Karnalyte Resources : Management’s Discussion and Analysis – March 31 2023

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the three months ended March 31, 2023

KARNALYTE.COM

TSX: KRN

TABLE OF CONTENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS	1
MANAGEMENT'S DISCUSSION AND ANALYSIS	3
OVERVIEW	3
General Overview	3
First Quarter Update	3
Outlook for 2022	4
RESULTS OF OPERATIONS	4
General and Administrative Expenses	4
Other Costs Impacting Comprehensive Loss	5
SUMMARY OF QUARTERLY RESULTS	5
INVESTING	6
Intangible Assets	7
Capital Assets	8
LIQUIDITY AND CAPITAL RESOURCES	8
CONTRACTUAL OBLIGATIONS	8
Related Party Transactions	9
Restrictions on Disposition of the Wynyard Potash Project	9
CRITICAL ACCOUNTING ESTIMATES	10
Stage of Development	10
Intangible Assets and Property, Plant and Equipment	10
Decommissioning Provisions	11
Share-Based Payments	11
Contingent Liabilities	11
FINANCIAL RISK FACTORS	11
Credit Risk	11
Liquidity Risk and Going Concern	11
Market Risk	12
Currency Risk	12
Interest Rate Risk	12
INTERNAL CONTROLS	13
Disclosure Controls and Procedures	13
Internal Controls over Financial Reporting (ICFR)	13
OFF BALANCE SHEET ARRANGEMENTS	14
OUTSTANDING SHARES	14
FORWARD-LOOKING INFORMATION	14

KARNALYTE RESOURCES MANAGEMENT'S DISCUSSION AND ANALYSIS - MARCH 31, 2023 2

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") is intended to provide a summary of the operational and financial results of Karnalyte Resources Inc. ("Karnalyte" or the "Company") for the three months ended March 31, 2023 and 2022. This MD&A should be read in conjunction with the condensed unaudited interim financial statements of the Company and the related notes thereto for the three months ended March 31, 2023. This commentary is dated May 11, 2023. The financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Statements and should be read in conjunction with the year-end December 31, 2022 audited financial statements. These documents, the Annual Information Form dated March 28, 2023, and additional information about the Company are available on SEDAR at www.sedar.com. Some of the statements made herein contain forward-looking information and accordingly please refer to the "Forward-Looking Information" section at the end of the MD&A.

OVERVIEW

GENERAL OVERVIEW

Karnalyte was incorporated under the Business Corporations Act (Alberta) on November 16, 2007 and is a Saskatchewan-headquartered company focused on the development of potash and magnesium operations in Saskatchewan. The Company's potash project in Wynyard, Saskatchewan (the "Potash Project") is a proposed 2.125 million tonnes per year ("TPY") potash mine utilizing conventional solution mining methods for potash production, with a vision of ultimately becoming the next greenfield, environmentally innovative mine. The Company proposes that the Potash Project, key to Karnalyte's goal of becoming a low-cost, sustainable producer of high-quality product, be developed in three phases using a modular approach, with a first phase ("Phase I") consisting of a production facility capable of producing 625,000 TPY of potash, increasing to 1,375,000 TPY of potash in the second phase, and ultimately to 2,125,000 TPY of potash in the third phase.

FIRST QUARTER UPDATE

During the first quarter of 2023, Karnalyte continued to work diligently to advance the Company's Potash Project toward development.

Karnalyte remains focused on the update to its NI 43-101 compliant technical report, a key precursor to any mine construction. In the most recent quarter, this included work done by Karnalyte and its advisors to identify cost efficiencies, optimize construction and operation plans, and enhance project sustainability.

Wood PLC, a leading global consulting and engineering company, is the independent lead author of the update. Industry leading solution mining and engineering firm ERCOSPLAN ingenieurgesellschaft Geotechnik und Bergbau mbH ("ERCOSPLAN") is assisting with the project, including the update of the mineral resource estimation and the mine plan for brine field development as the basis for the mineral reserve estimate.

In addition, the Company's Proteos Nitrogen Project remains under consideration as part of Karnalyte's future and may diversify our business by adding a second fertilizer product line.

KARNALYTE RESOURCES MANAGEMENT'S DISCUSSION AND ANALYSIS - MARCH 31, 2023 3

OUTLOOK FOR 2023

In 2023, the Company plans to complete the update to its NI 43-101 technical report; to continue to work on identifying cost efficiencies, optimizing construction and operation plans, and enhancing project sustainability; and to increase business development activities to seek out and attract investment and strategic partners to move one or both of the Company's projects forward to development.

