falco resources ltd. · at march 31, 2017, osisko gold royalties ltd (“osisko”) owns a 13.3%...

FALCO RESOURCES LTD.

MANAGEMENT’S DISCUSSION & ANALYSIS

FOR THE THREE AND NINE MONTHS ENDED

MARCH 31, 2017

FALCO RESOURCES LTD. Management’s Discussion & Analysis Fiscal Year 2017 – Third Quarter Report

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The following management discussion and analysis (“MD&A”) of the operations and financial position of Falco Resources Ltd. (“Falco” or the “Company”) for the three and nine months ended March 31, 2017 should be read in conjunction with the Company’s unaudited condensed interim financial statements and related notes for the three and nine months ended March 31, 2017. The unaudited condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Management is responsible for the preparation of the financial statements and other financial information relating to the Company included in this report. The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting. In furtherance of the foregoing, the Board of Directors has appointed an Audit Committee composed of independent directors. The Audit Committee meets with management in order to discuss results of operations and the financial condition of the Company prior to making recommendations and submitting the financial statements to the Board of Directors for its consideration and approval for issuance to shareholders. The information included in this MD&A is as of May 23, 2017, the date when the Board of Directors has approved the Company's unaudited condensed interim financial statements for the three and nine months ended March 31, 2017 following the recommendation of the Audit Committee. All monetary amounts included in this report are expressed in Canadian dollars, the Company’s reporting and functional currency, unless otherwise noted. This MD&A contains forward-looking statements and should be read in conjunction with the risk factors described in the “Cautionary Statement Regarding Forward-Looking Statements” section.

Table of Contents

Description of the Business 3 Highlights 4 Outlook 4 Rouyn-Noranda Mining District 5 Horne 5 Project 6 Exploration - Horne Mine Complex Immediate Area 9 Exploration - Other Regional Activities 10 Results of Operations 11 Liquidity and Capital Resources 11 Cash Flows 12 Description of Financing Transactions 13 Corporate Development 15 Quarterly Information 16 Related Party Transactions 17 Contractual Commitments and Obligations 17 Off-balance Sheet Items 17 Outstanding Share Data 17 Subsequent Event 18 Risk Factors 18 Financial Risks 18 Internal Control Disclosure 18 Basis of Presentation of Financial Statements 19 Critical Accounting Estimates and Judgments 19 Financial Instruments 19 Additional Information 19 Cautionary Statement Regarding Forward-Looking Statements 19 Corporate Information 21


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Description of the Business

Falco is an exploration and evaluation stage company in the business of acquiring and exploring mineral properties in Canada. Its focus is currently on the exploration and evaluation of its mineral properties in the Rouyn-Noranda district in the Province of Québec for base and precious metals, mainly on its wholly-owned Horne 5 Project.

Falco is listed on the TSX Venture Exchange (“TSX-V”) under the symbol FPC. The Company is one of the largest claim holders in the Province of Québec, with extensive land holdings in the Abitibi Greenstone Belt. Falco owns mining claims covering approximately 67,000 hectares of land in the Rouyn-Noranda mining camp, including 14 former gold and base metal mine sites.

The Company was originally incorporated under the British Columbia Business Corporations Act on March 16, 2010. On June 12, 2015, the Company was continued under the Canada Business Corporations Act. The Company’s registered business address is 1100, avenue des Canadiens-de-Montréal, Suite 300, Montréal, Québec, Canada. As at March 31, 2017, Osisko Gold Royalties Ltd (“Osisko”) owns a 13.3% interest in Falco.

Falco's principal property is the Horne 5 Project, located in the Horne Mine Complex which hosts several former gold and base metal producers including the Horne Mine, the camp’s largest, operated by Noranda Inc. from 1927 to 1976. Horne produced approximately 11.6 million ounces of gold and 2.5 billion pounds of copper. Glencore Canada Corporation (“Glencore Canada”) has a 2% net smelter return royalty on all metals produced from the Horne 5 Project and has rights of first refusal with respect to purchase or toll process on all or any portion of the concentrates and other mineral products.

For further details regarding the Company’s wholly-owned Horne 5 polymetallic deposit project (“Horne 5 Deposit” or “Horne 5 Project”), please refer to the National Instrument 43-101, Standards of Disclosure for Mineral Projects (“NI 43-101”) Technical Report dated September 26, 2016 and entitled “Technical Report and Mineral Resource Estimate for the Horne 5 Deposit” (the “Technical Report”) and the NI 43-101 Technical Report dated April 28, 2016 and entitled “Preliminary Economic Assessment of the Horne 5 Project”, both available on SEDAR at www.sedar.com.

Claude Bernier, Exploration Manager, (P.Geo. Eng.), is the qualified person as defined by NI 43-101 who has reviewed and verified the technical information contained in this MD&A.

http://www.sedar.com/


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Highlights – Third Quarter

In January 2017, the Company closed a non-brokered private placement (announced in November 2016) with three strategic Québec investors, namely Ressources Québec inc., acting as a mandatary for the Government of Québec, Capital Croissance PME II, s.e.c. and SIDEX, s.e.c., for aggregate gross proceeds of $10.8 million. The net proceeds of the private placement will be used by the Company to advance the dewatering program related to the development of the Horne 5 Project, for regional exploration and for general working capital.

In February 2017, the Company announced the initiation of a 40,000 meter exploration drill campaign on its 668 square kilometer land package surrounding its 100% owned Horne 5 Project.

In March 2017, Falco announced the following appointments:

- Bryan A. Coates, President of Osisko, joined the Board of Directors and will chair a new Finance Committee of the Board of Directors;

- Hélène Cartier, a member of the Board of Directors, joined the Company as Vice President, Environment and Sustainability. Ms. Cartier will continue to be a member of the Board of Directors until a new director has been appointed;

- Francois Vézina joined the Company as Vice President, Technical Services; and - Christian Laroche joined the Company as Vice President, Metallurgy.

On March 24, 2017, Falco entered into an exclusive agreement for the supply of the hoisting systems for its Horne 5 Project. The hoisting systems will include a production hoist, an auxiliary hoist and a service hoist. The delivery and installation of the service and auxiliary hoists is expected in calendar year 2018.

Highlight – Subsequent to quarter-end

On May 17, 2017, Falco announced that it has entered into an agreement with a syndicate of underwriters pursuant to which the underwriters have agreed to buy on a bought deal basis, 19,380,000 units of the Company at a price of $1.29 per unit for gross proceeds of $25,000,200. Falco has also granted the underwriters an option to purchase up to an additional 15% of the offering to cover over-allotments.

Outlook

During calendar year 2017, Falco intends to complete its feasibility study and environmental impact assessment on the Horne 5 Project, to advance the dewatering program on the Horne 5 Project and to continue exploration activities on regional targets, notably in the Central and Noranda Camps. The Company also intends to start preliminary work for surface installations as well as for the Quémont shaft rehabilitation.

The exploration program will concentrate on different areas with the objective of discovering new mineralization in the prolific former-producing Rouyn-Noranda Camp. Approximately 26,000 metres is expected to be drilled in the Central Camp and 14,000 metres at other regional targets in the Noranda Camp. The planned 40,000 metre exploration drill campaign is part of a $10.0 million budget allocated to exploration work in calendar year 2017.


