5N Plus
Annual Report 2023

Plain-text annual report

Trusted. Critical. Growing. 5 N + | 2 0 2 3 T A R N O N P E U R A L L A R U E P N O N R A T 3 2 0 2 | + N 5 2023 Annual Report Content The 5N+ Advantage Message from the Chair Message from the CEO Advanced Materials for Critical Applications Enabling a Sustainable Future Management’s Discussion and Analysis Management’s Responsibility for Financial Reporting Independent Auditor’s Report 2 4 6 8 10 12 38 39 Consolidated Financial Statements 44 Corporate Information 87 5N Plus (TSX:VNP) is a leading global producer of specialty semiconductors and performance materials. Our ultra-pure materials often form the core element of our customers’ products. Mission Vision To be critical to our customers, valued by our employees and trusted by our shareholders. To enable critical industries through essential products based on advanced material technology. Values Commitment Continuous improvement Customer focus Health and safety Integrity Sustainable development The 5N+ Advantage 4 Strong R&D capabilities and world-class technical team with decades of manufacturing experience, robust technologies and processes 5 Sourcing advantage with strategic global presence and upstream refining capabilities, including closed-loop metals management 6 Continuous investments in capacity expansion in high-growth sectors to meet long-term customer demand 7 Preferred partner to our customers focused on fostering long-term relationships and commercial excellence 1 Trusted global developer, manufacturer and marketer of specialty semiconductors and performance materials 2 Market leader in majority of end-markets served: terrestrial renewable energy, space solar power, imaging and sensing, health and pharma, technical materials 3 Leading supplier of ultra-high purity semiconductor compounds based outside of China 2 5N + 202 3 AN NUAL REPORT 38.3% Record Reported FY 2023 Adjusted EBITDA $15.4M FY 2023 Net Earnings 29.0% Adjusted Gross Margin 292 DAYS Backlog as at December 31, 2023 8 800 strategically located manufacturing facilities employees on three continents 4 R&D centres Headquartered in Montréal Global Presence North America Canada Montréal United States Bridgeport St. George Europe Germany Eisenhüttenstadt Heilbronn Lübeck Commercial Activities Manufacturing Research & Development Asia China Hong Kong Shangyu Laos Vientiane Malaysia Kulim Selected Financial Highlights . 0 0 1 2 . 2 4 6 2 . 4 2 4 2 . 2 8 2 . 0 0 3 . 3 8 3 5 . 3 2 . 7 3 2 . 0 9 2 1 2 2 3 5 2 2 9 2 21 22 23 21 22 23 21 22 23 21 22 23 Revenues (in millions of dollars) Adjusted EBITDA(1) (in millions of dollars) Adjusted Gross Margin(1) (as a percentage) Backlog(1) (number of days of last quarter annualized revenue) (1) These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. For further details of these non-IFRS measures, including a reconciliation to the most directly comparable IFRS measures, refer to our MD&A for the year ended December 31, 2023 available on SEDAR+ at sedarplus.ca. All amounts in this document are expressed in U.S. dollars unless otherwise indicated. 3 2023 ANNUAL REPORT 5N+ Letter from the Chair of the Board Delivering Growth and Profitability On behalf of your board, I am pleased to have this opportunity to provide you with our perspective on 2023 at 5N+. We take our responsibility of corporate With a strong and stable management team in place, oversight very seriously and, in particular, providing the company is well-positioned strategic counsel and guidance to the executive team to ensure responsible and sustainable management and growth of your company. We are very proud of the progress the team has made over the last several years, both in terms of executing on the corporate strategy and with respect to delivering on individual objectives. After more than a year since being implemented, management’s commercial excellence program is producing strong returns on the investments in high-growth markets with the right product mix. This focus, coupled with the deep customer relationships and long-term contracts, has generated improved profitability and margins, as well as greater predictability of future results, with a constant focus on value-added growth. As such, we expect this strategy to continue to create long-term value for shareholders as we leverage our unique competitive advantages and high demand in several of our key sectors of operation, namely terrestrial renewable energy and space solar power, among others. With a strong and stable management team in place, the company is well-positioned to capitalize further on this strategy in 2024 and for years to come. to capitalize further on this strategy in 2024 and for years to come. As shareholders, you can also have confidence that your board maintains its commitment to good governance in the proper establishment and review of policies and processes at both the board and corporate level. With the board charters and guidelines having last had a comprehensive update in 2021, the board continues its regular review of its policies to ensure they reflect best practices. One area in which we persistently seek to improve is the strength of the board itself. We are committed to maintaining diversity of the board and the right skill set to meet the needs of the company as it grows and evolves. To that end, in February 2023, Blair Dickerson joined the board. Her experience in the resource sector combined with her expertise in sustainability, communications, corporate affairs and public policy have been invaluable to our deliberations. Our goal is to maintain a board that is composed of strong leaders with relevant experience ensuring a balance of history and fresh perspectives to help meet the needs of the company now and in the future. 4 5N+ 2023 ANNUAL REPORTWith respect to sustainable development, in 2023, not only did the company issue its first comprehensive Sustainability Report, but also the board officially integrated the oversight of environmental, social and governance factors into the mandate of our Governance and Compensation Committee. Previously, as part of our enterprise risk management, we had already added oversight of climate risks to the Audit and Risk Management Committee. We will continue to ingrain these important factors into our decision-making as we gear up for impending regulatory requirements. We continue to do our part to enable a sustainable future through our own operations and through the products we help bring to market. As we look ahead to 2024, I would like to extend the board’s appreciation to management and the entire team at 5N+ for their outstanding achievements over the last year and their unwavering commitment to and disciplined execution on our strategy for sustainable growth. As always, management and the board wish to thank you, our shareholders, for your ongoing trust and support. On behalf of the Board, Board of Directors Luc Bertrand Jean Marie Bourassa Corporate Director Corporate Director Québec, Canada Québec, Canada Director since January 2016 Director since December 2007 Nathalie Le Prohon Blair Dickerson President, IBM Quebec Technologies Québec, Canada Director since May 2014 Vice President, Canadian Public Affairs, Paper Excellence Canada Ontario, Canada Director since February  2023 Luc Bertrand Chair of the Board Gervais Jacques President and CEO Québec, Canada Director since May 2020 5 2023 ANNUAL REPORT 5N+Letter from President and CEO Levelling Up, Year After Year As we close out a year marked by earnings growth and margin expansion, and with our advanced materials power- ing history-making events on land and in space, we can look back with pride on all we have accomplished and forward with excitement at a promising 2024. I credit the exceptional efforts of our entire team for executing on our growth strategy and for meeting the unique requirements of our customers operating in critical and high-growth end markets. The strategic changes we have made in recent years paired with robust demand in key sectors bore fruit last year, enabling us to deliver excellent financial results in 2023 despite macro-economic uncertainties. Our business model also now affords us better visibility and predictability of our expected performance over the coming years, which we expect to continue levelling up year after year. A Strong Financial Performance For 2023, in line with our projections, we generated $38.3 million in consolidated Adjusted EBITDA, or 28% growth year over year, representing the Company’s strongest reported Adjusted EBITDA performance since inception. Adjusted gross margin was 29.0% in 2023, up from 23.7% in 2022. We capped off the year with an even higher backlog than at previous year-end, while also further deleveraging our balance sheet. Our Specialty Semiconductors segment continues to be key in supporting our profitable growth. Growth in this segment is being driven by increasing demand in the high-growth solar space power and terrestrial renewable energy sectors. This year, we saw our products being used in some very exciting projects, including Chandrayaan-3 – India’s mission to the moon; the European Space Agency’s mission to Jupiter; and the world’s largest next-generation long-duration energy storage project opened by RayGen in Australia. In Performance Materials, earnings and margins improved dramatically following our strategic exit of the extractive and catalytic sector in the second half of 2022. We expect future growth in this segment to stem primarily from the health and pharmaceutical markets. We will also continue to explore product expansion opportunities and development initiatives both independently and through partnerships. Commercial and Operational Excellence Our strong financial performance is a testament to our commitment to a value-added product mix that addresses the needs of high-growth market segments, our deep expertise, commercial excellence and partnership approach. It also reflects our geographical competitive advantage as a leading provider of advanced materials and trusted partner to major corporations, global space agencies and western governments. Through our commercial excellence program, we have been fostering our long-standing customer relationships and strategic partnerships. Our success is evident in the strength of our backlog, which stood at 292 days at December 31, 2023, eight days higher than the previous quarter and 39 days higher than at the same date last year. Our approach ensures we are an integral and valued part of our customers’ solutions, focusing on working collaboratively to produce innovative products that meet their unique needs. Operationally, we continue to invest in our production capacity to meet increasing demand and our strong pipeline of contracted work. In 2023, we increased our capacity to serve the renewable energy sector by 40%, with a further expansion of 60% on track for 2024. Once completed, we will have doubled our output capacity to serve this critical sector. With respect to our space solar technology, we are investing to increase our production capacity by 30% in 2024. Finally, as we secure additional complex feeds and secondary market streams for the recovery of critical minerals, we expect recently expanded operations in recycling and refining in Montréal to reach capacity in 2024. Evolving our Sustainability Roadmap Whether through our products that enable critical power alternatives or through our commitment to the circular economy, sustainability is engrained in our operations. Last year, we published our inaugural Sustainability Report, which outlined our priority areas and commitment to responsible and sustainable operations. Since then, we have taken further steps to align with recognized ESG standards including TCFD recommendations, undertaking additional 6 5N+ 2023 ANNUAL REPORTclimate risk assessments that will better inform our climate and energy management strategy. In addition, we are working across our organization to improve data tracking and disclosure, including on GHG emissions, to reduce our carbon footprint and ensure we meet emerging global legislative requirements. Beyond our operations, we increased our engagement with suppliers on ESG in 2023 and published our first Report on forced labour and child labour in supply chains. We intend to detail our continued progress in our second annual Sustainability Report as we continue on our sustainability journey. Poised for Continued Growth As we expand capacity to meet contracted demand and continue to execute on our strategy, we aim to build on the success of 2023 and deliver continued earnings growth. Records are made to be broken and it is our objective to do just that in the coming years because we firmly believe that our future holds even more opportunities and growth potential. With our commercial excellence program and customer- centric approach, we will further cement our position as a critical supplier of advanced materials to critical industries with compelling growth profiles. In conclusion, I would like to thank our entire team for their commitment to our strategy for growth, our board for their oversight and guidance and our customers and partners for their confidence in our products and processes. Our remarkable performance this year would not have been possible without all these contributions. Finally, I would like to express my appreciation to all our shareholders for their ongoing support and trust. We look forward to continuing to provide value to all our stakeholders as we pursue our growth trajectory and aim to maintain our record-setting pace. Gervais Jacques President and CEO Executive Committee Gervais Jacques Richard Perron President and CEO since March 2022 Chief Financial Officer since March 2014 Roland Dubois Paul Tancell Chief Commercial Officer and Executive Vice President, Specialty Semiconductors since September 2022 Executive Vice President, Performance Materials since February 2017 7 2023 ANNUAL REPORT 5N+Advanced Materials for Critical Applications Performance Materials Health & Pharma Technical Materials Non-toxic to human health or the Whether a substitute of toxic heavy environment, we produce bismuth metals in various applications or chemicals that are essential to the specialty alloys and chemicals, our creation of everyday human care technical materials are customizable products. Our bismuth products and critical to a broad range of are used as active pharmaceutical industries from aviation to optics. ingredients in over-the-counter antacids and antibiotic creams as well as in cosmetics product applications. 8 5N+ 2023 ANNUAL REPORTOver the past few years, 5N+ has evolved its product mix to focus on providing value-added products to both critical and high-growth end markets. Through our unique and proprietary processes and world-class technological expertise, we create advanced materials that enable a broad range of applications. Specialty Semiconductors Terrestrial Renewable Energy Space Solar Power Imaging & Sensing As a leading supplier to the Our high-purity germanium wafers Our materials are used to renewable energy sector, our and epitaxial semiconductor manufacture radiation detector specialty semiconductor products substrates are used to produce chips in medical, infrared and earth are critical in moving towards a ultra-high efficiency photovoltaic imaging applications in the medical, sustainable future. With gigawatts (PV) solar cells for satellite power security and defense industries, of solar panels incorporating our generation and concentrated helping to reduce patient exposure materials installed in utility-scale PV systems. Our enabling materials to x-rays and keep nations safe. projects, our products convert the are frequently in orbit powering sun’s power into renewable energy satellites, as well as various to provide electricity for consumers space vehicles. worldwide. In addition, our enabling materials are used in next generation energy storage infrastructure. 9 2023 ANNUAL REPORT 5N+Enabling a Sustainable Future 5N+ is committed to being a reliable source for high-purity performance materials and specialty semiconductors enabling innovative products critical to our everyday lives, from converting solar power into electricity to active pharmaceutical ingredients. From our inception, we have applied a sustainability lens to our business operations and developed robust supply chains and practices. We aim to continue to do our part to enable a sustainable future by leading the sustainable economy, enabling critical industries and new technology, and through community responsibility. We published our first comprehensive Sustainability Report in early 2023 and intend to continue to update the market annually on our progress against our evolving goals and commitments. A Sustainable and Closed-looped Model Suppliers Critical Industries Clients 10 5N+ 2023 ANNUAL REPORTStrong R&D Proprietary Technology & Robust Processes Responsible Sourcing and Upcycling New technological developments 5N+ is an integrated manufacturer of We take an integrated, lifecycle are critical to ensure we are prepared advanced materials utilizing unique approach to materials management. for future global challenges from and proprietary process technologies. We have deep expertise and unique medical advancements to increasing We hold several certifications for technologies for the recovery, energy efficiency. 5N+ has strong various aspects of our business to treatment and valuation of degraded R&D capabilities with a world-class demonstrate our commitment to resources, with a mineral recycling technical team strategically located high standards in health and safety, program that spans three continents. around the globe and close to quality, energy, environment and We are also constantly investing suppliers and customers. We are resource management. We leverage in sustainably sourcing our raw constantly enhancing our processes, our strong technological platform materials. developing new materials or and skillset to gain a first-to-market accelerating their path to market to advantage and to make continuous address the needs of our customers improvements. and their end markets. Our ISO Certifications by Manufacturing Site ISO 9001 ISO 14001 ISO 45001 ISO 50001 Eisenhüttenstadt (Germany) Heilbronn (Germany) Lübeck (Germany) Montréal (Canada) Shangyu (China) St. George (USA) We procure degraded resources containing low grades of critical metals from upstream suppliers and extract the critical metals to develop and manufacture enabling materials for our customers. As an upcycler of by-products from other industries, we help reduce waste by promoting reuse, while broadening our source market, thereby strengthening our diversified supply chain. 11 2023 ANNUAL REPORT 5N+Management's Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS This Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations is intended to assist readers in understanding 5N Plus Inc. (the “Company” or “5N+”), its business environment, strategies, performance and risk factors. This MD&A should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2023, based on International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards" or "IFRS"), unless otherwise stated. This MD&A has been prepared in accordance with the requirements of the Canadian Securities Administrators. All amounts in this MD&A are expressed in U.S. dollars, and all amounts in the tables are in thousands of U.S. dollars, unless otherwise indicated. Information contained herein includes any significant developments until February 27, 2024, the date on which the MD&A was approved by the Company’s Board of Directors. Unless otherwise indicated, the terms “we”, “us”, “our” and “the group” as used herein refer to the Company together with its subsidiaries. “Q4 2023” and “Q4 2022” refer to the three-month periods ended December 31, 2023 and December 31, 2022, respectively; “FY 2023” and “FY 2022” refer to the years ended December 31, 2023, and December 31, 2022, respectively. Non-IFRS Measures This MD&A contains certain non-IFRS financial measures and ratios, which do not have a standard meaning under IFRS Accounting Standards and, therefore, may not be comparable to similar measures presented by other issuers. Such non- IFRS measures and ratios include backlog, bookings, EBITDA, EBITDA margin percentage, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted operating expenses, Adjusted net earnings (loss), Basic adjusted earnings (loss) per share, Adjusted gross margin, Adjusted gross margin percentage, Total debt, Net debt, Net debt to EBITDA ratio, Working capital and Working capital ratio. For definitions, further information and reconciliation of these measures to the most directly comparable measures under IFRS Accounting Standards, see the “Non-IFRS Measures” section. Notice Regarding Forward-Looking Statements Certain statements in this MD&A may be forward-looking within the meaning of applicable securities laws. Such forward- looking statements are based on a number of estimates and assumptions that the Company believes are reasonable when made, including that 5N+ will be able to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners, that 5N+ will continue to operate its business in the normal course, that 5N+ will be able to implement its growth strategy, that 5N+ will be able to successfully and timely complete the realization of its backlog, that 5N+ will not suffer any supply chain challenges or any material disruption in the supply of raw materials on competitive terms, that 5N+ will be able to generate new sales, produce, deliver, and sell its expected product volumes at the expected prices and control its costs, as well as other factors believed to be appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict and may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors of uncertainty and risk that might result in such differences include the risks associated with interest rate, foreign currency, credit, liquidity, global economic conditions, international operations including China, environmental regulations, crisis and climate change management, environmental social and governance (ESG) considerations, safety and hazards, prolonged armed conflict in Ukraine, disease outbreaks, availability and retention of qualified professional employees, collective agreements, litigation, our growth strategy, competition, commodity price, sources of supply, protection of intellectual property, inventory price, business interruptions, loss of an important customer, changes to backlog, acquisitions, systems, network infrastructure and data failure, privacy, market price of the common shares, as well as grants and other incentive programs. A description of the risks affecting the Company’s business and activities appears under the heading “Risk and Uncertainties” of this MD&A dated February 27, 2024. 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Forward-looking statements can generally be identified by the use of terms such as “may”, “should”, “would”, “believe”, “expect”, the negative of these terms, variations of them or any similar terms. No assurance can be given that any events anticipated by the forward-looking statements in this MD&A will transpire or occur, or if any of them do so, what benefits that 5N+ will derive therefrom. In particular, no assurance can be given as to the future financial performance of 5N+. The forward-looking statements contained in this MD&A is made as of the date hereof and the Company has no obligation to publicly update such forward-looking information to reflect new information, subsequent or otherwise, unless required by applicable securities laws. The reader is warned against placing undue reliance on these forward- looking statements. Overview 5N+ is a leading global producer of specialty semiconductors and performance materials. The Company’s ultra-pure materials often form the core element of its customers’ products. These customers rely on 5N+’s products to enable performance and sustainability in their own products. 5N+ deploys a range of proprietary and proven technologies to develop and manufacture its products. The Company’s products enable various applications in several key industries, including renewable energy, security, space, pharmaceutical, medical imaging and industrial. Headquartered in Montréal, Québec, 5N+ operates R&D, manufacturing and commercial centers in strategically-located facilities around the world including Europe, North America and Asia. The Company’s vision is to enable critical industries through essential products based on advanced material technology and 5N+’s aim is to propel the growth of these markets by developing and manufacturing advanced materials to enable Vision, Mission and Values product performance. The Company’s mission is to be critical to its customers, valued by its employees and trusted by its shareholders. The Company’s core values are integrity, commitment and customer development, with an emphasis on sustainable development, continuous improvement, and health and safety. Reporting Segments The Company has the following two reportable segments: Specialty Semiconductors and Performance Materials. Corresponding operations and activities are managed accordingly by the Company’s key decision makers. Segmented operating and financial information and labelled key performance indicators are available and used to manage these business segments, review performance and allocate resources. Financial performance of any given segment is evaluated primarily in terms of revenues and Adjusted EBITDA1, which are reconciled to consolidated numbers considering corporate income and expenses. Operating in North America and Europe, the Specialty Semiconductors segment manufactures and sells products used in several applications, such as renewable energy, space satellites and imaging. Typical end markets include photovoltaics (terrestrial and spatial solar energy), medical imaging, infrared imaging, optoelectronics and advanced electronics. These products are sold either as semiconductor compounds, semiconductor wafers, ultra high purity metals, epitaxial semiconductor substrates and solar cells. Revenues and earnings associated with recycling services and activities provided to Specialty Semiconductors customers are captured in this segment. The Performance Materials segment operates in North America, Europe and Asia and manufactures and sells products that are used in several applications in pharmaceutical and healthcare and industrial. Main products are sold as active pharmaceutical ingredients, animal feed additives, specialized chemicals, commercial grade metals, alloys and engineered powders. All commercial grade metal and engineered powder sales have been regrouped under Performance Materials. Revenues and earnings associated with recycling services and activities provided to Performance Materials customers are captured in this segment. Corporate expenses associated with the head office and unallocated selling, general and administrative expenses (SG&A), together with financial expenses (income), are grouped under “Corporate”. 12 Management’s Discussion and Analysis ▪ 1 Management’s Discussion and Analysis ▪ 2 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. 5N+ 2023 ANNUAL REPORT 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS This Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations is intended to assist readers in understanding 5N Plus Inc. (the “Company” or “5N+”), its business environment, strategies, performance and risk factors. This MD&A should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2023, based on International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards" or "IFRS"), unless otherwise stated. This MD&A has been prepared in accordance with the requirements of the Canadian Securities Administrators. unless otherwise indicated. All amounts in this MD&A are expressed in U.S. dollars, and all amounts in the tables are in thousands of U.S. dollars, Information contained herein includes any significant developments until February 27, 2024, the date on which the MD&A was approved by the Company’s Board of Directors. Unless otherwise indicated, the terms “we”, “us”, “our” and “the group” as used herein refer to the Company together with its subsidiaries. “Q4 2023” and “Q4 2022” refer to the three-month periods ended December 31, 2023 and December 31, 2022, respectively; “FY 2023” and “FY 2022” refer to the years ended December 31, 2023, and December 31, 2022, respectively. Non-IFRS Measures This MD&A contains certain non-IFRS financial measures and ratios, which do not have a standard meaning under IFRS Accounting Standards and, therefore, may not be comparable to similar measures presented by other issuers. Such non- IFRS measures and ratios include backlog, bookings, EBITDA, EBITDA margin percentage, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted operating expenses, Adjusted net earnings (loss), Basic adjusted earnings (loss) per share, Adjusted gross margin, Adjusted gross margin percentage, Total debt, Net debt, Net debt to EBITDA ratio, Working capital and Working capital ratio. For definitions, further information and reconciliation of these measures to the most directly comparable measures under IFRS Accounting Standards, see the “Non-IFRS Measures” section. Notice Regarding Forward-Looking Statements Certain statements in this MD&A may be forward-looking within the meaning of applicable securities laws. Such forward- looking statements are based on a number of estimates and assumptions that the Company believes are reasonable when made, including that 5N+ will be able to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners, that 5N+ will continue to operate its business in the normal course, that 5N+ will be able to implement its growth strategy, that 5N+ will be able to successfully and timely complete the realization of its backlog, that 5N+ will not suffer any supply chain challenges or any material disruption in the supply of raw materials on competitive terms, that 5N+ will be able to generate new sales, produce, deliver, and sell its expected product volumes at the expected prices and control its costs, as well as other factors believed to be appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict and may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors of uncertainty and risk that might result in such differences include the risks associated with interest rate, foreign currency, credit, liquidity, global economic conditions, international operations including China, environmental regulations, crisis and climate change management, environmental social and governance (ESG) considerations, safety and hazards, prolonged armed conflict in Ukraine, disease outbreaks, availability and retention of qualified professional employees, collective agreements, litigation, our growth strategy, competition, commodity price, sources of supply, protection of intellectual property, inventory price, business interruptions, loss of an important customer, changes to backlog, acquisitions, systems, network infrastructure and data failure, privacy, market price of the common shares, as well as grants and other incentive programs. A description of the risks affecting the Company’s business and activities appears under the heading “Risk and Uncertainties” of this MD&A dated February 27, 2024. Management's Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Forward-looking statements can generally be identified by the use of terms such as “may”, “should”, “would”, “believe”, “expect”, the negative of these terms, variations of them or any similar terms. No assurance can be given that any events anticipated by the forward-looking statements in this MD&A will transpire or occur, or if any of them do so, what benefits that 5N+ will derive therefrom. In particular, no assurance can be given as to the future financial performance of 5N+. The forward-looking statements contained in this MD&A is made as of the date hereof and the Company has no obligation to publicly update such forward-looking information to reflect new information, subsequent or otherwise, unless required by applicable securities laws. The reader is warned against placing undue reliance on these forward- looking statements. Overview 5N+ is a leading global producer of specialty semiconductors and performance materials. The Company’s ultra-pure materials often form the core element of its customers’ products. These customers rely on 5N+’s products to enable performance and sustainability in their own products. 