Company Announcements

11 August 2021

Atalaya Mining Plc

("Atalaya" and/or the "Group")

Unaudited Interim Condensed Consolidated Financial Statements for the period ended 30 June 2021

Atalaya Mining Plc (AIM: ATYM; TSX: AYM), the European mining and development company, is pleased to announce its quarterly and six-monthly results for the period ended 30 June 2021 ("Q2 2021" and "H1 2021" respectively) together with its unaudited interim condensed consolidated financial statements.

The Company increased EBITDA to €99.4 million in H1 2021 (H1 2020: €22.1 million) and cash flows from operating activities to €71.0 million (H1 2020: €23.0 million) as a result of robust operational performance at Proyecto Riotinto, combined with strong copper prices.

Total cash as at 30 June 2021 was €92.8 million up from €37.8 million as at 31 December 2020. Atalaya maintains a strong balance sheet with net cash of €37.8 million as at 30 June 2021 after drawing down facilities to pay Astor during Q1 2021.

The Unaudited Interim Condensed Consolidated Financial Statements for H1 2021 are also available under the Company's profile on SEDAR at www.sedar.com and on Atalaya's website at www.atalayamining.com.

Financial Highlights

(1)   Includes bank borrowings and Deferred Consideration at 31 December 2020.

·      Q2 2021 revenues amounted to €99.7 million (Q2 2020: €56.5 million). H1 2021 revenues of €197.1 million were higher than for the same period in the prior year (H1 2020: €117.7 million). Higher revenues were the result of higher realised copper prices and slightly larger volumes of concentrate sold.

·      Q2 2021 operating costs were €47.8 million (Q2 2020: €43.7 million). H1 2021 operating costs amounted to €97.7 million (H1 2020: €95.6 million) reflecting the higher production volumes and higher cash costs.

·      Q2 2021 EBITDA of €52.0 million (Q2 2020: €12.8 million). H1 2021 EBITDA of €99.4 million (H1 2020: €22.1 million). The increase in EBITDA was driven by higher revenues while operating costs remained similar compared with Q2 2020.

·      Q2 2021 cash costs of US$2.26/lb of payable copper, higher than Q2 2020 cash costs of US$1.87/lb, mainly due to a weaker US Dollar/Euro rate in Q2 2021 ($1.10 per euro in Q2 2020 versus $1.20 per euro in Q2 2021) and a one-off adjustment in June. This was to expense a proportion of year-to-date capitalised stripping costs to reflect a higher life-of-mine waste-to-ore ratio following the updated reserves and resources announced that month.

·      Q2 2021 AISC was US$2.52/lb of payable copper, higher than US$2.11/lb during Q2 2020. The increase in AISC was driven by the same impacts as those for cash costs. Reported AISC excludes one-off investments in the tailings dam during the period, which amounted to €4.0 million (Q2 2020: €3.0 million).

·      Inventories of concentrate at 30 June 2021 amounted to €11.8 million (€2.9 million at 31 December 2020).

·      Working capital surplus as at 30 June 2021 of €90.9 million, representing a €108.8 million increase from a €17.9 million deficit as at 31 December 2020. The increase was mainly due to the impact of the €53 million paid to Astor Management, A.G. ("Astor") in Q1 2021 which was funded by long term unsecured facilities and cash generated from operations.

·      Cash flow used for investing activities amounted to €6.9 million and €70.9 million for Q2 2021 and H1 2021 respectively including €53 million paid to Astor in Q1 2021 (Q2 2020 and H1 2020: €7.7 million and €13.3 million respectively).

·      Q2 2021 cash from financing activities was €1.9 million. For H1 2021, the cash generated from financing activities was €54.8 million including unsecured facilities used to fund the payment to Astor in Q1 2021 (H1 2020: €14.6 million).

Operational Highlights

Proyecto Riotinto

·      Copper production during Q2 2021 was 14,353 tonnes, an increase of 5% compared with 13,635 tonnes produced during Q2 2020. Copper production for H1 2021 was 28,332 tonnes compared with 26,864 tonnes during H1 2020.

·      Ore processed during Q2 2021 was 4,025,327 tonnes, an increase on Q2 2020 when ore processed amounted to 3,572,094 tonnes. Total ore processed during H1 2021 amounted to 8,031,117 tonnes (H1 2020: 6,999,242 tonnes).

·      Copper recovery during the quarter was 84.83%, slightly lower than the 85.89% achieved in Q2 2020. For H1 2021 copper recovery was 84.85%, compared with 84.32% in H1 2020. Plant recoveries are in line with guidance.

