Exhibit 99.3





























NextSource Materials Inc.





Management’s Discussion and Analysis (MD&A)





For the
years ended June 30, 2020 and 2019





Expressed
in US Dollars




















NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019


Introduction





This
Management’s Discussion and Analysis (MD&A) is intended
to help the reader understand NextSource Materials Inc.’s
operations, financial performance, financial condition and business
plans.





This
MD&A, which has been prepared as of September 22, 2020, should
be read in conjunction with NextSource’s consolidated
financial statements for the year ended June 30, 2020 and
2019.





The
consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards
(“IFRS”) issued by International Accounting Standards
Board (“IASB”). The presentation and functional
currency of the Company is the US dollar.





References
to “NextSource”, “Company”,
“we”, “us”, “our”, refer to
NextSource Materials Inc. and its consolidated subsidiaries unless
the context indicates otherwise. All amounts are in US dollars,
unless otherwise indicated. The term “NSR” stands for
net smelter royalty. The term “tpa” stands for tonnes
per annum.





Qualified Person





Craig
Scherba, P.Geo., the Company’s President and Chief Executive
Officer is the Qualified Person, as defined by NI 43-101, who has
reviewed and approved the technical information disclosed in this
MD&A.





CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION





Certain
statements contained in this MD&A constitute forward-looking
information within the meaning of applicable Canadian securities
legislation. Generally, forward-looking information can be
identified by the use of forward-looking terminology such as
“plans,” “expects,” or “does not
expect,” “is expected,” “budget,”
“scheduled,” “goal,”
“estimates,” “forecasts,”
“intends,” “anticipates,” or “does
not anticipate,” or “believes” or variations of
such words and phrases or statements that certain actions, events
or results “may,” “could,”
“would,” “might,” or “will be
taken,” “occur,” or “be
achieved”.





Forward-looking
information includes, but is not limited to, information with
respect to certain expectations regarding obtaining necessary
permits; construction timelines and costs; anticipated production
volumes; anticipated operating costs and capital spending; supply,
demand and pricing outlook in the graphite market; sources of
funding for the Molo Graphite Project and the Green Giant Vanadium
Project; exploration drill results; metallurgical drill results;
environmental assessment and rehabilitation costs and amounts of
certain other commitments; and the Company’s business
objectives and targeted milestones (and timing
thereof).





Forward-looking
information is subject to known and unknown risks, uncertainties
and other factors that may cause the actual results, level of
activity, performance or achievements of the Company to be
materially different from those expressed or implied by such
forward-looking information. Such factors include, among others;
negative operating cash flow; the Company’s ability to
continue as a going concern; development projects are uncertain,
and it is possible that actual capital and operating costs and
economic returns will differ significantly from those estimated for
a project prior to production; the Company’s development and
exploration projects are in the African country of Madagascar and
are subject to country political and regulatory risks; dependence
on the Molo Graphite Project; additional permits and licenses are
necessary to complete the development of the Molo Graphite Project;
mining companies are increasingly required to consider and provide
benefits to the communities and countries in which they operate,
and are subject to extensive environmental, health and safety laws
and regulations; fluctuations in the market price of graphite and
other metals may adversely affect the value of the Company’s
securities and the ability of the Company to develop the Molo
Graphite Project; the Company may not have access to sufficient
capital to develop the Molo Graphite Project; the Company has a
limited operating history and expects to incur operating losses for
the foreseeable future; due to the speculative nature of mineral
property exploration, there is substantial risk that the
Company’s assets will not go into commercial production and
the business will fail; estimates of mineral resources and mineral
reserves may not be realized; because of the inherent dangers
involved in mineral exploration, there is a risk that the Company
may incur liability or damages as the Company conducts business;
the impact of COVID-19 may impact the Company’s business and
its development plans; the Company has no insurance for
environmental problems; should the Company lose the services of key
executives, the Company’s financial condition and proposed
expansion may be negatively impacted; because access to the
Company’s properties may be restricted by inclement weather
or proper infrastructure, its exploration programs are likely to
experience delays; climate change and related regulatory responses
may impact the Company’s business; compliance with changing
regulation of corporate governance and public disclosure will
result in additional expenses and pose challenges for management;
tax risks; the Company’s business is subject to
anti-corruption and anti-bribery laws, a breach or violation of
which could lead to civil and criminal fines and penalties, loss of
licenses or permits and reputational harm; the Company does not
intend to pay dividends in the foreseeable future; because from
time to time the Company holds a significant portion of cash
reserves in Canadian dollars, the Company may experience losses due
to foreign exchange translations; the Company is exposed to general
economic conditions, which could have a material adverse impact on
its business, operating results and financial condition; the
current financial environment may impact the Company’s
business and financial condition that cannot be predicted; the
market price for the Common Shares is particularly volatile given
the Company’s status as a relatively unknown company with a
small and thinly traded public float, limited operating history and
lack of profits which could lead to wide fluctuations in the market
price for the Common Shares; and the Company’s ability to
meet other factors listed from time to time in the Company’s
continuous disclosure documents, including but not limited to, the
AIF.





2
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








Forward-looking
information is based on the reasonable assumptions, estimates,
analysis and opinions of management and/or “qualified
persons” (as such term is defined under National Instrument
43-101 – Standards of Disclosure for Mineral Projects
(“”NI 43-101”)) made in light of their experience
and their perception of trends, current conditions and expected
developments, as well as other factors that management and/or
qualified persons believe to be relevant and reasonable in the
circumstances at the date that such statements are made, but which
may prove to be incorrect. Although the Company believes that the
assumptions and expectations reflected in such forward-looking
information are reasonable, undue reliance should not be placed on
forward-looking information because the Company can give no
assurance that such expectations will prove to be correct. In
addition to the assumptions discussed herein the material
assumptions upon which such forward-looking statements are based
include, among others, that: the Company will be successful in its
financing activities; the demand for graphite will develop as
anticipated; graphite prices will remain at or attain levels that
would render the Molo Graphite Project potentially economic; that
any proposed operating and capital plans will not be disrupted by
operational issues, title issues, loss of permits, environmental
concerns, power supply, labour disturbances, financing requirements
or adverse weather conditions; the Company will continue to have
the ability to attract and retain skilled staff; and there are no
material unanticipated variations in the cost of energy or
supplies. Readers are cautioned that the foregoing list is not
exhaustive of all factors and assumptions which may have been used.
Although the Company has attempted to identify important factors
that could cause actual results to differ materially from those
contained in forward-looking information, there may be other
factors that cause results not to be as anticipated, estimated or
intended. There can be no assurance that such information will
prove to be accurate, as actual results and future events could
differ materially from those anticipated in such information.
Accordingly, readers should not place undue reliance on
forward-looking information. The forward-looking information
contained herein is presented for the purposes of assisting
investors in understanding the Company’s expected financial
and operating performance and the Company’s plans and
objectives and may not be appropriate for other
purposes.





The
Company does not undertake to update any forward-looking
information, except in accordance with applicable securities
laws.





Core Business and Objectives





NextSource
Materials Inc. (the "Company" or “NextSource”) was
continued under the Canada Business Corporations Act and has a
fiscal year end of June 30. The Company's registered head office
and primary location of records is 130 King Street West, Exchange
Tower, Suite 1940, Toronto, Ontario Canada, M5X 2A2.





The
Company's principal business is the acquisition, exploration,
development and mining of mineral resources. The Company has
obtained a mining permit for the Molo Graphite project but has not
secured all supporting permits and has not secured sufficient
financing to begin construction. The Company does not operate any
mines and has not initiated construction on any mines. The Company
has yet to generate any revenue from mining operations or pay
dividends and is unlikely to do so in the immediate or foreseeable
future. The Company accepts the risks which are inherent to mineral
exploration programs and the exposure to the cyclical nature of
mineral prices. These risks are discussed in the Risk Factors section of this
report.





Principal Products





The
Company is currently focused on developing a graphite
mine.





The
Company, through a wholly owned foreign subsidiary, obtained a
mining permit and environmental certificate for its Molo Graphite
Project in Madagascar. Although the Company released NI 43-101
Technical Report Feasibility Study dated September 27, 2019 that
concluded the Molo Graphite Project contains mineralization that is
economically recoverable, the Company does not have the necessary
capital to begin construction at this time.





In
addition to the Molo Graphite Project, NextSource has 100%
ownership of its NI 43-101 compliant Green Giant Vanadium Project,
located just 11 kilometres from the Molo Project. The Green Giant
Project is a rarely occurring, sedimentary-hosted
deposit.





Competitive Conditions





The
mineral exploration and mining business are highly competitive. We
compete with numerous other companies and individuals in the search
for and the acquisition of financially attractive mineral
properties. Our ability to acquire precious metal mineral
properties in the future will depend not only on our ability to
develop our present properties, but also on our ability to select
and acquire suitable producing properties or prospects for precious
metal development or mineral exploration.





In
addition, we also compete with other companies over retaining
skilled experienced workers and sourcing raw materials and supplies
used in connection with eventual development and mining
operations.








3
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019





Foreign Operations





Our
foreign operations are exposed to various levels of political,
economic and social risks and uncertainties. These risks and
uncertainties vary from country to country and include, but are not
limited to: terrorism; hostage taking; military repression;
expropriation; political corruption, extreme fluctuations in
currency exchange rates; high rates of inflation; labour unrest;
war or civil unrest; renegotiation or termination of existing
concessions, licenses, permits and contracts; ability of
governments to unilaterally alter agreements; surface land access
issues; illegal mining; changes in taxation policies, laws and
regulations; restrictions on foreign exchange and repatriation; and
changing political conditions, currency controls and governmental
regulations that favor or require the awarding of contracts to
local contractors or require foreign contractors to employ citizens
of, or purchase supplies from, a particular jurisdiction. Any
changes in regulations or shifts in political attitudes in such
foreign countries are beyond our control and may adversely affect
our business. Future development and operations may be affected in
varying degrees by such factors as government regulations (or
changes thereto) with respect to restrictions on production, export
controls, import restrictions, such as restrictions applicable to,
among other things, equipment, services and supplies, taxes,
expropriation of property, repatriation of profits, environmental
legislation, land use, water use, surface land access, land claims
of local people and mine safety.





Corporate Redomicile





The
Company completed a corporate redomicile from the State of
Minnesota to Canada on December 27, 2017.





Corporate Structure





NextSource
owns 100% of NextSource Materials (Mauritius) Ltd.
(“MATMAU”), a Mauritius subsidiary, and 2391938 Ontario
Inc., an Ontario Company.





MATMAU
owns 100% of NextSource Minerals (Mauritius) Ltd.
(“MINMAU”), a Mauritius subsidiary, NextSource Graphite
(Mauritius) Ltd (“GRAMAU”), a Mauritius subsidiary, and
NextSource Materials (Madagascar) SARLU (“MATMAD”), a
Madagascar subsidiary.





MINMAU
owns 100% of NextSource Minerals (Madagascar) SARLU
(“MINMAD”), a Madagascar subsidiary. MINMAD holds the
Green Giant Vanadium Project exploration permits.





GRAMAU
owns 100% of ERG Madagascar SARLU (“GRAMAD”), a
Madagascar subsidiary. GRAMAD holds the Molo Graphite Project
mining and exploration permits.














4
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








Capital Structure





The Company’s common shares have no par value and the
authorized share capital is composed of an unlimited number of
common shares.





As of June 30, 2020, the Company had 536,494,789 common shares
issued and outstanding (June 30, 2019: 507,417,021).