5N+ deploys a range of proprietary and proven technologies to develop and manufacture its products. The Company’s products enable various applications in several key industries, including renewable energy, security, space, pharmaceutical, medical imaging and industrial. Headquartered in Montréal, Québec, 5N+ operates R&D, manufacturing and commercial centers in strategically-located facilities around the world including Europe, North America and Asia. Vision, Mission and Values The Company’s vision is to enable critical industries through essential products based on advanced material technology and 5N+’s aim is to propel the growth of these markets by developing and manufacturing advanced materials to enable product performance. The Company’s mission is to be critical to its customers, valued by its employees and trusted by its shareholders. The Company’s core values are integrity, commitment and customer development, with an emphasis on sustainable development, continuous improvement, and health and safety. Reporting Segments The Company has the following two reportable segments: Specialty Semiconductors and Performance Materials. Corresponding operations and activities are managed accordingly by the Company’s key decision makers. Segmented operating and financial information and labelled key performance indicators are available and used to manage these business segments, review performance and allocate resources. Financial performance of any given segment is evaluated primarily in terms of revenues and Adjusted EBITDA1, which are reconciled to consolidated numbers considering corporate income and expenses. Operating in North America and Europe, the Specialty Semiconductors segment manufactures and sells products used in several applications, such as renewable energy, space satellites and imaging. Typical end markets include photovoltaics (terrestrial and spatial solar energy), medical imaging, infrared imaging, optoelectronics and advanced electronics. These products are sold either as semiconductor compounds, semiconductor wafers, ultra high purity metals, epitaxial semiconductor substrates and solar cells. Revenues and earnings associated with recycling services and activities provided to Specialty Semiconductors customers are captured in this segment. The Performance Materials segment operates in North America, Europe and Asia and manufactures and sells products that are used in several applications in pharmaceutical and healthcare and industrial. Main products are sold as active pharmaceutical ingredients, animal feed additives, specialized chemicals, commercial grade metals, alloys and engineered powders. All commercial grade metal and engineered powder sales have been regrouped under Performance Materials. Revenues and earnings associated with recycling services and activities provided to Performance Materials customers are captured in this segment. Corporate expenses associated with the head office and unallocated selling, general and administrative expenses (SG&A), together with financial expenses (income), are grouped under “Corporate”. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. Management’s Discussion and Analysis ▪ 1 Management’s Discussion and Analysis ▪ 2 13 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Q4 & FY 2023 Highlights – A Year Poised for Continued Strong Growth Throughout FY 2023, 5N+ has successfully executed on its growth strategy to provide higher margin, value-added products under both its Specialty Semiconductor and Performance Materials segments. Its record reported Adjusted EBITDA and strong Gross Margin results for FY 2023 are proof that the Company is effectively leveraging its industry position as a supplier outside China in space solar power and terrestrial renewable energy technology. As management continues with its commercial excellence program, which has led to strong customer relationships and a sustained backlog1, the investments made in production capacity will support the strong demand contracted through 2024 and 2025. All amounts are expressed in U.S. dollars. The Company met its expectations of delivering excellent performance in FY 2023 with Adjusted EBITDA results for FY 2023 reaching the highest level reported since the Company’s creation. The Company achieved Adjusted EBITDA growth of 35% in Q4 2023 and 28% in FY 2023, compared to the same periods in 2022. Adjusted gross margin1 came in at 29.0% in FY 2023, compared to 23.7% in FY 2022, as a result of its commercial excellence program, which focuses on improved margins, value-added product development and a customer-first approach. 5N+ also ended the year with a particularly strong backlog1 under Specialty Semiconductors. In Specialty Semiconductors, revenue was up $13.7 million in Q4 2023 and up $34.6 million for FY 2023, compared to the corresponding periods last year. Adjusted EBITDA was 31% higher in Q4 2023 compared to Q4 2022 and 13% higher on a full-year basis. Under Performance Materials, the exit from the low-margin extractive and catalytic products in the second half of 2022 continued to impact results. As such, revenue for the quarter and FY 2023 was lower compared to the same periods in 2022. However, because of the improved product mix, the segment generated a 15% increase in Adjusted EBITDA in Q4 2023 and a 27% increase for FY 2023, compared to the corresponding periods last year. While the Company continued to invest in building capacity and inventory to meet increasing demand in its Specialty Semiconductor segment, it was able to lower net debt1 by $4.5 million in 2023. In 2023, 5N+ invested to increase capacity by 40% over 2022 to serve the renewable energy sector, with a further 60% expansion to be completed in 2024. Once completed, the Company will have doubled its output capacity to serve this critical sector. Other capacity expansion plans for 2024 remain on track, with the Company committed to increasing its production capability for AZUR SOLAR Space GmbH (“AZUR”) by 30% to support space solar sector important demand. In addition, 5N+ has been actively working to secure additional complex feeds and secondary market streams for the recovery of critical minerals and management expects operations in recycling and refining to be at capacity in 2024. Financial Highlights  Revenue in Q4 2023 reached $65.1 million, compared to $61.0 million for the same period last year. The 7% increase is primarily attributable to higher demand in the Specialty Semiconductors segment, offset by lower revenue in the Performance Materials segment following the strategic exit from the manufacturing of low-margin extractive and catalytic products in 2022.  Net earnings in Q4 2023 were $2.3 million compared to a net loss of $8.1 million in Q4 2022. Net earnings in FY 2023 were $15.4 million compared to a net loss of $23.0 million in FY 2022.  Adjusted EBITDA in Q4 2023 was $9.0 million, a 35% increase over the $6.7 million for the same period last year. Adjusted EBITDA was $38.3 million in FY 2023, a 28% increase compared to $30.0 million in FY 2022.  Adjusted gross margin in FY 2023 was 29.0%, compared to 23.7% in FY 2022. 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS  On December 31, 2023, the backlog represented 292 days of annualized revenue, 8 days higher than the previous quarter and 39 days higher than the same period last year, primarily due to increasing demand in both terrestrial renewable energy and space solar power.  Net debt was $73.8 million as at December 31, 2023, compared to $78.3 million as at December 31, 2022. Net debt to EBITDA ratio1 of 1.69x as at December 31, 2023. Outlook customers. In Specialty Semiconductors, 5N+ continues to benefit from its unique position as the leading global supplier of ultra- high purity semiconductor compounds outside China, with extensive expertise and a favourable global footprint resulting in a reliable supply chain. The Company’s products can be found in a wide range of technologies used in critical applications and everyday products. Growing demand remains the rule in Specialty Semiconductors end markets, particularly in terrestrial renewable energy and space solar power. This positions 5N+ well to capitalize on future opportunities in these high-growth sectors, as well as other markets, including defense, security and medical imaging, and through its long-term partnerships with key Management expects growth in the Performance Materials segment to be primarily derived from health and pharmaceutical products, which provide high profitability and predictable cashflows. Additional long-term opportunities are expected to stem from product expansion and development initiatives, including through partnerships. Furthermore, management continues to seek opportunities to increase operational efficiency, while exploring potential acquisitions and partnerships to enhance its own organic growth and leadership market position. With the visibility afforded to management as a result of the solid execution of its business strategy over the last few years, its improved product mix and strong backlog, management is committed to sustaining its trajectory with respect to Adjusted EBITDA growth and margin improvements. To meet these objectives, 5N+ will continue to execute on its value-added focused strategy and commercial excellence program, leveraging its competitive advantages stemming from its unique positioning both from a geographic and expertise standpoint. As a trusted partner in the development and manufacturing of critical specialty semiconductors and performance materials with a customer-centric mentality, the Company will also continue methodically investing in its production capacity to serve high-growth markets and strategic global customers. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. 14 Management’s Discussion and Analysis ▪ 3 Management’s Discussion and Analysis ▪ 4 5N+ 2023 ANNUAL REPORT 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Q4 & FY 2023 Highlights – A Year Poised for Continued Strong Growth Throughout FY 2023, 5N+ has successfully executed on its growth strategy to provide higher margin, value-added products under both its Specialty Semiconductor and Performance Materials segments. Its record reported Adjusted EBITDA and strong Gross Margin results for FY 2023 are proof that the Company is effectively leveraging its industry position as a supplier outside China in space solar power and terrestrial renewable energy technology. As management continues with its commercial excellence program, which has led to strong customer relationships and a sustained backlog1, the investments made in production capacity will support the strong demand contracted through 2024 and 2025. All amounts are expressed in U.S. dollars. The Company met its expectations of delivering excellent performance in FY 2023 with Adjusted EBITDA results for FY 2023 reaching the highest level reported since the Company’s creation. The Company achieved Adjusted EBITDA growth of 35% in Q4 2023 and 28% in FY 2023, compared to the same periods in 2022. Adjusted gross margin1 came in at 29.0% in FY 2023, compared to 23.7% in FY 2022, as a result of its commercial excellence program, which focuses on improved margins, value-added product development and a customer-first approach. 5N+ also ended the year with a particularly strong backlog1 under Specialty Semiconductors. In Specialty Semiconductors, revenue was up $13.7 million in Q4 2023 and up $34.6 million for FY 2023, compared to the corresponding periods last year. Adjusted EBITDA was 31% higher in Q4 2023 compared to Q4 2022 and 13% higher on a full-year basis. Under Performance Materials, the exit from the low-margin extractive and catalytic products in the second half of 2022 continued to impact results. As such, revenue for the quarter and FY 2023 was lower compared to the same periods in 2022. However, because of the improved product mix, the segment generated a 15% increase in Adjusted EBITDA in Q4 2023 and a 27% increase for FY 2023, compared to the corresponding periods last year. While the Company continued to invest in building capacity and inventory to meet increasing demand in its Specialty Semiconductor segment, it was able to lower net debt1 by $4.5 million in 2023. In 2023, 5N+ invested to increase capacity by 40% over 2022 to serve the renewable energy sector, with a further 60% expansion to be completed in 2024. Once completed, the Company will have doubled its output capacity to serve this critical sector. Other capacity expansion plans for 2024 remain on track, with the Company committed to increasing its production capability for AZUR SOLAR Space GmbH (“AZUR”) by 30% to support space solar sector important demand. In addition, 5N+ has been actively working to secure additional complex feeds and secondary market streams for the recovery of critical minerals and management expects operations in recycling and refining to be at capacity in 2024. Financial Highlights  Revenue in Q4 2023 reached $65.1 million, compared to $61.0 million for the same period last year. The 7% increase is primarily attributable to higher demand in the Specialty Semiconductors segment, offset by lower revenue in the Performance Materials segment following the strategic exit from the manufacturing of low-margin extractive and catalytic products in 2022.  Net earnings in Q4 2023 were $2.3 million compared to a net loss of $8.1 million in Q4 2022. Net earnings in FY 2023 were $15.4 million compared to a net loss of $23.0 million in FY 2022.  Adjusted EBITDA in Q4 2023 was $9.0 million, a 35% increase over the $6.7 million for the same period last year. Adjusted EBITDA was $38.3 million in FY 2023, a 28% increase compared to $30.0 million in FY 2022.  Adjusted gross margin in FY 2023 was 29.0%, compared to 23.7% in FY 2022. 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS  On December 31, 2023, the backlog represented 292 days of annualized revenue, 8 days higher than the previous quarter and 39 days higher than the same period last year, primarily due to increasing demand in both terrestrial renewable energy and space solar power. Management's Discussion and Analysis  Net debt was $73.8 million as at December 31, 2023, compared to $78.3 million as at December 31, 2022. Net debt to EBITDA ratio1 of 1.69x as at December 31, 2023. Outlook In Specialty Semiconductors, 5N+ continues to benefit from its unique position as the leading global supplier of ultra- high purity semiconductor compounds outside China, with extensive expertise and a favourable global footprint resulting in a reliable supply chain. The Company’s products can be found in a wide range of technologies used in critical applications and everyday products. Growing demand remains the rule in Specialty Semiconductors end markets, particularly in terrestrial renewable energy and space solar power. This positions 5N+ well to capitalize on future opportunities in these high-growth sectors, as well as other markets, including defense, security and medical imaging, and through its long-term partnerships with key customers. Management expects growth in the Performance Materials segment to be primarily derived from health and pharmaceutical products, which provide high profitability and predictable cashflows. Additional long-term opportunities are expected to stem from product expansion and development initiatives, including through partnerships. Furthermore, management continues to seek opportunities to increase operational efficiency, while exploring potential acquisitions and partnerships to enhance its own organic growth and leadership market position. With the visibility afforded to management as a result of the solid execution of its business strategy over the last few years, its improved product mix and strong backlog, management is committed to sustaining its trajectory with respect to Adjusted EBITDA growth and margin improvements. To meet these objectives, 5N+ will continue to execute on its value-added focused strategy and commercial excellence program, leveraging its competitive advantages stemming from its unique positioning both from a geographic and expertise standpoint. As a trusted partner in the development and manufacturing of critical specialty semiconductors and performance materials with a customer-centric mentality, the Company will also continue methodically investing in its production capacity to serve high-growth markets and strategic global customers. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. Management’s Discussion and Analysis ▪ 3 Management’s Discussion and Analysis ▪ 4 15 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Summary of Results (in thousands of U.S. dollars, except per share amounts) Revenue Adjusted operating expenses1 Adjusted EBITDA Share-based compensation (expense) recovery Litigation and restructuring (costs) income Impairment of non-current assets Loss on disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Foreign exchange and derivative (loss) gain EBITDA1 Interest on long-term debt, imputed interest and other interest expense Depreciation and amortization Earnings (loss) before income taxes Income tax expense (recovery) Current Deferred Net earnings (loss) Basic earnings (loss) per share Diluted earnings (loss) per share Q4 2023 $ 65,063 (56,030) 9,033 (414) (458) (64) - - - (361) 7,736 2,129 4,057 1,550 612 (1,346) (734) 2,284 $0.03 $0.03 Q4 2022 $ 61,042 (54,337) 6,705 171 (3,210) - - (7,834) - 497 (3,671) 716 4,051 (8,438) 43 (335) (292) (8,146) ($0.09) ($0.09) FY 2023 $ 242,371 (204,048) 38,323 (1,432) 8,314 (672) (1,051) - - 136 43,618 8,834 16,110 18,674 6,674 (3,399) 3,275 15,399 $0.17 $0.17 FY 2022 $ 264,223 (234,195) 30,028 (999) (3,823) (12,478) - (7,834) (216) (42) 4,636 5,192 17,732 (18,288) 6,865 (2,154) 4,711 (22,999) ($0.26) ($0.26) Revenue by Segment and Adjusted Gross Margin (in thousands of U.S. dollars) Q4 2023 Q4 2022 Change FY 2023 FY 2022 Change Specialty Semiconductors Performance Materials Total revenue Cost of sales Depreciation included in cost of sales Adjusted gross margin Adjusted gross margin percentage1 $ 45,661 19,402 65,063 $ 31,951 29,091 61,042 (49,677) (47,909) 3,189 18,575 28.5% 3,155 16,288 26.7% 43% (33%) 7% 4% 1% 14% $ 156,479 85,892 242,371 $ 121,918 142,305 264,223 (184,833) (215,715) 12,656 70,194 29.0% 14,208 62,716 23.7% 28% (40%) (8%) (14%) (11%) 12% Revenue in Q4 2023 increased by 7%, reaching $65.1 million, compared to $61.0 million for the same period last year. The increase is primarily attributable to the growth experienced under Specialty Semiconductors from the renewable energy and space power sectors, exceeding the lower revenue under Performance Materials following the Company’s strategic exit from the manufacturing of low-margin extractive and catalytic products in the second half of 2022 and the related divestiture of its Tilly, Belgium operations in Q4 2022. Adjusted gross margin in FY 2023 was favourably impacted by the consolidated product mix, supported by the implementation of the Company’s commercial excellence program last year, and the Company’s exit from the manufacturing of low-margin extractive and catalytic products. Adjusted gross margin reached $18.6 million, or 28.5%, compared to $16.3 million, or 26.7%, in Q4 2022, and $70.2 million, or 29.0%, in FY 2023, compared to $62.7 million, or 23.7%, in FY 2022. 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Specialty Semiconductors Segment Revenue in Q4 2023 reached $45.7 million, compared to $32.0 million in Q4 2022. In FY 2023, revenue reached $156.5 million, compared to $121.9 million in FY 2022, supported by higher demand in specific sectors. Adjusted gross margin in Q4 2023 was 26.7% compared to 31.0% in Q4 2022 impacted by a less favourable revenue mix. In FY 2023, Adjusted gross margin was 26.3%, compared to 28.1% in FY 2022. Performance Materials Segment Revenue in Q4 2023 reached $19.4 million, compared to $29.1 million in Q4 2022. In FY 2023, revenue reached $85.9 million, compared to $142.3 million in FY 2022. The decrease is primarily attributable to the Company’s strategic exit from the manufacturing of low-margin extractive and catalytic products in the second half of 2022 and the related divestiture of its Tilly, Belgium operations in Q4 2022. In FY 2023, Adjusted gross margin was 34.6%, compared to 20.4% in FY 2022. Operating Earnings (Loss), EBITDA and Adjusted EBITDA (in thousands of U.S. dollars) Q4 2023 Q4 2022 Change FY 2022 Change Specialty Semiconductors Performance Materials Corporate Adjusted EBITDA EBITDA Operating earnings (loss) $ 7,480 4,615 (3,062) 9,033 7,736 4,040 $ 5,690 3,997 (2,982) 6,705 (3,671) (8,219) 31% 15% 3% 35% FY 2023 $ 27,544 21,948 (11,169) 38,323 43,618 27,372 $ 24,318 17,277 (11,567) 30,028 4,636 (13,054) 13% 27% (3%) 28% Adjusted EBITDA in Q4 2023 reached $9.0 million, an increase of $2.3 million or 35%, compared to $6.7 million in Q4 2022. Adjusted EBITDA was $38.3 million in FY 2023, a 28% increase compared to $30.0 million in FY 2022. In Q4 2023, EBITDA reached $7.7 million, compared to negative $3.7 million in Q4 2022. The increase of $11.4 million is mainly explained by a loss of divestiture of the Tilly, Belgium operations, as well as higher costs for litigation and restructuring recorded by the Company in Q4 2022. For more information, see the “Expenses” section. In Q4 2023, operating earnings amounted to $4.0 million, compared to an operating loss of $8.2 million in Q4 2022. In FY 2023, operating earnings amounted to $27.4 million, compared to an operating loss of $13.1 million in FY 2022. Specialty Semiconductors Segment Adjusted EBITDA in Q4 2023 increased by $1.8 million, or 31%, under Specialty Semiconductors to reach $7.5 million. Adjusted EBITDA in FY 2023 increased by $3.2 million to $27.5 million, representing an Adjusted EBITDA margin 1 of 18%, compared to 20% for the same period in FY 2022. Performance Materials Segment Adjusted EBITDA in Q4 2023 increased by $0.6 million, or 15%, to $4.6 million, representing an Adjusted EBITDA margin of 24%, compared to 14% in Q4 2022. Adjusted EBITDA in FY 2023 increased by $4.7 million to $21.9 million, representing an Adjusted EBITDA margin of 26%, compared to 12% in the same period in 2022. The increase is primarily attributable to the Company’s strategic exit from the manufacturing of low margin extractive and catalytic products in the second half of FY 2022 and the related divestiture of its Tilly, Belgium operations in Q4 2022. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. 16 Management’s Discussion and Analysis ▪ 5 Management’s Discussion and Analysis ▪ 6 5N+ 2023 ANNUAL REPORT (in thousands of U.S. dollars, except per share amounts) Q4 2023 Q4 2022 FY 2023 FY 2022 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Summary of Results Revenue Adjusted operating expenses1 Adjusted EBITDA Share-based compensation (expense) recovery Litigation and restructuring (costs) income Impairment of non-current assets Loss on disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Foreign exchange and derivative (loss) gain EBITDA1 Depreciation and amortization Earnings (loss) before income taxes Income tax expense (recovery) Current Deferred Net earnings (loss) Basic earnings (loss) per share Diluted earnings (loss) per share Interest on long-term debt, imputed interest and other interest expense $ 65,063 (56,030) 9,033 (414) (458) (64) - - - (361) 7,736 2,129 4,057 1,550 612 (1,346) (734) 2,284 $0.03 $0.03 $ 61,042 (54,337) 6,705 171 (3,210) - - - (7,834) 497 (3,671) 716 4,051 (8,438) 43 (335) (292) (8,146) ($0.09) ($0.09) $ 242,371 (204,048) 38,323 (1,432) 8,314 (672) (1,051) - - 136 43,618 8,834 16,110 18,674 6,674 (3,399) 3,275 15,399 $0.17 $0.17 $ 264,223 (234,195) 30,028 (999) (3,823) (12,478) - (7,834) (216) (42) 4,636 5,192 17,732 (18,288) 6,865 (2,154) 4,711 (22,999) ($0.26) ($0.26) Revenue by Segment and Adjusted Gross Margin (in thousands of U.S. dollars) Q4 2023 Q4 2022 Change FY 2023 FY 2022 Change Specialty Semiconductors Performance Materials Total revenue Cost of sales Depreciation included in cost of sales Adjusted gross margin Adjusted gross margin percentage1 $ 45,661 19,402 65,063 3,189 18,575 28.5% $ 31,951 29,091 61,042 3,155 16,288 26.7% 43% (33%) 7% 4% 1% 14% $ 156,479 85,892 242,371 12,656 70,194 29.0% $ 121,918 142,305 264,223 14,208 62,716 23.7% 28% (40%) (8%) (14%) (11%) 12% (49,677) (47,909) (184,833) (215,715) Revenue in Q4 2023 increased by 7%, reaching $65.1 million, compared to $61.0 million for the same period last year. The increase is primarily attributable to the growth experienced under Specialty Semiconductors from the renewable energy and space power sectors, exceeding the lower revenue under Performance Materials following the Company’s strategic exit from the manufacturing of low-margin extractive and catalytic products in the second half of 2022 and the related divestiture of its Tilly, Belgium operations in Q4 2022. Adjusted gross margin in FY 2023 was favourably impacted by the consolidated product mix, supported by the implementation of the Company’s commercial excellence program last year, and the Company’s exit from the manufacturing of low-margin extractive and catalytic products. Adjusted gross margin reached $18.6 million, or 28.5%, compared to $16.3 million, or 26.7%, in Q4 2022, and $70.2 million, or 29.0%, in FY 2023, compared to $62.7 million, or 23.7%, in FY 2022. 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Specialty Semiconductors Segment Revenue in Q4 2023 reached $45.7 million, compared to $32.0 million in Q4 2022. In FY 2023, revenue reached $156.5 million, compared to $121.9 million in FY 2022, supported by higher demand in specific sectors. Adjusted gross margin in Q4 2023 was 26.7% compared to 31.0% in Q4 2022 impacted by a less favourable revenue mix. In FY 2023, Adjusted gross margin was 26.3%, compared to 28.1% in FY 2022. Management's Discussion and Analysis Performance Materials Segment Revenue in Q4 2023 reached $19.4 million, compared to $29.1 million in Q4 2022. In FY 2023, revenue reached $85.9 million, compared to $142.3 million in FY 2022. The decrease is primarily attributable to the Company’s strategic exit from the manufacturing of low-margin extractive and catalytic products in the second half of 2022 and the related divestiture of its Tilly, Belgium operations in Q4 2022. In FY 2023, Adjusted gross margin was 34.6%, compared to 20.4% in FY 2022. Operating Earnings (Loss), EBITDA and Adjusted EBITDA (in thousands of U.S. dollars) Specialty Semiconductors Performance Materials Corporate Adjusted EBITDA EBITDA Operating earnings (loss) Q4 2023 $ 7,480 4,615 (3,062) 9,033 7,736 4,040 Change 31% 15% 3% 35% Q4 2022 $ 5,690 3,997 (2,982) 6,705 (3,671) (8,219) FY 2023 $ 27,544 21,948 (11,169) 38,323 43,618 27,372 Change 13% 27% (3%) 28% FY 2022 $ 24,318 17,277 (11,567) 30,028 4,636 (13,054) Adjusted EBITDA in Q4 2023 reached $9.0 million, an increase of $2.3 million or 35%, compared to $6.7 million in Q4 2022. Adjusted EBITDA was $38.3 million in FY 2023, a 28% increase compared to $30.0 million in FY 2022. In Q4 2023, EBITDA reached $7.7 million, compared to negative $3.7 million in Q4 2022. The increase of $11.4 million is mainly explained by a loss of divestiture of the Tilly, Belgium operations, as well as higher costs for litigation and restructuring recorded by the Company in Q4 2022. For more information, see the “Expenses” section. In Q4 2023, operating earnings amounted to $4.0 million, compared to an operating loss of $8.2 million in Q4 2022. In FY 2023, operating earnings amounted to $27.4 million, compared to an operating loss of $13.1 million in FY 2022. Specialty Semiconductors Segment Adjusted EBITDA in Q4 2023 increased by $1.8 million, or 31%, under Specialty Semiconductors to reach $7.5 million. Adjusted EBITDA in FY 2023 increased by $3.2 million to $27.5 million, representing an Adjusted EBITDA margin 1 of 18%, compared to 20% for the same period in FY 2022. Performance Materials Segment Adjusted EBITDA in Q4 2023 increased by $0.6 million, or 15%, to $4.6 million, representing an Adjusted EBITDA margin of 24%, compared to 14% in Q4 2022. Adjusted EBITDA in FY 2023 increased by $4.7 million to $21.9 million, representing an Adjusted EBITDA margin of 26%, compared to 12% in the same period in 2022. The increase is primarily attributable to the Company’s strategic exit from the manufacturing of low margin extractive and catalytic products in the second half of FY 2022 and the related divestiture of its Tilly, Belgium operations in Q4 2022. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. Management’s Discussion and Analysis ▪ 5 Management’s Discussion and Analysis ▪ 6 17 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Net Earnings (Loss) and Adjusted Net Earnings (Loss) (in thousands of U.S. dollars, except per share amounts) Net earnings (loss) Basic earnings (loss) per share Reconciling items: Share-based compensation expense (recovery) Litigation and restructuring costs (income) Impairment of non-current assets Loss on disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Income tax recovery on taxable items above Adjusted net earnings (loss)1 Basic adjusted earnings (loss) per share1 Q4 2023 $ 2,284 $0.03 Q4 2022 $ (8,146) ($0.09) 414 458 64 - - - (226) 2,994 $0.03 (171) 3,210 - - 7,834 - (595) 2,132 $0.02 FY 2023 $ 15,399 $0.17 1,432 (8,314) 672 1,051 - - (854) 9,386 $0.11 FY 2022 $ (22,999) ($0.26) 999 3,823 12,478 - 7,834 216 (2,618) (267) $- In Q4 2023, net earnings were $2.3 million or $0.03 per share, compared to a net loss of $8.1 million or $0.09 per share in Q4 2022. Adjusted net earnings were $3.0 million or $0.03 per share in Q4 2023, compared to $2.1 million or $0.02 per share in Q4 2022. In FY 2023, net earnings were $15.4 million or $0.17 per share, compared to a net loss of $23.0 million or $0.26 per share in FY 2022. Adjusted net earnings were $9.4 million or $0.11 per share in FY 2023, compared to an Adjusted net loss of $0.3 million or $nil per share in FY 2022. Excluding income tax recovery, the items reconciling Adjusted net earnings in Q4 2023 are share-based compensation expense and litigation and restructuring costs. For FY 2023, the items are share-based compensation expense, litigation and restructuring income of $8.3 million, an impairment charge on non-current assets of $0.7 million and a loss on disposal of PPE of $1.1 million. For more information, see the “Expenses” section. Backlog and Bookings (in thousands of U.S. dollars) Specialty Semiconductors Performance Materials Total Q4 2023 $ 174,957 33,346 208,303 BACKLOG Q3 2023 $ 167,709 28,205 195,914 BACKLOG Q4 2022 $ 129,710 39,611 169,321 Q4 2023 $ 52,909 24,543 77,452 BOOKINGS1 Q3 2023 $ 50,710 21,239 71,949 BOOKINGS (number of days based on annualized revenues)* Specialty Semiconductors Performance Materials Weighted average * Backlog and bookings are also presented in number of days to normalize the impact of commodity prices. 365 124 253 111 92 104 350 157 292 106 115 109 365 122 284 Q4 2023 Q4 2023 Q4 2022 Q3 2023 Q3 2023 Q4 2022 $ 57,325 33,648 90,973 Q4 2022 164 106 136 Q4 2023 vs. Q3 2023 Backlog on December 31, 2023, represented 292 days of annualized revenue, 8 days higher than the backlog on September 30, 2023. The backlog for Specialty Semiconductors represented 350 days of annualized revenue, a decrease of 15 days or 4%, over the backlog on September 30, 2023, due to the timing of signing and/or renewal of contracts. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. 18 Management’s Discussion and Analysis ▪ 7 Management’s Discussion and Analysis ▪ 8 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS The backlog for Performance Materials represented 157 days of annualized revenue, an increase of 35 days, or 29%, compared to the backlog on September 30, 2023, mainly due to the signing and/or renewal of contracts, which typically occur in the fourth and first quarters of the year for this segment. Bookings for Specialty Semiconductors decreased by 5 days, from 111 days in Q3 2023 to 106 days in Q4 2023. Bookings for Performance Materials increased by 23 days, from 92 days in Q3 2023 to 115 days in Q4 2023. Bookings are calculated by adding revenues to the increase or decrease in backlog for the period divided by annualized revenue. As such, the increase or decrease in bookings is attributable to the same factors as the increase or decrease in backlog. Backlog on December 31, 2023, for Specialty Semiconductors decreased by 15 days compared to on December 31, 2022. The backlog for Performance Materials, represented 157 days, an increase of 33 days, compared to 124 days on Bookings for Specialty Semiconductors decreased by 58 days for the same factors mentioned above, and increased by 9 days for Performance Materials, compared to the previous year quarter. Q4 2023 vs. Q4 2022 December 31, 2022. Expenses (in thousands of U.S. dollars) Q4 2023 Q4 2022 Depreciation and amortization SG&A Share-based compensation expense (recovery) Litigation and restructuring costs (income) Impairment of non-current assets Loss on disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Financial expense Income tax (recovery) expense Total expenses Depreciation and Amortization $ 4,057 8,699 414 458 64 - - - 2,490 (734) 15,448 $ 4,051 7,183 (171) 3,210 - - - 7,834 219 (292) 22,034 FY 2023 $ 16,110 29,410 1,432 (8,314) 672 1,051 - - 8,698 3,275 52,334 FY 2022 $ 17,732 28,565 999 3,823 12,478 - 7,834 216 5,234 4,711 81,592 Depreciation and amortization expenses in Q4 2023 and FY 2023 amounted to $4.1 million and $16.1 million, respectively, compared to $4.1 million and $17.7 million, respectively, for the same periods in 2022. The decrease in FY 2023 is mainly associated with the Company’s divestiture of its Tilly, Belgium operations in Q4 2022. SG&A SG&A expenses in Q4 2023 and FY 2023 were $8.7 million and $29.4 million, respectively, compared to $7.2 million and $28.6 million, respectively, for the same periods in FY 2022. The increase in Q4 2023 is mainly explained by a punctual need for third-party support, while in FY 2023, the increase is mainly caused by inflation impacting various expenses partially mitigated by the Company’s divestiture of its Tilly, Belgium operations in Q4 2022. Share-based Compensation Expense (Recovery) Share-based compensation expense in Q4 2023 amounted to $0.4 million, compared to a recovery of $0.2 million in Q4 2022. In FY 2023, share-based compensation expense amounted to $1.4 million, compared to $1.0 million in FY 2022. Litigation and restructuring costs (income) In Q4 2023, the Company recorded litigation and restructuring costs of $0.5 million consisting of severances and other related costs and a charge related to a non-trade receivable which became non recoverable during the quarter for an amount of $0.2 million. 