Phoenix Copper Limited / Ticker: PXC / Sector: Mining

28 September 2023

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 2023 (the "Period").

Year-to-date Highlights

Corporate & Financial

-      Investment in Empire Mine increased to $35.88 million (2022: $29.73 million)

-      Group reports loss of $0.63 million (2022: loss of $1.052 million)

-      Period-end net assets of $37.39 million (2022: $38.22 million)

-      Company reports a profit of $309,759 (2022: loss of $368,534)

-      Company loans to operating subsidiaries increased to $29.63 million (2022: $25.23 million)

-      Corporate copper bond documentation being finalised, prior to listing on The International Stock Exchange in the Channel Islands, and anticipated closing of an initial tranche of up to $80 million

-      Inaugural Sustainability Report published and the Company scoring an overall 'A' rating on Digbee ESG Platform

Operational

-      Continuity of Empire Mine open pit mineralisation further confirmed, including intercepts of up to 12.8% copper, 269.10 grammes per tonne ("g/t") silver and 0.75 g/t gold

-      Metallurgical test work to recover copper, gold and silver via flotation plus leaching completed and now being optimised

-      Further higher-grade base and precious metals mineralisation encountered at Red Star silver-lead deposit

-      28 holes (3,300 metres) of drilling completed on 60-hole Navarre Creek gold drilling programme

Chairman's Statement

As we approach the final quarter of 2023, we continue to make good operational progress at our Empire project in Idaho, both in terms of the development of the initial open-pit mine and the exploration of the surrounding mineralised district. It remains our intention to fund construction of this first mine, which will give us production and financial autonomy, with minimal additional dilution to shareholders. With this objective in mind, we are currently finalising the documentation to create a class of authorised bonds in a total amount of $300 million, and to admit them to trading on The International Stock Exchange ("TISE") in the Channel Islands, as a prelude to closing an initial tranche to raise up to $80 million. We have been in discussion with a number of interested parties for some time, and we are hopeful that we can finally close the book in the near future. We share the frustration that this apparent delay has caused, but we have to acknowledge that we are trying to raise multiples of our current market capitalisation, and that the market remains turbulent, to say the least. Although there can be no certainty until the bonds have been issued and settled, we are confident that the issue will close and that the Company will have access to the relevant construction funding when required.

Since we last reported, we have made several advances with the Empire open-pit project. These are described in detail in the CEO's report. With the success of our metallurgical test work, first announced in June and updated at the beginning of September, we have narrowed our focus to three process design options that will produce the most economic value for shareholders while considering current metal prices, reagent costs and capital expenditure requirements. If, as the laboratory tests indicate, we can process copper, gold and silver on a commercial scale using a flotation-based process, we will be able to recover the metals without the use of cyanide, and may be able to build the majority of our operations on patented (Company-owned) land, which may simplify the permitting process. In addition to processing the oxide ore from the open pit, the flotation-based plant may also enable us to process the higher-grade sulphide ore below the open-pit, effectively giving us two plants for the price of one. As we make the final adjustments to our economic model and Plan of Operations, we look forward to updating you with the feasibility study in Q4.

I would like to thank our Environmental, Social and Governance ("ESG") team whose hard work enabled Phoenix to gain one of the highest marks awarded by Digbee ESG, the specialist mining sector ratings agency, which is used by an increasing number of investors to source ESG compliant investments. Phoenix scored an overall "A." This has helped us as several funds considering investing in our bonds regard this as a crucial part of the decision-making process. 

The other highlight of the summer was the commencement of drilling at Navarre Creek, our 3,578 acre (14.48 sq km) gold exploration project, situated some 8 kilometres west-northwest of the Empire open-pit mine, which followed on from our surface sampling and field magnetics surveys. We have drilled 28 holes to date within a permitted 60-hole programme, and we look forward to sharing the results when they are back from the assay laboratory.

As always, I would like to thank shareholders for their continued support and patience, and look forward to updating you with further progress, both operationally and corporately, in the 4^th quarter and beyond.

