Dakota Gold Corp. (DC) FY 2022 MD&A

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This management's discussion and analysis should be read in conjunction with the annual consolidated financial statements of Dakota Gold Corp. and notes thereto as set forth herein. Readers are also urged to carefully review and consider the various disclosures made by us, which attempt to advise interested parties of the factors which affect our business, including without limitation, the disclosures made under "Risk Factors."

Our audited annual consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

On March 8, 2022, the Company completed a reverse split of its common stock on a 1 for 35,641,667 / 49,398,602 basis. All share numbers and common stock prices presented give effect to the reverse split.

Overview

The Company's goal is to create stockholder value through the acquisition, responsible exploration, and future development of high caliber gold properties in the Homestake District of South Dakota. Management and the technical teams cumulatively have several hundred years of international mining and exploration experience and key personnel have more than 50 combined years in the Homestake District, mostly with the Homestake Mining Company, as well as other exploration companies that have operated in the region. The Company believes this experience uniquely positions the Company and will allow it to leverage its direct experience and knowledge of past exploration and mining activities in the District. Combined with the use of modern exploration and mining techniques, and new geologic understanding from experience in other mines, new research and information extracted from its new geophysical surveys, the Company hopes to focus its programs and build upon dominance where the historic Homestake Mining Company left off in the 1990's.

The Homestake District has yielded approximately 44.6 million ounces of gold production with most of it coming from within a small area. The production ledges of the old mine define a cumulative surface projection area of much less than 3 square miles. Homestake Mining Company's historic gold production and exploration in the District was overwhelmingly focused on the underground mine. Modern statistical studies of ore deposit trends and understanding of the distribution of large gold camps around the world identifies that large gold deposits generally form in distinct camps and normally occur in clusters that show predictable distributions (Zipf's Law Applied to Ore Deposits). The Company believes this might be true for the Homestake District. Outside of the mine area, the District has been underexplored and lacks the modern exploration efforts required to search for other deposits especially under the cover of younger rocks that dominate the surface.

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Since 2012, the Company has consistently pursued a strategy of expanding its portfolio of brownfield properties located exclusively within the Homestake District to build a dominant land position with the goal of consolidating possible mineral potential. Property acquisitions are focused and based on past exploration, the access to proprietary data sets the Company has assembled over the years, and new research and remote data acquisition (Magnetics, Gravity and Radiometric) that was recently conducted over the district that hosts the Homestake Gold Deposit.

The Company has not established that any of its projects or properties contain proven or probable reserves under S-K 1300 nor do they guarantee their exploration work will ever establish an economic gold deposit. The Company believes the Homestake District is in a safe, low-cost jurisdiction with well-developed infrastructure and is in a favorable regulatory environment in which authorities have consistently demonstrated a willingness to work with responsible operators to permit well-planned compliant projects.

Planned Activities

The Company's planned activities in fiscal 2023 will be focused on advancing exploration drilling on its Maitland, Richmond Hill, and City Creek projects. In addition, work is planned to continue exploration, permitting studies, and targeting activities on its Blind Gold and Tinton projects to bring them to a drilling stage.

The Company's technical group and consultants are continuously modeling and evaluating data acquired through its regional high-definition airborne magnetic survey, supplemented by ground gravity surveys completed in 2021, to enhance possible drill targets, as well as to screen targets on other brownfields areas of interest within the district. Field sampling and mapping programs have been initiated at the Richmond Hill, City Creek, and the Barrick Option property. The Company continues to locate, evaluate, and add to the historic information in its regional and project level data sets much of which is from the 145-year-old Homestake Mining Company files acquired in the Barrick Option agreement but also from other private and public sources.

Permitting and site preparations were completed for the first drilling program on the iron-formation target and other tertiary-age replacement targets in the Maitland area and drilling commenced in early 2022. There are now three drill rigs operating on the property - two at Maitland and one at Richmond Hill. Permit and environmental field work for the Blind Gold and Tinton project areas has also been initiated. Targets in some of the other brownfield areas may also be identified and advanced for drilling as exploration activities continue throughout the year.

The Company's projects are all at the exploration stage and do not generate revenues. The Company has not established that any of its properties or projects contain proven or probable reserves as defined under Regulation S-K Subpart 1300. Expenditure projections are subject to numerous contingencies and risk factors beyond the Company's control, including exploration and development risks, competition from well-funded competitors, and the Company's ability to manage growth and assessments of ongoing exploration activities and results. The Company cannot offer assurance that its expenses will either meet or exceed its projections.

Liquidity and Capital Resources

The Company is in the exploration-stage and does not generate revenues. As such, the Company finances its operations and the acquisition and exploration of its mineral properties through the issuance of common stock, and the Company could be materially adversely affected if it is unable to raise capital because of market or other factors.

As of March 31, 2022, the Company had working capital of $39,335,458 and its retained earnings as of March 31, 2022, was $13,065,900. The Company had a net loss for the year ended March 31, 2022, of $25,680,336.