As of June 30, 2020, the Company had 36,250,000 stock options
issued and outstanding (June 30, 2019: 40,670,000) with a weighted
average expiration of 2.28 years (June 30, 2019: 3.0 years), which
are exercisable into 36,250,000 common shares (June 30, 2019:
40,670,000) at a weighted average exercise price of $0.067 (June
30, 2019: $0.08). All stock options that are currently outstanding
vested on the grant date.





As of June 30, 2020, the Company had 25,191,522 common share
purchase warrants issued and outstanding (June 30, 2019:
10,652,636) with a weighted average expiration of 0.82 years (June
30, 2019: 1.1 years), which are exercisable into 25,191,522 (June
30, 2019: 10,652,636) common shares at a weighted average exercise
price of $0.07 (June 30, 2019: $0.08). All warrants that are
currently outstanding vested on the issue date.





The Company’s common shares trade on the Toronto Stock
Exchange (the “TSX”) under the symbol
“NEXT” and the OTCQB under the symbol
“NSRCF”.





Dividends and Distributions





The
Company has yet to generate any revenue from mining operations or
pay dividends since inception and is unlikely to do so in the
immediate or foreseeable future. Our continued operations are
dependent upon the ability of the Company to obtain financing
through the proceeds of equity and/or debt offerings for the
continued exploration and development of its mineral
properties.





The
value of a mineral project is highly dependent upon the discovery
of economically recoverable mineralization, the long-term
preservation of the Company’s ownership interest in the
underlying mineral property, the ability of the Company to obtain
the necessary funding to complete sufficient exploration activities
on the property, and the prospects of any future profitable
production therefrom, or alternatively upon the Company’s
ability to dispose of its property interests on an advantageous
basis.





Indebtedness





As of
June 30, 2020, the Company had CAD $40,000 outstanding in its
Canada Emergency Business Account, which is not subject to an
interest rate until after December 31, 2022 and has loan
forgiveness provisions whereby CAD $10,000 of principal will be
forgiven if CAD $30,000 of principal is repaid before December 31,
2022. The Company intends to repay CAD $30,000 of principal by
September 30, 2020 and therefore recognized a fair market value
balance of $22,115 as of June 30, 2020. As of June 30, 2019, the
Company did not have any outstanding long-term debt, loans or
credit facilities.





Employees and Contractors





The
Company relies on the geological and industry expertise of its
Toronto-based management team and engages contractors to complete
certain aspects of its exploration programs.





As of
June 30, 2020, we had one employee and several contractors in
addition to the Board of Directors, President & Chief Executive
Officer and Chief Financial Officer. Certain professional,
administrative and geological services are provided to the Company
by independent contractors, including corporations and/or
individuals who may be officers or directors of NextSource. No
assurance can be given that qualified employees can be retained by
NextSource when necessary.





Sustainability





The
Company is committed to the health and safety of our workers and
communities, the protection of the environment, and to the rights,
culture and development of local communities.





Cautionary Note Regarding Operating Losses





As of
June 30, 2020, the Company had an accumulated deficit of
$104,933,066 (June 30, 2019:
$103,955,431) has experienced
recurring net losses and has negative operating cash flows. As
such, conditions exist that may raise substantial doubt regarding
the Company's ability to continue as a going concern.





Based
on the nature of our business, we anticipate incurring operating
losses for the foreseeable future. We base this expectation, in
part, on the fact that very few mineral properties in the
exploration stage are ultimately developed into producing and
profitable mines. Our future financial results are uncertain due to
a number of factors, some of which are outside our Company’s
control. These factors include, but are not limited to: (a) our
ability to raise additional funding; (b) the market price for
graphite, vanadium, gold and/or uranium; (c) the results of the
exploration programs and metallurgical analysis of our mineral
properties; (d) the political instability and/or environmental
regulations that may adversely impact costs and ability to operate
in Madagascar; and (e) our ability to find joint venture and/or
off-take partners in order to advance the development of our
mineral properties.





5
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








Any
future equity financing will cause existing shareholders to
experience dilution of their ownership interest in our Company. In
the event we are not successful in raising additional financing, we
anticipate our Company will not be able to proceed with its
business plan. In such a case, we may decide to discontinue or
modify our current business plan and seek other business
opportunities.





During
this period, we will need to maintain periodic filings with the
appropriate regulatory authorities and will incur legal,
accounting, administrative and listing costs. In the event no other
such opportunities are available, and we cannot raise additional
capital to sustain operations, we may be forced to discontinue the
business. We do not have any specific alternative business
opportunities under consideration and have not planned for any such
contingency.





Due to
the present inability to generate revenues, accumulated losses,
recurring losses and negative operating cash flows, the Company has
stated its opinion in Note 1 of our audited consolidated financial
statements for the year ended June 30, 2020 that there currently
exists substantial doubt regarding the Company’s ability to
continue as a going concern.





Corporate Highlights





Three-Year History





On June
1, 2017, we released the results of a positive updated Molo
Feasibility Study for Phase 1 of the mine development plan
utilizing a fully modular build-out approach which was based on the
FEED Study and subsequent detailed engineering studies. Phase 1
would consist of a fully operational and sustainable graphite mine
with a permanent processing plant capable of producing, in our
estimation, approximately 17,000 tpa of high-quality
SuperFlakeTM graphite concentrate per year with a mine life of
30 years.





On
December 27, 2017, the Company completed a corporate redomicile
from Minnesota to Canada. This was completed to reduce our legal
and regulatory compliance costs and improve our financing
opportunities. The presentation and functional currency of the
Company continued to be the US dollar. Upon completing the
redomicile, the Company adopted International Financial Reporting
Standards (“IFRS”).





On
April 13, 2018, the Company issued 1,000,000 common shares upon the
exercise of 1,000,000 common share purchase warrants for gross
proceeds of $110,000.


On August 17, 2018, the Company closed a non-brokered private
placement offering of 21,059,270 units at a price of $0.053
(CAD$0.07) per unit for aggregate gross proceeds of $1,120,385
(CAD$1,474,149). Each unit consisted of one common share and
one-half common share purchase warrant, with each warrant
exercisable into one common share at an exercise price of $0.076
(CAD$0.10) for a period of two years.





On October 16, 2018, the Company announced the signing of an
Offtake Agreement with the primary graphite supplier to a major
Japanese electric vehicle anode producer. The Offtake Agreement is
for a period of ten (10) years and activates on the commencement of
commercial production at the Molo project, with an automatic
renewal for an additional five (5) years. The Japanese Partner will
have the exclusive right to import and sell SuperFlake®
graphite concentrate in Japan. Provided that commercial production
commences within 3 years, following the ramp up period, the
Japanese Partner will purchase 20,000 tonnes of SuperFlake®
graphite per annum Product prices will be negotiated on a per order
basis between the parties and will be based on the floating market
prices (FOB basis) prevailing in the region.





On
February 15, 2019, the Company announced the Madagascar Government
granted a 40-year mining license for the Molo Graphite Project and
that the mining license does not limit mining to any specific
volume.


On March 7, 2019, the Company closed a non-brokered private
placement offering of 16,086,426 common shares at a price of $0.08
(CAD$0.11) per common share for aggregate gross proceeds of
$1,323,630 (CAD$1,769,507).





On
April 11, 2019, the Company announced it had received the Global
Environmental Permit for the Molo Graphite Project from the
Madagascar Ministry of Environment’s Office National pour
l'Environnement (the National Office for the Environment; or
“ONE”). This follows the completion of the
Environmental & Social Impact Assessment (“ESIA”)
and Relocation Action Plan (“RAP”) to International
Finance Corporation (IFC) performance standards and World Bank
standards, the completion of local and regional stakeholder and
community engagement, and the completion of negotiations and signed
agreements with all potentially affected land occupants to accept
compensation for any affected crops and grazing land and relocation
if needed.





6
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








On
September 27, 2019, the Company reported the results of a new
Feasibility Study (“FS”) for its 100%-owned Molo
Graphite Project in southern Madagascar. The FS outlines a phased
development approach with Phase 1 producing 17,000 tonnes per annum
(“tpa”) over the first two years of production and
Phase 2 producing a total of 45,000 tpa by year 3. Over the
modelled life of mine (30 years), the production plants will have a
pre-tax internal rate of return (“IRR”) of 43.1%, and a
post-tax IRR of 36.2%. The pre-tax Net Present Value
(“NPV”) at 8% discount rate will be US$237.1M, and the
post-tax NPV will be US$184.3M. The FS results are summarized in
further detail in the Molo Graphite Property section.





On
October 24, 2019, the Company announced the successful registration
of Molo SuperFlake® as a trademark in Canada. The successful
registration of this trademark means that NextSource has the
exclusive right to brand all of its natural flake graphite sold in
Canada as Molo SuperFlake® from its fully permitted and
feasibility-stage Molo Graphite Project in Madagascar when it
enters production and begins exploring high-quality flake
graphite.


On October 25, 2019, the Company closed a non-brokered private
placement offering of 29,077,768 units at a price of $0.034
(CAD$0.045) per unit for aggregate gross proceeds of $998,620
(CAD$1,308,500). Each unit consisted of one common share and
one-half common share purchase warrant, with each warrant
exercisable into one common share at an exercise price of $0.07
(CAD$0.09) for a period of two years. There were no finder’s
fees in relation to the private placement.





On September 27, 2019, Quentin Yarie resigned as a director of the
Company.





On December 2, 2019, Christopher Kruba and David McNeely became
directors of the Company.





On January 23, 2020, John Sanderson and Dalton Larson resigned as
directors of the Company and Dean Comand was appointed as Chair of
the Board of Directors.





On April 9, 2020, the Company announced that it has executed a
Letter of Agreement (“LOI”) with its Japanese offtake
partner and a leading Chinese processor of graphite anode material
to collaborate on the construction of a value-add, battery anode
plant in a jurisdiction that is proximal to the Company’s
Molo graphite project in Madagascar.





On July 2, 2020, the Company completed a non-brokered private
placement of 61,578,783 units at a price of $0.024 (CAD$0.0325) for
gross proceeds of $1,476,572 (CAD$2,001,310). Each Unit consists of
one common share of the Company and one-half of one common share
purchase warrant (a “Warrant”), with each full Warrant
entitling the holder to acquire one additional common share of the
Company at a price of $0.048 (CAD$0.065) per share for a period of
24 months. No finder fees or commissions were paid in association
with the private placement. In connection with the non-brokered
private placement, the Company incurred $9,292 (CAD$12,619) in
share issuance costs.





On July 20, 2020, Brett Whalen became a director of the
Company.





On August 24, 2020, the Company announced the appointment of Brett
Whalen as Chair of the Board of Directors. The Company also
announced that management agreed to a plan to defer their monthly
compensation payments by up to 30 percent and until total project
financing has been secured. The Company announced its intention to
implement a Performance Share Units (“PSU”) plan for
management.





Molo Graphite Property, Southern Madagascar Region,
Madagascar





Overview





The
Company has received a 40-year mining license for the Molo Graphite
Project from the Madagascar Government which does not limit mining
to any specific volume. The Company has also received the Global
Environmental Permit for the Molo Graphite Project from the
Madagascar Ministry of Environment’s Office National pour
l'Environnement (the National Office for the Environment; or
“ONE”). Application for all other necessary permits to
construct and operate the mine, including water use, facilities
construction, mineral processing, transportation, export, and
labour have been initiated but the Company cannot provide any
assurance as to the timing of the receipt of sufficient capital and
of any of the permits and licenses necessary to initiate
construction of the mine.





The
Company is currently working to obtain construction financing for
Phase 1 of the Molo Graphite Project. Once constructed, the mine is
expected to produce 17,000 tpa of high-quality SuperFlakeTM
graphite concentrate.





