NSRCF 0001654954-21-002365 6-K Filing: Mar 4, 2021

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 or 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

For the period ended December 31, 2020

Commission File Number 000-51151

NEXTSOURCE MATERIALS INC.
(Translation<br>of registrant’s name into English)
1940-130 King Street West<br><br><br>Toronto, Ontario, Canada<br><br><br>M5X 2A2
---
(Address<br>of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F

Form<br>20-F	☒	Form<br>40-F	☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes	☐	No	☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes	☐	No	☒

EXHIBITS

99.1

NextSource Materials Inc. Unaudited Condensed Consolidated Interim Financial Statements for the Six and Three Months Ended December 31, 2020 as filed on SEDAR on February 16, 2021.

99.2

NextSource Materials Inc. Management’s Discussion and Analysis for the Six and Three Months Ended December 31, 2020 as filed on SEDAR on February 16, 2021.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 4, 2021

NEXTSOURCE MATERIALS INC.
/s/<br>Marc Johnson<br><br><br>Marc<br>Johnson<br><br><br>Chief<br>Financial Officer
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nsrcf_ex991

Exhibit 99.1

NextSource Materials Inc.

Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

In accordance with National Instrument 51-102, the

Company discloses that its auditors have not reviewed these

unaudited condensed interim financial statements.

NextSource Materials Inc.

Unaudited Condensed Consolidated Interim Statements of Financial Position

Expressed in US Dollars

	December<br>31,	June<br>30,
	2020	2020
Assets
Current<br>Assets:
Cash and cash<br>equivalents (note 4)	$754,073	$222,305
Amounts<br>receivable	1,483	7,539
Prepaid<br>expenses	12,051	25,484
Total<br>Current Assets	767,607	255,328
Plant and Equipment<br>(note 7)	15,068	18,111
Total<br>Assets	$782,675	$273,439
Liabilities
Current<br>Liabilities:
Accounts payable<br>(note 16)	88,020	323,876
Accrued liabilities<br>(note 16)	397,004	370,449
Share<br>subscriptions	-	68,411
Short term debt<br>(note 17)	-	22,115
Provision (note<br>13)	173,448	174,418
Fair value of<br>warrant liability (note 12)	1,864,345	208,768
Current portion of<br>lease obligations (note 8)	6,008	5,339
Total<br>Current Liabilities	2,528,825	1,173,376
Lease obligations<br>(note 8)	8,113	10,679
Total<br>Liabilities	2,536,938	1,184,055
Shareholders’<br>Equity (Deficit)
Share capital (note<br>9)	104,890,605	103,901,775
Accumulated<br>deficit	(106,763,719)	(104,933,066)
Accumulated other<br>comprehensive income	118,851	120,675
Total<br>Shareholders’ Equity (Deficit)	(1,754,263)	(910,616)
Total<br>Liabilities and Shareholders’ Equity (Deficit)	$782,675	$273,439

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

Nature of Operations and Going Concern (note 1)

Mineral Exploration Properties (note 3)

NextSource Materials Inc.

Unaudited Condensed Consolidated Interim Statements of Operations and Comprehensive Loss

Expressed in US Dollars

	The<br>six months	The<br>six months	The<br>three months	The<br>three months
	ended<br>on	ended<br>on	ended<br>on	ended<br>on
	December<br>31,	December<br>31,	December<br>31,	December<br>31,
	2020	2019	2020	2019
Revenues	$-	$-	$-	$-
Expenses<br>and other income
Exploration and<br>evaluation expenses (notes 3, 4, 5)	70,625	32,903	64,158	24,582
Payroll and<br>benefits (note 16)	188,948	225,851	96,570	114,439
Management fees<br>(note 16)	166,974	173,082	84,203	89,833
Consulting<br>fees	88,297	86,671	66,593	25,501
Professional and<br>legal fees (note 6)	104,080	50,391	66,053	(30,289)
Public filing<br>expenses	54,901	56,063	24,446	30,575
Share-based<br>compensation (note 10)	20,669	-	20,669	-
Travel<br>expenses	2,307	50,492	-	37,576
Investor relation<br>expenses	8,590	17,482	2,760	2,740
Insurance<br>expenses	14,652	9,999	7,475	5,759
Rent<br>expenses	9,775	10,381	5,329	5,464
Information<br>technology expenses	4,319	7,605	1,952	5,731
Telecommunications	997	1,463	420	717
General and<br>administrative expenses	4,999	7,065	757	5,055
Amortization of<br>property, plant and equipment (note 7)	3,043	-	1,521	-
Finance costs (note<br>8)	730	-	730	-
Bank<br>fees	1,784	2,025	967	1,074
Foreign currency<br>translation (gain) loss	(31,223)	1,811	(14,972)	4,120
Interest expense<br>(income)	145	201	(626)	156
Change in value of<br>warrant liability (note 12)	1,116,041	(220,832)	1,120,933	20,178
Foreign<br>taxes	-	769	-	769
Net<br>loss for the period	(1,830,653)	(513,422)	(1,549,938)	(343,980)
Other comprehensive income
Items that will be reclassified subsequently to loss
Translation<br>adjustment for foreign operations	(1,824)	225	(2,369)	3,970
Net<br>loss and comprehensive loss for the period	$(1,832,477)	$(513,197)	$(1,552,307)	$(340,010)
Weighted-average<br>common shares (basic and diluted)	567,131,172	509,798,767	598,145,746	528,740,718
Net loss per common<br>shares (basic and diluted	$(0.00)	$(0.00)	$(0.00)	$(0.00)

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

NextSource Materials Inc.

Unaudited Condensed Consolidated Interim Statements of Cash Flows

Expressed in US Dollars

	For<br>the six months ended	For<br>the six months ended
	December<br>31,	December<br>31,
	2020	2019
Cash<br>flows from operating activities
Net<br>loss for the period	$(1,830,653)	$(513,422)
Add (deduct) items<br>not affecting cash:
Amortization of<br>property, plant and equipment	3,043	-
Change in value of<br>warrant derivative liability	1,116,041	(220,832)
Share-based<br>compensation	20,669	-
Change in value of<br>lease liability	1,220	-
Change in non-cash<br>working capital balances:
(Increase) decrease<br>in amounts receivable and prepaid expenses	19,489	24,639
Increase (decrease)<br>in accounts payable and accrued liabilities	(209,301)	(242,966)
Increase (decrease)<br>in provision	(970)	-
Increase (decrease)<br>in share subscriptions received in advance	(68,411)	-
Net cash used in<br>operating activities	(948,873)	(952,581)
Cash<br>flows from financing activities
Short term<br>debt	(22,115)	-
Lease liability<br>principal payments	(3,117)	-
Proceeds from<br>issuance of common shares	1,476,571	998,619
Exercise of stock<br>options	40,418	-
Common share issue<br>costs	(9,292)	(7,820)
Net cash provided<br>by financing activities	1,482,465	990,799
Effect of exchange<br>rate changes on cash	(1,824)	225
Increase (decrease)<br>in cash and cash equivalents	531,768	38,443
Cash and cash<br>equivalents - beginning of period	222,305	529,331
Cash<br>and cash equivalents - end of period	754,073	567,774

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

NextSource Materials Inc.