Reserves and Resources Updates at Proyecto Riotinto

·      Following the independent reserves estimate announced on 24 June 2021 which confirmed the long life status of the Cerro Colorado open pit, studies have continued at Proyecto Riotinto.

As noted, a sizeable resource was identified at San Dionisio deposit that is potentially mineable by open pit. Further polymetallic mineralization could be exploited using underground mining methods at the Planes-San Antonio and San Dionisio deposits.

Work has started on the preparation of an NI 43-101 compliant technical report which will be followed by economic studies.

Proyecto Touro

·      The Company is finalising a new project to be presented to the Xunta de Galicia during Q3 2021. The new project for Touro includes a new design to address and resolve all the concerns previously raised by stakeholders during the Environmental Impact Evaluation Assessment.

·      The Company continues to be confident that its approach to Proyecto Touro is in line with international best practice and includes fully plastic lined tailings with zero discharge which will satisfy the most stringent environmental conditions that may be imposed by the authorities prior to development of the project.

Proyecto Masa Valverde

·      Exploration at Masa Valverde is continuing with ground geophysics and two rigs currently drilling around the new Majadales and the historic Masa Valverde deposits.

·      Technical work has begun with the objective of publishing NI 43-101 compliant resource estimates on the properties.

Proyecto Riotinto Este

·      The Los Herreros investigation permit was granted in May and the Company now has access to two of the three investigation permits at Riotinto Este: Cerro Negro and Los Herreros. The third investigation permit, Peñas Blancas, is expected to be granted in the coming months.

·      A proposal and quotes for an electromagnetic airborne geophysics survey covering Cerro Negro and Peñas Blancas investigation permits at Riotinto Este have been requested from three geophysical operators and the Company will provide a further update on activity for this area in due course.

Outlook 2021

·      Production guidance for FY2021 remains unchanged at between 52,000 and 54,000 tonnes of copper.

·      Cash costs and AISC expectations remain unchanged between US$2.25/lb to US$2.35/lb and US$2.50/lb to US$2.65/lb, respectively.

COVID-19 Update

·      Management continues to monitor the impact of COVID-19 on the operations and the ongoing cost structure and will update the market with any changes in expectations.

Other corporate developments

·      As previously announced, on 15 March 2021, the Company approved the early payment of the deferred consideration totalling €53 million (the "Deferred Consideration") to Astor Management, A.G. ("Astor") and consequently, Atalaya has removed the timing uncertainty from its balance sheet. The ongoing litigation relates to whether any residual interest on the Deferred Consideration may or may not be payable. Refer to Notes 18 and 25 in the Financial Statements for further information.

·      Following the dismissal of Astor's application for summary judgment which was heard on 14-15 June, the Company is currently working on other court directions in preparation for trial in February 2022 and continues to be confident in its case and is of the view that no residual interest should be payable to Astor.

The Company continues exploring opportunities to increase shareholder value:

·      Solar power project. Permitting of a 50 MW solar plant for self-consumption advanced significantly during H1 2021 and final construction permits are expected in the coming weeks.

·      E-LIX System. A feasibility study continues for an industrial plant using the third party-patented E-LIX System followed by conventional SX-EW to produce cathodes on site at Proyecto Riotinto. Results of the feasibility study are expected in Q3 2021.The E-LIX pilot plant is fully operational and continues gathering real data to be incorporated in the copper and zinc concentrates leaching section of the feasibility studies. The work at the pilot plant continues to support the viability of the E-LIX system and further details will be provided in due course.

Alberto Lavandeira, CEO commented:

"Atalaya has had another solid quarter and half year, driven by its robust operational performance and strong copper prices. Our team that delivered this financial performance also continues to focus on delivering new efficiencies to further increase shareholder value, including looking at new technologies to increase productivity and reducing our carbon footprint."

Investor Presentation Reminder 

Alberto Lavandeira and César Sánchez (CFO) will give a live presentation of these results via the Investor Meet Company platform at 13:00 BST today.  To register please visit:

https://www.investormeetcompany.com/atalaya-mining-plc/register-investor and click on "Add to Meet" Atalaya.

Investors who already follow Atalaya Mining on the Investor Meet Company platform will automatically be invited.