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Rouyn-Noranda Mining District

The Company has a 100% interest in approximately 668 square kilometres of mineral claims in the historic Rouyn-Noranda mining camp. Management believes that this represents approximately 70% of the entire mining district. The Company’s holdings include 14 former producing gold and base metal mines. As an established mining camp in the Province of Québec, Rouyn-Noranda has the necessary infrastructure in place for exploration and mine development.

Rouyn-Noranda has had a long history of mining and exploration. Since the Horne deposit discovery in the 1920's, the area has been host to 50 former-producers, including 20 base metal mines and 30 gold mines. A number of copper-zinc volcanogenic massive sulphide (“VMS”) deposits in the camp contained gold grades well in excess of those associated with typical VMS deposits which along with several mesothermal vein type deposits have accounted for more than 19 million ounces of historic gold production from the camp as a whole.

In addition to the acquisition of the mining claims in the Rouyn-Noranda mining district, the Company acquired an extensive database accumulated by Glencore Canada and its predecessors, consisting of detailed GoCad 3D computerized models of area geology, mine infrastructure, geophysics and lithogeochemistry, as well as results from over four million metres of surface and underground drilling. The Company continues to analyze the data package to identify exploration targets. Included in this process is the identification and selective construction of geological models for highly prospective targets.

The Company has incurred the following costs on its exploration and evaluation assets in the Rouyn-Noranda district:

Nine-months ended March 31,

Year ended June 30,

2017 2016

Horne 5 Project(i)

Central Camp(ii)

Other properties(iii) Total

Total

$ $ $ $ $

Balance – beginning of period 19,088,265 1,662,899 3,727,699 24,478,863 14,431,059

Compensation 283,182 168,018 34,946 486,146 484,606 Drilling and data compilation 2,196,639 659,788 356,348 3,212,775 4,976,107 Geology 6,340 17,030 120,715 144,084 344,216 Geophysics - 116,346 134,035 250,381 304,386 Metallurgy 84,000 - - 84,000 927,507 Environment 28,894 433,203 1,002 463,100 205,570 Mining engineering 174,938 - - 174,938 441,515 Technical studies 11,660 - - 11,660 734,115 Feasibility study 8,950,142 - - 8,950,142 914,632 Environmental impact assessment 887,789 - - 887,789 190,626 Hydrology - - - - 164,461 Administrative and other 502,243 205,094 60,692 768,029 602,951

Total expenditures 13,125,827 1,599,479 707,738 15,433,044 10,290,692

Refundable tax credits (551,561) (197,842) (97,506) (846,909) (138,816)

Total, net of tax credits 12,574,266 1,401,637 610,232 14,586,135 10,151,876

Write-offs (iv) - - - - (104,072)

Balance – end of period 31,622,531 3,064,536 4,337,931 39,064,998 24,478,863

(i) Includes historical acquisition costs of $6,496,194 related to the acquisition of exploration rights and/or claims. (ii) The Central Camp is located north of the Horne 5 Project and covers an area of approximately 289 square kilometres,

including many former gold and base metal producers. (iii) Including the Noranda Camp properties. (iv) During the year ended June 30, 2016, the Company wrote-off 100% of the capitalized historical costs related to

specific areas where claims are not expected to be renewed or where the Company has decided to discontinue exploration and evaluation activities.


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Glencore Canada Corporation As per the terms and condition of a purchase agreement dated March 28, 2011 assigned to the Company in September 2012, Glencore Canada retained the right to back-in to a 65% interest on any base metal deposit containing more than 350,000 tonnes copper equivalent metal with respect to which the in-situ value of non-base metals is less than three times the in-situ value of all base metals (the "Threshold Resource"). The updated mineral resource estimate on the Horne 5 Project announced in May 2016 was a Threshold Resource. On September 6, 2016, Falco retained full ownership of the Horne 5 Project as Glencore Canada elected not to exercise its back-in right. Falco’s obligations towards Glencore Canada, pursuant to the March 28, 2011 purchase agreement, including with respect to the back-in right, a royalty interest and an off-take option, as well as the payment of any damages caused by Falco, are secured by a deed of hypothec for a maximum of $120.0 million. Horne 5 Project

The Horne 5 Deposit sits immediately below the former producing Horne Mine, which was operated by Noranda Inc. from 1927 to 1976 and produced approximately 2.5 billion pounds of copper and 11.6 million ounces of gold.

Updated mineral resource estimate

On October 3, 2016, Falco reported an updated mineral resource estimate for its Horne 5 Project under NI 43-101.

Highlights at a $55 per tonne net smelter return (“NSR”) cut-off are as follows

Measured resource of 736,000 oz gold equivalent (“AuEq”), including 475,410 oz gold (“Au”) contained in 9.4 million tonnes averaging 2.45 grams per tonne (“g/t”) AuEq (1.58 g/t Au; 16.33 g/t silver (“Ag”); 0.18% copper (“Cu”); 0.81% Zinc (“Zn”));

Indicated resource of 6,336,000 oz AuEq, including 4,088,383 oz Au contained in 81.7 million tonnes averaging 2.41 g/t AuEq (1.56 g/t Au; 14.19 g/t Ag; 0.18% Cu; 0.86% Zn);

Inferred resource of 1,710,000 oz AuEq, including 1,053,061 oz Au contained in 22.3 million tonnes averaging 2.39 g/t AuEq (1.47 g/t Au; 22.98 g/t Ag; 0.2% Cu; 0.68% Zn).

The updated resource estimate now includes and combines the newly assembled historical underground channel sample database, new economic parameters as per the Company's recently published preliminary economic assessment ("PEA"), including lowering of the NSR cut-off, additional 2016 drilling results and revised commodity pricing assumptions. New measured, indicated and inferred resources have been updated for the Horne 5 deposit, which now contains 6 high grade zones.

The updated resource estimate lays the foundation for the completion of a feasibility study in 2017. This update was undertaken to support feasibility work on the Horne 5 Project and to convert part of indicated mineral resources into measured mineral resources by adding 14,799 samples from the historical underground channel sample database into the resource estimate.

Exploration activities

The Company completed in 2016 a 3,415 metre drilling program on the Horne 5 lens for additional metallurgical testing. Holes H5-16-17, 18 and 07D were completed within the existing Horne 5 Deposit envelope to test specific areas of the Horne 5 Deposit in order to increase the geological and metallurgical understanding of the Horne 5 Deposit. Highlights from new drill holes include 43.2 metres at 2.73 g/t AuEq in drill hole H5-16-17 and 177.2 metres at 1.71 g/t AuEq in drill hole H5-16-18. Compilation of the Horne 5 interval of hole H5-16-07D is still in progress.

Details of the results are outlined in the press release dated September 13, 2016 and filed on www.sedar.com.

Preliminary economic assessment

On May 9, 2016, Falco announced the results of a PEA prepared in accordance with NI 43-101 for the Horne 5 Project. The PEA indicates that the Horne 5 Project represents a robust, high margin, twelve year underground mining project with attractive economics in the current gold price environment.



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At a gold price of US$1,250/oz and using an exchange rate of C$1.00 = US$0.75, the study shows that the Horne 5 Project would generate an after-tax net present value ("NPV") (at a 5% discount rate) of $667 million and an Internal Rate of Return ("IRR") of 16.0%. In this scenario, the mine could become the next significant gold producer in Québec, with a production profile averaging 236,000 ounces annually over the life of mine, with an all-in sustaining cash cost of US$427 per ounce net of by-product credits and all-in cost (CAPEX plus OPEX) estimated at US$660 per ounce. Falco has initiated a Feasibility Study on the Horne 5 Project, which is planned to be completed in late second quarter or early third quarter of calendar 2017. The Environmental Impact Assessment study, which has been initiated by WSP Global Inc., is expected to be completed in the second semester of calendar 2017.