Exploration Timeline





The
Molo Graphite Project is one of seven surficial graphite trends
discovered and drill tested by NextSource in late 2011 and
announced to the market in early January 2012. The Molo deposit
itself occurs in a flat, sparsely populated and dry savannah
grassland region that has easy access via a network of seasonal
secondary roads.





The
Molo Graphite Project graphitic zone consists of multi-folded
graphitic strata at surface with an exposed strike length of over
two kilometres. Outcrop mapping and trenching on the Molo Graphite
Project has shown the surface geology to be dominated by resistant
ridges of graphitic schist and graphitic gneiss, as well as
abundant graphitic schist float. Geological modeling has shown that
the Molo Graphite Project deposit consists of various zones of
mineralized graphitic gneiss, with a barren footwall composed of
garnetiferous gneiss. The host rock of the mineralized zones on the
Molo Graphite Project is graphitic gneiss.





7
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








Resource
delineation, drilling and trenching on the Molo Graphite Project
took place between May and November of 2012, which resulted in a
maiden mineral resource estimate to be released in early December
of the same year. This maiden mineral resource estimate formed the
basis for the Company’s Preliminary Economic Assessment (the
“PEA”), which was undertaken by DRA Mineral Projects
and released in 2013.





The
positive outcome of the PEA led NextSource to undertake another
phase of exploratory drilling and sampling in 2014 to upgrade the
deposit and its contained mineral resources to mineral reserves.
The process included an additional 32 diamond drill holes (totaling
2,063 metres) and 9 trenches (totaling 1,876 metres). The entire
database upon which the upgraded resource estimate was based
contained 80 drill holes (totaling 11,660 metres) and 35 trenches
(totaling 8,492 metres). This new mineral resource formed the basis
of the first Molo Feasibility Study, which was released in February
2015.





History





On
December 14, 2011, the Company entered into a Definitive Joint
Venture Agreement ("JVA") with Malagasy Minerals Limited
("Malagasy"), a public company listed on the Australian Stock
Exchange, to acquire a 75% interest in a property package for the
exploration and development of industrial minerals, including
graphite, vanadium and 25 other minerals. The land position
consisted of 2,119 permits covering 827.7 square kilometers and is
mostly adjacent towards the south and east with the Company's 100%
owned Green Giant Vanadium Project. Pursuant to the JVA, the
Company paid $2,261,690 and issued 7,500,000 common shares that
were valued at $1,350,000.





On
April 16, 2014, the Company signed a Sale and Purchase Agreement
and a Mineral Rights Agreement (together “the
Agreements”) with Malagasy to acquire the remaining 25%
interest. Pursuant to the Agreements, the Company paid $364,480
(CAD$400,000), issued 2,500,000 common shares subject to a 12-month
voluntary vesting period that were valued at $325,000 and issued
3,500,000 common share purchase warrants, which were valued at
$320,950 using Black-Scholes, with an exercise price of $0.14 and
an expiry date of April 15, 2019. On May 20, 2015 and upon
completion of a bankable feasibility study (“BFS”) for
the Molo Graphite Property, the Company paid $546,000 (CAD$700,000)
and issued 1,000,000 common shares, which were valued at $100,000.
Malagasy retains a 1.5% net smelter return royalty ("NSR") on the
property. A further cash payment of approximately $771,510
(CAD$1,000,000) will be due within five days of the commencement of
commercial production. The Company also acquired a 100% interest in
the industrial mineral rights on approximately 11⁄2 additional
claim blocks covering 10,811 hectares adjoining the east side of
the Molo Graphite Property.





On June
1, 2017, we released the results of a positive updated Molo
Feasibility Study for Phase 1 of the mine development plan
utilizing a fully modular build-out approach which was based on the
FEED Study and subsequent detailed engineering studies. Phase 1
would consist of a fully operational and sustainable graphite mine
with a permanent processing plant capable of producing, in our
estimation, approximately 17,000 tpa of high-quality
SuperFlakeTM graphite concentrate per year with a mine life of
30 years.





During
fiscal 2017, the Company applied to the BCMM to have the
exploration permit for the Molo Graphite Project converted into a
mining permit.





On
February 15, 2019, the Company announced the Madagascar Government
granted a 40-year mining license for the Molo Graphite Project and
that the mining license does not limit mining to any specific
volume.





On
April 11, 2019, the Company announced it had received the Global
Environmental Permit for the Molo Graphite Project from the
Madagascar Ministry of Environment’s Office National pour
l'Environnement (the National Office for the Environment; or
“ONE”). This follows the completion of the
Environmental & Social Impact Assessment (“ESIA”)
and Relocation Action Plan (“RAP”) to International
Finance Corporation (IFC) performance standards and World Bank
standards, the completion of local and regional stakeholder and
community engagement, and the completion of negotiations and signed
agreements with all potentially affected land occupants to accept
compensation for any affected crops and grazing land and relocation
if needed.





On
September 27, 2019, the Company reported the results of an updated
Feasibility Study (“FS”) consisting of two phases. The
FS took into account updated mine capital equipment and mining
costs, as well as current 12-month rolling flake graphite pricing
on a Freight-on-Board (“FOB”) China basis, supplied by
UK-based battery mineral commodities research firm, Benchmark
Minerals Intelligence. The FS incorporates the procurement of all
mining equipment, off-site modular fabrication and assembly,
factory acceptance testing, module disassembly, shipping, plant
infrastructure construction, onsite module re-assembly,
commissioning, project contingencies and working capital. All
capital and operating costs expressed for Phase 1 are considered to
be accurate to +/- 10%, and accurate to +/- 12.5% for Phase 2. The
project phases are outlined below:





8
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








PHASE 1: Production of 17,000 tpa





The
first phase of production will consist of a fully operational and
sustainable graphite mine with a permanent processing plant capable
of processing 240,000 tpa of ore and producing approximately 17,000
tpa of high-quality SuperFlakeTM graphite concentrate. The
updated build cost of the fully modular process plant marginally
increased from the US$18.4 million reported in the 2017 FS to
US$21.0M due to equipment cost inflation.





PHASE 2: Production Expansion to 45,000 tpa in Year 3





Phase 2
incorporates the processing of 240,000 tpa of ore (producing 17,000
tpa of SuperFlake® concentrate) for the first two years of
operation and then ramping up to 720,000 tpa of processed ore in
the third year to accommodate additional sales, resulting in a
total of 45,000 tpa of SuperFlake® concentrate being produced
for a mine life of 30 years. The costing for Phase 2 is based on
the addition of two modules of the beneficiation plant with a
proportional increase in mining and infrastructure costs. The
capital mine cost for Phase 2 (with contingency) will be US$39.1M,
for a total project cost (Phase 1 and Phase 2 with contingency) of
US$60.1M.





Feasibility Study Summary





The
Phase 1 production plan of 17,000 tpa of finished SuperFlake®
concentrate for the first two years of production followed by a
ramp-up to Phase 2 production of 45,000 tpa yields the following
financial metrics.








Description
Phase 1 and
2Pre-Tax
Post-TaxNPV
(8% Discount Cash Flow)(1)(2)
$237.1m
$184.3mIRR (1)(2)
43.1%
36.2%Payback
(2)
3.4 years
3.8 yearsCapital cost
("CAPEX")
$60,082,340Owners
Contingency
$6,670,430On-site Mining
Costs ("OPEX") per tonne of concentrate, (year 3
onward)
$82.69On-site Processing
Costs ("OPEX") per tonne of concentrate, (year 3
onward)
$270.27Transportation per
tonne of concentrate (mine site to Madagascar Port year 3
onward)
$133.01Average annual
production of concentrate
45,136 tonneLife of Mine
("LOM")
30 yearsGraphite
concentrate sale price (US$/tonne at Start Up - 2017)
$1,208Average Head
Grade
7.1%Average ore mined
per annum over Life of Mine
720,000 tonneAverage stripping
ratio
0.53:1Average carbon
recovery
88.30%





Notes:


(1)
Assumes Project is financed with 100% equity. Unless otherwise
noted, all monetary figures presented throughout this press release
are expressed in US dollars (USD).


(2)
CAPEX includes process equipment, civil & infrastructure,
mining, buildings, electrical infrastructure, project &
construction services. Values shown are based on real graphite
sales pricing





9
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








CAPEX and Working Capital Summary





Capital Cost
Breakdown
Phase 1
(240ktpa)
Phase 2 (720ktpa)Process
Equipment
$8,438,609
$25,315,827Civil &
Infrastructure
$2,103,672
$6,661,016Tailings
$0.00
$0.00Mining
$2,574,143
$4,913,341Buildings
$1,154,609
$2,886,523Electrical
Infrastructure
$128,804
$386,412Project
Services/EPCM
$931,481
$2,794,445Construction
Services
$1,474,775
$3,686,937Indirect
Costs
$372,750
$1,118,250Environmental &
Permitting costs
$729,827
$1,459,655Owner's
Costs
$1,197,000
$4,189,500Sub-total
$19,105,673
$53,411,909Contingency (10%/12.5%)
$1,910,567
$6,676,4883 Months Working
Capital
$3,100,000
$7,300,000CAPEX
AND WORKING CAPITAL TOTAL
$24,116,241
$67,388,398Sustaining
CAPEX over Life of Mine

$3,300,000





OPEX Summary





Discussions
with off takers have indicated their preference is to purchase Molo
graphite concentrate at the local Madagascar port at freight on
board (FOB) China prices. As such, FS Operating costs
(“OPEX”) include the all-in FOB cost to ship Molo
SuperFlake® concentrate to the local port of Fort
Dauphin.








Category
Phase
1
Phase
2Operating
costMining
(US$/T)
102.81
65.34Processing
(US$/T)
265.82
265.82Trucking to local
port / Ft. Dauphin (US$/T)
133.01
133.01General and
Administration (US$/T)
64.29
50.00TOTAL
$565.93
$514.17





The 2019 Feasibility Study technical report has been filed under
the Company’s profile and on SEDAR at www.sedar.com, and is
posted on NextSource’s website at www.nextsourcematerials.com.
Please see “Molo Feasibility Study, National Instrument
43-101 Technical Report on the Molo Graphite Project located near
the village of Fotadrevo in the Province of Toliara, Madagascar
Prepared by Erudite Strategies (Pty) Ltd” dated May 31, 2019
for certain other details and assumptions relating to the above
mineral resource and reserve estimates and data verification
procedures.





The 2019 Feasibility Study was prepared in accordance with National
Instrument 43-101 standards by Mr. Johann de Bruin, Pr. Eng. Mr. de
Bruin is the Qualified Person who verified the technical data using
industry acceptable standards and signed off on the relevant
sections in the 43-101 report filed on SEDAR.





Green Giant Vanadium Project, Southern Madagascar Region,
Madagascar





In
2007, the Company entered into a joint venture agreement with
Madagascar Minerals and Resources SARL ("MMR") to acquire a 75%
interest in the Green Giant property. Pursuant to the agreement,
the Company paid $765,000 in cash, issued 2,500,000 common shares
and issued 1,000,000 common share purchase warrants, which have now
expired.





On July
9, 2009, the Company acquired the remaining 25% interest by paying
$100,000. MMR retains a 2% NSR. The first 1% NSR can be acquired at
the Company's option by paying $500,000 in cash or common shares
and the second 1% NSR can be acquired at the Company’s option
by paying $1,000,000 in cash or common shares.