5N+ 2023 ANNUAL REPORT 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Net Earnings (Loss) and Adjusted Net Earnings (Loss) (in thousands of U.S. dollars, except per share amounts) Q4 2023 Q4 2022 Net earnings (loss) Basic earnings (loss) per share Reconciling items: Share-based compensation expense (recovery) Litigation and restructuring costs (income) Impairment of non-current assets Loss on disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Income tax recovery on taxable items above Adjusted net earnings (loss)1 Basic adjusted earnings (loss) per share1 $ 2,284 $0.03 414 458 64 - - - (226) 2,994 $0.03 $ (8,146) ($0.09) (171) 3,210 - - - 7,834 (595) 2,132 $0.02 FY 2023 $ 15,399 $0.17 1,432 (8,314) 672 1,051 - - (854) 9,386 $0.11 FY 2022 $ (22,999) ($0.26) 999 3,823 12,478 - 7,834 216 (2,618) (267) $- In Q4 2023, net earnings were $2.3 million or $0.03 per share, compared to a net loss of $8.1 million or $0.09 per share in Q4 2022. Adjusted net earnings were $3.0 million or $0.03 per share in Q4 2023, compared to $2.1 million or $0.02 per share in Q4 2022. In FY 2023, net earnings were $15.4 million or $0.17 per share, compared to a net loss of $23.0 million or $0.26 per share in FY 2022. Adjusted net earnings were $9.4 million or $0.11 per share in FY 2023, compared to an Adjusted net loss of $0.3 million or $nil per share in FY 2022. Excluding income tax recovery, the items reconciling Adjusted net earnings in Q4 2023 are share-based compensation expense and litigation and restructuring costs. For FY 2023, the items are share-based compensation expense, litigation and restructuring income of $8.3 million, an impairment charge on non-current assets of $0.7 million and a loss on disposal of PPE of $1.1 million. For more information, see the “Expenses” section. Backlog and Bookings (in thousands of U.S. dollars) Specialty Semiconductors Performance Materials Total Q4 2023 $ 174,957 33,346 208,303 BACKLOG Q3 2023 $ 167,709 28,205 195,914 BACKLOG BOOKINGS1 Q4 2022 Q4 2023 Q3 2023 Q4 2022 $ 129,710 39,611 169,321 $ 52,909 24,543 77,452 $ 50,710 21,239 71,949 $ 57,325 33,648 90,973 (number of days based on annualized revenues)* Specialty Semiconductors Performance Materials Weighted average Q4 2023 Q3 2023 Q4 2022 Q4 2023 Q3 2023 Q4 2022 350 157 292 365 122 284 365 124 253 106 115 109 111 92 104 164 106 136 * Backlog and bookings are also presented in number of days to normalize the impact of commodity prices. BOOKINGS Q4 2023 vs. Q3 2023 September 30, 2023. Backlog on December 31, 2023, represented 292 days of annualized revenue, 8 days higher than the backlog on The backlog for Specialty Semiconductors represented 350 days of annualized revenue, a decrease of 15 days or 4%, over the backlog on September 30, 2023, due to the timing of signing and/or renewal of contracts. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. Management’s Discussion and Analysis ▪ 7 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS The backlog for Performance Materials represented 157 days of annualized revenue, an increase of 35 days, or 29%, compared to the backlog on September 30, 2023, mainly due to the signing and/or renewal of contracts, which typically occur in the fourth and first quarters of the year for this segment. Management's Discussion and Analysis Bookings for Specialty Semiconductors decreased by 5 days, from 111 days in Q3 2023 to 106 days in Q4 2023. Bookings for Performance Materials increased by 23 days, from 92 days in Q3 2023 to 115 days in Q4 2023. Bookings are calculated by adding revenues to the increase or decrease in backlog for the period divided by annualized revenue. As such, the increase or decrease in bookings is attributable to the same factors as the increase or decrease in backlog. Q4 2023 vs. Q4 2022 Backlog on December 31, 2023, for Specialty Semiconductors decreased by 15 days compared to on December 31, 2022. The backlog for Performance Materials, represented 157 days, an increase of 33 days, compared to 124 days on December 31, 2022. Bookings for Specialty Semiconductors decreased by 58 days for the same factors mentioned above, and increased by 9 days for Performance Materials, compared to the previous year quarter. Expenses (in thousands of U.S. dollars) Depreciation and amortization SG&A Share-based compensation expense (recovery) Litigation and restructuring costs (income) Impairment of non-current assets Loss on disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Financial expense Income tax (recovery) expense Total expenses Q4 2023 $ 4,057 8,699 414 458 64 - - - 2,490 (734) 15,448 Q4 2022 $ 4,051 7,183 (171) 3,210 - - 7,834 - 219 (292) 22,034 FY 2023 $ 16,110 29,410 1,432 (8,314) 672 1,051 - - 8,698 3,275 52,334 FY 2022 $ 17,732 28,565 999 3,823 12,478 - 7,834 216 5,234 4,711 81,592 Depreciation and Amortization Depreciation and amortization expenses in Q4 2023 and FY 2023 amounted to $4.1 million and $16.1 million, respectively, compared to $4.1 million and $17.7 million, respectively, for the same periods in 2022. The decrease in FY 2023 is mainly associated with the Company’s divestiture of its Tilly, Belgium operations in Q4 2022. SG&A SG&A expenses in Q4 2023 and FY 2023 were $8.7 million and $29.4 million, respectively, compared to $7.2 million and $28.6 million, respectively, for the same periods in FY 2022. The increase in Q4 2023 is mainly explained by a punctual need for third-party support, while in FY 2023, the increase is mainly caused by inflation impacting various expenses partially mitigated by the Company’s divestiture of its Tilly, Belgium operations in Q4 2022. Share-based Compensation Expense (Recovery) Share-based compensation expense in Q4 2023 amounted to $0.4 million, compared to a recovery of $0.2 million in Q4 2022. In FY 2023, share-based compensation expense amounted to $1.4 million, compared to $1.0 million in FY 2022. Litigation and restructuring costs (income) In Q4 2023, the Company recorded litigation and restructuring costs of $0.5 million consisting of severances and other related costs and a charge related to a non-trade receivable which became non recoverable during the quarter for an amount of $0.2 million. Management’s Discussion and Analysis ▪ 8 19 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS In Q2 2023, the Company recorded a litigation and restructuring income of $8.8 million, which represented the amount received from the previous shareholder of AZUR, net of related expenses. The income was received as per stipulations of the share purchase agreement and is not related to AZUR’s performance post-acquisition. In Q4 2022 and FY 2022, the Company recorded litigation and restructuring costs of $3.2 million and $3.8 million, respectively. These costs include $2.6 million related to the divestiture of a subsidiary, $0.4 million for a site closure in Asia, $0.2 million due to a change to its senior executive management recorded in Q2 2022, and $0.4 million for the settlement of a contract by mutual agreement recorded in Q2 2022. Impairment of Non-Current Assets In Q2 2023, the Company recorded an impairment of non-current assets of $0.6 million in relation to PPE included within the Performance Materials segment, to reflect the assessment of the carrying value of production equipment following the Company’s decision to switch to higher capacity production equipment. In Q3 2022, the Company recorded an impairment of non-current assets of $7.1 million ($2.4 million for buildings, $4.6 million for machinery and $0.1 million for furniture and fixtures) under its Performance Materials segment to reflect the assessment of the carrying value of PPE following its intention to halt production at its manufacturing facility in Tilly, Belgium. In Q1 2022, the Company recorded an impairment of non-current assets of $5.4 million ($5.1 million for customer relationships and $0.3 million for other intangibles) under its Specialty Semiconductors segment to reflect the assessment of the carrying value of intangible assets due to the impact of the Russia/Ukraine conflict on the Company’s Russia-based customer relationships. The Company’s initial assumptions regarding future cashflows from these customers are no longer supported given the international sanctions in place against Russia and the uncertainty related to, and the unknown duration of, the Ukraine/Russia conflict. Loss on disposal of property, plant and equipment In Q2 2023, the Company recorded a loss of $1.1 million on the disposal of a production equipment following a change in technical requirements and functionalities by the Company. The Company disposed of this production equipment in a non-monetary transaction with the supplier in exchange for a credit to be applied against future production equipment purchases. Loss on Divestiture of Subsidiary In Q4 2022, the Company divested its 100% interest in 5N Plus Belgium SA and recognized a loss on divestiture of $7.8 million. For more information, see the “Divestiture of 5N Plus Belgium SA” section. Loss on Disposal of Assets Held for Sale In Q3 2022, the Company recorded a loss of $0.2 million on the disposal of assets held for sale due to the planned relocation of operations to Canada from one of the Company’s subsidiaries in Asia, announced in Q3 2020. Financial Expense Financial expense amounted to $2.5 million in Q4 2023, compared to $0.2 million in Q4 2022. The negative impact is partly due to interest income earned in Q4 2022, following the settlement of an international tax arbitration between two jurisdictions in which the Company operated. A foreign exchange and derivatives loss was recorded in Q4 2023, compared to a gain in the same period last year, which also contributed to the difference. In FY 2023, financial expense amounted to $8.7 million, compared to $5.2 million in FY 2022. The increase is due to the significant increase in interest rates from the second half of FY 2022 against interest income earned following the settlement of an international tax arbitration in Q4 2022 described above. 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Income Taxes The Company reported earnings before income taxes of $1.6 million in Q4 2023 and $18.7 million in FY 2023. Income tax recovery in Q4 2023 and income tax expense in FY 2023 was $0.7 million and $3.3 million, respectively, compared to income tax recovery and income tax expense of $0.3 million and $4.7 million, for the respective periods of 2022. Both years were impacted by deferred tax assets applicable only in certain jurisdictions. Liquidity and Capital Resources (in thousands of U.S. dollars) Q4 2023 Q4 2022 Cash from operations before the following: Net changes in non-cash working capital items Cash from operating activities Cash used in investing activities Cash from (used in) financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents $ 5,883 5,891 11,774 (8,097) 1,029 125 4,831 $ 4,447 8,958 13,405 (8,895) (2,308) 317 2,519 FY 2023 $ 32,051 (14,800) 17,251 (12,362) (13,002) 128 (7,985) FY 2022 $ 13,498 10,243 23,741 (18,994) 2,409 (405) 6,751 In Q4 2023, cash generated by operating activities amounted to $11.8 million, compared to $13.4 million in Q4 2022. In FY 2023, cash generated from operating activities amounted to $17.3 million, compared to $23.7 million in FY 2022. The decrease in FY 2023 is mainly due to an increase in non-cash working capital to support growth in expected demand in 2024, partially mitigated by an increase in contributions of cash from operations of $18.6 million in FY 2023 before net change in non-cash working capital. In Q4 2023, cash used in investing activities amounted to $8.1 million, compared to $8.9 million in Q4 2022. In FY 2023, cash used in investing activities amounted to $12.4 million, compared to $19.0 million in FY 2022. The decrease of $6.6 million in FY 2023 is mainly explained by the proceeds on settlement of an indexed deposit agreement which was amended during Q1 2023, resulting in a receipt of cash of $6.5 million, partially offset by increased additions to PPE of $1.2 million in 2023 and an increase in the Company's minority equity stake in Microbion Corporation (“Microbion”) of $1.0 million. Compared to FY 2022, cash used in investing activities was impacted by the timing of additions to PPE, such as the St-Laurent project (Montréal, Canada), and cash disbursements associated with the divestiture of its Tilly, Belgium operations, partially mitigated by proceeds of $2.8 million on the disposal of assets held for sale in Q3 2022. In Q4 2023, cash generated by financing activities amounted to $1.0 million, compared to cash used in financing activities of $2.3 million in Q4 2022. In FY 2023, cash used in financing activities amounted to $13.0 million, compared to cash generated from financing activities of $2.4 million in FY 2022. The variation of $15.4 million is mainly attributable to the reimbursements of $7.5 million in Q2 2023 and $5.0 million in Q3 2023 of the credit facility while the Company made a net drawdown of $5.0 million in FY 2022. In addition, the Company received cash from the issuance of common shares in FY 2023, while the principal elements of lease payments were similar for both periods. Working Capital (in thousands of U.S. dollars) Inventories Other current assets Current liabilities Working capital1 Working capital current ratio1 As at December 31, 2023 As at December 31, 2022 $ 105,850 76,113 (81,807) 100,156 2.22 $ 86,254 100,908 (62,846) 124,316 2.98 The $24.2 million decrease in working capital, compared to December 31, 2022, is mainly attributable to higher current liabilities following the presentation of the subordinated term loan of $25.0 million maturing in March 2024 as a current portion of long-term debt in Q1 2023, net of lower trade and accrued liabilities. In addition, inventories increased by $19.6 million in FY 2023 to support demand while other current assets are lower by $24.8 million. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. 20 Management’s Discussion and Analysis ▪ 9 Management’s Discussion and Analysis ▪ 10 5N+ 2023 ANNUAL REPORT 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS In Q2 2023, the Company recorded a litigation and restructuring income of $8.8 million, which represented the amount received from the previous shareholder of AZUR, net of related expenses. The income was received as per stipulations of the share purchase agreement and is not related to AZUR’s performance post-acquisition. In Q4 2022 and FY 2022, the Company recorded litigation and restructuring costs of $3.2 million and $3.8 million, respectively. These costs include $2.6 million related to the divestiture of a subsidiary, $0.4 million for a site closure in Asia, $0.2 million due to a change to its senior executive management recorded in Q2 2022, and $0.4 million for the settlement of a contract by mutual agreement recorded in Q2 2022. Impairment of Non-Current Assets In Q2 2023, the Company recorded an impairment of non-current assets of $0.6 million in relation to PPE included within the Performance Materials segment, to reflect the assessment of the carrying value of production equipment following the Company’s decision to switch to higher capacity production equipment. In Q3 2022, the Company recorded an impairment of non-current assets of $7.1 million ($2.4 million for buildings, $4.6 million for machinery and $0.1 million for furniture and fixtures) under its Performance Materials segment to reflect the assessment of the carrying value of PPE following its intention to halt production at its manufacturing facility in Tilly, Belgium. In Q1 2022, the Company recorded an impairment of non-current assets of $5.4 million ($5.1 million for customer relationships and $0.3 million for other intangibles) under its Specialty Semiconductors segment to reflect the assessment of the carrying value of intangible assets due to the impact of the Russia/Ukraine conflict on the Company’s Russia-based customer relationships. The Company’s initial assumptions regarding future cashflows from these customers are no longer supported given the international sanctions in place against Russia and the uncertainty related to, and the unknown duration of, the Ukraine/Russia conflict. Loss on disposal of property, plant and equipment In Q2 2023, the Company recorded a loss of $1.1 million on the disposal of a production equipment following a change in technical requirements and functionalities by the Company. The Company disposed of this production equipment in a non-monetary transaction with the supplier in exchange for a credit to be applied against future production equipment purchases. Loss on Divestiture of Subsidiary In Q4 2022, the Company divested its 100% interest in 5N Plus Belgium SA and recognized a loss on divestiture of $7.8 million. For more information, see the “Divestiture of 5N Plus Belgium SA” section. Loss on Disposal of Assets Held for Sale In Q3 2022, the Company recorded a loss of $0.2 million on the disposal of assets held for sale due to the planned relocation of operations to Canada from one of the Company’s subsidiaries in Asia, announced in Q3 2020. Financial Expense Financial expense amounted to $2.5 million in Q4 2023, compared to $0.2 million in Q4 2022. The negative impact is partly due to interest income earned in Q4 2022, following the settlement of an international tax arbitration between two jurisdictions in which the Company operated. A foreign exchange and derivatives loss was recorded in Q4 2023, compared to a gain in the same period last year, which also contributed to the difference. In FY 2023, financial expense amounted to $8.7 million, compared to $5.2 million in FY 2022. The increase is due to the significant increase in interest rates from the second half of FY 2022 against interest income earned following the settlement of an international tax arbitration in Q4 2022 described above. 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Income Taxes The Company reported earnings before income taxes of $1.6 million in Q4 2023 and $18.7 million in FY 2023. Income tax recovery in Q4 2023 and income tax expense in FY 2023 was $0.7 million and $3.3 million, respectively, compared to income tax recovery and income tax expense of $0.3 million and $4.7 million, for the respective periods of 2022. Both years were impacted by deferred tax assets applicable only in certain jurisdictions. Management's Discussion and Analysis Liquidity and Capital Resources (in thousands of U.S. dollars) Cash from operations before the following: Net changes in non-cash working capital items Cash from operating activities Cash used in investing activities Cash from (used in) financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Q4 2023 $ 5,883 5,891 11,774 (8,097) 1,029 125 4,831 Q4 2022 $ 4,447 8,958 13,405 (8,895) (2,308) 317 2,519 FY 2023 $ 32,051 (14,800) 17,251 (12,362) (13,002) 128 (7,985) FY 2022 $ 13,498 10,243 23,741 (18,994) 2,409 (405) 6,751 In Q4 2023, cash generated by operating activities amounted to $11.8 million, compared to $13.4 million in Q4 2022. In FY 2023, cash generated from operating activities amounted to $17.3 million, compared to $23.7 million in FY 2022. The decrease in FY 2023 is mainly due to an increase in non-cash working capital to support growth in expected demand in 2024, partially mitigated by an increase in contributions of cash from operations of $18.6 million in FY 2023 before net change in non-cash working capital. In Q4 2023, cash used in investing activities amounted to $8.1 million, compared to $8.9 million in Q4 2022. In FY 2023, cash used in investing activities amounted to $12.4 million, compared to $19.0 million in FY 2022. The decrease of $6.6 million in FY 2023 is mainly explained by the proceeds on settlement of an indexed deposit agreement which was amended during Q1 2023, resulting in a receipt of cash of $6.5 million, partially offset by increased additions to PPE of $1.2 million in 2023 and an increase in the Company's minority equity stake in Microbion Corporation (“Microbion”) of $1.0 million. Compared to FY 2022, cash used in investing activities was impacted by the timing of additions to PPE, such as the St-Laurent project (Montréal, Canada), and cash disbursements associated with the divestiture of its Tilly, Belgium operations, partially mitigated by proceeds of $2.8 million on the disposal of assets held for sale in Q3 2022. In Q4 2023, cash generated by financing activities amounted to $1.0 million, compared to cash used in financing activities of $2.3 million in Q4 2022. In FY 2023, cash used in financing activities amounted to $13.0 million, compared to cash generated from financing activities of $2.4 million in FY 2022. The variation of $15.4 million is mainly attributable to the reimbursements of $7.5 million in Q2 2023 and $5.0 million in Q3 2023 of the credit facility while the Company made a net drawdown of $5.0 million in FY 2022. In addition, the Company received cash from the issuance of common shares in FY 2023, while the principal elements of lease payments were similar for both periods. Working Capital (in thousands of U.S. dollars) Inventories Other current assets Current liabilities Working capital1 Working capital current ratio1 As at December 31, 2023 $ 105,850 76,113 (81,807) 100,156 2.22 As at December 31, 2022 $ 86,254 100,908 (62,846) 124,316 2.98 The $24.2 million decrease in working capital, compared to December 31, 2022, is mainly attributable to higher current liabilities following the presentation of the subordinated term loan of $25.0 million maturing in March 2024 as a current portion of long-term debt in Q1 2023, net of lower trade and accrued liabilities. In addition, inventories increased by $19.6 million in FY 2023 to support demand while other current assets are lower by $24.8 million. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. Management’s Discussion and Analysis ▪ 9 Management’s Discussion and Analysis ▪ 10 21 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Net Debt (in thousands of U.S. dollars) Bank indebtedness Long-term debt including current portion Total Debt1 Cash and cash equivalents Net Debt As at December 31, 2023 $ - 108,500 As at December 31, 2022 $ - 121,000 108,500 (34,706) 73,794 121,000 (42,691) 78,309 Total debt stood at $108.5 million as at December 31, 2023, compared to $121.0 million as at December 31, 2022. Net debt, after considering cash and cash equivalents, decreased by $4.5 million to $73.8 million on December 31, 2023, from $78.3 million on December 31, 2022. Available Short-Term Capital Resources (in thousands of U.S. dollars) Cash and cash equivalents Available revolving credit facility Available short-term capital resources As at December 31, 2023 $ 34,706 40,500 75,206 As at December 31, 2022 $ 42,691 28,000 70,691 In June 2022, the Company signed a senior secured multi-currency revolving credit facility of $124.0 million maturing in April 2026 to replace its existing $124.0 million senior secured revolving facility maturing in April 2023. At any time, the Company has the option to request that the credit facility be expanded through the exercise of an additional $30.0 million accordion feature, subject to review and approval by the lenders. This revolving credit facility can be drawn in U.S. dollars, Canadian dollars or Hong Kong dollars (up to $4.0 million). Drawings bear interest at either the Canadian prime rate, U.S. base rate, Hong Kong base rate or SOFR, plus a margin based on the Company’s senior net debt to consolidated EBITDA ratio. Under the terms of its credit facility, the Company is required to satisfy certain restrictive covenants as to financial ratios. As at December 31, 2023 and December 31, 2022, the Company had met all covenants. In February 2019, the Company signed a five-year subordinated term loan with Investissement Québec. The loan was disbursed in two tranches: the first tranche of $5.0 million on February 6, 2019, and the second tranche of $20.0 million on March 22, 2019. The two tranches of the term loan bear interest equivalent to the five-year U.S. dollar swap rate plus a margin of 4.19%, which equals to 6.82% and 6.64%, respectively. Under the terms of the loan, the Company is required to satisfy certain restrictive covenants as to financial ratios. As at December 31, 2023 and December 31, 2022, the Company had met all covenants. Share Information Issued and outstanding shares Stock options potentially issuable As at February 27, 2023 88,704,724 1,365,162 As at December 31, 2023 88,704,724 1,365,162 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Restricted Share Unit and Performance Share Unit Plan On November 4, 2015, the Company adopted a new Restricted Share Unit (“RSU”) and Performance Share Unit (“PSU”) Plan (the “RSU & PSU Plan”) to replace the previous RSU Plan. The RSU & PSU Plan enables the Company to award eligible participants: (i) phantom RSUs that vest no later than three years following the grant date; and (ii) phantom PSUs that vest after certain periods of time, not exceeding three years, and subject to the achievement of certain performance criteria as determined by the Board of Directors. Such RSU & PSU Plan provides for the settlement of RSUs and PSUs through either cash or the issuance of common shares of the Company from treasury, for an amount equivalent to the volume weighted average of the trading price of the common shares of the Company on the TSX for the five trading days immediately preceding the applicable RSU vesting determination date or PSU vesting determination date. In FY 2023, the Company granted 155,873 RSUs (2022 – 95,881), 111,458 RSUs were paid (2022 – 146,549) and 3,000 RSUs were forfeited (2022 – 13,110). On December 31, 2023, 319,896 RSUs were outstanding (2022 – 278,481). No PSUs were granted or paid in FY 2023 and FY 2022 and 200,000 PSUs were cancelled in FY 2022. On December 31, 2023 and 2022, nil PSUs were outstanding. Stock Option Plan On April 11, 2011, the Company adopted a new stock option plan (the “Stock Option Plan”) under which a maximum number of options granted cannot exceed 5,000,000. Options granted under the Stock Option Plan may be exercised during a period not exceeding ten years from the date of grant. The stock options outstanding on December 31, 2023, may be exercised during a period not exceeding six years from their date of grant. Unless the Board of Directors decides otherwise at its sole discretion, options vest at a rate of 25% (100% for directors) per year, beginning one year following the grant date of the options. Any unexercised options will expire one month after the date beneficiary ceases to be an employee, director or officer (collectively the “optionee”) and one year after the optionee’s death, retirement or permanent disability, as the case may be, or prior to the expiration of the term of the option, whichever occurs earlier. The following table presents information concerning all outstanding stock options: Number of options exercise price Number of options Weighted average Weighted average exercise price 2023 CA$ 1.91 2.74 2.28 1.90 2.10 825,968 772,970 - 1,598,938 457,749 2022 CA$ 2.46 1.33 - 1.91 2.41 Outstanding, beginning of year Granted Exercised Outstanding, end of year Exercisable, end of year Off-balance Sheet Arrangements 1,598,938 140,712 (374,488) 1,365,162 458,454 The Company has few off-balance sheet arrangements since most of the leases are recognized on the consolidated statement of financial position following the adoption of the IFRS 16 – Leases, as at January 1, 2019. Any off-balance sheet arrangements consist of contractual obligations in the normal course of business. The Company is exposed to currency risk on sales in euros and other currencies, as well as interest rate fluctuations on its credit facility, and, therefore, may periodically enter into foreign currency forward contracts and interest rate or foreign currency swap contracts to protect itself against interest rate and currency fluctuations. The reader will find more details related to these contracts in Notes 19 and 27 of the audited consolidated financial statements for the year ended December 31, 2023. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. 22 Management’s Discussion and Analysis ▪ 11 Management’s Discussion and Analysis ▪ 12 5N+ 2023 ANNUAL REPORT 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Net Debt Bank indebtedness Long-term debt including current portion Cash and cash equivalents Total Debt1 Net Debt from $78.3 million on December 31, 2022. Available Short-Term Capital Resources (in thousands of U.S. dollars) Cash and cash equivalents Available revolving credit facility Available short-term capital resources (in thousands of U.S. dollars) As at December 31, 2023 As at December 31, 2022 Total debt stood at $108.5 million as at December 31, 2023, compared to $121.0 million as at December 31, 2022. Net debt, after considering cash and cash equivalents, decreased by $4.5 million to $73.8 million on December 31, 2023, $ - 108,500 108,500 (34,706) 73,794 $ 34,706 40,500 75,206 $ - 121,000 121,000 (42,691) 78,309 $ 42,691 28,000 70,691 As at December 31, 2023 As at December 31, 2022 In June 2022, the Company signed a senior secured multi-currency revolving credit facility of $124.0 million maturing in April 2026 to replace its existing $124.0 million senior secured revolving facility maturing in April 2023. At any time, the Company has the option to request that the credit facility be expanded through the exercise of an additional $30.0 million accordion feature, subject to review and approval by the lenders. This revolving credit facility can be drawn in U.S. dollars, Canadian dollars or Hong Kong dollars (up to $4.0 million). Drawings bear interest at either the Canadian prime rate, U.S. base rate, Hong Kong base rate or SOFR, plus a margin based on the Company’s senior net debt to consolidated EBITDA ratio. Under the terms of its credit facility, the Company is required to satisfy certain restrictive covenants as to financial ratios. As at December 31, 2023 and December 31, 2022, the Company had met all covenants. In February 2019, the Company signed a five-year subordinated term loan with Investissement Québec. The loan was disbursed in two tranches: the first tranche of $5.0 million on February 6, 2019, and the second tranche of $20.0 million on March 22, 2019. The two tranches of the term loan bear interest equivalent to the five-year U.S. dollar swap rate plus a margin of 4.19%, which equals to 6.82% and 6.64%, respectively. Under the terms of the loan, the Company is required to satisfy certain restrictive covenants as to financial ratios. As at December 31, 2023 and December 31, 2022, the Company had met all covenants. Share Information Issued and outstanding shares Stock options potentially issuable As at February 27, 2023 As at December 31, 2023 88,704,724 1,365,162 88,704,724 1,365,162 Management's Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Restricted Share Unit and Performance Share Unit Plan On November 4, 2015, the Company adopted a new Restricted Share Unit (“RSU”) and Performance Share Unit (“PSU”) Plan (the “RSU & PSU Plan”) to replace the previous RSU Plan. The RSU & PSU Plan enables the Company to award eligible participants: (i) phantom RSUs that vest no later than three years following the grant date; and (ii) phantom PSUs that vest after certain periods of time, not exceeding three years, and subject to the achievement of certain performance criteria as determined by the Board of Directors. Such RSU & PSU Plan provides for the settlement of RSUs and PSUs through either cash or the issuance of common shares of the Company from treasury, for an amount equivalent to the volume weighted average of the trading price of the common shares of the Company on the TSX for the five trading days immediately preceding the applicable RSU vesting determination date or PSU vesting determination date. In FY 2023, the Company granted 155,873 RSUs (2022 – 95,881), 111,458 RSUs were paid (2022 – 146,549) and 3,000 RSUs were forfeited (2022 – 13,110). On December 31, 2023, 319,896 RSUs were outstanding (2022 – 278,481). No PSUs were granted or paid in FY 2023 and FY 2022 and 200,000 PSUs were cancelled in FY 2022. On December 31, 2023 and 2022, nil PSUs were outstanding. Stock Option Plan On April 11, 2011, the Company adopted a new stock option plan (the “Stock Option Plan”) under which a maximum number of options granted cannot exceed 5,000,000. Options granted under the Stock Option Plan may be exercised during a period not exceeding ten years from the date of grant. The stock options outstanding on December 31, 2023, may be exercised during a period not exceeding six years from their date of grant. Unless the Board of Directors decides otherwise at its sole discretion, options vest at a rate of 25% (100% for directors) per year, beginning one year following the grant date of the options. Any unexercised options will expire one month after the date beneficiary ceases to be an employee, director or officer (collectively the “optionee”) and one year after the optionee’s death, retirement or permanent disability, as the case may be, or prior to the expiration of the term of the option, whichever occurs earlier. The following table presents information concerning all outstanding stock options: Outstanding, beginning of year Granted Exercised Outstanding, end of year Exercisable, end of year Number of options 1,598,938 140,712 (374,488) 1,365,162 458,454 2023 Weighted average exercise price CA$ 1.91 2.74 2.28 1.90 2.10 Number of options 825,968 772,970 - 1,598,938 457,749 2022 Weighted average exercise price CA$ 2.46 1.33 - 1.91 2.41 Off-balance Sheet Arrangements The Company has few off-balance sheet arrangements since most of the leases are recognized on the consolidated statement of financial position following the adoption of the IFRS 16 – Leases, as at January 1, 2019. Any off-balance sheet arrangements consist of contractual obligations in the normal course of business. The Company is exposed to currency risk on sales in euros and other currencies, as well as interest rate fluctuations on its credit facility, and, therefore, may periodically enter into foreign currency forward contracts and interest rate or foreign currency swap contracts to protect itself against interest rate and currency fluctuations. The reader will find more details related to these contracts in Notes 19 and 27 of the audited consolidated financial statements for the year ended December 31, 2023. 