Phoenix Copper Limited / Ticker: PXC / Sector: Mining

26 September 2024

Phoenix Copper Limited

("Phoenix" or the "Company", together with subsidiaries the "Group")

Interim Results

Phoenix Copper Ltd (AIM: PXC, OTCQX ADR: PXCLY), the AIM-quoted USA-focused base and precious metals emerging producer and exploration company, is pleased to announce its unaudited interim results for the six months ended 30 June 2024 (the "Period").

Year-to-date Highlights

Corporate & Financial

-      Investment in Empire Mine increased to $42.11 million (2023: $35.88 million)

-      Group reports loss of $1.10 million (2023: loss of $0.63 million)

-      Period-end Group net assets of $48.55 million (2023: $37.39 million)

-      Company reports loss of $0.05 million (2023: profit of $0.31 million)

-      Company loans to Idaho operating subsidiaries increased to $37.47 million (2023: $29.63 million)

-      Placing, subscription, and retail offer to raise $3.52 million (gross) completed in January 2024

-      $2 million unsecured short-term loan refinanced into 18 month unsecured term loan in March 2024

-      $80 million floating rate corporate copper bond issue completed in June 2024. Initial $5 million drawn down, with discussions ongoing with strategic bond investor regarding the timing of future drawdowns (see below)

-      Bonds listing on The International Stock Exchange ("TISE") completed

-      Andre Cohen retired as a director and joined the Advisory Board

-      Paul de Gruchy, VP of Investor Relations, also joined the Advisory Board

Operational

-      Empire Mine open-pit mineral resources upgraded to mineral reserves. Inaugural mineral reserve statement published

-      Proven & Probable mineral reserves of 10.1 million tonnes containing 109,487,970 pounds ("lbs") of copper, 104,000 ounces ("oz") of gold and 4,654,400 oz of silver (66,467 tonnes of copper equivalent metal)

-      Mineral reserves estimated using assay data from 485 drill holes, extensive geological modelling, metallurgical recovery test work, geotechnical evaluation, and mine design

-      Empire Mine open-pit Pre-Feasibility Study ("PFS") published post-Period. Pre-tax cumulative net free cash flow of $153 million over 8 year mine life; total cash costs of $2.44 / lb

-      Life of mine production of 40,424 tonnes copper, 40,161 oz gold and 1.76 million oz silver

-      Initial Empire Mine open-pit equipment delivered to site, including two pre-owned ball mills and a fully equipped assay laboratory, purchased at significant discounts to the price of the same equipment when new

-      Areas of significant and consistent mineralisation identified at the Navarre Creek gold claim block. 20 additional mining claims totalling 400 acres staked

-      Earn-in Agreement on the Redcastle cobalt property renewed with Electra Battery Materials

Chairman's Statement

It gives me great pleasure to report on the achievement of several important milestones on the journey towards our first production at the Empire mine in Idaho, USA.

I would like to thank Ryan and his team for delivering the PFS, which, despite significant price increases in steel, diesel and processing chemicals, shows attractive returns at current metal prices.

The anticipated capital expenditure required to build the mine of $62.6 million compares favourably with cumulative free cashflow, net of all capital and sustaining capital costs, of $153 million over an 8 year mine life. The metal prices used by our independent consultants are lower than prevailing spot prices for copper, gold and silver. The PFS generates an internal rate of return ("IRR") of 46.4% which is significantly higher than the 15% hurdle rate used by mining majors, and our projected cash cost of production of $2.44 per lb of copper would rank us 199^th out of the 300 major copper mines in the S & P rankings for 2024 - with cash costs well below several larger and well-established mines in North America.

It is to the technical team's credit that they were able to redesign the mine plan to take into account the challenges presented by the steep rises in capital and operating costs. Our plant will process copper, gold and silver at the same time, and without the need for copper ore to sit on leach pads for 90 days. The plant will also be sited next to the open pit, significantly reducing transport costs and the environmental impact of the project.

Importantly, the plant will also be capable of processing both oxide and sulphide ores. As a result, and resources permitting, we now plan to access the underground deposit as early as next year by driving an adit into the high-grade sulphide ores, in order to blend them with oxide ore to enhance cashflow. In our recent drilling campaign we recovered sulphide core containing over 8% copper, compared with a 0.66% grade in our oxide reserves, and a global average of less than 0.5%.