Unaudited Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity

Expressed in US Dollars

	Shares		Accumulated	Accumulated<br>Other	Total<br>(Deficit)
	Outstanding	Share<br>Capital	Deficit	Comprehensive<br>Income	Equity
Balance<br>– June 30, 2019	507,417,021	$103,172,066	$(103,955,431)	$117,479	$(665,886)
Private<br>placement of common shares	29,077,768	998,620	-	-	998,620
Cost<br>of issue of private placement of common shares	-	(7,821)	-	-	(7,821)
Reclassification<br>as warrant liability	-	(261,090)	-	-	(261,090)
Net<br>loss for the period	-	-	(513,422)	-	(513,422)
Cumulative<br>translation adjustment	-	-	-	225	225
Balance<br>– December 31, 2019	536,494,789	103,901,775	(104,468,853)	117,704	(449,374)
Net<br>loss for the period	-	-	(464,213)	-	(464,213)
Cumulative<br>translation adjustment	-	-	-	2,971	2,971
Balance<br>– June 30, 2020	536,494,789	103,901,775	(104,933,066)	120,675	(910,616)
Private<br>placement of common shares	61,578,783	1,476,571	-	-	1,476,571
Cost<br>of issue of private placement of common shares	-	(9,292)	-	-	(9,292)
Reclassification<br>as warrant liability	-	(539,536)	-	-	(539,536)
Exercise<br>of stock options	721,741	40,418	-	-	40,418
Share-based<br>compensation	-	20,669	-	-	20,669
Net<br>loss for the period	-	-	(1,830,653)	-	(1,830,653)
Cumulative<br>translation adjustment	-	-	-	(1,824)	(1,824)
Balance<br>– December 31, 2020	598,795,313	$104,890,605	$(106,763,719)	$118,851	$(1,754,263)

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

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

Nature of Operations and Going Concern

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

The Company's principal business is the acquisition, exploration, development and mining of mineral resources in Madagascar and Canada. The Canadian exploration project is not a focus for the Company at this time. The Company does not operate any mines and has not initiated construction on any mines. No commercial revenue has ever been generated by any mineral resource properties.

The Company, through its wholly owned foreign subsidiaries, owns mineral claims and has obtained a mining permit for the Molo Graphite Project, which is located in Madagascar, but has not secured all supporting permits and has not secured sufficient financing to begin construction of the mine.

The Company does not pay dividends and is unlikely to do so in the immediate or foreseeable future.

These unaudited condensed consolidated interim financial statements were approved by the Board of Directors on February 15, 2021.

Covid-19

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 consultants and contractors have been indirectly impacted by intermittent COVID-19 lockdowns in Madagascar and in South Africa.

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.

Going Concern Assumption

The accompanying consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

As of December 31, 2020, the Company had an accumulated deficit of $106,763,719 (June 30, 2020: $104,933,066) 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. In assessing whether the going concern assumption is appropriate, management considers all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period. The Company's ability to continue operations and fund its exploration and development expenditures is dependent on management's ability to secure additional financing. Management is actively pursuing such additional sources of financing, and while it has been successful in doing so in the past, there can be no assurance it will be able to do so in the future. These conditions may raise substantial doubt about the Company’s ability to continue as a going concern.

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

Nature of Operations and Going Concern (continued)

These unaudited condensed consolidated interim financial statements do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore need to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying consolidated financial statements.

Significant Accounting Policies

Statement of compliance with IFRS

These condensed consolidated interim financial statements have been prepared in accordance and comply with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) using accounting principles consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the IFRS Interpretations Committee (“IFRIC”). The accounting policies adopted are consistent with those of the previous financial year and the corresponding interim reporting period. Furthermore, the information on accounting standards effective in future periods and not yet adopted remains unchanged from that disclosed in the annual financial statements.

These condensed consolidated interim financial statements should be read in conjunction with the Company’s 2020 annual audited consolidated financial statements, including the accounting policies and notes thereto, included in the Annual Information Form/Form 40-F for the year ended June 30, 2020, which were prepared in accordance with IFRS.

These condensed consolidated interim financial statements follow the same accounting policies and methods of their application as the June 30, 2020 annual audited consolidated financial statements.

Basis of measurement

These condensed consolidated interim financial statements have been prepared under the historical cost basis except for certain financial instruments that are measured at fair values, as explained in the accounting policies below.

Basis of consolidation

These condensed consolidated interim financial statements include the financial position, results of operation and cash flows of the Company and its wholly owned subsidiaries. Intercompany balances, transactions, income and expenses, profits and losses, including gains and losses relating to subsidiaries have been eliminated on consolidation.

Significant accounting estimates, judgments and assumptions

To prepare financial statements in conformity with IFRS, the Company must make estimates, judgements and assumptions concerning the future that affect the carrying values of assets and liabilities as of the date of the financial statements and the reported values of revenues and expenses during the reporting period. By their nature, these are uncertain and actual outcomes could differ from the estimates, judgments and assumptions.

The impacts of such estimates are pervasive throughout the financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and also in future periods when the revision affects both current and future periods. Significant accounting judgments, estimates and assumptions are reviewed on an ongoing basis.

The areas involving significant judgments, estimates and assumptions have been detailed in Note 2 to the Company’s audited consolidated financial statements for the year ended June 30, 2020.

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

Mineral Exploration Properties

The Company has not capitalized any acquisition and exploration costs for its mineral properties.

Molo Graphite Property, Southern Madagascar Region, Madagascar

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, subject to Malagasy retaining a 1.5% net smelter royalty (“NSR”). 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. 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 1 ½ additional claim blocks covering 10,811 hectares adjoining the east side of the Molo Graphite Property. Prior to becoming a Director of the Company, Brett Whalen purchased an option to acquire the 1.5% NSR from Malagasy, upon the mine achieving commercial production, in return for a further payment to Malagasy.

The Molo Graphite Project is located within Exploration Permit #3432 (“PR 3432”) as issued by the Bureau de Cadastre Minier de Madagascar (“BCMM”) pursuant to the Mining Code 1999 (as amended) and its implementing decrees. The Molo Graphite Project exploration permit PR 3432 is currently held under the name of our Madagascar subsidiary, which 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. These taxes and administrative fee payments have been acknowledged and accepted by the Madagascar government.

During fiscal 2017, the Company applied to the BCMM to have PR 3432 converted into a mining permit.

On February 15, 2019, 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.

On April 11, 2019, the Company 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”).

The application for other necessary permits to construct and operate the mine, including water use, facilities construction, mineral processing, transportation, export, and labour have been initiated.

As at the date hereof, the timing of the advancement into Phase 1 of the Molo Graphite Project is contingent upon obtaining construction financing. Discussions in respect of negotiating and structuring strategic partnerships, off take agreements and 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.

The Company cannot provide any assurance as to the timing of the receipt of sufficient construction financing and of any of the permits and licenses that are still necessary to complete the construction of the mine and initiate operations. In the event that construction financing is not available, the Company will not be able to pursue any substantial work in connection with the development of the Molo Graphite Project.

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

Mineral Exploration Properties – continued

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 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, which 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. These taxes and administrative fee payments have been acknowledged and accepted by the Madagascar government.

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.

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 December 31, 2020, the Sagar property consisted of 184 claims covering a total area of 8,539.58 ha.

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

Segmented Reporting

The Company has one operating segment, which involves the acquisition, exploration and development of mineral resources in Madagascar and Canada. The Canadian exploration project is not a focus for the Company at this time. No commercial revenue has ever been generated by any mineral resource properties. Limited amounts of cash and equipment are currently held in Madagascar. Substantially all of the Company assets are held in Canada. The Company's President and Chief Executive Officer and Chief Financial Officer are the operating decision-makers and direct the allocation of resources to its geographic segments.

The following is the segmented information by geographic region:

Mineral<br>Exploration Expenses	Madagascar	Canada	Total
	$	$	$
Six months ended<br>December 31, 2020	68,943	1,682	70,625
Three months ended<br>December 31, 2020	62,860	1,298	64,158
Six months ended<br>December 31, 2019	28,564	4,339	32,903
Three months ended<br>December 31, 2019	21,552	3,030	24,582
Cash<br>and Cash Equivalents	Madagascar	Canada	Total
---	---	---	---
	$	$	$
As of December 31,<br>2020	7,663	746,410	754,073
As of June 30,<br>2020	14,054	208,251	222,305

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:

	The<br>six months	The<br>six months	The<br>three months	The<br>three months
	ended<br>on	ended<br>on	ended<br>on	ended<br>on
	December<br>31,	December<br>31,	December<br>31,	December<br>31,
	2020	2019	2020	2019
Exploration<br>activities	-	-	-	-
Metallurgical<br>evaluation	-	-	-	-
Mineral claims<br>(Canada)	1,681	4,339	1,297	3,030
Mineral claims<br>(Madagascar)	57,845	-	57,845	-
Camp<br>(Madagascar)	11,099	28,564	5,016	21,552
Total exploration<br>and evaluation	70,625	32,903	64,158	24,582

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

Professional and Legal Fees

Professional and legal fees consist of accounting, auditor, tax advisory, legal and offshore entity management fees. The following is the breakdown by nature of the expenses:

	The<br>six months	The<br>six months	The<br>three months	The<br>three months
	ended<br>on	ended<br>on	ended<br>on	ended<br>on
	December<br>31,	December<br>31,	December<br>31,	December<br>31,
	2020	2019	2020	2019
Accounting<br>fees	15,543	13,638	7,917	10,821
Auditor<br>fees	39,974	19,033	31,000	859
Tax advisory<br>fees	7,624	7,277	3,846	7,277
Legal<br>fees	39,544	10,443	21,895	(49,246)
Offshore management<br>fees	1,395	-	1,395	-
Total exploration<br>and evaluation	104,080	50,391	66,053	(30,289)

Plant and Equipment

The Company owns metallurgical testing equipment and several vehicles in Madagascar that were previously used for exploration purposes that have no carrying values. Upon the Company’s adoption of IFRS 16 on July 1, 2019, the Company recognized $24,164 for leased right-of-use assets in relation to the long-term lease for the exploration camp in Fotadrevo, Madagascar.

