Nicola Mining : Annual Financial Statements for years ended December 31, 2023 and 2022

NICOLA MINING INC.

Consolidated Financial Statements

For the years ended December 31, 2023, and 2022

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of

Nicola Mining Inc.

Opinion

We have audited the accompanying consolidated financial statements of Nicola Mining Inc. (the "Company"), which comprise the consolidated statements of financial position as at December 31, 2023 and 2022, and the consolidated statements of operations and comprehensive loss, cash flows, and changes in shareholders' equity for the years then ended, and notes to the consolidated financial statements, including material accounting policy information.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2023 and 2022, and its financial performance and its cash flows for the years then ended in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 of the consolidated financial statements, which indicates that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matter described below to be the key audit matter to be communicated in our auditor's report.

Assessment of Asset Retirement Obligations

As described in Note 7 to the consolidated financial statements, the Company recognized an asset retirement obligation of $14,506,089 as at December 31, 2023. As more fully described in Notes 2 and 3 to the consolidated financial statements, accounting for the Company's asset retirement obligation requires management to exercise judgement and make estimates on the future costs the Company will incur to complete the reclamation and remediation work required to comply with existing laws and regulations.

The principal considerations for our determination that the asset retirement obligation is a key audit matter are that there was judgment made by management when assessing the reclamation work to be performed, and estimation uncertainty as to the amount and timing of costs to be incurred. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate audit evidence relating to the estimates and judgments made by management in their assessment of the asset retirement obligation.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures included, but were not limited to:

• Obtaining an understanding of the key controls associated with management's evaluation of the asset retirement obligation.
• Evaluating the qualifications, competency and objectivity of management's expert who assisted management with the cost estimates.
• Testing the accuracy of management calculations and reasonableness of cost estimates.
• Evaluating the appropriateness of discount rates applied to calculate the net present value of the provision and comparing them against market available data.

Other Information

Management is responsible for the other information. The other information obtained at the date of this auditor's report includes Management's Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year ended and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Peter Maloff.

Vancouver, Canada

Chartered Professional Accountants

April 29, 2024

NICOLA MINING INC.

Consolidated Statements of Financial Position (Expressed in Canadian dollars)

	Note	December 31, 2023	December 31, 2022
Assets
Current assets
Cash		$	4,756,118	$	895,774
Amounts receivable	4		566,709		1,199,008
Prepaid expenses and other assets			123,040		11,881

		5,445,867	2,106,663
Non-current assets
Property, plant, and equipment	5	18,986,949	15,214,392
Right-of-use-assets	8	13,360	32,189
Mineral interests	6	4	4
Restricted cash	9	1,275,875	1,227,520

Total assets		$	25,722,055	$	18,580,768
Liabilities
Current liabilities
Accounts payable and accrued
liabilities		$	682,205	$	560,282
Current portion of lease liabilities	8		16,353		20,628
Current portion of equipment loan	10		-		20,668
Current portion of secured convertible
debentures	12		-		596,658
Flow-through share premium	14		-		29,416
Other	11		-		12,044

				698,558		1,239,696
Non-current liabilities
Asset retirement obligation	7		14,506,089		10,178,251
Lease liabilities	8		-		16,383
Secured convertible debenture	12		4,236,848		5,071,428
Total liabilities			19,441,495		16,505,758
Equity
Shareholders' equity
Share capital	14		85,894,218		82,922,658
Warrants	14		1,694,494		1,694,494
Equity component of convertible
debentures			2,671,669		2,552,797
Contributed surplus			8,737,314		8,223,493
Accumulated deficit			(92,717,135)		(93,318,432)
Total shareholders' equity			6,280,560		2,075,010
Total liabilities and shareholders'
equity		$	25,722,055	$	18,580,768
	Peter Espig (signed)	Director	Frank Hogel (signed)		Director

Nature of operations and going concern (Note 1)

Subsequent Events (Note 19)

The accompanying notes are an integral part of these consolidated financial statements.

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NICOLA MINING INC.