This announcement contains information which, prior to its publication constituted inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

Contacts:

About Atalaya Mining Plc

Atalaya is an AIM and TSX-listed mining and development group which produces copper concentrates and silver by-product at its wholly owned Proyecto Riotinto site in southwest Spain. Atalaya's current operations include the Cerro Colorado open pit mine and a modern 15 Mtpa processing plant, which has the potential to become a centralised processing hub for ore sourced from its wholly owned regional projects around Riotinto that include Proyecto Masa Valverde and Proyecto Riotinto East. In addition, the Group has a phased, earn-in agreement for up to 80% ownership of Proyecto Touro, a brownfield copper project in the northwest of Spain. For further information, visit www.atalayamining.com

Management's review

(All amounts in Euro thousands unless otherwise stated)

For the period ended 30 June 2021 and 2020

Notice to Reader

The accompanying unaudited interim condensed consolidated financial statements of Atalaya Mining Plc have been prepared by and are the responsibility of Atalaya Mining Plc's management. The unaudited interim condensed consolidated financial statements have been reviewed by Atalaya's auditors in accordance with the International Standard on Review Engagements 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity".

Introduction

This report provides an overview and analysis of the financial results of operations of Atalaya Mining Plc and its subsidiaries ("Atalaya" and/or "Group"), to enable the reader to assess material changes in the financial position between 31 December 2020 and 30 June 2021 and results of operations for the three and six months ended 30 June 2021 and 2020.

This report has been prepared as of 10 August 2021. The analysis hereby included is intended to supplement and complement the unaudited interim condensed consolidated financial statements and notes thereto ("Financial Statements") as at and for the period ended 30 June 2021. The reader should review the Financial Statements in conjunction with the review of this report and with the audited, consolidated financial statements for the year ended 31 December 2020, and the unaudited interim condensed consolidated financial statements for the period ended 30 June 2020. These documents can be found on Atalaya's website at www.atalayamining.com.

Atalaya prepares its Annual Financial Statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the EU and its Unaudited Interim Condensed Consolidated Financial Statements in accordance with International Accounting Standards 34: Interim Financial Reporting. The currency referred to in this document is the Euro, unless otherwise specified.

Forward-looking statements

This report may include certain "forward-looking statements" and "forward-looking information" under applicable securities laws. Except for statements of historical fact, certain information contained herein constitute forward-looking statements. Forward-looking statements are frequently characterised by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", and other similar words, or statements that certain events or conditions "may" or "will" occur. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are based on a number of assumptions and subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Assumptions upon which such forward-looking statements are based include that all required third party regulatory and governmental approvals will be obtained. Many of these assumptions are based on factors and events that are not within the control of Atalaya and there is no assurance they will prove to be correct. Factors that could cause actual results to vary materially from results anticipated by such forward-looking statements include changes in market conditions and other risk factors discussed or referred to in this report and other documents filed with the applicable securities regulatory authorities. Although Atalaya has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Atalaya undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.

1.     Incorporation and description of the Business

Atalaya was incorporated in Cyprus on 17 September 2004 as a private company with limited liability under the Companies Law, Cap. 113 and was converted to a public limited liability company on 26 January 2005. Its registered office is at 1 Lampousa Street, Nicosia, Cyprus.

The Company was listed on AIM of the London Stock Exchange ("AIM") in May 2005 under the symbol ATYM and on the Toronto Stock Exchange ("TSX") on 20 December 2010 under the symbol AYM. The Company continued to be listed on AIM and the TSX as at 30 June 2021.

Atalaya is a European mining and development company and currently owns three mining projects: Proyecto Riotinto, Proyecto Touro and Proyecto Masa Valverde. In addition, the Company has an earn-in agreement to acquire three investigation permits at Proyecto Riotinto Este.

Proyecto Riotinto

Proyecto Riotinto, wholly owned by the Company's subsidiary Atalaya Riotinto Minera, S.L.U., is located in Huelva, Spain. The Group operates the Cerro Colorado open pit mine and its associated processing plant where copper in concentrate and silver by-product is produced. A brownfield expansion of the plant was completed in 2019 and successfully commissioned in Q1 2020.

Proyecto Touro

The Group has an initial 10% stake in Cobre San Rafael, S.L., the owner of Proyecto Touro, as part of an earn-in agreement which will enable the Group to acquire up to 80% of the copper project. Proyecto Touro is located in Galicia, north-west Spain. Proyecto Touro is currently in the permitting process.

In November 2019, Atalaya executed the option to acquire 12.5% of Explotaciones Gallegas del Cobre, S.L. the exploration property around Touro, with known additional mineralisation, which will add to the potential of Proyecto Touro.

Proyecto Masa Valverde

On 21 October 2020, the Company announced that it had entered into a definitive purchase agreement to acquire 100% of the shares of Cambridge Mineria España, S.L. (since renamed Atalaya Masa Valverde, S.L.U.), a Spanish company which fully owns the Masa Valverde polymetallic project located in Huelva (Spain). Proyecto Masa Valverde is currently in the permitting process.

