QUARTERLY REPORT THIRD QUARTER 2022

Press release: Stockholm, October 21, 202208.45 CET

HIGHLIGHTS OF THE THIRD QUARTER 2022

  • Net sales were SEK 66 million compared to SEK 83 million last year. The decline was due to lower silver prices and lower production
  • EBITDA was SEK -10 million (13)
  • EBIT was -32m SEK (-9)
  • Cash and cash equivalents were SEK 7 million (48). The company has a credit limit of 1.5 million euros. The company initiated the process to explore options to raise additional funds
  • Investments were SEK 17 million (10)
  • Production was approximately 258,000 (308,000) ounces of silver, 790 (839) ounces of gold, 304 (323) tonnes of lead and 647 (742) tonnes of zinc in concentrates
  • Decline and associated horizontal development, ready to start mining in 360-420 levels from Q4
  • LTIFR was 4 (26), which is the best since production began

HIGHLIGHTS Q1-Q3 2022

  • Net sales were SEK 271 million (287)
  • EBITDA was SEK 34 million (64). EBITDA was at a good level in the first quarter of 2022, but declined in the second and third quarters due to lower metal prices and very high energy costs
  • EBIT was SEK -33 million (1)
  • EBIT was at a good level in the first quarter of 2022, but declined in the second and third quarters due to lower metal prices, very high energy costs and increased consumable prices. Electricity costs more than doubled in Q1-Q3 compared to the same period last year
  • Investments were SEK 52 million (23)
  • Production was approximately 875,000 (1,034,000) ounces of silver, 2,456 (2,534) ounces of gold, 1,134 (1,028) tonnes of lead and 2,461 (2,324) tonnes of zinc in concentrates
  • Operating cash flow was SEK 15 million (18)

Comparative figures refer to the corresponding period of the previous year.

CEO WORD

The general economic and market situation changed drastically in the third quarter of this year. Declining metal prices and rising energy and consumable prices have put pressure on the company’s profitability.

in the September company began negotiating changes to address the uncertainty and volatility associated with the cost base. The negotiations for change were conducted in good cooperation. I would like to express my gratitude to all employees for supporting this process under these challenging circumstances.

The agreed measures in the change negotiations give us the flexibility to react to fluctuations in electricity prices and to operate the concentration plant in periodic production if this appears feasible. In practice, this means that the system is switched off on days when electricity costs exceed the economic threshold. In addition, a separate program to improve profitability was initiated. This program includes direct cost savings in operating expenses as well as investment deferrals.

Drilling work and the expansion of the sink completed this year will provide us with further opportunities to increase ore grades and further increase the Company’s profitability. Additional drill results following the Mineral Resource and Ore Reserve estimate have increased our confidence that mining levels below 360m will gradually improve main grades beginning in Q4 2022 and mining will focus to these new levels beginning in Q2 2023. The winter period will be challenging, but at the same time we make sure that we are also prepared for the future.

There are some things the team can be proud of. Our safety indicators have improved month-on-month and LTIFR was at an all-time low (3.8) at the end of September. Extension of the tailings pond has been completed as well as lowering to the 420 level and associated horizontal development. The reliability and uptime of the concentrator plant were at a very good level.

The ongoing war in Ukraine, economic uncertainty and inflation affect us all not only at work but also on a personal level. Let’s support each other in these times, family, friends and colleagues alike.

SHOP

The company operates the silver mine in Sotkamo, Finland. Production started in March 2019 and the mine produces silver, gold, zinc and lead in concentrates that are sold to a smelter. In addition, the Company holds mining and exploration rights to mineral deposits in the vicinity of current operations in the Sotkamo area Finland.

Net sales were SEK 66 million compared to SEK 83 million in the previous year. The decline was due to lower silver prices and lower silver and zinc production, while gold and lead production were closer to the comparable period. The milled ore amounted to 138 000 (160 000) tons including the rim ore.

EBIT was at a good level in the first quarter of 2022, but declined in the second and third quarters due to lower metal prices, very high energy costs and increased consumable prices. Electricity costs more than doubled in Q1-Q3 compared to the same period last year.

Other income of SEK 0.3m (-1.5) included sales of fixed assets SEK 0.1m and estimated unrealized retail price adjustment SEK 0.2m due to the price difference between preliminary and final invoices for the period. Net sales included an estimated final metal grade adjustment of SEK -1.1m due to the metal grade difference between preliminary and final invoices for the period. The final selling price for silver and gold is based on the monthly average market price two months after delivery, less the customer’s smelting fees.

Investments in underground mines and environmental investments amounted to SEK 17 million (10) in the third quarter. Environmental investments included the SEK 4 million increase in the Tailings Pond dam. Exploration at the P700 project continued in the third quarter and costs have been included in the capital expenditures for the period.

