QUARTERLY REPORT, THIRD QUARTER 2022

Press release: Stockholm, October 21, 2022, 08.45 CET

HIGHLIGHTS OF THE THIRD QUARTER 2022

• Net sales was 66 MSEK compared to the previous year 83 MSEK. The decrease was due to declined silver price and lower production
• EBITDA was -10 MSEK (13)
• EBIT was -32 MSEK (-9)
• Cash and cash equivalents were 7 MSEK (48).  The Company has a credit limit of EUR 1.5 million. The Company initiated the process to consider options to raise additional funding
• Investments were 17 MSEK (10)
• The production was about 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 related horizontal development ready for starting the mining in 360-420 levels from Q4 onwards
• LTIFR was 4 (26), which is the best since the start of the production

HIGHLIGHTS OF Q1-Q3 2022

• Net sales was 271 MSEK (287)
• EBITDA was 34 MSEK (64). EBITDA was on a good level during Q1 2022 but decreased during Q2 and Q3 due to declined metal prices and the very high cost of energy
• EBIT was -33 MSEK (1)
• EBIT was on a good level during Q1 2022 but decreased in Q2 and Q3 due to declined metal prices, the very high cost of energy, and the increased price of consumables. The cost of electricity more than doubled during Q1-Q3 compared to the corresponding period of the previous year
• Investments were 52 MSEK (23)
• The production was about 875 000 (1 034 000) ounces of silver, 2456 (2534) ounces of gold, 1134 (1028) tonnes of lead, and 2461 (2324) tonnes of zinc in concentrates
• Operative cash flow was 15 MSEK (18)

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

CEO WORD

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

In September Company started change negotiations to cope with the uncertainty and volatility associated with its cost base. The change negotiations were conducted in a good spirit of cooperation. I want to express my gratitude to all employees for supporting this process in these challenging circumstances.

The agreed measures in the change negotiation give us the flexibility to react to electricity price fluctuation and run the concentration plant in periodic production when seen as feasible. In practice, this means that the plant will be shut down during the days when electricity cost exceeds economical threshold. Additionally, a separate program aimed at improving cost-effectiveness was initiated. This program includes direct cost savings in operational costs as well as postponing investments.

The work done during this year with drilling and extending the decline will provide us with more options to increase the head grades and furthermore the profitability of the Company. Additional drilling results after Mineral Resource and Ore Reserve Estimated have increased our confidence that mining levels below 360m will improve the head grades gradually from the fourth quarter of 2022 onwards and from Q2 2023 mining will be focused on these new levels. The winter period will be challenging, but at the same time, we ensure that we are ready for the future as well.

There are several things that the team can be proud of. Our safety indicators have been improving month by month and LTIFR was at an all-time low (3,8) at the end of September. Expansion of the tailings pond was finalized as well as the decline to 420-level and the horizontal development associated with it. The reliability and up-time of the concentrator plant have been on a very good level.

The ongoing war in Ukraine, uncertainty in the economic situation, and inflation affect us all not only in work life but also on a personal level. Let’s support each other during these times, family, friends, and co-workers alike.

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.

Net sales was 66 MSEK compared to the previous year’s 83 MSEK. The decrease was due to declined silver price and lower production of silver and zinc, while the production of gold and lead was closer to the comparison period. Milled ore totaled 138 000 (160 000) tonnes including the marginal ore.

EBIT was on a good level during Q1 2022 but decreased in Q2 and Q3 due to declined metal prices, the very high cost of energy, and the increased price of consumables. The cost of electricity more than doubled during Q1-Q3 compared to the corresponding period of the previous year.

Other income of 0,3 MSEK (-1,5) included sales of fixed assets 0,1 MSEK and 0,2 MSEK estimated unrealized final sales price adjustment due to the price difference between provisional and final invoices for the period. Net sales included -1,1 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 17 MSEK (10) in Q3. Environmental investments included tailings pond dam raise amounting to 4 MSEK. The P700 project’s exploration continued in Q3 and 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 September 30, 2022, the fair value of the convertible option component was 3 MSEK and the fair value of the liability component was 37 MSEK. The fair value changes recognised through Profit and Loss account: conversion option liability 13 MSEK, and liability component 3 MSEK.

PRODUCTION AND GUIDANCE

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

The silver grade improved slightly from Q2, although was still below our expectations. Milled volume was lower due to the two weeks scheduled maintenance break in July and using less marginal ore. Silver production was affected by these factors. Despite lower milled volume production of gold was on the same level as in Q2 due to higher gold grade. 

During the quarter we have been mining primarily between 260- and 200-levels in the underground mine. The open pit was not mined during Q3 and it stays halted until Q2 2023 as Company has focused on the development and gradually moving to mining below 360 level. The open pit will be finally connected to the underground mine on level 60 and this planning process is ongoing.

The decline to the 420-level and the horizontal development has been progressing as planned. Stope mining on these new levels is starting in Q4 and it will gradually increase in the coming two quarters.

As communicated earlier, prior underground drilling assays and updated resource model support the view that mining between these 360- to 420-levels will increase the metal grades substantially.

This view is further strengthened by the latest drilling assays from Q3.  Mining plans for 2023 are being finalized and we expect that from Q2 2023 the stope mining will be primarily focused on these new levels.

Production guidance for 2022:

Earlier in July was communicated that we continue to focus on the production mix and optimization of the revenue and operative cash flow. Consequently, we estimated earlier that our annual silver production in 2022 will be 1.25-1.35 million ounces.

Sotkamo Silver AB revises the estimate for silver production in 2022 due to the uncertainty and fluctuation of electricity price. Company is prepared for adjusting its’ production during the periods of higher electricity prices to optimize cash flow. The Company estimates ca.15-45 % monthly plant downtime due to the high electricity price and adjusted periodic production associated with it.

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

EVENTS AFTER THE REPORTING PERIOD

There were no events after the reporting period.

FINANCIAL CALENDAR 

• Q4   17 February 2023

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 October 21, 2022, 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

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