within a northeast trending structural corridor (parallel to the orientation of the main mineralized trends at Cordero).
• Dos Mil Diez - further mapping and sampling is planned to support the evaluation of chargeability anomalies identified during an IP survey completed in 2022. Dos Mil Diez is located in an area of mapped intrusives, veining and alteration, directly to the southwest of Cordero.

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DISCOVERY SILVER CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED March 31, 2024, and 2023

(Expressed in Canadian dollars, except where otherwise noted)

• Porfido Norte - additional mapping and sampling is planned to define targets within a northeast trending structural corridor in this area.

In addition to the technical work planned in 2024 to further progress Cordero, the Company also plans to advance all financing options for the Project through the course of the year. These options include equity, debt, offtake, joint ventures, partnerships, lease financing on major equipment, streams, royalties and other strategic alternatives.

The Company is well positioned to finance the 2024 work program with a cash position of approximately $50 million as at May 14, 2024, and no debt.

REVIEW OF CONSOLIDATED FINANCIAL RESULTS

Summary of Quarterly Results

		Q1 2024		Q4 2023		Q3 2023		Q2 2023
Net loss	$	(680,805)	$	(5,665,597)	$	(2,207,479)	$	(3,879,721)
Basic and diluted per share	$	(0.00)	$	(0.01)	$	(0.01)	$	(0.01)
Total comprehensive income
(loss)	$	1,118,080	$	(4,539,860)	$	(3,059,766)	$	(3,459,046)
Cash and cash equivalents	$	50,704,880	$	58,944,459	$	59,931,068	$	68,168,006
Total assets	$	147,418,451	$	146,065,998	$	150,770,808	$	149,199,876
Total current liabilities	$	11,443,293	$	12,168,225	$	13,327,861	$	11,057,495
Working capital(1)	$	42,866,483	$	49,691,371	$	59,402,439	$	65,661,086
Total weighted average shares
outstanding		395,973,316		395,747,953		395,720,230		386,471,109
		Q1 2023		Q4 2022		Q3 2022		Q1 2022
Net loss	$	(3,999,718)	$	(10,411,846)	$	(5,550,164)	$	(11,986,331)
Basic and diluted per share	$	(0.01)	$	(0.02)	$	(0.02)	$	(0.04)
Total comprehensive loss	$	(3,344,648)	$	(10,206,433)	$	(4,993,977)	$	(12,055,084)
Cash and cash equivalents	$	37,272,498	$	46,220,938	$	55,552,791	$	63,610,036
Total assets	$	89,256,576	$	91,583,326	$	101,208,131	$	101,782,302
Total current liabilities	$	1,783,522	$	1,964,868	$	3,380,384	$	2,536,304
Working capital(1)	$	43,933,240	$	53,081,932	$	60,764,790	$	65,521,439
Total weighted average shares
outstanding		352,071,321		351,012,880		349,402,721		338,750,309

1. Working capital is defined as current assets less current liabilities and calculated directly from the Company's Statement of Financial Position in its interim and annual consolidated financial statements.

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DISCOVERY SILVER CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED March 31, 2024, and 2023

(Expressed in Canadian dollars, except where otherwise noted)

Q1 2024 Compared to Q1 2023

Net loss and total comprehensive income (loss)

The Company had total comprehensive income of $1,118,080 during Q1 2024, compared to a total comprehensive loss of $3,344,648 for Q1 2023. The total comprehensive income for Q1 2024 includes a non- cash currency translation adjustment ("CTA") gain of $1,798,885 from the translation of Discovery Silver's Mexican subsidiaries Mexican Peso ("MXP") functional currency financial statements to the Company's reporting currency of CAD on consolidation (Q1 2023 - CTA gain of $655,070). The CTA gain resulted from the appreciation of the MXP compared to the CAD during Q1 2024, primarily impacting the mineral property balances which have increased significantly from the comparative Q1 2023 period due to the capitalization of exploration and evaluation expenditures.

