DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 DescriptionofBusiness DonnerMetalsLtd.(theCompany)wasincorporatedonJune28,2005,pursuanttotheBusinessCorporationsAct ofBritishColumbia.TheCompanyisareportingissuerinBritishColumbia,AlbertaandOntarioanditssharesare listedontheTSXVentureExchangeunderthesymbolDONrespectively.TheCompanyisengagedintheacquisition, exploration and development of zinc, copper and nickel properties in Quebec and Newfoundland and Labrador, Canadaandisconsideredtobeintheexplorationanddevelopmentstageasithasnotplacedanyofitsmineral propertiesintoproduction. TheCompanyispartytoanoptionandjointventureagreementandadevelopmentandoperatingagreementwith XstrataCanadaCorporationXstrataZincCanadaDivision(Xstrata)concerningcertainofXstratasholdingsin theMatagamiCamp,Quebec.Inaddition,theCompanyhasaprojectintheSouthVoiseyBayareaofLabrador, Newfoundland.The Companys primary focus is the Matagami Project, where the Company and Xstrata have discoveredtheBracemacͲMcLeoddepositwhichiscurrentlyunderdevelopment. Thefollowingmanagementsdiscussionandanalysis(MD&A)shouldbereadinconjunctionwiththeCompanys unauditedcondensedconsolidatedinterimfinancialstatementsforthethreeandsixmonthsendedAugust31, 2011andforthethreemonthsendedMay31,2011,whicharepreparedinaccordancewithInternationalFinancial ReportingStandards(IFRS),IFRS1FirstͲtimeadoptionofInternationalFinancialReportingStandards(IFRS1), andInternationalAccountingStandard34InterimFinancialReporting,asissuedbytheInternationalAccounting Standards Board. Previously, the Companys financial statements were prepared in accordance with Canadian generallyacceptedaccountingprinciples(CanadianGAAP). AdditionalinformationabouttheCompanymaybefoundonSEDARatwww.sedar.com.Additionalinformation relating to the Companys operations and activities can also be found by visiting the Companys website at www.donnermetals.com. TheeffectivedateofthisMD&AisOctober25,2011. RisksandUncertainties The Companys activities related to mineral exploration are considered to be very high risk.The Companys developmentactivitiesrelatedtotheBracemacͲMcLeodMinealsocarryrisksanduncertaintiestypicallypresentin thedevelopmentofmineraldeposits.Companiesinthisindustryaresubjecttomanyandvariedkindsofrisks, including but not limited to, environmental, commodity prices, political and economic, with some of the most significantrisksbeing: 1. Substantial expenditures are required to explore for mineral resources and the chances of identifying economicalreservesareextremelysmall; 2. Substantialexpendituresarerequiredtodevelopmineralreserves; 3. The junior resource market, where the Company raises funds, is extremely volatile and there is no guaranteethattheCompanywillbeabletoraisefundsasitrequiresthem; 4. AlthoughtheCompanyhastakenstepstoverifytitletothemineralpropertiesithasaninterestinoris earninginto,thereisnoguaranteethatthepropertywillnotbesubjecttotitledisputesorundetected defects;and 5. The Company is subject to the laws and regulations relating to environmental matters, including provisions relating to reclamation, discharge of hazardous material and other matters. The Company
Page1of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 conductsitsexplorationactivitiesincompliancewithapplicableenvironmentalprotectionlegislationand is not aware of any existingenvironmental problems related to itsproperties that may cause material liabilitytotheCompany. ForwardͲLookingStatements Certain phrases used in the public disclosure, including in this MD&A, of the Companies activities are forwardͲ looking statements. A review of forwardͲlooking statements can be found on the Companys web site at www.donnermetals.com. InformationcontainedintheCompanyspressreleases,websiteinformation,corporatedisplays,andpostingson SEDAR,amongotherscontainforwardlookinginformationandfutureͲorientedfinancialinformationregarding resultsandfinancialprojectionscontainedinthefeasibilitystudyontheBracemacͲMcLeoddeposit.Thisstudywas producedbyGenivarLimitedPartnership('Genivar')andXstratawhoiscurrentlyoperatingthePerseveranceMine andMatagamimillcomplex.Xstrataanditspredecessors(FalconbridgeLimited,NorandaInc.,amongothers)have beenoperatingatMatagamisince1963. TheforwardlookinginformationandfutureͲorientedfinancialinformationrelatedtothefeasibilitystudyare: 1. ForecastminingresourcesandreservesaredeterminedbystandardsgovernedunderNI43Ͳ101andthe experience of Xstrata as operators of the project. Measured and indicated resources and proven and probable mining reserves were prepared by Xstrata mining group. The proven and probable reserves calculated in the feasibility study include two levels of confidence (measured and indicated based on densityofdrillholeintercepts).FortheUpperBracemac,BracemacandBracemacKeyTuffitezones,as wellastheupperhalfoftheMcLeodzone,spacingofdrillinterceptsisapproximately25metres,whereas thespacingofdrillholeinterceptsinthelowerportionoftheMcLeodzoneisatapproximately50metres. Thereaderiscautionedthatgeometryofthemineralizedzoneandthedistributionofgradewithinthe zonemaycauseboththevolumeandgradeoftheminingreservetovary(eitherpositivelyornegatively) fromthecalculationunderthefeasibilitystudy. CutͲoff grade for mining reserves was established by natural cutͲoff (mineralized versus unmineralized rock)andonanetsmelterreturn(NSR)basis.TheuseofanNSRcutͲoffisforwardlookingasitrelieson future looking metal prices, mill recoveries and smelting and treatment charges. These are discussed below. InferredresourcesfortheMcLeodDeepZoneandtheWestMcLeodzonearereportedinthefeasibility studybutarenotacomponentofthefinancialanalysis.Thereaderiscautionedthatinferredresources have the lowest level of confidence under NI 43Ͳ101 and future upgrading of the resource or incorporationoftheseresourcesinfuturemineplanninghavenotbeenconsideredunderthefeasibility study. There is no certainty that these resources will be mined due to proximity to underground infrastructureplannedundertheBracemacͲMcLeodfeasibilitystudy. Resources and reserves canbe affected by obtaining grades different from expectedgrades, obtaining lower quantities of mineralization, encountering deposit geometries that vary from expectations and encounteringhigherthanexpectedminedilutionrates. 2. ForecastcapitalcostsunderthefeasibilitystudyhavebeenestimatedbyGenivarwiththeassistanceof Xstrata. Cost estimates are based on expected capital charges and pricing with support from Xstratas recent experience with the development of their wholly owned Perseverance deposit which was developed between 2006 and 2008. Realized capital costs for the BracemacͲMcLeod project can vary (either positively or negatively) on the actual realized costs of equipment and materials purchased,
