Mr. David Kratochvil reports

BQE WATER REPORTS Q1 2024 RESULTS

BQE Water Inc. has released its interim consolidated financial results for the three months ended March 31, 2024.

"In Q1 2024, we doubled our recurring operation revenues over the same period last year as our new streams of recurring revenue in the U.S. mitigated the seasonality of our existing operations," said David Kratochvil, president and chief executive officer of BQE Water. "Growing such revenue streams remains a strategic priority for us as we expand recurring revenues through additional plant operations over time. While our technical services for Q1 2024 decreased when compared to Q1 2023, we expect it to catch up to 2023 levels over the remainder of the year."

Financial highlights:

• Recorded proportional and GAAP (generally accepted accounting principles) revenues of $3.4-million and $2.5-million in Q1 2024, respectively, compared with $3.6-million and $2.7-million in Q1 2023;
• Doubled recurring plant operation revenues to $1.8-million in Q1 2024, when compared with Q1 2023;
• Gross margin of $1.1-million in Q1 2024, compared with $1.0-million in Q1 2023, an 11-per-cent increase;
• Net loss of $486,000 in Q1 2024, compared with a loss of $342,000 in Q1 2023;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $121,000 in Q1 2024, compared with a loss of $80,000 in Q1 2023;
• Net cash and cash equivalents of $8.2-million at March 31, 2024, compared with $7.9-million at Dec. 31, 2023, a 4-per-cent increase;
• Working capital of $9.9-million at March 31, 2024, compared with $10.5-million at Dec. 31, 2023, a 6-per-cent decrease.

Selected financial results 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 detailed in an attached table.

JCC-BQE joint venture operations

BQE Water's 50/50 joint venture with partner Jiangxi Copper Company (JCC) 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 Q1 2024 are provided in an attached table.

In Q1 2024, all three plants met mechanical availability and process performance targets set by the company. The volume of water treated increased by 45 per cent and the mass of copper recovered increased by 31 per cent compared with Q1 2023. Such 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 its 80-per-cent partner, Beijing MWT Water Treatment Project Ltd. Co. (MWT), and together the partners 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. Operating results for Q1 2024 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 a fluctuation 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.

BQE Water operations

The number of operating days contributing to water treatment or support fees for the three months ended March 31, 2024, are detailed in an attached table.

The volume of water treated by geographic location for the three months ended March 31, 2024, are detailed in an attached table.

The company, with its Inuit partner, Nuvumiut Development, operates four water treatment plants at the Raglan mine for Glencore Canada Corp. In the first quarter, the plants at the Raglan mine were shut down as water stored in the outdoor reservoirs was frozen. Consequently, no water was treated and no revenue was generated in Q1 2024 from the Raglan mine plants. BQE Water expects to begin water treatment in June, 2024.

In 2022, BQE Water began to provide water treatment services at the Minto mine in Yukon. During 2023, the company contracted directly with the Yukon government to treat and discharge clean water at the mine in support of environmental protection.

In Q1 2024, the treatment plant at the Minto mine was shut down as the plant winterization is typically between October to April, when the mine is not in operation. BQE Water expects to begin water treatment in June, 2024.

In 2021, BQE Water began operations of the Zhongkuang SART (sulphidization, acidification, recycling and thickening) 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 Q1 2024 without disruption.

In 2022, BQE Water began operations of a treatment plant utilizing its Selen-IX process to remove selenium from ash pond water for WesTech Engineering. In Q1 2024, BQE Water's team continued at site providing water treatment services with the Selen-IX circuit to manage the presence of selenium in the feed.

In January, 2022, BQE Water 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. In August, 2023, BQE Water's team completed the performance test milestone for a 2nd newly constructed selenium removal water treatment plant, which entered the operation phase. As a result, the company is currently providing water treatment operation services for two water treatment plants in the American southwest. In Q1 2024, the plants operated and treated 133,000 cubic metres of water.

Technical services highlights

BQE Water's technical expertise and IP (intellectual property) are applicable globally across broad areas of water management. The highlights of technical services provided to clients and technical innovation projects during Q1 2024 are summarized below.

Trusted advisory services (water management and water studies):

• Initiated engineering services for the design and construction of a fourth selenium removal plant in the United States, using Selen-IX at a gold mine to meet end-of-pipe limit of less than two parts per billion;
• Performed a site visit and technical assessment of treatment options for removing sulphate to a discharge limit less than 1,500 milligrams per litre (mg/L) at an integrated lead smelter-recycling facility in Eastern Canada;
• Performed field engineering assessment of the root causes of poor performance of an existing water treatment plant removing metals and ammonia from mine waste water in Western Canada;
• Completed a laboratory treatability test program on mine water for selenium removal from an existing mine in the U.S.;
• Initiated METSIM modelling of a build-up on impurities in metallurgical process water for a new project in the U.S.;
• Initiated the review of a water management plan for a proposed new gold mine in Yukon with comments to support the regulatory reviews by the territorial government;
• Initiated a technical assessment on options for the disposal of large quantities of elemental sulphur at a mine in B.C.;
• Continued to provide water treatment expertise to the executive team of a top-tier metal producer in due diligence for an acquisition of an existing mining operation;
• Continued to provide engineering design services for three water treatment plants to support permitting of the KSM gold-copper project in British Columbia;
• Continued to provide engineering and design services for the construction of a new water treatment plant for water recycle at a gold mine in Mexico.