The
Green Giant property is located within exploration permits issued
by the Bureau de Cadastre Minier de Madagascar (“BCMM”)
pursuant to the Mining Code 1999 (as amended) and its implementing
decrees. The Green Giant property exploration permits are currently
held under the name of our Madagascar subsidiary MINMAD. MINMAD has
paid all taxes and administrative fees to the Madagascar government
and its mining ministry with respect to all the mining permits held
in country.





Since
early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only limited work has been completed
on the Green Giant Vanadium Project since that time.





10
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








Sagar Property, Labrador Trough Region, Quebec, Canada





In
2006, the Company purchased from Virginia Mines Inc. ("Virginia") a
100% interest in 369 claims located in northern Quebec, Canada.
Virginia retains a 2% net smelter return royalty ("NSR") on certain
claims within the property. Other unrelated parties also retain a
1% NSR and a 0.5% NSR on certain claims within the property, of
which half of the 1% NSR can be acquired by the Company by paying
$200,000 and half of the 0.5% NSR can be acquired by the Company by
paying $100,000.





On
February 28, 2014, the Company signed an agreement to sell a 35%
interest in the Sagar property to Honey Badger Exploration Inc.
(“Honey Badger”), a public company that is a related
party through common management. The terms of the agreement were
subsequently amended on July 31, 2014 and again on May 8, 2015. To
earn the 35% interest, Honey Badger was required to complete a
payment of $36,045 (CAD$50,000) by December 31, 2015, incur
exploration expenditures of $360,450 (CAD$500,000) by December 31,
2016 and issue 20,000,000 common shares to the Company by December
31, 2015. Honey Badger did not complete the earn-in requirements by
December 31, 2015 resulting in the termination of the option
agreement.





Since
early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only minimal work has been completed
on the Sagar Property since that time.





As of
June 30, 2020, the Sagar property consisted of 184 claims covering
a total area of 8,539.58 ha.





Discussion of Operations





During
the year ended June 30, 2020, the Company incurred $160,064 in
exploration expenditures, $91,671 in consulting fees and $54,456 in
travel expenditures to advance the Molo Graphite Project. This
included negotiations in respect of potential off-take agreements
with graphite end-users and intermediaries with the intention of
securing project financing alternatives, which may include debt,
equity and derivative instruments. The Company also initiated
applications for all other necessary permits to construct and
operate the mine, including water use, facilities construction,
mineral processing, transportation, export, and
labour.





Future Outlook





As at
the date hereof, the timing of the advancement of the next stage of
Phase 1 of the Molo Graphite Project is entirely contingent upon
obtaining construction financing. The Company cannot provide any
assurance as to the timing of the receipt of sufficient capital and
of any of the permits and licenses that are still necessary to
complete the construction of the mine. In the event that such
financing is not available, the Company will not be able to pursue
any substantial work in connection with the development of Molo
Graphite Project.





The
Company is currently assessing a staged contingent approach and is
in the process of establishing specific milestones that it hopes to
achieve in respect of the development of the Molo Graphite Project
in the event that the entire projected development costs are not
available to the Company to bring the project to full production.
The amount of costs to be incurred in respect of the development
and the specific milestones which may be achieved will be directly
related to the amount of money the Company is able to raise for
this purpose. In the event that the Company is successful in
raising sufficient capital, the Company plans to develop the Molo
Graphite Project and incur construction capital costs as well as
incur additional costs relating topermitting, engineering,
professional fees, G&A and working capital. No assurances can
be provided that we will be able to raise sufficient capital or
achieve our construction milestones.





Discussions
in respect of negotiating and structuring strategic partnerships,
off take agreements and debt financing for our Molo Graphite
Project in Madagascar are ongoing and are expected to continue
during the coming months with no assurances as to the conclusion or
results of these discussions.





Although
the focus of the Company is the Molo Graphite Project, subject to
and upon receipt of excess capital not used in respect of the
development of the Molo Graphite Project, the Company may pursue
further work on the Green Giant Vanadium Project in order to
complete an updated technical report at an estimated cost of up to
$500,000.





As
stated elsewhere, the Company requires additional capital to
achieve its business plan however there can be no assurance that
sufficient financing will be available on terms favorable to the
Company or at all.





We will
also continue to assess the addition of back-end value-added
processing for lithium-ion battery and graphite foil applications
in the classification portion of the plant. The costs for any
value-added processing is unknown at this time but will be assessed
in parallel with the development of Phase 1.





In
March 2020 the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health
developments, has adversely affected workforces, economies, and
financial markets globally, potentially leading to further economic
downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations at this time. The impact of COVID-19 on the Company has
been limited since no exploration or development work was ongoing
at the start of the pandemic. The Company was already setup to
operate and communicate remotely through the internet although
certain of our overseas staff and contractors have been indirectly
impacted by intermittent COVID-19 lockdowns in Madagascar and in
South Africa.





11
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








Financial Results for the years ended June 30, 2020, 2019 and
2018





Expressed in US Dollars


For the year
ended
For the year
ended
For the year
endedJune 30,
2020
June 30,
2019
June 30,
2018Revenues
$-
$-
$-Expenses
and other incomeExploration and
evaluation expenses
160,064
238,758
371,755Payroll and
benefits
436,337
459,553
458,932Management
fees
331,682
368,345
381,713Professional and
legal fees
124,741
351,077
542,280Consulting
fees
91,671
852,049
522,341Public filing
expenses
72,137
87,093
105,461Travel
expenses
54,456
153,001
174,011Investor relation
expenses
22,993
49,711
86,946Insurance
expenses
22,624
18,315
12,491Rent
expenses
19,111
34,303
23,686Information
technology expenses
9,695
8,000
18,947Telecommunications
2,952
1,301
1General and
administrative expenses
6,676
11,748
5,639Bank
fees
4,313
3,655
5,300Amortization of
plant and equipment
6,053
-
-Foreign currency
translation (gain) loss
3,552
(4,565)
104,387Interest
expense
2,098
-
-Foreign
taxes
772
-Government
assistance
(7,353)
-
-Change in value of
warrant liability
(386,940)
(73,532)
-Share based
compensation
-
651,692
-Impairment
-
-
27,805Reversal of
impairment of amount receivable
-
-
(45,132)Part XII.6
taxes
-
-
(11,741)Net
loss for the period
(977,635)
(3,210,504)
(2,784,822)Other comprehensive incomeItems that will be reclassified subsequently to lossTranslation
adjustment for foreign operations
3,196
41,713
75,766Net
loss and comprehensive loss for the period
(974,439)
(3,168,791)
(2,709,056)Weighted-average
common shares,
527,206,058
493,586,450
468,252,639-         
basic and dilutedNet loss per common
shares,
(0.00)
(0.01)
(0.01)-         
basic and diluted








12
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








Exploration and Evaluation Expenses





Exploration
and evaluation expenses include all costs relating to exploration
activities (drilling, seismic, geological, geophysical, testing and
sampling), metallurgical evaluation activities, mineral claims and
camp operations.





The
following is the breakdown by nature of the expenses:





For the year
ended
For the year
ended
For the year
endedJune 30,
2020
June 30,
2019
June 30,
2018$
$
$Exploration
activities
-
-
-Metallurgical
evaluation
-
18,863
107,185Mineral claims
(Canada)
6,624
15,469
14,856Mineral claims
(Madagascar)
143,953
121,844
227,280Camp
(Madagascar)
9,487
82,582
22,434Total
exploration and evaluation expenses
160,064
238,758
371,755





Exploration
and evaluation expenses for the year ended June 30, 2020 decreased
to $160,064 (2019: $238,758; 2018: $371,755) due to a decrease in
mineral claim expenditures as a result of the COVID-related
shutdown of government offices in March 2020. No metallurgical
evaluation was completed in 2020 and fees were minimal in 2019 and
2018 since most assessment work was completed in 2017. Camp
expenditures decreased by $73,095 to $9,487 as compared to prior
year. No exploration work was completed in 2020, 2019 and 2018
since all exploration work necessary was completed prior to
2017.





Consulting Fees Expenses





Consulting
fees for the year ended June 30, 2020 decreased to $91,671 (2019:
$852,049; 2018: $522,341) due to decreased engineering and project
development expenditures as compared to the prior year
periods.





Professional Fees Expenses





Professional
and legal fees include accounting, auditor and lawyer
fees.





The
following is the breakdown by nature of the expenses:





For the year
ended
For the year
ended
For the year
endedJune 30,
2020
June 30,
2019
June 30,
2018$
$
$Accounting
fees
29,778
20,141
3,475Auditor
fees
36,129
23,760
27,247Tax
advisory fees
22,140
67,810
9,095Legal
fees
29,344
239,366
502,463Offshore
management fees
7,350
-
-Total professional and legal fees
124,741
351,077
542,280





Professional
fees for the year ended June 30, 2020 decreased to $124,741 (2019:
$351,077; 2018: $542,280) due to decreased tax advisory and legal
fees as compared to the prior year periods whereas the audit
accrual was increased as compared to the prior year
periods.





13
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019





Share Based Compensation





The
Company did not grant any stock options during the year ended June
30, 2020.





Liquidity and Capital Resources





The
following disclosures are to enable users of the consolidated
financial statements to evaluate the nature and extent of risks
arising from financial instruments at the end of the reporting
period:





Credit risk





The
Company does not currently have commercial customers and therefore
does not have any credit risk related to accounts receivables. The
Company has credit risk arising from the potential from
counterparty default on cash and cash equivalents held on deposit
with financial institutions. The Company manages this risk by
ensuring that deposits are only held with large Canadian banks and
financial institutions.





Liquidity risk





Liquidity
risk is the risk that the Company will not be able to meet its
obligations associated with financial liabilities. Liquidity risk
arises from the Company’s financial obligations and in the
management of its assets, liabilities and capital structure. The
Company manages this risk by regularly evaluating its liquid
financial resources to fund current and long-term obligations and
to meet its capital commitments in a cost-effective
manner.





The
main factors that affect liquidity include working capital
requirements, capital-expenditure requirements and equity capital
market conditions. The Company’s liquidity requirements are
met through a variety of sources, including cash and cash
equivalents and equity capital markets.





As at
June 30, 2020, the Company expects to access public debt and equity
capital markets for financing over the next 12 months in order to
initiate construction of its Molo Graphite Project in Madagascar
and to satisfy working capital requirements. While the Company has
been successful in obtaining required funding in the past, there is
no assurance that future financings will be available.





As at
June 30, 2020, the Company had cash and cash equivalents of
$222,305 (June 30, 2019: $529,331) to settle current liabilities of
$1,173,376 (June 30, 2019: $1,279,289). As a result, the Company is
currently exposed to liquidity risk.





Based
on management’s assessment of its past ability to obtain
required funding, the Company believes that it will be able to
satisfy its current and long-term obligations as they come due.
Other than accounts payable, which are due within 30 days, and the
warrant liabilities, which will be fully expensed by October 2021,
none of the Company’s obligations have contractual
maturities.





Market risks





Market
risk is the potential for financial loss from adverse changes in
underlying market factors, including foreign exchange rates,
commodity prices and interest rates.





●
 Interest rate risk:
This is the sensitivity of the fair value or of the future cash
flows of a financial instrument to changes in interest rates. The
Company does not have any financial assets or liabilities that are
subject to variable interest rates.





●
 Commodity price
risks: This is the sensitivity of the fair value of, or of the
future cash flows, from mineral assets. The Company manages this
risk by monitoring mineral prices and commodity price trends to
determine the appropriate timing for funding the exploration or
development of its mineral assets, or for the acquisition or
disposition of mineral assets. The Company does not have any
mineral assets at the development or production stage carried at
historical cost. The Company has expensed the acquisition and
exploration costs of its exploration stage mineral
assets.