The Company has completed a targeted issuance of convertible bonds with a total principal amount of up to MEUR 6.4. The convertible bond contains two components: a conversion option component, which is measured at fair value through profit or loss using the Black-Scholes model, and a liability component, which is measured at amortized cost using the effective interest method. At the inception date, the fair value of the conversion option liability was SEK 34 million and the fair value of the liability component was SEK 32 million. On 09/30/2022the fair value of the convertible option component was SEK 3 million and the fair value of the liability component was SEK 37 million. The fair value changes recognized in the income statement: conversion option liability SEK 13 million and liability component SEK 3 million.

Metrics, group

Q3 2022

Q3 2021

Fiscal year 2021

Net sales MSEK

66

83

387

EBITDA in SEK million

-10

13

92

EBIT in SEK million

-32

-9

7

Equity ratio (%)

38

39

38

Cash Liquidity (%)

41

38

27

staff at the end of the period

52

52

49

mill feed (kt)

138

160

624

Average silver grade in g/t

69

68

79

PRODUCTION AND INSTRUCTION

In the third quarter we milled 138,000 (160,000) tonnes of ore and produced approximately 258,000 (308,000) ounces of silver, 790 (839) ounces of gold, 304 (323) tonnes of lead and 647 (742) tonnes of zinc in concentrates.

Silver grade improved slightly from Q2 but was still below our expectations. Milled volume was lower due to the two week planned maintenance break in July and the use of less marginal ore. Silver production was affected by these factors. Despite a lower milled volume, gold production was at the same level as the second quarter due to higher gold grades.

During the quarter we mainly mined between 260 and 200 levels in the underground mine. Open pit mining was not mined in Q3 and will remain on hold through Q2 2023 as the Company has focused on development and the gradual transition to mining below the 360 ​​degree level. The open pit mine will be finally connected to the underground mine at level 60 and this planning process is ongoing.

The decline to the 420 level and the horizontal development are progressing according to plan. Stope mining at these new levels will begin in the fourth quarter and will gradually increase over the next two quarters.

As previously reported, previous underground drill sampling and an updated resource model support the view that mining between these 360 ​​to 420 levels will significantly increase metal grades.

This view is supported by the latest Q3 drill results. Mining plans for 2023 are being finalized and we expect adit mining to be primarily focused on these new levels from the second quarter of 2023 onwards.

Production forecast for 2022:

In early July, it was communicated that we remain focused on the production mix and optimizing sales and operating cash flow. Consequently, we have previously estimated that our annual silver production in 2022 will be 1.25 to 1.35 million ounces.

Sotkamo Silver AB revises 2022 silver production estimate due to uncertainty and volatility in electricity prices. The company is prepared to adjust production during periods of higher electricity prices to optimize cash flow. Due to the high electricity price and the associated adjusted periodic production, the company estimates around 15-45% monthly plant downtimes.

We estimate that silver production in 2022 will be 1.0 to 1.2 million ounces. Decisions about adjusted production are made to optimize cash flow.

SUBSEQUENT EVENTS

There were no events after the reporting period.

FINANCIAL CALENDAR

CONVERSATION PARTNERS

Mikko Jalasto, CEO of Sotkamo Silver AB, phone +358 50 482 1689

This information that Sotkamo Silver AB is obliged to publish according to the EU Market Abuse Regulation. The information for publication was transmitted via the contact person named above October 21, 2022at 08:45 CET.

The official stock exchange announcements are issued in Swedish and there may be differences in the translated versions. In case of discrepancies, the Swedish version applies.

Around Sotkamo Silver AB

Sotkamo Silver’s business concept is to develop mineral deposits in the Nordic countries with respect for human society and the environment. Sotkamo silver owns through its subsidiary the silver mine in Sotkamo, which started production March 2019 and has reached full production capacity. In addition, the Company holds exploration rights to precious and base metal deposits in Finland, Sweden and Norway.

The company applies International Financial Reporting Standards (IFRS) as approved by the European Union.

The ticker symbol is SOSI in NGM Equity in Stockholm and SOSI1 on NASDAQ Helsinki.

ISIN code for Sotkamo silver Shares is SE0001057910.

Legal Entity Identifier (LEI): 213800R2TQW1OZGYDX93

Read more about Sotkamo silver at www.silver.fi

The company’s press releases and financial reports are distributed through Cision Sverige and are available at www.silver.fI

https://news.cision.com/sotkamo-silver/r/quarterly-report–third-quarter-2022,c3652118

https://mb.cision.com/Main/15292/3652118/1641514.pdf

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