The following table sets out the carrying amounts of plant and equipment in the consolidated statement of financial position and the movements between the reporting periods:

	Plant	Equipment	Total
	$	$	$
Balance<br>– June 30, 2019	-	-	-
Adoption<br>of IFRS 16	24,164	-	24,164
Amortization	(6,053)	-	(6,053)
Balance<br>– June 30, 2020	18,111	-	18,111
Additions	-	-	-
Amortization	(3,043)	-	(3,043)
Balance<br>– December 31, 2020	15,068	-	15,068

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

Lease obligations

The Company is party to several 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. The Company recognized rent expense relating to short-term leases of $9,775 in the consolidated statements of operations and comprehensive loss.

Upon the Company’s adoption of IFRS 16 on July 1, 2019, the Company recognized $24,164 of lease obligations for leased right-of-use assets in relation to the long-term lease for the exploration camp in Fotadrevo, Madagascar. The following table sets out the carrying amounts of lease obligations for right-of-use assets that are included in the consolidated statement of financial position and the movements between the reporting periods:

	Property	Plant	Equipment	Total
	$	$	$	$
Balance<br>– July 1, 2019	-	-	-	-
Adoption<br>of IFRS 16	-	24,164	-	24,164
Amortization<br>of lease obligation	-	(4,810)	-	(4,810)
Foreign<br>exchange adjustments	-	(3,336)	-	(3,336)
Balance<br>– June 30, 2020	-	16,018	-	16,018
Additions	-	-	-	-
Lease<br>payments		(3,117)		(3,117)
Finance<br>costs	-	730	-	730
Foreign<br>exchange adjustments	-	490	-	490
Balance<br>– December 31, 2020	-	14,121	-	14,121

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

	Property	Plant	Equipment	Total
	$	$	$	$
Current<br>portion of lease obligations	-	6,008	-	6,008
Long-term<br>lease obligations	-	8,113	-	8,113
Balance<br>– December 31, 2020	-	14,121	-	14,121

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

Lease obligations (continued)

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

	Property	Plant	Equipment	Total
	$	$	$	$
Within<br>12 months	-	6,323	-	6,323
Between<br>13 and 24 months	-	6,323	-	6,323
Between<br>25 and 36 months	-	3,161	-	3,161
Between<br>37 and 48 months	-	-	-	-
Between<br>49 and 60 months	-	-	-	-
Thereafter	-	-	-	-
Total<br>undiscounted lease obligations	-	15,807	-	15,807

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

Share Capital

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 December 31, 2020, the Company had 598,795,313 common shares issued and outstanding (June 30, 2020: 536,494,789).

The Company issued the following common shares during the six months ended December 31, 2020:

(a)

On July 2, 2020, the Company completed a non-brokered private placement of 61,578,873 units at a price of $0.024 (CAD$0.0325) for gross proceeds of $1,476,571 (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.

(b)

On December 22, 2020, a total of 721,741 stock options were exercised at a price of $0.056 (CAD$0.0721) into 721,741 common shares for gross proceeds of $40,418 (CAD$52,038).

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

10.

Long term incentive plan

The Company’s long term incentive plan (the “LTIP plan”) is restricted to a maximum of 10% of the issued and outstanding common shares. Under the LTIP plan, the Company may grant stock options and restricted share units (“RSUs”) to directors, officers, employees and consultants. The Board of Directors administers the plan and determines the vesting and terms of each grant.

Stock Options

The fair value of stock options is based on the Black-Scholes option valuation model which several inputs including the market price, the exercise price, compound risk free interest rate, annualized volatility and the number of periods until expiration. Each stock option entitles the holder to purchase one common share of the Company at the respective exercise price prior to, or on, its expiration date. The fair value is expensed over the vesting period.

As of December 31, 2020, the Company had 22,100,000 stock options issued and outstanding (June 30, 2020: 36,250,000) with a weighted average expiration of 2.15 years (June 30, 2020: 2.28 years), which are exercisable into 22,100,000 common shares (June 30, 2020: 36,250,000) at a weighted average exercise price of $0.07 (June 30, 2020: $0.067). All stock options that are currently outstanding vested on the grant date.

The following is a schedule of the outstanding stock options:

Grant	Expiration	Exercise	Balance<br>on	Granted	Exercised	Balance<br>on
Date	Date	Price	June<br>30,	(Expired)		December<br>31,
			2020	(Cancelled)		2020
December 22,<br>2015	December 22,<br>2020	USD<br>$0.056	6,300,000	(5,578,259)	(721,741)	-
June 9,<br>2017	June 9,<br>2022	USD<br>$0.066	18,100,000	(4,700,000)	-	13,400,000
March 26,<br>2019	March 26,<br>2024	CAD<br>$0.10	11,850,000	(3,150,000)	-	8,700,000
Totals			36,250,000	(13,428,259)	(721,741)	22,100,000

The following is a continuity schedule of the outstanding stock options:

	Weighted-Average	Number<br>of
	Exercise<br>Price	Stock<br>Options
Outstanding as of<br>June 30, 2019	$0.080	40,670,000
Granted	-	-
Exercised	-	-
Expired/cancelled	0.174	(4,420,000)
Outstanding as of<br>June 30, 2020	$0.067	36,250,000
Granted	-	-
Exercised	0.056	(721,741)
Expired/cancelled	0.068	(13,428,259)
Outstanding as of<br>December 31, 2020	$0.070	22,100,000

The Company did not grant any stock options during the six months ended December 31, 2020. The Company did not grant any stock options during the year ended June 30, 2020.

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

10.

Long term incentive plan (continued)

Restricted share units (RSUs)

The fair value of RSUs is based on the grant-day intrinsic value of the shares that are expected to vest. Each RSU entitles the holder to receive common share of the company prior to, or on, its expiration date. Each RSU has a performance criterion that must be achieved for the RSU to vest. The fair value is expensed over the vesting period.

As of December 31, 2020, the Company had 5,174,424 RSUs issued and outstanding (June 30, 2020: Nil) with a weighted average expiration of 0.58 years (June 30, 2020: nil years) which entitle the holders to receive 5,174,424 common shares (June 30, 2020: nil) for no additional consideration. None of the outstanding RSUs have vested. The RSUs will vest if its respective performance criterion is satisfied.