●
 Currency
risk:  This is the sensitivity of the fair value or of the
future cash flows of financial instruments to changes in foreign
exchange rates.  The Company transacts in currencies other
than the US dollar, including the Canadian dollar, the Madagascar
Ariary, the Euro and the South African Rand.  The Company
purchases services and has certain salary commitments in those
currencies.  The Company also has monetary and financial
instruments that may fluctuate due to changes in foreign exchange
rates.  Derivative financial instruments are not used to
reduce exposure to fluctuations in foreign exchange rates. The
Company is not sensitive to foreign exchange exposure since it has
not made any commitments to deliver products quoted in foreign
currencies. The Company is not sensitive to foreign exchange risk
arising from the translation of the financial statements of
subsidiaries with a functional currency other than the US dollar
since it does not have any material assets and liabilities measured
through other comprehensive income.





14
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019





Capital Management





There
were no changes in the Company's approach to capital management
during the year ended June 30, 2020.





In
managing liquidity, the Company’s primary objective is to
ensure the entity can continue as a going concern while raising
additional funding to meet its obligations as they come due. The
Company’s operations to date have been funded by issuing
equity. The Company expects to improve the working capital position
by securing additional financing.





The
Company’s investment policy is to invest excess cash in very
low risk financial instruments such as term deposits or by holding
funds in high yield savings accounts with major Canadian banks.
Financial instruments are exposed to certain financial risks, which
may include currency risk, credit risk, liquidity risk and interest
rate risk.





The
Company’s mineral property interests are all in the
exploration stage, as such the Company is dependent on external
financing to fund its exploration activities and administrative
costs. Management continues to assess the merits of mineral
properties on an ongoing basis and may seek to acquire new
properties or to increase ownership interests if it believes there
is sufficient geologic and economic potential.





Management
mitigates the risk and uncertainty associated with raising
additional capital in current economic conditions through cost
control measures that minimizes discretionary disbursements and
reduces exploration expenditures that are deemed of limited
strategic value.





The
Company manages the capital structure (consisting of
shareholders’ deficiency) on an ongoing basis and adjusts in
response to changes in economic conditions and risks
characteristics of its underlying assets. Adjustments to the
Company’s capital structure may involve the issuance of new
shares, assumption of new debt, acquisition or disposition of
assets, or adjustments to the amounts held in cash, cash
equivalents and short-term investments.





The
Company is not subject to any externally imposed capital
requirements.





Working Capital Balance





As at
June 30, 2020. the Company had a working capital deficit of
$918,048 (June 30, 2019: deficit of $665,886).





June
30,
June
30,2020
2019AssetsCurrent
Assets:Cash and cash
equivalents
$222,305
$529,331Amounts
receivable
7,539
33,640Prepaid
expenses
25,484
50,432Total
Current Assets
$255,328
$613,403LiabilitiesCurrent
Liabilities:Accounts
payable
$323,876
$109,020Accrued
liabilities
370,449
654,999Share
subscriptions
68,411
-Short term
debt
22,115
-Provision
174,418
180,652Fair value of
warrant liability
208,768
334,618Current portion of
lease obligations
5,339
-Total
Current Liabilities
1,173,376
1,279,289Working
capital (deficit) surplus
$(918,048)
$(665,886)


The
working capital deficit increased by $252,162 as compared to the
prior year. The changes in the working capital are discussed in
further detail in the next sections.





15
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019





Cash and Cash Equivalents





The
Company’s cash balances are deposited with major financial
institutions in Canada except for institutions in Madagascar.
Limited amounts of cash are currently held in
Madagascar.





Cash and Cash
Equivalents
Madagascar
Canada
Total$
$
$As
of June 30, 2020
14,054
208,251
222,305As
of June 30, 2019
54,701
474,630
529,331





Current Assets and Current Liabilities





Amounts
receivables and prepaid expenses decreased by $51,049 which consist
mainly of sales tax receivables and of prepaid insurance premiums.
Accounts payable and accrued liabilities decreased by $69,694 which
consist mainly of trade payables and of accrued legal, payroll and
benefits and consulting expenditures. The provision decreased by
$6,234 from prior year and is discussed in detail in the
Provision section. The
warrant liability is a reclassification from share capital and is
discussed in detail in the Warrant
Liability section.





Contractual Obligations and Commitments Excluding Provisions and
Lease Obligations





The
Company does not have any contractual obligations or commitments
other than accounts payable due within one-year totaling $323,876
(June 30, 2019: $109,020) and accrued liabilities totaling $370,449
(June 30, 2019: $654,999).





Provision





During fiscal 2014, the Company issued 17,889,215 flow-through
shares to eligible Canadian taxpayer subscribers which included a
contractual commitment for the Company to incur $3,812,642 in
eligible Canadian Exploration Expenditures (“CEEs”) by
December 31, 2014 as per the provision of the Income Tax Act of
Canada. The CEEs were renounced as a tax credit to the flow-through
share subscribers on December 31, 2013. As at December 31, 2014,
the Company had unfulfilled CEE obligations. During the year ended
June 30, 2015, the Company recorded a provision for the Part XII.6
taxes and related penalties payable to the Canada Revenue Agency
and for the indemnification liability to subscribers of the
flow-through shares for the additional taxes payable related to the
CEE renunciation shortfall. During the year ended June 30, 2017,
the Company paid $131,320 (2016: $nil) in Part XII.6 taxes,
resulting in a reduction in the provision, and following a
reassessment of its obligation to subscribers the Company increased
the provision by $131,320. During the year ended June 30, 2018, the
provision was adjusted due to foreign exchange fluctuations to
$180,652. During the year ended June 30, 2019, there were $Nil
adjustments to the provision balance. During the year ended June
30, 2020, the provision was adjusted due to foreign exchange
fluctuations to $174,418.





Lease Obligations





The Company is party to a number of contracts that contain a lease,
most of which include office facilities and exploration camp.
Leases of low value assets, short term leases and leases with
variable payments proportional to the rate of use of the underlying
asset do not give rise to a lease obligation.





Leases
under IFRS 16 (from July 1, 2019)





The following table sets out the carrying amounts of right-of-use
assets included in plant and equipment in the consolidated
statements of financial position and the movements during the
period:





Property
Plant
Equipment
Total$
$
$
$As of July 1, 2019
-
-
-
-Adoption
-
24,164

24,164Amortization
of right of use assets
-
(4,810)

(4,810)Foreign
exchange
-
(3,336)

(3,336)As of June 30, 2020
-
16,018
-
16,018





16
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








The following table sets out the lease obligations included in the
consolidated statements of financial position:





Property
Plant
Equipment
Total$
$
$
$Current
portion of lease obligations
-
5,339
-
5,339Non-current
portion of lease obligations
-
10,679
-
10,679Total lease obligations
-
16,018
-
16,018





Future minimum lease payments required to meet obligations that
have initial or remaining non-cancellable lease terms are set out
in the table below.





Property
Plant
Equipment
Total$
$
$
$Within
1 year
-
6,589
-
6,589Between
2 - 3 years
-
13,178
-
13,178Total undiscounted lease obligations
-
19,767
-
19,767





The Company recognized rent expense relating to short-term leases
of $19,111 and interest expense on lease obligation of $1,779 in
the consolidated statements of operations and comprehensive (loss)
with respect to leases.





Warrant Liability





The
warrants issued on August 17, 2018 as part of the units as
described in notes 9 and 11 of the Company’s consolidated
financial statements for the year ended June 30, 2020, were issued
in a currency other than the Company’s functional currency
and therefore are considered a derivative equity instrument as per
IFRS 9 Financial
Instruments. The warrant liability was measured at fair
value in the statement of financial position using the
Black-Scholes option valuation model and will be revalued at each
reporting period through profit and loss until expiration or
exercise of the underlying warrants.





The
fair value of the warrant liability for warrants expiring on August
17, 2020 was estimated using the following model inputs on the
following valuation dates:





Warrant
Liability
$As of August 17,
2018 (issue date)

408,150Exercise
price
USD$0.076Share price on
measurement date
CAD$0.09Risk free
rate
1.50%Expected
volatility
115%Expected dividend
yield
NilExpected life (in
years)
2Change in fair
value

(73,532)As of June 30,
2019

334,618Exercise
price
USD$0.076Share price on
measurement date
CAD$0.10Risk free
rate
1.67%Expected
volatility
100%Expected dividend
yield
NilExpected life (in
years)
1.13Change in fair
value

(327,537)As of June 30,
2020

7,081Exercise
price
USD$0.073Share price on
measurement date
CAD$0.04Risk free
rate
0.20%Expected
volatility
162%Expected dividend
yield
NilExpected life (in
years)
0.13








17
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








The
warrants issued on October 25, 2019 as part of the units as
described in notes 9 and 11 of the Company’s consolidated
financial statements for the year ended June 30, 2020, were issued
in a currency other than the Company’s functional currency
and therefore are considered a derivative equity instrument as per
IFRS 9 Financial
Instruments. The warrant liability was measured at fair
value in the statement of financial position using the
Black-Scholes option valuation model and will be revalued at each
reporting period through profit and loss until expiration or
exercise of the underlying warrants.





The
fair value of the warrant liability for warrants expiring on
October 25, 2021 was estimated using the following model inputs on
the following valuation dates:





Warrant
Liability
$As of October 25,
2019 (issue date)

261,090Exercise
price
USD$0.069Share price on
measurement date
CAD$0.05Risk free
rate
1.66%Expected
volatility
115%Expected dividend
yield
NilExpected life (in
years)
2Change in fair
value

(59,403)As of June 30,
2020

201,687Exercise
price
USD$0.064Share price on
measurement date
CAD$0.04Risk free
rate
0.25%Expected
volatility
156%Expected dividend
yield
NilExpected life (in
years)
1.32





Contingent Liabilities





On April 16, 2014, the Company signed a Sale and Purchase Agreement
and a Mineral Rights Agreement (together “the
Agreements”) with Malagasy to acquire the remaining 25%
interest in the Molo Graphite Property. Pursuant to the Agreements,
a further cash payment of approximately $771,510 (CAD$1,000,000)
will be due within five days of the commencement of commercial
production. Since this cash payment represents a possible
obligation that depends on the occurrence of an uncertain future
event, it has been recognized as a contingent liability and no
amount has been recognized as a provision.





Off-balance sheet arrangements





The
Company does not have off-balance sheet arrangements including any
arrangements that would affect the liquidity, capital resources,
market risk support and credit risk support or other
benefits.





Cash Flows - Sources and Uses of Cash





The
following are the Company’s cash flows from operating,
investing and financing activities for the years ended June 30,
2020, 2019 and 2018:





18
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








Expressed in US Dollars


For the year
ended
For the year
ended
For the year
endedJune 30,
2020
June 30,
2019
June 30,
2018Cash
flows from operating activitiesNet
loss for the period
$(977,635)
$(3,210,504)
$(2,784,822)Items not affecting
cash:Amortization and
impairment
6,053
-
27,805Change in value of
warrant derivative liability
(386,940)
(73,532)
-Change in value of
lease liability
(3,337)
-
-Government
assistance
(7,372)
-
-Shared based
compensation
-
651,692
-Change in working
capital balances:(Increase) decrease
in amounts receivable and prepaid expenses
51,049
(28,291)
22,756Increase (decrease)
in accounts payable and accrued liabilities
(69,693)
425,320
111,311Increase (decrease)
in provision
(6,234)
-
(2,231)Increase (decrease)
in share subscriptions
68,411
-
-Net cash used in
operating activities
(1,325,698)
(2,235,315)
(2,625,181)Cash
flows from financing activitiesProceeds from short
term debt
29,486
-
-Lease liability
principal payment
(4,810)
-
-Proceeds from
issuance of common shares
998,620
2,444,015
-Proceeds from
exercise of warrants
-
-
923,169Common share issue
cost finder shares
-
17,966
-Common share issue
costs
(7,821)
(77,750)
-Net cash provided
by financing activities
1,015,475
2,384,231
923,169Effect of exchange
rate changes on cash
3,196
41,713
75,766Increase (decrease)
in cash and cash equivalents
(307,026)
190,629
(1,626,246)Cash and cash
equivalents - beginning of period
529,331
338,702
1,964,948Cash
and cash equivalents - end of period
$222,305
$529,331
$338,702


Investing Activities





The
Company owns metallurgical testing equipment and several vehicles
used for exploration purposes in Madagascar that were deemed
impaired and have no carrying values. The Company did not make any
equipment purchases during the years ended June 30, 2020 and
2019.