Consolidated Statements of Operations and Comprehensive Loss (Expressed in Canadian dollars)

Year Ended December 31

	Note		2023		2022
Operating expenses
Exploration costs	6	$	(1,209,918)	$	(568,572)
Environmental penalty			-		(141,000)
Mill costs	5		(2,557,002)		(971,886)
Accretion of asset retirement obligation	7		(320,132)		(79,668)
Salaries and benefits	16		(167,670)		(149,285)
Share-based compensation expense	15,16		(540,914)		(287,300)
Professional fees			(207,170)		(166,636)
Consulting fees	16		(550,500)		(186,000)
Office and general			(129,694)		(74,720)
Travel and investor relations			(394,308)		(233,479)
Regulatory and transfer agent fees			(41,493)		(58,325)
Rent			(72,562)		(30,093)
Depreciation			(10,849)		(2,875)
Operating loss			(6,202,212)		(2,949,839)
Flow-through premium	14		29,416		831
Gravel, ash, soil, and other income	7		8,145,935		4,493,584
Finance costs	13		(1,446,059)		(1,465,674)
Foreign exchange gain (loss)			5,003		(55,254)
Impairment of exploration and evaluation assets	5		-		(224,999)
Net income or (loss) before income taxes			532,083		(201,351)
Deferred income tax recovery	18		69,214		148,519
Net loss for the year		$	601,297	$	(52,832)
Earnings (loss) per share - basic		$	0.00	$	(0.00)
Earnings (loss) per share - diluted		$	0.00	$	(0.00)
Weighted average number of common shares outstanding -
basic			158,357,885		146,329,345
Weighted average number of common shares outstanding -
diluted			161,507,885		146,329,345

The accompanying notes are an integral part of these consolidated financial statements.

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NICOLA MINING INC.

Consolidated Statements of Cash Flows (Expressed in Canadian dollars)

Year Ended December 31

		2023		2022
Operating Activities
Net income (loss) for the year	$	601,297	$	(52,832)
Adjustments for:
Accretion of asset retirement obligation		320,132		79,668
Share-based compensation		679,773		311,493
Deferred income tax recovery		(69,214)		(148,519)
Depreciation		294,319		182,126
Impairment of exploration and evaluation assets		-		224,999
Non-cash interest and finance expense		1,435,911		1,474,226
Foreign exchange		(5,063)		55,253
Flow-through premium		(29,416)		(831)
Gain on disposal of mobile equipment		-		-
Recovery - write-off of accounts payables		-		-
Changes in non-cash working capital items
Amounts receivable		632,299		(464,138)
Prepaid expenses and other assets		(111,159)		82,042
Accounts payable and accrued liabilities		121,923		(9,563)
Cash Provided by Operating Activities		3,870,802		1,733,924
Investing Activities
Purchase of property, plant, and equipment		(48,355)		(59,500)
Restricted cash		(40,341)		(16,153)
Cash Used in Investing Activities		(88,696)		(75,653)
Financing Activities
Issuance of common shares, net of cash paid share issuance costs		2,000,000		550,201
Exercise of stock options		210,000		-
Interest payment on secured convertible debenture		(564,671)		(643,307)
Payment - premium and interest on amendment of secured convertible debenture		(349,583)
Repayment of lease liabilities		(24,240)		(24,240)
Repayment of equipment loan		(20,628)		(47,087)
Interest payment on equipment loan		(384)		(3,438)
Working capital and revolving prepayment loan		-		974,325
Interest payment on working capital and revolving prepayment loan		-		(42,205)
Repayment of working capital and revolving prepayment loan		(6,981)		(1,028,475)
Repayment of secured convertible debenture		(1,165,275)		(1,388,576)
Transaction costs on the convertible debenture		-		(25,981)
Cash (Used In) Provided by Financing Activities		78,238		(1,678,783)
Net change in cash for the year		3,860,344		(20,512)
Cash beginning of year		895,774		916,286
Cash end of year	$	4,756,118	$	895,774
Non-cash transactions:
Shares issued to settle convertible debentures and interest		527,347		56,000
Change of estimate of ARO		4,007,706		6,188,904
Recognition of equity component of convertible debentures		187,133		1,375,719

The accompanying notes are an integral part of these consolidated financial statements.

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NICOLA MINING INC.

Consolidated Statements of Changes in Shareholders' Equity (Expressed in Canadian dollars)