The following is a schedule of the outstanding RSUs:

Grant	Expiration	Exercise	Balance<br>on	Granted	Exercised	Balance<br>on
Date	Date	Price	June<br>30,	(Expired)		December<br>31,
			2020	(Cancelled)		2020
December 29,<br>2020	February 16,<br>2021	-	-	1,724,808	-	1,724,808
December 29,<br>2020	August 16,<br>2021	-	-	1,724,808	-	1,724,808
December 29,<br>2020	February 16,<br>2022	-	-	1,724,808	-	1,724,808
Totals			-	5,174,424	-	5,174,424

The following is a continuity schedule of the outstanding RSUs:

	Weighted-Average	Number<br>of
	Exercise<br>Price	RSUs
Outstanding as of<br>June 30, 2019	$-	-
Granted	-	-
Exercised	-	-
Expired/cancelled	-	-
Outstanding as of<br>June 30, 2020	$-	-
Granted	-	5,174,424
Exercised	-	-
Expired/cancelled	-	-
Outstanding as of<br>December 31, 2020	$-	5,174,424

The Company issued the following RSUs during the six months ended December 31, 2020:

(a)

On December 29, 2020, the shareholders approved a resolution at the Annual General Meeting of Shareholders approving the grant of 5,174,424 RSUs. The RSUs entitle the holders to receive 5,174,424 common shares (June 30, 2020: nil) for no additional consideration. The RSUs will vest upon achieving project financing milestones related to the Molo Graphite Project and 33.33% of the RSUs will expire on each of Feb 16, 2021, August 16, 2021 and Feb 16, 2022. The fair value of RSUs is based on the grant-day intrinsic value of the shares that are expected to vest. The grant date fair value was estimated at $365,154 based on the expected issuance of 5,174,424 common shares using a grant-date market price of $0.071 (CAD$0.09). The fair value is subject to remeasurement at the end of each reporting period based on the probability of achieving the RSU performance criterion and adjustments for potential forfeitures. The fair value will be expensed over the vesting period. As of December 31, 2020, none of the RSUs had vested.

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

11.

Warrants

The Company has issued common share purchase warrants as part of equity private placements.

The fair value of warrants is determined using the Black-Scholes option valuation model based on the market price, the exercise price, compound risk free interest rate, annualized volatility and number of periods until expiration. Depending on the nature of the warrants, the fair value may be classified as equity or as a derivative financial liability settled through profit and loss. Each warrant entitles the holder to purchase one common share of the Company at the respective exercise price prior to or on the respective expiration date.

As of December 31, 2020, the Company had 45,328,278 common share purchase warrants issued and outstanding (June 30, 2020: 25,191,522) with a weighted average expiration of 1.28 years (June 30, 2020: 0.82 years), which are exercisable into 45,328,278 (June 30, 2020: 25,191,522) common shares at a weighted average exercise price of $0.05 (June 30, 2020: $0.07). All warrants that are currently outstanding vested on the issue date.

The following is a schedule of the outstanding common share purchase warrants:

Issued	Expiration	Exercise	Balance<br>on	Issued	Exercised	Balance<br>on
Date	Date	Price	June<br>30,	(Expired)		December<br>31,
			2020			2020
August 17,<br>2018	August 17,<br>2020	CAD<br>$0.100	10,652,636	(10,652,636)	-	-
October 25,<br>2019	October 25,<br>2021	CAD<br>$0.090	14,538,886	-	-	14,538,886
July 2,<br>2020	July 2,<br>2022	CAD<br>$0.065	-	30,789,392	-	30,789,392
Totals			25,191,522	20,136,756	-	45,328,278

The following is the continuity schedule of the common share purchase warrants:

	Weighted-Average	Number<br>of
	Exercise<br>Price	Stock<br>Options
Outstanding as of<br>June 30, 2019	$0.080	10,652,636
Issued	$CAD 0.090	14,538,886
Exercised	-	-
Expired	-	-
Outstanding as of<br>June 30, 2020	$0.070	25,191,522
Issued	$CAD 0.065	30,789,392
Exercised	-	-
Expired	$CAD 0.100	(10,652,636)
Outstanding as of<br>December 31, 2020	$0.070	45,328,278

The Company issued the following common share purchase warrants during the six months ended December 31, 2020:

(b)

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

12.

Warrant Liability

The warrants issued on August 17, 2018 were issued in a currency other than the Company’s functional currency and therefore are considered a derivative financial liability settled through profit and loss as per IFRS 9 Financial Instruments. The fair value of the warrants was measured as a financial liability using the Black-Scholes option valuation model on the issue date and will be remeasured at each reporting period through profit and loss until expiration or exercise of the underlying warrants.

The fair value of the warrant liability was estimated using the following model inputs on the following valuation dates:



Share<br>price	(CAD 0.09) <br>0.068
Exercise<br>price	(CAD 0.10) <br>0.076
Risk free<br>rate	1.50%
Expected<br>volatility	115%
Expected dividend<br>yield	Nil
Expected life (in<br>years)	2.00
As<br>of August 17, 2018 (issue date)
Change in fair<br>value through profit and loss
Share<br>price	(CAD<br>0.10) 0.076
Exercise<br>price	(CAD<br>0.10) 0.076
Risk free<br>rate	1.67%
Expected<br>volatility	100%
Expected dividend<br>yield	Nil
Expected life (in<br>years)	1.13
As<br>of June 30, 2019
Change in fair<br>value through profit and loss
Share<br>price	(CAD<br>0.04) 0.029
Exercise<br>price	(CAD<br>0.10) 0.073
Risk free<br>rate	0.20%
Expected<br>volatility	162%
Expected dividend<br>yield	Nil
Expected life (in<br>years)	0.13
As<br>of June 30, 2020
Change in fair<br>value through profit and loss
As<br>of August 17, 2020 (expiration)

All values are in US Dollars.

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

12.

Warrant Liability (continued)

The warrants issued on October 25, 2019 were issued in a currency other than the Company’s functional currency and therefore are considered a derivative financial liability settled through profit and loss as per IFRS 9 Financial Instruments. The fair value of the warrants was measured as a financial liability using the Black-Scholes option valuation model on the issue date and will be remeasured at each reporting period through profit and loss until expiration or exercise of the underlying warrants.

The fair value of the warrant liability was estimated using the following model inputs on the following valuation dates:



Share<br>price	(CAD 0.05) <br>0.038
Exercise<br>price	(CAD 0.09)<br>0.069
Risk free<br>rate	1.66%
Expected<br>volatility	115%
Expected dividend<br>yield	Nil
Expected life (in<br>years)	2.00
As<br>of October 25, 2019 (issue date)
Change in fair<br>value through profit and loss
Share<br>price	(CAD<br>0.04) 0.029
Exercise<br>price	(CAD<br>0.09) 0.064
Risk free<br>rate	0.25%
Expected<br>volatility	156%
Expected dividend<br>yield	Nil
Expected life (in<br>years)	1.32
As<br>of June 30, 2020
Change in fair<br>value through profit and loss
Share<br>price	(CAD<br>0.09) 0.071
Exercise<br>price	(CAD<br>0.09) 0.071
Risk free<br>rate	0.25%
Expected<br>volatility	138%
Expected dividend<br>yield	Nil
Expected life (in<br>years)	0.82
As<br>of December 31, 2020

All values are in US Dollars.

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

12.

Warrant Liability (continued)

The warrants issued on July 2, 2020 were issued in a currency other than the Company’s functional currency and therefore are considered a derivative financial liability settled through profit and loss as per IFRS 9 Financial Instruments. The fair value of the warrants was measured as a financial liability using the Black-Scholes option valuation model on the issue date and will be remeasured at each reporting period through profit and loss until expiration or exercise of the underlying warrants.

The fair value of the warrant liability was estimated using the following model inputs on the following valuation dates:



Share<br>price	(CAD 0.04) <br>0.029
Exercise<br>price	(CAD 0.065)<br> 0.048
Risk free<br>rate	0.25%
Expected<br>volatility	140%
Expected dividend<br>yield	Nil
Expected life (in<br>years)	2.00
As<br>of July 2, 2020 (issue date)
Change in fair<br>value through profit and loss
Share<br>price	(CAD<br>0.09) 0.071
Exercise<br>price	(CAD<br>0.065) 0.051
Risk free<br>rate	0.25%
Expected<br>volatility	128%
Expected dividend<br>yield	Nil
Expected life (in<br>years)	1.51
As<br>of December 31, 2020

All values are in US Dollars.

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

13.

Provision and Contingent Liability

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 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. During the six months ended December 31, 2020, the Company completed settlements totaling $12,330 and adjusted the provision due to foreign exchange fluctuations resulting in an ending balance of $173,448.

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 $788,900 (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, no amount has been recognized as a provision.

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

14.