The PEA envisages an underground mine with a life of approximately 12 years, targeting 63.8 million tonnes of volcanic-massive to semi-massive sulfide material with an average diluted grade of 2.60 g/t AuEq or 4.8 million AuEq ounces (1.6 g/t Au, 15.5 g/t Ag, 0.19% Cu, 0.85% Zn). The study incorporates an underground crushing facility which would be followed by a conventional semi-autogenous-ball milling-crushing circuit on surface with a capacity of 15,000 tonnes per day, along with three selective flotation circuits to recover copper, zinc and pyrite concentrates. The pyrite concentrate would be further reground and leached along with the pyrite flotation tailings in separate carbon-in-pulp circuits. The facility would enable Falco to produce 3,051,000 ounces of gold over the life of mine ("LOM"). The study also outlines several opportunities to further enhance economics (see below) and the current resource remains open to the west and at depth. Several untested targets remain to be evaluated and Falco anticipates that additional resources can be identified in the near term through continued drilling campaign. The realized project would have a significant impact on the Abitibi-Témiscamingue region, with the potential of generating over $6.8 billion of gross revenue and contributing 525 permanent, well remunerated jobs.

The PEA highlights are presented below (amounts are in Canadian dollars unless otherwise indicated; base case is stated using gold price of US$1,250 per ounce, silver price of US$17 per ounce, copper price of US$2.85 per pound, zinc price of US$1.00 per pound and an exchange rate of C$1.00 equal US$0.75).

NPV of $1,131 million at a 5% discount rate and an IRR of 20.0% before taxes and mining duties NPV of $667 million at a 5% discount rate and an IRR of 16.0% after taxes and mining duties Mine life of 12 years with peak-year production of 274,000 ounces and average LOM annual production of

236,000 ounces of gold Net payable gold recovery of 86.8% 3,051,000 gold ounces production at an average diluted grade of 1.60 g/t Au over the LOM 2,903,000 ounces of payable gold over the LOM 807 million pounds of payable zinc over the LOM 194 million pounds of payable copper over the LOM 23.8 million ounces of payable silver over the LOM All-in sustaining costs of US$427/oz net of by-product credits (including royalties) over the LOM, generating

an operating margin of over US$823/oz or 66% All-in cost (CAPEX plus OPEX) is estimated at US$660 per payable ounce Initial capital costs of $905.2 million (including a $60 million contingency) Integration of historical and existing underground mine infrastructure Payback period of 3.8 years pre-tax and 4.1 years post-tax Gross revenue of $6.8 billion and operating cash-flow of $2.6 billion Commissioning in late 2020 (calendar year) Full production in early 2021 (calendar year)

The Horne 5 Project has high potential for resource expansion; the deposits in the current resource remain open to the west and at depth and Falco owns mining claims covering approximately 668 square kilometres of land around the Horne 5 Project with targets that remain to be tested. Infrastructure In November 2015, Falco announced that it had conducted a comprehensive evaluation of the existing infrastructure on its Horne 5 Project. A preliminary assessment of the existing infrastructure suggested that the Company will be able to utilize the existing Quémont #2 shaft as its production shaft and 3 of the Horne shafts (#4, #6 & #8) as potential ventilation raises. The Quémont #2 shaft will need to be rehabilitated to current production standards, however it will not have to be widened to accommodate larger skips. The historical workings located in the upper portion of the ore body offer several openings where waste material and tailings could be sent and disposed of. These openings will enable the Company to reduce the impact on surface and manage tailings efficiently.


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The evaluation estimates the capital cost savings to be upwards of $100.0 million in direct and indirect costs, which were taken into account in the preliminary economic assessment. Additionally, the existing infrastructure will enable the Company to further accelerate the development timeline of the Horne 5 Deposit. Dewatering of Quémont #2 shaft A water treatment procedure was prepared for a future underground dewatering of the flooded Quémont #2 shaft. Neutralization will be needed to reach the lower pH limit in accordance with the Québec Directive 019, however the Company and its consultants believe neutralization will require minimal work and that standard equipment and technology could be utilized. It is expected that water treatment for removal of iron and zinc will be straightforward. In March 2016, Falco announced that the Ministère du Développement durable, de l'Environnement et de la Lutte contre les changements climatiques granted the Company two permits to proceed with the preliminary dewatering of the Quémont #2 shaft. These permits allow the Company to dewater the Quémont #2 shaft to a maximum depth of 100 metres. The first phase of the dewatering work is expected to start during calendar year 2017 and is expected to be substantially completed by the end of calendar year 2018. Flotation and leaching results

On December 15, 2015, Falco announced the results of preliminary metallurgical test work performed on drill cores originating from two high grade mineralized zones of the Horne 5 Deposit. Comminution, open-circuit sequential flotation and leaching tests were performed to assess potential metal recoveries and base metal concentrate grades. The flowsheet tested produced copper and zinc flotation concentrates with saleable concentrate grades. Precious metals were recovered to these base metal concentrates and from flotation of a pyrite concentrate and its subsequent leaching.

The initial metallurgical results were positive and are key to demonstrate the strength of the Horne 5 Deposit. Overall results indicate that the Horne 5 Deposit is amenable to flotation and leaching resulting in strong recoveries for all four metals (Au, Ag, Cu, Zn).

Feasibility study and environmental impact assessment In June 2016, Falco initiated a feasibility study, expected to be completed in late second quarter or early third quarter of 2017, and an environmental impact assessment, expected to be completed in the second semester of 2017. Results from these reports will be determining for the future of the Horne 5 Project.

Hoisting systems

On March 24, 2017, the Company entered into an agreement for the engineering, procurement, supply, performance services and installation of the hoisting systems for the Horne 5 Project. The hoisting systems will include a production hoist, an auxiliary hoist and a service hoist. The delivery and installation of the service and auxiliary hoists is expected in calendar year 2018. The contract is estimated at approximately $28.0 million. Surface Rights Agreements

In September 2014, the Company entered into an agreement with the City of Rouyn-Noranda to acquire the surface rights to land 500 metres north of the Horne 5 Deposit and immediately adjacent to the Horne smelter. The agreement provides the Company with a 5-year option to purchase additional land in the Horne Mine Complex. The total purchase price is $2,900,000, of which a $1,000,000 non-refundable deposit was paid upon transfer of the property. The remaining $1,900,000 is payable by August 1, 2019 if the Company decides to exercise its option. In January 2017, the Company entered into an option agreement with a third party to acquire land and buildings adjacent to the Horne 5 Project. The total purchase price is $5.4 million, of which a $75,000 non-refundable deposit was paid on the signing of the option agreement. A second non-refundable deposit of $2.7 million is payable by July 1, 2017 and the balance is payable in 2018, if the Company decides to exercise its option.


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Exploration - Horne Mine Complex Immediate Area

In addition to the work on the Horne 5 Deposit, the Company continues to incorporate additional historic data into the digital model in an area surrounding the Horne 5 Deposit known as the Horne Mine Complex. This includes the areas immediately adjacent to the former producing Horne, Remnor, Quémont, Joliet and Chadbourne mines and exploration targets within the Horne area, including Horne West, Zone AA, Zone AM, Zone C, Zone R and Gatehouse.

