QUARTERLY REPORT, FOURTH QUARTER 2022

Press release: Stockholm, February 14, 2023, 08.45 CET

HIGHLIGHTS OF THE FOURTH QUARTER 2022

• Net sales was 100 MSEK compared to the previous year 99 MSEK. The rapid rise in metal prices in Q4 had a positive impact on net sales
• EBITDA was 19 MSEK (28) 
• EBIT was -1 MSEK (6)
• Cash and cash equivalents were 1 MSEK (37).  The Company has a credit limit of EUR 1.5 million. The Company initiated the process and negotiations to obtain additional funding
• Investments were 11 MSEK (25)
• The production was about 294 000 (341 000) ounces of silver, 829 (869) ounces of gold, 401 (466) tonnes of lead, and 874 (1 049) tonnes of zinc in concentrates
• LTIFR was 4 (23), which remained on the best level since the start of the production

HIGHLIGHTS OF THE FULL-YEAR 2022

• Net sales was 371 MSEK (387)
• EBITDA was 53 MSEK (92). EBITDA developed in Q4 positively compared to the previous two quarters, driven by increased production volumes, good metal price development and increased cost efficiency
• EBIT was -34 MSEK (7)
• EBIT was on a good level during Q1 2022, but decreased during the following quarters due to declined metal prices, the very high cost of energy, and the increased price of consumables. The cost of electricity almost doubled during year 2022 compared to the previous year
• Investments were 61 MSEK (48)
• The production was about 1 169 000 (1 374 000) ounces of silver, 3 285 (3 403) ounces of gold, 1 535 (1 494) tonnes of lead, and 3 335 (3 373) tonnes of zinc in concentrates
• Operative cash flow was 13 MSEK (36)
  
   

CEO WORD

Net sales and profitability improved during Q4 as metal prices and production volumes increased. The Company was able to cope with fluctuating electricity prices without significant production disturbances.

The cost control measures that were initiated during the autumn had a positive impact on the Company’s operative costs. Among several other measures, we implemented new practices to optimize electricity consumption and cost. These new practices will bring us benefits not only in the current situation but in long term as well.

Moving the mining operations to new levels below 360m level has been progressing as planned and we saw improvement in average silver grade since November. The silver grade is expected gradually to improve as we move the mining operations to new levels. During Q2 this year the mining will be primarily shifted to the new levels and silver grade is expected to rise to the 90-110 g/t range which will increase production volumes and improve profitability. 

The situation with cash and cash equivalents remains challenging. Improving the working capital situation is our primary short-term focus. The announced share issues and possible other financing arrangements are expected to be finalized by the end of Q1 2023. Improved metal prices, lowering electricity prices and improving metal grades are expected to improve profitability as the year progress.

The drilling results published in December give us confidence for increasing the silver production in 2023 and potentially extending the Life of Mine in coming years. The drilling results are further used to plan the next infill drilling campaigns. Infill drilling will ensure proper planning and cost-efficient execution of mining activities as well target to upgrading existing mineral resources to ore reserves.

The past months have been challenging for the Company and I want to thank the whole organization for their dedication to the issues at hand. Focus on cost control and efficiency has been shared on all levels of the organization and work for 2023 preparations has been progressing well. Among other things, preparing for mining contractor change, starting a new infill drilling campaign, implementing new ways to optimize electricity costs, and finalizing the tailings pond raise have been the results of hard work from the whole team.

BUSINESS

The Company operates the silver mine in Sotkamo, Finland. The production was started in March 2019 and the mine produces silver, gold, zinc, and lead in concentrates which are sold to a smelter. In addition, the Company holds mining and exploration rights to mineral deposits nearby current operations in the Sotkamo region in Finland.

In the last quarter Net sales was 100 MSEK compared to the previous year’s 99 MSEK. The rapid rise in metal prices in Q4 had a positive impact on net sales. Milled ore totalled 154 000 (182 000) tonnes including the marginal ore.

In 2022 EBITDA was 53 MSEK (92). EBITDA developed in Q4 positively compared to the previous two quarters, driven by increased production volumes, good metal price development, and increased cost efficiency.

EBIT was on a good level during Q1 2022 but decreased during the following quarters due to declined metal prices, the very high cost of energy, and the increased price of consumables. The cost of electricity almost doubled year 2022 compared to the previous year.

Other income of 7 MSEK (1) included sales of fixed assets 1 MSEK and 6 MSEK estimated unrealized final sales price adjustment due to the price difference between provisional and final invoices for the period. Net sales included -0,5 MSEK estimated final metal content adjustment due to the metal content difference between provisional and final invoices for the period. The final sales price for silver and gold is based on the monthly average market price two months after the delivery, deducted by the customer’s smelter charges.

Investments in the underground mine and environmental investments amounted to 11 MSEK (25) in Q4. Environmental investments included tailings pond dam raise amounting to 2 MSEK. The P700 project’s infill drilling continued in Q4 and the costs were included in the investments of the period.