Financing Activities





The Company issued the following common shares during the year
ended June 30, 2020:





(a)
 On
October 25, 2019, the Company closed a non-brokered private
placement offering of 29,077,768 units at a price of $0.034
(CAD$0.045) per unit for aggregate gross proceeds of $998,620
(CAD$1,308,500). Each unit consisted of one common share and
one-half common share purchase warrant, with each full warrant
exercisable into one common share at an exercise price of $0.07
(CAD$0.09) for a period of two years. The share issue costs
consisted of private placement listing fees paid to the
exchange.








19
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019





Transactions with related parties





Parties
are related if one party has the direct or indirect ability to
control or exercise significant influence over the other party in
making operating and financial decisions. Parties are also related
if they are subject to common control or common significant
influence. A transaction is considered to be a related party
transaction when there is a transfer of economic resources or
financial obligations between related parties. Related party
transactions that are in the normal course of business and have
commercial substance are measured at the fair value.





Balances
and transactions between the Company and its wholly owned
subsidiaries, which are related parties of the Company, have been
eliminated and are not disclosed in this note.





Related
parties include companies controlled by key management personnel.
Key management personnel are composed of the Board of Directors,
Chief Executive Officer, Chief Financial Officer and the Senior
Vice Presidents of the Company.





The
following key management personnel related party transactions
occurred during the year ended June 30, 2020, 2019 and
2018:


For the year
ended
For the year
ended
For the year
endedJune 30,
2020
June 30,
2019
June 30,
2018$
$
$Management
payroll
381,777
439,175
453,109Management
fees
331,682
335,045
353,643Share
based compensation
-
640,692
-Total
713,459
1,414,912
806,752





The
following key management related party balances existed as of June
30, 2020, June 30, 2019 and June 30, 2018:


As
at
As
at
As
atJune 30,
2020
June 30,
2019
June 30,
2018$
$
$Prepaid payroll to
officers of the Company
-
26,568
26,632Accounts payable
due to officers of the Company
86,685
16,400
16,400Accrued liabilities
due to officers of the Company
54,727
-
-





Legal Proceedings





We are
not currently involved in any litigation that we believe could have
a material adverse effect on our financial condition or results of
operations. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of our Company or any of our
subsidiaries, threatened against or affecting our company, our
common stock, any of our subsidiaries or of our companies or our
subsidiaries' officers or directors in their capacities as such, in
which an adverse decision could have a material adverse
effect.





Changes in Accounting Policies





The
Company adopted IFRS 16, Leases (‘‘IFRS
16’’) with the date of initial application of July 1,
2019. Comparative information has not been restated and continues
to be reported under IAS 17, Leases (‘‘IAS
17’’) (the accounting standard in effect for those
periods).





20
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








Policy applicable from July 1, 2019:





At
inception of a contract, the Company assesses whether a contract
is, or contains, a lease. A contract contains a lease if the
contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. The
Company assesses whether:





●
 The contract
involves the use of an explicitly or implicitly identified
asset;


●
 The Company has the
right to obtain substantially all of the economic benefits from the
use of the asset throughout the contract term;


●
 The Company has the
right to direct the use of the asset.





The
Company recognizes a right-of-use asset and a lease liability at
the commencement date of the lease (i.e. the date the underlying
asset is available for use).





Right-of-use
assets are measured at cost, less any accumulated depreciation and
impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of right-of-use assets includes the initial
amount of lease liabilities recognized, initial direct costs
incurred, and lease payments made at or before the commencement
date less any lease incentives received.


Unless
the Company is reasonably certain to obtain ownership of the leased
asset at the end of the lease term, the right-of-use assets are
depreciated on a straight-line basis over the shorter of the
estimated useful life and the lease term. Right-of-use assets are
subject to impairment.





At the
commencement date of the lease, the Company recognizes lease
liabilities measured at the present value of lease payments to be
made over the lease term, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily
determined, the Company’s incremental borrowing rate. The
lease payments include fixed payments, variable lease payments that
depend on an index or a rate, amounts expected to be paid under
residual value guarantees and the exercise price of a purchase
option reasonably certain to be exercised by the
Company.





After
the commencement date, the amount of lease liabilities is increased
to reflect the accretion of interest and reduced for the lease
payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in
the lease term, a change in the fixed lease payments or a change in
the assessment to purchase the underlying asset.





The
Company presents right-of-use assets in the property, plant and
mine development line item on the consolidated balance sheets and
lease liabilities in the lease obligations line item on the
consolidated balance sheets.





Short-term leases and leases of low value assets





The
Company has elected not to recognize right-of-use assets and lease
liabilities for leases that have a lease term of 12 months or less
and do not contain a purchase option or for leases related to low
value assets. Lease payments on short-term leases and leases of low
value assets are recognized as an expense in the consolidated
statements of income.





Selected Annual Information and Selected Quarterly
Results





The
following is selected annual information for the three most
recently completed financial years:





For the year
ended
For the year
ended
For the year
endedJune 30,
2020
June 30,
2019
June 30,
2018$
$
$Revenues
-
-
-Exploration and
evaluation expenses
160,064
238,758
371,755Net loss and
comprehensive loss for the year
(974,439)
(3,168,791)
(2,709,056)Basic and diluted
loss per share for the year
(0.00)
(0.01)
(0.01)Total
assets
273,439
613,403
394,483Total non-current
financial liabilities
10,679
-
-Dividends
-
-
-








21
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








The
following is selected quarterly information for the eight most
recently completed quarters:





Quarter
EndedJune
30,
March
31,
December
31,
September
30,2020
2020
2019
2019$
$
$
$Revenues
-
-
-
-Exploration and
evaluation expenses
95,009
57,180
6,179
1,696Net loss and
comprehensive loss for the quarter
(425,550)
(34,999)
(340,010)
(173,880)Basic and diluted
loss per share for the quarter
(0.00)
(0.00)
(0.00)
(0.00)Working capital
(deficit) surplus
(918,048)
(484,374)
(449,374)
(839,074)





Quarter
EndedJune
30,
March
31,
December
31,
September
30,2019
2019
2018
2018$
$
$
$Revenues
-
-
-
-Exploration and
evaluation expenses
65,880
123,691
29,515
19,672Net loss and
comprehensive loss for the quarter
(1,749,161)
(542,996)
(461,060)
(415,574)Basic and diluted
loss per share for the quarter
(0.00)
(0.00)
(0.00)
(0.00)Working capital
(deficit) surplus
(665,886)
432,230
93,029
555,506





Managing Risk Factors





The
Company manages risks inherent to its business and has procedures
to identify and manage significant operational and financial risks.
The reader is cautioned to carefully review the risk factors
identified below in addition to the risk factors disclosed in our
financial statements for the year ended June 30, 2020 and our most
recent AIF.





Any
such risk factors could materially affect the Corporation’s
business, financial condition and/or future operating results and
prospects and could cause actual events to differ materially from
those described in forward-looking statements and information
relating to the Corporation. Additional risks and uncertainties not
currently identified by the Corporation or that the Corporation
currently believes not to be material also may materially and
adversely affect the Corporation’s business, financial
condition, operations or prospects.





The Corporation’s ability to continue as a going
concern.





The
independent auditor’s report on the financial statements of
the Corporation contains explanatory language that substantial
doubt exists about the Corporation’s ability to continue as a
going concern. Due to the Corporation’s lack of operating
history and present inability to generate revenues, the Corporation
has sustained operating losses since its inception.





If the
Corporation is unable to obtain sufficient financing in the near
term as required or achieve profitability, then the Corporation
would, in all likelihood, experience severe liquidity problems and
may have to curtail business activities. If the Corporation
curtails business activities, the Corporation may be placed into
bankruptcy or undergo liquidation, the result of which will
adversely affect the value of the securities of the
Corporation.





Development projects are uncertain, and it is possible that actual
capital and operating costs and economic returns will differ
significantly from those estimated for a project prior to
production.





Mine
development projects, including the Molo Graphite Project, require
significant expenditures during the development phase before
production is possible.





Development
projects are subject to the completion of successful feasibility
studies and environmental assessments, issuance of necessary
governmental permits and availability of adequate financing. The
economic feasibility of development projects is based on many
factors such as: estimation of mineral reserves, anticipated
recoveries, environmental considerations and permitting, future
commodity prices, and anticipated capital and operating costs of
these projects. It is not unusual in new mining operations to
experience unexpected problems during the start-up phase, and
delays can often occur at the start of production.





Particularly for
development projects, mineral reserve estimates and cash operating
costs are, to a large extent, based upon the interpretation of
geologic data obtained from drill holes and other sampling
techniques, and feasibility studies that derive estimates of cash
operating costs based upon anticipated tonnage and grades of ore to
be mined and processed, the configuration of the ore body, expected
recovery rates of metals from the ore, estimated operating costs,
anticipated climatic conditions and other factors. As a result, it
is possible that actual capital and operating costs and economic
returns will differ significantly from those currently estimated
for a project prior to production.





22
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








Any of
the following events, among others, could affect the profitability
or economic feasibility of the Molo Graphite Project: unanticipated
changes in grade and tonnes of material to be mined and processed,
unanticipated adverse geological conditions, unanticipated recovery
problems, incorrect data on which engineering assumptions are made,
availability and costs of labor, costs of processing, availability
of economic sources of power, adequacy of water supply,
availability of surface on which to locate processing facilities,
adequate access to the site, unanticipated transportation costs,
government regulations (including regulations with respect to
prices, royalties, duties, taxes, permitting, restrictions on
production, quotas on exportation of minerals, environmental),
fluctuations in commodity prices, accidents, labor actions, the
availability and delivery of critical equipment, successful
commissioning and start-up of operations, including the achievement
of designed plant recovery rates and force-majeure
events.





The
Molo Graphite Project has not yet been built and accordingly has no
operating history upon which to base estimates of future production
and cash operating costs. The price of graphite can fluctuate
significantly on a month-to-month and year-to-year basis. Declining
graphite prices can impact operations by forcing a reassessment of
the feasibility of the Molo Graphite Project.





It is
likely that actual results for the Molo Graphite Project will
differ from current estimates and assumptions, and these
differences may be material. In addition, experience from actual
mining or processing operations may identify new or unexpected
conditions that could reduce production below, or increase capital
or operating costs above, current estimates. If actual results are
less favorable than currently estimated, the Corporation’s
business, results of operations, financial condition and liquidity
could be materially adversely affected.





The Corporation’s development and exploration projects are in
the African country of Madagascar and are subject to country
political and regulatory risks.





A new
president of Madagascar was inaugurated in January 2019 following
democratic elections. The Corporation is actively monitoring the
political climate in Madagascar and continues to hold meetings with
new representatives of the government and the Ministries in charge
of mining. Depending on future actions taken by the newly elected
government, or any future government, the Corporation’s
business operations could be impacted.