Marcus Edwards-Jones

Chairman

Chief Executive Officer's Report

The Company started the year with fresh analytical data from the 2022 metallurgical core drilling program and with the contracting of RDI Laboratories (now Forte Dynamics) in Colorado, USA to complete final metallurgical test work and a final process design for recovering copper, gold and silver at our Empire Open-Pit Mine.  At the same time as we were evaluating the 2022 drilling results, the last of which arrived in March 2023, we were preparing for the summer arrival of a reverse-circulation drill rig to begin subsurface exploration at our Navarre Creek gold claim block.  Assay results from the 2022 Red Star drilling campaign were also delivered and reported in April 2023. The drilling results were consistent with previous results and continued to indicate robust metal grades, in particular gold, silver, and lead. The Company's ESG program continued strong forward momentum after receiving an overall score of "A" on Digbee ESG, a disclosure platform for the mining industry that simplifies peer reporting and rewards management action, and the publication of the Company's inaugural Sustainability Report. The Company purchased and moved all of the laboratory assets from the former AuRIC Metallurgical Laboratories in Salt Lake City to Mackay, Idaho, for use in the future mine's onsite assay laboratory. As we move through the second half of the year, the U.S. Department of Energy has announced that it is upgrading copper to the "near critical" classification for clean energy technologies.  

This new classification, coupled with last year's US Defense Production Act announcement providing for an increase in the domestic production of metals for national defense, electric vehicle technologies, and electrical transmission and storage, further sets the stage for long-term stability in the global copper market.

2023 Metallurgical Testing Program

In 2022, 3,502 feet (1,067 metres) of core were drilled at the Empire copper deposit for the purpose of collecting samples 3-dimensionally representative of the oxide portion of the deposit for copper, gold and silver recovery testing. Initially, the metallurgical work was intended to further develop a commercial leaching design using only ammonium thiosulfate ("ATS") as the primary reagent for recovering copper,  gold and silver.  Following the initial test work, our metallurgists determined that adding a flotation step upstream of the leaching circuit and generating a saleable concentrate stream containing all of the metals could provide an immediate revenue stream with less concern over reagent pricing and product supply, as well as reducing the total volume of ore entering the downstream leaching circuit.  If the flotation-followed-by-leaching process proves to be commercially viable, it has the potential of reducing overall capital and operating costs as well as the potential of sizing down the operational footprint and allowing a greater portion of the operation to reside on the Company's patented mining claims.  Another possible advantage of the flotation circuit design is in the flotation milling equipment.  Similar flotation technologies are widely used in the processing of sulphide ores, similar to the deeper sulphide mineralization at Empire, and at least part or all of the flotation circuit constructed for the open-pit processing could be employed for processing sulphide material in the future. The initial flotation and leaching results are shown in Table 1 below, and are based on "open-cycle" testing.

Table 1: Flotation and Leaching Results

Note: Revenue based on $1,875 / oz gold, $4/lb copper, and $18.75 / oz silver

The test work completed to date is currently being optimized through "locked-cycle" testing, which mimics the characteristics of an operating mill by recirculating material and process fluids.  It is not uncommon to see recovery improvements resulting from locked cycle testing. Once fully optimized, the final process design will be completed and capital and operating costs, as well as the costs for mining and general construction, will be finalized and an updated project economic model generated. This will enable the Plan of Operations to be updated and submitted to the regulatory authorities in order to complete the permitting process.

2023 Navarre Creek Drilling Program

Reverse-circulation drilling commenced on the Company's Navarre Creek gold project in July.  Up to 60 drill holes located at four primary target areas within the 14.48 sq km (3,578 acres) property have been planned. The drilling program plan was approved by the US Forest Service in August 2022 and allows for holes to be drilled from 30 drill pads through July 2024.  28 holes have been completed to date, totalling 10,830 feet (3,300 metres). Initial assay results for the drilling are anticipated from late Q3 this year.  Drill hole targets at Navarre Creek were selected based on the results of the past several years of surface geochemistry results as well as geophysical anomalies identified from a total field magnetics survey and hyperspectral mineral survey conducted in 2021.