Page2of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 developmentadvancementrate,andoverallefficiencyofthedevelopmentprocess.Groundconditionsin particularcanprofoundlyimpactcapitalcosts. 3. ForecastoperatingcostsareprovidedbyGenivarandestimatedonthebasisofXstratasexperiencewith current mine and mill operations at Matagami. Variables which may affect operating costs (either positivelyornegatively)aremineandmillefficiencies,metallurgicalvariationsaswellasmineproduction rates,ratesofmillthroughputandtransportationcharges. 4. Forecastmetalpricesoverthecurrent4yearlifeofmineforBracemacͲMcLeodarebasedonindustry consensuspricebasedonpublishedforecasts(BrookHunt,BloombergandCRU);theseforecastsdonot necessarilyreflectXstratasvisionoflongͲtermcommodityprices.Metalpricescanhaveaprofoundeffect (either positively or negatively) on the financial characteristics of the BracemacͲMcLeod deposit as describedunderthebasecaseanalysisinthefeasibilitystudy.Constantmetalpricesareforecastoverthe lifeofmine,howevertheseareexpectedtovaryovertheplannedproductionperiod.Metalpricesarenot inthecontrolofmineoperationsandaresubjecttochangesinworldwidesupplyanddemand. 5. Forecast mill recoveries are based on results of tests conducted at Xstratas Process Control Group in Sudbury,Canada.Parametersthatmayaffectmillrecoveries(eitherpositivelyornegatively)arechanges toexpectedmineralogicalcharacteristicsoforefromBracemacͲMcLeodandmillefficiencies. 6. Forecast treatment charges are based on industry consensus of anticipated treatment and refining charges (TC/RCs) over the life of mine (Brook Hunt, Bloomberg and CRU); these forecasts do not necessarilyreflectXstratasvisionoflongͲtermtreatmentandrefiningcharges.TC/RCscanvaryonthe basisofrealizedTC/RCcontractchargesoverthelifeofminewhicharenegotiatedonanannualbasis. 7. Forecast exchange rates are forecast over the current 4 year life of mine for BracemacͲMcLeod on industryconsensusratesandonpublishedforecasts(BrookHunt,BloombergandCRU).Exchangerates arenotinthecontrolofthemineandwillfluctuateonthebasisofforcesexternaltothosecontrolled underthemineoperation;theseforecastsdonotnecessarilyreflectXstratasvisionoflongͲtermforeign exchangerates. 8. Forecast mine production rates are determined by Genivar based on the reserve estimate and block model provided by Xstrata. Ground conditions, geometry of sulphide mineralization and changes in developmentpatternscanimpactmineproductionrates. 9. ForecastimpactsofpermittingonthedevelopmentandminingofBracemacͲMcLeodaredeterminedby GenivarwithinputbyXstrata.Permittingrequirementsarenotexpectedtochangeoverthelifeofmine basedoncurrentregulations.However,changesinenvironmentalandotherlawsandregulations,may impact construction and mining which could affect capital and operating costs. Adverse government policy changes with respect to mineral exploration and exploitation, including changes to taxes or royaltieswillnegativelyimpacttheproject. Note:Fluctuationsinpricesandunfavorablecurrencyexchangeratesconstituteuncontrollableparameters. ThefeasibilitystudyonBracemacͲMcLeodcontainsforecaststhatcanimpact(eitherpositivelyornegatively)the financial characteristics of the BracemacͲMcLeod deposit as assessed under the feasibility study in terms of expected mine life, projected cash flows , projected internal rate of return, and realized value in relation to calculatedNetPresentValue. Furtherdiscussionofforwardlookingstatementsandtherisksinherenttomineralexplorationanddevelopment, in relationtothe Companys activities,can be found on the Companys website atwww.donnermetals.com. The
Page3of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 readeriscautionednottoplaceanyunduerelianceonanyforwardͲlookingstatement,referencetootherproperties orhistoricalproductionfromtheMatagamiProjectarea. MatagamiProjectOverview TheMatagamiPropertyisroughlycenteredonthetownofMatagamiincentralQuebecandcomprisesanareaof mutual interest of 4,737 km2 which includes 2,895 mineral claims covering 667 square kilometres. The area is servicedbyactivemineinfrastructureaswellashighway,railwayandpower. MatagamiProjectͲAgreementSummary TheCompanyispartytoanOptionandJointVentureAgreement(OJVA)withXstrataforthejointexplorationof theMatagamiMiningCampofQuebecforvolcanogenicmassivesulphidedeposits. InApril2011,pursuanttotheOJVA,theCompanycompleteditsoptiontoearna50%participatinginterestinthe jointventureareasthatmakeuptheMatagamiProjectby: 1) incurringatotalof$20millionofexpenditures,exclusiveofmanagementfees,onexplorationandrelated workbyMay31,2011; 2) incurring an additional expenditure of up to $5 million, exclusive of management fees, towards establishing an inferred resource on the BracemacͲMcLeod discovery by May 31, 2011 which the Companycompletedin2009;and 3) issuingtoXstrata1millioncommonsharesofitsownstock,whichwereissuedinSeptember2006.
UponearnͲinbytheCompany,aninitialfivejointventureareaswereformedwithinitialinterestsof50%Donner, 50% Xstrata. Under the OJVA, Xstrata has a separate right in each of the joint venture areas to bumpͲup its interestbyanadditional15%bycompletingabankablefeasibilitystudyorincurringamaximumof$20million towardsabankablefeasibilitystudy. Under its BumpͲup right, Xstrata earned an addition 15% interest in the South Flank joint venture area by completingabankablefeasibilitystudyonBracemacͲMcLeodinSeptember2010.Subsequenttothecompletionof earnͲinandtheBumpͲupbyXstrata,asixthjointventureareawascarvedoutoftheSouthFlankjointventurearea togovernminedevelopmentatBracemacͲMcLeod.XstrataCanadaCorporationholdsremainingseparateBumpͲ up rights to increase its interest to 65% in each of the North Flank, Central Camp, West Camp and East joint ventureareas.Bothpartieswillberesponsiblefortheirshareofcostsonthebasisoftherelativejointventure interests. Thejointventureareasarecomprisedofexistingmineraltitleandanygroundacquiredwithintheirrespective areaofinterest.AllareasofinterestexpireonMay31,2013.Afterthisdate,thejointventureswillgovernonly thesurvivingmineralclaimsandothermineralinterests.