						Equity
						Component
						of						Total
	Number of		Share			Convertible		Contributed		Accumulated		Equity
	Common Shares		Capital		Warrants	Debentures		Surplus		Deficit
Balance, January 1, 2023	149,036,074	$	82,922,658	$	1,694,494	$ 2,552,797	$	8,223,493	$	(93,318,432)	$	2,075,010
Share issuance financing	8,000,000		2,000,000		-	-		-		-		2,000,000
Convertible debenture conversion	2,996,024		595,608		-	(68,261)		-		-		527,347
Issuance of convertible debenture	-		-		-	187,133		-		-		187,133
Share based compensation	-		-		-	-		679,773		-		679,773
Stock options exercised	1,150,000		375,952		-	-		(165,952)		-		210,000
Net income for the year	-		-		-	-		-		601,297		601,297
Balance, December 31, 2023	161,182,098	$	85,894,218	$	1,694,494	$ 2,671,669	$	8,737,314	$	(92,717,135)	$	6,280,560
Balance, January 1, 2022	145,681,927	$	82,346,704	$	1,694,494	$ 2,153,819	$	7,912,000	$	(93,265,600)	$	841,417
Share issuance financing	3,024,735		550,201		-	-		-		-		550,201
Share-based compensation	-		-		-	-		311,493		-		311,493
Issuance of convertible debenture	-		-		-	398,978		-		-		398,978
Convertible debenture conversion	329,412		56,000		-	-		-		-		56,000
Flow-through share premium	-		(30,247)		-	-		-		-		(30,247)
Net loss for the year	-		-		-	-		-		(52,832)		(52,832)
Balance, December 31, 2022	149,036,074	$	82,922,658	$	1,694,494	$ 2,552,797	$	8,223,493	$	(93,318,432)	$	2,075,010

The accompanying notes are an integral part of these consolidated financial statements.

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NICOLA MINING INC.

Notes to Consolidated Financial Statements (Expressed in Canadian dollars)

For the years ended December 31, 2023 and 2022

1. NATURE OF OPERATIONS AND GOING CONCERN

Nicola Mining Inc. (the "Company" or "Nicola") is a junior exploration company that is engaged in the business of identification, acquisition, and exploration of mineral property interests together with custom milling operations at its mill located in Merritt, B.C. (the "Merritt Mill"). The Company's head office is located at 3329 Aberdeen Road, Lower Nicola, B.C. Nicola is a publicly listed company incorporated under the Business Corporations Act (British Columbia). The Company's common shares are listed on the TSX Venture Exchange (the "TSX-V") under the symbol "NIM.V" and on OTCQB operated by the

OTC Markets Group Inc. under the ticker "HUSIF".

As at December 31, 2023, the Company had an accumulated deficit of $92,717,135 (2022 - $93,318,432) and working capital of $4,747,309 (2022 - working capital of $866,967). To continue operations, the Company will be required to raise funds through the issuance of equity or and or debt, be successful recommencing operations at the Treasure Mountain project ("Treasure Mountain Property") and/or Merritt Mill ("Merritt Mill"), together with ongoing exploration programs at its New Craigmont property ("New Craigmont Property"). These factors represent a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. Realization values may be substantially different from carrying values as shown and the Company's consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

These consolidated financial statements have been prepared using the going concern concept, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.

Stock consolidation

During the year ended December 31, 2023, the Company consolidated its common shares on a 2-to-1 ratio ("Stock Consolidation"). For all periods presented herein, the number of common shares, stock options, and warrants have been retroactively restated.

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NICOLA MINING INC.

Notes to Consolidated Financial Statements (Expressed in Canadian dollars)

For the years ended December 31, 2023 and 2022

2. BASIS OF PRESENTATION

1. Statement of Compliance with International Financial Reporting Standards
   The consolidated financial statements of Nicola have been prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee ("IFRIC").
   These consolidated financial statements have been authorized for release by the Company's Board of Directors on April 29, 2024.
2. Basis of Consolidation
   These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Huldra Properties Inc. All inter-company balances, and transactions are eliminated on consolidation.
3. Basis of Measurement
   These consolidated financial statements are presented in Canadian dollars, which is also the Company's and its subsidiary's functional currency and have been prepared on a historical cost basis, except for certain financial instruments, which are carried at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.
4. Use of Estimates and Judgements
   The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements and estimates which affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. The judgements that have the most significant effect on the amounts recognized in the Company's consolidated financial statements are as follows:

1. Impairment of non-current assets

Non-current assets are tested for impairment when indicators of impairment are present. Calculating the estimated fair values of cash generating units for non-current asset impairment tests requires management to make estimates and assumptions with respect to metal selling prices, future capital expenditures, reductions in the amount of recoverable reserves, resources, and exploration potential, production cost estimates, discount rates and exchange rates. Reduction in metal price forecasts, increases in estimated future costs of production, increases in estimated future non-expansionary capital expenditures, reductions in the amount of recoverable reserves, resources, and exploration potential, and/or adverse current economics can result in a write-down of the carrying amounts of the Company's non-current assets.

1. Completion of commissioning

The determination of the date on which a mine or plant enters the production stage is a significant judgement since capitalization of certain costs ceases and depletion and amortization of capitalized costs commence upon entering production. As a mine or plant is constructed and commissioned, costs incurred are capitalized and proceeds from mineral sales are offset against the capitalized costs. This continues until the mine or plant can operate in the manner intended by management, which requires significant judgement in its determination.

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