Our records show that before the Empire mine closed in 1942, they were mining 6% to 8% copper and recovering 3.64%, as well as gold, silver and zinc. The last underground shipment of ore also contained over 4% tungsten, which is high on the list of critical metals, as indeed is antimony, which we have discovered at our 4,070 acre Navarre Creek Gold exploration property.

It is our view that the true value of the Company will be underpinned by the high grade underground deposit, which is open at depth and along strike, potentially spread over many kilometres. It is really exciting to have the opportunity to start unlocking this value a number of years earlier than expected.

As a result of the subscription for our corporate copper bonds from NIU Invest SE ("NIU Invest") in May, as well as the small equity placement we did earlier in the year, we have been able to purchase good quality second- hand equipment at prices which significantly improve the project economics, as well as lowering lead times. This is an ongoing process as you can read in the CEO's report, which will be optimized further as a result of the completion of the PFS. Following the publication of the PFS, we are in discussions with NIU Invest regarding a revised drawdown schedule for future tranches of copper bonds.

We look forward to updating you with further progress on permitting, capital expenditure on mine equipment and financing as the year unfolds and we move ever closer to revenue generation.

Thank you, as always, for your continued support.

Marcus Edwards-Jones

Chairman

Chief Executive Officer's Report

The year to date has marked a significant and positive turning point for the Company with the publication of an inaugural Proven and Probable mineral reserve statement for the Empire open pit oxide deposit, which was followed-up by the publication of the PFS.  These publications are the culmination of several seasons of resource drilling, extensive geological and economic modelling, metallurgical test work, and thousands of hours of tireless data evaluation and engineering. The PFS is available on the Company's website and I recommend everyone take the time to read through it.

The Empire mineral reserves statement reports Proven & Probable reserves of 10.1 million tonnes containing 109,487,970 lbs of copper, 104,000 ounces ("oz") of gold and 4,654,400 oz of silver, for a total of 66,467 copper equivalent metric tonnes ("mt"). This is a considerable step forward because, unlike mineral resources, mineral reserves meet the requirements of geological certainty, accessibility, and economic viability.

Using the Empire mineral reserves as a basis, the Company's PFS highlights an 8-year mine life producing payable metal of 89,094,705 copper lbs (40,424 mt), 40,161 oz gold, and 1,759,717 oz silver, with an estimated $62.6 million capex and total cash operating cost of $2.44/lb of copper equivalent metal, and pre-tax economics of US$87.86 million discounted net present value at 7.5% ("NPV7.5"), a 46.4% internal rate of return ("IRR"), and cumulative net free cashflow of US$152.98 million over the life of the mine.

The production highlighted in the PFS is made possible employing standard open-pit mining methods and a newly designed crush-grind-flotation-tank leach milling process engineered with a small enough footprint for siting on the Company's patented mining claims near the open pit.  The proximity of the mill to the open pit reduces the haulage distance of the ore to the crusher, which requires a smaller mining fleet in terms of truck count and size, and thereby reduces both capital and operating costs. The mill will produce two pay streams, a copper, gold, silver concentrate stream and a cementation copper stream, both of which will be shipped to market without the need of further processing or refining at the Empire site.

In addition to processing ore from the Empire open pit, the flotation circuit will be capable of recovering copper, gold, and silver as a concentrate from the high-grade sulphide vein material that exists below the open pit and was mined extensively until the early 1940s. The Empire team is currently finalizing a plan to advance the exploration of the deeper sulphide vein system with an eye on augmenting the open pit ore with feed from the higher-grade sulphide vein system below the pit. The planning includes driving an adit toward known sulphide mineralization and developing underground drilling stations along the length of the adit. Known sulphide mineralization includes the 8.38% copper interval intercepted in the 2021 core drilling program, which also assayed 1.31 grammes per tonne ("g/t") gold and 120 g/t silver. Historically mined grades from the sulphide vein system below the open pit were recorded as high as 8% copper, with smelter recoveries of the time recorded as averaging 3.64% copper, 1.64 g/t gold, and 54 g/t silver. Resources permitting, we hope to commence underground work during the 2024/2025 winter season.