The data compilation exercise has identified an additional 6,600 historic drill holes (460,000 metres of historic drilling) in the Horne Mine Complex. A significant number of these holes were drilled in areas not previously mined and include areas adjacent to the Horne 5 Deposit. Ongoing digitization and compilation of these drill holes is expanding the scope of the proprietary Horne model and is providing additional exploration targets in proximity to the Horne 5 Deposit.

For calendar year 2017, approximately 26,000 metres are expected to be drilled in the Central Camp.

Central Camp

The Central Camp properties, which represents 1/3 of Falco’s mining titles, covers an area of approximately 289 square kilometres and are located in the south-central portion of Falco’s land position (North of the Horne 5 Project). The properties cover approximately 90% of the historical mining camp and include several former producing VMS base metal deposits. This area, with many former producers (including Horne, Quémont, Waite-Amulet, Norbec) and well known metallogenic horizons, offers potential for future recognition of mineralization. The first VMS discoveries were made in the 1920s while the last, West Ansil, was made in 2005.

Exploration work on the Central Camp properties is planned to include approximately 26,000 metres of drilling, and is aimed at updating the 3D Noranda Camp geological model with a systematic review and testing of existing exploration targets. Numerous drill-ready targets have been identified and will be tested during the campaign. In addition, historical data compilation in and around former producing mines will be conducted, reviewing historical resources and drilling results to further identify new opportunities and generate new targets.

Horne 5 western extension target

The Company completed in 2016 a 10,325 metre drilling program to test an area located between the western edge of the Horne 5 Deposit and the Horne Creek fault, the tested zone being located between 600 metres and 1,300 metres below surface. The tested area was never specifically targeted previously.

Positive results from the first hole (H5-16-17A) have confirmed presence of notable grade and thickness in the western continuity of the Horne 5 Deposit. Highlights include 12.4 metres at 5.14 g/t AuEq.

Six additional holes were completed and analyzed on the Horne 5 western extension. Hole H5-16-09-E intersected the mineralized zone at the expected depth while holes H5-16-09-D, 09F, 17C, 19 and 23 confirmed a possible displacement of the mineralization to the south. The mineralization corresponds to 3-15% disseminated pyrite and stringers with few chalcopyrite and sphalerite in altered rhyolite and felsic lapilli tuffs.

The mineralized zone of hole H5-16-09D, expected at about 1,250 metres, was not encountered but structures, sub-parallel to the hole (NE-SW), were noted. Originally planned for 1,300 metres, the hole was continued hoping to intersect the zone deeper and also test the Horne felsic package. The mineralization encountered at 1,647 metres appears to have been displaced approximately 200 metres south.

Hole H5-16-19, targeting the upper part of Horne 5 western extension, ended at 1,416 metres. The mineralization, corresponding to the Horne 5 western extension, was expected around 980 metres, but no significant zone was observed. However, 5-15% disseminated pyrite and stringers were noted from 1,307 to 1,340 metres. A displacement of the mineralization to the south is expected, as observed in hole H5-16-09D.

The same pattern happened in holes H5-16-09-F, 17-C and 23 where the mineralized plan has been intersected further to the South. Compilation of the results is in progress.

Details of the results are outlined in the press releases dated September 13, 2016 and October 31, 2016, both filed on www.sedar.com.



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Quémont extension target

The Company completed in 2016 a 5,065 metre drilling program on the Quémont extension target. The program targeted the western plunge of the historical Quémont deposit, where over 3.2 million ounces of gold was produced from 1949 to 1971 (15.4 million tonnes at 6.5 g/t Au, 2.4% Zn, 1.3% Cu and 30.8 g/t Ag).

Hole H5-16-07D targeting the H5 mineralized zone intersected the Quémont corridor at about 1,000 metres below surface. The mineralized zone was encountered in the western plunge of the Quémont shaft. A moderate Cl-Si rhyodacite containing 2% pyrite-chalcopyrithe stringers was noted. The mineralized zone was encountered between 1,171 metres and 1,181 metres and returned 10.02 g/t of AuEq grade, including 9.31 g/t Au over 10 metres. Following the intersection, the hole was further deepened in order to intersect the Horne 5 mineralization package.

Details of Hole H5-16-07D are outlined in the press release dated October 31, 2016 and filed on www.sedar.com.

Holes H5-16-20, 20A, 21 and 22 targeting specifically the Quémont extensions were also completed and assayed. Compilation of the results are in progress.

Exploration - Other Regional Activities

In 2016, the Company continued to be active in the Rouyn-Noranda mining camp, with the completion of a diversified exploration program including prospection, trenching, sampling, mapping, surface geophysical surveys and drilling. Drilling occurred on 4 different regional properties, located in a radius of 25 kilometres around the city of Rouyn-Noranda. The Company completed 5 holes for a total of 1,904 metres. An exploration program on regional targets in the Noranda Camp is planned in 2017 for approximately 14,000 metres. The Noranda Camp properties are located in the south-central portion of the Abitibi Greenstone Belt, which forms part of the Superior Structural Province. It is one of the largest mining camps in Canada and so far 23 volcanogenic massive sulphide deposits and 17 gold deposits have been discovered. It represents the regional area known as the Blake River Group and includes the Central Camp, located at its center. The Noranda Camp properties present a significant potential for hosting different styles of mineralization (precious and base metals). The most important being: VMS (Cu-Zn-Au-Ag) as Horne, Quémont, Ansil and epigenetic mesothermal Au-Ag deposits as Beauchemin, Donalda, Francoeur. Although several VMS polymetallic deposits were mined in the past in the Noranda Camp, the potential for discovering new deposits associated within known well-defined metallotects cannot be neglected.

The 2017 exploration program in the Noranda Camp will include the following targets: Noralex (4,000 metres), Flavrian (3,400 metres), Viau (2,000 metres) and RIMO (1,000 metres).



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Results of operations for the three months ended March 31, 2017

(compared to the three months ended March 31, 2016)

Falco incurred a net loss of $1,944,782 for the three months ended March 31, 2017 compared to $506,605 for the three months ended March 31, 2016.

The operating loss for the three months ended March 31, 2017 increased by $594,873 to $1,288,696. The higher operating loss is mainly the result of higher corporate activities following the completion of a positive preliminary economic assessment on the Horne 5 Project in June 2016 and the on-going feasibility study and environmental assessment. The Company increased its work force (including consultants) to support the current activities, and has also been more active with regards to investor and shareholder relations.

Interest income increased from $6,517 for the three months ended March 31, 2016 to $102,562 for the three months ended March 31, 2017 as a result of a higher cash balance. Interest expense amounted to $181,156 in 2017 compared to nil in 2016 due to the $10.0 million loan agreement with Osisko, a shareholder with significant influence over Falco, in May 2016 (refer to the section Description of financing transactions for more details). Other income related to the

recognition of the deferred premium on flow-through shares amounted to $161,858 for the three months ended March 31, 2017 compared to $181,412 in the corresponding period of 2016. During the three months ended March 31, 2017, Falco recorded a deferred tax expense of $738,298 compared to nil in 2016. As a result of the positive preliminary economic assessment announced in June 2016, the Company now intends to realize the carrying value of its assets and settle the carrying value of its liabilities through the use of its exploration and evaluation assets and as such has recorded a deferred tax expense related to the Québec Mining Tax.