The Company has implemented a directed issue of convertibles of an aggregate nominal amount of up to MEUR 6,4. The convertible contains two components: a conversion option component that will be recognised at fair value using the Black-Scholes model through a profit and loss account and a liability component that will be recognised at amortised cost using the effective interest rate method. At the inception date, the fair value of the convertible option liability was 34 MSEK and the fair value of the liability component was 32 MSEK. On December 31, 2022, the fair value of the convertible option component was 2 MSEK and the fair value of the liability component was 39 MSEK. The fair value changes recognised through Profit and Loss account: conversion option liability 1 MSEK, and liability component 3 MSEK.

The Company received waivers from senior loan and credit facility creditors which allows for deviation from the loan terms regarding the covenant relating to the Company's net debt in relation to EBITDA.

PRODUCTION AND GUIDANCE

In the fourth quarter, we milled 154 000 (182 000) tonnes of ore and produced about 294 000 (341 000) ounces of silver, 829 (869) ounces gold, 401 (466) tonnes lead, and 874 (1049) tonnes zinc in concentrates.

The silver head grade improved from Q3, November and December having the highest grades of 2022 with 77 g/t.   Milled volume was on planned level, even concentration plant was shut down on several short periods due to high electricity price. This was possible through the earlier increased capacity of the concentration plant.    Other metals were in line with the increased silver production.  

During the last quarter we mined in the underground mine and the open pit was not operated. Mining was progressing to lower levels and first stopes were mined between 360- and 420-levels. This had the expected 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 levels and silver grade is expected to return to the longer term average of 90-110 g/t.

Guidance for 2023

The Company expects to produce 1.4 -1.5 million ounces of silver in 2023. However, Company’s primary target is to maximize the revenue and operative cash flow. To achieve this, Company adjusts the mix of metals in the ore feed which might have an impact on the produced silver ounces.

Further Company expects annual EBITDA to be at least 28 % and net debt-to-EBITDA to be below 2.5 at year-end.

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 prices, exchange rates, as well as energy prices. The achievement of guidance and medium-term targets requires external factors to remain at the level forecasted by the market in mid-February 2023. Further, achieving the guidance requires strengthening the working capital through share issues and other financing arrangements during Q1 2023. Achieving the objective of extending the LOM requires sufficient financial resources to implement the drilling program.

EVENTS AFTER THE REPORTING PERIOD

On January 1, 2023, Veljekset Toivanen Oy started as a mining contractor.

The Board of Directors of Sotkamo Silver AB resolved on January 17, 2023, a share issue with preferential rights for existing shareholders as well as a directed share issue of in aggregate a maximum of approximately 5 MEUR in order to strengthen the Company’s financial position. The share issues are conditional upon the approval of an extraordinary general meeting to be held on February 16, 2023. The planned share Issues consist of a rights issue of approximately 4.0 MEUR and a directed issue of approximately 1.0 MEUR, providing the Company with gross proceeds of approximately 5.0 MEUR upon full subscription. The proceeds from the share issues will primarily be used to increase the working capital. The directed issue will be directed to a limited number of institutional investors. The maximum number of new shares to be issued is 100,183,105 in the rights issue and 25,000,000 in the directed issue, in total a maximum number of 125,183,105 new shares. The record date for the right to receive subscription rights will be February 20, 2023. Those who are registered as shareholders on the record date shall receive one subscription right for each share held in Sotkamo Silver. Two subscription rights entitle to subscription for one new share in the Company. The subscription price is 0.04 EUR or 0.45 SEK per share in the rights issue and the directed issue. The subscription period for the share issues will commence on February 22, 2023 and end on March 8, 2023. A prospectus regarding the share issues will be published around February 17, 2023.

The Company and the senior lenders have February 13, 2023, agreed upon an amendment to the terms of the senior loan agreement, postponing the first instalment (1.5 MEUR due on March 31, 2023) to be paid on the termination date of the senior loan agreement (March 31, 2026).

The Company gave February 14, 2023, guidance for the year 2023 and defined medium-term operational and financial targets to support the implementation of the strategy (please see section Production and guidance in this report).

FINANCIAL CALENDAR 

• Annual Report March, 2023
• AGM   April 18, 2023
• Q1   April 26, 2023
• Q2   July 28, 2023
• Q3   October 25, 2023
• Q4  February 15, 2024

CONTACT PERSON

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

This information that Sotkamo Silver AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above on February 14, 2023, at 08:45 CET.

The official Stock Exchange Releases are given in Swedish and there may be differences in the translated versions. Should there be any differences, the Swedish version takes precedence.

About Sotkamo Silver AB

Sotkamo Silver´s business concept is to develop mineral deposits in the Nordic countries with regards to human society and environment. Sotkamo Silver owns through its subsidiary the Silver Mine in Sotkamo which started production in 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 in NASDAQ Helsinki.

ISIN-code for Sotkamo Silver shares is SE0001057910.

Legal Entity Identifier (LEI): 213800R2TQW1OZGYDX93

Read more about Sotkamo Silver on www.silver.fi

The Company's press releases, and financial reports are distributed via Cision Sverige and are available on www.silver.fI