Proyecto Riotinto Este

In December 2020, Atalaya entered into a Memorandum of Understanding with a local private Spanish company to acquire a 100% beneficial interest in three investigation permits (known as Peñas Blancas, Cerro Negro and Herreros investigation permits), which cover approximately 12,368 hectares and are located immediately east of Proyecto Riotinto.

2.     Overview of Operational Results

Proyecto Riotinto

The following table presents a summarised statement of operations of Proyecto Riotinto for the three and six months ended 30 June 2021 and 2020, respectively.

(*) Refer to page 8 of the audited consolidated financial statements of Atalaya Mining Plc for 2020.

Note: The numbers in the above table may slightly differ among them due to rounding.

Three months operational review

During Q2 2021 a total of 4.0 million tonnes of ore was processed with an average copper head grade of 0.42% and a recovery rate of 84.83%. In comparison with the same quarter of 2020, throughput increased 11% while recovery decreased 1.26%.

Despite ongoing COVID-19 restrictions, mining operations have continued normally with higher production levels compared with the previous quarter.

The plant processed 4.03 million tonnes of ore during Q2 2021 equivalent to an annual throughput rate of approximately 16 Mtpa. Low grade stockpiles added extra tonnage.

The increase in copper production, when compared with the Company's guidance, is mainly attributable to higher throughput and, to a lesser extent, to better recoveries than planned. Copper production in Q2 2021 was 14,353 tonnes, 2.7% higher than Q1 2021 and 5.3% higher than Q2 2020.

On-site concentrate inventories at the end of the quarter were approximately 15,103 tonnes.

Copper prices increased during Q2 2021 compared with Q1 2021, with an average realised price per pound of copper payable, including the QPs closed in the period, of US$4.27/lb compared with US$2.51/lb in Q2 2020. The average copper spot price during the quarter was US$4.40/lb. The realised price during the quarter, excluding QPs, was approximately US$4.40/lb.

Six months operational review

Production of copper contained in concentrate during H1 2021 was 28,332 tonnes, compared with 26,864 tonnes in the same period of 2020. Payable copper in concentrates was 26,914 tonnes compared with 25,654 tonnes of payable copper in H1 2020.

Ore mined in H1 2021 was 6,620,327 tonnes compared with 6,261,693 tonnes during H1 2020. Ore processed was 8,031,117 tonnes versus 6,999,242 tonnes in H1 2020 due to the utilisation of low grade stockpiles.

Ore grade during H1 2021 was 0.42% Cu compared with 0.46% Cu in H1 2020. Copper recovery was 84.85% versus 84.32% in H1 2020. Concentrate production amounted to 141,755 tonnes above H1 2020 production of 120,941 tonnes as increased throughput offset the slightly lower grade and recoveries.
 

3.     Outlook

The forward-looking information contained in this section is subject to the risk factors and assumptions contained in the cautionary statement on forward-looking statements included in the introduction note of this report. The Company is aware that the COVID-19 pandemic may still have further effects of impact on how the Company can manage its operations and is accordingly keeping its guidance under regular review. Should the Company consider the current guidance no longer achievable, then the Company will provide a further update.

Operational guidance

Proyecto Riotinto operational guidance for 2021 remains unchanged but expected to be towards the high end of production guidance and the lower end of cost guidance. Should the Company consider the current guidance no longer achievable, then the Company will provide a further update.

Copper head grade for 2021 is budgeted to average 0.42% copper, with a recovery rate between 82-84%. Cash operating costs for 2021 are expected to be in the range of US$2.25/lb - US$2.35/lb. AISC for 2021 is expected to be in the range of US$2.50/lb - US$2.65 /lb copper payable. In addition, the Company expects to spend approximately €17 million in 2021 as part of the project to increase the capacity of the tailings dam. AISC are reported net of the one-off project to increase the capacity of the tailings dam.

4.     Overview of the Financial Results

The following table presents summarised consolidated income statements for the three and six months ended 30 June 2021, with comparatives for the three and six months ended 30 June 2020, respectively.

Three months financial review

Revenues for the three-month period ended 30 June 2021 amounted to €99.7 million (Q2 2020: €56.5 million). Higher revenues, compared with the same quarter in the previous year, were largely driven by higher copper prices and by higher volumes sold during the period.

Realised prices were US$4.27/lb copper during Q2 2021 compared with US$2.51/lb copper in Q2 2020. Q2 2020 average copper price was significantly impacted by COVID-19 outbreak. The realised price during the quarter, excluding QPs, was approximately US$4.40/lb.