Page4of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 Thecurrentjointventureareasare: CurrentInterests JointVentureArea Xstrata TheCompany
SouthFlankJV 65% 35% BracemacͲMcLeodJV 65% 35% NorthFlankJV 50% 50% CentralAreaJV 50% 50% WestCampJV 50% 50% EastJV 50% 50% The BracemacͲMcLeod joint venture area, and the development and future production from the BracemacͲ McLeod mine, is governed by a Development and Operating Agreement (DOA) which supersedes the OJVA. UndertheDOA,XstratawillprocesstheCompanysshareoforesproducedfromtheBracemacͲMcLeodMineand purchase,netofbenchmarksmeltingandrefiningcharges,theCompanysshareoftheconcentrates. Under the OJVA and the DOA, Xstrata has the right to be operator of any mining operations or exploration programsprovideditholdsatleasta50%interestinthegoverningjointventure.XstratahasalifeͲofͲminerightto electtoprocessandtreattheCompanysshareofanyore/concentratesproducedfromtheMatagamiproperty andtomarkettheCompanysshareofanymetalsproducedfromtheproperty. Inordertomaintainitsinterestineachrespectivejointventure,theCompanymustfinanceitsrelativeshareofthe programsapprovedbythejointventuremanagementcommittees.ShouldtheCompanynotmeetitsobligationsin the South Flank, North Flank, Central Area, West Camp and East joint venture areas, the Company will suffer dilutionofitsinterestandshoulditsinterestreach10%,theinterestwillbeconvertedtoa2%netsmelterreturn royalty,ofwhicha1%netsmelterreturncanbepurchasedbyXstratafor$1million.Failuretomeetobligations ontheBracemacͲMcLeodjointventureundertheDOA,willresultindirectconversionoftheCompanysinterestto a2%netsmelterreturnroyalty,ofwhicha1%netsmelterreturncanbepurchasedbyXstratafor$1million. ThefeasibilitystudyontheBracemacͲMcLeodminecontemplatescapitalcostsofapproximatelyUSD$164million. TheCompanysshare(35%)ofthesecostsisapproximatelyUSD$57million.ConstructionoftheBracemacͲMcLeod minebeganinApril2010,andproductionfromthemineisexpectedtobegininearly2013. UnderlyingagreementstotheOJVA: PDͲ1Deposit:PhelpsDodgeholdsa15%netcarriedinterestwhichshallincreasetoa25%netcarriedinterestafter thefirst1.6milliontonsareminedon9mineralclaimscoveringthePD1Deposit.Netcarriedinterestinthiscaseis definedasNetProceedslesscapitalexpenditures,workingcapitalandcarryingcharges.NetProceedsisdefinedas grossrevenuelessoperatingcostsandbothtransferandprocessingcharges.PhelpsDodgeisentitledto$400,000in cashpayments,paidinannualinstallmentsof$100,000duringeachofthefirstfouryearsofproductionfromthe property. Followingproductionofthefirst1.9milliontonsfromtheproperty,PhelpsDodgemayelect,withinone year,toparticipateat40%inanyfurtherdevelopmentofthepropertybyforegoingitsnetcarriedinterestfromthe pointofelection.UponDonnerearninganinterestinthePD1Claims,itwilltakeonitsproratashareofpayments toPhelpsDodgerelatedtoanyproductionfromthePD1deposit. Anadditional186claimsintheWestCampjointventureareaaresubjecttorightsheldbyPhelpsDodge.Shoulda partysinterestinthe186claimsdeclineto10%,itsinterestwillbeconvertedtoa2%netsmelterroyalty.Current interestsinthe186claimsare39.5%Donner,39.5%Xstrataand21.1%PhelpsDodge.PhelpsDodgehaselectedto nottoparticipateinanyworkplansproposedtodate.
Page5of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 MatagamiProjectExplorationandDevelopment Xstrata (project operator) commenced exploration diamond drilling on the Matagami Project in late September 2006,whichresultedinthediscoveryin2007ofsignificantoccurrencesofzincandcoppermineralizationinthe BracemacͲMcLeod area.Subsequent drilling further defined the discovery, and in September 2010 Xstrata completedafeasibilitystudyontheBracemacͲMcLeoddeposit.AcopyoftheGenivar/Xstratafeasibilitystudyis availableonSEDARandontheCompanyswebsite,www.donnerminerals.com. ThemostrecentpublishedreservesandresourcesfortheBracemacͲMcLeoddepositaresummarizedbelow. BracemacͲMcLeodResources
Tonnes Silverg/t Specific Category Zone Zinc% Copper% Goldg/t (millions) Gravity MassiveandSemiͲmassiveSulphides TotalMeasuredResources 2.60 11.31 1.58 36.95 0.45 3.48 TotalIndicatedResources 0.79 11.32 1.09 24.56 0.67 3.40 McLeodZone(LowerPortion) TotalMeasuredandIndicatedResources MassiveandSemiͲmassiveSulphides 3.39 11.31 1.47 34.27 0.50 3.48 (BaseResourceusedinFeasibilityStudy) StringerSulphides (notcurrentlyinminingstudy) Indicated CopperStringerZone 0.24 0.96 1.25 7.80 0.19 3.15 TotalIndicatedandMeasuredResources 3.63 10.62 1.45 32.49 0.48 3.46 (Allmineralizationtypes) InferredResources (notcurrentlyinminingstudy) Inferred WestMcLeod 0.16 2.17 2.63 23.76 0.19 3.29 Inferred McLeodDeep 2.47 9.21 1.22 39.81 1.12 3.75 TotalInferredResources 2.63 8.78 1.31 38.83 1.06 3.72 Basedontheminingplaninthefeasibilitystudythefollowingdilutedminingreserveswerecalculated: BracemacͲMcLeodMiningReserves (BasedonMassiveͲsemimassivesulphidesMeasuredandIndicated) Tonnes(millions) Silver Gold NSR Zinc% Copper% (dilutedandrecoverable) g/t g/t (US$/t) MassiveandSemiͲmassiveSulphides Proven 2.79 9.84 1.39 40.70 0.41 $143.50 Probable 0.94 8.90 0.87 18.46 0.54 $115.38 Total (Basereserveusedin 3.73 9.60 1.26 28.25 0.43 $136.42 FeasibilityStudy)
Summaryoftheresultsofthefeasibilitystudy: x Provenandprobableminingreserves,includingdilution,of3.73milliontonnesgrading9.60%zinc,1.26% copper,28.25g/tsilverand0.43g/tgoldbasedonindicatedandmeasuredresources(massiveandsemi massivesulphides)of3.39milliontonnesgrading11.31%zinc,1.47%copper,34.27g/tsilverand0.50g/t gold.