Capital Management

There were no changes in the Company's approach to capital management during the six months ended December 31, 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 or development stage and the Company has yet to generate any revenue from mining operations, as such the Company is dependent on external financing to fund its exploration and evaluation activities and its operating expenditures. 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.

As of December 31, 2020, the Company had a working capital deficit of $1,761,218 (June 30, 2020: deficit of $918,048). Excluding the warrant liability, which is expected to be settled through the issuance of common shares, the Company had a working capital surplus of $103,127 (June 30, 2020: deficit of $709,280).

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

15.

Financial Instruments and Risk Management

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

As of December 31, 2020, the Company had cash and cash equivalents of $754,073 (June 30, 2020: $222,305) to settle current liabilities of $2,528,825 (June 30, 2020: $1,173,376) and current liabilities excluding the warrant liability, which is expected to be settled through the issuance of common shares, of $664,480 (June 30, 2020: $964,608). As a result, the Company is currently exposed to 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 of December 31, 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. 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 their respective expirations, 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.

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

16.

Related Party Transactions

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 key management, which consists of the Board of Directors, Chief Executive Officer, Chief Financial Officer and the Senior Vice Presidents of the Company. Related parties include companies controlled by key management.

The following key management related party transactions occurred during the following reporting periods:

	The<br>six months	The<br>six months	The<br>three months	The<br>three months
	ended<br>on	ended<br>on	ended<br>on	ended<br>on
	December<br>31,	December<br>31,	December<br>31,	December<br>31,
	2020	2019	2020	2019
Management and<br>director payroll	$187,477	$194,731	$95,099	$83,319
Management<br>consulting fees	166,974	166,487	84,203	83,238
Professional and<br>legal fees	7,836	6,595	3,980	6,595
Share-based<br>compensation	20,669	-	20,669	-
Total	382,956	367,813	203,951	173,152

The following key management related party balances existed as of the end of the following reporting periods:

	As<br>of	As<br>of
	December<br>31,	June<br>30,
	2020	2020
Accounts payable<br>due to companies controlled by key management	$55,308	$86,685
Accrued liabilities<br>due to key management	$40,126	$54,727

17.

Short-Term Debt

The Company has a Canada Emergency Business Account (CEBA), which is not subject to an interest rate until after December 31, 2022 and has loan forgiveness provisions whereby 25% of the loan principal will be forgiven if 75% of the loan principal is repaid prior to December 31, 2022.

As of December 31, 2020, the Company had previously withdrawn CAD $40,000 and repaid CAD $30,000 of loan principal. The Company has therefore recognized the loan forgiveness of CAD$10,000 resulting in a short-term debt carrying balance on December 31, 2020 of $nil (June 30, 2020: $22,115).

NextSource Materials Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

18.

Subsequent Events

On February 8, 2021, the Company announced that it has entered into a binding agreement with Vision Blue Resources (“Vision Blue”), a private investment company created and led by Sir Mick Davis, former CEO of Xstrata Plc, to provide a financing package (the “Financing Package”) for total gross proceeds of USD$29.5M. The proceeds of the Financing Package will be used to bring Phase 1 of the Company’s Molo graphite mine in Madagascar into full production, with targeted completion in the first half of 2022. The Financing Package will consist of an initial private placement, a second private placement that will be subject to shareholder approval, and a royalty agreement.

●

The initial private placement will consist of 120,000,000 common shares at a price of CAD$0.065 per share for total gross proceeds of USD$6.1 million (CAD$7.8 million). In connection with the initial private placement, the Company has granted Vision Blue certain rights, subject to maintaining certain shareholding thresholds, including the right to appoint two directors to the Board of the Company, inclusive of Sir Mick Davis, who will be appointed Chairman of the Board at the time of closing of the initial private placement. In addition, Vision Blue has been granted a right of first refusal to finance the expansion of the Molo Project as well as a right to participate in future equity financings on the same terms as such financing in order to maintain its ownership percentage in the Company. The initial private placement is expected to close near the end of February 2021.

●

The second private placement will consist of 232,142,857 units at a price of CAD$0.07 per unit, whereby each unit will consist of one common share and a common share purchase unit exercisable at a price of CAD$0.10 for a period of two years, for total gross proceeds of USD$12.4 million (CAD$16.25 million). In accordance with the policies of the Toronto Stock Exchange, the second private placement is subject to the approval of a majority of the shareholders at a special meeting of shareholders of the Company (the “Special Meeting”) that is expected to be held before May 31, 2021. The Officers and Directors of the Company have entered into voting undertaking agreements pursuant to which each have agreed to vote in favour of the resolution at the Special Meeting. The Company will schedule the Special Meeting shortly and will issue a further news release announcing the details of the Special Meeting once finalized. The securities acquired by Vision Blue will be subject to a 1-year lock-up from the closing of the Initial Private Placement with a periodic release schedule, which lock-up will terminate if the Second Private Placement does not occur for any reason. In addition, each of the Directors and Officers of the Company have agreed to similar lock-up periods for the securities that they hold.

●

The royalty agreement will consist of gross proceeds of USD$11 million (CAD$14.1 million) whereby the Company will pay to Vision Blue the greater of: (i) US$1.65 million or (ii) 3% of the gross revenues from SuperFlake® concentrate sales (the “GSR”). Once Vision Blue has received a cumulative royalty payment of US$16.5 million, the GSR will be calculated as 3% of the gross revenues from the Company’s SuperFlake® sales. NextSource will have the option at any time to reduce the GSR to 2.25% upon payment to Vision Blue of US$20 million. In addition, NextSource will pay to Vision Blue 1.0% of the gross revenues from sales of vanadium pentoxide (“V2O5”) for a period of 15 years following commencement of production of V2O5. Vision Blue will receive a 5% (US$1.5 million) financing fee on the total US$29.5 million Financing Package, equating to US$28 million in total net proceeds to NextSource. The financing fee will be payable only when the royalty financing is provided by Vision Blue.

On February 9, 2021, a total of 1,470,000 stock options were exercised at a price of $0.066 (CAD$0.0838) into 1,470,000 common shares for gross proceeds of $97,020 (CAD$123,215).

On February 12, 2021, a total of 550,000 common share warrants were exercised at a price of $0.071 (CAD$0.09) and 153,847 common share purchase warrants were exercised at a price of $0.051 (CAD$0.065) into 703,847 common shares for gross proceeds of $46,850 (CAD$59,500).

nsrcf_ex992

Exhibit 99.2

NextSource Materials Inc.

Interim Management’s Discussion and Analysis (MD&A)

For the six months ended December 31, 2020 and 2019

Expressed in US Dollars

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

Introduction

This interim 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 February 15, 2021, should be read in conjunction with NextSource’s consolidated financial statements for the year ended June 30, 2020 and the unaudited condensed consolidated interim financial statements for the six months ended December 31, 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;

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

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.

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.

Nature of Operations

The Company does not pay dividends and is unlikely to do so in the immediate or foreseeable future.

COVID-19

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.

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.

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

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.

Cautionary Note Regarding Operating Losses

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.

As of December 31, 2020, the Company had an accumulated deficit of $106,763,719 (June 30, 2020: $104,933,066) and 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.

In assessing whether the going concern assumption is appropriate, management considers all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period. The Company's ability to continue operations and fund its exploration and development expenditures is dependent on management's ability to secure additional financing. Management is actively pursuing such additional sources of financing, and while it has been successful in doing so in the past, there can be no assurance it will be able to do so in the future. These conditions may raise substantial doubt about the Company’s ability to continue as a going concern.

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.

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 and vanadium; (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.

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.

Corporate Highlights

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. In an effort to reduce operating costs, the Company 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 and announced its intention to implement a Performance Share Units (“PSU”) plan for management.

Subsequent Events

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

●

Overall Performance and Outlook

During the six months ended December 31, 2020, the Company had a net loss for the period of $1,830,653 (2019: net loss of $513,422) as it continued to work towards obtaining project financing for the construction of the Molo Graphite Project, which may include debt, equity and derivative instruments. The Company also improved its financial condition by completing a non-brokered private placement on July 2, 2020 for gross proceeds of $1,476,572 and reduced its cash costs through an agreement with management to defer up to 30% of their monthly compensation until the Company has secured project financing for the Molo Graphite Project.

