Mr. David Kratochvil reports

BQE WATER REPORTS AUDITED YEAR END 2022 RESULTS

BQE Water Inc. has released its audited consolidated financial results for the year ended Dec. 31, 2022.

"We are pleased with our annual results which reflect the stage of the company's growth in the post pandemic world and the reversion to mean of our share of income from the China JV," said David Kratochvil, president and chief executive officer of BQE Water. "We added three new operations in North America which increased our recurring revenues from clean water production by $1.9-million in the year. At the same time, we increased revenue from technical services by 60 per cent year over year which allowed us to achieve historic highs in both GAAP and proportional revenues, giving good vision on future growth potential."

Financial highlights

• Achieved record proportional revenues of $18.9-million in 2022, a 21-per-cent increase from 2021.
• Recorded historic high revenues under GAAP (generally accepted accounting principles) of $12.2-million in 2022, a 62-per-cent increase compared with 2021.
• Share of income from joint ventures was $1.5-million, $1.3-million lower than in 2021.
• Net income for the year was $1.2-million compared with $2.6-million in 2021.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $3.1-million compared with $4.1-million the year prior.
• Increased working capital by 57 per cent year over year to $7.2-million as of Dec. 31, 2022.
• Grew net cash by 58 per cent to $6.2-million and proportional cash by 18 per cent to $9.6-million at the end of 2022.

Selected financial results for the three and 12 months ended Dec. 31, 2022, are as shown in the attached table.

Operational services highlights

The company's operational services consist of the operation or technical supervision of water treatment plants, which generate recurring revenues from three main sources: sales of recovered metals, water treatment fees and operations support fees. The company's active operations for the 12 months ended Dec. 31, 2022, and 2021 are as shown in the attached table.

JCC-BQE joint venture operations

The company's 50/50 joint venture with partner Jiangxi Copper Company (JCC) operates three water treatment plants at Dexing mine and at Yinshan mine in Jiangxi province of China. The volume of water treated and pounds of copper recovered by the plants fluctuate seasonally depending on precipitation levels in the region. The operating results for the 12 months ended Dec. 31, 2022, are as shown in the attached table.

During 2022, all three plants met mechanical availability and process performance set by the company. Both the volume of water treated and the mass of copper recovered decreased year over year, by 18 per cent and 15 per cent, respectively. The region experienced an unusually low volume of precipitation in the last half of 2022, with approximately 34 per cent of the total rainfall compared with the same period the year prior. Lower rainfall not only lessened the water flowing into the treatment plants but also affected copper leaching from waste rock, reducing copper concentrations in the plant feed. Changes in water volume and feed grade are largely the result of environmental conditions beyond the control of the joint venture.

MWT-BQE joint venture operations

The company's 20-per-cent share of MWT-BQE is with its 80-per-cent partner Beijing MWT Water Treatment Project Limited Company (MWT) and together they operate a water treatment plant at a smelter in Shandong province of China. MWT-BQE generates revenues from the sale of zinc and copper recovered from smelter wastewater. The operating results for the 12 months ended Dec. 31, 2022, are as shown in the attached table.

The mass of zinc recovered decreased by 38 per cent while copper recovery decreased by 8 per cent. The smelter periodically operated their production lines with ores from different sources which led to varying concentrations of zinc and copper in the feed composition and a fluctuation in the volume of wastewater treated by the plant. The joint venture has no control in the composition and volume of the feed that flows into the plant.

BQE Water operations

The company, with its Inuit partner Nuvumiut Development, operates four water treatment plants at Raglan mine for Glencore Canada Corp. In May, 2022, it mobilized its operations team to site to commence its 19th operating season at the mine. Due to a drier season, the total volume of water treated across all four plants at Raglan mine in 2022 decreased by 20 per cent compared with 2021.

In August, 2022, the company entered into a new operational services agreement with Minto Metals to operate a water treatment plant at Minto mine. The mine is expected to treat approximately 750,000 to 1.5 million cubic metres of water per year. The company's team mobilized to site on Aug. 27, 2022, and began treating and discharging clean water without interruption.

In 2021, the company began operations of the Zhongkuang SART plant and the Zhaojin SART plant at metallurgical facilities in China. Both plants have been under the company's technical supervision since the start of full production. During 2022, as government restrictions relating to the pandemic were lifted, both SART plants resumed operations as the upstream circuit returned to normal operation.