1 These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information. Management’s Discussion and Analysis ▪ 11 Management’s Discussion and Analysis ▪ 12 23 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS The following table reflects the contractual cash flows of the Company’s financial liabilities as at December 31, 2023: 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Internal Control over Financial Reporting (in thousands of U.S. dollars) Trade and accrued liabilities Long-term debt Lease liabilities Total Carrying amount $ 37,024 108,500 30,139 175,663 1 year $ 37,024 31,184 2,761 70,969 2 years $ - 5,766 2,642 8,408 3 years $ - 85,422 2,558 87,980 4 years $ - - 2,534 2,534 Over 5 years $ - - 26,803 26,803 Total $ 37,024 122,372 37,298 196,694 Commitments In the normal course of business, the Company contracted letters of credit for an amount of $0.6 million as at December 31, 2023 and $0.9 million as at December 31, 2022. Contingencies In the normal course of operations, the Company is exposed to events that could give rise to contingent liabilities or assets. As at the date of issue of the consolidated financial statements, the Company was not aware of any significant events that would have a material effect on its consolidated financial statements. Subsequent Event In January 2024, the Company increased its minority equity stake in Microbion for an amount of $1.0 million. As at December 31, 2023, the Company’s stake in Microbion was valued at $3.0 million. Divestiture of 5N Plus Belgium SA On December 19, 2022, the Company divested its 100% interest in 5N Plus Belgium SA, previously included within its Performance Materials segment, and recognized a loss on divestiture of $7.8 million. The decision to cease the production of lower margin products used in extractive and catalytic applications was made following a strategic review of the Company’s operations. As part of the transaction, a provision of $2.6 million was recorded under Litigation and Restructuring costs in Q4 2022, of which 2.0 million euros or $2.1 million is held in escrow, to support the new owners to ensure site compliance with most recent environmental standards and other related costs. Prior to the divestiture, the Company recorded an impairment charge of $7.1 million on PPE in Q3 2022 following the announcement of its intention to halt production at its manufacturing facility in Tilly, Belgium. If the Company’s exit from the manufacturing of low margin extractive and catalytic products and related divestiture of 5N Plus Belgium SA had been completed as of January 1, 2022, the yearly consolidated Adjusted EBITDA would have been higher by approximately $2.0 million, and revenue under Performance Materials segment lower by $39.3 million. Governance As required by Multilateral Instrument 52-109 of the Canadian Securities Administrators (“MI 52-109”), 5N+ has filed certificates signed by the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) that, among other things, attest to the design of the disclosure controls and procedures and the design and effectiveness of internal controls over financial reporting. Disclosure Controls and Procedures The CEO and the CFO have designed disclosure controls and procedures (“DC&P”), or have caused them to be designed under their supervision, in order to provide reasonable assurance that:  Material information relating to the Company has been made known to them; and  Information required to be disclosed in the Company’s filings is recorded, processed, summarized and reported within the time periods specified in securities legislation. An evaluation of the effectiveness of the Company’s disclosure controls and procedures was carried out under the supervision of the Chief Executive Officer and Chief Financial Officer. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures are effective. The CEO and the CFO have also designed internal controls over financial reporting (ICFR) or have caused them to be designed under their supervision, using the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO Framework), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS Accounting Standards. Due to their intrinsic limitations, DC&P and ICFR only provide reasonable assurance and may not prevent or detect all misstatement or errors. Changes in Internal Control over Financial Reporting are reasonably likely to materially affect, the ICFR. No changes were made to the ICFR during the fiscal year ended December 31, 2023, that have materially affected, or Adoption of New Accounting Standards and Future Changes in Accounting Policies Adoption of new accounting standards For the year ended December 31, 2023, the Company evaluated the new accounting standards issued and effective under IFRS Accounting Standards and determined that they have no significant impact to its financial statements. Future Changes in accounting policies As at December 31, 2023, the Company evaluated the new accounting standards issued but not yet effective under IFRS Accounting Standards and determined that none are applicable to the Company based on its current operations. Significant Management Estimation and Judgment in Applying Accounting Policies The following are significant management judgments used in applying the accounting policies of the Company that have the most significant effect on the consolidated financial statements. Estimation uncertainty When preparing the consolidated financial statements, management undertakes a number of judgments, estimates and assumptions about recognition and measurement of assets, liabilities, revenues and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about the significant judgments, estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, revenues and expenses are discussed below. Impairment of non-financial assets Non-financial assets are reviewed for an indication of impairment at each consolidated statement of financial position date upon the occurrence of events or changes in circumstances indicating that the carrying value of the assets may not be recoverable, which requires significant judgement. An impairment loss is recognized for the amount by which an asset’s or cash-generating unit’s (“CGU”) carrying amount exceeds its recoverable amount, which is the higher of fair value less cost of disposal and value in use. To determine the recoverable amount, significant judgement is required as management must estimate expected future cash flows from the asset or CGU and it must determine a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows, management makes assumptions about future operating results using the estimated forecasted prices obtained from various market sources. These key assumptions relate to future events and circumstances. The actual results will vary and may cause adjustments to the Company’s assets in future periods. In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and to asset-specific risk factors. 24 Management’s Discussion and Analysis ▪ 13 Management’s Discussion and Analysis ▪ 14 5N+ 2023 ANNUAL REPORT (in thousands of U.S. dollars) Trade and accrued liabilities Long-term debt Lease liabilities Total Commitments Contingencies 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS The following table reflects the contractual cash flows of the Company’s financial liabilities as at December 31, 2023: Carrying amount $ 37,024 108,500 30,139 175,663 1 year 2 years 3 years 4 years $ 37,024 31,184 2,761 70,969 $ - 5,766 2,642 8,408 $ - 85,422 2,558 87,980 $ - - 2,534 2,534 Over 5 years $ - - 26,803 26,803 Total $ 37,024 122,372 37,298 196,694 In the normal course of business, the Company contracted letters of credit for an amount of $0.6 million as at December 31, 2023 and $0.9 million as at December 31, 2022. In the normal course of operations, the Company is exposed to events that could give rise to contingent liabilities or assets. As at the date of issue of the consolidated financial statements, the Company was not aware of any significant events that would have a material effect on its consolidated financial statements. Subsequent Event In January 2024, the Company increased its minority equity stake in Microbion for an amount of $1.0 million. As at December 31, 2023, the Company’s stake in Microbion was valued at $3.0 million. Divestiture of 5N Plus Belgium SA On December 19, 2022, the Company divested its 100% interest in 5N Plus Belgium SA, previously included within its Performance Materials segment, and recognized a loss on divestiture of $7.8 million. The decision to cease the production of lower margin products used in extractive and catalytic applications was made following a strategic review of the Company’s operations. As part of the transaction, a provision of $2.6 million was recorded under Litigation and Restructuring costs in Q4 2022, of which 2.0 million euros or $2.1 million is held in escrow, to support the new owners to ensure site compliance with most recent environmental standards and other related costs. Prior to the divestiture, the Company recorded an impairment charge of $7.1 million on PPE in Q3 2022 following the announcement of its intention to halt production at its manufacturing facility in Tilly, Belgium. If the Company’s exit from the manufacturing of low margin extractive and catalytic products and related divestiture of 5N Plus Belgium SA had been completed as of January 1, 2022, the yearly consolidated Adjusted EBITDA would have been higher by approximately $2.0 million, and revenue under Performance Materials segment lower by $39.3 million. Governance As required by Multilateral Instrument 52-109 of the Canadian Securities Administrators (“MI 52-109”), 5N+ has filed certificates signed by the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) that, among other things, attest to the design of the disclosure controls and procedures and the design and effectiveness of internal controls over financial reporting. Disclosure Controls and Procedures 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Internal Control over Financial Reporting The CEO and the CFO have also designed internal controls over financial reporting (ICFR) or have caused them to be designed under their supervision, using the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO Framework), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS Accounting Standards. Management's Discussion and Analysis Due to their intrinsic limitations, DC&P and ICFR only provide reasonable assurance and may not prevent or detect all misstatement or errors. Changes in Internal Control over Financial Reporting No changes were made to the ICFR during the fiscal year ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, the ICFR. Adoption of New Accounting Standards and Future Changes in Accounting Policies Adoption of new accounting standards For the year ended December 31, 2023, the Company evaluated the new accounting standards issued and effective under IFRS Accounting Standards and determined that they have no significant impact to its financial statements. Future Changes in accounting policies As at December 31, 2023, the Company evaluated the new accounting standards issued but not yet effective under IFRS Accounting Standards and determined that none are applicable to the Company based on its current operations. Significant Management Estimation and Judgment in Applying Accounting Policies The following are significant management judgments used in applying the accounting policies of the Company that have the most significant effect on the consolidated financial statements. Estimation uncertainty When preparing the consolidated financial statements, management undertakes a number of judgments, estimates and assumptions about recognition and measurement of assets, liabilities, revenues and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about the significant judgments, estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, revenues and expenses are discussed below. Impairment of non-financial assets Non-financial assets are reviewed for an indication of impairment at each consolidated statement of financial position date upon the occurrence of events or changes in circumstances indicating that the carrying value of the assets may not be recoverable, which requires significant judgement. The CEO and the CFO have designed disclosure controls and procedures (“DC&P”), or have caused them to be designed under their supervision, in order to provide reasonable assurance that: An impairment loss is recognized for the amount by which an asset’s or cash-generating unit’s (“CGU”) carrying amount exceeds its recoverable amount, which is the higher of fair value less cost of disposal and value in use.  Material information relating to the Company has been made known to them; and  Information required to be disclosed in the Company’s filings is recorded, processed, summarized and reported within the time periods specified in securities legislation. An evaluation of the effectiveness of the Company’s disclosure controls and procedures was carried out under the supervision of the Chief Executive Officer and Chief Financial Officer. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures are effective. To determine the recoverable amount, significant judgement is required as management must estimate expected future cash flows from the asset or CGU and it must determine a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows, management makes assumptions about future operating results using the estimated forecasted prices obtained from various market sources. These key assumptions relate to future events and circumstances. The actual results will vary and may cause adjustments to the Company’s assets in future periods. In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and to asset-specific risk factors. Management’s Discussion and Analysis ▪ 13 Management’s Discussion and Analysis ▪ 14 25 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Inventories Inventories are carried at the lower of cost and net realizable value, with cost determined using the average cost method. In estimating net realizable values, management takes into account the most reliable evidence available at the time the estimates are made. The Company’s core business is subject to changes in foreign policies and internationally accepted metal prices which may cause future selling prices to change rapidly. The Company evaluates its inventories using a group of similar items basis and considers expected future prices as well as events that have occurred between the consolidated statement of financial position date and the date of the completion of the consolidated financial statements. Net realizable value for inventory to satisfy a specific sales contract is measured at the contract price. Income taxes The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The Company has deferred income tax assets that are subject to periodic recoverability assessments. Realization of the Company’s deferred income tax assets is largely dependent on its achievement of projected future taxable income and the continued applicability of ongoing tax planning strategies. The Company’s judgments regarding future profitability may change due to future market conditions, changes in tax legislation and other factors that could adversely affect the ongoing value of the deferred income tax assets. These changes, if any, may require a material adjustment of these deferred income tax asset balances through an adjustment to the carrying value thereon in the future. This adjustment would reduce the deferred income tax asset to the amount that is considered to be more likely than not to be realized and would be recorded in the period such a determination was to be made. Refer to note 18 of the audited consolidated financial statements for the year ended December 31, 2023. Related Party Transactions The Company’s related parties are its directors and executive members. Transactions with these related parties are described in Note 26 in the 2023 audited consolidated financial statements of the Company. Financial Instruments and Risk Management Fair Value of Financial Instruments A detailed description of the methods and assumptions used to measure the fair value of the Company’s financial instruments and their fair value is discussed in Note 19 – Fair Value of Financial Instruments of the audited consolidated financial statements for the year ended December 31, 2023. The fair value of the financial instruments was as follows: (in thousands of U.S. dollars) Total return swap Indexed deposit agreement Investment in equity instruments Restricted investment 2023 $ 591 - 3,000 603 2022 $ - 5,517 2,000 620 Financial Risk Management For a detailed description of the nature and extent of risks arising from financial instruments, and their related risk management, refer to Note 27 of the audited consolidated financial statements for the year ended December 31, 2023. Interest Rate Interest rate risk refers to the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company’s policy is to limit its exposure to interest rate risk fluctuation by ensuring that a reasonable portion of its long- term debt is made of subordinated debts at fixed rate. The Company is exposed to interest rate fluctuations on its revolving credit facility, which bears a floating interest rate. A 1% increase/decrease in interest rates would have an 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS impact of approximately $0.8 million on the Company’s earnings before income tax on a twelve-month horizon based on the balance outstanding on December 31, 2023. Foreign Currency Foreign currency risk is defined as the Company’s exposure to a gain or a loss in the value of its financial instruments as a result of fluctuations in foreign exchange rates. The Company is exposed to foreign exchange rate variability primarily in relation to certain sales commitments, expected purchase transactions, certain local operating expenses and debt denominated in a foreign currency. In addition, these operations have exposure to foreign exchange rates primarily through cash and cash equivalents and other working capital accounts denominated in currencies other than their functional currencies. In addition, the Company will occasionally enter into foreign exchange forward contracts to sell U.S. dollars in exchange for Canadian dollars and Euros. These contracts would hedge a portion of ongoing foreign exchange risk on the Company’s cash flows since much of its non-US dollar expenses are incurred in Canadian dollars and Euros. The Company may also enter into foreign exchange contracts to sell Euros for U.S. dollars. As at December 31, 2023, the Company had no foreign exchange contracts outstanding. The following table summarizes in U.S. dollar equivalents the Company’s major currency exposures as at December 31, 2023: (in thousands of U.S. dollars) Cash and cash equivalents Accounts receivable Derivative financial assets Other current assets Other non-current assets Trade and accrued liabilities Lease liabilities Net financial assets (liabilities) CA$ $ 489 1,662 591 - - EUR $ 1,999 6,594 - 2,212 603 (6,360) (16,605) (297) 1,762 GBP $ 67 - - - - - HKD $ 34 - - - - (116) (69) (151) MYR Other $ 36 1 - - - - $ 9 - - - - - (12,987) (9,349) (436) (166) (55) (369) (129) (46) For the Company’s subsidiaries with a functional currency other than the U.S. dollar, their exposures of financial assets and financial liabilities denominated in U.S. dollars are $10.4 million and $0.5 million, respectively, with a net position of $9.9 million. A strengthening or weakening in the exchange rate between the functional currencies of these subsidiaries and the U.S. dollar of five-percentage points results in a decrease or increase of $0.5 million to earnings before income tax. The following table shows the impact on earnings before income tax of a five-percentage point strengthening or weakening of foreign currencies against the U.S. dollar as at December 31, 2023 for the Company’s financial instruments denominated in non-functional currencies: (in thousands of U.S. dollars) CA$ $ (830) 830 EUR $ 88 (88) GBP $ (18) 18 HKD MYR Other $ (8) 8 $ (6) 6 $ (2) 2 Credit risk refers to the possibility that a customer or counterparty will fail to fulfill its obligations under a contract and, as a result, create a financial loss for the Company. The Company has a credit policy that defines standard credit practice. This policy dictates that all new customer accounts be reviewed prior to approval and establishes the maximum amount of credit exposure per customer. The creditworthiness and financial well-being of the customer are monitored on an 5% Strengthening 5% Weakening Credit ongoing basis. 26 Management’s Discussion and Analysis ▪ 15 Management’s Discussion and Analysis ▪ 16 5N+ 2023 ANNUAL REPORT 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Inventories Inventories are carried at the lower of cost and net realizable value, with cost determined using the average cost method. In estimating net realizable values, management takes into account the most reliable evidence available at the time the estimates are made. The Company’s core business is subject to changes in foreign policies and internationally accepted metal prices which may cause future selling prices to change rapidly. The Company evaluates its inventories using a group of similar items basis and considers expected future prices as well as events that have occurred between the consolidated statement of financial position date and the date of the completion of the consolidated financial statements. Net realizable value for inventory to satisfy a specific sales contract is measured at the contract price. Income taxes The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The Company has deferred income tax assets that are subject to periodic recoverability assessments. Realization of the Company’s deferred income tax assets is largely dependent on its achievement of projected future taxable income and the continued applicability of ongoing tax planning strategies. The Company’s judgments regarding future profitability may change due to future market conditions, changes in tax legislation and other factors that could adversely affect the ongoing value of the deferred income tax assets. These changes, if any, may require a material adjustment of these deferred income tax asset balances through an adjustment to the carrying value thereon in the future. This adjustment would reduce the deferred income tax asset to the amount that is considered to be more likely than not to be realized and would be recorded in the period such a determination was to be made. Refer to note 18 of the audited consolidated financial statements for the year ended December 31, 2023. Related Party Transactions The Company’s related parties are its directors and executive members. Transactions with these related parties are described in Note 26 in the 2023 audited consolidated financial statements of the Company. Financial Instruments and Risk Management Fair Value of Financial Instruments A detailed description of the methods and assumptions used to measure the fair value of the Company’s financial instruments and their fair value is discussed in Note 19 – Fair Value of Financial Instruments of the audited consolidated financial statements for the year ended December 31, 2023. The fair value of the financial instruments was as follows: 2023 591 $ - 3,000 603 2022 $ - 5,517 2,000 620 (in thousands of U.S. dollars) Total return swap Indexed deposit agreement Investment in equity instruments Restricted investment Financial Risk Management Interest Rate For a detailed description of the nature and extent of risks arising from financial instruments, and their related risk management, refer to Note 27 of the audited consolidated financial statements for the year ended December 31, 2023. Interest rate risk refers to the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company’s policy is to limit its exposure to interest rate risk fluctuation by ensuring that a reasonable portion of its long- term debt is made of subordinated debts at fixed rate. The Company is exposed to interest rate fluctuations on its revolving credit facility, which bears a floating interest rate. A 1% increase/decrease in interest rates would have an Management’s Discussion and Analysis ▪ 15 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS impact of approximately $0.8 million on the Company’s earnings before income tax on a twelve-month horizon based on the balance outstanding on December 31, 2023. Management's Discussion and Analysis Foreign Currency Foreign currency risk is defined as the Company’s exposure to a gain or a loss in the value of its financial instruments as a result of fluctuations in foreign exchange rates. The Company is exposed to foreign exchange rate variability primarily in relation to certain sales commitments, expected purchase transactions, certain local operating expenses and debt denominated in a foreign currency. In addition, these operations have exposure to foreign exchange rates primarily through cash and cash equivalents and other working capital accounts denominated in currencies other than their functional currencies. In addition, the Company will occasionally enter into foreign exchange forward contracts to sell U.S. dollars in exchange for Canadian dollars and Euros. These contracts would hedge a portion of ongoing foreign exchange risk on the Company’s cash flows since much of its non-US dollar expenses are incurred in Canadian dollars and Euros. The Company may also enter into foreign exchange contracts to sell Euros for U.S. dollars. As at December 31, 2023, the Company had no foreign exchange contracts outstanding. The following table summarizes in U.S. dollar equivalents the Company’s major currency exposures as at December 31, 2023: (in thousands of U.S. dollars) Cash and cash equivalents Accounts receivable Derivative financial assets Other current assets Other non-current assets Trade and accrued liabilities Lease liabilities Net financial assets (liabilities) CA$ $ 489 1,662 591 - - EUR $ 1,999 6,594 - 2,212 603 GBP $ 67 - - - - (12,987) (9,349) (436) (6,360) (16,605) (297) 1,762 - (369) HKD $ 34 - - - - (116) (69) (151) MYR Other $ 36 1 - - - (166) - (129) $ 9 - - - - (55) - (46) For the Company’s subsidiaries with a functional currency other than the U.S. dollar, their exposures of financial assets and financial liabilities denominated in U.S. dollars are $10.4 million and $0.5 million, respectively, with a net position of $9.9 million. A strengthening or weakening in the exchange rate between the functional currencies of these subsidiaries and the U.S. dollar of five-percentage points results in a decrease or increase of $0.5 million to earnings before income tax. The following table shows the impact on earnings before income tax of a five-percentage point strengthening or weakening of foreign currencies against the U.S. dollar as at December 31, 2023 for the Company’s financial instruments denominated in non-functional currencies: (in thousands of U.S. dollars) 5% Strengthening 5% Weakening CA$ $ (830) 830 EUR $ 88 (88) GBP $ (18) 18 HKD MYR Other $ (8) 8 $ (6) 6 $ (2) 2 Credit Credit risk refers to the possibility that a customer or counterparty will fail to fulfill its obligations under a contract and, as a result, create a financial loss for the Company. The Company has a credit policy that defines standard credit practice. This policy dictates that all new customer accounts be reviewed prior to approval and establishes the maximum amount of credit exposure per customer. The creditworthiness and financial well-being of the customer are monitored on an ongoing basis. Management’s Discussion and Analysis ▪ 16 27 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS The Company applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss allowance for trade receivables. The expected loss rates are based on the Company’s historical credit losses experienced over the three-year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Company’s customers. Historically, the Company has not incurred any significant losses in respect of its trade receivables. Therefore, the loss allowance at the end of each period and the change recorded for each period is insignificant. As at December 31, 2023 and 2022, the Company had a loss allowance of $nil million and $0.1 million, respectively. The loss allowance is included in selling, general and administrative expenses in the consolidated statement of earnings (loss) and is net of any recoveries that were provided for in prior periods. Liquidity Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages liquidity risk through the management of its capital structure. It also manages liquidity risk by continually monitoring actual and projected cash flows, taking into account the Company’s sales and receipts and matching the maturity profile of financial assets and financial liabilities. The Board of Directors reviews and approves the Company’s annual operating and capital budgets as well as any material transactions out of the ordinary course of business, including proposals on acquisitions and other major investments. Under the terms of its credit facility, the Company is required to satisfy certain restrictive covenants. In order to comply with these covenants, the Company will need to execute on its EBITDA and cash flow estimates. Management believes that the assumptions used by the Company in preparing its estimates are reasonable. However, risk remains. Successful achievement of these estimates results is dependent on stability in the price of metals and other raw materials, the reduction of debt due to the optimization of the Company’s working capital and the continued viability and support of the Company’s banks. Risk and Uncertainties In the normal course of business, the Company is subject to a number of risk factors which may limit its ability to execute on its strategy and achieve its long-term growth objectives. Management identifies these risks and implement strategies to minimize their impact on the Company's performance. The Audit Committee together with the Corporate Internal Audit and site leadership teams have the mandate to review all business risks semi-annually. The risks and risk reduction measures are presented to the Audit Committee and the Board of Directors on an ongoing basis. The realization of the risks described in any of the following risk factors could have a material adverse effect on the Company’s business, results of operations and financial condition. Risks and uncertainties not presently known to the Company or that the Company currently considers as not material could become material in the future or impair its business operations or cause a decline in the price of shares. Global Economic Conditions The Company operates in a volatile economic environment. Current global economic conditions, which have been subject to increased volatility and contraction in credit markets, may impact the Company's access to public financing, its ability to obtain equity or debt financing on favourable terms and the valuation of the Company's securities. As a result, if unemployment, interest or inflation rates fluctuate substantially or increase to significant levels, they could have an impact on the Company’s operating activities, financial position and profitability. In addition, the Company is exposed to market risk related to the current global inflationary situation, as the various environmental, social, political, economic and health factors had significant consequences on the world economy. In order to reduce inflation, several central banks are now tightening their monetary policies, which has an impact on interest rates, foreign currency exchange rates and economic development. The risks of recession in one or several of the countries where the Company operates are growing and could have an adverse impact on the Company’s net earnings, financial position or cash flows. International Operations The Company operates in several countries, including China and Laos, and as such, faces risks associated with international business activities. The Company could be significantly affected by such risks, which include, but are not limited to, the integration of international operations, challenges associated with dealing with numerous legal and tax systems, changes in policy that alter regulations impacting the Company's operations, the potential for volatile economic and labor conditions, political instability, foreign exchange, expropriation, changes in taxes, and other regulatory costs. Although the Company operates primarily in countries with relatively stable economic and political climates, there can be no assurance that its business will not be adversely affected by the risks inherent in international operations. Management’s Discussion and Analysis ▪ 17 28 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS The following conditions or events could disrupt its supply chain, interrupt production at its facilities or those of its suppliers or customers, increase its cost of sales and other operating expenses, result in material asset losses, or require additional capital expenditures to be incurred: fires, pandemics (including regional and global infectious diseases), extraordinary weather conditions, or natural disasters, such as hurricanes, tornadoes, floods, tsunamis, typhoons and earthquakes; political instability, social and labor unrest, war or terrorism; disruptions in port activities, shipping and freight forwarding services; interruptions in the availability of basic services and infrastructure, including power and water shortages; changes in a specific country’s or region’s economic conditions, such as a recession; new certification requirements; significant fluctuations in currency exchange rates; the invasion of Ukraine by Russia; the current conflict in Israel and Gaza Strip; new trade barriers, including import and export imposed restrictions; the imposition of tariffs on its products or input; and change to legal, political, social, cultural, tax or other regulatory requirements.             