Companies in the
mining and metals sector continue to be targeted to raise
government revenue, particularly as governments struggle with
deficits and concerns over the effects of depressed economies. Many
governments are continually assessing the fiscal terms of the
economic rent for mining companies to exploit resources in their
countries.





The
government of Madagascar has granted mining claims, permits, and
licenses that will enable us to conduct anticipated operations or
exploration and development activities. Notwithstanding, these
arrangements, the Corporation’s ability to conduct
operations, exploration and/or development activities at any of its
properties is subject to obtaining and/or renewing permits or
concessions, changes in laws or government regulations or shifts in
political attitudes beyond its control.





Any
adverse developments to the political and regulatory situation in
Madagascar could have a material effect on the Corporation’s
business, results of operations and financial condition. The
Corporation’s operations may also be affected in varying
degrees by terrorism; military conflict or repression; crime;
populism; activism; labour unrest; attempts to renegotiate or
nullify existing concessions, licenses, permits and contracts;
unstable or unreliable legal systems; changes in fiscal regimes
including taxation, and other risks arising out of sovereignty
issues.





The
Corporation does not currently carry political risk insurance
covering its investments in Madagascar. It may not be possible for
investors to enforce judgments in Canada against a loss suffered on
the Corporation’s assets and operations in
Madagascar.





Dependence on the Molo Graphite Project.





The
Corporation’s principal mineral property is the Molo Graphite
Project. As a result, unless the Corporation acquires or develops
any additional material properties or projects, any adverse
developments affecting this project or our rights to develop the
Molo Graphite Project could materially adversely affect the
Corporation’s business, financial condition and results of
operations.





Additional permits and licenses are necessary to complete the
development of the Molo Graphite Project.





The
Corporation successfully converted its exploration permit for the
Molo Graphite Project into a mining permit. However, the
Corporation requires additional permits necessary to construct and
operate the mine, including water use, construction, mineral
processing, transportation, export, and labour. Applications for
these additional permits and licenses will be undertaken in due
course at the appropriate time.





23
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








The
Corporation cannot provide any assurance as to the timing of the
receipt of any of the additional permits and licenses necessary to
initiate construction of the mine.





Mining companies are increasingly required to consider and provide
benefits to the communities and countries in which they operate,
and are subject to extensive environmental, health and safety laws
and regulations.





As a
result of public concern about the real or perceived detrimental
effects of economic globalization and global climate impacts,
businesses generally and large multinational corporations in
natural resources industries face increasing public scrutiny of
their activities. These businesses are under pressure to
demonstrate that, as they seek to generate satisfactory returns on
investment to shareholders, other stakeholders, including
employees, governments, communities surrounding operations and the
countries in which they operate, benefit and will continue to
benefit from their commercial activities. Such pressures tend to be
particularly focused on companies whose activities are perceived to
have a high impact on their social and physical environment. The
potential consequences of these pressures include reputational
damage, legal suits, increasing social investment obligations and
pressure to increase taxes and royalties payable to governments and
communities.





In
addition, the Corporation’s ability to successfully obtain
key permits and approvals to explore for, develop and operate mines
and to successfully operate in communities around the world will
likely depend on the Corporation’s ability to develop,
operate and close mines in a manner that is consistent with the
creation of social and economic benefits in the surrounding
communities, which may or may not be required by law. The
Corporation’s ability to obtain permits and approvals and to
successfully operate in particular communities may be adversely
impacted by real or perceived detrimental events associated with
the Corporation’s activities or those of other mining
companies affecting the environment, human health and safety of
communities in which the Corporation operates. Delays in obtaining
or failure to obtain government permits and approvals may adversely
affect the Corporation’s operations, including its ability to
explore or develop properties, commence production or continue
operations. Key permits and approvals may be revoked or suspended
or may be varied in a manner that adversely affects the
Corporation’s operations, including its ability to explore or
develop properties, commence production or continue
operations.





The
Corporation’s business operations are subject to extensive
laws and regulations governing worker health and safety and land
use and the protection of the environment, which generally apply to
air and water quality, protection of endangered, protected or other
specified species, hazardous waste management and reclamation. The
Corporation has made, and expect to make in the future, significant
expenditures to comply with such laws and regulations. Compliance
with these laws and regulations imposes substantial costs and
burdens, and can cause delays in obtaining, or failure to obtain,
government permits and approvals which may adversely impact the
Corporation’s closure processes and operations.





Fluctuations in the market price of graphite and other metals may
adversely affect the value of the Corporation’s securities
and the ability of the Corporation to develop the Molo Graphite
Project.





The
value of the Corporation’s securities may be significantly
affected by the market price of graphite and other metals, which
are cyclical and subject to substantial price fluctuations. Market
prices can be affected by numerous factors beyond the
Corporation’s control, including levels of supply and demand
for a broad range of industrial products, economic growth rates of
various international economies, expectations with respect to the
rate of inflation, the relative strength of various currencies,
interest rates, speculative activities, global or regional
political or economic circumstances. The Chinese market is a
significant source of global demand for commodities, including
graphite. Chinese demand has been a major driver in global
commodities markets for a number of years and recent reductions in
Chinese demand have adversely affected prices for graphite. A
further slowing in China’s economic growth could result in
even lower prices and could negatively impact the value of the
Corporation’s securities. Prolonged decreases in the price of
graphite or other metals could adversely impact the ability of the
Corporation to proceed with the development of the Molo Graphite
Project.





The Corporation may not have access to sufficient capital to
develop the Molo Graphite Project.





The
Corporation has limited capital, which is insufficient to
development the Molo Graphite Project. The Corporation’s
ability to develop the project will depend primarily on its ability
to obtain additional capital in the form of private or public
equity or debt financing. Access to mine financing has been
negatively impacted by the prolonged decline in commodities prices.
Therefore, there is no assurance that the Corporation will secure
sufficient financing, or the Corporation may be unable to locate
and secure capital on terms and conditions that are acceptable to
the Corporation. Any equity financing may have a dilutive effect on
the value of the Corporation’s securities. Any debt
financing, if available, may involve financial covenants which
limit operations and could be secured against all of the
Corporation’s assets. If the Corporation cannot obtain
additional capital, the Corporation may not be able to complete the
development of the Molo Graphite Project, which would have a
material adverse effect on the business, operating results and
financial condition of the Corporation.





24
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








The Corporation has a limited operating history and expects to
incur operating losses for the foreseeable future.





The
Corporation has principally operated as a mineral exploration
company since incorporation and has just received its first mining
permit. There are numerous difficulties normally encountered by
mineral exploration and development companies, and these companies
experience a high rate of failure.





The
Corporation has not earned any revenues and the Corporation has not
been profitable. It is anticipated that the Corporation will
continue to report negative operating cash flow in future periods,
likely until after the Molo Graphite Project generates recurring
revenues from being placed into production of which there is no
assurance. The Corporation has no history upon which to base any
assumption as to the likelihood that the business will prove
successful, and the Corporation can provide no assurance to
investors that it will generate any operating revenues or ever
achieve profitable operations.





Due to the speculative nature of mineral property exploration,
there is substantial risk that the Corporation’s assets will
not go into commercial production and the business will
fail.





Exploration for
minerals is a speculative venture involving substantial risk. The
Corporation cannot provide investors with any assurance that the
Corporation’s claims and properties will ever enter into
commercial production. The exploration work that the Corporation
has completed on the Molo Graphite Project claims may not result in
the commercial production of graphite. The exploration work that
the Corporation has completed on the Green Giant Vanadium Project
may not result in the commercial production of vanadium or other
minerals.





Estimates of mineral resources and mineral reserves may not be
realized.





Mineral
resource and mineral reserve estimates are only estimates and no
assurance can be given that any particular level of recovery of
minerals will be realized or that an identified mineral resource
will ever qualify as a commercially mineable (or viable) deposit
which can be legally and economically exploited. The Corporation
relies on laboratory-based recovery models to project estimated
ultimate recoveries by mineral type. There can be no assurance that
mineral recovery in small scale laboratory tests will be duplicated
in large scale tests under on-site conditions or in production
scale operations. Actual recoveries may exceed or fall short of
projected laboratory test results. In addition, the grade of
mineralization ultimately mined may differ from the one indicated
by the drilling results and the difference may be material.
Production can be affected by such factors as permitting
regulations and requirements, weather, environmental factors,
unforeseen technical difficulties, unusual or unexpected geological
formations, inaccurate or incorrect geologic, metallurgical or
engineering work, and work interruptions, among other things. Short
term factors, such as the need for an orderly development of
deposits or the processing of new or different grades, may have an
adverse effect on mining operations or the results of those
operations. Material changes in mineral reserves or mineral
resources, grades, waste-to-ore ratios or recovery rates may affect
the economic viability of projects. The estimated mineral reserves
and mineral resources should not be interpreted as assurances of
mine life or of the profitability of future operations





Because of the inherent dangers involved in mineral exploration,
there is a risk that the Corporation may incur liability or damages
as the Corporation conducts business.





The
search for valuable minerals involves numerous hazards. As a
result, the Corporation may become subject to liability for such
hazards, including pollution, cave-ins and other hazards against
which the Corporation cannot, or may elect not, to insure against.
The Corporation currently has no such insurance, but management
intends to periodically review the availability of commercially
reasonable insurance coverage. If a hazard were to occur, the costs
of rectifying the hazard may exceed the Corporation’s asset
value and cause us to liquidate all of its assets.





The
Corporation’s operations are subject to environmental
regulations, which could result in additional costs and operational
delays. Environmental legislation is evolving in a manner that may
require stricter standards, and enforcement, increased fines and
penalties for non-compliance, more stringent environmental
assessments of proposed projects, and a heightened degree of
responsibility for companies and their officers, directors, and
employees. There is no assurance that any future changes in
environmental regulation will not negatively affect the
Corporation’s projects.





The Corporation has no insurance for environmental
problems.





Insurance against
environmental risks, including potential liability for pollution or
other hazards as a result of the disposal of waste products
occurring from exploration and production, has not been available
generally in the mining industry. The Corporation has no insurance
coverage for most environmental risks. In the event of a problem,
the payment of environmental liabilities and costs would reduce the
funds available to us for future operations. If the Corporation is
unable to full pay for the cost of remedying an environmental
problem, the Corporation might be required to enter into an interim
compliance measure pending completion of the required
remedy.





25
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019








Should the Corporation lose the services of key executives, the
Corporation’s financial condition and proposed expansion may
be negatively impacted.





The
Corporation depends on the continued contributions of the
Corporation’s executive officers to work effectively as a
team, to execute its business strategy and to manage its business.
The loss of key personnel, or their failure to work effectively,
could have a material adverse effect on its business, financial
condition, and results of operations. Specifically, the Corporation
relies on Craig Scherba, the President and Chief Executive Officer
and Marc Johnson, the Chief Financial Officer.





The
Corporation does not maintain key man life insurance. Should the
Corporation lose any or all of their services and the Corporation
is unable to replace their services with equally competent and
experienced personnel, the Corporation’s operational goals
and strategies may be adversely affected, which will negatively
affect potential revenues.





Because access to the Corporation’s properties may be
restricted by inclement weather or proper infrastructure, its
exploration programs are likely to experience delays.





Access
to most of the properties underlying the Corporation’s claims
and interests is restricted due to their remote locations and
because of weather conditions. Some of the Corporation’s
properties are only accessible by air. As a result, any attempts to
visit, test, or explore the property are generally limited to those
periods when weather permits such activities. These limitations can
result in significant delays in exploration efforts, as well as
mining and production efforts in the event that commercial amounts
of minerals are found. This could cause the Corporation’s
business to fail.





