Kopy Goldfields

Q2, APRIL – JUNE 2023 (April – June 2022)

• Revenue TUSD 15,985 (17,258)
• EBITDA TUSD 3,969 (4,217)
• Loss for the period TUSD -942 (-8,918)
• Earnings per share before dilution USD -0.001 (-0.0099)

SUMMARY OF FINANCIAL INFORMATION

Operational improvements at key mining sites and progressing growth projects in a challenging business environment

During the second quarter of 2023, the Company increased gold production from key operational mines within both the Khabarovsk and the new Khakasia regions advancing in parallel with all major development projects. We managed to bring the recently upgraded Yubileyniy plant to exceed the capacity and achieved improved gold recovery. In addition, the construction of the important Malyutka project is on schedule with the production launch planned for later this year. Alluvial mining operations have been launched. Supported by higher gold prices, financial performance was stable.

Production
In the Khabarovsk region, the Yubileyniy CIP and HL and Buor placer were in operation by the end of the second quarter of 2023. The recently modernized and extended Yubileyniy plant exceeded the 250 ktpa capacity (on annual basis). Gold recovery has increased. During the remainder of 2023 the plant will be further modernized and the capacity is expected to increase by 15-20% by yearend with recovery reaching 85%. The total CIP production at Yubileyniy increased by 13% compared to Q2 2022. Operations at the Perevalnoe mill and HL were mothballed early in Q2. With the start of the warmer season, we launched production at our placer mine at Buor while operations at another placer deposit Onne was rescheduled to the next season due to failures with logistics during the spring floods. Overall production of gold equivalent was 27% below Q2 last year primarily due to the absence of Perevalnoye production.

Financial performance
Stronger Ruble nominated gold prices supported our financials during the quarter and the Q2 revenues were only 7% lower compared to Q2 last year, despite a 16% reduction in gold sales. The 2023 Q2 EBITDA was in line with Q2 2022. Our average achieved gold price during the quarter amounted to 1,969 USD/oz, a 9% increase compared to Q2 2022. While we report negative operating and net results for Q2, operating cash flow, before changes in working capital, remained positive.
Kopy Goldfields continues to achieve tax benefits for the Yubileyniy project, with zero Mineral Extraction Tax and reduced profit tax from March 2022. The preferential tax regime is designed to support regional investment projects within East Siberian and Far East regions of Russia.

Investments
We are making scheduled progress with all investment projects. Our main development focus in 2023 is the Malyutka project. Commissioning of this major growth driver will be the next milestone towards reaching our production target of 100 koz of gold in 2025. Considering the challenging business environment, we are generally on track with the construction and expect to commence production at Malyutka later this year with full capacity to be reached in 2024. In addition, we commenced preparations to extend the Yubileyniy project capacity from 250 to 400 ktpa which is planned to be commissioned in 2024.
Although the open pit reserves at Perevalnoe are depleted and HL operations were suspended earlier this year, in the current strong gold prices environment we see potential for future production of underground gold ore reserves and continues to evaluate different options on how to proceed with mine development.
We continue our exploration programs with focus on Yubileyniy, the alluvial areas and on Ket Kap, which is located in the greater Yubileyniy area. On Krasny, we have received all exploration results and assay tests from the 2022 exploration program and we are proceeding with updating the geological model and reserve report.

ESG
Our action plan targeting to reduce Lost Time Injury Frequency Rate (“LTIFR”) is progressing. We are reviewing opportunities to use renewable energy from solar power plant at two of our sites. Design and engineering works had been finalized and validated the business case with solar panels. The next stage will be to arrange financing to support green energy development. In addition, we continue with our waste utilization project, in order to further minimize our environmental footprint.

Macro environment
The macro environment continues to create many challenges. International sanctions influence the business and the development strategy. The recent sanctions against mining companies in Russia adopted by EU and other countries affect our ability to finance the future CAPEX projects to facilitate production on the existing mines. To secure gold sales channels, to have more options and to get the best price, we have started to directly export gold to international markets. It is hard to predict what effects, if any, the gold export sanctions will have on the industry in general, but we are constantly evaluating the situation and considering our options to make sure that we are fully compliant.
Further restrictions on operations of international companies and new hard currency regulations have been introduced in Russia during H1 2023.
Gold price volatility affects revenues and a 24% depreciation of the Russian Ruble against the USD from the start of 2023 affected our results significantly in H1 2023. Increased restrictions and regulations complicate cross-border transactions and make supply chains more expensive

Outlook
Any outlook today is more uncertain than usual. We proceed to do what we are good at – adopt to the circumstances and continue to effectively mine our gold deposits and explore for new ones. On the operational side, we are taking advantage of the warm season with alluvial and heap leach production. We continue with our development projects in order to meet our long-term production targets.

Mikhail Damrin
CEO Kopy Goldfields