The estimated capital requirements outlined in the PFS assume that the majority of the hard assets, i.e. milling equipment, rolling stock, and tankage, will be purchased as used or pre-owned, significantly reducing the costs compared to purchasing all new assets.  The Phoenix Copper team has already purchased the grinding circuit, the mine assay laboratory equipment, light duty rolling stock, disk filtration circuit, and numerous lesser components, all in good, pre-owned condition. The Company has also invested in a mine office, core logging facility, and an equipment storage facility in Mackay, all of which will service the mine.

Activities outside of the core Empire Mine property, which includes the Navarre Creek gold exploration property and the Redcastle and Bighorn cobalt exploration properties, are still progressing, albeit more slowly due to the workload required of the Empire mineral reserves statement and the PFS. Follow up drillhole targeting from the 2023 Navarre Creek drilling program was completed over the summer and included further evaluation of the 2023 drilling results, as well as field evaluation of the additional 400 acres of mining claims filed as a result of last year's drilling results. A second phase of drilling at Navarre Creek will be conducted as resources permit. The earn-in agreement with Electra Battery Materials on the Company's Redcastle cobalt project was also renewed and extended earlier this year.

Empire Proven and Probable Mineral Reserves

A Proven and Probable reserve estimate was completed by Hardrock Consulting in April 2024 and reported for the polymetallic Empire Mine open pit oxide deposit. The estimate reports Proven and Probable reserves in the Empire open-pit oxide deposit of 10,097,000 tonnes containing 49,677 mt of copper, 104,000 oz of gold, and 4,654,400 oz of silver, for a combined 66,467 mt of copper equivalent metal. It was estimated using assay data from 485 drill holes, extensive geological modelling, metallurgical recovery test work, geotechnical evaluation, and mine design.

Mineral Reserve Statement for Empire Mine, after Hard Rock Consulting April 2024

Fully diluted tonnes at a Net Smelter Return ("NSR") cut-off of $22.59/tonne

The mineral reserves reported herein for the Empire project have been estimated in a manner consistent with the NI 43-101 Committee of Mineral Reserves International Reporting Standards ("CRIRSCO"), of which both the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") and Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the "JORC Code") are members.

PFS - Summary of Economic Results

The economic analysis of the base case scenario for the Empire open-pit mine uses metal prices of $4.45/lb for copper, $2,325/oz for gold and $27.25/oz for silver. The economic model shows a pre-tax NPV7.5 of $87.86 million using a $22.59/tonne NSR cut-off, as well as a pre-tax IRR of 46.4%. Table 1 summarises the projected cashflow, NPV at varying rates, IRR, years of positive cash flows to repay the negative cash flow ("Payback Period"), and multiple of positive cash flows compared to the maximum negative cash flow ("Payback Multiple") on both after-tax and before-tax bases.

PFS - Metallurgy and Process Design

3,502 feet (1,067 metres) of core from the Empire copper oxide deposit was sampled and evaluated for the metallurgical recovery of copper, gold, and silver. The results of the metallurgical test work, as presented in the PFS, show that a crush-grind-flotation-tank leach milling process provides the optimum metal recoveries for the cost. The flotation-leaching circuit that has been designed for the Empire open pit ore has a much smaller footprint than a classic heap leach design, allowing for the processing plant to be sited on the Company's patented (private) mining claims near the open pit. The proximity of the plant to the open pit will reduce overall operating costs by reducing the ore haulage distance. The improved haulage cycle-time gained from the shortened haulage distance also allows for the use of smaller, less expensive haul trucks.

In addition to the cost benefits of a smaller footprint plant sited on private land, the flotation-leaching circuit will be capable of processing sulphide material currently being explored elsewhere on the Empire property. From an environmental permitting standpoint, siting the processing plant on private land should help to simplify the overall permitting process.

The flotation and leaching metallurgical recovery results and reserve pit optimization parameters are shown in the table below. Optimization of the processing circuit is ongoing.

Outlook

While the copper price has come down from its spring 2024 high above $5.00/lb, it has managed to maintain a price above $4.00 despite the recent recalibration of the futures market.  Whether this is a result of the change in interest rates or in recent demand, it is clear that the long-term demand for copper will only increase as the world continues to demand sources of clean green energy, which requires the red metal at every turn in the process, from generation to distribution to end user commodities.  Achieving a green economy is simply not possible without a growing supply of copper.

