Mr. David Kratochvil reports

BQE WATER REPORTS Q2 2023 RESULTS

BQE Water Inc. has released its interim consolidated financial results for the three and six months ended June 30, 2023.

"With new streams of recurring revenues that began last year, we grew our 2023 year-to-date revenues from water treatment fees to $2.3-million from $848,000, a record high for a first half of the year in our company history. Looking forward, we plan to continue to execute on our long-term growth strategy, expand our project pipeline and grow our recurring revenues, as we bring on line the fourth Selen-IX treatment plant at a U.S. mine and a third SART plant in China," stated David Kratochvil, president and chief executive officer of BQE Water.

Financial highlights:

• Grew both proportional and GAAP (general accepted accounting principles) revenues by 12 per cent and 54 per cent, respectively, compared with Q2 2022;
• Doubled BQE Water's operating margin from $949,000 in Q2 2022 to $2.0-million in Q2 2023;
• Recorded net income of $615,000 and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $1.5-million in Q2 2023, compared with $642,000 and $1.3-million in Q2 2022;
• Ended Q2 2023 with $6.8-million in working capital, $4.7-million in cash and $7.5-million in proportional cash.

Other selected financial results for the three and six months ended June 30, 2023, are provided in an attached table.

Operational services highlights

BQE Water'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 operations by source of revenue are provided in an attached table.

JCC-BQE joint venture operations

BQE Water's 50/50 joint venture with partner, Jiangxi Copper Company, operates three water treatment plants at the Dexing mine and at the 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 three and six months ended June 30, 2023, are provided in an attached table.

In Q2 2023, all three plants met mechanical availability and process performance targets set by the company. The volume of water treated increased by 27 per cent while the mass of copper recovered decreased by 28 per cent compared with Q2 2022. Changes in water volume and feed grade from period to period are largely the result of environmental conditions beyond the control of the joint venture.

MWT-BQE joint venture operations

BQE Water's 20-per-cent share in MWT-BQE is with the company's 80-per-cent partner, Beijing MWT Water Treatment Project Ltd. Co., and together the companies 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 waste water. The operating results for the three and six months ended June 30, 2023, are provided in an attached table.

The smelter periodically operated its production lines with ores from different sources, which led to varying concentrations of zinc and copper in the feed and fluctuations in the volume of waste water treated by the plant. The joint venture has no control over the composition and volume of feed that flows into the plant. During Q2 2023, the plant was shut down temporarily as the value of zinc and copper in the feed was lower than the recovery cost of the metals.

BQE Water operations

The number of operating days contributing to water treatment or support fees by plant for the three and six months ended June 30, 2023, is shown in an attached table.

The volume of water treated by geographic location for the three and six months ended June 30, 2023, is shown in the attached table.

The company, with Inuit partner Nuvumiut Development, operates four treatment plants at the Raglan mine in Nunavik for Glencore Canada Corp. During Q2 2023, BQE Water mobilized its operations team to site to commence its 20th operating season at the mine. Operational activities were initiated in May and treated water discharge began the same month.

In September, 2022, BQE Water began providing operational services for Minto Metals at the Minto mine in Yukon. During the second quarter, the customer ceased active operations at the mine and the Yukon government stepped in to ensure the continuation of water management services in support of environmental protection. Throughout this transition, BQE Water's operators were on site to operate the water treatment plant and provide continuous water treatment.

In 2021, BQE Water began operations of the Zhongkuang SART plant and the Zhaojin SART plant at metallurgical facilities in China. Both plants have been under BQE Water's technical supervision since the start of full production. Both SART plants operated fully throughout Q2 2023 without disruption.

In 2021, BQE Water completed the commissioning of its first project in the power generation industry, a treatment plant utilizing the company's Selen-IX process to remove selenium from ash pond water for WesTech Engineering. In Q2 2023, BQE Water's operations team continued providing water treatment services with the Selen-IX circuit to manage the presence of any selenium in the feed.

In 2022, BQE Water completed the commissioning of a treatment plant utilizing a combination of nanofiltration and the company's 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. In Q1 2023, BQE Water's team successfully completed the performance test milestone for the treatment plant. As a result, BQE Water is now also receiving a variable treatment fee based on the volume of water treated, in addition to the monthly base fee.

Technical services highlights

BQE Water's technical expertise and IP are applicable globally across broad areas of water management. The highlights of technical services provided to clients and technical innovation projects during Q2 2023 are summarized below.

Selenium removal projects:

• Initiated the wet commissioning phase of a third Selen-IX plant at a U.S. mine;
• Completed a lab-scale treatability assessment for selenium removal from contact water at an existing gold mine undergoing expansion in the United States;
• Initiated a preliminary technical assessment to treat selenium-rich waste water at a power generation site in the U.S.

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

• Completed a feasibility study design report for postclosure water treatment at an existing copper mine in British Columbia;
• Continued to provide engineering design services for three water treatment plants to support permitting of the KSM gold-copper project in B.C.;
• Operated a pilot water treatment facility at a rare earth elements project in Chile;
• Completed a treatability assessment and preliminary design for copper concentrate filtrate that will need to comply with stringent limits for molybdenum and sulphate in Argentina;
• Completed a lab-scale treatability study utilizing BQE Water's Sulf-IX technology to treat and eliminate brine as part of a broader study to comply with sulphate discharge regulations for a tailings storage facility at an existing iron ore processing facility in the U.S.;
• Completed a laboratory scale program aimed at increasing water recovery and reducing brine waste for a reverse osmosis system being planned for implementation at a gold mine in B.C.