Page6of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 x 4yearlifeofmine(LOM)ata2,500tonnesperdayproductionrate. x Potentialtoexpandbothreservebaseandproductionrate. x Productionexpectedinearly2013overlappingwiththeclosureofXstratasPerseverancemine. x Oncurrentreserves,expectedLOMproductionis(accountablemetals)606millionpoundszinc,83million poundscopper,1,497,000ouncessilverand13,090ouncesgold. x Totalcapitalcostona65%/35%jointventurebasiswillbeUS$163.7million. x Capital requirements are split with approximately US$115.6 million (2010Ͳ2012) in preproduction development for the Bracemac zones followed by US$48.1 million (2012Ͳ2014) to be incurred concurrentlywithproductionandcashflowfromBracemacastheMcLeodzoneisdeveloped. x LOM operating costs are estimated at an average of US$73.00 per tonne of ore mined and include a capital recovery charge of US$6.48 per tonne payable to Xstrata Zinc for use of the mill and tailings facility. x Economicthresholdanalysisoftheprojectonajointventurebasis(aftertax)returnsa8.1%internalrate of return and an NPV7 of US$3.4 million using zinc: $0.80 $US/lb, copper $2.50 $US/lb, silver $12.00 $US/ounceandgold$1000$US/ouncewithanexchangerateof$CDN1.04totheUSdollar. x Theprojectissensitivetometalprices,exchangerateandcapitalcostasprimaryimpacts.Forexample,a 10%increaseinmetalpricestranslatestoa12foldincreaseinNPVanda2foldincreaseininternalrateof return. x Exploration from underground will be conducted to evaluate inferredresources and to investigate the extent of sulphide mineralization intersected in drilling that is not currently included in any resource category. x PotentialexpansionoftheminewithfuturedevelopmentofMcLeodDeeptobestudied. CurrentDevelopmentStatus DevelopmentoftheBracemacͲMcLeodminebeganinApril2010,andonOctober25,2011theCompanyreported that the BracemacͲMcLeod ramp passed 2,070 metres and was progressing extremely well with an average advancementrateof5.7metresperday(6.45metresperdaysinceMay,2011)comparedto4.5metresperday estimated in the feasibility study.Multiple face development of the Bracemac zones and the construction of ventilationraiseswillcommencewhentherampreaches2,300metres.RampingwillalsocontinuetotheMcLeod zone.Constructionofaccessandhaulageroads,minesupportinfrastructureandelectricalsupplyhasbeenmostly completed.XstrataZinchasrealizedanumberofefficienciestodatetoensuretheprojectremainswithinbudget and they continue to target other areas of the project to realize further timing and cost efficiencies. Initial productionfromthemineisscheduledtostartinearly2013.
Page7of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 PD1depositResourcesandFeasibilityStudy ThePD1depositislocated36kilometresfromtheMatagamiMillComplexwithintheWestCampjointventure area.NearsurfaceinͲfillanddefinitiondrillingwasconductedin2009and2010whichledtothecompletionofa resourceestimateforthedeposit.
PD1 Measured and Indicated Resources
Silver Gold Specific VerticalDepth Category Tonnes Zinc% Copper% g/t g/t Gravity metres
Measured 596,193 4.34 0.83 19.59 0.12 4.26 25to100 Indicated 262,387 4.26 0.91 19.95 NS 4.33 100to200 Indicated 528,925 4.25 1.59 21.13 NS 4.30 200to300 Indicated 272,211 5.48 1.41 20.27 NS 4.30 300to400 Indicated 71,895 6.32 0.77 12.44 NS 4.30 400to500 Indicated 5,762 2.64 0.19 8.14 NS 4.30 500to515 TotalMeasuredand 1,737,373 4.55 1.16 19.88Ͳ 4.29 25to515 IndicatedResources Thecombinedmineralresource(measuredandindicated)islocatedbetween25and515metresverticaldepth andisbasedon24newholesdrilledin2010intheupperportionofthedeposit,above100metresverticaldepth, and 50 historical drill holes completed between 1973 and 1976 that defined the previous total extent of mineralization. Measured resources occur between 25 and 100 metres vertical depth. Combined average drill spacingforthemeasuredresourceisapproximately20metres.Allremainingindicatedresourcesarebasedsolely onareͲevaluationof36historicaldrillholesthathaveanaveragedrillspacingofapproximately60metres. FollowingthecompletionofthedefinitiondrillingXstratanotifiedtheCompanythatitwillconductafeasibility study on the PD1 deposit that is expected to be completed in late 2011. The study will focus on the open pit potentialofthedepositbetween25and100metresverticaldepth,asincrementalfeedtotheMatagamimillthat couldsupplementproductionfromtheBracemacͲMcLeoddepositbetween2013and2016.Theremainderofthe depositwillbeassessedinascopingstudythatwillinvestigatetheviabilityoffurtherexplorationofthedepositby undergrounddevelopment.ThefeasibilitystudyandscopingstudywillbefundedbyXstratatherebytriggeringits 15%bumpͲupoptionintheWestCampjointventurearea. RegionalexplorationdrillingontheMattagamiProperty TakingadvantageofXstratasextensivehistoricaldatabase,theCompanyandXstrataareusingacombinationof 3D data integration, innovative advanced technologies, new concepts and diamond drilling to explore for new depositsinthisprolificminingcamp.TheCompanysstrategyistoexploreforanddiscoverzincͲcopperdeposits intheMatagamiCampandtoleveragethegeneralinfrastructureandexistingprocessingfacilitieswithinaknown and wellͲestablished cost structure for developing VMS deposits.The Companys exploration objective is to investigatemultiplestratigraphichorizonswithpotentialforVMSmineralization,includingtheprolificKeyTuffite horizon,throughouttheMatagamiCamp. The Matagami Mining Camp is a worldͲclass mining district, with 18 known VMS deposits, including 10 past producersofvaryingsizes,includingthegiantMattagamiLakedeposit(25.64milliontonnesof8.2%Zn,0.56%Cu, 20.91 g/t Ag and 0.41 g/t Au) discovered in 1957 and mined from 1963 to 1988. The area is host to historical production of 8.6 billion pounds of zinc and 853 million pounds of copper and has established infrastructure includingthetownofMatagami,arailway,apavedroad,anda2,950t/daymillownedbyXstrata.