At the end of 2021, the company completed the commissioning of its first project in the power generation industry, a treatment plant utilizing its Selen-IX process to remove selenium from ash pond water for WesTech Engineering. The company also began providing continuing plant operational services in exchange for water treatment fees with fixed and variable components. In 2022, the company's team was on site providing water treatment services with the Selen-IX circuit to manage the presence of selenium in the feed.

In April, 2022, the company completed the commissioning of a treatment plant utilizing a combination of nanofiltration and its proprietary selenium electro-reduction process for the simultaneous removal of selenium and sulphate from mine water for a base metal project in the American Southwest. Upon completion of commissioning, the company began providing continuing plant operations services in exchange for water treatment fees comprising a fixed guaranteed minimum and a variable fee linked to the volume of water treated. In 2022, due to a limited supply of feed water into the company's treatment circuits, BQE received only the fixed guaranteed minimum fee for the months during which the plant was ready to operate.

The number of operating days contributing to water treatment or support fees for the 12 months ended Dec. 31, 2022, are as shown in the attached table.

The volume of water treated for the 12 months ended Dec. 31, 2022, are as shown in the attached table.

Technical services highlights

BQE Water's technical expertise and IP are applicable globally across broad areas of water management. Some highlights of technical services, services outside of continuing plant operations, provided to clients and technical innovation projects during 2022 are summarized herein.

Selenium removal projects

• Successfully completed the commissioning of a water treatment plant for simultaneous selenium and sulphate removal at a mine in the United States.
• Continued to provide engineering services for the construction of a third Selen-IX plant at a U.S. mine.
• Successfully completed lab testing and preliminary engineering for a selenium removal system to treat flue gas desulphurization (FGD) scrubber blow-down at a U.S. power utility provider.
• Successfully completed lab testing and preliminary engineering for a selenium removal system to support permitting of a new uranium project in Canada.

Water consulting projects (water management, treatability, permitting assistance, toxicity mitigation)

• Continued to provide engineering design services for three water treatment plants to support permitting of the KSM project in British Columbia.
• Completed water treatment consulting services resulting in the issue of a permit for the Blackwater project in B.C.
• Completed a water treatment conceptual design study to support the permitting of a new lithium project in Ontario.
• Completed engineering design for a water treatment pilot plant to support permitting of a rare earth elements project in Chile.
• Completed pilot demonstrations of the company's sulphate removal Sulf-IX technology and selective copper recovery BioSulphide process at multiple sites across Codelco operations including the El Teniente and Andina mines in Chile.
• Completed process engineering design for the construction of a water treatment plant to recycle water at a mine in Mexico.
• Initiated engineering for an expansion project of the water treatment plant at Minto mine in the Yukon.

Cyanide management projects (cyanide destruction, recycle)

• Completed site testing to investigate possible improvements in cyanide destruction at a gold mine in Nevada.
• Completed technical assessment for a cyanide destruction plant at the Pogo mine in Alaska to identify operating cost reductions through process optimization.
• Completed a study to optimize cyanide destruction and effluent discharge using reverse osmosis at a large gold heap leach operation in Peru.
• Initiated engineering design of a SART plant for Shandong Gold in China.
• Performed a trade-off study for the expansion of the existing SART plant in Mexico to include a zinc recovery circuit.

Commentary and outlook

When comparing the company's 2022 results against the previous year, it is important to first consider the exceptional net income from the company's China joint venture with JCC in 2021. Historically, BQE's share of the annual net income from the joint venture has averaged $1.2-million. Buoyed by high copper prices and high amounts of copper in the wastewater, BQE's share of this net income in 2021 was $2.8-million, more than double the long-term average. While the company's share of $1.5-million recorded in 2022 represents a return to the norm, its comparison with the outsized share from 2021 resulted in a year-over-year variance in some of the company's financial metrics.

In fact, 2022 was an exciting year for the company, dominated by growth in both the team's technical capabilities and overall capacity to execute a larger number of projects, ensure the successful operation of a growing portfolio of plants under long-term contracts, and support sales and development activities that included new products and services.