RESULTS OF OPERATIONS

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative ("G&A") costs for the three month period ended March 31, 2023 amounted to $341,000 which is a decrease of $35,000 from the comparative 2022 amount.

The key components of the G&A costs are as follows:

G&A Expenditures (CAD $ thousands)

	Three months ended March 31,
	2023	2022
Salaries, wages and benefits	68	68
Business development, investor relations, regulatory fees	24	41
Accounting and legal	68	74
Consulting	35	50
Directors Fees	56	53
Office and general	90	90
Total general and administrative	341	376

Business development, investor relations and regulatory fees for the three month period ended March 31, 2023 amounted to $24,000 compared to $41,000 in the 2022 comparative period, which is an decrease of $17,000. The decrease is largely due to a reduction of annual regulatory filing fees.

Accounting and legal expenses for the three month period ended March 31, 2023 were $68,000 compared to $74,000 in the comparative period, which is a decrease of $6,000 due to accounting quarterly review cost reductions.

Consulting expenses for the three month period ended March 31, 2023 amounted to $35,000 compared to $50,000 in the 2022 comparative period, which is a decrease of $15,000. Expenses in this category are largely due to a consulting contract with the interim CFO.

Director fees for the three month period ended March 31, 2023 amounted to $56,000 compared to $53,000 for the 2022 comparative period, which is an increase of $3,000. The number of directors has remain unchanged at five in the first quarter of 2023 and 2022.

KARNALYTE RESOURCES MANAGEMENT'S DISCUSSION AND ANALYSIS - MARCH 31, 2023 4

OTHER COSTS IMPACTING COMPREHENSIVE LOSS

Depreciation for the three month period ended March 31, 2023 was $3,000 compared to $3,000 in the 2022 comparative period.

Share-basedcompensation expense for the three month period ended March 31, 2023 was $3,000 compared to $14,000 in the 2022 comparative period. Share-based compensation expenses in the first quarter of 2022 related to both the 460,000 stock options granted in July 2020 as well as the 300,000 stock options granted in November 2021. In the first quarter of 2023, the share-based compensation expenses only related to the 300,000 stock options granted in November 2021. These expenses are all non-cash in nature and stock options are expensed over a two year vesting period using a declining balance method.

Impairment expenses for the three month period ended March 31, 2023 were $134,000 compared to the period ending March 31, 2022 of $239,000. In 2014, previous management determined assets with a carrying amount of $63,165,000 were no longer recoverable. At March 31, 2023, the Company determined that those impairment indicators continue to exist. Therefore, incremental expenditures of $134,000 incurred on intangible and mine development assets in the first quarter of 2023 were determined not to impact the previously determined recoverable amount. For additional information, refer to the notes to the financial statements dated December 31, 2015 available on SEDAR at www.sedar.com.

Other income for the three month period ended March 31, 2023 were $66,000 compared to $217,000 in the 2022 comparative period. While there is some rental income in this category from leasing the Company's land holdings to local Wynyard area farmers, the majority relates to a $56,000 recovery recorded as a result of a change in estimate of the Company's decommissioning liability, as compared to the $209,000 recovery recorded in the first quarter of 2022.

Net finance income for the three month period ended March 31, 2023 was $29,000 compared to net finance expense of $4,000 in the 2022 comparative period. Finance income relates to the corresponding interest income that the cash and cash equivalents generate. Finance expense relates to the accretion of the decommissioning liability.

SUMMARY OF QUARTERLY RESULTS

The following table provides selected financial information of the Company for each of the last eight quarters ended at March 31, 2023:

	2023		2022			2021
	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31	Dec 31	Sep 30	Jun 30
Total revenue	-	-	-	-	-	-	-	-
Comprehensive (loss)	(386)	(453)	(432)	(424)	(419)	(498)	(279)	(839)
Basic and diluted loss per share	(0.01)	(0.01)	(0.01)	(0.01)	(0.01)	(0.01)	(0.01)	(0.02)
Total current assets	4,069	4,209	4,628	1,504	1,934	2,498	2,793	3,388

KARNALYTE RESOURCES MANAGEMENT'S DISCUSSION AND ANALYSIS - MARCH 31, 2023 5