Volcan Compañía Minera A : OTROS HECHOS DE IMPORTANCIA INFORMACIÓN FINANCIERA Y MEMORIA ANUAL. INFORMACIÓN FINANCIERA Y MEMORIA ANUAL.

Management Discussion and Analysis

Volcan Compañía Minera S.A.A. and Subsidiaries

Management Discussion and Analysis

Second Quarter 2023

Principal Results:

Consolidated Volcan	Jan-Mar	Apr-Jun	Apr-Jun	var %	Jan-Jun	Jan-Jun	var %
	2023		2023	2022		2023		2022
Sales Prices¹
Zinc (USD/MT)		3,117		2,578	3,920	-34.3		2,833		3,796	-25.4
Lead (USD/MT)		2,143		2,110	2,162	-2.4		2,125		2,239	-5.1
Copper (USD/MT)		8,900		8,491	9,325	-8.9		8,669		9,605	-9.7
Silver (USD/Oz)		22.5		24.0	23.0	4.3		23.3		23.4	-0.5
Gold (USD/Oz)		1,892		1,976	1,885	4.9		1,943		1,881	3.3
Operating Results
Mineral treatment² (thousands MT)		2,274		2,404	2,195	9.5		4,678		4,280	9.3
Zinc Production (thousands FMT)		56.5		62.6	52.3	19.7		119.1		105.0	13.4
Lead Production (thousands FMT)		13.2		15.3	13.3	14.4		28.5		27.0	5.6
Copper Production (thousands FMT)		1.3		1.5	0.8	90.6		2.7		1.8	48.7
Silver Production (millions Oz)		3.5		3.8	3.4	11.6		7.3		7.1	3.5
Gold Production (thousands Oz)		3.7		5.5	5.3	3.8		9.3		13.3	-30.4
Unit Cost (USD/TM)3		50.4		51.8	54.2	-4.4		51.2		54.3	-5.7
Total Investments (MM USD)		36.2		42.7	57.7	-25.9		79.0		100.4	-21.3
Financial Results (MM USD)
Sales before adjustments		220.7		227.9	244.8	-6.9		448.6		508.4	-11.8
Sales Adjustments		0.4		-14.6	-31.6	-53.8		-14.1		-15.8	-10.3
Settlement of prior period adjustments		8.9		-10.3	13.8			-1.4		20.5
Adjusments for open positions4		-8.5		-4.7	-45.4	-89.6		-13.2		-36.2	-63.6
Hedging results		0.0		0.4	0.0			0.4		0.0
Sales after adjustments		221.1		213.3	213.2	0.1		434.4		492.6	-11.8
Net profit before exceptionals		1.5		-10.9	-6.4	70.0		-9.4		34.3
Exceptional adjustments		-0.7		-1.0	-5.8	0.0		-1.7		-8.4	-80.0
Net profit		0.8		-11.8	-12.2	-3.3		-11.0		25.9
EBITDA5	S/.	-	S/.	-			S/.	-	S/.	-
	71.4		49.2	61.3	-19.7		120.7		186.9	-35.4

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

Firmado Digitalmente por:	1
PEDRO JOSÉ OLÓRTEGUI PEREA
Fecha: 31/07/2023 04:55:24 p.m.

Management Discussion and Analysis

1. Executive Summary

• In 2Q23, operating results were significantly better than in the same period of the previous year. Total processed volumes grew by 9.5% due to increased treated ore volumes at Yauli, Chungar, Cerro de Pasco and Alpamarca. Fine zinc production increased by 19.7%, from 52.3 thousand FMT in 2Q22 to 62.6 thousand FMT in 2Q23, fine lead production by 14.4%, from 13.3 thousand FMT to 15.3 thousand FMT, fine copper production by 90.6%, from 0.8 thousand FMT to 1.5 thousand FMT, silver by 11.6% from 3.4 MM Oz to 3.8 MM Oz, and gold production by 3.8%, from 5.3 thousand Oz in 2Q22 to 5.5 thousand Oz in 2Q23.
• However, base metals average prices saw a significant drop in 2Q23. The price of zinc decreased from 3,920 USD/MT in 2Q22 to 2,578 USD/MT in 2Q23 (34.3%), lead from 2,162 USD/MT to 2,110 USD/MT (2.4%), and copper from 9,325 USD/MT to 8,491 USD/MT (8.9%). Meanwhile, the price of precious metals increased. Silver price increased by 4.3%, from 23.0 USD/Oz to 24.0 USD/Oz, and gold by 4.9%, from 1,885 USD/Oz to 1,976 USD/Oz.
• Total sales before adjustments decreased by 6.9%, from USD 244.8 MM in 2Q22 to USD 227.9 MM in 2Q23. Sales adjustments totaled USD -14.6 MM in 2Q23 as compared to USD -31.6 MM in 2Q22, and as a result sales after adjustments increased by 0.1%, from USD 213.2 MM to USD 213.3 MM.