Results of operations for the nine months ended March 31, 2017 (compared to the nine months ended March 31, 2016)

Falco incurred a net loss of $5,302,920 for the nine months ended March 31, 2017 compared to $1,076,812 for the nine months ended March 31, 2016.

The operating loss for the nine months ended March 31, 2017 increased by $1,384,212 to $3,190,939. The higher operating loss is mainly the result of higher corporate activities related to the November and January financings as well as higher corporate activities following the completion of a positive preliminary economic assessment on the Horne 5 Project in June 2016 and the on-going feasibility study and environmental assessment. The Company increased its work force (including consultants) to support the current activities, and has also been more active with regards to investor and shareholder relations.

Interest income increased from $9,986 for the nine months ended March 31, 2016 to $170,371 for the nine months ended March 31, 2017 as a result of a higher cash balance. Interest expense amounted to $539,266 in 2017 compared to nil in 2016 due to the $10.0 million loan agreement with Osisko in May 2016 (refer to the section Description of financing transactions for more details). Other income related to the recognition of the deferred premium on flow-through shares amounted to $486,932 for the nine months ended March 31, 2017 compared to $721,160 in the corresponding period of 2016. During the nine months ended March 31, 2017, Falco recorded a deferred tax expense of $2,228,969 compared to nil in 2016. As a result of the positive preliminary economic assessment announced in June 2016, the Company now intends to realize the carrying value of its assets and settle the carrying value of its liabilities through the use of its exploration and evaluation assets and as such has recorded a deferred tax expense related to the Québec Mining Tax.

Liquidity and Capital Resources

As at March 31, 2017, working capital was positive $17,435,913 compared to negative $1,982,028 as at June 30, 2016. Cash amounted to $35,874,950 as at March 31, 2017 compared to $9,389,505 as at June 30, 2016. The negative working capital as at June 30, 2016 was mainly the result of a $10.0 million loan with Osisko which is potentially reimbursable in cash in case of certain events of default, including failing to complete a feasibility study recommending the construction of a mine on the Horne 5 Project, failing to obtain the permits to advance the development of the Horne 5 Project and a change of control of the Company. The $10.0 million loan with Osisko is presented under contingently payable liability on the balance sheets of the Company as at March 31, 2017 and


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June 30, 2016. Following the financings completed on November 22, 2016 and January 26, 2017 (refer to the section Description of Financing Transactions below for details), the working capital returned positive.

The increase in the Company’s cash position is primarily the result of the financings completed in November 2016 and January 2017, partially offset by investments in exploration and evaluation assets of $13,150,453, investments in property and equipment of $1,534,567 and operating activities that resulted in cash outflows of $3,547,399 (including the changes in non-cash working capital items).

On May 17, 2017, Falco entered into an agreement with a syndicate of underwriters pursuant to which the underwriters have agreed to buy on a bought deal basis, 19,380,000 units of the Company ("Units") at a price of $1.29 per Unit (the "Offering"), representing aggregate gross proceeds to Falco of $25,000,200. The Company has granted the underwriters an option, on the same terms and conditions as the Offering, for a period of 30 days following the closing of the Offering, to purchase up to an additional 15% of the Offering to cover over-allotments, if any. Each Unit consists of one common share ("Common Share") of Falco and one-half of one common share purchase warrant (each whole common share purchase warrant a "Warrant") of Falco. Each full Warrant will entitle the holder thereof to purchase one Common Share of the Company at a price of $1.70 per Common Share, for a period of 18 months following the closing Date. The Offering is anticipated to close on or about June 7, 2017 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the TSX-V and the applicable securities regulatory authorities.

The Company’s continued development is contingent upon its ability to raise sufficient financing both in the short term and long term. The Company does not generate cash flow; therefore additional capital will be required to pursue its long-term development, including the potential development of the Horne 5 Project. The ability to raise additional funds may be impaired or such financing may not be available on favourable terms, due to conditions beyond the control of the Company, such as continued uncertainty in the capital markets and depressed commodity markets.

Management of the Company believes that it has sufficient funds to pay its ongoing general and administrative expenses and to meet its liabilities, obligations and existing commitments for the ensuing 12 months as they fall due. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to, 12 months from the end of the reporting period. The contingently payable liability is potentially reimbursable in cash in case of certain events of default, including failing to complete a feasibility study recommending the construction of a mine on the Horne 5 Project, failing to obtain the permits to advance the development of the Horne 5 Project and a change of control of the Company. The Company’s ability to continue future operations beyond March 31, 2018 and fund its exploration and evaluation expenditures as well as its potential development activities on the Horne 5 Project is dependent on management’s ability to secure additional financing in the future, which may be completed in a number of ways, including, but not limited to, the issuance of debt or equity instruments. Management will pursue such additional sources of financing when required, and while management has been successful in securing financing in the past, there can be no assurance it will be able to do so in the future or that these sources of funding or initiatives will be available for the Company or that they will be available on terms which are acceptable to the Company.

Cash Flows for the three months ended March 31, 2017 (compared to the three months ended March 31, 2016)

Cash flows used in operating activities totaled $969,645 during the three months ended March 31, 2017 compared to $267,546 for the three months ended March 31, 2016. The increase in 2017 is mainly due to the increase in operating expenses.

Cash outflows from investing activities amounted to $5,792,631 for the three months ended March 31, 2017 compared to $2,602,858 for the three months ended March 31, 2016. The Company invested $1,534,567 in equipment (mainly on hoisting systems) and $4,243,064 in exploration and evaluation assets for the three months ended March 31, 2017 compared to investments of $2,651,006 in exploration and evaluation assets for the three months ended March 31, 2016. The investments were allocated to the continued exploration and evaluation work in the Rouyn–Noranda District, mainly on the feasibility study and environmental impact assessment on the Horne 5 Project in 2017, as previously described in this MD&A.

Cash flows provided by financing activities were $10,342,802 for the three months ended March 31, 2017 compared to $69,000 for the three months ended March 31, 2016. The cash inflow in 2017 was the result of a non-brokered private placement with three strategic Québec investors for aggregate gross proceeds of $10,799,600. Issue costs of


13

$456,798 were paid in 2017 and were related to the November 2016 and January 2017 financings. The exercise of options generated $69,000 in 2016. Cash Flows for the nine months ended March 31, 2017

(compared to the nine months ended March 31, 2016)

Cash flows used in operating activities totaled $3,547,399 during the nine months ended March 31, 2017 compared to $844,694 for the nine months ended March 31, 2016. The increase in the current period is mainly due to the increase in operating expenses and the negative impact from the decrease in accounts payable and accrued liabilities (compared to a positive impact for the nine months ended March 31, 2016) due to timing differences in the payment of suppliers.