Perhaps as important to the Empire Mine project as the copper price is the price of both gold and silver. The processing circuit designed to recover copper at Empire is also designed to recover the gold and silver ounces hosted in the Empire reserves. At today's spot prices of $2,647/oz gold and $31.50/oz silver, the gross revenue of the anticipated precious metal recovery at Empire is roughly $161,000,000. The price of gold has steadily increased over 34% in the past 12 months and silver has increased 28% in the same period. The importance of the new processing design at Empire that enables the recovery of precious metals should not be underestimated.

Now that we have developed Proven and Probable mineral reserves, our focus is on completing all of the necessary detailed engineering required to successfully permit and construct the open pit mine. As our process design includes the siting of the plant on private, patented mining claims, we will reduce the operational footprint on public lands, further demonstrating how ESG considerations are at the heart of our operation. As the regulatory authorities looked closely at our operating plan application two years ago, I am confident that in due course the plan will be approved. 

In the meantime, we will complete the necessary engineering and continue to source the plant and equipment required to bring the mine into production. We will also be stepping up the exploration and development of the Empire sulphide vein system, now that we have a milling design capable of processing that material.     

Conclusion

The Company's focus thus far in 2024 has been clearly aimed at completing the Empire mineral reserve statement and the PFS.  Both reports were the culmination of extensive geological and engineering efforts by the Phoenix team. The result of that extensive effort is an economically feasible and environmentally conscious mine plan and processing circuit that not only allows for the production of metals from the Company's open pit reserve, but also from future high-grade sulphide mineralization below the open pit.  The design elements in the PFS move the Company many steps forward to becoming a US-based producer of metals vital to life as we know it. Our team of engineers, geoscientists, and industry consultants have done an admirable job in completing work necessary to move the Company into the next stage of development.

As I have said before, and will continue to say, thank you to all of our professional staff, consultants and advisors, all of whom work tirelessly to accomplish our common goal of metal production. And I would like to thank our community liaisons, shareholders, and directors for their considerable support. I am truly grateful to work with such a diverse and remarkably talented group of individuals.

Ryan McDermott

Chief Executive Officer

ESG & Sustainability Committee Chairman's Report

It is a pleasure to provide an update on the activities of our Environmental, Social & Governance ("ESG") & Sustainability team. We last reported shortly after receiving the results of our second Digbee ESG submission for the Empire Mine, once again receiving an overarching score of 'A', a combination of a corporate score of 'BB' with the Empire Mine Exploration Project achieving a score of 'A'. We use the Digbee questionnaire as a framework for building our own internal protocols for auditing our operations as they expand. In this way, we can more proactively measure our ESG performance targets, and ensure they are met. One of our aims is to investigate ways to link certain KPIs to remuneration. We want to do this in a practical way that genuinely rewards employees and teams that contribute towards our long-term strategic goals.

Our Company culture is focused on environmental stewardship and social responsibility and in communicating clearly with our stakeholders. To this end, we continue to work closely with the Konnex Community Advisory Team ("KCAT"), a team of independent individuals with diverse experience who act as liaison between the Company and the community. Amongst their responsibilities, the KCAT review applications for community funding and decide how the annual Phoenix Copper community budget is spent. So far this year we have provided sponsorship for several community activities and awarded funds to high school graduates to assist with college fees.

Ahead of hiring and relocating a large work force to Mackay, we have held meetings with representatives from the City of Mackay, Custer County, local Economic Development and the Department of Commerce in relation to housing. Our goal is to build better cities and protect the surrounding agricultural community. We have multiple options that will require thought and preparation. We are working with the local municipalities to identify opportunities to improve city infrastructure, particularly water and sewage, as these will need to be updated to support development within city limits. There are several ways in which this can be achieved, including applying for local and federal grants.

We have maintained and built our relationship with Caterpillar, who offer a mechanical programme to current and future employees. We have recently supported the local school in implementing a similar programme for high school students. In May, the school held a groundbreaking event for a new diesel mechanic and animal science building which will offer new career paths to current and future students. Of particular value to Phoenix is the early training of future mechanics.

We have updated several of our Company policies to ease the due diligence process for external investors. In addition, we continue to improve Company practices, such as strengthening cyber security.

We look forward to providing further updates on our activities in the future. All comments and suggestions to our ESG team are welcomed: [email protected].