Figure 1: 2Q23 vs 2Q22 variations impact on net sales (USD MM)

• Consolidated unit cost decreased by 4.4%, from 54.2 USD/MT in 2Q22 to 51.8 USD/MT in 2Q23. This is mainly explained by the execution of improvement initiatives in the operations, and greater volumes treated at Yauli, Chungar, Cerro de Pasco and Alpamarca.
• Profit before exceptional items in 2Q23 was USD -10.9 MM as compared to USD -6.4 MM in 2Q22, mainly due to lower gross profit resulting from the decline in base metals prices, higher administrative expenses related to the recording date of personnel expenses provisions (from January to June there is no significant change in this item), exit incentive program compensations, and increased financial expenses explained by higher interest rates in the market. Moreover, in 2Q22, financial income was recorded as a result of the partial buyback of bonds maturing in 2026. This was partially offset by reduced royalties and lower deferred income tax mainly related to the appreciation of the national currency.

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Management Discussion and Analysis

Figure 2: 2Q23 vs 2Q22 variations impact on net profit before exceptional items (USD MM)

• Exceptional expenses totaled USD 1.0 MM, mainly related to the impairment of long-term investments in Cerro de Pasco. Net profit amounted to USD -11.8 MM in 2Q23 versus USD -12.2 MM in 2Q22.
• EBITDA decreased by 19.7%, from USD 61.3 MM in 2Q22 to USD 49.2 MM in 2Q23, mainly due to lower base metals prices and higher administrative expenses provisions.
• Total investments decreased by 25.9%, from USD 57.7 MM in 2Q22 to USD 42.7 MM in 2Q23, as a result of investment prioritization in the operating units due to an unfavorable pricing environment for metals.
• Year-to-date(Jan-Jun), sales after adjustments decreased by 11.8%, from USD 492.6 MM in 2022 to USD 434.4 MM in 2023; EBITDA decreased by 35.4%, from USD 186.9 MM in 2022 to USD 120.7 MM in 2023; net profit before exceptional items decreased from USD 34.3 MM in 2022 to USD -8.0 MM in 2023; and, finally, net profit after exceptional items decreased from USD 25.9 MM in 2022 to USD -11.0 MM in 2023.
• The decrease in EBITDA, mainly due to the lower prices of base metals, has caused an increase in the Net Debt/EBITDA ratio up to 3.1 times. The Company has been making great efforts to control and reduce costs and prioritize investments, while evaluating different alternatives to reduce its debt and/or refinance its obligations.

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Management Discussion and Analysis

2. Consolidated Results

2.1 Production

Table 1: Consolidated Production

Consolidated	Jan-Mar	Apr-Jun	Apr-Jun	var %	Jan-Jun	Jan-Jun	var %
Production	2023	2023	2022	2023	2022
Mineral extraction (thousands MT)	2,149	2,406	2,054	17.1	4,556	4,035	12.9
Polymetallic ore	1,911	2,167	1,814	19.5	4,078	3,568	14.3
Oxides ore	238	239	241	-0.7	477	467	2.3
Mineral treatment (thousands MT)	2,274	2,404	2,195	9.5	4,678	4,280	9.3
Concentrator Plants	2,035	2,165	1,954	10.8	4,200	3,813	10.2
Silver Oxides Plant	238	239	241	-0.7	477	467	2.3
Fine Content
Zinc (thousands FMT)	56.5	62.6	52.3	19.7	119.1	105.0	13.4
Lead (thousands FMT)	13.2	15.3	13.3	14.4	28.5	27.0	5.6
Copper (thousands FMT)	1.3	1.5	0.8	90.6	2.7	1.8	48.7
Silver (millions Oz)	3.5	3.8	3.4	11.6	7.3	7.1	3.5
Gold (thousands Oz)	3.7	5.5	5.3	3.8	9.3	13.3	-30.4
Source: Volcan Cia. Minera

Extracted ore volumes increased by 17.1%, from 2,054 thousand MT in 2Q22 to 2,406 thousand MT in 2Q23, due to higher extracted volumes at Yauli, Chungar, Cerro de Pasco and Alpamarca. Treated volumes increased by 9.5%, from 2,195 thousand MT in 2Q22 to 2,404 thousand MT in 2Q23, as a result of increased ore extraction.