Cash outflows from investing activities amounted to $14,700,020 for the nine months ended March 31, 2017 compared to $7,887,071 for the nine months ended March 31, 2016. The Company invested $1,534,567 in equipment (mainly on hoisting systems) and $13,150,453 in exploration and evaluation assets for the nine months ended March 31, 2017 compared to investments of $7,835,124 in exploration and evaluation assets for the nine months ended March 31, 2016. The investments were allocated to the continued exploration and evaluation work in the Rouyn–Noranda District, mainly on exploration activities and on the feasibility study and the environmental impact assessment on the Horne 5 Project in 2017, as previously described in this MD&A. Cash flows provided by financing activities were $44,732,864 for the nine months ended March 31, 2017 compared to $5,019,965 for the nine months ended March 31, 2016. The cash inflow in 2017 was the result of a bought deal public offering that generated gross proceeds of $36,449,593 and a non-brokered private placement with three strategic Québec investors for aggregate gross proceeds of $10,799,600. Issue costs paid during the nine months ended March 31, 2017 amounted to $2,692,223 compared to $180,075 during the nine months ended March 31, 2016. In addition, the exercise of warrants and share options generated cash inflows of $54,394 and $121,500, respectively, compared to $69,000 generated from the exercise of options in the corresponding period in 2016. For the nine months ended March 31, 2016, two placements generated aggregate gross proceeds of $5,131,040. Share issue costs paid for these two financings amounted to $180,075. Description of Financing Transactions

Financing transactions completed over the past two years consisted of the following:

On January 26, 2017, the Company closed a non-brokered private placement (the “Private Placement”) with three strategic Québec investors, namely Ressources Québec inc., acting as a mandatary for the Government of Québec, Capital Croissance PME II, s.e.c. and SIDEX, s.e.c., pursuant to which the Company has issued 10,093,083 units of the Company (“Units”) at a price of $1.07 per Unit, for aggregate gross proceeds of $10,799,600. Each Unit consists of one common share in the capital of the Company (a “Common Share”) and one-half of one common share purchase warrant (each whole common share purchase warrant, a "Warrant"). Each Warrant shall be exercisable to acquire one additional common share (a “Warrant Share”) of the Company for a period of 18 months from the closing date of the Offering at an exercise price of $1.45 per Warrant Share. The expiry date of the Warrants may be accelerated by the Company at any time following the six-month anniversary of the closing of the Offering and prior to the expiry date of the Warrants if the volume-weighted average trading price of the Company's common shares is greater than $1.75 for any 20 consecutive trading days, at which time the Company may accelerate the expiry date by issuing a press release announcing the reduced warrant term whereupon the Warrants will expire on the 20th calendar day after the date of such press release.

The net proceeds of $10.5 million will be used by the Company to advance the dewatering program related to the development of the Horne 5 Deposit, for regional exploration and for general working capital.

In its bought deal public offering documents of November 2016 (see below details of the financing), Falco had announced that it intended to complete a concurrent private placement of up to $25.0 million with strategic investors on the same terms and conditions as the November 2016 financing. However, some strategic partners have decided to postpone their implication in the Horne 5 Project. The Company maintains its dialogue with these strategic partners and expects that they will be part of future financings as the Company is continuing to advance towards the development of the Horne 5 Project with the expected completion of the feasibility study in late


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second quarter or early third quarter of 2017 and the expected completion of the environmental impact assessment in the second semester of 2017.

On November 22, 2016, the Company closed a bought deal public offering (the “Offering”) of 24,183,350 units (“Units”) of Falco at a price of $1.07 per Unit and 8,260,475 flow-through shares (“Flow-Through Shares”) at a price of $1.28 per Flow-Through Share for aggregate gross proceeds of $36.5 million. Each Unit consists of one common share in the capital of the Company (a “Common Share”) and one-half of one common share purchase warrant (each whole common share purchase warrant, a “Warrant”). Each Warrant shall be exercisable to acquire one additional common share (a “Warrant Share”) of the Company for a period of 18 months from the closing date of the Offering at an exercise price of $1.45 per Warrant Share. The expiry date of the Warrants may be accelerated by the Company at any time following the six-month anniversary of the closing of the Offering and prior to the expiry date of the Warrants if the volume-weighted average trading price of the Company's common shares is greater than $1.75 for any 20 consecutive trading days, at which time the Company may accelerate the expiry date by issuing a press release announcing the reduced warrant term whereupon the Warrants will expire on the 20th calendar day after the date of such press release. The Underwriters’ commission (5.5%) amounted to $2.0 million and other expenses related to the Offering amounted to $0.5 million.

The net proceeds of $33.9 million are expected to be used by the Company over the next 12 to 15 months from the closing date as follows (depending on the results of the exploration programs, the feasibility study and environmental assessment):

Planned Investment Programs Estimated expenditures

Drilling program (H5 South West) $5.0 million(i),(ii)

Regional exploration $2.5 million(i),(ii)

Extension drilling near Horne 5 Project $2.5 million(i),(ii)

Building acquisitions/relocation $4.5 million

Dewatering program $10.0 million - $12 million

Quémont shaft rehabilitation $2.5 million - $4.0 million

Pre-construction surface installation $2.5 million - $4.0 million

General working capital Balance available

(i) Following the exercise of the over-allotment option, a total of 8,260,475 Flow-Through

Shares were issued for gross proceeds of $10.6 million. Consequently, the Company will adjust its planned investment programs on exploration and evaluation activities to spend a total of $10.6 million in eligible exploration expenditures by December 31, 2017.

(ii) Falco has subsequently modified its drilling program and will concentrate exclusively on the regional exploration targets for calendar 2017. As a result, the original $10.0 million budget will be spent on regional exploration targets, including the Central Camp and the Noranda Camp.

On May 30, 2016, the Company closed a financing with Osisko whereby Osisko provided a $10.0 million loan (the “Loan”). The Loan was used for the advancement of the Horne 5 Project and for general corporate purposes. The Loan has an 18 month maturity and interest is payable on the principal amount at a rate per annum that is equal to 7%, compounded quarterly, payable upon repayment of the principal amount. By November 30, 2017, Falco and Osisko shall negotiate in good faith the terms, conditions and form of a silver and/or gold stream agreement, which shall be substantially in the form typical for such transaction in the industry, whereby Osisko may provide Falco with a portion of the development capital required to build the Horne 5 Project. In this case, the principal amount of the Loan and any accrued interest will be applied against the stream deposit. At the maturity date, if Falco and Osisko have not concluded a stream agreement, the principal amount of the Loan will be converted into a 1% net smelter return royalty on the Horne 5 Project and accrued interest will be paid in cash. Under certain events of default, Osisko may, at its option, require the repayment of the principal amount and the accrued interest in cash.

On December 30, 2015, Falco closed a non-brokered private placement of flow-through shares ("FT Shares") at an issue price of $0.32 per FT Share, to raise aggregate gross proceeds of $3,281,040 (the "Offering"). The net proceeds raised from the sale of flow-through shares were used by Falco to finance qualified Canadian exploration expenditures on its Canadian resource properties. Pursuant to the Offering, the Company entered into a finder's fee agreement with certain arm's length parties (the "Finders"), pursuant to which the Finders were paid a finder's fee equal to 4% with respect to certain subscriptions in connection with the Offering.


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On July 22, 2015, the Company closed a non-brokered private placement of units to raise aggregate gross proceeds of $1,850,000. The private placement was comprised of units at an issue price of $0.40. Each unit consisted of one common share in the capital of the Company and one half of one common share purchase warrant. Each warrant was exercisable into one additional common share of the Company for 24 months from the closing date of the offering at an exercise price of $0.52 per common share. The Company has accelerated the expiry of the warrants in June 2016 pursuant to an acceleration clause. The Company could accelerate the expiry of the warrants should the volume weighted average trading price of the common shares of the Company on the TSX-V exceed $0.65 over a period of 20 consecutive trading days, by giving notice in writing to the warrant holders that the warrants shall expire on that day which is 30 days following the notice date unless exercised by the holders prior to such date. Most of the warrants were subsequently exercised. The net proceeds of the private placement was used by the Company to advance the Horne 5 PEA delivered in 2016 and for general working capital.

