Q4 OCTOBER – DECEMBER 2022 (October – December 2021)

• Revenue TUSD 29,550 (19,213)
• EBITDA TUSD -7,020 (7,553)
• Cash flow from operating activities TUSD 20,921 (2,160)
• Impairment of TUSD 8,774, mainly related to the Perevalnoe project where the open pit mines were depleted and the CIP mill was stopped and mothballed in 2022
• Unrealized loss from gold hedges TUSD -1,634 (-1,437)
• Loss for the period -19,756 (-4,021)
• Earnings per share before dilution USD -0.02 (-0.01)
• Kopy establishes operations in Khakassia through acquisition of 25% interest in the gold company Zolotaya Zvezda

JANUARY – DECEMBER 2022 (January – December 2021)

• Revenue TUSD 115,775 (89,578)
• The Group recognized non-cash revenue from sale of gold of TUSD 32,619 and cost of gold purchased of TUSD 41,725 during Q3 2022, affecting the gross loss for the year with TUSD -9,106 as a result of the settlement of a commodity loan
• EBITDA TUSD 11,235 (36,899)
• Unrealized gain from gold hedges TUSD 32 (2,099)
• Non-cash inventory adjustment TUSD -5,992 (-11,174)
• Loss for the year TUSD -29,480 (profit: 7,715)
• Earnings per share before dilution USD -0.03 (0.01)

SUMMARY OF FINANCIAL INFORMATION

Strengthened cash flow, operational improvements and development of new production areas

During Q4, the earlier strategy to delay gold sales, build gold inventory and settle the gold loan resulted in significantly improved cash flow as gold sales increased and the Ruble nominated gold price strengthened during the quarter. The company focused on operations improvements at the Yubileyniy mine and the processing plant while keeping our major development project Malyutka on track. In parallel, the company entered a new operational cluster in the Khakassia region of Russia by acquiring a stake in the Zolotaya Zvezda project.

Production
2022 was the start-up year for the expanded plant at Yubileyniy where gold production increased by 53% year-on-year, which actually remained below our targets due to an extended start-up phase. A focus area during the reporting quarter has been on technical improvements at Yubileyniy mill and mine in order to fine tune processes and processing equipment. We also added new production by entering the high potential gold mining project Zolotaya Zvezda in Khakasia, establishing a new cluster for our gold mining operations. The production from this new region was not consolidated in the financial statements for 2022. The total consolidated production in Q4 amounted to 8,83 koz, a decrease of 11% compared to the last quarter of 2021.

Financial performance
In Q3 2022, we decided to limit gold sales substantially and instead increase our gold inventory. The Ruble nominated gold price increased substantially during the quarter, and we sold almost twice the volume produced. Increased sales resulted in revenues of MUSD 30, up 54% compared to Q4 2021 and cash flow from operations reaching MUSD 21, a tenfold increase from Q4 2021. The stronger Russian Ruble and higher production cost per ounce produced at Perevalnoye affected the cost of sales and thus the EBITDA in Q4 as sales volumes increased. The financial results were further affected by non-cash impairment charges primarily relating to, the Perevalnoe project property of TUSD 8,774.

Investments
At the Malyutka project, our main development focus, we are on track with the construction and moving forward to the targeted commissioning of the project later in 2023. Out of our total investments into existing assets in 2022, almost 70% were related to the Malyutka project. We used the winter roads for the further logistic and procurement activities to secure needed materials for the development. Malyutka will be our next milestone towards reaching our production target of 100 koz of gold in 2025.

In December 2022, we closed the acquisition of a 25% interest in the Russian gold company Zolotaya Zvezda CJSC. Zolotaya Zvezda holds substantial reserves and resources that have been in production since the mid 90s, as a heap leach producer. Following the acquisition, we initiated a review and update of Zolotaya Zvezda’s development plans for 2023 and beyond. Zolotaya Zvezda has a significant exploration and production upside, and we are in the process of modernizing and extending its Mayskiy processing plant, targeted to start operations in the second half of 2023.

ESG
Thanks to our proactive approach, we managed to decrease the Lost Time Injury Frequency Rate (“LTIFR”) to 0.75 in 2022 from 1.66 in 2021. We proceeded with plans to use renewable energy from solar power plant at Yubileyniy and Maluytka where relevant pre-design and engineering works have been completed. Pre-designed capacity of solar power plants is expected to cover more than 30% of required energy. We have also advanced our waste utilization project in order to further minimize our environmental footprint.

Macro environment
Although 2022 was a very turbulent year, the mining industry in Russia has generally adapted to the new challenges: new supply channels for procurement of equipment and materials have been secured, staffing issues put under control, inflation and interest rates have stabilized and the new grounds for future growth have been identified. The escalating sanctions and other restrictions continue affecting the business environment and influence development strategies. During Q4 2022, the gold prices strengthened and the local market stabilized. The future challenges are hard to predict, but we are constantly evaluating the situation.

Outlook
Short-term, we continue to focus is on the technical improvements at Yubileyniy. The Malyutka plant enters the final construction phase and we target to commission the project in 2023. Next year will be the first for us operating our new project in Khakassia which going forward has the potential to become a significant part of our operations. We remain on our path and continue to pursue our long-term plan while we seek to manage and mitigate many challenges in the current environment.

Mikhail Damrin
CEO Kopy Goldfields