The Company’s insurance programs do not cover every potential loss associated with its operations, including potential damage to assets, lost profits and liability that could result from the aforementioned conditions or events. In addition, its insurance may not fully cover the consequences resulting from a loss event, due to insurance limits, sub-limits, or policy exclusions. Any occurrence not fully covered by insurance could have a negative effect on its business. Risks Related to China The legal system in mainland China is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. The legal system in mainland China evolves rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to the Company. In addition, the Company cannot predict the effect of future developments in the mainland Chinese legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the pre-emption of local regulations by national laws. Such unpredictability towards the Company's contractual, property (including intellectual property) and procedural rights could adversely affect the Company's business and impede its ability to continue operations. Furthermore, any litigation in mainland China may be protracted and result in substantial costs and diversion of resources and management attention. The mainland Chinese government exercises significant control over mainland China's economic growth through strategically allocating resources, imposing import and export restrictions, controlling the payment of foreign currency- denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Any growth in the Chinese economy may not continue and any slowdown may have a negative effect on the Company’s business. Any adverse changes in economic conditions in mainland China, in the policies of the mainland Chinese government or in the laws and regulations in mainland China, could have a material adverse effect on the overall economic growth of mainland China. Such developments could adversely affect the Company's business, lead to reduction in demand for its products, impact sourcing of materials and products out of China, and adversely affect the Company's competitive position. Environmental Regulations The Company’s operations involve the use, handling, generation, processing, storage, transportation, recycling and disposal of hazardous materials and are subject to extensive environmental laws and regulations at the local, provincial, national, and international level. These environmental laws and regulations include those governing the discharge of pollutants into the air and water, the use, management and disposal of hazardous materials and wastes, the clean-up of contaminated sites and occupational health and safety. Failure to comply with such laws, regulations and permits can have serious consequences, including damage to its reputation; stopping it from pursuing operations at one of its facilities; being subject to substantial fines, penalties, criminal proceedings, third party property damage or personal injury claims, clean-up costs, capital expenditures or other costs; increasing the costs of development or production and litigation or regulatory action against it, and materially adversely affecting its business, results of operations or financial condition. Environmental legislation is evolving in a manner that will require stricter standards and enforcement, and a Management’s Discussion and Analysis ▪ 18 5N+ 2023 ANNUAL REPORT 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS The Company applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss allowance for trade receivables. The expected loss rates are based on the Company’s historical credit losses experienced over the three-year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Company’s customers. Historically, the Company has not incurred any significant losses in respect of its trade receivables. Therefore, the loss allowance at the end of each period and the change recorded for each period is insignificant. As at December 31, 2023 and 2022, the Company had a loss allowance of $nil million and $0.1 million, respectively. The loss allowance is included in selling, general and administrative expenses in the consolidated statement of earnings (loss) and is net of any recoveries that were provided for in prior periods. Liquidity Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages liquidity risk through the management of its capital structure. It also manages liquidity risk by continually monitoring actual and projected cash flows, taking into account the Company’s sales and receipts and matching the maturity profile of financial assets and financial liabilities. The Board of Directors reviews and approves the Company’s annual operating and capital budgets as well as any material transactions out of the ordinary course of business, including proposals on acquisitions and other major investments. Under the terms of its credit facility, the Company is required to satisfy certain restrictive covenants. In order to comply with these covenants, the Company will need to execute on its EBITDA and cash flow estimates. Management believes that the assumptions used by the Company in preparing its estimates are reasonable. However, risk remains. Successful achievement of these estimates results is dependent on stability in the price of metals and other raw materials, the reduction of debt due to the optimization of the Company’s working capital and the continued viability and support of the Company’s banks. Risk and Uncertainties In the normal course of business, the Company is subject to a number of risk factors which may limit its ability to execute on its strategy and achieve its long-term growth objectives. Management identifies these risks and implement strategies to minimize their impact on the Company's performance. The Audit Committee together with the Corporate Internal Audit and site leadership teams have the mandate to review all business risks semi-annually. The risks and risk reduction measures are presented to the Audit Committee and the Board of Directors on an ongoing basis. The realization of the risks described in any of the following risk factors could have a material adverse effect on the Company’s business, results of operations and financial condition. Risks and uncertainties not presently known to the Company or that the Company currently considers as not material could become material in the future or impair its business operations or cause a decline in the price of shares. Global Economic Conditions The Company operates in a volatile economic environment. Current global economic conditions, which have been subject to increased volatility and contraction in credit markets, may impact the Company's access to public financing, its ability to obtain equity or debt financing on favourable terms and the valuation of the Company's securities. As a result, if unemployment, interest or inflation rates fluctuate substantially or increase to significant levels, they could have an impact on the Company’s operating activities, financial position and profitability. In addition, the Company is exposed to market risk related to the current global inflationary situation, as the various environmental, social, political, economic and health factors had significant consequences on the world economy. In order to reduce inflation, several central banks are now tightening their monetary policies, which has an impact on interest rates, foreign currency exchange rates and economic development. The risks of recession in one or several of the countries where the Company operates are growing and could have an adverse impact on the Company’s net earnings, financial position or cash flows. International Operations The Company operates in several countries, including China and Laos, and as such, faces risks associated with international business activities. The Company could be significantly affected by such risks, which include, but are not limited to, the integration of international operations, challenges associated with dealing with numerous legal and tax systems, changes in policy that alter regulations impacting the Company's operations, the potential for volatile economic and labor conditions, political instability, foreign exchange, expropriation, changes in taxes, and other regulatory costs. Although the Company operates primarily in countries with relatively stable economic and political climates, there can be no assurance that its business will not be adversely affected by the risks inherent in international operations. Management’s Discussion and Analysis ▪ 17 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Management's Discussion and Analysis The following conditions or events could disrupt its supply chain, interrupt production at its facilities or those of its suppliers or customers, increase its cost of sales and other operating expenses, result in material asset losses, or require additional capital expenditures to be incurred:             fires, pandemics (including regional and global infectious diseases), extraordinary weather conditions, or natural disasters, such as hurricanes, tornadoes, floods, tsunamis, typhoons and earthquakes; political instability, social and labor unrest, war or terrorism; disruptions in port activities, shipping and freight forwarding services; interruptions in the availability of basic services and infrastructure, including power and water shortages; changes in a specific country’s or region’s economic conditions, such as a recession; new certification requirements; significant fluctuations in currency exchange rates; the invasion of Ukraine by Russia; the current conflict in Israel and Gaza Strip; new trade barriers, including import and export imposed restrictions; the imposition of tariffs on its products or input; and change to legal, political, social, cultural, tax or other regulatory requirements. The Company’s insurance programs do not cover every potential loss associated with its operations, including potential damage to assets, lost profits and liability that could result from the aforementioned conditions or events. In addition, its insurance may not fully cover the consequences resulting from a loss event, due to insurance limits, sub-limits, or policy exclusions. Any occurrence not fully covered by insurance could have a negative effect on its business. Risks Related to China The legal system in mainland China is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. The legal system in mainland China evolves rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to the Company. In addition, the Company cannot predict the effect of future developments in the mainland Chinese legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the pre-emption of local regulations by national laws. Such unpredictability towards the Company's contractual, property (including intellectual property) and procedural rights could adversely affect the Company's business and impede its ability to continue operations. Furthermore, any litigation in mainland China may be protracted and result in substantial costs and diversion of resources and management attention. The mainland Chinese government exercises significant control over mainland China's economic growth through strategically allocating resources, imposing import and export restrictions, controlling the payment of foreign currency- denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Any growth in the Chinese economy may not continue and any slowdown may have a negative effect on the Company’s business. Any adverse changes in economic conditions in mainland China, in the policies of the mainland Chinese government or in the laws and regulations in mainland China, could have a material adverse effect on the overall economic growth of mainland China. Such developments could adversely affect the Company's business, lead to reduction in demand for its products, impact sourcing of materials and products out of China, and adversely affect the Company's competitive position. Environmental Regulations The Company’s operations involve the use, handling, generation, processing, storage, transportation, recycling and disposal of hazardous materials and are subject to extensive environmental laws and regulations at the local, provincial, national, and international level. These environmental laws and regulations include those governing the discharge of pollutants into the air and water, the use, management and disposal of hazardous materials and wastes, the clean-up of contaminated sites and occupational health and safety. Failure to comply with such laws, regulations and permits can have serious consequences, including damage to its reputation; stopping it from pursuing operations at one of its facilities; being subject to substantial fines, penalties, criminal proceedings, third party property damage or personal injury claims, clean-up costs, capital expenditures or other costs; increasing the costs of development or production and litigation or regulatory action against it, and materially adversely affecting its business, results of operations or financial condition. Environmental legislation is evolving in a manner that will require stricter standards and enforcement, and a Management’s Discussion and Analysis ▪ 18 29 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS heightened degree of responsibility for the Company and its officers, directors and employees. Future changes in applicable environmental and health and safety laws and regulations could substantially increase costs and burdens to achieve or maintain compliance or otherwise have an adverse impact on its business, results of operations or financial condition. The Company has incurred and will continue to incur capital expenditures to comply with environmental laws and regulations. Exceedances in wastewater discharges and air emissions generated by some Company facilities over the limits prescribed in applicable laws and permits have been registered in the past. At such facilities, the Company is collaborating with governmental authorities and implementing various measures including upgrading equipment to ensure compliance. Management believes that dealing with these environmental compliance issues will not have a material effect on the Company's earnings or competitive position during fiscal 2024. Future developments, such as more aggressive enforcement policies, the implementation of new, more stringent laws and regulations, or the discovery of currently unknown environmental conditions, may require expenditures that could have a material adverse effect on its business, results of operations and financial condition. Crisis and Climate Change Management Unexpected events including geopolitical crises, pandemic and epidemic outbreaks, catastrophes and natural disasters, such as extreme and increasingly frequent weather-related disasters linked to climate change, could have a negative impact on the continuation of the Company's operations as well as its suppliers. Environmental, Social and Governance (ESG) Considerations The Company could be subject to growing stakeholder expectations as it relates to ESG factors, including from investors, who are increasingly placing a greater emphasis on ESG factors when assessing investment options. Future investments made in the Company, or future partnerships or business relations made with the Company may depend on various ESG standards and failure to meet evolving standards may impact the Company's reputation and ability to access capital. Safety Risks and Hazards The Company’s health, safety and wellbeing systems, processes and policies are aimed at reducing risks to employees, subconsultants and others; however, work sites can put employees and others in proximity with large equipment, moving vehicles, dangerous processes or highly regulated materials in challenging or remote locations which may increase the risk to health and safety. Failure to implement or follow appropriate safety procedures by the Company or others could result in personal injury, illness or loss of life to people, or environmental and other damage to the Company’s property or the property of others, or in regulatory fines or civil suits. Prolonged Armed Conflict in Ukraine The outbreak of war in Ukraine has deeply disturbed the global economy and the outcome of the ongoing conflict remains uncertain at this time. Although AZUR had sales in Russia in the past, the amount of such sales is not material to the Company as a whole. A prolonged armed conflict in Ukraine or an expansion of the armed conflict to other European countries could have a negative effect on the European and global economies. As well, Russia is a major exporter of oil and natural gas. Any disruption of supplies of oil and natural gas from Russia could have a significant adverse effect on the European and world economies. All the foregoing factors could potentially have a negative impact on the Company’s sales and results of operations. Disease Outbreaks The local or worldwide outbreak of a disease, a virus, including, but not limited to, the COVID-19 pandemic or any other contagious disease and government actions to address them, could have an adverse impact on the Company’s operations, operating results and financial position. While it is sudden, its impact on economic cycles can give rise to unfavourable temporary disruptions in the market where the Company operates as well as on its internal structure, such as plant closures, shortages of raw materials and labour, and in supply chains and distribution channels. Availability and Retention of Qualified Employees The Company relies on the expertise and know-how of its personnel to conduct its operations. The loss of any member of its team could have a material adverse effect on it. Its future success also depends on its ability to execute succession plans, attract and retain key employees, train, retain and successfully integrate new talent into its management and technical teams. Recruiting and retaining talented personnel, particularly those with expertise in the specialty metals 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS industry and refining technology is vital to its success and may prove difficult. The Company cannot provide assurance that it will be able to attract and retain qualified personnel when needed, especially in light of the current labour shortage affecting several markets in which it operates. If the Company is unable to recruit and retain additional qualified personnel in the future, its business, financial condition and operating results could be adversely affected. Collective Agreements A portion of the Company’s workforce is unionized, and it is party to collective agreements that are due to expire at various times in the future. If it is unable to renew these collective agreements on acceptable terms as they become subject to renegotiation from time to time, this could result in work stoppages or other labour disturbances, such as strikes, walkouts or lockouts, potentially affecting its performance. Litigation Risks The Company may be subject to a variety of civil or other legal proceedings, with or without merit. Although the Company establishes provisions for such litigation, there can be no assurance that the provisions for all claims correspond to the settlement amount. A significant judgment against the Company or the imposition of a significant fine or penalty could have a material adverse effect on its business, financial condition and results of operations. Risks Associated with our Growth Strategy The Company’s strategic plan is designed to enhance profitability while reducing earnings volatility, delivering quality growth from existing growth initiatives, new products introduction, and future M&A opportunities. There can be no assurance that the expected benefits will materialize or occur within the time periods anticipated by management. The realization of such benefits may be affected by a number of factors, many of which are beyond its control. The Company will incur costs in pursuing any particular opportunity, which may be significant. Competition The Company is a leading producer of specialty semiconductors and performance materials with a limited number of competitors, few of which are as fully integrated as it is or have a similar range of products. Accordingly, they have limitations to provide the same comprehensive set of services and products as 5N+ does. However, there can be no guarantee that this situation will continue in the future and competition could arise from new low-cost metal refiners or from certain of its customers who could decide to backward integrate. Greater competition could have an adverse effect on the Company’s revenues and operating margins if its competitors gain market share and it is unable to compensate for the volume lost to competition. Commodity Price Commodity prices affect the costs and the price the Company pays for, and availability of, various inputs fluctuate due to numerous factors beyond its control, including political and economic conditions, currency exchange rates, inflation or deflation, global supply and demand for metal products, fluctuations in the value of the U.S. dollar and foreign currencies, speculative trading, trade sanctions, tariffs, labour costs, competition, over capacity of producers and price surcharges. Fluctuations in availability and cost of inputs may materially affect its business, financial condition, results of operations and cash flows. These fluctuations can be unpredictable and can occur over short periods of time. To the extent that the Company is not able to pass on any increases, its business, financial condition, results of operations and cash flows may be materially adversely affected. Sources of Supply The Company may not be able to secure the critical raw material feedstock on which it depends for its operations and there can be no assurance that the prices of such critical feedstock will not rise dramatically. It currently procures raw materials from a number of suppliers with which it has had long-term commercial relationships. The loss of any one of these suppliers or a reduction in the level of deliveries to it may reduce production capacity and impact deliveries to customers. This would, in turn, negatively impact its sales, net margins and may lead to liabilities with respect to some of its supply contracts. In addition, supplemental supply-chain challenges created by the economic conjecture following the COVID-19 global pandemic and most recent geo-political instability and conflicts, could negatively affect the Company’s general procurement through longer delays of transportation or through an increase in prices to obtain supplies. This may adversely affect the business, financial condition and operating results of the Company. 30 Management’s Discussion and Analysis ▪ 19 Management’s Discussion and Analysis ▪ 20 5N+ 2023 ANNUAL REPORT 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS heightened degree of responsibility for the Company and its officers, directors and employees. Future changes in applicable environmental and health and safety laws and regulations could substantially increase costs and burdens to achieve or maintain compliance or otherwise have an adverse impact on its business, results of operations or financial condition. The Company has incurred and will continue to incur capital expenditures to comply with environmental laws and regulations. Exceedances in wastewater discharges and air emissions generated by some Company facilities over the limits prescribed in applicable laws and permits have been registered in the past. At such facilities, the Company is collaborating with governmental authorities and implementing various measures including upgrading equipment to ensure compliance. Management believes that dealing with these environmental compliance issues will not have a material effect on the Company's earnings or competitive position during fiscal 2024. Future developments, such as more aggressive enforcement policies, the implementation of new, more stringent laws and regulations, or the discovery of currently unknown environmental conditions, may require expenditures that could have a material adverse effect on its business, results of operations and financial condition. Crisis and Climate Change Management Unexpected events including geopolitical crises, pandemic and epidemic outbreaks, catastrophes and natural disasters, such as extreme and increasingly frequent weather-related disasters linked to climate change, could have a negative impact on the continuation of the Company's operations as well as its suppliers. Environmental, Social and Governance (ESG) Considerations The Company could be subject to growing stakeholder expectations as it relates to ESG factors, including from investors, who are increasingly placing a greater emphasis on ESG factors when assessing investment options. Future investments made in the Company, or future partnerships or business relations made with the Company may depend on various ESG standards and failure to meet evolving standards may impact the Company's reputation and ability to access capital. Safety Risks and Hazards The Company’s health, safety and wellbeing systems, processes and policies are aimed at reducing risks to employees, subconsultants and others; however, work sites can put employees and others in proximity with large equipment, moving vehicles, dangerous processes or highly regulated materials in challenging or remote locations which may increase the risk to health and safety. Failure to implement or follow appropriate safety procedures by the Company or others could result in personal injury, illness or loss of life to people, or environmental and other damage to the Company’s property or the property of others, or in regulatory fines or civil suits. Prolonged Armed Conflict in Ukraine The outbreak of war in Ukraine has deeply disturbed the global economy and the outcome of the ongoing conflict remains uncertain at this time. Although AZUR had sales in Russia in the past, the amount of such sales is not material to the Company as a whole. A prolonged armed conflict in Ukraine or an expansion of the armed conflict to other European countries could have a negative effect on the European and global economies. As well, Russia is a major exporter of oil and natural gas. Any disruption of supplies of oil and natural gas from Russia could have a significant adverse effect on the European and world economies. All the foregoing factors could potentially have a negative impact on the Company’s sales and results of operations. Disease Outbreaks The local or worldwide outbreak of a disease, a virus, including, but not limited to, the COVID-19 pandemic or any other contagious disease and government actions to address them, could have an adverse impact on the Company’s operations, operating results and financial position. While it is sudden, its impact on economic cycles can give rise to unfavourable temporary disruptions in the market where the Company operates as well as on its internal structure, such as plant closures, shortages of raw materials and labour, and in supply chains and distribution channels. Availability and Retention of Qualified Employees The Company relies on the expertise and know-how of its personnel to conduct its operations. The loss of any member of its team could have a material adverse effect on it. Its future success also depends on its ability to execute succession plans, attract and retain key employees, train, retain and successfully integrate new talent into its management and technical teams. Recruiting and retaining talented personnel, particularly those with expertise in the specialty metals Management’s Discussion and Analysis ▪ 19 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS industry and refining technology is vital to its success and may prove difficult. The Company cannot provide assurance that it will be able to attract and retain qualified personnel when needed, especially in light of the current labour shortage affecting several markets in which it operates. If the Company is unable to recruit and retain additional qualified personnel in the future, its business, financial condition and operating results could be adversely affected. Management's Discussion and Analysis Collective Agreements A portion of the Company’s workforce is unionized, and it is party to collective agreements that are due to expire at various times in the future. If it is unable to renew these collective agreements on acceptable terms as they become subject to renegotiation from time to time, this could result in work stoppages or other labour disturbances, such as strikes, walkouts or lockouts, potentially affecting its performance. Litigation Risks The Company may be subject to a variety of civil or other legal proceedings, with or without merit. Although the Company establishes provisions for such litigation, there can be no assurance that the provisions for all claims correspond to the settlement amount. A significant judgment against the Company or the imposition of a significant fine or penalty could have a material adverse effect on its business, financial condition and results of operations. Risks Associated with our Growth Strategy The Company’s strategic plan is designed to enhance profitability while reducing earnings volatility, delivering quality growth from existing growth initiatives, new products introduction, and future M&A opportunities. There can be no assurance that the expected benefits will materialize or occur within the time periods anticipated by management. The