Volcan Compañía Minera A : Management Discussion Analysis - 2024 1Q

Management Discussion and Analysis

Volcan Compañía Minera S.A.A. and Subsidiaries

Management Discussion and Analysis

First Quarter 2024

Principal Results:

Consolidated Volcan	Jan-Mar	Jan-Mar	var %
	2024		2023
Sales Prices¹
Zinc (USD/MT)		2,473		3,117	-20.7
Lead (USD/MT)		2,099		2,143	-2.1
Copper (USD/MT)		7,794		8,900	-12.4
Silver (USD/Oz)		23.2		22.5	3.3
Gold (USD/Oz)		2,069		1,892	9.4
Operating Results
Mineral treatment² (thousands MT)		2,122		2,274	-6.7
Zinc Production (thousands FMT)		50.3		56.5	-10.9
Lead Production (thousands FMT)		11.2		13.2	-15.3
Copper Production (thousands FMT)		0.8		1.3	-39.6
Silver Production (millions Oz)		3.1		3.5	-12.3
Gold Production (thousands Oz)		2.9		3.7	-22.0
Unit Cost (USD/TM)3		48.0		50.4	-4.8
Total Investments (MM USD)		33.8		36.2	-6.7
Financial Results (MM USD)
Sales before adjustments		180.0		220.7	-18.4
Sales Adjustments		-3.4		0.4
Settlement of prior period adjustments		-0.9		8.9
Adjusments for open positions4		-2.6		-8.5	-68.8
Hedging results		0.1		0.0
Sales after adjustments		176.7		221.1	-20.1
Net profit before exceptionals		-19.2		1.5
Exceptional adjustments		0.0		-0.7	-100.0
Net profit		-19.2		0.8
EBITDA5	S/.	-	S/.	-
	44.8		71.4	-37.3

1. These prices are the initial billing prices, which are provisional, as the adjustments are made when settlements of prior periods are received from customers.
2. Includes treated tons at Oxides Plant.
3. Unit cost does not include infill drilling costs.
4. The open comercial positions refer to shipments that don´t have final settlements yet, therefore they are exposed to adjustments due to metal prices variations in the future.
5. Does not consider exceptional adjustments

Source: Volcan Cia. Minera

1

Management Discussion and Analysis

1. Executive Summary

• 1Q24 results were negatively impacted by lower zinc prices and unfortunate and unexpected events that occurred in March that affected production. First, at the Animon mine in Chungar, there was a rock fall accident in which a worker tragically passed away. As safety is the Company's main value, detailed reviews of conditions and procedures were carried out for several days to ensure safe work on all fronts, and production gradually resumed. On the other hand, operations at the San Cristobal, Carahuacra and Ticlio mines in Yauli were paralyzed while the operating permit for the Rumichaca tailings dam at the Victoria plant was being adjusted. The competent authority authorized the operation of this tailings dam on April 19th and operations resumed the following day.
• The impact of these stoppages on March production is estimated at around 7,600 FMT of Zn, 1,600 FMT of Pb and 390 thousands Oz of Ag. As a result, zinc concentrate production decreased by 10.9%, from 56.5 thousands FMT in 1Q23 to 50.3 thousands FMT in 1Q24; lead concentrate production decreased by 15.3%, from 13.2 thousands FMT in 1Q23 to 11.2 thousands FMT in 1Q24; copper concentrate production decreased by 39.6%, from 1.3 thousands FMT in 1Q23 to 0.8 thousands FMT in 1Q24; silver ounce production decreased by 12.3%, from 3.5 MM Oz in 1Q23 to 3.1 MM Oz in 1Q24; and gold ounce production decreased by 22.0%, from 3.7 thousands Oz in 1Q23 to 2.9 thousands Oz in 1Q24.
• Consolidated unit cost decreased by 4.8%, from USD 50.4/MT in 1Q23 to USD 48.0/MT in 1Q24. This was mainly due to cost reduction initiatives and the ongoing pursuit of efficiencies across all operating units.
• Total investments decreased by 6.7%, from USD 36.2 MM in 1Q23 to USD 33.8 MM in 1Q24, as a result of the prioritization of investments in operating units to preserve the Company's liquidity.
• The price of zinc decreased by 20.7%, from USD 3,117/MT in 1Q23 to USD 2,473/MT in 1Q24. The price of lead decreased by 2.1%, from USD 2,143/MT in 1Q23 to USD 2,099/MT in 1Q24, and the price of copper decreased by 12.4%, from USD 8,900/MT to USD 7,794/MT. On the precious metals side, the price of silver increased by 3.3%, from USD 22.5/Oz to USD 23.2/Oz, and the price of gold increased by 9.4%, from USD 1,892/Oz to USD 2,069/Oz.
• The decline in the price of zinc and lower production mainly explained the decrease in sales before adjustments, from USD 220.7 MM in 1Q23 to USD 180.0 MM in 1Q24. This was partially offset by better commercial terms in concentrate sales contracts. Adjustments on sales totaled USD -3.4 MM in 1Q24 compared to USD 0.4 MM in 1Q23, so that sales after adjustments decreased by 20.1%, from USD 221.1 MM to USD 176.7 MM.