Cyanide management projects (cyanide destruction, recycle):

• Completed a cyanide removal treatability test and preliminary engineering design for a cyanide removal plant at a project where the discharge limit is expected to be less than 10 parts per billion in the U.S.;
• Performed a site visit and completed a preliminary technical assessment to integrate a SART process and recover cyanide from thiocyanate at a gold mining operation in Ontario;
• Continued with the engineering design for a third SART plant for Shandong Gold in China;
• Completed humidity cell testing to support permitting for the co-disposal of tailings containing traces of residual cyanide and residue from the electro-reduction of selenium for a project in the U.S.

Commentary and outlook

Over all, BQE Water is very pleased with its second quarter results. The company delivered significant growth in GAAP (generally accepted accounting principles) revenues, which more than offset a decline in BQE Water's share of revenues from China joint ventures and allowed the company to deliver good growth in proportional revenues as well. A closer look at BQE Water's revenue breakdown shows strong progress in the execution of the company's key strategic initiatives.

First, recurring revenues from water treatment fees are foundational to BQE Water's business model. During Q2 2023, water treatment fees increased by $775,000 from Q2 2022, offsetting the $856,000 decrease in recurring revenues from the sale of recovered metals that are largely dependent on commodity prices and seasonal climate fluctuations in China. This shift is part of an anticipated longer-term rebalancing trend in favour of water treatment fees.

Second, BQE Water's technical services revenues also increased $689,000 from Q2 2022. As technical services precede and often lead to future full-scale plants and the accompanying plant operations that generate recurring revenues from water treatment fees, a strong and steady stream of revenues from technical services bodes well for BQE Water's long-term growth.

Another development in Q2 2023 that deserves mention is the operational status of the Minto mine. Despite the sudden stoppage in mine operations, BQE Water continues to be responsible for clean water production and environmental protection at the site under new contractual arrangements, first with JDS Energy and Mining, and now with the Yukon government. Although BQE Water recorded a bad debt expense of $259,000 on receivables from Minto Metals during the quarter, the company have gained an opportunity for long-term engagement with the Yukon government for this site and potentially other sites in the territory.

On the project side, BQE Water is pleased with the successful completion of pilot campaigns for Codelco utilizing its Sulf-IX and BioSulphide processes. These campaigns met all project objectives set out by Codelco and Codelco has now initiated internal planning of next steps, including the engineering of an industrial-scale demonstration facility to support scale-up to the full flow of mine water.

BQE Water received important industry recognition for its Selen-IX process for selenium removal when the company was awarded the 2023 MetSoc Innovation Award winner. MetSoc is a constituent society of the Canadian Institute of Mining, Metallurgy and Petroleum, and organizes annual awards to acknowledge advancements in the industry. Equally gratifying is the steady stream of inquiries about selenium management BQE Water is receiving from different projects across North America. The company is continuing to grow its record as water specialists helping mines in development fulfill their permitting requirements to secure the necessary approvals to advance their projects. Reviews for these projects have been completed by both government regulators and indigenous groups.

Looking at BQE Water's year-to-date results, while the company's operating margin increased in 2023 compared with 2022, the company's team and costs have grown, resulting in a lower net income. There are two components in the overall cost increases: general inflation and corporate growth. BQE Water anticipates that the peak of cost increases is now behind it. Pricing for the company's technical services has been adjusted for inflation and all future contracts include an inflation adjustment provision. Costs to establish operations support infrastructure and to grow BQE Water's capacity to execute projects -- both required for long-term growth -- are already reflected in the company's costs. BQE Water does not anticipate its overall costs to decrease moving forward, but it does expect them to stabilize as the company's internal processes for on boarding and professional development improve, and its capacity to execute projects starts to benefit from training already completed.

Looking ahead to the remainder of 2023, BQE Water plans to continue executing on existing projects and expects to add a new stream of water treatment fees in Q3 2023 from the latest selenium removal plant in the U.S. While BQE Water expects strong revenues from technical services in 2023, the company is seeing delays in investment decisions related to new projects, which may affect our revenues in 2024. BQE Water's technical services are a mix of activities related not only to capital spending for new mines but also expansions of existing mines, with operational improvements, optimizations and permitting activities all preceding major capital spending. BQE Water expects this to mitigate impacts from a slowdown in major capital investments in the short term. In the medium term and long term, BQE Water sees no change in the heightened focus on environmental protection, stricter regulations, need for social acceptability of natural resource extraction projects and the outsourcing of water know-how, all factors that support BQE Water's long-term growth.

BQE Water expects its balance sheet to remain strong as it enters 2024. The company is pleased to announce that it received its 2022 annual dividend of $1.2-million in July, 2023, from its China joint venture. As the dividend was subsequently received after the reporting period, the cash receipt of the dividend is not reflected in BQE Water's Q2 2023 financial statements.

About BQE Water Inc.

BQE Water is a service provider specializing in water treatment and management for metals mining, smelting and refining. The company is helping to transform the way the industry thinks about water in the context of natural resource projects by offering services and expertise, which enables 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. EPA. BQE Water is headquartered in Vancouver, Canada, and trades on the TSX Venture Exchange under the symbol BQE.

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