Cyanide management (destruction and recycle):

• Initiated a review of requirements for cyanide recycle at a new project currently in development in Mexico;
• Completed a treatability assessment for the removal of cobalt and associated cyanide from an existing gold mine in Ontario;
• Continued with the engineering design for a third SART plant for Shandong Gold in China.

Commentary and outlook

The change in the company's financial performance between Q1 2024 and Q1 2023 was predominantly affected by the following:

• A 114-per-cent increase in recurring revenue from new water treatment operations in Q1 2024 compared with Q1 2023;
• A 61-per-cent decrease in non-recurring revenue from technical services in Q1 2024 compared with Q1 2023, which in turn contributed to a 51-per-cent increase in sales and development expenses as resources not utilized to fulfill revenue contracts were allocated to sales and marketing instead of direct operating expenses;
• A 35-per-cent increase in revenue from BQE Water's JCC-BQE joint venture in Q1 2024 compared with Q1 2023, primarily due to a higher volume of recovered copper;
• The decline in revenue from the MWT-BQE joint venture due to a one-time sale of a large quantity of metal concentrate in Q1 2023 that did not recur in Q1 2024;
• A 44-per-cent increase in share-based payments in Q1 2024 compared with Q1 2023, due to the vesting of restricted share units (RSUs) issued to staff in previous years and the RSUs being valued at the company's higher share price.

The winter shutdown of BQE Water's operations in Northern Canada and lower volumes of water reporting to treatment in the China joint ventures traditionally contribute to weaker financial performance for the company during the first quarter of the year. With the recently commissioned plant operations in the U.S., there is now an expanded base of recurring revenue in the first quarter that serves to mitigate the continuing seasonality of our Canadian operations. It remains a strategic priority for BQE Water to continue to expand its recurring revenues through additional plant operations over time.

The timing of non-recurring technical advisory contracts and the associated revenue varies from quarter to quarter based on several factors:

• BQE Water's clients' schedules, which are not in the company's control;
• The short average contract duration of approximately four to six months;
• The stage of the project, since very early stages typically contribute less revenue than later stages.

Except for one project, most of the technical services delivered by the company in Q1 2024 were associated with new projects at early stages. These early stages often contribute less than $50,000 per project; however, they are a critical component of BQE Water's business development. Not only do these projects typically start to contribute a higher share of revenue as they advance, but the quality of services delivered in the early stage also tends to contribute positively to future business, ideally advancing to the operations stage eventually. A typical quarter would have a mix of projects in different stages of development, producing a better balance between billable services and sales and development expenses when compared with Q1 2024. Over all, BQE Water has seen a steady level of business activity and the company currently expects its technical services revenue to catch up to 2023 levels over the remainder of the year. Management also continues to focus on increasing efficiency across all business functions within the organization following the significant increase in head count in recent years. This includes accelerated professional development for BQE Water's staff and improvements to the company's internal systems, both of which are expected to contribute to higher staff utilization, improved resource allocation and higher operating margins over time.

Copper recovery from the JCC-BQE JV in China showed a 31-per-cent increase over the same period a year ago. Although the tonnage of recoverable copper is expected to decline over the long term, the drop in copper production in 2023 compared with previous years was more sudden and substantial. In management's view, the fact that copper recovery increased significantly in Q1 2024 over Q1 2023 suggests the drop in 2023 was more likely caused by climate conditions rather than accelerated depletion of recoverable copper.

The other significant expenses that increased the net loss in the quarter are non-cash share-based payments, as well as depreciation expense. A significant portion of the share-based payments is due to the amortization of RSUs, which are compensation linked to the company's share price. RSUs, a key component of BQE Water's overall staff retention, vest over a three-year period with annual cash payouts, which avoids share dilution. While the company does not carry operating plant and equipment on its balance sheet as capital assets, the company does carry and depreciate right-of-use (lease) assets. The higher depreciation expense in Q1 2024 was due to a new 10-year office lease contract commenced in April, 2023, whereby the company consolidated its laboratory technology team with the engineering and operations teams in a new head office. For the remainder of 2024, BQE Water's quarterly depreciation expenses will continue to increase slightly as the company adds new assets such as office furniture and laboratory equipment.

The outlook for 2024, and the company's assessment of long-term drivers for growth, as well as risks and downsides, remain unchanged from BQE Water's last commentary in the Q4 2023 MD&A (management's discussion and analysis).

Selected financial information

For a complete set of the financial statements and MD&A, please go to BQE Water's website.

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 that 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 (EPA). BQE Water is headquartered in Vancouver, Canada, and trades on the TSX Venture Exchange under the symbol BQE.

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