Page8of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 The development of new exploration techniques and concepts has led directly to numerous discoveries in the MatagamiMiningCamp.In1957,asaresultofthenewlydevelopedairborneEMsystem,theMattagamiLake depositwasdiscoveredandwithinthenexttwoandahalfyears,sixmoremajordepositswereidentified.Between 1985and1992,fournewdepositswerediscovered,andin1999anewEMsystemwasflownovertheMatagami camp, which led to the discovery of the Perseverance deposit in 2000. Xstrata has published a measured and indicatedresourceatPerseveranceof5.12milliontonnesof15.82%Zn,1.24%Cu,29.00g/tAgand0.38g/tAu. ThePerseverancedeposithasbeeninproductionbyXstratasinceJuly2008. RegionaldrillingontheMatagamipropertycontinuesonanongoingbasiswiththeobjectiveofidentifyingnew zincandcopperoccurrences.TheobjectiveofallexplorationprogramsistoidentifyalongͲtermsupplyoforefor the2,950tonneperdayMatagamiMill.Explorationprogramstargetmassivesulphidemineralizationthatoccurs withintheMatagamicampatornearthecontactbetweenfelsicandmaficvolcanicrockscommonlymarkedby tuffitehorizonsandinparticulartheKeyTuffitemarkerhorizonthathoststhemajorityofthedepositsinthe MatagamiCamp. AtotaloffifteendiamonddrillholeshavebeencompletedontheprojectsinceJune2011,theresultsofwhich werereportedintheCompanysnewsreleaseofOctober25,2011.Highlightsfromthenewsreleaseinclude1) thediscoveryofmassivesulphidesintheGaronLakearea(1.05metresof4.94%zinc,0.20%copper,2.5g/tsilver and0.02g/tgold,and9.60metresof2.59%zinc,0.22%copper,11.84g/tsilverand0.09g/tgold,including6.74% zinc,0.34%copper,21.06g/tsilverand0.20g/tgoldover3.30metres)and2)thediscoveryofanextensiveVMS (Pipe)alterationsystemintheBellChannelarea. Inaddition,drillinghasdiscoveredtheoccurrenceofshallowstratigraphy(theintersectionofthetuffitehorizon) that potentially extends the prolific South Flank mine stratigraphy 14 kilometres to the west of the BracemacͲ McLeoddeposit. NotablepastresultsinregionaldrillingincludenewdiscoveriesatBellChannel(8.6%zincand0.14%copperover 2.2metresreportedJanuary19,2007)andatDaniel1(2.20%copperand8.8g/tsilverand0.25g/tgoldover 3.95metresreportedMarch12,2009).AdditionalresultsonregionaltargetswerereleasedonJuly12,2010.Ina pressreleasedatedNovember15,2010,theCompanyannouncedthediscoveryof2.35%copperover8.9metres attheRadioreprospectlocatedinthesoutheastendoftheNorthFlankjointventurearea.Furtherexploration resultswereannouncedonMarch6,2011forexplorationdrillingconductedinthevicinityofthehistoricalNew Hoscomine. SouthVoiseyBayProject,Labrador TheSouthVoiseyBayProjectislocatedincentralLabrador,intheprovinceofNewfoundlandandLabrador.The SouthVoiseyBayProjectcoversapproximately96km2inwhichtheCompanyhasvaryinginterestsrangingfrom 52%to77%.TheareacoveredbytheSouthVoiseyBayProjectcontinuestodecreaseasclaimsareforfeitedasa resultofinsufficientexplorationhavingbeencarriedoutoncertainclaimstokeepthemingoodstanding. Asofthedateofthisreport,therearenoplanstoexploreanyofthesepropertiesduringfiscal2012. TransitiontoInternationalFinancialReportingStandardsChangesinAccountingPolicies IFRSrepresentsstandardsandinterpretationsapprovedbytheInternationalAccountingStandardsBoard(IASB), andarecomprisedofIFRSs,InternationalAccountingStandards(IASs),andinterpretationsissuedbytheIFRS InterpretationsCommittee(IFRICs)ortheformerStandingInterpretationsCommittee(SICs). EffectiveMarch1,2011,theCompanypreparesitsfinancialstatementsinaccordancewithIFRS.Thecomparative financialinformationoffiscal2011intheMD&AhasalsobeenrestatedtoconformwithIFRS.ThisMD&Ashould
Page9of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 be read in conjunction with Note 16 First Time Adoption of IFRS of the Companys unaudited condensed consolidatedinterimfinancialstatementsforthethreemonthsendedMay31,2011andNote18oftheunaudited condensedconsolidatedinterimfinancialstatementsforthethreeandsixmonthsendedAugust31,2011. TotransitionfromCanadianGAAPtoIFRS,themainadjustmentsinclude: i) FlowͲthroughshares CanadianGAAPflowͲthroughsharesarecreditedtosharecapital,netofanyissuancecosts.Onthedatethe taxcreditsarerenouncedtotheflowͲthroughsharesubscribers,adeferredtaxliability/recoveryisrecognized asacostofissuingtheflowͲthroughshares. IFRSaliabilityisrecognizedforthedifferencebetweenthenetproceedsreceivedandthemarketpriceof thesharesonthedateofissue(theflowͲthroughsharepremium).ProvidedtheCompanyhastheintention torenouncethetaxbenefitstotheflowͲthroughsubscriber,theflowͲthroughsharepremiumisreversedand takenintoearningsasqualifyingexpendituresareincurred.Thedeferredtaximpact,ifany,isrecordedatthe same time. As a result, an adjustment of $151,141 was credited to common shares with a corresponding chargetodeficitasatAugust31,2010andadjustmentsof$460,388and$383,362werecreditedtocommon sharesandflowͲthroughsharepremiumwithacorrespondingchargetodeficitof$843,750asatFebruary28, 2011. ii) NonͲcontrollinginterests CanadianGAAPnonͲcontrollinginterestsintheequityofaconsolidatedaffiliateareclassifiedasaseparate componentbetweenliabilitiesandequityintheconsolidatedstatementfinancialpositionandasaseparate componentofnetearningswithintheconsolidatedstatementofearnings.Also,ifthenonͲcontrollinginterest wasinadeficitposition,theCompanywasnotrequiredtoshowthenonͲcontrollinginterestsportionofthe loss. IFRSnonͲcontrollinginterestsintheequityofaconsolidatedaffiliateareclassifiedasacomponentofequity separatefromtheequityoftheparentandarenotincludedinnetearnings,butinsteadarepresentedasan allocationofnetearnings,evenifthisresultsinthenonͲcontrollinginterestshavingadeficitbalance.Asa result,thenonͲcontrollinginterestsshareoflossandcomprehensivelossforthesixmonthsendedAugust31, 2010was$5,387andhasbeenshownseparatelyonthestatementoflossandcomprehensivelossandthe statementoffinancialposition.ThenonͲcontrollinginterestsshareoflossandcomprehensivelossforthe year ended February 28, 2011 was $5,408 and has been shown separately on the statement of loss and comprehensivelossandthestatementoffinancialposition. The adoption of IFRS has not had an impact on the Companys operations, strategic decisions, or cash flows. FurtherinformationontheIFRSimpactsisprovidedinNote3SummaryofSignificantAccountingPoliciesofthe CompanysunauditedcondensedconsolidatedinterimfinancialstatementsforthethreemonthsendedMay31, 2011.