During the year ended March 31, 2022, the Company issued a total of 505,050 shares of common stock for net proceeds of $318,572 and DTRC, the Company's subsidiary, issued a total of 11,203,661 shares of common stock for net proceeds of $49,515,626.

During the upcoming year, the Company plans cash expenditures of approximately $26.5 million.

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The timing of expected expenditures is dependent upon a number of factors, including the availability of contractors. The Company has sufficient funds for funding its activities for the current year and for the 12-month period beyond the filing of the Annual Report.

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Results of Operations

Fiscal years ended March 31, 2022 and 2021

Revenue

We had no operating revenues during the fiscal years ended March 31, 2022 and 2021. We are not currently profitable. We had a net loss of $25,680,336 for the year ended March 31, 2022.

Exploration Costs

During the years ended March 31, 2022 and 2021, our exploration costs totaled $7,334,459 and $271,853, respectively. The increase year over year primarily related to allocated share-based compensation of $3,097,368 (2021 - $0) and the preparation for, and initiation of exploration drilling and related activities in January 2022.  In addition, the Company funded the airborne geophysical survey and increased the review and compilation of historical geological data.  Included in these costs were payments of annual claim maintenance fees related to our mineral properties.

General and Administrative

Our general and administrative expenses for the year ended March 31, 2022 and March 31, 2021 were approximately $23,943,000 and $1,820,000, respectively. These expenditures were primarily for legal, accounting & professional fees, investor relations and other general and administrative expenses necessary for our operations.  The increase year over year was primarily due to an increase in allocated stock-based compensation of $16,495,133 (2021 - $124,706).  In addition, with the increased capital available, the organization grew from zero employees to over 20, which resulted in increased general and administrative costs to $4,743,893 during the year ended March 31, 2022 (2021 - $390,398).  The organization grew to support advancing the exploration activities, which included drilling activities in the 2022 year.

We had losses from operations for the fiscal years ended March 31, 2022 and 2021 totaling approximately $31,277,000 and $2,092,000, respectively. We had a loss before income tax for the fiscal year ended March 31, 2022 of approximately $31,366,000 and a deferred tax benefit of $5,685,000, leading to a net loss for the year of approximately $25,680,000. During the fiscal year ended March 31, 2021, the Company had net income of approximately $25,520,000 for the year, largely due to a gain on derivative assets of $27,087,667. We incurred interest expense from notes payable for the fiscal years ended March 31, 2022 and 2021, respectively, in the amounts of approximately $101 and $0.

Cash flows used in operating activities

During the years ended March 31, 2022, and 2021, the Company's cash flows used in operating activities were $9,913,063 and $2,166,825, respectively. Cash used in operations for fiscal 2022 increased year over year as the company increased the amount of land staking and associated annual claim maintenance costs. In addition, the company completed an airborne geophysical survey and engaged additional personnel to review and commence the compilation of historical geological data obtained through the Barrick option agreements.  The Company also began preparation for drilling activities, which commenced in January of 2022.

Cash flows used in investing activities

During the years ended March 31, 2022, and 2021, cash flow used in investing activities were $9,162,972 and $4,731,043, respectively. In the year ended March 31, 2022, the cash used for investing activities consisted primarily of $8,650,700 for the acquisition of mineral properties and $492,272 for the purchases of property and equipment. In the year ended March 31, 2021, the cash used for investing activities consisted primarily of $12,807,130 for the acquisition of mineral properties, $879,249 for the purchases of property and equipment, as well as $1,150,000 for a note receivable to DTRC. Upon the acquisition of control of DTRC on October 15, 2020, the Company also acquired DTRC's cash of $9,697,502.

Cash flows from financing activities

During the years ended March 31, 2022, and 2021, cash flows from financing activities were $49,032,483 and $18,200,768, respectively. In the year ended March 31, 2022, the Company issued shares for net proceeds of $318,572, and DTRC issued shares for net proceeds of $49,515,626 and repaid related party notes for $801,715.  In the year ended March 31, 2021, the Company issued shares for net proceeds of $22,563,570, repaid related party notes for $460,445 and received proceeds from option exercises of $455,000. In the year ended March 31, 2021, DTRC declared and paid a special cash dividend to non-controlling interest stockholders totaling $4,357,246. The Company had contractually waived its right to receive its pro-rata share of this special cash dividend.

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Off-Balance Sheet Arrangements

As of March 31, 2022 and 2021, the Company had off-balance sheet arrangements for annual payments in relation to annual mineral lease payments related to certain properties under option as disclosed in Note 3 of the financial statements.

Critical Accounting Estimates

Management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Preparation of financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and the related disclosures of contingencies. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are fairly presented in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Management believes that the following critical accounting estimates and judgments have a significant impact on our consolidated financial statements; Valuation of options granted to Directors and Officers using the Black-Scholes model, and judgement related to impairment indicators of the fair value of mineral properties. The Company's accounting policies are described in greater detail in Note 2 to our audited annual consolidated financial statements for the fiscal year ended March 31, 2022.