Catherine Evans

Non-Executive Director

Financial Overview

The Group reports a loss for the Period of $1.10 million (2023: loss of $0.63 million). This includes a non-cash foreign exchange loss on sterling denominated assets of $4,128 (2023: foreign exchange gain of $96,172), and a charge of $34,239 (2023: $18,991) relating to non-cash share based payments attributable to warrants or options extended or amended during the Period, and which amount is simultaneously credited back to the retained deficit. Net assets at 30 June 2024 totalled $48.55 million (2023: $37.39 million), including $42.11 million (2023: $35.88 million) relating to the Empire Mine, and $2.72 million (2023: $2.75 million) in cash.

The Company reports a loss for the Period of $47,220 (2023: profit of $309,759), and net assets of $55.16 million (2023: $41.81 million). During the Period, the Company charged its operating subsidiaries $450,000 (2023: $450,000) in respect of management services provided, and $910,196 (2023: $837,108) in respect of interest on its inter-company loans, the latter eliminating on consolidation. At 30 June 2024, the Company's loan to Konnex Resources Inc ("Konnex"), owner of the Empire Mine, stood at $31.20 million (2023: $27.03 million), and the loan to KPX Holdings Inc ("KPX"), the Company's Idaho registered intermediate holding company, stood at $6.27 million (2023: $2.60 million). These loans will be repaid from operating cash flows in due course and are intended, together with royalties receivable from Konnex, to form a platform for a future proposed dividend policy to return money to shareholders.

During the Period, the Company issued 60,030,345 ordinary shares of no par value ("Ordinary Shares"), raising $8.9 million, pursuant to a placing subscription and retail offer, subscription for 10-year corporate bonds, partial conversion of borrowings, and warrant exercises. Since the Period-end a further 3,081,137 Ordinary Shares have been issued, raising $0.63 million, pursuant to the partial conversion of borrowings. The outstanding share capital of the Company is currently 188,040,104 Ordinary Shares.

On 27 December 2023 the Company created a class of corporate copper bonds ("Bonds") in an authorised amount of $300 million. $110 million in principal value of Bonds were issued and deposited with The Bank of New York Mellon ("BNYM") as Settlement Agent, pending onward transfer to Bonds investors. During the Period the Company received an initial subscription for $80 million of Bonds from NIU Invest, $5 million of which were drawn down. Despite instructing BNYM to issue the second tranche of bonds totalling $5 million in early July, these bonds were not drawn down due to ongoing discussions with NIU Invest regarding the Company's updated economic model, prepared in association with the Company's PFS.

Following the publication of the PFS on 19 September 2024, the Company has recommenced discussions with NIU Invest regarding the Company's cash flow requirements of the PFS's economic model, and a revised drawdown schedule for future tranches of copper bonds. Further draw downs will be announced as appropriate.

The Bonds have a final maturity of 10 years, are not convertible, are secured on the Group's interests in the Empire Mine, and are listed on The International Stock Exchange in the Channel Islands ("TISE"), under the ticker PHCOUSDN. The Bonds pay a floating rate coupon calculated as to the higher of a copper price coupon linked to the copper price on the London Metal Exchange, or an interest rate coupon linked to the US Federal Discount Rate.

On 2 March 2024 the Company refinanced a $2 million short-term unsecured funding arrangement into an 18-month term loan, repayable over 15 months following an initial 90-day repayment holiday, unless the Company redeems the loan earlier. The loan remains unsecured and is potentially convertible into approximately 10.5 million Ordinary Shares.

The Company's shares are listed on AIM, operated by the London Stock Exchange under the ticker PXC, and are also admitted to trading on New York's OTCQX Market under the ticker PXCLF, and in the form of American Depositary Receipts ("ADRs") under the ticker PXCLY, with each ADR comprising 10 Ordinary Shares. BNYM sponsored the ADR Program and acts as ADR depositary, custodian and registrar.

The Directors recognise the importance of sound corporate governance and have applied the Quoted Companies Alliance's Corporate Governance Code 2018. The Company's Corporate Governance Statement dated 2024, and the Company's 2023 Sustainability Report, can be viewed on the Company's website at https://phoenixcopperlimited.com.

Richard Wilkins

Chief Financial Officer

The revenue, expenditures and operating result for each period is derived from acquired and continuing operations in North America and the United Kingdom.