Page10of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 ResultsofOperations ForthesixmonthsendedAugust31,2011,theCompanyreportedalossof$3,021,277(2010Ͳ$2,140,952)anda comprehensivelossof$3,294,515(2010Ͳ$2,511,775).TheCompanyslosspersharewas$0.02(2010Ͳ$0.02). ExplorationandEvaluationExpenditures ThreemonthsendedAugust31, SixmonthsendedAugust31, 2011 2010 2011 2010 Matagami Drilling$ 403,010 $930,407 $505,797 $2,302,398 Environment,health&safety 1,824 330 1,824 4,997 Geology 44,742 178,902 130,907 282,569 Geophysics 10,322 156,354 35,192 294,485 Operatorfees 213,268 125,599 237,567 287,445 Other 1,887 Ͳ 3,714 Ͳ Propertyacquisitionandmaintenance 6,969 Ͳ 34,307 Ͳ Technicalgeologicalservices (6,557) 21,896 20,900 48,003
675,465 1,413,488 970,208 3,219,897 Refundableta xcredits (184,894) (118,346) (268,238) (741,451) Miningdutiesrefund (26,093) (26,375) (37,855) (165,238)
464,478 1,268,767 664,115 2,313,208
SouthVoiseyBay Geology Ͳ 168 Ͳ 467 Propertyacquisitionandmaintenance Ͳ Ͳ Ͳ 28,782 Technicalgeologicalservices Ͳ Ͳ Ͳ 2,860
Ͳ 168 Ͳ 32,109
To talexplorationandevaluationex pen ditures $464,478 $1,268,935 $664,115 $2,345,317 DuringthesixmonthsendedAugust31,2011,theCompanyincurred$970,208(2010Ͳ$3,219,897)ofexploration expenditures and the Company accrued $306,093 (2010Ͳ$906,689) of recoverable tax credits relating to the expenditures on the Matagami Project. There was extensive exploration drilling ongoing during the six months endedAugust31,2010whereasexplorationworksloweddownconsiderablyduringthesixmonthsendedAugust 31,2011. Refundabletaxcreditsandminingdutiesrefunddirectlycorrespondtotheamountsspentonexplorationduring theperiodadjustedforCanadianExplorationExpenditures(CEE)renouncedtoQuebecbasedflowͲthroughshare subscriberswhicharenoteligiblefortheQuebectaxcredits. During the six months ended August 31, 2011, the Company incurred $Nil (2010Ͳ$32,109) of exploration expendituresontheSouthVoiseyBayProject.Thecostsincurredduring2010relateprimarilytorenewaloffive yearminerallicences. GeneralandAdministrative Differences in general and administrative expenses incurred during the six months endedAugust31,2011 and August31,2010areasfollows:
Page11of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 x TheCompanypaidanarmsͲlengthprivatecompany$116,500(2010Ͳ$82,087)foraccounting,secretarialand general administrative services. The Companys costs in this area have increased considerably as the Companysbusinessoperationshavebecomemorecomplex. x ManagementbilledtheCompany$246,755(2010Ͳ$158,207)formanagementservicesduringthesixmonths endedAugust31,2011.ManagementdevotesaportionoftheirtimetotheCompanyandaportionoftheir timetoothercompanieswheretheyareofficers.Accordingly,managementinvoicestheCompanybasedon thepercentageoftimeeachoftheindividualsdevotetotheCompany.Managementspentconsiderablymore timeoperatingtheCompanysbusinessduringthesixmonthsendedAugust31,2011,includingoverseeing theMatagamiProject,promotionandfundraisingefforts. x The Company incurred $51,678 (2010Ͳ$Nil) in consulting fees relating to financial advisory services the Company has received concerning potential financing options in order to fund its share of the Matagami developmentcosts. x TheCompanyincurred$43,000(2010Ͳ$17,938)indirectorsfees.Theincreaseof$25,000directlyrelatesto feespaidtoKenThorsenforhisroleinreviewingvariousformsofproposedminedevelopmentfinancing. x Professionalfeesincludeaccounting,auditandtaxfeesof$6,292(2010Ͳ$5,486)andlegalfeesof$3,070 (2010Ͳ$3,224). The Companys professional fees decreased by $28,706 during the three months ended August 31, 2011 due to the capitalization of legal fees incurred for the negotiation of the DOA that were previouslychargedtoprofessionalfees. x The Company incurred $315,907 (2010Ͳ$167,795) in promotion expenditures. Amounts included in promotion are monthly investor relations fees, print and internet advertising costs, web site updates, and investmentandgeologicalconferenceattendancefees.TheCompanyhasmadeaconcertedeffortduringthe current period to promote the Companys Matagami Project and facilitate the exercise of outstanding warrants. x The Company incurred $69,294 (2010Ͳ$44,096) in rent of office space. In January 2011, the Companys monthlyrentincreasedby$4,000permonthbecausetheCompanyisusingmoreofficespace. x The Company uses the fair value based method of accounting for all stockͲbased awards. The Company recorded$1,525,072(2010Ͳ$17,496)ofnonͲcashcompensationcostduetothegrantof8,775,000(2010 Nil)stockoptionsduringthethreemonthsendedMay31,2011.TheCompanycalculatedthefairvalueof optionsgrantedusingtheBlackͲScholesoptionpricingmodel. x The Company incurred $113,463 (2010Ͳ$50,054) in travel costs. Travel has increased significantly due to numerousvisitsbymanagementtotheMatagamiProjectsiteandtotheMontrealofficesofXstrata,aswellas fundraisingtripstofacilitatetheexerciseofoutstandingwarrantsandthefinancingoftheBracemacͲMcLeod minedevelopment. OtherRevenuesandExpenses x The Companys interest income has increased by $34,026 in 2011 due to more cash on hand to invest in interestbearingfinancialassetsaswellasslightlyhigherinterestrates. x DuetotheissuanceofflowͲthroughsharesinDecember2010,theCompanyiscommittedtoincur$2,650,000 inqualifyingCanadianExplorationExpendituresonorbeforeDecember31,2011.TheCompanyhasrecognized aliabilitybasedonthepremiumreceivedontheflowͲthroughsharescomparedtotheCompanysclosingshare priceonthedateofissuance.TheliabilityisreversedasthequalifyingexpendituresareincurredbytheCompany. ForthesixmonthsendedAugust31,2011,theCompanyhassatisfiedapproximately$1,370,000ofits$2,650,000 commitment.Asaresult,theliabilityhasbeenreducedby$150,138. OtherComprehensiveLoss StartinginDecember2009,theinvestmentinKnightMetalsLtd.(Knight)hasbeenclassifiedasanavailableͲforͲ saleinvestment,withchangesinfairvaluebeingrecordedinothercomprehensiveincome/loss.Asaresult,the