Although the Company announced a USD$29.5 million financing package, there can be no assurance that the private placements will be completed or that the amount raised will be sufficient to complete construction of Phase 1 of the Molo Graphite Project. As such, the Company will maintain its efforts to obtain additional financing. There can be no assurance that such financing will be available on terms favorable to the Company or at all.

The proceeds of the initial private placement of approximately US$6.1 million, which is expected to close by the end of February, will allow the Company to immediately commence the construction phase of the Molo Graphite Project through the ordering of longer lead items for the processing plant and to fast track the completion of two technical studies. The studies will be commissioned in order to confirm the capital and operating costs for the next phase of mine expansion, and to construct a stand-alone, value-added graphite plant to produce spherical and purified graphite (“SPG”) for lithium-ion batteries in electric vehicles (“EVs”).

The Molo Graphite Project, Green Giant Vanadium Project and the Sagar Property are discussed in greater detail below. The Company is currently assessing back-end value-added processing of its graphite concentrate for use in lithium-ion battery and graphite foil applications. The costs for any value-added processing are unknown at this time.

Molo Graphite Project, Southern Madagascar Region, Madagascar

Overview and Project Plan

The Company is currently working to obtain construction financing for Phase 1 of the Molo Graphite Project. 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.

On February 15, 2019, 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.

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

On September 27, 2019, the Company reported the results of an updated Feasibility Study (“FS”) consisting of two phases which are outlined below:

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 SuperFlake™ graphite concentrate. The estimated capital costs for Phase 1 (including contingencies) are US$21.0M and is expected to take approximately 12 months to complete. Phase 1 costs including working capital are estimated at US$25.0M.

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 estimated capital costs for Phase 2 (including contingency) are US$39.1M. Phase 2 costs including working capital are estimated at US$43.5M.

The Company cannot provide any assurance as to the timing of the receipt of sufficient construction financing and of any of the permits and licenses that are still necessary to complete the construction of the mine and initiate operations. In the event that sufficient construction financing cannot be obtained, the Company will not be able to pursue any substantial work in connection with the development of the Molo Graphite Project.

If the Company is successful at obtaining construction financing, the Company plans to incur the projected capital and operating costs as well as incur additional costs relating to permitting, engineering, professional fees, G&A and working capital. The Company is assessing a staged contingent approach and is in the process of establishing specific milestones that it hopes to achieve with various amounts of construction financing. The production level, development costs and the specific milestones which could be achieved using this approach are directly related to the amount of construction financing the Company can raise. Once construction is initiated, no assurances can be provided that we will be able to achieve our construction milestones or achieve the desired production level.

Exploration

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.

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

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

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

$1,350,000.

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 SuperFlake™ 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.

Following an Environmental Legal Review and an Environmental and Social Screening Assessment, which provided crucial information to align the project’s development and design with international best practice on sustainable project development, the Company completed a comprehensive Environmental and Social Impact Assessment ("ESIA"), which was developed to local Madagascar (“Malagasy”), Equator Principles, World Bank and International Finance Corporation (“IFC”) standards. The ESIA was submitted to the Office National d’Environment (“ONE”) (the Madagascar Environment Ministry) during fiscal 2018.

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 (“GEP”) 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”). The GEP was based on ESIA and a Relocation Action Plan (“RAP”) that involved 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.

Feasibility Study Summary

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

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

All values are in US Dollars.

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

CAPEX and Working Capital Summary

Capital<br>Cost Breakdown	Phase<br>1 (240ktpa)	Phase 1 and 2 (720ktpa)
Process<br>Equipment	$8,438,609	$25,315,827
Civil &<br>Infrastructure	$2,103,672	$6,661,016
Tailings	$0.00	$0.00
Mining	$2,574,143	$4,913,341
Buildings	$1,154,609	$2,886,523
Electrical<br>Infrastructure	$128,804	$386,412
Project<br>Services/EPCM	$931,481	$2,794,445
Construction<br>Services	$1,474,775	$3,686,937
Indirect<br>Costs	$372,750	$1,118,250
Environmental &<br>Permitting costs	$729,827	$1,459,655
Owner's<br>Costs	$1,197,000	$4,189,500
Sub-total	$19,105,673	$53,411,909
Contingency (10%/12.5%)	$1,910,567	$6,676,488
3 Months Working<br>Capital	$3,100,000	$7,300,000
CAPEX<br>AND WORKING CAPITAL TOTAL	$24,116,241	$67,388,398
Sustaining<br>CAPEX over Life of Mine		$3,300,000
NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019
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NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019
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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<br>1	Phase<br>2
	Operating<br>cost
Mining<br>(US$/T)	102.81	65.34
Processing<br>(US$/T)	265.82	265.82
Trucking to local<br>port / Ft. Dauphin (US$/T)	133.01	133.01
General and<br>Administration (US$/T)	64.29	50.00
TOTAL	$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

Overview and Project Plan

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.

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.

Sagar Property, Labrador Trough Region, Quebec, Canada

Overview and Project Plan

$200,000 and half of the 0.5% NSR can be acquired by the Company by paying $100,000.

$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.

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

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 December 31, 2020, the Sagar property consisted of 184 claims covering a total area of 8,539.58 ha.

Discussion of Operations

Financial Results for the six months ended December 31, 2020 and 2019 Expressed in US Dollars

	The<br>six months<br><br><br>ended<br>on December 31,<br><br><br>2020	The<br>six months<br><br><br>ended<br>on December 31,<br><br><br>2019	The<br>three months<br><br><br>ended<br>on December 31,<br><br><br>2020	The<br>three months<br><br><br>ended<br>on December 31,<br><br><br>2019
Revenues	$-	$-	$-	$-
Expenses<br>and other income
Exploration and<br>evaluation expenses	70,625	32,903	64,158	24,582
Payroll and<br>benefits	188,948	225,851	96,570	114,439
Management<br>fees	166,974	173,082	84,203	89,833
Consulting<br>fees	88,297	86,671	66,593	25,501
Professional and<br>legal fees	104,080	50,391	66,053	(30,289)
Public filing<br>expenses	54,901	56,063	24,446	30,575
Share-based<br>compensation	20,669	-	20,669	-
Travel<br>expenses	2,307	50,492	-	37,576
Investor relation<br>expenses	8,590	17,482	2,760	2,740
Insurance<br>expenses	14,652	9,999	7,475	5,759
Rent<br>expenses	9,775	10,381	5,329	5,464
Information<br>technology expenses	4,319	7,605	1,952	5,731
Telecommunications	997	1,463	420	717
General and<br>administrative expenses	4,999	7,065	757	5,055
Amortization of<br>property, plant and equipment	3,043	-	1,521	-
Finance<br>costs	730	-	730	-
Bank<br>fees	1,784	2,025	967	1,074
Foreign currency<br>translation (gain) loss	(31,223)	1,811	(14,972)	4,120
Interest expense<br>(income)	145	201	(626)	156
Change in value of<br>warrant liability	1,116,041	(220,832)	1,120,933	20,178
Foreign<br>taxes	-	769	-	769
Net<br>loss for the period	(1,830,653)	(513,422)	(1,549,938)	(343,980)
Other comprehensive income<br><br><br>Items that will be reclassified subsequently to loss<br><br><br>Translation<br>adjustment for foreign operations (1,824)		225	(2,369)	3,970
NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019
---
Net<br>loss and comprehensive loss for the period	$(1,832,477)	$(513,197)	$(1,552,307)	$(340,010)
---	---	---	---	---
Weighted-average<br>common shares (basic and diluted)	567,131,172	509,798,767	598,145,746	528,740,718
Net loss per common<br>shares (basic and diluted	$(0.00)	$(0.00)	$(0.00)	$(0.00)

Exploration and Evaluation Expenses

	The<br>six months<br><br><br>ended<br>on December 31,<br><br><br>2020	The<br>six months<br><br><br>ended<br>on December 31,<br><br><br>2019	The<br>three months<br><br><br>ended<br>on December 31,<br><br><br>2020	The<br>three months<br><br><br>ended<br>on December 31,<br><br><br>2019
Exploration<br>activities	-	-	-	-
Metallurgical<br>evaluation	-	-	-	-
Mineral claims<br>(Canada)	1,681	4,339	1,297	3,030
Mineral claims<br>(Madagascar)	57,845	-	57,845	-
Camp<br>(Madagascar)	11,099	28,564	5,016	21,552
Total exploration<br>and evaluation	70,625	32,903	64,158	24,582

Exploration and evaluation expenses for the six months ended December 31, 2020 increased to $70,625 (2019: $32,903) due to an increase in mineral claim expenditures as compared to the prior year. No exploration activities or metallurgical evaluation was completed in 2020 and 2019 since all exploration work necessary was completed prior to 2017.

