PNX Metals : 31 Dec 2021 Half Year Financial Report

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PNX METALS LIMITED

ABN 67 127 446 271

FINANCIAL REPORT

For the Half-Year Ended

31 December 2021

Index

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DIRECTORS' REPORT

The directors of PNX Metals Limited (PNX, or Company) are pleased to present the financial report for the half-year ended 31 December 2021 in accordance with the Corporations Act 2001.

The names of the directors who held office for the whole of and since the end of the half-year (unless otherwise noted) are:

Graham Ascough (Chairman)

James Fox

Hans-Jörg Schmidt

Hansjoerg Plaggemars

Richard Willson

Frank Bierlein

REVIEW OF OPERATIONS

The total comprehensive profit for the half-year was $507,246 (2020: total comprehensive loss of $501,908). Net assets at 31 December 2021 were $21.7 million, including $1.7 million in cash.

As at the date of this report, the following securities were on issue:

• 4,444,057,807 ordinary shares; and
• 49,300,000 performance rights.

Project Developments

During the half-year ended 31 December 2021, PNX continued to advance its program for the sequential development of the Company's 100% owned Fountain Head gold and Hayes Creek gold-silver-zinc Projects (Project) in order for an investment decision to be made once Government and Environmental approvals and Project financing have been achieved.

There were no reportable safety or environmental incidents during the half-year ended 31 December 2021.

The safety of PNX employees and contractors is paramount and appropriate measures regarding COVID- 19 are being taken in-line with government advice, particularly in relation to interstate travel. Northern Territory field-based activities are safely continuing however personnel movements were impacted during the half-year period due to border closures.

All tenements remain in good standing with statutory reporting up to date.

Government and Environmental Approvals

Following the close of the Environmental Impact Statement (EIS) public comment period in early August 2021, the Company received a Direction from the Northern Territory Environmental Protection Authority (NT EPA) at the end of September 2021 to prepare the Supplement to the EIS, specifically to address comments from Government agencies relating to the assessment of potential environmental impacts. These comments were addressed, with additional information provided where required in the Supplement which was submitted in November 2021.

PNX and its Environmental Consultants met with the NT EPA in mid-February 2022 to receive an update to the process and is working with the EPA to clarify questions and responses relating specifically to Flora and Fauna and Groundwater.

The Fountain Head Mining Management Plan (MMP) is also being prepared to be submitted once the EIS is finalised. An approved MMP is required before any works can commence on site. The lead time for approval of the MMP is 4-6 months and consequently the Company is advancing both the MMP and EIS approvals in parallel in order to minimise any delays.

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Project Financing

Specialist natural resources investment house Argonaut PCF Limited were appointed to act as the Company's exclusive debt advisor. PNX expects that the appointment of Argonaut PCF, will result in funding optionality for the board to consider to ensure appropriate management of shareholder dilution, cost and risk to the Company in funding the Projects.

Mining and Site Establishment

Mining tenders are to be distributed once the EIS has been finalised. Various contracting models will be considered to provide the lowest cost of construction and mining. The mining contract is expected to include all drill and blast, mining activities, remote site ore haulage, and crushing services.

Site establishment works are planned to commence upon grant of Project approvals.

Plant and Infrastructure Engineering and Design

PNX Project Engineering partner Como Engineers (Como) provided updated capital costs based on a refined process design and contractor quotes. Quoted 3rd party contractor costs have increased by approximately 20% over the course of 2021 and when compared to those utilised in the PFS (July 2021, provide ASX announcement reference). Numerous contributing factors include inflation, global supply shortages and demand increase, shipping, logistical bottlenecks, raw material price increases, and ongoing uncertainty and OHS&E considerations relating to border restrictions. Mitigation strategies have been employed to limit the impact of these increases, including the use of second-hand equipment where possible.

The Company has reached an in-principle agreement to acquire suitable second-hand tailings filtration equipment for the Project. Perth-based Como are assessing the equipment with a site visit scheduled for late-March 2022. Relocation and rebuild costs will then be included as part of the Project budget. A significant capital cost reduction is envisaged when compared to acquiring new tailings filtration equipment.

Additional time and cost savings will also be realised by incorporating modular designs into the plant, something that Como have applied successfully at other operations, and will include construction and fabrication of transportable modules that will be essentially bolted together on site with a minimum of additional engineering.

A mobile crushing plant has been chosen over a fixed unit to reduce capital costs and time to production, and to achieve greater operational flexibility and ease of financing. The Company is working with several contract groups to finalise the cost of this component.

By applying the above measures, the Project Capital cost inclusive of contingency and margins, first fill and critical spares will be in-line with the original PFS estimate of A$46 million, and is testament to the hard work of the engineering team under challenging conditions currently faced by the entire industry.

The Project construction schedule is yet to be finalised but expected to be up to 12 months from the decision to proceed.

