QUARTERLY REPORT Q4 2022

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# QUARTERLY REPORT Q4 2022

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# QUARTERLY REPORT Q4 2022
SOTKAMO SILVER AB
YEAR-END REPORT 2022
HIGHLIGHTS OF THE HIGHLIGHTS OF THE FULL-
FOURTH QUARTER 2022 YEAR 2022 Net Sales MSEK
 Net sales was 100 MSEK compared to 150
 Net sales was 371 MSEK (387)
the previous year 99 MSEK. The rapid
 EBITDA was 53 MSEK (92). EBITDA 100
rise in metal prices in Q4 had a positive
developed in Q4 positively compared to
impact on net sales
the previous two quarters, driven by 50
 EBITDA was 19 MSEK (28)
increased production volumes, good
 EBIT was -1 MSEK (6)
metal price development and increased 0
 Cash and cash equivalents were 1 MSEK Q4/21 Q1/22 Q2/22 Q3/22 Q4/22
cost efficiency
(37). The Company has a credit limit of
 EBIT was -34 MSEK (7)
EUR 1.5 million. The Company initiated
 EBIT was on a good level during Q1 2022 EBITDA MSEK
the process and negotiations to obtain
but decreased during the following 60
additional funding
quarters due to declined metal prices, the
 Investments were 11 MSEK (25) 40
very high cost of energy, and the
 The production was about 294 000 (341
increased price of consumables. The cost 20
000) ounces of silver, 829 (869) ounces
of electricity almost doubled year 2022
of gold, 401 (466) tonnes of lead, and 0
compared to the previous year Q4/21 Q1/22 Q2/22 Q3/22 Q4/22
874 (1 049) tonnes of zinc in
 Investments were 61 MSEK (48) -20
concentrates
 The production was about 1 169 000 (1
 LTIFR was 4 (23), which remained on the
374 000) ounces of silver, 3 285 (3 403)
best level since the start of the
ounces of gold, 1 535 (1 494) tonnes of
EBIT MSEK
production 20
lead, and 3 335 (3 373) tonnes of zinc in
concentrates
 Operative cash flow was 13 MSEK (36) 0
Q4/21 Q1/22 Q2/22 Q3/22 Q4/22
Comparative figures refer to the -20
corresponding period of the previous year.
-40
CEO WORD possible other financing arrangements are
expected to be finalized by the end of Q1
Net sales and profitability improved during Q4 2023. Improved metal prices, lowering
as metal prices and production volumes electricity prices and improving metal grades
increased. The Company was able to cope are expected to improve profitability as the
with fluctuating electricity prices without year progress.
significant production disturbances.
The drilling results published in December
The cost control measures that were initiated give us confidence for increasing the silver
during the autumn had a positive impact on production in 2023 and potentially extending
the Company’s operative costs. Among the Life of Mine in coming years. The drilling
several other measures, we implemented new results are further used to plan the next infill
practices to optimize electricity consumption drilling campaigns. Infill drilling will ensure
and cost. These new practices will bring us proper planning and cost-efficient execution
benefits not only in the current situation but of mining activities as well target to upgrading
in long term as well. existing mineral resources to ore reserves.
Moving the mining operations to new levels The past months have been challenging for
below 360m level has been progressing as the Company and I want to thank the whole
planned and we saw improvement in average organization for their dedication to the issues
silver grade since November. The silver grade at hand. Focus on cost control and efficiency
is expected gradually to improve as we move has been shared on all levels of the
the mining operations to new levels. During organization and work for 2023 preparations
Q2 this year the mining will be primarily has been progressing well. Among other
shifted to the new levels and silver grade is things, preparing for mining contractor
expected to rise to the 90-110 g/t range change, starting a new infill drilling campaign,
which will increase production volumes and implementing new ways to optimize
improve profitability. electricity costs, and finalizing the tailings
pond raise have been the results of hard work
The situation with cash and cash equivalents
from the whole team.
remains challenging. Improving the working
capital situation is our primary short-term
focus. The announced share issues and
1
BUSINESS Other income of 7 MSEK (1) included sales of rate method. At the inception date, the fair
fixed assets 1 MSEK and 6 MSEK estimated value of the convertible option liability was 34
The Company operates the silver mine in unrealized final sales price adjustment due to MSEK and the fair value of the liability
Sotkamo, Finland. The production was started the price difference between provisional and component was 32 MSEK. On December 31,
in March 2019 and the mine produces silver, final invoices for the period. Net sales 2022, the fair value of the convertible option
gold, zinc, and lead in concentrates which are included -0,5 MSEK estimated final metal component was 2 MSEK and the fair value of
sold to a smelter. In addition, the Company content adjustment due to the metal content the liability component was 39 MSEK. The fair
holds mining and exploration rights to mineral difference between provisional and final value changes recognised through Profit and
deposits nearby current operations in the invoices for the period. The final sales price Loss account: conversion option liability 1
Sotkamo region in Finland. for silver and gold is based on the monthly MSEK, and liability component 3 MSEK.
In the last quarter Net sales was 100 MSEK average market price two months after the
The Company received waivers from senior
compared to the previous year’s 99 MSEK. delivery, deducted by the customer’s smelter
loan and credit facility creditors which allows
The rapid rise in metal prices in Q4 had a charges.
for deviation from the loan terms regarding
positive impact on net sales. Milled ore totaled Investments in the underground mine and the covenant relating to the Company's net