Professional and Legal Fees Expenses

Professional and legal fees consist of accounting, auditor, tax advisory, legal and offshore entity management fees. The following is the breakdown by nature of the expenses:

	The<br>six months<br><br><br>ended<br>on December 31,<br><br><br>2020	The<br>six months<br><br><br>ended<br>on December 31,<br><br><br>2019	The<br>three months<br><br><br>ended<br>on December 31,<br><br><br>2020	The<br>three months<br><br><br>ended<br>on December 31,<br><br><br>2019
Accounting<br>fees	15,543	13,638	7,917	10,821
Auditor<br>fees	39,974	19,033	31,000	859
Tax advisory<br>fees	7,624	7,277	3,846	7,277
Legal<br>fees	39,544	10,443	21,895	(49,246)
Offshore management<br>fees	1,395	-	1,395	-
Total exploration<br>and evaluation	104,080	50,391	66,053	(30,289)

Professional fees for the six months ended December 31, 2020 increased to $104,080 (2019: $50,391) due to increased audit and legal fees as compared to the prior year periods.

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

Share Based Compensation

Share-based compensation expenditures for the six months ended December 31, 2020 increased to $20,669 (2019: $Nil) due to the recognition of a portion of the fair value of the restricted share units (RSUs) granted on December 29, 2020. The RSUs will vest upon achieving project financing milestones related to the Molo Graphite Project and 33.33% of the RSUs will expire on each of Feb 16, 2021, August 16, 2021 and Feb 16, 2022. The fair value of RSUs is based on the grant-day intrinsic value of the shares that are expected to vest. The grant date fair value was estimated at $365,154 based on the expected issuance of 5,174,424 common shares using a grant-date market price of $0.071 (CAD$0.09). The fair value is subject to remeasurement at the end of each reporting period based on the probability of achieving the RSU performance criterion and adjustments for potential forfeitures. The fair value will be expensed over the vesting period. As of December 31, 2020, none of the RSUs had vested.

Change in value of Warrant Liability

The recognition of changes in the warrant liability through profit and loss resulted in a loss of $1,116,041 (2019: gain of $220,832) due to the increase in the market price of the common shares to USD $0.071 (CAD $0.09) as compared to USD $0.029 (CAD $0.04) on June 30, 2020.

Liquidity and Capital Management

There were no changes in the Company's approach to capital management during the six months ended December 31, 2020.

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.

The Company manages the capital structure (consisting of shareholders’ equity (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

$103,127 (June 30, 2020: deficit of $709,280).

	December<br>31,<br><br><br>2020	June<br>30,<br><br><br>2020
Current<br>Assets:
Cash and cash<br>equivalents	$754,073	$222,305
Amounts<br>receivable	1,483	7,539
Prepaid<br>expenses	12,051	25,484
NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019
---
Total<br>Current Assets	767,607	255,328
---	---	---
Current<br>Liabilities:
Accounts<br>payable	88,020	323,876
Accrued<br>liabilities	397,004	370,449
Share<br>subscriptions	-	68,411
Short term<br>debt	-	22,115
Provision	173,448	174,418
Fair value of<br>warrant liability	1,864,345	208,768
Current portion of<br>lease obligations	6,008	5,339
Total<br>Current Liabilities	2,528,825	1,173,376
Working<br>Capital (Deficit) surplus	(1,761,218)	(918,048)

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<br>and Cash Equivalents	Madagascar<br><br><br>$	Canada<br><br><br>$	Total<br><br><br>$
As of December 31,<br>2020	7,663	746,410	754,073
As of June 30,<br>2020	14,054	208,251	222,305

Amounts Receivable and Prepaid Expenses

Amounts receivables and prepaid expenses decreased to $13,534 (June 30, 2020: $33,023) due to a decrease in sales tax receivables and prepaid insurance premiums.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities decreased to $485,024 (June 30, 2020: 694,325) due to a decrease in trade payables, accrued legal expenses, payroll and benefits and consulting expenses.

Short-Term Debt

As of December 30, 2020, the Company had previously withdrawn CAD $40,000 and repaid CAD $30,000 of loan principal. The Company recognized the loan forgiveness of CAD$10,000 resulting in a short-term debt carrying balance on December 31, 2020 of $nil (June 30, 2020: $22,115).

Provision

The provision relating to a shortfall in flow-through expenditures decreased to $173,448 (June 30, 2020: $1774,419) due to the completion of settlements totaling $12,330 and adjusted the provision due to foreign exchange fluctuations resulting in an ending balance of $173,448.

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 $788,900 (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

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

contingent liability and no amount has been recognized as a provision.

Fair Value of Warrant Liability

The fair value of the warrant liability was estimated using the following model inputs on the following valuation dates:


Share<br>price<br><br><br>Exercise price Risk<br>free rate	(CAD<br>0.09) 0.068 (CAD 0.10) 0.076<br><br>1.50%
Expected volatility<br>Expected dividend yield Expected life (in years)<br><br><br>As<br>of August 17, 2018 (issue date)	115%<br><br>Nil<br>2.00
Change<br>in fair value through profit and loss
Share<br>price<br><br><br>Exercise price Risk<br>free rate	(CAD<br>0.10) 0.076 (CAD 0.10) 0.076<br><br>1.67%
Expected volatility<br>Expected dividend yield Expected life (in years)<br><br><br>As<br>of June 30, 2019	100%<br><br>Nil<br>1.13
Change<br>in fair value through profit and loss
Share<br>price<br><br><br>Exercise price Risk<br>free rate	(CAD<br>0.04) 0.029 (CAD 0.10) 0.073<br><br>0.20%
Expected volatility<br>Expected dividend yield Expected life (in years)<br><br><br>As<br>of June 30, 2020	162%<br><br>Nil<br>0.13
Change<br>in fair value through profit and loss
As<br>of August 17, 2020 (expiration)

All values are in US Dollars.

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

was measured as a financial liability using the Black-Scholes option valuation model on the issue date and will be remeasured at each reporting period through profit and loss until expiration or exercise of the underlying warrants.

The fair value of the warrant liability was estimated using the following model inputs on the following valuation dates:


Share<br>price Exercise price<br><br><br>Risk<br>free rate	(CAD<br>0.05) 0.038 (CAD 0.09) 0.069<br><br>1.66%
Expected volatility<br>Expected dividend yield Expected life (in years)<br><br><br>As<br>of October 25, 2019 (issue date)	115%<br><br>Nil<br>2.00
Change<br>in fair value through profit and loss
Share<br>price Exercise price<br><br><br>Risk<br>free rate	(CAD<br>0.04) 0.029 (CAD 0.09) 0.064<br><br>0.25%
Expected volatility<br>Expected dividend yield Expected life (in years)<br><br><br>As<br>of June 30, 2020	156%<br><br>Nil<br>1.32
Change<br>in fair value through profit and loss
Share<br>price Exercise price<br><br><br>Risk<br>free rate	(CAD<br>0.09) 0.071 (CAD 0.09) 0.071<br><br>0.25%
Expected volatility<br>Expected dividend yield Expected life (in years)<br><br><br>As<br>of December 31, 2020	138%<br><br>Nil<br>0.82

All values are in US Dollars.