The decrease in net loss during Q1 2024 compared to Q1 2023 mainly resulted from the Company beginning to capitalize eligible exploration and evaluation expenditures that are likely to be recoverable by future exploration and development based on the successful completion of a pre-feasibility study in January 2023 which declared proven and probable reserves for the Cordero project. Additionally, lower share-based compensation expense and higher interest income received also contributed to the decrease in net loss in Q1 2024 compared to Q1 2023.

Share-based compensation expense

The Company incurred a non-cashshare-based compensation expense of $881,496 during Q1 2024, compared to $1,028,070 during Q1 2023. The decrease was due to a higher number of stock options issued to directors, employees, and consultants during Q1 2023 with higher calculated fair values than the RSU's and DSU's granted during Q1 2024. There were no options granted during Q1 2024.

Exploration and project evaluation expense

The Company incurred and expensed exploration and project evaluation costs of $153,447 during Q1 2024 compared to $653,881 in Q1 2023 primarily as a result of a focus on the Cordero Project over regional exploration targets. Expenditures directly related to the Cordero Project are capitalized to mineral properties.

General office and other expenses

During Q1 2024, the Company incurred general office and other expenses of $1,941,475 compared to $1,656,126 during Q1 2023. The increase quarter over quarter was primarily related to higher salaries and benefits costs as the Company continues to strengthen the management team at both corporate head office and in Mexico.

Professional fees

During Q1 2024, the Company incurred professional fees of $504,024 compared to $550,902 during Q1 2023 relating to legal, accounting, and other consulting fees. The higher professional fees in Q1 2023 were due primarily to legal and consulting fees incurred related to the Company's graduation to the TSX, and legal and audit fees incurred for the filing of the base shelf prospectus.

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DISCOVERY SILVER CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED March 31, 2024, and 2023

(Expressed in Canadian dollars, except where otherwise noted)

Interest income

The Company earned interest income of $699,881 during Q1 2024 compared to $405,345 during Q1 2023. The increase is due to a higher cash and cash equivalents balance as a result of the marketing offering during Q2 2023 and a rise in interest rates. These two factors combined generated higher interest income on cash balances, short term guaranteed investment certificates, and term deposits purchased during the quarter.

Foreign exchange gain

The company realized a foreign exchange gain of $1,976,289 during Q1 2024 compared to a gain of $288,395 during Q1 2023. This foreign exchange gain was due to the appreciation of the US Dollar and Mexican Peso against the Canadian Dollar that resulted in the Company's US Dollar and Mexican Peso cash balances receiving a foreign exchange gain on translation into the Company's Canadian Dollar reporting currency.

IVA receivable

The Company's Mexican subsidiaries pay value-added tax, Impuesto al Valor Agregado ("IVA") on the purchase of goods and services. The amount of IVA paid is recoverable but subject to review and assessment by the Mexican tax authority ("SAT"). The complex application process and detailed review by SAT can impact the collectability and timing of refunds.

During the three months ended December 31, 2023, the Company completed an in-person audit with SAT and received a net refund of $8.0 million, including interest and inflationary adjustments less legal fees. This refund was for a cumulative five-year return filed with SAT in 2022, for months beginning August 2017 through May 2022 (the "Cumulative Refund"). The favourable assessment provided the Company with greater confidence on future IVA collection. All prior provisions recorded against the IVA receivable balance were reversed in 2023.

The Company classifies the IVA receivable balance as current or non-current based on the estimated timing of collection from SAT. Any returns deemed collectible within 12 months are recorded as a current receivable while any IVA estimated to be collectible after 12 months is recorded as a non-current receivable. As at March 31, 2024, the Company had recorded $2,769,114 and $3,072,632 as current and non-current IVA receivables in the Statement of Financial Position.

CASH FLOW

The Company had net cash used in operating activities of $3,334,740 for Q1 2024 compared to net cash used in operating activities of $3,224,234 for Q1 2023. Based on the successful completion of a pre-feasibility study in January 2023 declaring proven and probable reserves for the Cordero project, the Company began capitalizing eligible exploration and evaluation expenditures that are likely to be recoverable by future exploration and development.

The Company had net cash used in investing activities of $4,453,550 for Q1 2024 compared to net cash used in investing activities of $5,881,008 for Q1 2023, mainly related to the mineral property additions capitalized to the Cordero Project in both periods.