Page12of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 CompanyrecordedanunrealizedlossonmarktomarketoftheKnightinvestmentof$273,238(2010Ͳ$370,823) duringthesixmonthsendedAugust31,2011. FinancialCondition,LiquidityandCapitalResources TheCompanysworkingcapitalpositionatAugust31,2011was$13,362,210comparedto$5,707,813atFebruary 28,2011. MajorsourcesofcashduringthesixmonthsendedAugust31,2011were1)issuanceofcommonsharespursuant to the exercise of warrants and the completion of a private placement for net proceeds of $6,640,940; 2) completionoftheSandstormMetalPurchaseAgreementfornetproceedsof$17,018,700;and3)interestincome of$44,624. MajorusesofcashduringthesixmonthsendedAugust31,2011wereapproximately$5,200,000onoperating activitiesandapproximately$14,100,000oninvestingactivities(BracemacͲMacLeoddevelopment). The Company does not generate sufficient cash flow from operations to fund its development and exploration activities,itsacquisitionsanditsgeneralandadministrativecosts.TheCompanyisreliantonequityfinancingsto providethenecessarycashtocontinueitsoperations.Therecanbenoassurancethatequityfinancingswillbe availabletotheCompanyinthefuturethatwillbeobtainedontermssatisfactorytotheCompany.Inorderto continue exploration and development programs on the Matagami Project, meet anticipated general and administrativeexpenditures,andfunditsshareoftheBracemacͲMcLeodminedevelopment,theCompanywillbe requiredtoraiseadditionalfunds. ThefeasibilitystudyontheBracemacͲMcLeodminecontemplatescapitalcostsofapproximatelyUSD$164million. The Companys share (35%) of these costs is approximately USD$57 million (including preͲproduction and sustaining capital).Construction of the BracemacͲMcLeod mine began in April 2010.The Company anticipates spending approximately $4.0 million from September to December 2011 and approximately $20.0 million during calendar2012toachieveinitialproductioninJanuary2013. OnJuly12,2011,theCompanyandSandstormMetals&EnergyLtd.(TSXVͲSND)(Sandstorm)signedaMetal Purchase Agreement on an area covering the BracemacͲMcLeod Mine and surrounding area. The limit of the agreementisdefinedbyacirclewitharadiusof3.2kilometres,centeredontheBracemacͲMcLeoddeposit.This regioncoversaportionoftheBracemacͲMcLeodjointventureareaandaportionoftheSouthFlankjointventure area. Under the terms of the Metal Purchase Agreement, the Company received an upfront purchase deposit from SandstormintheamountofUS$17.75millionandwillreceiveasecondpurchasedepositofUS$5million,subject totheCompanyraisinganadditional$10,000,000,onorbeforeJune30,2012.Inaddition,Sandstormsubscribed for6,200,000commonsharesoftheCompanyatadeemedpriceofUSD$0.35pershare,forgrossproceedsof USD$2,250,000. TheMetalPurchaseAgreementprovidesforthesaleofmetalbytheCompanytoSandstormequalto17.5%ofthe copperandpreciousmetals(goldandsilver)fromtheBracemacͲMcLeodmine.TheCompanywillreceiveUS$0.80 perpoundofdeliveredcopperifthespotpriceofcopperperpoundasquotedontheLondonMetalExchangeis aboveUS$2.75perpound,otherwise,thelesserofUS$0.55andtheprevailingspotpriceofcopperperpound. OnceSandstormhaspurchased14.8millionpoundsofcopper,theCompanywillreceiveUS$1.05perpoundof delivered copper, if the spot price of copper per pound is above US$2.75 per pound, otherwise, the lesser of US$0.80andtheprevailingspotpriceofcopperperpound.TheCompanywillreceiveforgoldorgoldequivalent ouncesthelesserofUS$350perounceandtheprevailingspotpriceforgoldperounceasquotedbytheLondon
Page13of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 BullionMarketAssociation.TheCompanyhastheoptionfor24monthstopurchasebackfromSandstormhalfof themetaltobesoldtoSandstormforUS$17.5million. Pursuant to the Metal Purchase Agreement, the Company has guaranteed to Sandstorm that Sandstorm will receiveminimumcashflowfromthepurchaseofcopperandpreciousmetalsof(i)US$6.5millionincalendar 2013,(ii)US$6.5millionincalendar2014,(iii)US$7.0millionincalendar2015,and(iv)US$5.0millionincalendar 2016. PursuanttotheMetalPurchaseAgreement,theCompanyhasalsoagreedtoissuetoSandstormUS$1.4million worth of common shares on the date of the second purchase deposit. Sandstorm has no other rights in the remainderoftheMatagamiProject. Subsequent to August 31, 2011, the Company entered into an agreement with Haywood Securities Inc. (Haywood)underwhichHaywoodhasagreedtoactasagentforaprivateplacement,onaguaranteedagency basis,of9,090,910flowͲthroughcommonsharesoftheCompanyatapriceof$0.22pershare,forgrossproceeds of$2,000,000.TheCompanyalsointendstocompleteaconcurrentnonͲbrokeredprivateplacementof2,000,000 flowͲthroughcommonsharesatapriceof$0.22pershareforgrossproceedsof$440,000.Theaggregateproceeds fromthesaleoftheflowͲthroughshareswillbeusedfortheadvancementoftheMatagamiProjectinQuebec.The privateplacementshavenotclosedasofthedateofthisreport. FinancialInstruments As at August 31, 2011, the Companys financial instruments are cash, trade and other receivables, tax credits recoverable,investment,andtradeandotherpayables.Theamountsreflectedinthebalancesheetarecarrying amounts and approximate their fair values due to their shortͲterm nature. These financial instruments are classifiedasfollows: Cashloansandreceivables Tradeandotherreceivablesloansandreceivables Taxcreditsrecoverableloansandreceivables InvestmentavailableͲforͲsale Tradeandotherpayablesotherfinancialliabilities Basedontheseinputs,theevaluationofourinvestmentisclassifiedasLevel1inthefairvaluehierarchy. a) Creditrisk Creditriskistheriskthatonepartytoafinancialinstrumentwillcauseafinanciallossfortheotherpartyby failingtodischargeanobligation.TheCompanyscash,tradeandotherreceivablesandtaxcreditsrecoverable areexposedtocreditrisk.Managementbelievesthecreditriskoncashissmallbecausethecounterparties are highly rated financial institutions and the credit risk on trade and other receivables and on tax credits recoverablearesmallbecausethecounterpartiesarefederalandprovincialgovernments. Theagingoftradeandotherreceivablesandtaxcreditsrecoverableareasfollows:
Page14of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 August31, February28, 2011 2011 Tradeandotherreceivables 0to60days$ 303,046 $47,433 61to120days Ͳ Ͳ $303,046 $47,433