2

Management Discussion and Analysis

Figure 1: 1Q23 vs 1Q24 variations impact on net sales (USD MM)

• Earnings before exceptional items decreased from USD 1.5 MM in 1Q23 to USD -19.8 MM in 1Q24, mainly due to lower sales for the period related to lower zinc prices and lower production, partially offset by lower cost of sales, lower operating expenses and lower tax and royalty payments.

Figure 2: 1Q23 vs 1Q24 variations impact on net profit before exceptionals (USD MM)

• In the analysis period, no exceptional adjustments were recorded, so that net income was USD -19.2 MM in 1Q24 versus USD 1.5 MM in 1Q23.
• EBITDA decreased 37.3%, from USD 71.4 MM in 1Q23 to USD 44.8 MM in 1Q24, mainly due to lower sales due to the lower zinc price and lower production due to the fatal accident at Animon and shutdown of operations at San Cristobal, Carahuacra and Ticlio.

3

Management Discussion and Analysis

2. Consolidated Results

2.1 Production

Table 1: Consolidated Production

Consolidated	Jan-Mar	Jan-Mar	var %
Production	2024	2023
Mineral extraction (thousands MT)	2,154	2,149	0.2
Polymetallic ore	1,918	1,911	0.4
Oxides ore	236	238	-1.1
Mineral treatment (thousands MT)	2,122	2,274	-6.7
Concentrator Plants	1,887	2,035	-7.3
Silver Oxides Plant	236	238	-1.1
Fine Content
Zinc (thousands FMT)	50.3	56.5	-10.9
Lead (thousands FMT)	11.2	13.2	-15.3
Copper (thousands FMT)	0.8	1.3	-39.6
Silver (millions Oz)	3.1	3.5	-12.3
Gold (thousands Oz)	2.9	3.7	-22.0
Source: Volcan Cia. Minera

1Q24 production was affected by the unfortunate fatal accident at the Animon mine in Chungar, which paralyzed its operations to carry out a thorough assessment of the conditions and procedures, and by the suspension of operations at the San Cristobal, Carahuacra, and Ticlio mines in Yauli, while the operating permit for the Rumichaca tailings dam at the Victoria plant was being adjusted. The competent authority authorized the operation of this tailings dam on April 19th, and operations resumed the following day.

Ore extraction volume increased by 0.2%, from 2,149 thousands MT in 1Q23 to 2,154 thousands MT in 1Q24, due to the higher volume extracted at Cerro de Pasco. Treatment volume decreased by 6.7%, from 2,274 thousands MT in 1Q23 to 2,122 thousands MT in 1Q24, as a result of the lower ore treated in Yauli, Chungar, partially offset by Alpamarca and Cerro.

Zinc concentrate production decreased by 10.9%, from 56.5 thousands MT in 1Q23 to 50.3 thousands MT in 1Q24; lead concentrate production decreased by 15.3%, from 13.2 thousands MT in 1Q23 to 11.2 thousands MT in 1Q24; copper concentrate production decreased by 39.6%, from 1.3 thousands MT in 1Q23 to 0.8 thousands MT in 1Q24; silver ounces production decreased by 12.3%, from 3.5 MM Oz in 1Q23 to 3.1 MM Oz in 1Q24; and finally gold ounces production decreased by 22.0%, from 3.7 thousands Oz in 1Q23 to 2.9 thousands Oz in 1Q24.

4

Management Discussion and Analysis

2.2 Production Cost

Table 2: Consolidated Production Cost

Consolidated	Jan-Mar	Jan-Mar	var %
Production Cost		2024		2023
			0.0
Production Cost (MM USD)		0.0		0.0
		1
	Mine Cost			63.4		67.8		-6.5
	Plant and Other Cost		26.0		28.6		-9.1
	Others			17.2		17.9		-3.5
Sub total Production Cost (MM USD)		106.6		114.3		-6.7
	Inflill drilling cost		2.2		2.3		-7.9
Total Production Cost (MM USD)		108.8		116.6		-6.7
			S/.	-	S/.	-	S/.	-
Unit Cost (USD/MT)		0.0		0.0		0.0
	Mine Cost	2		27.6		30.0		-7.9
	Plant and Other Cost		12.2		12.6		-2.6
	Others			8.1		7.9		3.4
Sub total Unitary Cost (USD/MT)		48.0		50.4		-4.8
	Infill drilling cost		0.9		1.0		-9.2
Total Unitary Cost (USD/MT)		49.0		51.5		-4.9
1	Distribution update of production cost by areas (mine, plant, others)
2	Mine unit cost adjusted using treated tonnage
Source: Volcan Cia. Minera