Operating costs for the three-month period ended 30 June 2021 amounted to €45.8 million, compared with €43.0 million in Q2 2020. In absolute terms, higher operating costs were mainly due to more tonnes being mined and processed during the quarter.

Cash costs of US$2.26/lb payable copper during Q2 2021 compared with US$1.87/lb payable copper in the same period last year. Q2 2021 operating costs were in line with expectations. Higher mined volumes and a weaker US Dollar rate against the Euro resulted in a higher cash cost. AISC excluding one-off investments in the tailings dam previously reported as sustaining capex for Q2 2021 were US$2.52/lb payable copper compared with US$2.11/lb payable copper in Q2 2020.

Sustaining capex for Q2 2021 amounted to €1.4 million compared with €1.6 million in Q2 2020. Sustaining capex mainly related to continuous enhancements in the processing systems of the plant. In addition, the Company invested €4.0 million in the project to increase the tailings dam during Q2 2021 (Q2 2020: €3.0 million). Stripping costs capitalised during Q2 2021 amounted to €1.5 million (Q2 2020: €2.0 million).

Administrative and other expenses amounted to €1.5 million (Q2 2020: €0.5 million) and include non-operating costs of the Cyprus office, corporate legal and consultancy costs, on-going listing costs, officers and directors' emoluments, and salaries and related costs of the corporate office.

Exploration costs on Atalaya's projects portfolio for the three-month period ended 30 June 2021 amounted to €0.1 million (Q2 2020: €0.2 million).

EBITDA for the three months ended 30 June 2021 amounted to €52.0 million compared with Q2 2020 of €12.8 million.

The main item below the EBITDA line is depreciation and amortisation of €6.9 million (Q2 2020: €7.1 million) which decreased in Q2 as a result of the increase of the reserves and resources as announced by the Company in July 2021.  Net financing costs for Q2 2021 amounted to €0.2 million (Q2 2020: €0.1 million).

Six months financial review

Revenues for the six-month period ended 30 June 2021 amounted to €197.1 million (H1 2020: €117.7 million).

Copper concentrate production during the six-month period ended 30 June 2021 was 141,755 tonnes (H1 2020:  120,941 tonnes) with 138,833 tonnes of copper concentrates sold in the period (H1 2020: 131,297 tonnes). Inventories of concentrates as at the reporting date were 15,103 tonnes (31 Dec 2020: 3,845 tonnes).

Realised copper prices for H1 2021 were US$3.92/lb copper compared with US$2.54/lb copper in the same period of 2020. Concentrates were sold under offtake agreements and certain spot agreements for the production not committed. The Company did not enter into any hedging agreements in 2021.

Operating costs for the six-month period ended 30 June 2021 amounted to €93.8 million, compared with €92.2 million in H1 2020. Higher costs in 2021 reflected the higher production volumes.

Cash costs of US$2.15/lb payable copper during H1 2021 compare with US$1.93/lb payable copper in the same period last year. Q2 2021 costs was in line with expectations. All-in sustaining costs in the reporting quarter were US$2.49/lb payable copper compared with US$2.25/lb payable copper in H1 2020. Higher AISC were driven by the same impacts as those for cash costs.

Sustaining capex for the six-month period ended 30 June 2021 amounted to €3.4 million, compared with €2.9 million in the same period the previous year. Sustaining capex related to enhancements in processing systems of the plant. In addition, the Company invested €6.8 million in the project to increase the tailings dam, compared with €5.0 million in 2020. Stripping costs capitalised during H1 2021 amounted to €5.7 million (H1 2020: €3.2 million).

Corporate costs for the first six-month period ending June 2021 were €3.0 million, compared with €2.2 million in H1 2020. Corporate costs mainly include the Company's overhead expenses.

Exploration costs related to Atalaya's project portfolio for the six-month period ended 30 June 2021 and amounted to €0.4 million, compared with €1.1 million in H1 2020. Lower costs were the result of a decrease in drilling activities. During the period 1,839m were drilled against 8,732m in the same period the previous year.

EBITDA for the six months ended 30 June 2021 amounted to €99.4 million, compared with €22.1 million in H1 2020.

Depreciation and amortisation amounted to €15.8 million for the six-month period ended 30 June 2021 (H1 2020: €13.8 million) as a result of the higher throughput.

Net finance costs for H1 2021 amounted to €0.3 million (H1 2020 €0.1 million).

Copper prices

The average realised copper price increased by 70% from US$2.51 per pound in Q2 2020 to US$4.27 per pound in Q2 2021.