Corporate Development

Annual General Meeting Election of Directors During the Annual General Meeting shareholders held on November 22, 2016, all nominees to Falco’s board of directors were elected. The list of directors is presented on the last page of this MD&A. Amended and restated shareholder rights plan

The Company's amended and restated shareholder rights plan agreement (the “Rights Plan”), which amends and restates the Company's original shareholder rights plan agreement dated November 28, 2013 between the Company and Equity Financial Trust Company, has been approved by the Company's shareholders at the Annual General Meeting. The Rights Plan was not adopted in response to any proposal to acquire control of the Company and the Company was not aware of any such efforts at this time. Shareholders may access the Rights Plan at www.sedar.com. Adoption of a rolling provision under the long-term incentive plan

During the Annual General Meeting, the shareholders approved the reinstatement of Falco's rolling stock option provision under its long-term incentive plan. Pursuant to the rolling stock option provision, options shall not exceed 10% of the issued and outstanding shares of the Company, outstanding at the time of the granting of the award (on a non-diluted basis), which may be granted from time to time to directors, senior officers, employees and other persons eligible to be granted options.

Addition to Board of Directors and nomination of new officers On March 27, 2017, Falco announced that Bryan A. Coates, President of Osisko, joined the Board of Directors and will chair a new Finance Committee of the Board of Directors. Falco also announced that Hélène Cartier, who is currently a member of the Board of Directors, joined the Company as Vice President, Environment and Sustainability. Ms. Cartier will continue be a member of the Board of Directors until a new director has been appointed. In addition, Falco appointed Francois Vézina as Vice President, Technical Services and Christian Laroche as Vice President, Metallurgy. The Company believes that experienced industry professionals with a varied array of expertise and background will be an important asset to the Company as it advances its Horne 5 Project.



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Quarterly Information

A summary of selected quarterly financial information (i) for the last eight quarters is outlined below:

(i) Financial information in Canadian dollars and prepared in accordance with IFRS. (ii) Including the payments of options on properties, on a cash basis.

During the three months ended March 31, 2017, Falco increased its cash and cash equivalents, working capital and total assets mainly as a result of a financing of $10.8 million. During the three months ended December 31, 2016, the Company increased its cash and cash equivalents, working capital and total assets mainly as a result of a financing of $36.5 million. During the three months ended June 30, 2016, the Company increased its cash and cash equivalents, working capital and total assets mainly as a result of a financing of $10.0 million loan from Osisko. The decrease in cash and cash equivalents in the other periods is mainly the result of investments in exploration and evaluation assets and operating expenses. The net loss for the three months ended June 30, September 30 and December 31, 2016 increased significantly due to deferred tax expenses related to deferred mining taxes.

(for the three months ended)

March 31, 2017

December 31, 2016

September 30, 2016

June 30, 2016

$ $ $ $

Cash and cash equivalents 35,874,950 32,294,424 4,301,153 9,389,505

Working capital 17,435,913 17,725,969 (6,744,263) (1,982,028)

Total assets 82,955,013 69,899,335 35,846,418 35,875,415 Total non-current financial liabilities - - - - Investments in exploration and evaluation assets(ii) 4,318,064 5,452,791 3,454,598 2,987,952

Total revenue - - - -

Net loss for the period 1,944,782 1,928,601 1,429,537 5,107,202 Basic and diluted net loss per share 0.01 0.02 0.01 0.05

(for the three months ended)

March 31, 2016

December 31, 2015

September 30, 2015

June 30, 2015

$ $ $ $

Cash and cash equivalents 1,123,066 3,924,470 3,851,066 4,834,866

Working capital (358,299) 2,143,364 2,569,167 3,489,886

Total assets 25,407,907 25,739,260 22,873,386 21,343,225 Total non-current financial liabilities - - - - Investments in exploration and evaluation assets(ii) 2,651,006 2,783,579 2,400,539 952,861

Total revenue - - - -

Net loss for the period 506,605 343,920 226,287 1,413,982 Basic and diluted net loss per share - - - 0.02


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Related Party Transactions

During the three and nine months ended March 31, 2017, amounts of $724,683 and $1,722,772 ($400,411 and $971,338 for the three and nine months ended March 31, 2016, respectively) were respectively invoiced by Osisko for professional services and rental of offices. An amount of $292,769 is included in accounts payable and accrued liabilities as at March 31, 2017 ($147,321 as at June 30, 2016). On November 22, 2016, the Company closed a bought deal public offering of units and flow-through shares for gross proceeds of $36.5 million. Certain officers and directors of Falco and Osisko have participated in the Offering and were issued 661,000 Flow-Through Shares. Osisko also participated in the Offering and was issued 2,343,750 Flow-Through Shares. These transactions were concluded under the same terms and conditions offered to the other participants. Contractual Commitments and Obligations

The Company is committed to minimum amounts under long-term lease agreements for office space and equipment which expire at the latest in 2021. As at March 31, 2017, minimum commitments remaining under these leases were approximately $208,695 over the following years:

Twelve months ending March 31,

$

2018 66,195 2019 45,000 2020 45,000 2021 45,000 2022 7,500

208,695

On March 24, 2017, the Company entered into an agreement for the engineering, procurement, supply, performance services and installation of the hoisting systems for the Horne 5 Project. The hoisting systems will include a production hoist, an auxiliary hoist and a service hoist. The delivery and installation of the service and auxiliary hoists is expected in calendar year 2018. The contract, estimated at approximately $28.0 million, of which $1.5 million was paid as at March 31, 2017, can be terminated at any time, subject to the payment of the approved and executed work performed by the supplier at the termination date. Following the closing of the Offering in November 2016, Falco is committed to spend an amount of $10,573,408 by December 31, 2017 on eligible exploration and evaluation expenses. As at March 31, 2017, the balance to be spent amounts to $9,517,652. The contractual commitments and obligations will be funded through the working capital.

Off-balance Sheet Items

As of May 23, 2017, the Company has no off-balance sheet arrangements.

Outstanding Share Data

As of May 23, 2017, the Company has 157,292,768 issued and outstanding common shares, 9,216,736 outstanding stock options and 17,138,217 outstanding warrants.


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Subsequent Event

Financing On May 17, 2017, Falco announced that it has entered into an agreement with a syndicate of underwriters pursuant to which the underwriters have agreed to buy on a bought deal basis, 19,380,000 units of the Company ("Units") at a price of $1.29 per Unit (the "Offering"), representing aggregate gross proceeds to Falco of $25,000,200. The Company has granted the underwriters an option, on the same terms and conditions as the Offering, for a period of 30 days following the closing of the Offering, to purchase up to an additional 15% of the Offering to cover over-allotments, if any. Each Unit consists of one common share ("Common Share") of Falco and one-half of one common share purchase warrant (each whole common share purchase warrant a "Warrant") of Falco. Each full Warrant will entitle the holder thereof to purchase one Common Share of the Company at a price of $1.70 per Common Share, for a period of 18 months following the closing Date. The Offering is anticipated to close on or about June 7, 2017 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the TSX-V and the applicable securities regulatory authorities. Risk Factors

