Canaf Investments : Management Discussion & Analysis

Management Discussion & Analysis

For the nine months ended 31st July 2021

(Expressed in U.S. dollars)

(Unaudited - Prepared by Management)

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the 9-month period ended July 31, 2021

Expressed in U.S Dollars

INTRODUCTION

Date Prepared: 24th September 2021

This Management Discussion and Analysis, ("MDA") covers the operations of Canaf Investments Inc. ("Canaf" or the "Corporation") for the nine months ended July 31, 2021 and should be read in conjunction with the unaudited consolidated Financial Statements for the nine months ended July 31, 2021 and audited consolidated Financial Statements for the year ended October 31 2020 and related notes. The Financial Statements are presented in accordance with International Financial Reporting Standards ("IFRS"). Canaf's accounting policies are described in Note 2 of the unaudited Financial Statements for the nine months ended July 31. The financial statements together with this MDA are intended to provide investors with a reasonable basis for assessing the financial performance of the Corporation.

All dollar amounts are expressed in US dollars, the functional currency of the Corporation, unless otherwise stated. The Corporation's listing on the TSX-V however, is quoted in Canadian Dollars. Additional information relating to the Corporation is available on SEDAR at www.sedar.com. or at Corporation's website at www.canafinvestments.com.

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the 9 month period ended July 31, 2021

Expressed in U.S Dollars

DESCRIPTION OF BUSINESS

Canaf is incorporated in the Province of Alberta with two wholly owned subsidiaries in South Africa, Quantum Screening and Crushing (Pty) Limited ("Quantum"), and Canaf Investments (Pty) Ltd, ("Canaf Ltd").

Quantum, through its 70% owned subsidiary, Southern Coal (Pty) Ltd. ("Southern Coal"), processes anthracite coal into de-volatised anthracite (calcined anthracite) for sale mostly to steel and ferromanganese manufacturers as a substitute product for coke.

Canaf Investments (Pty) Ltd, incorporated in 2019, acts as Canaf's South African holding company with the intention of creating a diverse Corporation focused on sustainable and long-term growth sectors within South Africa. Canaf Investments (Pty) Ltd owns 100% of Canaf Estate Holdings (Pty) Ltd., ("CEH").

Southern Coal - Calcined Anthracite, South Africa

Southern Coal produces calcined anthracite, which is primarily sold as a substitute to coke in sintering processes, by feeding anthracite coal through its rotary kilns, at temperatures between 900 and 1100 degrees centigrade; the volatiles are driven off and the effective carbon content increased.

Southern Coal's clients are world leaders in steel and ferromanganese production. Southern Coal's three kilns operate near Newcastle, KwaZulu Natal.

Canaf Estate Holdings - Property Investments, South Africa

CEH is a property investment company focused on acquiring, redeveloping and renting properties primarily within the suburbs of the old Johannesburg CBD. CEH made its first property acquisition in August 2019.

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the 9 month period ended July 31, 2021

Expressed in U.S Dollars

OVERALL PERFORMANCE AND OUTLOOK

The Corporation reports a strong nine months with Sales of US$10,834,358, a 15% improvement compared to the previous nine months ended July 31, 2020 (US$9,399,313), and net income of US$813,883 (2020: US$536,459) or CAN$1,024,102 (2020: CAN$726,042). Gross margins continue to hold strong and currently sit at 12.4% for the nine months.

The next quarter, Q4 2021, is expected to reflect a reduction in sales, back to levels similar to Q1 and Q2 this year. This reduction in sales in comparison to Q3 2021 is due to a main customer of Southern Coal having to reduce demand seen in Q3, after a major breakdown being experienced during the period. The Corporation however is expecting Q1 2022, to reflect an increase in comparison to Q4 2021.

During the quarter Canaf announced an update relating to a short period of civil unrest in South Africa. Management can confirm that the civil unrest lasted no longer than a week and no direct harm or damage was experienced to staff or plant and equipment, nor has there been any signs of civil unrest since.

Further to the announcement in June 2021 regarding the securing of further land tenure for Quantum, management can confirm that it is now in the process of applying for environmental authorisations which would allow for the construction of further calcining facilities which would provide opportunities for future growth and diversification. The overall application process could only be completed and outcome determined by September 2022.

Covid-19

Whilst Covid-19 remains a constant concern, the board has taken steps to minimise the impact of the pandemic on the business of the Corporation. The board believes that the Corporation is well positioned in the market and is pleased to confirm that the pandemic thus far has not had a negative effect on the financial performance of the Corporation.

As of 31 July 2021, Canaf shareholder equity stood at US$5.33 million (CAN$6.67 million).

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the 9 month period ended July 31, 2021

Expressed in U.S Dollars

Selected Financial Information

Due to the Corporation being listed on the TSX-V and its share price being quoted in Canadian Dollars, the Corporation has converted some key financial information included in this report to Canadian Dollars. The following financial information is derived from the Corporation's un-audited financial statements for the quarter ended July 31, 2021, with a comparison in Canadian Dollars.

		9 Months Ended		9 Months Ended
		Jul 31		Jul 31
	2021	2020	2021	2020
	US$	US$	CAN$	CAN$
Conversion 1.00 US (av. 12 months)			1.258	1.353
Revenue from Sales	10,834,358	9,399,313	13,632,778	12,720,999
Cost of Sales	(9,486,399)	(8,354,685)	(11,936,653)	(11,307,203)
Gross Profit	1,347,959	1,044,627	1,696,125	1,413,795
Expenses	(375,060)	(355,139)	(471,935)	(480,644)
Interest Income	106,821	115,445	134,412	156,243
Other Income	32,267	14,242	40,601	19,275
Gain from Sale of Vehicle	0	0	0	0
Net Income for the year (before tax)	1,111,987	819,175	1,399,203	1,108,669
Income Tax Recovery (Expense)	(298,103)	(282,716)	(375,101)	(382,627)
Net Income for the year	813,883	536,459	1,024,102	726,042
Attributable to the Shareholders	646,812	389,294	813,878	526,870
Attributable to the Non-Controlling Interest	167,071	147,165	210,224	199,172
Adjusted EBITDA	1,140,423	859,255	1,434,984	1,162,913
Conversion 1.00 US (Closing position Oct 2020)	2021	2020	1.251	1.320
Total Assets	7,302,906	5,580,049	9,138,031	7,366,960
Total Equity	5,639,867	4,353,015	7,057,092	5,101,399

Non- GAAP Performance Measures

The Corporation has included additional financial performance measures in this MD&A, such as adjusted EBITDA. The Corporation believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Corporation's underlying performance of its core operations and its ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

*Reconciliation of Adjusted EBITDA and Profit
		9 Months Ended	9 Months Ended
		Jul 31		Jul 31
	2021	2020	2021	2020
	US$	US$	CAN$	CAN$
Conversion 1.00 US Dollar Rate			1.258	1.353
Net Income for the year	813,883	536,459	1,024,102	726,042
Interest Paid	0	0	0	0
Interest Receieved	(106,821)	(115,445)	(134,412)	(156,243)
Foreign Exchange Gain/ (Losses)	(6,762)	3,544	(8,508)	4,796
Depreciation	142,019	151,981	178,701	205,690
Income Taxes	298,103	282,716	375,101	382,627
Adjusted EBITDA	1,140,423	859,255	1,434,984	1,162,913

Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, foreign exchange gain (loss) and other revenues (expenses) as historically calculated by the Corporation.

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