The average prices of copper for the three months ended 30 June 2021 and 2020 are summarised below:

Realised copper prices for the reporting period noted above have been calculated using payable copper and including provisional invoices and final settlements of quotation periods ("QPs") together. Lower realised prices than market averages are mainly due to the final settlement of invoices where QP was fixed in the previous quarter due to a short open period when copper prices were lower. Q2 2021 realised price excluding QPs was approximately US$4.40/lb.

5.   Non-GAAP Measures

Atalaya has included certain non-IFRS measures including "EBITDA", "Cash Cost per pound of payable copper", "All-In Sustaining Costs" ("AISC") and "realised prices" in this report. Non-IFRS measures do not have any standardised meaning prescribed under IFRS, and therefore they may not be comparable to similar measures presented by other companies. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for indicators prepared in accordance with IFRS.

EBITDA includes gross sales net of penalties and discounts and all operating costs, excluding finance, tax, impairment, depreciation and amortisation expenses.

Cash Cost per pound of payable copper includes cash operating costs, including treatment and refining charges ("TC/RC"), freight and distribution costs net of by-product credits. Cash Cost per pound of payable copper is consistent with the widely accepted industry standard established by Wood Mackenzie and is also known as the C1 cash cost.

AISC per pound of payable copper includes C1 Cash Costs plus royalties and agency fees, expenditures on rehabilitation, capitalised stripping costs, exploration and geology costs, corporate costs and recurring sustaining capital expenditures but excludes one-off sustaining capital projects, such as the tailings dam project.

Realised price per pound of payable copper is the value of the copper payable included in the concentrate produced including the discounts and other features governed by the offtake agreements of the Group and all discounts or premiums provided in commodity hedge agreements with financial institutions if any, expressed in USD per pound of payable copper. Realised price is consistent with the widely accepted industry standard definition.

Cash cost methodology

During the last quarter of 2020, AISC was recalculated to exclude the one-off investments in the tailings dam project.  Further details including the impact on earlier quarters are given in the 2020 audited consolidated financial statements.

6.   Liquidity and Capital Resources

Atalaya monitors factors that could impact its liquidity as part of Atalaya's overall capital management strategy. Factors that are monitored include, but are not limited to, the market price of copper, foreign currency rates, production levels, operating costs, capital and administrative costs.

The following is a summary of Atalaya's cash position and cash flows as at 30 June 2021 and 31 December 2020.

Liquidity information

⁽¹⁾        Includes bank borrowings and Deferred Consideration at 31 December 2020.

Unrestricted cash and cash equivalents as at 30 June 2021 increased to €92.8 million from €37.8 million at 31 December 2020. The increase in cash balances is the result of net cash flow incurred in the period and draw down of credit facilities offset by the payment of the deferred consideration. Cash balances are unrestricted and include balances at the operational and corporate levels.

As of 30 June 2021, Atalaya reported a working capital surplus of €90.9 million, compared with a working capital deficit of €17.9 million at 31 December 2020. The main liability of the working capital is trade payables related to Proyecto Riotinto contractors to a lesser extent, short-term loans following the drawdown of credit facilities during Q1 2021. The increase in working capital resulted from higher cash balances as well as payment of the Deferred Consideration, which was included in current liabilities at the end of 2020, by utilising long-term credit facilities. At 30 June 2021, trade payables have been decreased by circa 17% compared with 31 December 2020.

Overview of the Group's cash flows

Three months cash flows review

Cash and cash equivalents increased by €29.2 million during the three months ended 30 June 2021. This was due to the net results of cash from operating activities amounting to €34.2 million, the cash used in investing activities amounting to €6.9 million and the cash generated from financing activities totalling €1.9 million.

Cash generated from operating activities before working capital changes was €51.0 million. Atalaya increased its trade receivables in the period by €1.7 million, increased its inventory levels by €6.8 million and decreased its trade payables by €2.1 million.

Investing activities during the quarter consumed €6.9 million, relating mainly to the tailing dams Capex and sustaining Capex mostly in enhancements in processing systems of the plant.

Financing activities during the quarter increased by €1.9 million as result of the use of existing unsecured credit facilities.

Six months cash flows review

Cash and cash equivalents increased by €55.0 million during the six months ended 30 June 2021. This was due to cash from operating activities amounting to €71.0 million, cash used in investing activities amounting to €70.9 million and cash from financing activities amounting to €54.8 million.

Cash generated from operating activities before working capital changes was €104.2 million. Atalaya decreased its trade payables in the period by €11.7 million, decreased its inventory levels by €3.6 million and increased its trade receivable balances by €10.7 million.