The Company had net cash used in financing activities of $23,921 during Q1 2024 compared to cash provided by financing activities of $176,047 during Q1 2023. The net cash outflow during Q1 2024 was the result of the

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DISCOVERY SILVER CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED March 31, 2024, and 2023

(Expressed in Canadian dollars, except where otherwise noted)

principal repayment on the corporate office lease while the cash inflow during Q1 2023 related primarily to cash received of $195,095 from the exercise of stock options.

CAPITAL MANAGEMENT AND LIQUIDITY

The Company defines capital as its shareholder's equity (comprised of issued share capital, contributed surplus and deficit). The Company's objectives when managing capital are to support the Company's main activities of identifying, defining, and developing mineral deposits, with the goal of creating shareholder value, as well ensuring that the Company will be able to meet its financial obligations as they become due.

The Company manages its capital structure to maximize its financial flexibility to enable the Company to respond to changes in economic conditions and the risk characteristics of the underlying assets and business opportunities. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. The current excess funds realized from the non-brokered private placements are invested in highly liquid, interest-bearing marketable securities with no restrictions on redemption.

At March 31, 2024, the Company does not have any long-term debt outstanding and is not subject to any externally imposed capital requirements or debt covenants. There was no change to the Company's approach to capital management during the three months ended March 31, 2024.

SHARE CAPITAL

A summary of the common shares issued and outstanding at March 31, 2024 and impact of changes to share capital is as follows:

	Common Shares		Amount
At December 31, 2023	395,862,249	$	216,194,163
Shares issued on redemption of RSUs	777,466		1,104,002
At March 31, 2024	396,639,715	$	217,298,165

OUTSTANDING SHARE DATA

At May 14, 2023 the Company had the following equity securities and convertible securities outstanding:

	Authorized	Number and Type Outstanding
Voting or Equity Securities Issued and Outstanding	Unlimited Common Shares	397,449,215 Common Shares
Securities convertible or exercisable into	Stock Options to acquire up to 10%	Stock options to acquire
voting or equity securities-stock options	of outstanding Common Shares	18,510,825 Common Shares

Securities convertible or exercisable into voting or equity securities-RSU's & DSU's

RSU's and DSU's to acquire up to	5,793,165 RSU's and 2,375,997
10% of outstanding Common	DSU's to acquire Common Shares
Shares

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DISCOVERY SILVER CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED March 31, 2024, and 2023

(Expressed in Canadian dollars, except where otherwise noted)

RELATED PARTY TRANSACTIONS

Key management personnel

Key management personnel include those persons having authority and responsibility for planning, directing, and controlling the activities of the Company as well as those personnel with responsibility for the oversight of the Company's activities. The Company has determined that key management personnel consist of executive and non-executive members of the Company's Board of Directors and corporate officers.

Related party transactions for the three months ended March 31, 2024 and 2023 are as follows:

Three Months Ended March 31,

Transaction Type	Nature of Relationship		2024		2023
Non-cashshare-based payments	Directors and officers	$	818,418	$	822,456
Salaries and benefits	Officers		670,666		508,750
Director fees	Directors		87,500		81,250
		$	1,576,584	$	1,412,456

A summary of amounts due to related parties:

			March 31,	December 31,
Transaction Type	Nature of Relationship		2024		2023
Salaries and benefits payable	Directors, officers, and employees	$	-	$	1,103,245
		$	-	$	1,103,245

FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS

The Company's financial instruments consist of cash, accounts receivable and deposits, and accounts payable and accrued liabilities.

Accounts receivable and deposits are classified as receivables and are measured at amortized cost using the effective interest method. Accounts payable and accrued liabilities are classified as other financial liabilities and are measured at amortized cost. These financial instruments approximate their fair value due to their short- term nature.

The fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Financial instruments are classified into one of three levels in the fair value hierarchy according to the degree to which the inputs used in the fair value measurement are observable.

Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2	Inputs other than quoted prices that are observable for the asset or liability either directly or
	indirectly; and
Level 3	Inputs that are not based on observable market data.

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