realization of such benefits may be affected by a number of factors, many of which are beyond its control. The Company will incur costs in pursuing any particular opportunity, which may be significant. Competition The Company is a leading producer of specialty semiconductors and performance materials with a limited number of competitors, few of which are as fully integrated as it is or have a similar range of products. Accordingly, they have limitations to provide the same comprehensive set of services and products as 5N+ does. However, there can be no guarantee that this situation will continue in the future and competition could arise from new low-cost metal refiners or from certain of its customers who could decide to backward integrate. Greater competition could have an adverse effect on the Company’s revenues and operating margins if its competitors gain market share and it is unable to compensate for the volume lost to competition. Commodity Price Commodity prices affect the costs and the price the Company pays for, and availability of, various inputs fluctuate due to numerous factors beyond its control, including political and economic conditions, currency exchange rates, inflation or deflation, global supply and demand for metal products, fluctuations in the value of the U.S. dollar and foreign currencies, speculative trading, trade sanctions, tariffs, labour costs, competition, over capacity of producers and price surcharges. Fluctuations in availability and cost of inputs may materially affect its business, financial condition, results of operations and cash flows. These fluctuations can be unpredictable and can occur over short periods of time. To the extent that the Company is not able to pass on any increases, its business, financial condition, results of operations and cash flows may be materially adversely affected. Sources of Supply The Company may not be able to secure the critical raw material feedstock on which it depends for its operations and there can be no assurance that the prices of such critical feedstock will not rise dramatically. It currently procures raw materials from a number of suppliers with which it has had long-term commercial relationships. The loss of any one of these suppliers or a reduction in the level of deliveries to it may reduce production capacity and impact deliveries to customers. This would, in turn, negatively impact its sales, net margins and may lead to liabilities with respect to some of its supply contracts. In addition, supplemental supply-chain challenges created by the economic conjecture following the COVID-19 global pandemic and most recent geo-political instability and conflicts, could negatively affect the Company’s general procurement through longer delays of transportation or through an increase in prices to obtain supplies. This may adversely affect the business, financial condition and operating results of the Company. Management’s Discussion and Analysis ▪ 20 31 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Canada has enacted the Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff ("Act"), which came into effect on January 1, 2024. The Act requires the Company to examine its supply chains and produce annual reports, to be published on the Company’s website and submitted to the Minister of Public Safety and Emergency Preparedness, disclosing measures and steps it has taken to prevent and reduce the risk that forced labour or child labour is being used in its supply chains. Compliance with the Act may result into increased costs and failure to comply with the Act could have a material adverse effect on the Company’s reputation, business, results of operations and financial condition. Despite our effort to take increased actions to ensure our entire supply chain is free of any forced labour, there is nonetheless a risk of forced labour on products we source from third parties where we may not have complete visibility into their supply chain. As a result, the Company may face regulatory challenges in complying with applicable sanctions and trade regulations and reputational challenges with various stakeholders if we are unable to sufficiently verify the origins for the material sourced. Protection of Intellectual Property Protection of the Company’s proprietary processes, methods and other technologies is important to its business. The Company relies on international patents as well as trade secrets and employee confidentiality agreements to safeguard its intellectual property. The Company has deliberately chosen to limit its patent position for certain intellectual properties to avoid disclosing valuable information. Failure to protect and monitor the use of its existing intellectual property rights could result in the loss of valuable technologies and processes. There can be no assurance that its confidentiality agreements will provide meaningful protection for its intellectual property rights or other proprietary information in the event of any unauthorized use or disclosure or that it will be able to meaningfully protect our trade secrets. Inventory Price The Company may be subject to risk associated with the value of our inventories in relation to the market price of such inventories. The highly illiquid nature of many of its inventories may increase such risk. The Company relies on a combination of standard risk measurement techniques, such as value at risk as well as a more empirical assessment of the market conditions to manage inventory levels. Decisions on appropriate physical stock levels are taken by considering both the value at risk calculations and the market conditions. Business Interruptions The Company may incur losses resulting from business interruptions due to equipment failure, power loss, fire or water damage, and similar events beyond its control. In many instances, especially those related to its long-term contracts, it has contractual obligations to deliver product in a timely manner. Any disruption in its activities which leads to a business interruption could harm its customers’ confidence level and lead to the cancellation of contracts and legal recourse against it. Although the Company believes that it has taken the necessary precautions to avoid business interruptions and carry all-risk business interruption insurance to protect its assets and business, it could still experience interruptions which would adversely impact production activities and financial results. Loss of an Important Customer The loss of any large customers, unanticipated demand fluctuations from these customers, or the inability of these customers to perform under their contracts, could significantly reduce the Company’s revenue and negatively impact its results of operations. Changes to Backlog The Company cannot guarantee that the revenues projected in its backlog at any given time will be realized or that they will perform as expected with respect to margin. In addition, contract delays, suspensions, terminations, cancellations, reductions in scope or other adjustments may occur from time to time due to considerations beyond the Company’s control and may have an impact on the value of reported backlog with a corresponding adverse impact on future revenues and profitability. Acquisition Risk The Company completed the acquisition of AZUR in November 2021 and may, from time to time, acquire or propose to acquire other companies. The Company’s inability to properly integrate acquired companies, unanticipated acquisition costs, unforeseen delays and unknown liabilities associated with acquisitions, the potential loss of key employees following acquisitions, challenges with the integration of new operations and new personnel, the diversion of Management’s Discussion and Analysis ▪ 21 32 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS management’s time and focus from other business concerns, opportunities and operational matters to work on acquisitions or integrate acquisitions, the loss of momentum in ongoing operations and disruptions to operations, possible inconsistencies in procedures and policies among the combined companies, and the need to implement new accounting, information technology, human resources or other administrative systems, may each materially and adversely affect the Company’s business, results of operations or financial condition. Systems, Network Infrastructure and Data Failure, Interruption and Breach The Company’s operations rely on information systems, communications technology, business and other technology applications, including global and regional networks, complex server infrastructure and operating systems, to operate properly. If it is unable to continually maintain software and hardware, effectively upgrade its systems and network infrastructure, and take other steps to improve the efficiency and protect its systems, the Company’s operation systems could be interrupted or delayed. The same applies if its network, communication and operations systems are damaged or interrupted by natural disasters, telecommunications failures, acts of war or terrorism, computer viruses, sabotage, human errors, physical or electronic security breaches, or similar events or disruptions. The Company also faces the threat of unauthorized system access, computer hackers, malicious code and organized cyber-attacks. Following the pandemic and the lifting of COVID-19 restrictions, there a significant number of employees who continue to work remotely, which could contribute to an increase in cyber-attack attempts. Executive management consultations are held regularly to monitor the progress of various cybersecurity projects, review significant incidents and review various security-related performance indicators. Executive management reports on its work to the members of the Board of Directors on a biannual basis. The Corporate IT function sets up and coordinates prevention, detection, and remediation measures in the area of cybersecurity. Cybersecurity measures include, among others, setting up strong controls with respect to systems access, implementing information security awareness programs, and hiring specialized firms to carry out occasional intrusion tests. Although the Company has not experienced any material losses relating to cyberattacks or other information security breaches in the past, there can be no assurance that the Company will not experience such losses in the future due to the evolving nature of these threats. Privacy Data privacy breaches could adversely affect the Company’s results of operations and profitability. Personal privacy and data security have become significant issues in North America and Europe, and in many other jurisdictions in which it operates. The regulatory framework for privacy and security issues worldwide is rapidly evolving and it may prove to be difficult to comply with all applicable laws and regulations in Canada and other jurisdictions regarding privacy. Furthermore, local or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws and regulations affecting data privacy, all of which may be subject to invalidation by relevant foreign judicial bodies. Industry organizations also regularly adopt and advocate for new standards in this area. Market Price of Common Shares The common shares of the Company are traded on the Toronto Stock Exchange under the symbol ''VNP''. The market price of securities of many companies experiences wide fluctuations from time to time that are not necessarily related to the operating performance, underlying asset values or future growth prospects of such companies. There can be no assurance that fluctuations in the price of the common shares of the Company, which may result in losses for investors, will not occur. Grants and other incentive programs The reduction, elimination, or expiration of government subsidies, economic incentives, tax incentives, R&D and business development incentives, or other public policies could negatively impact the Company’s financial performance. Non-IFRS Measures In this Management’s Report, certain non-IFRS measures are used. The Company’s management believes that these non- IFRS measures provide useful information to investors regarding the Company’s financial condition and results of operations as they provide additional key metrics of its performance. These non-IFRS measures are not recognized under IFRS Accounting Standards, do not have any standardized meaning prescribed under IFRS Accounting Standards and may differ from similarly named measures as reported by other issuers, and accordingly may not be comparable. These Management’s Discussion and Analysis ▪ 22 5N+ 2023 ANNUAL REPORT 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Canada has enacted the Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff ("Act"), which came into effect on January 1, 2024. The Act requires the Company to examine its supply chains and produce annual reports, to be published on the Company’s website and submitted to the Minister of Public Safety and Emergency Preparedness, disclosing measures and steps it has taken to prevent and reduce the risk that forced labour or child labour is being used in its supply chains. Compliance with the Act may result into increased costs and failure to comply with the Act could have a material adverse effect on the Company’s reputation, business, results of operations and financial condition. Despite our effort to take increased actions to ensure our entire supply chain is free of any forced labour, there is nonetheless a risk of forced labour on products we source from third parties where we may not have complete visibility into their supply chain. As a result, the Company may face regulatory challenges in complying with applicable sanctions and trade regulations and reputational challenges with various stakeholders if we are unable to sufficiently verify the origins for the material sourced. Protection of Intellectual Property Protection of the Company’s proprietary processes, methods and other technologies is important to its business. The Company relies on international patents as well as trade secrets and employee confidentiality agreements to safeguard its intellectual property. The Company has deliberately chosen to limit its patent position for certain intellectual properties to avoid disclosing valuable information. Failure to protect and monitor the use of its existing intellectual property rights could result in the loss of valuable technologies and processes. There can be no assurance that its confidentiality agreements will provide meaningful protection for its intellectual property rights or other proprietary information in the event of any unauthorized use or disclosure or that it will be able to meaningfully protect our trade secrets. Inventory Price The Company may be subject to risk associated with the value of our inventories in relation to the market price of such inventories. The highly illiquid nature of many of its inventories may increase such risk. The Company relies on a combination of standard risk measurement techniques, such as value at risk as well as a more empirical assessment of the market conditions to manage inventory levels. Decisions on appropriate physical stock levels are taken by considering both the value at risk calculations and the market conditions. Business Interruptions The Company may incur losses resulting from business interruptions due to equipment failure, power loss, fire or water damage, and similar events beyond its control. In many instances, especially those related to its long-term contracts, it has contractual obligations to deliver product in a timely manner. Any disruption in its activities which leads to a business interruption could harm its customers’ confidence level and lead to the cancellation of contracts and legal recourse against it. Although the Company believes that it has taken the necessary precautions to avoid business interruptions and carry all-risk business interruption insurance to protect its assets and business, it could still experience interruptions which would adversely impact production activities and financial results. Loss of an Important Customer The loss of any large customers, unanticipated demand fluctuations from these customers, or the inability of these customers to perform under their contracts, could significantly reduce the Company’s revenue and negatively impact its results of operations. Changes to Backlog revenues and profitability. Acquisition Risk The Company cannot guarantee that the revenues projected in its backlog at any given time will be realized or that they will perform as expected with respect to margin. In addition, contract delays, suspensions, terminations, cancellations, reductions in scope or other adjustments may occur from time to time due to considerations beyond the Company’s control and may have an impact on the value of reported backlog with a corresponding adverse impact on future The Company completed the acquisition of AZUR in November 2021 and may, from time to time, acquire or propose to acquire other companies. The Company’s inability to properly integrate acquired companies, unanticipated acquisition costs, unforeseen delays and unknown liabilities associated with acquisitions, the potential loss of key employees following acquisitions, challenges with the integration of new operations and new personnel, the diversion of Management’s Discussion and Analysis ▪ 21 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS management’s time and focus from other business concerns, opportunities and operational matters to work on acquisitions or integrate acquisitions, the loss of momentum in ongoing operations and disruptions to operations, possible inconsistencies in procedures and policies among the combined companies, and the need to implement new accounting, information technology, human resources or other administrative systems, may each materially and adversely affect the Company’s business, results of operations or financial condition. Management's Discussion and Analysis Systems, Network Infrastructure and Data Failure, Interruption and Breach The Company’s operations rely on information systems, communications technology, business and other technology applications, including global and regional networks, complex server infrastructure and operating systems, to operate properly. If it is unable to continually maintain software and hardware, effectively upgrade its systems and network infrastructure, and take other steps to improve the efficiency and protect its systems, the Company’s operation systems could be interrupted or delayed. The same applies if its network, communication and operations systems are damaged or interrupted by natural disasters, telecommunications failures, acts of war or terrorism, computer viruses, sabotage, human errors, physical or electronic security breaches, or similar events or disruptions. The Company also faces the threat of unauthorized system access, computer hackers, malicious code and organized cyber-attacks. Following the pandemic and the lifting of COVID-19 restrictions, there a significant number of employees who continue to work remotely, which could contribute to an increase in cyber-attack attempts. Executive management consultations are held regularly to monitor the progress of various cybersecurity projects, review significant incidents and review various security-related performance indicators. Executive management reports on its work to the members of the Board of Directors on a biannual basis. The Corporate IT function sets up and coordinates prevention, detection, and remediation measures in the area of cybersecurity. Cybersecurity measures include, among others, setting up strong controls with respect to systems access, implementing information security awareness programs, and hiring specialized firms to carry out occasional intrusion tests. Although the Company has not experienced any material losses relating to cyberattacks or other information security breaches in the past, there can be no assurance that the Company will not experience such losses in the future due to the evolving nature of these threats. Privacy Data privacy breaches could adversely affect the Company’s results of operations and profitability. Personal privacy and data security have become significant issues in North America and Europe, and in many other jurisdictions in which it operates. The regulatory framework for privacy and security issues worldwide is rapidly evolving and it may prove to be difficult to comply with all applicable laws and regulations in Canada and other jurisdictions regarding privacy. Furthermore, local or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws and regulations affecting data privacy, all of which may be subject to invalidation by relevant foreign judicial bodies. Industry organizations also regularly adopt and advocate for new standards in this area. Market Price of Common Shares The common shares of the Company are traded on the Toronto Stock Exchange under the symbol ''VNP''. The market price of securities of many companies experiences wide fluctuations from time to time that are not necessarily related to the operating performance, underlying asset values or future growth prospects of such companies. There can be no assurance that fluctuations in the price of the common shares of the Company, which may result in losses for investors, will not occur. Grants and other incentive programs The reduction, elimination, or expiration of government subsidies, economic incentives, tax incentives, R&D and business development incentives, or other public policies could negatively impact the Company’s financial performance. Non-IFRS Measures In this Management’s Report, certain non-IFRS measures are used. The Company’s management believes that these non- IFRS measures provide useful information to investors regarding the Company’s financial condition and results of operations as they provide additional key metrics of its performance. These non-IFRS measures are not recognized under IFRS Accounting Standards, do not have any standardized meaning prescribed under IFRS Accounting Standards and may differ from similarly named measures as reported by other issuers, and accordingly may not be comparable. These Management’s Discussion and Analysis ▪ 22 33 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS measures should not be viewed as a substitute for the related financial information prepared in accordance with IFRS Accounting Standards. Backlog represents the expected orders the Company has received, but has not yet executed, and that are expected to translate into sales within the next twelve months, expressed in dollars and estimated in number of days not to exceed 365 days. Bookings represent orders received during the period considered, expressed in number of days, and calculated by adding revenues to the increase or decrease in backlog for the period considered, divided by annualized year revenues. 5N+ uses backlog to provide an indication of expected future revenues in days, and bookings to determine its ability to sustain and increase its revenues. EBITDA means net earnings (loss) before interest expenses, income tax expense (recovery), depreciation and amortization. 5N+ uses EBITDA because it believes it is a meaningful measure of the operating performance of its ongoing business, without the effects of certain expenses. The definition of this non-IFRS measure used by the Company may differ from that used by other companies. EBITDA is reconciled to the most comparable IFRS measure: (in thousands of U.S. dollars) Net earnings (loss) Interest on long-term debt, imputed interest and other interest expense Income tax (recovery) expense Depreciation and amortization EBITDA EBITDA margin is defined as EBITDA divided by revenues. Q4 2023 $ 2,284 2,129 (734) 4,057 7,736 Q4 2022 $ (8,146) 716 (292) 4,051 (3,671) FY 2023 $ 15,399 8,834 3,275 16,110 43,618 FY 2022 $ (22,999) 5,192 4,711 17,732 4,636 Adjusted EBITDA means operating earnings (loss) as defined before the effect of impairment of inventories, share-based compensation expense (recovery), litigation and restructuring costs (income), impairment of non-current assets, loss on disposal of property, plant and equipment, loss on divestiture of subsidiary, loss on disposal of assets held for sale, and depreciation and amortization. 5N+ uses Adjusted EBITDA because it believes it is a meaningful measure of the operating performance of its ongoing business without the effects of certain expenses. The definition of this non-IFRS measure used by the Company may differ from that used by other companies. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenues. Adjusted EBITDA and Adjusted EBITDA margin are reconciled to the most comparable IFRS measure: (in thousands of U.S. dollars) Revenues Operating expenses Operating earnings (loss) Share-based compensation expense (recovery) Litigation and restructuring costs (income) Impairment of non-current assets Loss on disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Depreciation and amortization Adjusted EBITDA Adjusted EBITDA margin percentage Q4 2023 $ 65,063 (61,023) 4,040 414 458 64 - - - 4,057 9,033 13.9% Q4 2022 $ 61,042 (69,261) (8,219) (171) 3,210 - - 7,834 - 4,051 6,705 11.0% FY 2023 $ 242,371 (214,999) 27,372 1,432 (8,314) 672 1,051 - - 16,110 38,323 15.8% FY 2022 $ 264,223 (277,277) (13,054) 999 3,823 12,478 - 7,834 216 17,732 30,028 11.4% Adjusted operating expenses means operating expenses before impairment of inventories, share-based compensation expense (recovery), litigation and restructuring costs (income), impairment of non-current assets, loss on disposal of property, plant and equipment, loss on divestiture of subsidiary, loss on disposal of assets held for sale, and depreciation and amortization. 5N+ uses Adjusted operating expenses to calculate Adjusted EBITDA. 5N+ believes it is a meaningful 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS measure of the operating performance of its ongoing business. The definition of this non-IFRS measure used by the Company may differ from that used by other companies. Adjusted operating expenses are reconciled to the most comparable IFRS measure: (in thousands of U.S. dollars) Q4 2022 FY 2023 FY 2022 Operating expenses Share-based compensation (expense) recovery Litigation and restructuring (costs) income Impairment of non-current assets Loss of disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Depreciation and amortization Adjusted operating expenses Q4 2023 $ 61,023 (414) (458) (64) - - - (4,057) 56,030 $ 69,261 171 (3,210) - - - (7,834) (4,051) 54,337 $ 214,999 (1,432) 8,314 (672) (1,051) - - (16,110) 204,048 $ 277,277 (999) (3,823) (12,478) - (7,834) (216) (17,732) 234,195 Adjusted net earnings (loss) means the net earnings (loss) before the effect of impairment of inventory, share-based compensation expense (recovery), litigation and restructuring costs (income), impairment of non-current assets and loss on disposal of property, plant and equipment, loss on divestiture of subsidiary, loss on disposal of assets held for sale, net of the related income tax expense (recovery). 5N+ uses adjusted net earnings (loss) because it believes it is a meaningful measure of the operating performance of its ongoing business without the effects of unusual expenses or income. The definition of this non-IFRS measure used by the Company may differ from that used by other companies. Basic adjusted earnings (loss) per share means adjusted net earnings (loss) divided by the weighted average number of outstanding shares. 5N+ uses basic adjusted earnings (loss) per share because it believes it is a meaningful measure of the operating performance of its ongoing business without the effects of unusual expenses or income. The definition of this non-IFRS measure used by the Company may differ from that used by other companies. Adjusted net earnings (loss) and Basic adjusted earnings (loss) per share are reconciled to the most comparable IFRS (in thousands of U.S. dollars, except per share amounts and number of Q4 2023 Q4 2022 FY 2023 FY 2022 measures: shares) Net earnings (loss) Basic earnings (loss) per share Reconciling items: Share-based compensation expense (recovery) Litigation and restructuring costs (income) Impairment of non-current assets Loss on disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Income tax recovery on taxable items above Adjusted net earnings (loss) Basic weighted average number of shares Basic adjusted earnings (loss) per share $ 2,284 $0.03 414 458 64 - - - (226) 2,994 $ (8,146) ($0.09) (171) 3,210 - - - 7,834 (595) 2,132 $ 15,399 $0.17 1,432 (8,314) 672 1,051 - - (854) 9,386 $ (22,999) ($0.26) 999 3,823 12,478 - 7,834 216 (2,618) (267) 88,704,724 88,330,236 88,533,263 88,330,236 $0.03 $0.02 $0.10 $- Adjusted gross margin is a measure used to monitor the sales contribution after paying cost of sales, excluding depreciation and inventory impairment charges. 5N+ also expressed this measure in percentage of revenues by dividing the adjusted gross margin value by the total revenue. 34 Management’s Discussion and Analysis ▪ 23 Management’s Discussion and Analysis ▪ 24 5N+ 2023 ANNUAL REPORT 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Accounting Standards. measures should not be viewed as a substitute for the related financial information prepared in accordance with IFRS Backlog represents the expected orders the Company has received, but has not yet executed, and that are expected to translate into sales within the next twelve months, expressed in dollars and estimated in number of days not to exceed 365 days. Bookings represent orders received during the period considered, expressed in number of days, and calculated by adding revenues to the increase or decrease in backlog for the period considered, divided by annualized year revenues. 5N+ uses backlog to provide an indication of expected future revenues in days, and bookings to determine its ability to sustain and increase its revenues. EBITDA means net earnings (loss) before interest expenses, income tax expense (recovery), depreciation and amortization. 5N+ uses EBITDA because it believes it is a meaningful measure of the operating performance of its ongoing business, without the effects of certain expenses. The definition of this non-IFRS measure used by the Company may differ from that used by other companies. EBITDA is reconciled to the most comparable IFRS measure: Interest on long-term debt, imputed interest and other interest expense (in thousands of U.S. dollars) Net earnings (loss) Income tax (recovery) expense Depreciation and amortization EBITDA Q4 2023 Q4 2022 FY 2023 FY 2022 $ 2,284 2,129 (734) 4,057 7,736 $ (8,146) 716 (292) 4,051 (3,671) $ 15,399 8,834 3,275 16,110 43,618 $ (22,999) 5,192 4,711 17,732 4,636 EBITDA margin is defined as EBITDA divided by revenues. Adjusted EBITDA means operating earnings (loss) as defined before the effect of impairment of inventories, share-based compensation expense (recovery), litigation and restructuring costs (income), impairment of non-current assets, loss on disposal of property, plant and equipment, loss on divestiture of subsidiary, loss on disposal of assets held for sale, and depreciation and amortization. 5N+ uses Adjusted EBITDA because it believes it is a meaningful measure of the operating performance of its ongoing business without the effects of certain expenses. The definition of this non-IFRS measure used by the Company may differ from that used by other companies. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenues. Adjusted EBITDA and Adjusted EBITDA margin are reconciled to the most comparable IFRS measure: (in thousands of U.S. dollars) Q4 2023 Q4 2022 FY 2023 FY 2022 Revenues Operating expenses Operating earnings (loss) Share-based compensation expense (recovery) Litigation and restructuring costs (income) Impairment of non-current assets Loss on disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Depreciation and amortization Adjusted EBITDA Adjusted EBITDA margin percentage $ 65,063 (61,023) 4,040 414 458 64 - - - 4,057 9,033 13.9% $ 61,042 (69,261) (8,219) (171) 3,210 - - - 7,834 4,051 6,705 11.0% $ 242,371 (214,999) 27,372 1,432 (8,314) 672 1,051 - - 16,110 38,323 15.8% $ 264,223 (277,277) (13,054) 999 3,823 12,478 - 7,834 216 17,732 30,028 11.4% Adjusted operating expenses means operating expenses before impairment of inventories, share-based compensation expense (recovery), litigation and restructuring costs (income), impairment of non-current assets, loss on disposal of property, plant and equipment, loss on divestiture of subsidiary, loss on disposal of assets held for sale, and depreciation and amortization. 5N+ uses Adjusted operating expenses to calculate Adjusted EBITDA. 