Sotkamo Silver Interim Report Q2/2024: Higher silver price offset low silver grade

HIGHLIGHTS

April – June (Q2)

• Net sales decreased by 13 % to 105 MSEK (120 MSEK), driven mainly by a lower average silver grade, which led to lower silver production. Reduced production volumes offset by improved metal prices. Net sales increased by 25 % compared to Q1 2024
• EBITDA decreased by 64 % to 19 MSEK (53), EBITDA margin decreased to 18 % (44), but EBITDA increased by 11 % compared to Q1 2024
• EBIT decreased to 0 MSEK (34) however EBIT increased by 1.2 MSEK compared to Q1 2024
• The profitability decreased mainly due to lower silver grade and increased contractor costs
• Cash and cash equivalents amounted to 30 MSEK (36)
• Investments went up to 12 MSEK (8)
• The production amounted to approximately 274,000 ounces of silver (383,000), 590 ounces of gold (836), 167 tonnes of lead (317), and 359 tonnes of zinc (662) in concentrates
• In June, the Supreme Administrative Court rejected the Company’s claim regarding the taxation of unrealized foreign exchange gains which resulted in an expense of 15 MSEK

January – June (H1)

• Underground operations were in mining areas with below-average metal content, which weakened the profitability
• Net sales increased by 1% to 190 MSEK (188 MSEK), driven mainly by the positive development of silver and gold prices
• EBITDA decreased by 39% to 36 MSEK (59), EBITDA margin decreased to 19% (32)
• EBIT decreased to -1 MSEK (24)
• Profitability decreased mainly due to lower silver grade and increased contractor costs
• Cash and cash equivalents decreased to 30 MSEK (79)
• Investments increased by 79% to 29 MSEK (16)
• The production was approximately 583,000 ounces of silver (590,000), 1,307 ounces of gold (1,352), 364 tonnes of lead (549), and 697 tonnes of zinc (1,177) in concentrates

Comparative figures refer to the corresponding period of the previous year. In case of discrepancies, the official Swedish version of this report prevails.

OUTLOOK

Guidance for 2024

The Company has given (14 February 2024) the following guidance for 2024:

• The Company expects to produce 1.45 -1.55 million ounces of silver
• Annual EBITDA margin to be at least 28%
• Net debt-to-EBITDA to be below 2.0 at year-end

We still expect profitability to be at a good level in 2024. Profitability is supported by improved operational efficiency but burdened by inflation and cost escalation. The Company's profitability is significantly affected by external factors, such as metal prices, exchange rates and inflation. The achievement of the guidance assumes a slight increase in metal prices and EUR/USD rate to remain approximately at the level of the time when the guidance was published (14 February 2024).

Compared to the previous guidance, we now also assume, that silver grade increases in the range of 90 to 110 g/tonne in H2 2024 and mining volumes improve through mining contractor capacity increase.

CEO REVIEW

High silver price offset low silver grade

The price of silver continued its positive development in the second quarter. The ounce price peaked at over USD 30 during the quarter and averaged USD 28.8 per ounce.

Our net sales increased significantly from the first quarter, supported by the high silver price, but lagged behind the previous year’s comparison period, which is explained, above all, by the lower average silver grade in the area mined than in the comparison period.

Total silver production in the second quarter was 274,000 ounces (383,000). After a winter with a lot of snow, the increased amount of meltwater made mining challenging at the beginning of the quarter. Technical challenges with the mining equipment also slowed down the progress of drifting and ore mining. We have agreed with the contractor to increase resources in order to speed up the mining.

Our EBITDA decreased by 64 percent year-on-year to SEK 19 million. The operating margin was 18 per cent in the second quarter. Like in the previous quarter, profitability was affected by the general increase in costs and the contractor’s index increases. Operating cash flow was SEK 10 million.

In June we received a decision from the Supreme Administrative Court, according to which the company’s claim for adjustment in connection with the tax treatment of unrealised exchange rate gains was rejected. This had an impact of SEK 15 million on the net result for the second quarter.

During the first half of the year, we lagged behind the mining plan, which had a negative impact on the average silver grade and, thus, also on the amount of silver produced. During the rest of the year, as the mining reliability improves and new stopes open, we expect production volumes to return to the previous good level. For the whole year, we expect to continue to follow our guidance, but the implementation of the guidance requires that the silver grade and mining volumes increase as planned in the second half of the year.

In line with our strategy, we will focus on the stable operation of the current silver mine during the rest of the year and continue the measures related to extending the life of the mine according to our plans.

We continued to improve our sustainability according to ”Toward Sustainable Mining” principles. We focused on crisis management, mine closure planning, energy efficiency and GHG emissions in addition to biodiversity management, targeting to reach A-level in each of these segments during 2024.

KEY FIGURES

EVENTS AFTER THE REPORTING PERIOD

On July 3, 2024, the Company’s mine waste and closure plan was approved by the authorities and the lower temporary annual limits on mining were lifted.

Also in July, the Company decided to switch the environmental guarantor. As a result, the cash collateral of EUR 3.5 million will be released during the third quarter to the Company improving the Company's cash position.

In 2022 Sotkamo Silver AB issued convertibles of series 2022/2026 in an aggregated nominal amount of 6.4 M€. Convertibles in an aggregated nominal amount of 60,018 € have been converted to shares in July. After the conversion, the aggregated nominal amount for the outstanding convertibles amounts to approximately 6.3 M€.

The conversion price per share was EUR 0.1538. Through the conversion, the total number of shares and votes in Sotkamo Silver increases with 390,234 in total 286,148,387. Through the conversion, the share capital increased with SEK 376,231.6 to in total SEK 275,880,780.7.

FINANCIAL CALENDAR

• Q3/2024 25 October 2024
• Q4/2024: 14 February 2025

WEBINAR

The result webinar will be held today on July 26 at 1:00 p.m. Finnish time (EET). You can participate in the event through the link provided below:

https://link.silver.fi/2024Q2

The webinar will be conducted in Finnish, with the material presented in English. During the event, you can ask questions using the chat function. The presentation from the webinar will be made available on the company's website at: https://www.silver.fi/en/investors/presentations

Stockholm, 26 July 2024

Sotkamo Silver AB’s Board of Directors and CEO

CONTACT INFORMATION

Mikko Jalasto,
CEO of Sotkamo Silver AB
mikko.jalasto@silver.fi
+358 50 482 1689

Tommi Talasterä,
CFO of Sotkamo Silver AB
tommi.talastera@silver.fi
+358 40 712 6970

This is information that Sotkamo Silver AB is obliged to make public pursuant to the EU Market Abuse Regulation.

This is a summary of Sotkamo Silver's Q2/2024 report. The complete report is attached to this release and available at the Company webpage: www.silver.fi/en/investors

Sotkamo Silver in brief

Sotkamo Silver is a mining and ore prospecting company that develops and utilises mineral deposits in the Kainuu region in Finland. Sotkamo Silver supports the global development towards green transition technologies and produces the metals needed responsibly and by taking local stakeholders into account. Sotkamo Silver’s main project is a silver mine located in Sotkamo, Finland. In addition to silver, the mine produces gold, zinc and lead. The company also has mining and ore prospecting rights for mineral deposits in the vicinity of the silver mine in Kainuu. Sotkamo Silver Group consists of the parent company Sotkamo Silver AB and its wholly-owned Finnish subsidiary (Sotkamo Silver Oy). Sotkamo Silver AB is listed at NGM Main Regulated in Stockholm (SOSI), Nasdaq Helsinki (SOSI1), and Börse Berlin.

Read more about Sotkamo Silver on www.silver.fi/en/