While there is no guarantee that the Navarre Creek exploratory drilling program will result in the discovery of a viable ore deposit, the geology, mineralogy, and geochemistry of Navarre Creek fits all the criteria necessary for a potentially significant gold bearing system. The geological characteristics of the Navarre Creek rocks evident on the surface are also evident in many of the drill cuttings logged since drilling commenced in July, and the pending assays will be the determining factor of mineralization in the four initial target areas.

Red Star Drilling Results

In 2022, 875 feet of reverse-circulation drilling was completed that tested the magnetic anomalies identified during the ground magnetics survey. Assay results from the 2022 drilling program were received in Q2 2023. The assay values for copper, silver, lead, and zinc were consistent with previous drilling programs.   Of particular interest are the results from drill hole RS22-02, which tested the western margin of a strong magnetic anomaly, assaying 7.62 metres of 142.7 grammes/tonne ("g/t") silver, 2.94% lead, and 1.54% zinc.  Additionally, drill hole RS22-04 assayed 9.15 metres of 1.56 g/t gold and 0.62% copper, including 1.52 metres averaging 7.59 g/t gold and 0.58% copper. While our primary focus is on the engineering and development of the Empire Open-Pit Mine, a plan is being constructed for follow-up drilling at Red Star in 2024.

Other Business

The Company purchased all of the laboratory assets from AuRIC Metallurgical Laboratories following its closure this spring, including the analytical equipment and supplies necessary for the onsite laboratory that will service the Empire Mine once it is in operation.  The purchase of these laboratory assets will prove most cost effective, saving up to three times as much as the purchase of new equipment, which is significant in light of the current laboratory equipment market.     

Empire Mineral Resources

Polymetallic Open Pit Mine

An updated NI 43-101 compliant resource was completed by Hardrock Consulting in October 2020 and reported for the polymetallic Empire Mine open pit oxide deposit. The updated resource showed a 51% increase in the Measured and Indicated category from the previous year's resource. Including the Inferred resources, the Empire open-pit oxide deposit now contains 129,641 tonnes of copper, 58,440 tonnes of zinc, 10,133,772 ounces of silver and 355,523 ounces of gold.

Red Star - High-grade Silver

Red Star is a high-angle silver-lead vein system hosted in andradite-magnetite and located 330-metres north-northwest of the Empire oxide pit.  Red Star was identified from a 20-metre wide surface outcrop across a skarn structure. In early May 2019, the Company announced a small maiden Inferred sulphide resource of 103,500 tonnes, containing 577,000 ounces of silver, 3,988 tonnes of lead, 957 tonnes of zinc, 338 tonnes of copper, and 2,800 ounces of gold.

Table 3: Maiden Inferred Resource Statement for Red Star, May 2019

Outlook

Over the past six months, the copper price has been less volatile than in 2022, ranging between $3.50 and $4.00/pound.  Gold and silver have followed suit and settled in at $1,900 and $23/ounce, respectively. The cost of the materials and supplies necessary for the construction and operation of our Empire open pit project have also appeared to stabilize, although generally at higher levels than in the days before Covid-19 and the war in Ukraine. While the cost of lumber and concrete have been consistently decreasing, structural steel and diesel fuel remain elevated.  Diesel fuel in Idaho is over $4.00/gallon, nearly twice the per gallon pre-Covid price.  Labor costs have also increased, as the current working generation demands more compensation for hours worked. This is understandable as inflation has driven the cost of living to all-time highs.  As a result, it is our job to engineer the most efficient mining and processing technologies available to ensure that our operations can withstand the additional burdens on production.