5N+ believes it is a meaningful Management’s Discussion and Analysis ▪ 23 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS measure of the operating performance of its ongoing business. The definition of this non-IFRS measure used by the Company may differ from that used by other companies. Management's Discussion and Analysis Adjusted operating expenses are reconciled to the most comparable IFRS measure: (in thousands of U.S. dollars) Operating expenses Share-based compensation (expense) recovery Litigation and restructuring (costs) income Impairment of non-current assets Loss of disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Depreciation and amortization Adjusted operating expenses Q4 2023 $ 61,023 (414) (458) (64) - - - (4,057) 56,030 Q4 2022 $ 69,261 171 (3,210) - - (7,834) - (4,051) 54,337 FY 2023 $ 214,999 (1,432) 8,314 (672) (1,051) - - (16,110) 204,048 FY 2022 $ 277,277 (999) (3,823) (12,478) - (7,834) (216) (17,732) 234,195 Adjusted net earnings (loss) means the net earnings (loss) before the effect of impairment of inventory, share-based compensation expense (recovery), litigation and restructuring costs (income), impairment of non-current assets and loss on disposal of property, plant and equipment, loss on divestiture of subsidiary, loss on disposal of assets held for sale, net of the related income tax expense (recovery). 5N+ uses adjusted net earnings (loss) because it believes it is a meaningful measure of the operating performance of its ongoing business without the effects of unusual expenses or income. The definition of this non-IFRS measure used by the Company may differ from that used by other companies. Basic adjusted earnings (loss) per share means adjusted net earnings (loss) divided by the weighted average number of outstanding shares. 5N+ uses basic adjusted earnings (loss) per share because it believes it is a meaningful measure of the operating performance of its ongoing business without the effects of unusual expenses or income. The definition of this non-IFRS measure used by the Company may differ from that used by other companies. Adjusted net earnings (loss) and Basic adjusted earnings (loss) per share are reconciled to the most comparable IFRS measures: (in thousands of U.S. dollars, except per share amounts and number of shares) Net earnings (loss) Basic earnings (loss) per share Reconciling items: Share-based compensation expense (recovery) Litigation and restructuring costs (income) Impairment of non-current assets Loss on disposal of property, plant and equipment Loss on divestiture of subsidiary Loss on disposal of assets held for sale Income tax recovery on taxable items above Adjusted net earnings (loss) Basic weighted average number of shares Basic adjusted earnings (loss) per share Q4 2023 Q4 2022 FY 2023 FY 2022 $ 2,284 $0.03 $ (8,146) ($0.09) $ 15,399 $0.17 $ (22,999) ($0.26) 414 458 64 - - - (226) 2,994 88,704,724 $0.03 (171) 3,210 - - 7,834 - (595) 2,132 88,330,236 $0.02 1,432 (8,314) 672 1,051 - - (854) 9,386 88,533,263 $0.10 999 3,823 12,478 - 7,834 216 (2,618) (267) 88,330,236 $- Adjusted gross margin is a measure used to monitor the sales contribution after paying cost of sales, excluding depreciation and inventory impairment charges. 5N+ also expressed this measure in percentage of revenues by dividing the adjusted gross margin value by the total revenue. Management’s Discussion and Analysis ▪ 24 35 2023 ANNUAL REPORT 5N+ Management’s Discussion and Analysis 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Adjusted gross margin is reconciled to the most comparable IFRS measure: (in thousands of U.S. dollars) Total revenue Cost of sales Gross margin Depreciation included in cost of sales Adjusted gross margin Adjusted gross margin percentage Q4 2023 $ 65,063 (49,677) 15,386 3,189 18,575 28.5% Q4 2022 $ 61,042 (47,909) 13,133 3,155 16,288 26.7% FY 2023 $ 242,371 (184,833) 57,538 12,656 70,194 29.0% FY 2022 $ 264,223 (215,715) 48,508 14,208 62,716 23.7% Net debt is calculated as total debt less cash and cash equivalents. Any introduced IFRS 16 reporting measures in reference to lease liabilities are excluded from the calculation. 5N+ uses this measure as an indicator of its overall financial position. The net debt to EBITDA ratio is defined as net debt divided by EBITDA. Total debt and Net debt are reconciled to the most comparable IFRS measure: (in thousands of U.S. dollars) Bank indebtedness Long-term debt including current portion Lease liabilities including current portion Subtotal Debt Lease liabilities including current portion Total Debt Cash and cash equivalents Net Debt As at December 31, 2023 $ - 108,500 30,139 As at December 31, 2022 $ - 121,000 30,402 138,639 (30,139) 108,500 (34,706) 73,794 151,402 (30,402) 121,000 (42,691) 78,309 Working capital is a measure of liquid assets that is calculated by taking current assets and subtracting current liabilities. Given that the Company is currently indebted, it uses it as an indicator of its financial efficiency and aims to maintain it at the lowest possible level. Working capital ratio is calculated by dividing current assets by current liabilities. Working capital is reconciled to the most comparable IFRS measure: (in thousands of U.S. dollars) Inventories Other current assets excluding inventories Current assets Current liabilities Working capital Working capital current ratio As at December 31, 2023 $ 105,850 76,113 181,963 (81,807) 100,156 2.22 As at December 31, 2022 $ 86,254 100,908 187,162 (62,846) 124,316 2.98 5N+’s common shares trade on the Toronto Stock Exchange (TSX) under the ticker symbol VNP. Additional information relating to the Company, including the Company’s annual information form, is available under the Company’s profile on (in thousands of U.S. dollars, except per Sept 30, June 30, March 31, Dec 31, Sept 30, June 30, March 31, 2023 $ 62,946 9,582 9,649 1,518 $0.02 $0.02 1,742 $0.02 2023 $ 59,075 17,530 10,844 10,143 $0.11 $0.11 3,187 $0.04 2023 $ 55,287 8,770 8,797 1,454 $0.02 $0.02 1,463 $0.02 2022 $ 61,042 (3,671) 6,705 (8,146) ($0.09) ($0.09) 2,132 $0.02 2022 $ 66,372 1,751 9,114 (6,968) ($0.08) ($0.08) 520 $- 2022 $ 72,388 6,739 8,583 (2,130) ($0.02) ($0.02) (997) ($0.01) 2022 $ 64,421 (183) 5,626 (5,755) ($0.07) ($0.07) (1,922) ($0.02) 5,883 292 days 5,064 15,227 5,877 4,447 2,473 3,778 2,800 284 days 289 days 306 days 253 days 192 days 140 days 196 days Net earnings (loss) are completely attributable to equity holders of 5N+. 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Additional Information SEDAR+ at www.sedarplus.com. Selected Quarterly Financial Information share amounts) Revenue EBITDA Adjusted EBITDA Net earnings (loss) Basic earnings (loss) per share Diluted earnings (loss) per share Adjusted net earnings (loss) Basic adjusted earnings (loss) per share Cash from operations before net change in non-cash working capital items Backlog Dec 31, 2023 $ 65,063 7,736 9,033 2,284 $0.03 $0.03 2,994 $0.03 Selected Yearly Financial Information As at and for the years ended December 31 (in thousands of U.S. dollars except per share amounts) Revenue EBITDA Adjusted EBITDA Net (loss) earnings Basic (loss) earnings per share Diluted (loss) earnings per share Adjusted net (loss) earnings Basic adjusted net earnings per share Backlog Balance Sheet Total assets Total non-current liabilities Net debt Shareholders’ equity 2023 $ 242,371 43,618 38,323 15,399 $0.17 $0.17 9,386 $0.11 32,051 292 days 350,202 139,803 73,794 128,592 2022 $ 264,223 4,636 30,028 (22,999) ($0.26) ($0.26) (267) $- 13,498 253 days 347,985 172,363 78,309 112,776 2021 $ 209,990 24,988 28,239 3,110 $0.04 $0.04 5,354 $0.06 16,553 221 days 373,590 172,284 80,060 136,247 Cash from operations before net change in non-cash working capital items Net earnings (loss) are completely attributable to equity holders of 5N+. 36 Management’s Discussion and Analysis ▪ 25 Management’s Discussion and Analysis ▪ 26 5N+ 2023 ANNUAL REPORT 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Adjusted gross margin is reconciled to the most comparable IFRS measure: (in thousands of U.S. dollars) Q4 2023 Q4 2022 FY 2023 FY 2022 Total revenue Cost of sales Gross margin Depreciation included in cost of sales Adjusted gross margin Adjusted gross margin percentage $ 65,063 (49,677) 15,386 3,189 18,575 28.5% $ 61,042 (47,909) 13,133 3,155 16,288 26.7% $ 242,371 (184,833) 57,538 12,656 70,194 29.0% $ 264,223 (215,715) 48,508 14,208 62,716 23.7% Net debt is calculated as total debt less cash and cash equivalents. Any introduced IFRS 16 reporting measures in reference to lease liabilities are excluded from the calculation. 5N+ uses this measure as an indicator of its overall financial position. The net debt to EBITDA ratio is defined as net debt divided by EBITDA. Total debt and Net debt are reconciled to the most comparable IFRS measure: (in thousands of U.S. dollars) As at December 31, 2023 As at December 31, 2022 Bank indebtedness Long-term debt including current portion Lease liabilities including current portion Subtotal Debt Lease liabilities including current portion Cash and cash equivalents Total Debt Net Debt Other current assets excluding inventories Inventories Current assets Current liabilities Working capital Working capital current ratio Working capital is a measure of liquid assets that is calculated by taking current assets and subtracting current liabilities. Given that the Company is currently indebted, it uses it as an indicator of its financial efficiency and aims to maintain it at the lowest possible level. Working capital ratio is calculated by dividing current assets by current liabilities. Working capital is reconciled to the most comparable IFRS measure: (in thousands of U.S. dollars) As at December 31, 2023 As at December 31, 2022 $ - 108,500 30,139 138,639 (30,139) 108,500 (34,706) 73,794 $ 105,850 76,113 181,963 (81,807) 100,156 2.22 $ - 121,000 30,402 151,402 (30,402) 121,000 (42,691) 78,309 $ 86,254 100,908 187,162 (62,846) 124,316 2.98 5N PLUS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS Additional Information 5N+’s common shares trade on the Toronto Stock Exchange (TSX) under the ticker symbol VNP. Additional information relating to the Company, including the Company’s annual information form, is available under the Company’s profile on SEDAR+ at www.sedarplus.com. Management's Discussion and Analysis Selected Quarterly Financial Information (in thousands of U.S. dollars, except per share amounts) Revenue EBITDA Adjusted EBITDA Net earnings (loss) Basic earnings (loss) per share Diluted earnings (loss) per share Adjusted net earnings (loss) Basic adjusted earnings (loss) per share Cash from operations before net change in non-cash working capital items Backlog Dec 31, 2023 $ 65,063 7,736 9,033 2,284 $0.03 $0.03 2,994 $0.03 Sept 30, 2023 $ 62,946 9,582 9,649 1,518 $0.02 $0.02 1,742 $0.02 June 30, 2023 $ 59,075 17,530 10,844 10,143 $0.11 $0.11 3,187 $0.04 March 31, 2023 $ 55,287 8,770 8,797 1,454 $0.02 $0.02 1,463 $0.02 Dec 31, 2022 $ 61,042 (3,671) 6,705 (8,146) ($0.09) ($0.09) 2,132 $0.02 Sept 30, 2022 $ 66,372 1,751 9,114 (6,968) ($0.08) ($0.08) 520 $- June 30, 2022 $ 72,388 6,739 8,583 (2,130) ($0.02) ($0.02) (997) ($0.01) March 31, 2022 $ 64,421 (183) 5,626 (5,755) ($0.07) ($0.07) (1,922) ($0.02) 5,883 292 days 5,064 284 days 15,227 289 days 5,877 306 days 4,447 253 days 2,473 192 days 3,778 140 days 2,800 196 days Net earnings (loss) are completely attributable to equity holders of 5N+. Selected Yearly Financial Information As at and for the years ended December 31 (in thousands of U.S. dollars except per share amounts) Revenue EBITDA Adjusted EBITDA Net (loss) earnings Basic (loss) earnings per share Diluted (loss) earnings per share Adjusted net (loss) earnings Basic adjusted net earnings per share Cash from operations before net change in non-cash working capital items Backlog Balance Sheet Total assets Total non-current liabilities Net debt Shareholders’ equity Net earnings (loss) are completely attributable to equity holders of 5N+. 2023 $ 242,371 43,618 38,323 15,399 $0.17 $0.17 9,386 $0.11 32,051 292 days 350,202 139,803 73,794 128,592 2022 $ 264,223 4,636 30,028 (22,999) ($0.26) ($0.26) (267) $- 13,498 253 days 347,985 172,363 78,309 112,776 2021 $ 209,990 24,988 28,239 3,110 $0.04 $0.04 5,354 $0.06 16,553 221 days 373,590 172,284 80,060 136,247 Management’s Discussion and Analysis ▪ 25 Management’s Discussion and Analysis ▪ 26 37 2023 ANNUAL REPORT 5N+ MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING The consolidated financial statements and related notes have been prepared by management in conformity with generally accepted accounting principles in Canada which incorporate International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards). Management is responsible for the selection of accounting policies and making significant accounting judgements and estimates. Management is also responsible for all other information included in the management’s discussion and analysis and for ensuring that this information is consistent with the information contained in the consolidated financial statements. Management is responsible for establishing and maintaining adequate internal control over financial reporting which includes those policies and procedures that provide reasonable assurance over the safeguarding of assets and over the completeness, fairness and accuracy of the consolidated financial statements. The Audit and Risk Management Committee, which is comprised entirely of independent directors, reviews the quality and integrity of the Company’s financial reporting and provides its recommendations, in respect of the approval of the financial statements, to the Board of Directors; oversees management’s responsibilities as to the adequacy of the supporting systems of internal controls; provides oversight of the independence, qualifications, and appointment of the external auditor; and reviews audit, audit-related, and non-audit fees and expenses. The Board of Directors approves the Company’s consolidated financial statements and management’s discussion and analysis disclosures prior to their release. The Audit and Risk Management Committee meets with management, the internal auditor and external auditors at least four times each year to review and discuss financial reporting, disclosures, auditing and other matters. The external auditors, PricewaterhouseCoopers LLP, conduct an independent audit of the consolidated financial statements in accordance with Canadian generally accepted auditing standards and express their opinion thereon. Those standards require that the audit is planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The external auditors have unlimited access to the Audit and Risk Management Committee and meet with the Committee on a regular basis. (signed) Gervais Jacques__________________ Gervais Jacques President and Chief Executive Officer (signed) Richard Perron____________________ Richard Perron Chief Financial Officer Montreal, Canada February 27, 2024 38 Consolidated Financial Statements 5N+ 2023 ANNUAL REPORT Independent auditor’s report Independent auditor’s report To the Shareholders of 5N Plus Inc. To the Shareholders of 5N Plus Inc. Our opinion Our opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of 5N Plus Inc. and its subsidiaries (together, the Company) as at respects, the financial position of 5N Plus Inc. and its subsidiaries (together, the Company) as at December 31, 2023 and 2022, and its financial performance and its cash flows for the years then ended December 31, 2023 and 2022, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards). Standards Board (IFRS Accounting Standards). What we have audited What we have audited The Company’s consolidated financial statements comprise: The Company’s consolidated financial statements comprise:             the consolidated statements of financial position as at December 31, 2023 and 2022; the consolidated statements of financial position as at December 31, 2023 and 2022; the consolidated statements of earnings (loss) for the years then ended; the consolidated statements of earnings (loss) for the years then ended; the consolidated statements of comprehensive income (loss) for the years then ended; the consolidated statements of comprehensive income (loss) for the years then ended; the consolidated statements of changes in equity for the years then ended; the consolidated statements of changes in equity for the years then ended; the consolidated statements of cash flows for the years then ended; and the consolidated statements of cash flows for the years then ended; and the notes to the consolidated financial statements, comprising material accounting policy the notes to the consolidated financial statements, comprising material accounting policy information and other explanatory information. information and other explanatory information. Basis for opinion Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. our opinion. Independence Independence We are independent of the Company in accordance with the ethical requirements that are relevant to our We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. in accordance with these requirements. PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP 1250 René-Lévesque Boulevard West, Suite 2500, Montréal, Quebec, Canada H3B 4Y1 1250 René-Lévesque Boulevard West, Suite 2500, Montréal, Quebec, Canada H3B 4Y1 T: +1 514 205 5000, F: +1 514 876 1502, ca_montreal_main_fax@pwc.com T: +1 514 205 5000, F: +1 514 876 1502, ca_montreal_main_fax@pwc.com “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. 39 2023 ANNUAL REPORT 5N+ Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2023. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Valuation of inventories Refer to note 2 – Summary of material accounting policies and note 6 – Inventories to the consolidated financial statements. The carrying value of inventories on the Company’s consolidated financial statements was $105.9 million as at December 31, 2023. Inventories are carried at the lower of cost and net realizable value. In estimating net realizable value, management takes into account the most reliable evidence available at the time the estimates are made. The Company’s core business is subject to changes in foreign policies and internationally accepted metal prices, which may cause future selling prices to change rapidly. Management applied judgment in estimating the net realizable value of inventories, which involved the use of significant assumptions, including the consideration of prices of similar products in the market at the time the estimates are made and expected future selling prices. We considered this a key audit matter due to the magnitude of the inventory balance, the various types of inventory items and the judgment made by management in determining the net realizable value of inventories, which in turn led to increased audit effort in performing audit procedures. Our approach to addressing the matter included the following procedures, among others:  Tested how management estimated the net realizable value of inventories, which included the following:    Tested the data used by management in determining the net realizable value. Evaluated the appropriateness of the method of estimating net realizable value. Evaluated the reasonableness of significant assumptions used by management in the calculation of net realizable value of inventories, by comparing them to: prices of similar products in the market at the time the estimates are made; and expected future selling prices. o o  For a sample of inventory items, compared the prior year estimates of inventory prices to their actual selling prices during the year. 40 5N+ 2023 ANNUAL REPORTOther information Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information, other than the consolidated financial statements and our auditor’s report thereon, included in the annual report, which is expected to be made available to us after that date. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the information, other than the consolidated financial statements and our auditor’s report thereon, included in the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. 41 2023 ANNUAL REPORT 5N+Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.  Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. 42 5N+ 2023 ANNUAL REPORTWe communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We communicate with those charged with governance regarding, among other matters, the planned scope We also provide those charged with governance with a statement that we have complied with relevant and timing of the audit and significant audit findings, including any significant deficiencies in internal ethical requirements regarding independence, and to communicate with them all relationships and control that we identify during our audit. other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and From the matters communicated with those charged with governance, we determine those matters that other matters that may reasonably be thought to bear on our independence, and where applicable, were of most significance in the audit of the consolidated financial statements of the current period and related safeguards. are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we From the matters communicated with those charged with governance, we determine those matters that determine that a matter should not be communicated in our report because the adverse consequences were of most significance in the audit of the consolidated financial statements of the current period and of doing so would reasonably be expected to outweigh the public interest benefits of such communication. are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we The engagement partner on the audit resulting in this independent auditor’s report is Marc-Stéphane determine that a matter should not be communicated in our report because the adverse consequences Pennee. of doing so would reasonably be expected to outweigh the public interest benefits of such communication. /s/PricewaterhouseCoopers LLP1 The engagement partner on the audit resulting in this independent auditor’s report is Marc-Stéphane Pennee. Montréal, Quebec /s/PricewaterhouseCoopers LLP1 February 27, 2024 Montréal, Quebec February 27, 2024 1 CPA auditor, public accountancy permit No. A123642 1 CPA auditor, public accountancy permit No. A123642 43 2023 ANNUAL REPORT 5N+ 5N PLUS INC. Consolidated Statements of Financial Position CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands of United States dollars) (in thousands of United States dollars) Assets Current Cash and cash equivalents Accounts receivable Inventories Income tax receivable Derivative financial assets Other current assets Total current assets Property, plant and equipment Right-of-use assets Intangible assets Goodwill Deferred tax assets Other assets Total non-current assets Total assets Liabilities Current Trade and accrued liabilities Income tax payable Current portion of deferred revenue Current portion of lease liabilities Current portion of long-term debt Total current liabilities Long-term debt Deferred tax liabilities Employee benefit plan obligations Lease liabilities Deferred revenue Other liabilities Total non-current liabilities Total liabilities Equity Total liabilities and equity Commitments and contingencies (Note 25) Subsequent event (Note 30) The accompanying notes are an integral part of these consolidated financial statements. 44 5N PLUS INC. CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) Years ended December 31 (in thousands of United States dollars, except per share information) Revenue Cost of sales Selling, general and administrative expenses Other expenses (income), net Operating earnings (loss) Financial expenses Interest on long-term debt Imputed interest and other interest expense (income) Foreign exchange and derivative (gain) loss Earnings (loss) before income taxes Income tax expense (recovery) Current Deferred Net earnings (loss) Basic earnings (loss) per share Diluted earnings (loss) per share Net earnings (loss) are completely attributable to equity holders of 5N Plus Inc. The accompanying notes are an integral part of these consolidated financial statements. Notes 29 29 29 14 18 18 23 23 2023 $ 242,371 184,833 29,410 756 214,999 27,372 8,262 572 (136) 8,698 18,674 6,674 (3,399) 3,275 15,399 0.17 0.17 2022 $ 264,223 215,715 28,565 32,997 277,277 (13,054) 5,466 (274) 42 5,234 (18,288) 6,865 (2,154) 4,711 (22,999) (0.26) (0.26) Notes December 31 2023 $ December 31 2022 $ 5 6 18 19 7 8 9 10 11 18 12 13 18 16 9 14 14 18 15 9 16 17 34,706 33,437 105,850 1,672 591 5,707 181,963 84,600 29,290 29,304 11,825 8,261 4,959 168,239 350,202 37,024 4,535 13,437 1,811 25,000 81,807 83,500 5,284 13,393 28,328 5,629 3,669 139,803 221,610 128,592 350,202 42,691 32,872 86,254 5,488 - 19,857 187,162 77,951 30,082 31,563 11,825 6,002 3,400 160,823 347,985 40,200 8,780 11,730 2,136 - 62,846 121,000 6,959 11,643 28,266 2,354 2,141 172,363 235,209 112,776 347,985 Consolidated Financial Statements ▪ 1 Consolidated Financial Statements ▪ 2 5N+ 2023 ANNUAL REPORT 5N PLUS INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands of United States dollars) 5N PLUS INC. CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) Years ended December 31 (in thousands of United States dollars, except per share information) Consolidated Statements of Earnings (loss) Years ended December 31 (in thousands of United States dollars) Revenue Cost of sales Selling, general and administrative expenses Other expenses (income), net Operating earnings (loss) Financial expenses Interest on long-term debt Imputed interest and other interest expense (income) Foreign exchange and derivative (gain) loss Earnings (loss) before income taxes Income tax expense (recovery) Current Deferred Net earnings (loss) Basic earnings (loss) per share Diluted earnings (loss) per share Net earnings (loss) are completely attributable to equity holders of 5N Plus Inc. The accompanying notes are an integral part of these consolidated financial statements. Notes 29 29 29 14 18 18 23 23 2023 $ 242,371 184,833 29,410 756 214,999 27,372 8,262 572 (136) 8,698 18,674 6,674 (3,399) 3,275 15,399 0.17 0.17 2022 $ 264,223 215,715 28,565 32,997 277,277 (13,054) 5,466 (274) 42 5,234 (18,288) 6,865 (2,154) 4,711 (22,999) (0.26) (0.26) Assets Current Cash and cash equivalents Accounts receivable Inventories Income tax receivable Derivative financial assets Other current assets Total current assets Right-of-use assets Intangible assets Goodwill Deferred tax assets Other assets Total non-current assets Total assets Property, plant and equipment Liabilities Current Trade and accrued liabilities Income tax payable Current portion of deferred revenue Current portion of lease liabilities Current portion of long-term debt Total current liabilities Long-term debt Deferred tax liabilities Employee benefit plan obligations Lease liabilities Deferred revenue Other liabilities Total non-current liabilities Total liabilities Equity Total liabilities and equity Commitments and contingencies (Note 25) Subsequent event (Note 30) The accompanying notes are an integral part of these consolidated financial statements. Notes December 31 December 31 5 6 18 19 7 8 9 10 11 18 12 13 18 16 9 14 14 18 15 9 16 17 2023 $ 34,706 33,437 105,850 1,672 591 5,707 181,963 84,600 29,290 29,304 11,825 8,261 4,959 168,239 350,202 37,024 4,535 13,437 1,811 25,000 81,807 83,500 5,284 13,393 28,328 5,629 3,669 139,803 221,610 128,592 350,202 2022 $ 42,691 32,872 86,254 5,488 - 19,857 187,162 77,951 30,082 31,563 11,825 6,002 3,400 160,823 347,985 40,200 8,780 11,730 2,136 - 62,846 121,000 6,959 11,643 28,266 2,354 2,141 172,363 235,209 112,776 347,985 Consolidated Financial Statements ▪ 1 Consolidated Financial Statements ▪ 2 45 2023 ANNUAL REPORT 5N+ 5N PLUS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Consolidated Statements of Comprehensive Income (Loss) Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars) Net earnings (loss) Other comprehensive (loss) income Items that may be reclassified subsequently to net earnings (loss) Currency translation adjustment Notes Items that will not be reclassified subsequently to net earnings (loss) Remeasurement of employee benefit plan obligations Income taxes 15 Other comprehensive loss Comprehensive income (loss) Comprehensive income (loss) is completely attributable to equity holders of 5N Plus Inc. The accompanying notes are an integral part of these consolidated financial statements. 2023 $ 15,399 590 590 (1,572) 492 (1,080) (490) 2022 $ (22,999) (3,657) (3,657) 4,159 (1,300) 2,859 (798) 14,909 (23,797) 46 Consolidated Financial Statements ▪ 3 5N+ 2023 ANNUAL REPORT 5N PLUS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Years ended December 31 (in thousands of United States dollars) Net earnings (loss) Other comprehensive (loss) income Items that may be reclassified subsequently to net earnings (loss) Currency translation adjustment Notes Items that will not be reclassified subsequently to net earnings (loss) Remeasurement of employee benefit plan obligations 15 Income taxes Other comprehensive loss Comprehensive income (loss) Comprehensive income (loss) is completely attributable to equity holders of 5N Plus Inc. The accompanying notes are an integral part of these consolidated financial statements. 2023 $ 15,399 590 590 (1,572) 492 (1,080) (490) 2022 $ (22,999) (3,657) (3,657) 4,159 (1,300) 2,859 (798) 14,909 (23,797) Y T I U Q E N I S E G N A H C F O S T N E M E T A T S D E T A D I L O S N O C 1 3 r e b m e c e D d e d n e s r a e Y . C N I S U L P N 5 Consolidated Financial Statements ▪ 3 $ l a t o T y t i u q e 6 7 7 , 2 1 1 ) 0 9 4 ( 9 9 3 , 5 1 9 0 9 , 4 1 3 3 6 4 7 2 $ t i c i f e D ) 6 2 2 , 5 4 2 ( - - - 9 9 3 , 5 1 9 9 3 , 5 1 $ s s o l ) 7 8 9 , 5 ( - ) 0 9 4 ( ) 0 9 4 ( - - $ l s u p r u s 5 8 9 , 2 4 3 - - - ) 7 4 2 ( 4 7 2 r e h t o l d e t a u m u c c A e v i s n e h e r p m o c d e t u b i r t n o C e r a h S l a t i p a c $ 4 0 0 , 1 2 - - - - 0 8 8 r e b m u N s e r a h s f o 6 3 2 , 0 3 3 , 8 8 - - - - 8 8 4 , 4 7 3 ) n o i t a m r o f n i e r a h s r e p t p e c x e , s r a l l o d s e t a t S d e t i n U f o s d n a s u o h t n i ( 3 2 0 2 ) 4 2 e t o N ( n o i t a s n e p m o c d e s a b - e r a h S s n o i t p o k c o t s f o e s i c r e x E s s o l e v i s n e h e r p m o c r e h t O r a e y e h t r o f i s g n n r a e t e N i s g n n r a e e v i s n e h e r p m o C i r a e y f o g n n n i g e b t a s e c n a a B l 2 9 5 , 8 2 1 ) 7 2 8 , 9 2 2 ( ) 7 7 4 , 6 ( 2 1 0 , 3 4 3 4 8 8 , 1 2 4 2 7 , 4 0 7 , 8 8 r a e y f o d n e t a s e c n a a B l Consolidated Statements of Changes in Equity Years ended December 31 (in thousands of United States dollars) 4 ▪ s t n e m e t a t S l i a i c n a n F d e t a d i l o s n o C $ l a t o T y t i u q e 7 4 2 6 3 1 , ) 8 9 7 ( ) 9 9 9 2 2 ( , ) 7 9 7 3 2 ( , $ t i c i f e D , ) 7 2 2 2 2 2 ( - ) 9 9 9 2 2 ( , ) 9 9 9 2 2 ( , 6 2 3 - $ s s o l ) 9 8 1 5 ( , - ) 8 9 7 ( ) 8 9 7 ( - - - - 6 2 3 $ l s u p r u s , 9 5 6 2 4 3 r e h t o l d e t a u m u c c A e v i s n e h e r p m o c d e t u b i r t n o C - - - - e r a h S l a t i p a c $ 4 0 0 1 2 , 6 7 7 2 1 1 , , ) 6 2 2 5 4 2 ( ) 7 8 9 5 ( , , 5 8 9 2 4 3 4 0 0 1 2 , r e b m u N s e r a h s f o 2 2 0 2 , 6 3 2 0 3 3 8 8 , i i r a e y f o g n n n g e b t a s e c n a a B l - - - - ) 4 2 e t o N ( n o i t a s n e p m o c d e s a b - e r a h S s s o l e v i s n e h e r p m o c r e h t O r a e y e h t r o f s s o l t e N s s o l e v i s n e h e r p m o C , 6 3 2 0 3 3 8 8 , . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T r a e y f o d n e t a s e c n a a B l 47 2023 ANNUAL REPORT 5N+ 5N PLUS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Consolidated Statements of Cash Flows Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars) Operating activities Net earnings (loss) Adjustments to reconcile net earnings (loss) to cash flows Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortization of intangible assets Amortization of other assets Impairment of non-current assets (Decrease) increase on loss allowance Loss on divestiture of a subsidiary Share-based compensation expense Deferred income taxes Imputed interest Employee benefit plan obligations Loss on disposal of assets held for sale Loss (gain) on disposal of property, plant and equipment Unrealized gain on non-hedge financial instruments Unrealized foreign exchange loss (gain) on assets and liabilities Cash from operations before the following: Net change in non-cash working capital balances Cash from operating activities Investing activities Divestiture of a subsidiary, net of cash divested Cash outflows to cash held in escrow Additions to property, plant and equipment Additions of intangible assets Acquisition of investment in equity instruments Proceeds on settlement of indexed deposit agreement Proceeds on disposal of assets held for sale Proceeds on disposal of property, plant and equipment Cash used in investing activities Financing activities Repayment of long-term debt Proceeds from issuance of long-term debt Deferred costs related to long-term debt Issuance of common shares Principal elements of lease payments Increase in other liabilities Cash (used in) from financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental information(1) Income tax paid Interest paid Notes 8 9 10 12 4, 8, 10, 29 5, 27 4 24 18 9 15 29 29 21 4 4 8, 21 10 12 7 29 8 14 14 12 21 17 2023 $ 2022 $ 15,399 (22,999) 10,297 2,538 3,275 258 672 (114) - 2,768 (3,399) 690 (246) - 973 (1,694) 634 32,051 (14,800) 17,251 - - (17,341) (902) (1,000) 6,506 - 375 (12,362) (12,500) - - 633 (2,858) 1,723 (13,002) 128 (7,985) 42,691 34,706 11,717 2,702 3,313 260 12,478 3 7,834 1,893 (2,154) 605 (403) 216 (13) (1,003) (951) 13,498 10,243 23,741 (2,652) (2,123) (16,062) (993) - - 2,816 20 (18,994) (5,000) 10,000 (732) - (2,999) 1,140 2,409 (405) 6,751 35,940 42,691 6,945 7,332 3,745 5,360 (1) Amounts paid for income tax and interest were reflected as cash flows from operating activities in the consolidated statements of cash flows. The accompanying notes are an integral part of these consolidated financial statements. 