The fair value of the warrant liability was estimated using the following model inputs on the following valuation dates:

	Warrant<br>Liability<br><br><br>$
Share<br>price	(CAD<br>$0.04) USD $0.029
Exercise<br>price	(CAD<br>$0.065) USD$0.048
Risk<br>free rate	0.25%
NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019
---
Expected volatility<br>Expected dividend yield<br><br><br>Expected life (in<br>years)	140%<br><br>Nil<br>2.00
---	---
As<br>of July 2, 2020 (issue date)
Change<br>in fair value through profit and loss
Share<br>price<br><br><br>Exercise price Risk<br>free rate	(CAD<br>0.09) 0.071 (CAD 0.065) 0.051<br><br>0.25%
Expected volatility<br>Expected dividend yield Expected life (in years)<br><br><br>As<br>of December 31, 2020	128%<br><br>Nil<br>1.51

All values are in US Dollars.

Lease Obligations

	Property<br><br><br>$	Plant<br><br><br>$	Equipment<br><br><br>$	Total<br><br><br>$
Balance<br>– July 1, 2019	-	-	-	-
Adoption of IFRS<br>16	-	24,164	-	24,164
Amortization of<br>lease obligation	-	(4,810)	-	(4,810)
Foreign<br>exchange adjustments	-	(3,336)	-	(3,336)
Balance<br>– June 30, 2020	-	16,018	-	16,018
Additions Lease<br>payments	-	-<br>(3,117)	-	-<br>(3,117)
Finance<br>costs	-	730	-	730
Foreign<br>exchange adjustments	-	490	-	490
Balance<br>– December 31, 2020	-	14,121	-	14,121

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

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019
	Property<br><br><br>$	Plant<br><br><br>$	Equipment<br><br><br>$	Total<br><br><br>$
---	---	---	---	---
Current portion of<br>lease obligations	-	6,008	-	6,008
Long-term lease<br>obligations	-	8,113	-	8,113
Balance<br>– December 31, 2020	-	14,121	-	14,121
Future<br>minimum lease payments required to meet obligations that have<br>initial or remaining non-cancellable lease terms are set out in the<br>following table:
---
	Property<br><br><br>$	Plant<br><br><br>$	Equipment<br><br><br>$	Total<br><br><br>$
---	---	---	---	---
Within 12<br>months	-	6,323	-	6,323
Between 13 and 24<br>months	-	6,323	-	6,323
Between 25 and 36<br>months	-	3,161	-	3,161
Between 37 and 48<br>months	-	-	-	-
Between 49 and 60<br>months	-	-	-	-
Thereafter	-	-	-	-
Total<br>undiscounted lease obligations	-	15,807	-	15,807

Other Contractual Obligations and Commitments

The Company does not have any contractual obligations and commitments other than accounts payable, accrued liabilities, provisions, lease obligations and contingent liabilities.

Off-balance sheet arrangements

The Company does not have any 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 six months ended December 31, 2020 and 2019:

Expressed in US Dollars

	For<br>the six months ended<br><br><br>December<br>31,	For<br>the six months ended<br><br><br>December<br>31,
	2020	2019
Cash<br>flows from operating activities
Net<br>loss for the period	$(1,830,653)	$(513,422)
Add (deduct) items<br>not affecting cash:
Amortization of<br>property, plant and equipment	3,043	-
Change in value of<br>warrant derivative liability	1,116,041	(220,832)
NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019
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NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019
---
Share-based<br>compensation	20,669	-
---	---	---
Change<br>in value of lease liability<br><br><br><br><br><br><br><br><br>Change<br>in non-cash working capital balances:<br><br><br>(Increase) decrease<br>in amounts receivable and prepaid expenses	1,220<br><br><br><br><br><br><br><br><br><br><br><br>19,489	-<br><br><br><br><br><br><br><br><br><br><br><br>24,639
Increase (decrease)<br>in accounts payable and accrued liabilities	(209,301)	(242,966)
Increase (decrease)<br>in provision	(970)	-
Increase (decrease)<br>in share subscriptions received in advance	(68,411)	-
Net<br>cash used in operating activities	(948,873)	(952,581)
Cash<br>flows from financing activities
Short<br>term debt	(22,115)	-
Lease<br>liability principal payments	(3,117)	-
Proceeds from<br>issuance of common shares	1,476,571	998,619
Exercise of stock<br>options	40,418	-
Common<br>share issue costs	(9,292)	(7,820)
Net<br>cash provided by financing activities	1,482,465	990,799
Effect<br>of exchange rate changes on cash	(1,824)	225
Increase (decrease)<br>in cash and cash equivalents	531,768	38,443
Cash<br>and cash equivalents - beginning of period	222,305	529,331
Cash<br>and cash equivalents - end of period	754,073	567,774

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 six months ended December 31, 2020 and 2019.

Financing Activities

The Company issued the following common shares during the six months ended December 31, 2020:

(a)

(b)

On December 22, 2020, a total of 721,741stock options were exercised at a price of $0.056 (CAD$0.0721) into 721,741 common shares for gross proceeds of $40,418 (CAD$52,038).

Subsequent to December 31, 2020

(a)

On February 9, 2021, a total of 1,470,000 stock options were exercised at a price of $0.066 (CAD$0.0838) into 1,470,000 common shares for gross proceeds of $97,020 (CAD$123,215).

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

(b)

Financial Instruments and Risk Management

Credit risk

Liquidity risk

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.

●

Transactions with related parties

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

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.

The following key management related party transactions occurred during the following reporting periods:

	The<br>six months<br><br><br>ended<br>on December 31,	The<br>six months<br><br><br>ended<br>on December 31,	The<br>three months<br><br><br>ended<br>on December 31,	The<br>three months<br><br><br>ended<br>on December 31,
	2020	2019	2020	2019
Management and<br>director payroll	$187,477	$194,731	$95,099	$83,319
Management<br>consulting fees	166,974	166,487	84,203	83,238
Professional and<br>legal fees	7,836	6,595	3,980	6,595
Share-based<br>compensation	20,669	-	20,669	-
Total	382,956	367,813	203,951	173,152

The following key management related party balances existed as of the end of the following reporting periods:

	As<br>of December 31,<br><br><br>2020	As<br>of June 30,<br><br><br>2020
Accounts payable<br>due to companies controlled by key management	$55,308	$86,685
Accrued liabilities<br>due to key management	$40,126	$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.

Selected Quarterly Results

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

Quarter Ended

	December<br>31,<br><br><br>2020<br><br><br>$	September<br>30,<br><br><br>2020<br><br><br>$	June<br>30,<br><br><br>2020<br><br><br>$	March<br>31,<br><br><br>2020<br><br><br>$
Revenues	-	-	-	-
Exploration and<br>evaluation expenses	64,158	6,467	95,009	57,180
Net loss and<br>comprehensive loss for the quarter	(1,552,307)	(280,170)	(425,550)	(34,999)
Basic and diluted<br>loss per share for the quarter	-	-	-	-
Working capital<br>(deficit) surplus	(1,761,218)	(269,775)	(918,048)	(484,374)
NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019
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NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019
---

Quarter Ended

	December<br>31,<br><br><br>2019<br><br><br>$	September<br>30,<br><br><br>2019<br><br><br>$	June<br>30,<br><br><br>2019<br><br><br>$	March<br>31,<br><br><br>2019<br><br><br>$
Revenues	-	-	-	-
Exploration and<br>evaluation expenses	6,179	69,491	65,880	123,691
Net loss and<br>comprehensive loss for the quarter	(340,010)	(173,880)	(1,749,161)	(542,996)
Basic and diluted<br>loss per share for the quarter	-	-	-	-
Working capital<br>(deficit) surplus	(449,374)	(839,074)	(665,886)	432,230

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 six months ended December 31, 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.

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

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

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.

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

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

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.

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.

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

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.

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.

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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.

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

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

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.

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

NEXTSOURCE<br>MATERIALS INC. MANAGEMENT’S DISCUSSION AND<br>ANALYSIS<br><br><br>For<br>the three months ended September 30, 2020 and 2019

“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.

The Corporation’s CEO and CFO have certified as of December 31, 2020 that the disclosure controls and procedures were effective and that during the six months ended December 31, 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.

NSRCF 6-K