Absolute production cost without considering infill drilling decreased by 6.7%, from USD 114.3

1. in 1Q23 to USD 106.6 MM in 1Q24, mainly due to the suspension of operations at San Cristobal, Carahuacra and Ticlio, and the implementation of improvement initiatives in the operating units. Similarly, the unit cost decreased by 4.8%, from USD 50.4/MT in 1Q23 to USD 48.0/MT in 1Q24.

Work is currently underway to propose and implement initiatives that increase efficiency in the consumption of supplies in all mining cycle activities, mechanical and electrical maintenance, the use of reagents in the plant, energy efficiency, changes in mining methods, among others.

The Company continues to make significant efforts to control and reduce production costs and expenses at all levels. New cost reduction initiatives are being evaluated and implemented in both Lima and all operations, but always maintaining the safety of workers as the Company's main value.

5

Management Discussion and Analysis

The following graph shows the evolution of the unit cost over the last 3 years.

Figure 3: Evolution of the Unit Cost without Infill Drilling (USD/MT)

					-5.1%
			54.3	54.2	54.9
52.8		53.4
52.5			52.6
			51.8
50.6					50.4	50.5
				49.8

48.0

1Q21

2Q21

3Q21

4Q21

1Q22

2Q22

3Q22

4Q22

1Q23

2Q23

3Q23

4Q23

1Q24

Source: Volcan Cía. Minera

2.3 Investments

Investment in operating units decreased by 0.7%, from USD 33.4 MM in 1Q23 to USD 33.1

1. in 1Q24. Growth investments related to the Romina project totaled USD 0.7 MM in 1Q24, and as a result, total investments decreased by 6.7%, from USD 36.2 MM in 1Q23 to USD 33.8 MM in 1Q24.

Table 3: Consolidated Investment

Consolidated Investment	Jan-Mar	Jan-Mar	var %
(MM USD)	2024	2023
Mining	33.8	36.2	-6.7
Mining Units	33.1	33.4	-0.7
Local Exploration	2.0	2.6	-23.1
Development	17.6	18.4	-4.4
Plants and Tailings Facilities	7.0	4.1	71.7
Mine and Infrastructure	5.5	7.3	-24.4
Electrical Infrastructure in Units	0.1	0.7	-81.3
Support and Others	0.9	0.3	224.5
Growth and Others	0.7	2.9	-76.9
Energy	0.0	0.0	142.5
Total	33.8	36.2	-6.7
Source: Volcan Cia. Minera

6

Management Discussion and Analysis

Figure 4: Evolution of Consolidated Investment

2.4 Income Statement Table 4: Income Statement

7

Management Discussion and Analysis

• Sales Analysis

Table 5: Average Sales Prices

Sales Prices	Jan-Mar	Jan-Mar	var %
2024	2023
Zinc (USD/MT)	2,473	3,117	-20.7
Lead (USD/MT)	2,099	2,143	-2.1
Copper (USD/MT)	7,794	8,900	-12.4
Silver (USD/Oz)	23.2	22.5	3.3
Gold (USD/Oz)	2,069	1,892	9.4
Source: Volcan Cia. Minera

The prices shown in the table above are initial and provisional invoice prices and they are adjusted when the final invoice is issued. Open commercial provisions at the end of each period estimate adjustments on open shipments/deliveries resulting from future metals prices variations, using a specific forward price curve.

Table 6: Fine Contents Sales Volumes

Fines Sales	Jan-Mar	Jan-Mar	var %
2024	2023
Zinc (thousands FMT)	52.5	57.3	-8.3
Lead (thousands FMT)	11.8	12.9	-9.1
Copper (thousands FMT)	0.9	1.3	-27.6
Silver (millions Oz)	3.1	3.4	-10.1
Gold (thousands Oz)	2.8	3.7	-25.3
Source: Volcan Cia. Minera

Table 7: Sales in USD

Sales	Jan-Mar	Jan-Mar	var %
(millions USD)	2024	2023
Zinc	91.7	123.0	-25.5
Lead	22.3	24.0	-7.3
Copper	4.5	6.4	-28.8
Silver	57.4	61.8	-7.1
Gold	4.1	5.4	-23.6
Sales before adjustments	180.0	220.7	-18.4
Adjustments1	-3.4	0.4
Sett. of prior period adjust.	-0.9	8.9
Adjust. for open positions	-2.6	-8.5	-68.8
Hedging results	0.1	0.0
Sales after adjustments	176.7	221.1	-20.1
Source: Volcan Cia. Minera