Power

Sunrise Energy Group is PNX's preferred power partner and will complete the Front-End Engineering and

Design (FEED) to deliver a standalone hybrid power station to be located at Fountain Head. The proposed power solution contract is via an energy-as-a-service model through a Power Purchase Agreement with

included buy-out option.

A hybrid renewable energy plant has been agreed to in principle, comprising solar, battery energy storage system, diesel generators and a hybrid energy controller. The benefits of this type of system are significant, and result in an overall reduction in the Project carbon footprint and initial 41% green power. Importantly, hybrid renewable energy unit operating costs are lower when compared to those of base-case diesel generators.

Geology and Mineral Resources

Project gold and silver Mineral Resources used to inform the mining optimisation and Project financial model are derived from mineralisation at Mt Bonnie, Glencoe and Fountain Head (combined as Stage 1).

Since publishing the Project PFS in July 2021, approximately 4,000 metres of Reverse Circulation (RC) drilling was completed at Glencoe to test for near-surface extensions to gold mineralisation, and increase confidence in the current Mineral Resource Estimate (MRE) that currently stands at 2.1Mt @ 1.2g/t Au for

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79,000oz Au (Inferred category) (reported in accordance with the JORC Code, 2012 (refer ASX 28 April 2021 for original MRE and JORC Tables).

The drilling to date has been extremely successful and identified immediate extensions to near-surface gold mineralisation, extending the strike and demonstrating excellent continuity by more than 280 metres to the southeast of the current MRE, and 450 metres from the historic North-Central pit. Importantly, several thicker near-surface zones of gold mineralisation were intersected (refer ASX release 25 November 2021, and 14 January 2022). A further outline of exploration activities undertaken at Glencoe during the half-year are outlined below.

Exploration Update - Glencoe

Glencoe is located on a granted Mineral Lease approximately 170 km south of Darwin and 3 km north of PNX's Fountain Head Gold Project in the Pine Creek region of the Northern Territory. The Glencoe Project ("Glencoe") represents a 'bolt-on' asset that has significantly expanded the proposed Fountain Head development (refer ASX release 20 December 2021).

A total of 54 RC holes were drilled by PNX at Glencoe in 2021 to test the near-surface extent of gold mineralisation and demonstrates good continuity over a 1,400-metre strike extent. Only six holes extended beyond 80 metres vertical depth, as delineating near-surface gold lodes was prioritised to maximise the gold reporting to the optimised mining studies and conceptual pit designs. The deposit remains open at depth and further down-dip testing will occur during 2022. The drilling was complemented by other work at Glencoe, including surface geological mapping and sampling, which will also assist in informing an updated MRE, which is being finalised and due in March 2022.

SUBSEQUENT EVENTS

On 20 January 2022 and subsequent to the half-year end, the Company announced a capital raising pursuant to a non-renounceable rights issue (NRRI) of one (1) share for every four (4) shares held at a price of $0.005 (0.5 cents) per share to raise up to ~$4.6m (before costs).

Subscriptions were received from eligible shareholders for 791,864,296 shares raising $3,959,321, representing an approximate 87% take-up (including oversubscriptions). A shortfall of 121,184,082 shares was notified to the ASX on 14 February 2022. The Company issued 791,864,296 shares on 16 February 2022 and the directors of PNX may consider the placement of the shortfall within 3 months of the close of the NRRI.

On 1 March 2022 and subsequent to the half-year end, the Company announced that it has agreed to divest its Moline project in the Northern Territory to Sovereign Metallurgical Pty Ltd (Sovereign) for a total consideration of up to $3.0 million, plus refund the existing tenement bond of approximately $300,000 (refer ASX Announcement dated 1 March 2022 for Key Terms and further information). The Moline project is located approximately 65km east of the Company's Fountain Head and Hayes Creek development.

The acquisition of Glencoe ML29679 was completed on 28 February 2022, contemporaneous with the execution of the Moline Agreement. Ausgold Trading Pty Ltd (Ausgold), a related party to Sovereign, waived the final payment, equal to $700,000, for the Glencoe ML that was payable by PNX to Ausgold (refer ASX Announcement dated 1 March 2022 for Key Terms and further information).

There were no other events occurring subsequent to 31 December 2021 requiring adjustment to, or disclosure in, the 31 December 2021 half-year financial statements.

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Figure 1: NT Project locations

AUDITOR'S INDEPENDENCE DECLARATION

The auditor's independence declaration, as required under Section 307C of the Corporations Act 2001, is included on page 6 of the half-year financial report and forms part of this Directors' Report.

Signed in accordance with a resolution of the directors made pursuant to Section 306 (3) of the Corporations Act 2001.

On behalf of the directors

Graham Ascough

Chairman

Adelaide, 9 March 2022