154 000 (182 000) tonnes including the environmental investments amounted to 11 debt in relation to EBITDA.
marginal ore. MSEK (25) in Q4. Environmental investments Key figures, group Q4 Q4 FY FY
In 2022 EBITDA was 53 MSEK (92). EBITDA included tailings pond dam raise amounting to 2022 2021 2022 2021
developed in Q4 positively compared to the 2 MSEK. The P700 project’s infill drilling Net sales MSEK 100 99 371 387
previous two quarters, driven by increased continued in Q4 and the costs were included EBITDA MSEK 19 28 53 92
production volumes, good metal price in the investments of the period.
EBIT MSEK -1,1 6 -34 7
development, and increased cost efficiency. The Company has implemented a directed Equity ratio (%) 38 38 38 38
EBIT was on a good level during Q1 2022 but issue of convertibles of an aggregate nominal Cash liquidity (%) 46 27 46 27
decreased during the following quarters due amount of up to MEUR 6,4. The convertible
Personnel at end of the 44 49 44 49
to declined metal prices, the very high cost of contains two components: a conversion period
energy, and the increased price of option component that will be recognised at Mill feed (kt) 154 182 635 624
consumables. The cost of electricity almost fair value using the Black-Scholes model
Average silver grade 72 71 69 79
doubled year 2022 compared to the previous through a profit and loss account and a liability g/tonne
year. component that will be recognised at
amortised cost using the effective interest
2
PRODUCTION AND GUIDANCE levels and silver grade is expected to return
Lead tons
to the longer term average of 90-110 g/t. 600
In the fourth quarter, we milled 154 000
(182 000) tonnes of ore and produced 400
Silver koz
about 294 000 (341 000) ounces of silver, 400 200
829 (869) ounces gold, 401 (466) tonnes 300
0
lead, and 874 (1049) tonnes zinc in 200 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22
100
concentrates.
0
The silver head grade improved from Q3, Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Silver (g/t) Head grade
November and December having the 100
Gold oz 75
highest grades of 2022 with 77 g/t. Milled 50
1 000
volume was on planned level, even 25
750
concentration plant was shut down on 0
500 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22
several short periods due to high electricity 250
price. This was possible through the earlier 0
increased capacity of the concentration Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Milled ore (t)
plant. Other metals were in line with the 200 000
increased silver production. 150 000
Zinc tons
1 200 100 000
During the last quarter we mined in the
900 50 000
underground mine and the open pit was not 0
600
operated. Mining was progressing to lower Q4/21 Q1/22 Q2/22 Q3/22 Q4/22
300
levels and first stopes were mined between 0
360- and 420-levels. This had the expected Q4/21 Q1/22 Q2/22 Q3/22 Q4/22
positive impact to the ore silver grade.
Company expects the silver grades to
improve further as the mining of the new
levels progresses. From Q2 2023 onwards
the mining will primary focus on the new
3
Guidance for 2023 prices, exchange rates, as well as energy
prices. The achievement of guidance and
The Company expects to produce 1.4 -1.5
medium-term targets requires external
million ounces of silver in 2023. However,
factors to remain at the level forecasted by
Company’s primary target is to maximize
the market in mid-February 2023. Further,
the revenue and operative cash flow. To
achieving the guidance requires
achieve this, Company adjusts the mix of
strengthening the working capital through
metals in the ore feed which might have an
share issues and other financing
impact on the produced silver ounces.
arrangements during Q1 2023. Achieving
Further Company expects annual EBITDA the objective of extending the LOM
to be at least 28 % and net debt-to-EBITDA requires sufficient financial resources to
to be below 2.5 at year-end. implement the drilling program.
Medium-term Targets
.
The Company's Board of Directors has
decided on the following medium-term
targets until 2025:
 Annual silver production > 1.5 Moz
 Annual EBITDA > 30 %
 Net Debt- to-EBITDA < 2.0
 Extending Life of Mine by five years
until 2035
 Performance rating A verified in all
Kaivosvastuu
(https://www.kaivosvastuu.fi/)
protocols by the external auditor in
2024.
The Company's profitability is significantly
affected by external factors, such as metal
4
PROJECTS The new infill drilling program commenced
in December and will consist of 6000m
Preparations for mining contractor change underground drilling to ensure the planning
were taking place during autumn 2022. and cost-efficient mining operations for the
Together with contractor Veljekset next year’s operations.
Toivanen Oy all aspects of the operations
were planned and processes agreed upon Drilling is targeted to existing mineralization
between the parties. The new contractor on 400 to 600-meter levels.
started on 1.1.2023. After the initial ramp- As a part of the REX, regional exploration,
up period, the focus will turn to jointly all collected soil samples were analysed and
identified methods to improve the results concluded for planning future
efficiency of the mining. prospecting activities. Decisions and
The technical nitrogen removal project the schedule of prospecting activities will be
testing phase was finalized, and the final done in 2023. .
verification and on-site pilot will be
conducted during Q1 2023. The chosen
solution will provide the needed capacity
for nitrogen removal and together with
other nitrogen-minimizing methods ensures
the nitrogen level as per our existing
environmental permit.
The results from 2022 drilling program was
finalized and communicated in December.
The results give us confidence for
increasing the silver production in 2023 and
potentially extending the Life of Mine in
coming years.
5
FINANCIAL POSITION SAFETY AND ENVIRONMENT PERSONNEL
 The Group’s cash and cash equivalents The lost time injury frequency rate (LT

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