COVID-19 may impact the Corporation’s business and
development plans.





In
March 2020 the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health
developments, has adversely affected workforces, economies, and
financial markets globally, potentially leading to an economic
downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations at this time. The impact of COVID-19 on the Company has
been limited since no exploration or development work was ongoing
at the start of the pandemic. The Company was already setup to
operate and communicate remotely through the internet although
certain of our overseas staff and contractors have been indirectly
impacted by intermittent COVID-19 lockdowns in Madagascar and in
South Africa. Further lockdowns and unforeseen impacts could result
in delays to obtaining Molo Graphite Project construction
financing, the necessary construction and operating permits,
completing construction within the expected timeline, and
initiating and maintaining mining and plant
operations.





Climate change and related regulatory responses may impact the
Corporation’s business.





Climate
change as a result of emissions of greenhouse gases is a current
topic of discussion and may generate government regulatory
responses in the near future. It is impracticable to predict with
any certainty the impact of climate change on the
Corporation’s business or the regulatory responses to it,
although the Corporation recognizes that they could be significant.
However, it is too soon for us to predict with any certainty the
ultimate impact, either directionally or quantitatively, of climate
change and related regulatory responses.





To the
extent that climate change increases the risk of natural disasters
or other disruptive events in the areas in which the Corporation
operates, the Corporation could be harmed. While the Corporation
maintains rudimentary business recovery plans that are intended to
allow us to recover from natural disasters or other events that can
be disruptive to the Corporation’s business, its plans may
not fully protect us from all such disasters or
events.





Compliance with changing regulation of corporate governance and
public disclosure will result in additional expenses and pose
challenges for management.





The
Corporation’s management team needs to devote significant
time and financial resources to comply with both existing and
evolving standards for public companies, which will lead to
increased general and administrative expenses and a diversion
of management time and attention from revenue generating activities
to compliance activities.





Tax risks.





Changes
in tax laws or tax rulings could materially affect the
Corporation’s financial position and results of operations.
Changes to, or differing interpretations of, taxation laws or
regulations in Canada, Madagascar, the United States of America, or
any of the countries in which the Corporation’s assets or
relevant contracting parties are located could result in some or
all of the Corporation’s profits being subject to additional
taxation or other tax liabilities being applicable to the
Corporation or its subsidiaries. Taxation laws are complex, subject
to differing interpretations and applications by the relevant tax
authorities. In particular, the tax treatment relating to the
Corporation’s corporate redomicile from the US to Canada is
complex. There is no assurance that new taxation rules or
accounting policies will not be enacted or that existing rules will
not be applied in a manner which could result in the
Corporation’s profits being subject to additional taxation or
which could otherwise have a material adverse effect on
profitability, results of operations, financial condition and the
trading price of the Corporation’s securities. Additionally,
the introduction of new tax rules or accounting policies, or
changes to, or differing interpretations of, or application of,
existing tax rules or accounting policies could make investments in
or by the Corporation less attractive to counterparties. Such
changes could adversely affect the Corporation’s ability to
raise additional funding or make future investments.





26
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019











The Corporation’s business is subject to anti-corruption and
anti-bribery laws, a breach or violation of which could lead to
civil and criminal fines and penalties, loss of licenses or permits
and reputational harm.





The
Corporation operates in certain jurisdictions that have experienced
governmental and private sector corruption to some degree, and, in
certain circumstances, strict compliance with anti-bribery laws may
conflict with certain local customs and practices. Anti-corruption
and anti-bribery laws in certain jurisdictions generally prohibit
companies and their intermediaries from making improper payments
for the purpose of obtaining or retaining business or other
commercial advantage. The Corporation’s corporate policies
mandate compliance with these anti-bribery laws, which often carry
substantial penalties. There can be no assurance that the
Corporation’s internal control policies and procedures always
will protect it from recklessness, fraudulent behavior, dishonesty
or other inappropriate acts committed by the Corporation’s
affiliates, employees or agents. As such, the Corporation’s
corporate policies and processes may not prevent all potential
breaches of law or other governance practices. Violations of these
laws, or allegations of such violations, could lead to civil and
criminal fines and penalties, litigation, and loss of operating
licenses or permits, and may damage the Corporation’s
reputation, which could have a material adverse effect on its
business, financial position and results of operations or cause the
market value of the Common Shares to decline.





The Corporation does not intend to pay dividends in the foreseeable
future.





The
Corporation does not anticipate paying cash dividends in the
foreseeable future. The Corporation may not have sufficient funds
to legally pay dividends. Even if funds are legally available to
pay dividends, the Corporation may nevertheless decide, in its sole
discretion, not to pay dividends. The declaration, payment and
amount of any future dividends will be made at the discretion of
the board of directors, and will depend upon, among other things,
the results of the Corporation’s operations, cash flows and
financial condition, operating and capital requirements, and other
factors the board of directors may consider relevant. There is no
assurance that the Corporation will pay any dividends in the
future, and, if dividends are paid, there is no assurance with
respect to the amount of any such dividend.





Because from time to time the Corporation holds a significant
portion of cash reserves in Canadian dollars, the Corporation may
experience losses due to foreign exchange
translations.





From
time to time the Corporation holds a significant portion of cash
reserves in Canadian dollars. Due to foreign exchange rate
fluctuations, the value of these Canadian dollar reserves can
result in translation gains or losses in U.S. dollar terms. If
there was a significant decline in the Canadian dollar versus the
U.S. dollar, the Corporation’s converted Canadian dollar cash
balances presented in U.S. dollars on its balance sheet would
significantly decline. If the US dollar significantly declines
relative to the Canadian dollar the Corporation’s quoted US
dollar cash position would significantly decline as it would be
more expensive in US dollar terms to pay Canadian dollar expenses.
The Corporation has not entered into derivative instruments to
offset the impact of foreign exchange fluctuations. In addition,
certain of the Corporation’s ongoing expenditures are in
South African Rand, Madagascar Ariary and Euros requiring us to
occasionally hold reserves of these foreign currencies with a
similar risk of foreign exchange currency translation
losses.





The Corporation is exposed to general economic conditions, which
could have a material adverse impact on its business, operating
results and financial condition.





Recently there have
been adverse conditions and uncertainty in the global economy as
the result of unstable global financial and credit markets,
inflation, and recession. These unfavorable economic conditions and
the weakness of the credit market may continue to have, an impact
on the Corporation’s business and the Corporation’s
financial condition. The current global macroeconomic environment
may affect the Corporation’s ability to access the capital
markets may be severely restricted at a time when the Corporation
wishes or needs to access such markets, which could have a
materially adverse impact on the Corporation’s flexibility to
react to changing economic and business conditions or carry on
operations.





The current financial environment may impact the
Corporation’s business and financial condition that cannot
predict.





The
continued instability in the global financial system and related
limitation on availability of credit may continue to have an impact
on the Corporation’s business and financial condition, and
the Corporation may continue to face challenges if conditions in
the financial markets do not improve. The Corporation’s
ability to access the capital markets has been restricted as a
result of the economic downturn and related financial market
conditions and may be restricted in the future when the Corporation
would like, or need, to raise capital. The difficult financial
environment may also limit the number of prospects for potential
joint venture, asset monetization or other capital raising
transactions that the Corporation may pursue in the future or
reduce the values the Corporation is able to realize in those
transactions, making these transactions uneconomic or difficult to
consummate.





27
  NEXTSOURCE MATERIALS INC.
 MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the years ended June 30, 2020 and 2019











The market price for the Common Shares is particularly volatile
given the Corporation’s status as a relatively unknown
company with a small and thinly traded public float, limited
operating history and lack of profits which could lead to wide
fluctuations in the market price for the Common
Shares.





The
market price for the Common Shares is characterized by significant
price volatility when compared to seasoned issuers, and the
Corporation expects that its share price will continue to be more
volatile than a seasoned issuer. Such volatility is attributable to
a number of factors. First, the Common Shares, at times, are thinly
traded. As a consequence of this lack of liquidity, the trading of
relatively small quantities of Common Shares by shareholders may
disproportionately influence the price of those Common Shares in
either direction. The price for the Common Shares could, for
example, decline precipitously in the event that a large number of
Common Shares are sold on the market without commensurate demand,
as compared to a seasoned issuer which could better absorb those
sales without adverse impact on its share price. Second, the
Corporation are a speculative or “risky” investment due
to the Corporation’s limited operating history, lack of
profits to date and uncertainty of future market acceptance for the
Corporation’s potential products. As a consequence, more
risk-adverse investors may, under the fear of losing all or most of
their investment in the event of negative news or lack of progress,
be more inclined to sell their shares on the market more quickly
and at greater discounts than would be the case with the stock of a
seasoned issuer. Many of these factors are beyond the
Corporation’s control and may decrease the market price of
the Common Shares, regardless of the Corporation’s
performance. The Corporation cannot make any predictions as to what
the prevailing market price for the Common Shares will be at any
time or as to what effect that the sale of Common Shares or the
availability of Common Shares for sale at any time will have on the
prevailing market price.





Securities of
small-cap and mid-cap companies have experienced substantial
volatility in the recent past, often based on factors unrelated to
the financial performance or prospects of the companies involved.
These factors include macroeconomic developments in North America
and globally and market perceptions of the attractiveness of
particular industries. The price of the Common Shares is also
likely to be significantly affected by short-term changes in
graphite prices and demand, the U.S. dollar, the Malagasy ariary,
the Canadian dollar, and the Corporation’s financial
condition or results of operations as reflected in its financial
statements. Other factors unrelated to the performance of the
Corporation that may have an effect on the price of the Common
Shares include the following: the extent of analytical coverage
available to investors concerning the Corporation’s business
may be limited if investment banks with research capabilities do
not follow the Corporation’s securities; lessening in trading
volume and general market interest in the Corporation’s
securities may affect an investor’s ability to trade
significant numbers of Common Shares; the size of the
Corporation’s public float may limit the ability of some
institutions to invest in its securities; and a substantial decline
in the price of the Common Shares that persists for a significant
period of time could cause its securities, if listed on an
exchange, to be delisted from such exchange, further reducing
market liquidity.





As a
result of any of these factors, the market price of the Common
Shares at any given point in time may not accurately reflect the
long-term value of the Corporation. Class action litigation often
has been brought against companies following periods of volatility
in the market price of their securities. The Corporation may in the
future be the target of similar litigation. Securities litigation
could result in substantial costs and damages and divert
management’s attention and resources.





Evaluation of Disclosure Controls and Procedures





Disclosure controls and procedures





Disclosure
controls and procedures are designed to provide reasonable
assurance that all relevant information is gathered and reported to
management, including the CEO and CFO, on a timely basis so that
appropriate decisions can be made regarding public
disclosure.





Internal controls over financial reporting





Internal
control over financial reporting means a process designed by or
under the supervision of the CEO and CFO, management and other
personnel to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS.





The
internal controls are not expected to prevent and detect all
misstatements due to error or fraud.





As at
June 30, 2020, the Corporation’s CEO and CFO have certified
that the disclosure controls and procedures were effective and that
during the year ended June 30, 2020, the Corporation did not make
any material changes in the internal controls over financial
reporting that materially affected or are reasonably likely to
materially affect the Corporation’s internal control over
financial reporting.





Other Information





Additional
information related to the Company, including the Company’s
Annual Information Form (“AIF”), is available on SEDAR
at www.sedar.com or on the Company website at www.nextsourcematerials.com.





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