In July of this year, the U.S. Department of Energy announced that it is upgrading the criticality of copper for clean energy technologies as part of the agency's Critical Materials Assessment. The purpose of the research and conclusions in the assessment is to enable the Department of Energy to set priorities for investment to secure domestic critical mineral and material supply chains, support the clean energy transition, and promote sustainable solutions to meet current and future needs. The assessment found that copper is a material that serves a critical function in electrification as many nations aim to reduce carbon emissions, with some setting goals to achieve net zero by 2050. The report notes that these efforts will increase the demand for clean energy technologies and the materials they rely on. Copper, a key metal in electric vehicles, wind turbines, and other green technologies, is set to move from a 'noncritical' classification in the short term to a 'near critical' classification in the medium term. Between 2025 and 2030, copper is expected to land on a level 3 out of 4 in terms of its importance to energy on the agency's criticality matrix. As mentioned, this new classification, coupled with last year's US Defense Production Act announcement, further sets the stage for long-term stability in the global copper market.

Copper remains in the top three of the most consumed metals in the world, trailing only behind iron and aluminum. The heavy focus on green energy metals for power generation, transmission, and transportation will only increase the demand. Clean energy initiatives in the United States, Canada, and Europe have already begun to drive demand for copper, cobalt and lithium.  As other countries develop similar initiatives, demand will outweigh global supply. 

Our Idaho projects host both EV metals and precious metals.  Our current metallurgical test work, which is focused on developing the most efficient and economical methods of recovering copper, gold, and silver, will be designed to deliver crucial metals to the numerous infrastructure and green energy projects in the global pipeline at the lowest cost possible to the consumer and the highest margin possible for us.

Our story becomes even stronger with the realization that these resources are all located in known mining districts in the geopolitically stable, pro-mining jurisdiction of Idaho, USA.   

Conclusion

As the demand for metals increases globally, the Company is in an ideal position to deliver copper, gold, and silver into a market with increasing demands. Our team of highly-experienced engineers, metallurgists, and geologists are continuing the work necessary to position ourselves as future metal producers contributing to the global transportation, manufacturing and energy sectors that are so vital to our livelihoods.

I would like to thank all our professional staff, consultants and advisors, all of whom continue to work tirelessly to accomplish our common goal of putting the Empire Mine into production and exploring and developing our other projects for inclusion in a pipeline of future producing mines.  I look forward to reporting further positive news as we continue our exploration and development programs during the remainder of 2023.

Ryan McDermott

Chief Executive Officer

ESG & Sustainability Committee Chairman's Report

It is a great pleasure to provide an update on the ESG & Sustainability ("ESG&S") activities since our last report in May 2023.

Following the publication of our inaugural Sustainability Report in Q2 2023, we continue to work with the KCAT (Konnex Community Advisory Team) to ensure that our stakeholders remain informed about our progress as we continue through the development and permitting stages. We are keen to continue sharing our knowledge of the industry within the community in which we will be operating, including at the elementary and middle school levels, as well as providing general mining and Company operations updates for the immediate community. Community involvement is a cornerstone of our ESG philosophy.

The tone of the national conversation about copper is changing. The USA is looking at ways to become more mineral independent, and PXC is exploring various ways to collaborate with Federal and State governments to assist in this process. In particular, the ESG&S team has been exploring government programmes and grants for mine exploration process development.

We are also currently exploring ways to reduce our operational footprint and operate as much as possible on our existing patented (private) land. Minimizing our footprint, without adversely affecting the mining process, is the right decision both operationally and environmentally. 

In addition, the ESG&S team is currently initiating discussions with several other mining companies in order to formulate a dispute resolution process ahead of hiring a large workforce. We are aiming to provide a clear process for employees of the Company, as well as for our stakeholders.

We are excited to have identified a community education opportunity partner who is willing to provide a highly practical eight-month mechanical training course targeted predominantly at recent and future graduates in the local high schools, and who is able to offer the course at 1/8^th of the usual price. We are very keen to publicise this locally. In the first place, it is a fantastic opportunity for our youth, but also because when we move to production, we will be hiring individuals with mechanical qualifications, and it will be an absolute priority for us to hire locally whenever possible. All anecdotal evidence and research shows that local hires tend to show greater loyalty, and remain in employment for longer than out-of-area hires.