Investing activities during the six-month period amounted to €70.9 million, relating mainly to the early payment of the Deferred Consideration to Astor and the tailings dam project and continuous enhancements to the processing systems of the plant.

Financing activities during the six-month period ended 30 June 2021 increased by €54.8 million driven by the use of existing unsecured credit facilities to pay the Deferred Consideration. The payment was financed by unsecured credit lines by four major Spanish banks having a three-year tenure and an average annual interest rate of approximately two per cent.

Foreign exchange

Foreign exchange rate movements can have a significant effect on Atalaya's operations, financial position and results. Atalaya's sales are denominated in U.S. dollars ("USD"), while Atalaya's operating expenses, income taxes and other expenses are mainly denominated in Euros ("EUR") which is the functional currency of the Group, and to a much lesser extent in British Pounds ("GBP").

Accordingly, fluctuations in the exchange rates can potentially impact the results of operations and carrying value of assets and liabilities on the balance sheet.

During the three and six months ended 30 June 2021, Atalaya recognised a foreign exchange loss of €0.9 million and profit of €2.0 million, respectively. Foreign exchange losses mainly related to changes in the period in EUR and USD conversion rates, as all sales are cashed and occasionally held in USD.

The following table summarises the movement in key currencies versus the EUR:

7.   Deferred Consideration

In September 2008, the Group moved to 100% ownership of Atalaya Riotinto Mineral S.L. ("ARM") (and thus full ownership of Proyecto Riotinto) by acquiring the remaining 49% of the issued capital of ARM. At the time of the acquisition, the Group signed a Master Agreement (the "Master Agreement") with Astor Management AG ("Astor") which included a deferred consideration of €43.9 million (the "Deferred Consideration") payable as consideration in respect of the acquisition among other items. The Company also entered into a credit assignment agreement at the same time with a related company of Astor, Shorthorn AG, pursuant to which the benefit of outstanding loans was assigned to the Company in consideration for the payment of €9.1 million to Shorthorn (the "Loan Assignment").

The Master Agreement has been the subject of litigation in the High Court and the Court of Appeal that has now concluded.  As a consequence, ARM must apply any excess cash (after payment of operating expenses, sustaining capital expenditure, any senior debt service requirements and up to US$10 million per annum (for non-Proyecto Riotinto related expenses)) to pay the consideration due to Astor (including the Deferred Consideration and the amount of €9.1 million payable under the Loan Assignment). "Excess cash" is not defined in the Master Agreement leaving ambiguity as to how it is to be calculated.

On 2 March 2020, the Company filed an application in the High Court to seek clarity on the definition of "Excess Cash". The Company and Astor have now exchanged statements of case to set out their formal position. The trial is listed to be heard from 21 February 2022 (the "Trial"). Following the filing of the statements of case for the Trial, Astor applied to Court seeking an early determination (without the need for a full trial) of the dispute in relation to the "Excess Cash" (the "Summary Judgment application"). The Summary Judgment application was heard on 14-15 June 2021. The Court dismissed Astor's application and the question as to whether any residual interest is payable to Astor therefore remains to be resolved at Trial.

As previously announced, during December 2020 the Board had discussions and considered an early payment of the Deferred Consideration and the Loan Assignment provided certain conditions could be met. Conditions included among others the execution of credit facilities agreements to fund the payment.

In March 2021, the Company fulfilled all conditions required by the Board of Directors and made the early payment of €53 million to Astor. The payment was fully funded by unsecured credit facilities entered into between December 2020 and February 2021 at interest rates ranging from 1.60% to 2.45% and repayable by 2023 and 2024.

The payment of the Deferred Consideration does not end the ongoing litigation as the issue as to whether any residual interest may or may not be payable remains unresolved. Consequently, on 15 July 2021, the Company transferred €15.4 million to a trust account (the "Trust Account") representing the full amount of interest claimed by Astor to 30 June 2022. The holder of the Trust Account has provided an undertaking to hold the full amount until settlement of the claim to interest or judgment following the Trial. The Company understands the monies held in the Trust Account safeguard the maximum outstanding liability to Astor in relation to the Master Agreement. On that basis, and because the Consideration has been paid in full in accordance with the Master Agreement, Atalaya treats itself as free of the obligations set out in the Master Agreement.

The Company is currently working on other court directions in preparation for the Trial and continues to be confident in its case and is of the view that no residual interest will be payable to Astor.

8.    Corporate Social Responsibility

Fundación Atalaya Riotinto ("Fundacion") has continued striving to develop initiatives to comply with its social responsibility during the second quarter of the year. 