8

Management Discussion and Analysis

The decrease in zinc prices and lower production explain the 18.4% decline in sales before adjustments, from USD 220.7 MM in 1Q23 to USD 180.0 MM in 1Q24. Sales adjustments totaled USD -3.4 MM in 1Q24 compared to USD 0.4 MM in 1Q23. In 1Q24, sales adjustments were comprised of final settlements of USD -0.9 MM, provisions related to open shipments/deliveries of USD -2.6 MM, and positive results from silver hedges of USD 0.1 MM. Consequently, sales after adjustments decreased 20.1%, from USD 221.1 MM in 1Q23 to USD 176.7 MM in 1Q24.

• Cost of Goods Sold

Table 8: Cost of Goods Sold

Cost of Goods Sold	Jan-Mar	Jan-Mar	var %
(millions USD)	2024	2023
Volcan Production	159.2	173.2	-8.1
Volcan Production Cost	108.8	116.6	-6.7
D&A from Production Cost	44.9	48.4	-7.3
Other expenses	9.2	6.4	43.5
Inventories variation	-3.6	1.7
Workers Profit Sharing	0.2	1.1	-84.1
Total	159.4	174.3	-8.6
Source: Volcan Cia. Minera

Total cost of sales decreased 8.6%, from USD 174.3 MM in 1Q23 to USD 159.4 MM in 1Q24, mainly due to lower absolute production costs due to plant shutdowns in March, lower depreciation and amortization, and lower other expenses related to personnel exits and non- operating units.

• Gross Margin and Gross Profit

Gross margin of the Company decreased from 21% in 1Q23 to 10% in 1Q24, mainly explained by lower sales due to lower zinc prices and lower volume sold due to lower production from the suspension of operations during March at Animon, San Cristobal, Carahuacra and Ticlio. Gross profit decreased 57.3%, from USD 46.8 MM in 1Q23 to USD 17.3 MM in 1Q24.

• Administrative Expenses

Administrative expenses totaled USD 9.5 MM in 1Q24, 9.0% above the USD 8.7 MM in 1Q23, mainly due to higher personnel expenses associated with severance payments for labor terminations.

• Exploration Expenses

Exploration expenses decreased 51.9%, from USD 5.0 MM in 1Q23 to USD 2.4 MM in 1Q24, in line with the adjusted plan for greenfield and brownfield exploration in a scenario of lower liquidity.

9

Management Discussion and Analysis

• Sales Expenses

Sales expenses decreased by 4.6% compared to the same period of the previous year, reaching a total of USD 7.1 MM in 1Q24 versus USD 7.4 MM in 1Q23, mainly due to lower sales volume.

• Other Income and Expenses

In 1Q24, net other income/expenses amounted to USD -0.3 MM, compared to USD -3.7 MM in 1Q23. This was mainly due to lower expenses for closure opportunity studies at Cerro de Pasco and non-operating tailings dam.

• Financial Expenses and Exchange-Rate Difference

Net financial expenses increased 19.3%, from USD 15.1 MM in 1Q23 to USD 18.0 MM in 1Q24, due to an increase in the interest rate.

On the other hand, the effect of the change in the exchange rate went from USD 0.10 MM in 1Q23 to USD 0.03 MM in 1Q24.

• Royalties and Income Tax

Royalties decreased from USD -3.3 MM in 1Q23 to USD -2.2 MM in 1Q24, as did income tax, which went from USD -2.2 MM in 1Q23 to USD 3.0 MM in 1Q24 due to lower revenue and profits.

• Net profit and EBITDA

The net income before exceptionals decreased from USD 1.5 MM in 1Q23 to USD -19.2 MM in 1Q24, mainly due to lower sales during the period. There were no exceptional adjustments for the first quarter of the year, compared to USD -0.7 MM during the same period of the previous year. Therefore, net income after exceptionals was USD -19.2 MM in 1Q24 versus USD 0.8 MM in 1Q23.

EBITDA decreased from USD 71.4 MM in 1Q23 to USD 44.8 MM in 1Q24, mainly explained by lower sales, partially offset by lower cost of goods sold and lower operating expenses. The estimated impact on EBITDA due to the stoppage of operations at San Cristobal, Carahuacra, Ticlio and Animon during March 2024 is estimated to be between USD 15 MM and USD 20 MM.

2.5 Liquidity and Creditworthiness

In 1Q24, cash generated by mining operations after operating investments was positive and totaled USD 0.02 MM. Mining growth investments and other investments totaled USD -2.7 MM, while net cash flow was positive by USD 3.3 MM due to the inflow of USD 25.0 MM during 1Q24 corresponding to the prepaid commercial advance agreement signed in December 2023 with a major customer.

10