When asked what the company considers as the main challenge for BQE Water, the company's answer over the last two years has been very consistent -- managing growth; specifically as it relates to the expansion of the company's team to provide successful operational services for new plants in the pipeline. The company's 2022 results reflect this challenge superimposed on the lower net income from BQE's China joint venture. Some of the challenges are the same as those faced by other professional services firms growing organically in the postpandemic world; namely, tight labour markets and general cost increases largely driven by rising wages. Others are more unique to BQE Water such as the need to bring on new hires well ahead of projects entering the operations phase due to the IP-heavy onboarding that extends the training period and initially increases the company's costs as a percentage of revenues.

Another challenge exclusive to BQE Water that impacted the company's 2022 results was the lack of water to be treated at the new plants it commissioned in the last 18 months. While BQE protects itself from incurring losses should there be limited water, the company's fee structure is tilted toward earning profit from actual performance for the volume of water treated and discharged. The company is currently engaged in discussions with its clients and partners to extend the operating contract terms to make up for the periods where water volumes are significantly below the anticipated design through no influence of the company's own.

Lastly, another challenge unique to BQE has been the increase in plant operations services and the associated shift in the balance of services from the laboratory and engineering office out into the field. This shift produced the need for adjustments in skill sets and internal restructuring to manage such a transition.

Despite some natural growing pains, the company continued to demonstrate a positive long-term trajectory which is reflected in its 2022 financial results as follows:

• Added new recurring operational revenues of $2.0-million from projects outside of China, effectively doubling its operations business.
• Achieved record technical services revenues of $8.0-million, which is a leading indicator of future operations services.
• Reduced BQE's reliance on metal sales in China for the recurring revenue portion of the total net income to derisk its exposure to commodity price fluctuations and geopolitical uncertainties.
• Continued to increase the company's treasury by growing working capital to $7.2-million, which represents the highest year-end balance since the new commercial strategy and business model was implemented in 2014.

In terms of technical development, there were several milestone achievements in 2022:

• Successful commissioning of the first treatment plant that combines selenium and sulphate removal.
• Successful pilot demonstrations of BQE's BioSulphide process for selective copper recovery and Sulf-IX process for sulphate removal at three different sites for Codelco.
• Completion of half a dozen cyanide destruction projects which cemented the integration of newly acquired IP in this area into the company's IP portfolio.

In summary, while 2022 is the first year since 2017 where adjusted EBITDA and net income did not increase year over year, the management team of BQE Water believes this is a direct and natural reflection of being in the growth stage of its evolutionary cycle.

Looking ahead, the company has good visibility for projects in 2023. Its recurring revenue and gross margin from operational services are expected to continue to increase: there will be a full year of operation at Minto mine, the newest Selen-IX plant is expected to start generating recurring revenue in Q4 of 2023 and the volume of water at the company's power utility ash pond project is anticipated to increase. In addition, BQE foresees its margins on technical services to improve as inflation-adjusted fees were applied in January, 2023.

In the long term, the drivers for continued company growth remains firmly in place including:

• Global decarbonization driving demand for metals production.
• Tightening government regulations and increased enforcement around water quality.
• Environmental responsibility and social acceptability guiding water management and treatment decisions.
• Increased role of indigenous communities in clean water production and environmental monitoring.
• Outsourcing of innovation in the mine water space combined with BQE's record of bringing innovation to market.
• Clean-up and closure of ash ponds as one of the largest environmental liabilities faced by power utilities.

Despite these trends and the company's optimistic outlook for 2023, readers need to be cautioned about the risks that may create sudden and potentially significant headwinds for the company and its business. First, geopolitical tensions between China and the West may complicate BQE's continuing China operations and any future business. Second, a global recession may lead to a drop in commodity prices and put new mine development projects on hold. For these reasons, the company remains focused on fiscal prudence and maintaining the company's working capital at a level that would shield it from these exogenous impacts. The company's financial results for 2022 and the current outlook for 2023 underpin BQE's view that it is on track for profitable growth and have sufficient cash reserves to mitigate these risks.

About BQE Water Inc.

BQE Water is a service provider, specializing in water treatment and management for metal mining, smelting and refining. It is helping to transform the way the industry thinks about water in the context of natural resource projects by offering services and expertise, which enable more sustainable water management practices and improved overall project performance at reduced risks. BQE Water invests in innovation, and has developed unique intellectual property through the commercialization of several new technologies at mine sites around the world for organizations, including Glencore, Jiangxi Copper, Freeport-McMoRan and the U.S. Environmental Protection Agency. BQE Water is headquartered in Vancouver, Canada, and trades on the TSX Venture Exchange under the symbol BQE.

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