In this regard, the Fundacion has completed the training programme for unemployed people from local communities also supported by Proyecto Riotinto's main contractors. The programme has concluded satisfactorily for both people and companies, and hirings have already started.

During the quarter, the Fundacion has cooperated in several initiatives with the municipality of Minas de Riotinto: i) supporting a Tourism Quality Plan for the town to assess various initiatives towards obtaining relevant qualifications thus improving the competitivity of the town as a tourism destination; ii) funding the improvement of the Via Verde, a local country path and; iii) pavement repairs of streets, and the installation of new urban furniture.

Furthermore, the Company allowed access to Corta Atalaya and its look-out to establish a new tourist attraction.

9.    Health and Safety

During the quarter, the most significant actions were focused on Covid-19 prevention measures. The SAR-CoV2 control tests continued to be carried out in the infirmary: antigens, antibodies and PCR, as well as the other measures implemented to prevent the spread of the virus. It should also be noted that Atalaya has joined the Junta de Andalucía's Sumamos Plan to facilitate vaccination to anyone (employee or contractor) interested and within the age range authorised by the regional administration. In June 2021, 80 workers over 35 years old were vaccinated. 46% of them were Atalaya´s employees.

On the other hand, drug testing has been in place since April 2021 to prevent work under the influence of psychoactive substances. During Q1 2021 was voluntary and since June 2021 it has been compulsory at the entrances of the facilities and in the event of any accident at work.

Field leadership activities are growing in strength. The aim is to implement a safety culture throughout the entire work line.

10.   Environment

During the second quarter of 2021, the environmental department has continued executing the actions of environmental monitoring of the activity, management of the natural environment and the usual historical heritage. Key points of the quarter:

·      A total rainfall of 95.2 l/m² was recorded in Q2 2021, which was around 39% less than in the same period of previous year.

·      All the periodic internal controls of non-channelled emissions into the atmosphere have been carried out, and the results of the controls are within the limit values set out in the regulations. In addition, the annual external control of emissions (channelled and non-channelled) was carried out in April 2021. Likewise, all the results obtained are within the applicable limit values.

·      During the second quarter, the additional measures contemplated in the action plan against dust continued to be implemented, intensifying periodic risks, implementing new coordination measures and carrying out exhaustive monitoring of the emissions generated in the operation.

·      In the second quarter of the year, the Environmental Risk Analysis report was drawn up in accordance with the requirements of Law 26/2007 on Environmental Liability, and subsequent amendments, to determine the amount of the Mandatory Financial Guarantee to cover the costs of possible repair measures to be adopted in the event of environmental damage caused by the activity. Given the results obtained in this report and the existence of a certified Environmental Management System in the company (UNE EN ISO 14001), Atalaya is exempted from the obligation to provide this guarantee.

·      Finally, during this second quarter, the Carbon Footprint report for 2019 and 2020 was completed. Subsequently, after validation by an external company, it will be included in the voluntary register of Carbon Footprint and reduction commitment of the Ministry of Ecological Transition and the Demographic Challenge.

11.   Risk Factors

Due to the nature of Atalaya's business in the mining industry, the Group is subject to various risks that could materially impact the future operating results and could cause actual events to differ materially from those described in forward-looking statements relating to Atalaya. Readers are encouraged to read and consider the risk factors detailed in Atalaya's audited, consolidated financial statements for the year ended 31 December 2020.

The Company continues to monitor the principal risks and uncertainties that could materially impact the Company's results and operations, including the areas of increasing uncertainty such as COVID-19 (refer to point 13 below).

12.   Critical accounting policies, estimates, judgements, assumptions and accounting changes

The preparation of Atalaya's Financial Statements in accordance with IFRS requires management to make estimates, judgements and assumptions that affect amounts reported in the Financial Statements and accompanying notes. There is a full discussion and description of Atalaya's critical accounting policies in the audited consolidated financial statements for the year ended 31 December 2020.

As at 30 June 2021, there are no significant changes in critical accounting policies or estimates to those applied in 2020.

13.   COVID-19 impact

It is Atalaya's priority to protect its workforce and the local communities surrounding Proyecto Riotinto, Proyecto Masa Valverde and Proyecto Touro. Atalaya is following the requirements and recommendations issued by the Government of Spain and the regional and local health authorities to reduce the risk of COVID-19 exposure and avoid the spread of the virus.

14.   Other Information

Additional information about Atalaya Mining Plc. is available at www.atalayamining.com

Unaudited interim condensed consolidated financial statements on pages 13 to 35  

By Order of the Board of Directors,

___________________________________

Roger Davey

Chairman

Nicosia, 10 August 2021