Fine zinc production increased by 19.7%, from 52.3 thousand FMT in 2Q22 to 62.6 thousand FMT in 2Q23, mainly due to greater volumes and treated ore grades at Yauli and Chungar; fine lead production by 14.4%, from 13.3 thousand FMT to 15.3 thousand FMT, due to higher processed ore grades at Chungar; copper production by 90.6%, from 0.8 thousand FMT to 1.5 thousand FMT; silver by 11.6% from 3.4 MM Oz to 3.8 MM Oz; and gold production by 3.8%, from 5.3 thousand Oz in 2Q22 to 5.5 thousand Oz in 2Q23.

Year-to-date(Jan-Jun), the extraction volume increased by 12.9% as compared to the same period in the previous year, from 4,035 thousand MT to 4,556 thousand MT. Treated volumes increased by 9.3%, from 4,280 thousand MT to 4,678 thousand MT. With regard to fines, zinc production increased by 13.4%, from 105.0 thousand FMT to 119.1 thousand FMT; lead grew by 5.6%, from 27.0 thousand FMT to 28.5 thousand FMT; copper increased by 48.7%, from

1.8 thousand FMT to 2.7 thousand FMT; and silver increased by 3.5%, from 7.1 MM Oz to 7.3 MM Oz. Gold production decreased by 30.4%, from 13.3 thousand Oz to 9.3 thousand Oz.

2.2 Cost of Production

The absolute cost of production, not considering infill drilling, rose by 4.8%, from USD 118.7

1. in 2Q22 to USD 124.4 MM in 2Q23, mainly due to greater extracted and treated volumes. Unit cost decreased by 4.4%, from 54.2 USD/MT in 2Q22 to 51.8 USD/MT in 2Q23. This is mainly explained by the execution of improvement initiatives in the operating units, and greater volumes processed principally at Yauli and Chungar.

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Management Discussion and Analysis

Year-to-date, the absolute cost of production, not considering infill drilling, increased by 3.0%, from USD 231.7 MM to USD 238.7 MM, while unit cost decreased by 5.7%, from 54.3 USD/MT to 51.2 USD/MT.

The Company is permanently making its utmost effort to control and reduce production costs and expenses at all levels. New reduction initiatives are currently under assessment and implementation in Lima and all the operations, but always maintaining the safety of workers as the main value of the Company.

Table 2: Consolidated Cost of Production

Consolidated	Jan-Mar	Apr-Jun	Apr-Jun	var %	Jan-Jun	Jan-Jun	var %
Production Cost		2023		2023		2022		2023		2022
Production Cost (MM USD)		0.0		0.0		0.0		0.0		0.0		0.0		0.0
Mine Cost		67.8		73.3		52.5		39.7		141.2		104.3		35.4
Plant and Other Cost		46.4		51.1		66.2	-22.9		97.5		127.4	-23.5
Sub total Production Cost (MM USD)		114.3		124.4		118.7		4.8		238.7		231.7		3.0
Inflill drilling cost		2.3		3.4		4.2	-19.1		5.7		7.0	-19.0
Total Production Cost (MM USD)		116.6		127.7		122.8		4.0		244.4		238.7		2.4
	S/.	-	S/.	-	S/.	-	S/.	-	S/.	-	S/.	-	S/.	-
Unit Cost (USD/MT)		0.0		0.0		0.0		0.0		0.0		0.0		0.0
Mine Cost		30.0		30.6		24.1		27.1		30.3		24.5		23.7
Plant and Other Cost		20.4		21.2		30.2	-29.6		20.8		29.8	-30.0
Sub total Unitary Cost (USD/MT)		50.4		51.8		54.2		-4.4		51.2		54.3		-5.7
Infill drilling cost		1.0		1.4		1.9	-26.4		1.2		1.7	-25.9
Total Unitary Cost (USD/MT)		51.5		53.2		56.1		-5.2		52.4		55.9		-6.3

• Mine unit cost considers the adjustment of Alpamarca unit cost Source: Volcan Cia. Minera

The evolution of the unit cost over the last five years is shown in the figure below. As observed, unit cost in 2Q23 is even lower than in 2Q21.

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

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