We currently have two openings in our KCAT team which we will publicise shortly in order to find individuals with suitable experience who can assist in acting as liaisons between the Company and the community.

In association with the KCAT, we are in the process of finalising a Konnex Vendor Handbook, which sets out the requirements and expectations we have of external contractors and suppliers who conduct business with, or wish to conduct business with, the Company. We have also drafted a Konnex Employee Handbook, which sets out the Company's core values and goals, as well as a detailed set of requirements of employee expectations.

We are looking forward to updating you further in the future. In the meantime, we would be delighted to receive feedback and suggestions at esg@phoenixcopper.com.

Catherine Evans

Non-Executive Director

Financial Overview

The Group reports a loss for the Period of $0.63 million (2022: loss of $1.052 million). This includes a non-cash foreign exchange gain on sterling denominated assets of $96,172 (2022: foreign exchange loss of $503,593), and a charge of $18,992 (2022: $36,623) relating to non-cash share-based payments attributable to warrants or options extended or granted during the Period, and which amount is simultaneously credited back to the retained deficit. Net assets at 30 June 2023 totalled $37.39 million (2022: $38.22 million), including $35.88 million (2022: $29.73 million) relating to the Empire Mine, and $2.75 million (2022: $9.05 million) in cash.

The Company reports a profit for the Period of $309,759 (2022: loss of $368,534), and net assets of $41.81 million (2022: $40.88 million). During the Period, the Company charged its operating subsidiaries $450,000 (2022: $465,000) in respect of management services provided, and $837,108 (2022: $610,653) in respect of interest at 6% per annum on its inter-company loans, the latter eliminating on consolidation. At 30 June 2023, the Company's loan to Konnex Resources Inc ("Konnex"), owner of the Empire Mine, stood at $27.03 million (2022: $22.95 million). This loan will be repaid from Konnex's operating cash flow in due course and is intended, together with royalties receivable from Konnex, to form a platform for a future proposed dividend policy to return money to shareholders.

The Company has also advanced $2.60 million (2022: $nil) to KPX Holdings Inc ("KPX"), its Idaho registered intermediate holding company, into which the Company's investment in Konnex, and investments in and related loans to Borah Resources Inc, Lost River Resources Inc and Salmon Canyon Resources Inc, totalling $4.42 million, were transferred on 31 December 2022 in return for 100% of the equity of KPX.

During the Period, the Company issued 50,000 ordinary shares of no par value ("Ordinary Shares") pursuant to the exercise of warrants. Since the Period-end a further 2,250,000 Ordinary Shares have been issued pursuant to the exercise of warrants. The outstanding share capital of the Company is currently 124,928,622 Ordinary Shares.

In September 2023 the board approved the creation of a class of corporate copper bonds to a total authorised amount of $300 million, as a prelude to the anticipated closing of an initial tranche to raise up to $80 million (before expenses) for the development and construction of the Empire open pit mine, plus operational working capital. The bonds will pay a floating rate coupon subject to a minimum of 8.5% per annum and a maximum of 20%. The floating rate coupon will be 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. The bonds will be secured on the Group's patented open pit mining claims, will be listed on The International Stock Exchange in the Channel Islands, and will have a ten-year life with bondholder option to request redemption at nominal value after six years and the Company's option to offer redemption at a 10% premium to nominal value after five years. M&G Trustee Company are acting as Security Trustee and Escrow Agent, and The Bank of New York Mellon ("BNYM") as Custodian and Transfer, Paying and Settlement Agent.

On 24 March 2023 the Company announced a short-term, unsecured $2,000,000 loan facility (the "Loan Facility"), for which the initial three month term was extended for a further three months on 23 June 2023, at a fixed 4% coupon. The Company has extended the initial term of the Loan Facility for a further two months until 22 November 2023 at a fixed 2% coupon. At the Company's option, the Loan Facility may be extended to 22 March 2024, at an interest rate of 1% per month.

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 act 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 24 May 2023, and the Company's 2022 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.