Taxcreditsrecoverable 0to365days$ 4,294,636 $1,110,497 >365days 7,040 7,040 $ 4,301,676 $1,117,537 b) Interestraterisk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate becauseofchangesinmarketinterestrates.TheCompanyisnotexposedtosignificantinterestrateriskdue totheshortͲtermtomaturityofitsfinancialinstruments.TheCompanyhadnointerestrateswapsorfinancial contractsinplaceasatorduringthesixmonthsendedAugust31,2011. c) Currencyrisk Currencyriskistheriskthatfairvalueorfuturecashflowsofafinancialinstrumentwillfluctuatebecauseof changes in foreign exchange rates. The Companys exposure to currency risk is negligible because the Companys operations are in one country, being Canada. The dollar amount and number of transactions conductedincurrenciesotherthantheCanadiandollararenotsignificant. d) Liquidityrisk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Companys trade and other payables are all current and due within 90 days of the balancesheetdate.TheCompanyensuresthatithassufficientcapitaltomeetshorttermfinancialobligations aftertakingintoaccountitsexplorationobligationsandcashonhand.TheCompanyisseekingfinancingin order to continue exploration of the Matagami Project, meet anticipated general and administrative expenditures,andfunditsshareoftheBracemacͲMcLeodminedevelopment. ThefollowingtabledetailstheCompanysexpectedremainingcontractualmaturitiesforitsfinancialliabilities. Thetableisbasedontheundiscountedcashflowsoffinancialliabilitiesbasedontheearliestdateonwhich theCompanyisrequiredtosatisfytheliabilities. Lessthan 30days 31to90days Total AtAugust31,2011 Tradeandotherpayables$ 10,362 $207 $10,569
AtFebruary28,2011 Tradeandotherpayables$ 99,698 $2,652 $102,350
Page15of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 OffͲBalanceSheetArrangements The Company has not engaged in any offͲbalance sheet arrangements such as obligations under guarantee contracts,aretainedorcontingentinterestinassetstransferredtoanunconsolidatedentity,anyobligationunder derivative instruments or any obligation under a material variable interest in an unconsolidated entity that providesfinancing,liquidity,marketriskorcreditrisksupporttotheCompanyorengagesinleasingorhedging serviceswiththeCompany. SelectedQuarterlyInformation Thefollowingtablepresentsselectedfinancialinformationforeachofthemostrecenteightquarters: Fiscal2012Fiscal2011 Fiscal20101 31ͲAugͲ11 31ͲMayͲ11 28ͲFebͲ11 30ͲNovͲ10 28ͲAugͲ10 31ͲMayͲ10 28ͲFebͲ10 30ͲNovͲ09 $$$$$$$$ Expenses Exploration 464,478 199,637 502,477 991,257 1,268,935 1,076,382 2,420,615 916,457 ShareͲbasedpayments 19,830 1,505,242 388,216 66,174 (12,906) 30,402 788,408 44,089 G&A 398,810 622,928 454,602 457,854 317,151 271,967 327,951 427,381 Loss 756,311 2,264,966 1,238,747 1,509,323 1,256,413 884,539 2,100,346 1,637,565 Comprehensiveloss(income) 853,896 2,440,619 1,485,962 1,880,145 1,380,021 1,131,754 (948,061) 1,637,565 Losspershare 0.01 0.02 0.01 0.01 0.01 0.01 0.02 0.02 Workingcapital 13,362,210 8,889,592 5,707,813 2,948,645 4,204,093 5,957,877 6,758,258 5,356,297 Totalassets 28,677,703 9,821,006 6,735,025 3,894,159 5,405,843 7,016,460 8,261,408 8,598,793 1FinancialdataforperiodsbeforeMarch1,2010arepresentedinaccordancewithCanadianGAAP. Overthelasteightquarters,theCompanyhasbeenextensivelyexploringitsMatagamiProjectandthemajorityof thelosseachquarter(exceptMay31,2011andFebruary28,2011)relatestotheexplorationexpendituresonthe Matagami Project. The other main contributor to the losses is nonͲcash stockͲbased payments incurred on the grant, amendment, and vesting of stock options over the last eight quarters. Starting in December 2009, the investment in Knight has been classified as an availableͲforͲsale investment, with changes in fair value being recordedinothercomprehensiveincome(loss). RelatedPartyTransactions ForthesixmonthsendedAugust31,2011,theCompanyincurredthefollowingfeesandexpensesinthenormal courseofoperationsinconnectionwithcompaniesownedbykeymanagementanddirectors.Expenseshavebeen measuredattheexchangeamountwhichisdeterminedonacostrecoverybasis.
Page16of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 Directorsand Technical Management Committee Geological ShareͲbased Fees Fees Services Rent Payments8
KeatsConsultingInc.1 $64,780 $ Ͳ $50,020 $ Ͳ $ Ͳ ElysianEnterprisesInc.2 $132,000 $ Ͳ $ Ͳ $ Ͳ $ Ͳ ZoraydaConsultingLtd.3 $43,750 $ Ͳ $53,400 $ Ͳ $ Ͳ ThorsenConsultingLtd.4 $Ͳ $31,000 $ Ͳ $ Ͳ $ Ͳ TimeoutHoldingsInc.5 $Ͳ $6,000 $ Ͳ $ Ͳ $ Ͳ SparkesConsultingLtd.6 $Ͳ $6,000 $ Ͳ $ Ͳ $ Ͳ RonTessier$ 6,225 $ Ͳ $ Ͳ $ Ͳ $ Ͳ ViewnorthPropertiesLtd.7 $Ͳ $ Ͳ $ Ͳ $69,294 $ Ͳ HarveyKeats $Ͳ $ Ͳ $ Ͳ $ Ͳ $440,184 DavidPatterson $Ͳ $ Ͳ $ Ͳ $ Ͳ $440,184 RobinAdair $Ͳ $ Ͳ $ Ͳ $ Ͳ $219,549 KenThorsen $Ͳ $ Ͳ $ Ͳ $ Ͳ $104,340 LaurieSadler $Ͳ $ Ͳ $ Ͳ $ Ͳ $104,340 KerrySparkes $Ͳ $ Ͳ $ Ͳ $ Ͳ $104,340
$ 246,755 $43,000 $ 103,420 $69,294 $1,412,937 1KeatsConsultingInc.,aprivatecompanycontrolledbyHarveyKeats. 2ElysianEnterprisesInc.,aprivatecompanycontrolledbyDavidPatterson. 3ZoraydaConsultingLtd.,aprivatecompanycontrolledbyRobinAdair. 4ThorsenConsultingLtd.,aprivatecompanycontrolledbyKenThorsen. 5TimeoutHoldingsInc.,aprivatecompanycontrolledbyLaurieSadler. 6SparkesConsultingLtd.,aprivatecompanycontrolledbyKerrySparkes. 7ViewnorthPorpertiesLtd.,aprivatecompanywherebyDavidPattersonisacommondirector. 8ShareͲbased payments are the fair value of stock options calculated using the BlackͲScholes model. All stock optionsvestedimmediatelyupongrant. OutstandingShareData AsatOctober25,2011,theCompanyhadthefollowingsecuritiesissuedandoutstanding: Number ExercisePrice ExpiryDate
Commonshares 150,259,324 n/a n/a
Stockoptions 400,000 $0.28 December7,2012 Stockoptions 750,000 $0.25 September6,2012 Stockoptions 2,345,000 $0.285 February23,2014 Stockoptions 8,775,000 $0.30 March3,2014 FullyDiluted 162,529,324
Page17of18 DONNERMETALSLTD. ManagementsDiscussionandAnalysis SixMonthsEndedAugust31,2011 DirectorsandOfficers HarveyKeats DirectorandCEO DavidPatterson Director,ChairmanandCFO KerrySparkes Director KenThorsen Director LaurieSadler Director RobinAdair VicePresidentofExploration RonTessier VicePresidentofEngineering
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