An investment in the Company's common shares is subject to a number of risks and uncertainties. An investor should carefully consider the risks described in the MD&A and in the Amended and Restated Annual Information Form for the year ended June 30, 2016 and the other information filed with the Canadian securities regulators (www.sedar.com), before investing in the Company's common shares. If any of the described risks occur, or if others occur, the Company's business, operating results and financial condition could be seriously harmed and investors may lose a significant proportion of their investment. Although Falco has taken reasonable measures to ensure proper title to its properties, there is no guarantee that title to any of its properties will not be challenged or impugned, especially on the Horne 5 Project, as Falco holds contractual rights, as opposed to registered mining titles, which are held by a third party. In order to access the Horne 5 Project, and provided that the Company’s future activities will be subordinated to the current use of the surface lands by such third party and subject further to such third party’s discretion to control Falco’s activities that would adversely affect the third party’s current operations, the Company must obtain a license from such third party, which may not be unreasonably withheld, but which may be subject to such conditions (including the provision of a performance bond to such third party and the indemnification of such third party by the Company) as such third party may require in its sole discretion. While the Company has no reason to believe that such license will not be forthcoming, there can be no assurance that any such license will be granted on terms acceptable to the Company. Third parties may have valid claims underlying portions of Falco’s interests in its properties. Financial Risks

The Company’s activities expose it to a variety of financial risks: market risks (including foreign currency risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s performance.

A description of the financial risks are included in the audited annual financial statements for the year ended June 30, 2016 filed on SEDAR (www.sedar.com). Internal Control Disclosure

In November 2007, the Canadian Securities Administrators exempted Venture Issuers, such as the Company, from certifying disclosure controls and procedures, as well as internal controls over financial reporting as of December 31, 2007 and thereafter. The Company is required to file basic certificates. The Company makes no assessment relating to establishment and maintenance of disclosure controls and procedures as defined under National Instrument 52-109.




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Basis of Presentation of Financial Statements

The unaudited condensed interim financial statements for the three and nine months ended March 31, 2017 have been prepared in accordance with the IFRS as issued by the IASB applicable to the preparation of interim financial statements, including International Accounting Standard 34, Interim Financial Reporting. The unaudited condensed

interim financial statements of Falco for the three and nine months ended March 31, 2017 should be read in conjunction with the annual audited financial statements for the year ended June 30, 2016, which have been prepared in accordance with IFRS as issued by the IASB.

The accounting policies, methods of computation and presentation applied in the unaudited condensed interim financial statements for the three and nine months ended March 31, 2017 are consistent with those applied by the Company to the audited financial statements for the year ended June 30, 2016. The Board of Directors has approved the unaudited condensed interim financial statements on May 23, 2017. The significant accounting policies of Falco as well as the accounting standards issued but not yet effective are detailed in the notes to the audited financial statements for the year ended June 30, 2016 filed on SEDAR (www.sedar.com). Critical Accounting Estimates and Judgments

Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The determination of estimates requires the exercise of judgement based on various assumptions and other factors such as historical experience and current and expected economic conditions. Actual results could differ from those estimates.

Critical judgements in applying the Company’s accounting policies are detailed in the audited financial statements for the year ended June 30, 2016 filed on SEDAR (www.sedar.com). Financial Instruments

All financial instruments are required to be measured at fair value on initial recognition. The fair value is based on quoted market prices, unless the financial instruments are not traded in an active market. In this case, the fair value is determined by using valuation techniques like the Black-Scholes option pricing model or other valuation techniques. Measurement in subsequent periods depends on the classification of the financial instrument.

A description of financial instruments and their fair value is included in the audited financial statements for the year ended June 30, 2016 and in the unaudited condensed interim financial statements for the three and nine months ended March 31, 2017, both filed on SEDAR (www.sedar.com).

Additional Information

Additional information relating to the Company has been filed on SEDAR and is available at www.sedar.com.

Cautionary Statement Regarding Forward-Looking Statements

Except for the statements of historical fact contained herein, certain information presented in this MD&A constitutes forward-looking statements concerning the business, operations, plans and financial performance and condition of Falco. Often, but not always, forward-looking statements can be identified by words such as “plans”, “expects”, “may”, “should”, “could”, “will”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, “believes”, or variations including negative variations thereof of such words and phrases that refer to certain actions, events or results that may, could, would, might or will occur or be taken or achieved. These statements are made as of the date of this MD&A. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual plans, results, performance or achievements of Falco to differ materially from any future plans, results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, actual operating cash flows, free cash flows, mineral resources, total cash, transaction costs, and






20

administrative costs differing materially from those anticipated; risks related to partnership or other joint operations; actual results of current exploration activities; variations in mineral resources, mineral production, grades or recovery rates or optimization efforts and sales; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; uninsured risks; regulatory changes, obtaining required authorizations, including from third parties, permits, licenses and mining titles in a timely manner; availability or integration of personnel, materials and equipment; performance of facilities, equipment and processes relative to specifications and expectations; unanticipated environmental impacts on operations; impacts of Falco’s operations on third party operations, market prices; production, construction and technological risks; capital requirements and operating risks associated with the operations or an expansion of the operations or the operations in respect of which Falco’s interests are held; fluctuations in gold, silver and other metal prices and currency exchange rates; uncertainty relating to future production, and cash resources; inability to successfully complete new development projects, planned expansions or other projects within the timelines anticipated; adverse changes to market, political and general economic conditions or laws, rules and regulations; changes in project parametres; the possibility of project cost overruns or unanticipated costs and expenses; accidents, labour disputes, community and stakeholder protests and other risks of the mining industry; failure of plant, equipment or processes to operate as anticipated; risk of an undiscovered defect in title or other adverse claim; factors discussed under the heading “Risk Factors”; and those risks set forth in Falco’s continuous disclosure documents filed on SEDAR at www.sedar.com. In addition, statements relating to Mineral Resources and gold equivalent ounces are forward looking statements, as they involve implied assessment, based on certain estimates and assumptions, and no assurance can be given that the estimates will be realized. Although Falco has attempted to identify important factors that could cause actual plans, actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause plans, actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual plans, results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

(Signed) Luc Lessard Luc Lessard President and Chief Executive Officer May 23, 2017

(Signed) Vincent Metcalfe Vincent Metcalfe Chief Financial Officer



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Corporate Information Head Office

1100 av. des Canadiens-de-Montréal Suite 300 Montréal, Québec, Canada H3B 2S2 Tel.: (514) 905-3162 Email: [email protected] Web site: www.falcores.com Project Office

161, Avenue Murdoch Rouyn-Noranda, Québec, Canada J9X 1E3 Directors Officers

Sean Roosen, Chair Luc Lessard, President and Chief Executive Officer Mario Caron, Lead Director Vincent Metcalfe, Chief Financial Officer Hélène Cartier Hélène Cartier, Vice President, Environment and Bryan A. Coates Sustainability Paola Farnesi Christian Laroche, Vice President, Metallurgy Claude Ferron André Le Bel, Vice President, Legal Affairs and Paul-Henri Girard Corporate Secretary Luc Lessard Claude Léveillée, Vice President, Community Relations and Human Resources Frédéric Ruel, Vice President and Corporate Controller François Vézina, Vice President, Technical Services Steve Boucratie, Assistant Corporate Secretary Legal Counsel

Lavery, de Billy LLP Auditors

PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l. Transfer Agent

TSX Trust Company Exchange listing

TSX Venture Exchange: FPC

mailto:[email protected]

http://www.falcores.com/

falco resources ltd. · at march 31, 2017, osisko gold royalties ltd (“osisko”) owns a 13.3%...

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