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 1. Nature of Activities 5N Plus Inc. (“5N+” or the “Company”) is a Canadian-based international company. 5N+ is a leading global producer of specialty semiconductors and performance materials. The Company’s ultra-pure materials often form the core element of its customer products. These customers rely on 5N+’s products to enable performance and sustainability in their own products. 5N+ deploys a range of proprietary and proven technologies to develop and manufacture its products. The Company’s products enable various applications in a number of key industries including renewable energy, security, space, pharmaceutical, medical imaging, and industrial. The Company is headquartered at 4385 Garand Street, Montreal, Quebec (Canada) H4R 2B4. The Company operates R&D, manufacturing and commercial centers in strategically located facilities around the world including Europe, North America and Asia. The Company’s mission is to be critical to its customers, valued by its employees and trusted by its shareholders. The Company’s core values focus on integrity, commitment and customer development along with emphasis on sustainable development, continuous improvement, health and safety. The Company’s shares are listed on the Toronto Stock Exchange (“TSX”). 5N+ and its subsidiaries represent the “Company” mentioned throughout these consolidated financial statements. The Company has two reportable business segments, namely Specialty Semiconductors and Performance Materials. These consolidated financial statements were approved by the Board of Directors on February 27, 2024. 2. Summary of Material Accounting Policies The material accounting policy information regarding the preparation of these consolidated financial statements is set out below. These policies have been consistently applied to all periods presented, unless otherwise stated. Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”). The consolidated financial statements have been prepared under the historical cost convention, except for certain financial assets and liabilities, which have been measured at fair value as described below. The preparation of consolidated financial statements in conformity with IFRS Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are also further disclosed in this note, in the “Significant management estimation and judgment in applying accounting policies” section. Subsidiaries power over the entity. Subsidiaries are all entities over which the Company has control. Control exists when the Company is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through the 48 Consolidated Financial Statements ▪ 5 Consolidated Financial Statements ▪ 6 5N+ 2023 ANNUAL REPORT 5N PLUS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31 (in thousands of United States dollars) Operating activities Net earnings (loss) Adjustments to reconcile net earnings (loss) to cash flows Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortization of intangible assets Amortization of other assets Impairment of non-current assets (Decrease) increase on loss allowance Loss on divestiture of a subsidiary Share-based compensation expense Deferred income taxes Imputed interest Employee benefit plan obligations Loss on disposal of assets held for sale Loss (gain) on disposal of property, plant and equipment Unrealized gain on non-hedge financial instruments Unrealized foreign exchange loss (gain) on assets and liabilities Cash from operations before the following: Net change in non-cash working capital balances Cash from operating activities Investing activities Divestiture of a subsidiary, net of cash divested Cash outflows to cash held in escrow Additions to property, plant and equipment Additions of intangible assets Acquisition of investment in equity instruments Proceeds on settlement of indexed deposit agreement Proceeds on disposal of assets held for sale Proceeds on disposal of property, plant and equipment Cash used in investing activities Financing activities Repayment of long-term debt Proceeds from issuance of long-term debt Deferred costs related to long-term debt Issuance of common shares Principal elements of lease payments Increase in other liabilities Cash (used in) from financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental information(1) Income tax paid Interest paid Notes 2023 $ 2022 $ 15,399 (22,999) 4, 8, 10, 29 5, 27 8 9 10 12 4 24 18 9 15 29 29 21 4 4 10 12 7 29 8 14 14 12 21 17 8, 21 10,297 2,538 3,275 258 672 (114) - 2,768 (3,399) 690 (246) - 973 (1,694) 634 32,051 (14,800) 17,251 (17,341) (902) (1,000) 6,506 - 375 (12,362) (12,500) - - - - 633 (2,858) 1,723 (13,002) 128 (7,985) 42,691 34,706 11,717 2,702 3,313 260 12,478 3 7,834 1,893 (2,154) 605 (403) 216 (13) (1,003) (951) 13,498 10,243 23,741 (2,652) (2,123) (16,062) (993) - - 2,816 20 (18,994) (5,000) 10,000 (732) - (2,999) 1,140 2,409 (405) 6,751 35,940 42,691 6,945 7,332 3,745 5,360 Consolidated Financial Statements ▪ 5 (1) Amounts paid for income tax and interest were reflected as cash flows from operating activities in the consolidated statements of cash flows. The accompanying notes are an integral part of these consolidated financial statements. 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) 1. Nature of Activities 5N Plus Inc. (“5N+” or the “Company”) is a Canadian-based international company. 5N+ is a leading global producer of specialty semiconductors and performance materials. The Company’s ultra-pure materials often form the core element of its customer products. These customers rely on 5N+’s products to enable performance and sustainability in their own products. 5N+ deploys a range of proprietary and proven technologies to develop and manufacture its products. The Company’s products enable various applications in a number of key industries including renewable energy, security, space, pharmaceutical, medical imaging, and industrial. The Company is headquartered at 4385 Garand Street, Montreal, Quebec (Canada) H4R 2B4. The Company operates R&D, manufacturing and commercial centers in strategically located facilities around the world including Europe, North America and Asia. The Company’s mission is to be critical to its customers, valued by its employees and trusted by its shareholders. The Company’s core values focus on integrity, commitment and customer development along with emphasis on sustainable development, continuous improvement, health and safety. The Company’s shares are listed on the Toronto Stock Exchange (“TSX”). 5N+ and its subsidiaries represent the “Company” mentioned throughout these consolidated financial statements. The Company has two reportable business segments, namely Specialty Semiconductors and Performance Materials. These consolidated financial statements were approved by the Board of Directors on February 27, 2024. 2. Summary of Material Accounting Policies The material accounting policy information regarding the preparation of these consolidated financial statements is set out below. These policies have been consistently applied to all periods presented, unless otherwise stated. Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”). The consolidated financial statements have been prepared under the historical cost convention, except for certain financial assets and liabilities, which have been measured at fair value as described below. The preparation of consolidated financial statements in conformity with IFRS Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are also further disclosed in this note, in the “Significant management estimation and judgment in applying accounting policies” section. Subsidiaries Subsidiaries are all entities over which the Company has control. Control exists when the Company is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through the power over the entity. Consolidated Financial Statements ▪ 6 49 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) The following table includes the principal entities which significantly impact the results or assets of the Company: 5N Plus Inc. 5N PV GmbH AZUR SPACE Solar Power GmbH (“Azur”) 5N Plus Lübeck GmbH 5N Plus Belgium SA(1) 5N Plus Asia Limited 5N Plus Wisconsin Inc. Country of incorporation Canada Germany Germany Germany Belgium Hong Kong United States % Equity interest 2023 100% 100% 100% 100% - 100% 100% 2022 100% 100% 100% 100% - 100% 100% (1) On December 19, 2022, the Company divested its investment in 5N Plus Belgium SA. The revenues and expenses of this investment from January 1, 2022 until the date of disposition have been included within the Company’s consolidated statement of earnings (loss). See note 4 for additional information. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company. Foreign currency translation a) Functional and presentation currency The Company’s functional and presentation currency is the US dollar. Functional currency is determined for each of the Company’s entities, and items included in the financial statements of each entity are measured using that functional currency. b) Transactions and balances Monetary assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rate at the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the date of the respective transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statement of earnings (loss). Foreign exchange gains and losses are presented in the consolidated statement of earnings (loss) within “foreign exchange and derivative (gain) loss”. c) Foreign operations Assets and liabilities of subsidiaries that have a functional currency other than US dollar are translated from their functional currency to US dollars at exchange rates in effect at the reporting date. The resulting translation adjustments are included in the currency translation adjustment in other comprehensive loss. Revenue and expenses are translated at the average exchange rates for the period. Segment reporting The Company has the following two reportable segments: Specialty Semiconductors and Performance Materials. Corresponding operations and activities are managed accordingly by the Company’s key decision makers. Segmented operating, financial information and labelled key performance indicators are available and used to manage these business segments, review performance and allocate resources. Operating in North America and Europe, the Specialty Semiconductors segment manufactures and sells products used in several applications such as renewable energy, space satellites and imaging. Typical end markets include photovoltaics (terrestrial and spatial solar energy), medical imaging, infrared imaging, optoelectronics and advanced electronics. These products are sold either in semiconductor compounds, semiconductor wafers, ultra high purity metals, epitaxial semiconductor substrates and solar cells. Revenues and earnings associated with recycling services and activities provided to Specialty Semiconductors customers are captured in this segment. The Performance Materials segment operates in North America, Europe and Asia and manufactures and sells products that are used in several applications in pharmaceutical and healthcare and industrial. Main products are sold as active pharmaceutical ingredients, animal feed additives, specialized chemicals, commercial grade metals, alloys, and engineered powders. All commercial grade metal and engineered powder sales have been regrouped under Performance Materials. Revenues and earnings associated with recycling services and activities provided to Performance Materials customers are captured in this segment. Corporate expenses associated with the head office and unallocated selling, general and administrative expenses, together with financing expenses have been regrouped under the heading “Corporate and unallocated”. Each operating segment is managed separately as each of these service lines requires different technologies, resources and marketing approaches. The financial information of the recycling and trading of complex material is allocated to the two main segments. All intersegment transactions between the Specialty Semiconductors and the Performance Materials segments have been eliminated on consolidation. Revenue recognition Revenue comprises the sale of manufactured products and the rendering of services and is measured at the amounts specified in the customer’s arrangement. Sales of manufactured products are recognized when products are delivered to the customer, which is also the moment when control of the products is transferred, and when there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specified location, the risks of loss have been transferred to the customer and the customer has accepted the products in accordance with the sales contract. Revenue from custom refining activities, often referred to as tolling, is recognized when services are rendered, at a point in time. Accounts receivable are recognized when the products are delivered or services are rendered, as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. The Company does not expect to have any contracts where the period between the transfer of the promised products or services to the customer and payment by the customer exceeds one year. As a consequence, the Company does not adjust any of the transaction prices for the time value of money. Deferred revenue is recognized by the company as a non-current liability in relation to long-term revenue contracts with customers which involve performance obligations which are satisfied over time rather than at a point in time. The amount of which is expected to be realized within one year is recorded within the heading “Current portion of deferred revenue”. Cash payments received or advances due pursuant to contractual arrangements related to the sale of goods are also recorded as deferred revenue until all of the foregoing conditions of revenue recognition have been met. The Company does not expect to have any contractual arrangements whereby the cash payment or advance is received more than one year before the underlying goods are delivered and therefore these advances are also presented within the heading “Current portion of deferred revenue”. 50 Consolidated Financial Statements ▪ 7 Consolidated Financial Statements ▪ 8 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) The following table includes the principal entities which significantly impact the results or assets of the Company: Country of incorporation % Equity interest Canada Germany Germany Germany Belgium Hong Kong United States 2023 100% 100% 100% 100% - 100% 100% 2022 100% 100% 100% 100% - 100% 100% AZUR SPACE Solar Power GmbH (“Azur”) 5N Plus Inc. 5N PV GmbH 5N Plus Lübeck GmbH 5N Plus Belgium SA(1) 5N Plus Asia Limited 5N Plus Wisconsin Inc. by the Company. Foreign currency translation a) Functional and presentation currency functional currency. b) Transactions and balances (1) On December 19, 2022, the Company divested its investment in 5N Plus Belgium SA. The revenues and expenses of this investment from January 1, 2022 until the date of disposition have been included within the Company’s consolidated statement of earnings (loss). See note 4 for additional information. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted The Company’s functional and presentation currency is the US dollar. Functional currency is determined for each of the Company’s entities, and items included in the financial statements of each entity are measured using that Monetary assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rate at the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the date of the respective transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statement of earnings (loss). Foreign exchange gains and losses are presented in the consolidated statement of earnings (loss) within “foreign exchange and derivative (gain) loss”. c) Foreign operations Assets and liabilities of subsidiaries that have a functional currency other than US dollar are translated from their functional currency to US dollars at exchange rates in effect at the reporting date. The resulting translation adjustments are included in the currency translation adjustment in other comprehensive loss. Revenue and expenses are translated at the average exchange rates for the period. Segment reporting The Company has the following two reportable segments: Specialty Semiconductors and Performance Materials. Corresponding operations and activities are managed accordingly by the Company’s key decision makers. Segmented operating, financial information and labelled key performance indicators are available and used to manage these business segments, review performance and allocate resources. 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) Operating in North America and Europe, the Specialty Semiconductors segment manufactures and sells products used in several applications such as renewable energy, space satellites and imaging. Typical end markets include photovoltaics (terrestrial and spatial solar energy), medical imaging, infrared imaging, optoelectronics and advanced electronics. These products are sold either in semiconductor compounds, semiconductor wafers, ultra high purity metals, epitaxial semiconductor substrates and solar cells. Revenues and earnings associated with recycling services and activities provided to Specialty Semiconductors customers are captured in this segment. The Performance Materials segment operates in North America, Europe and Asia and manufactures and sells products that are used in several applications in pharmaceutical and healthcare and industrial. Main products are sold as active pharmaceutical ingredients, animal feed additives, specialized chemicals, commercial grade metals, alloys, and engineered powders. All commercial grade metal and engineered powder sales have been regrouped under Performance Materials. Revenues and earnings associated with recycling services and activities provided to Performance Materials customers are captured in this segment. Corporate expenses associated with the head office and unallocated selling, general and administrative expenses, together with financing expenses have been regrouped under the heading “Corporate and unallocated”. Each operating segment is managed separately as each of these service lines requires different technologies, resources and marketing approaches. The financial information of the recycling and trading of complex material is allocated to the two main segments. All intersegment transactions between the Specialty Semiconductors and the Performance Materials segments have been eliminated on consolidation. Revenue recognition Revenue comprises the sale of manufactured products and the rendering of services and is measured at the amounts specified in the customer’s arrangement. Sales of manufactured products are recognized when products are delivered to the customer, which is also the moment when control of the products is transferred, and when there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specified location, the risks of loss have been transferred to the customer and the customer has accepted the products in accordance with the sales contract. Revenue from custom refining activities, often referred to as tolling, is recognized when services are rendered, at a point in time. Accounts receivable are recognized when the products are delivered or services are rendered, as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. The Company does not expect to have any contracts where the period between the transfer of the promised products or services to the customer and payment by the customer exceeds one year. As a consequence, the Company does not adjust any of the transaction prices for the time value of money. Deferred revenue is recognized by the company as a non-current liability in relation to long-term revenue contracts with customers which involve performance obligations which are satisfied over time rather than at a point in time. The amount of which is expected to be realized within one year is recorded within the heading “Current portion of deferred revenue”. Cash payments received or advances due pursuant to contractual arrangements related to the sale of goods are also recorded as deferred revenue until all of the foregoing conditions of revenue recognition have been met. The Company does not expect to have any contractual arrangements whereby the cash payment or advance is received more than one year before the underlying goods are delivered and therefore these advances are also presented within the heading “Current portion of deferred revenue”. Consolidated Financial Statements ▪ 7 Consolidated Financial Statements ▪ 8 51 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) Government grants Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions. Grants that compensate the Company for a specific expense incurred are recognized in the consolidated statement of earnings (loss) against the expenses. Grants that are related to assets are recognized by deducting the grant from the carrying amount of the specific asset. The grant is recognized in the consolidated statement of earnings (loss) over the life of a depreciable asset as a reduced depreciation expense. Property, plant and equipment Property, plant and equipment are recorded at cost, net of accumulated depreciation, accumulated impairment losses and subsequent reversals, if applicable. Property, plant and equipment are depreciated using the straight-line method over their estimated useful lives, taking into account any residual values. Useful lives are as follows: Land Building Production equipment Furniture Office equipment Rolling stock Leasehold improvements Period Not depreciated 25 years Up to 15 years 3 to 10 years 3 to 10 years 3 to 10 years Over the term of the lease Construction in progress is not depreciated until the assets are put into use. Costs are only capitalized if they are directly attributable to the construction or development of the assets. Residual values, method of depreciation and useful life of the assets are reviewed annually and adjusted if appropriate. Leases Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Company. Assets and liabilities arising from a lease are initially measured on a present value basis. Right-of-use assets Right-of-use assets are measured at cost. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Lease liabilities Lease liabilities are measured at the net present value of future lease payments. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. (loss). Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in the consolidated statement of earnings (loss). Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture. 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Extension options are included in a number of property and equipment leases across the Company. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension options held are exercisable only by the Company and not by the respective lessor. Intangible assets losses and reversals, if applicable. Intangible assets acquired separately are recorded at cost, net of accumulated amortization, accumulated impairment Intangible assets are amortized on a straight-line basis over their useful lives according to the following annual terms: Customer relationships Technology Trade name Software Backlog Goodwill Development costs Period 15 years 10 years 5 years 3 years Not exceeding 15 years Not exceeding 10 years Goodwill represents the excess of the consideration transferred over the fair value of the identifiable net assets acquired in a business combination and is initially measured at the acquisition date. Goodwill is subsequently carried at cost less any accumulated impairment losses. At the date of acquisition, goodwill is assigned to the cash-generating unit (CGU) or group of CGUs that is expected to benefit from the synergies of the business combination. For the purposes of impairment testing, goodwill is allocated to the Company’s operating segments, which is the level at which the chief operating decision maker monitors goodwill. The CGU is tested for impairment annually, or more frequently when there is indication that the CGU may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the goodwill allocated to the CGU and then, to reduce the carrying amounts of the other assets in the CGU on a pro-rata basis. Any impairment loss is recognized in the consolidated statement of earnings (loss). An impairment loss recognized for goodwill is not reversed in subsequent periods. Impairment of non-financial assets The carrying amounts of the Company’s non-financial assets that have an indefinite useful life and assets that are not yet available for use, are not subject to amortization and are tested annually for impairment or whenever indicators of impairment exist. Assets that are subject to amortization are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset or a cash-generating unit (CGU) exceeds its recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less cost of disposal. The recoverable amount is determined for an individual asset; unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In such case, the CGU to which the asset belongs is used to determine the recoverable amount. Impairment losses are recognized in the consolidated statement of earnings The Company evaluates impairment losses for potential reversals at each reporting date. An impairment loss is reversed if there is any indication that the loss has decreased or no longer exists due to changes in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not 52 Consolidated Financial Statements ▪ 9 Consolidated Financial Statements ▪ 10 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Government grants Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions. Grants that compensate the Company for a specific expense incurred are recognized in the consolidated statement of earnings (loss) against the expenses. Grants that are related to assets are recognized by deducting the grant from the carrying amount of the specific asset. The grant is recognized in the consolidated statement of earnings (loss) over the life of a depreciable asset as a reduced depreciation expense. Property, plant and equipment Property, plant and equipment are recorded at cost, net of accumulated depreciation, accumulated impairment losses and subsequent reversals, if applicable. Property, plant and equipment are depreciated using the straight-line method over their estimated useful lives, taking into account any residual values. Useful lives are as follows: Period Not depreciated 25 years Up to 15 years 3 to 10 years 3 to 10 years 3 to 10 years Over the term of the lease Land Building Production equipment Furniture Office equipment Rolling stock Leasehold improvements Leases Construction in progress is not depreciated until the assets are put into use. Costs are only capitalized if they are directly attributable to the construction or development of the assets. Residual values, method of depreciation and useful life of the assets are reviewed annually and adjusted if appropriate. Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Company. Assets and liabilities arising from a lease are initially measured on a present value basis. Right-of-use assets are measured at cost. The right-of-use asset is depreciated over the shorter of the asset's useful life Right-of-use assets and the lease term on a straight-line basis. Lease liabilities Lease liabilities are measured at the net present value of future lease payments. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in the consolidated statement of earnings (loss). Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture. 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) Extension options are included in a number of property and equipment leases across the Company. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension options held are exercisable only by the Company and not by the respective lessor. Intangible assets Intangible assets acquired separately are recorded at cost, net of accumulated amortization, accumulated impairment losses and reversals, if applicable. Intangible assets are amortized on a straight-line basis over their useful lives according to the following annual terms: Customer relationships Technology Trade name Software Development costs Backlog Goodwill Period 15 years Not exceeding 15 years 10 years 5 years Not exceeding 10 years 3 years Goodwill represents the excess of the consideration transferred over the fair value of the identifiable net assets acquired in a business combination and is initially measured at the acquisition date. Goodwill is subsequently carried at cost less any accumulated impairment losses. At the date of acquisition, goodwill is assigned to the cash-generating unit (CGU) or group of CGUs that is expected to benefit from the synergies of the business combination. For the purposes of impairment testing, goodwill is allocated to the Company’s operating segments, which is the level at which the chief operating decision maker monitors goodwill. The CGU is tested for impairment annually, or more frequently when there is indication that the CGU may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the goodwill allocated to the CGU and then, to reduce the carrying amounts of the other assets in the CGU on a pro-rata basis. Any impairment loss is recognized in the consolidated statement of earnings (loss). An impairment loss recognized for goodwill is not reversed in subsequent periods. Impairment of non-financial assets The carrying amounts of the Company’s non-financial assets that have an indefinite useful life and assets that are not yet available for use, are not subject to amortization and are tested annually for impairment or whenever indicators of impairment exist. Assets that are subject to amortization are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset or a cash-generating unit (CGU) exceeds its recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less cost of disposal. The recoverable amount is determined for an individual asset; unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In such case, the CGU to which the asset belongs is used to determine the recoverable amount. Impairment losses are recognized in the consolidated statement of earnings (loss). The Company evaluates impairment losses for potential reversals at each reporting date. An impairment loss is reversed if there is any indication that the loss has decreased or no longer exists due to changes in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not Consolidated Financial Statements ▪ 9 Consolidated Financial Statements ▪ 10 53 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Such reversal is recognized in the consolidated statement of earnings (loss). Financial instrument classification Category Financial instruments Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Measurement At initial recognition, the Company measures a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs of financial assets or financial liabilities carried at FVPL are expensed in the consolidated statement of earnings (loss). Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Measurement in subsequent periods depends on the classification of the financial instrument. The Company has classified its financial instruments in the following categories depending on the purpose for which the instruments were acquired and their characteristics. Financial assets Debt instruments For the subsequent measurement, there are two measurement categories into which the Company classifies its debt instruments: - - Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognized directly in the consolidated statement of earnings (loss) and presented in other gains (losses), together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the consolidated statement of earnings (loss). Fair value through profit or loss (FVPL): Assets that do not meet the criteria for amortized cost or fair value through other comprehensive loss (FVOCI) are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognized in the consolidated statement of earnings (loss) and presented net within other expenses (income), net in the period in which it arises. Investment in equity instruments For the subsequent measurement, investments in equity instruments which the Company did not make an irrevocable election to present in FVOCI are measured at FVPL. A gain or loss on an investment in equity instruments that is subsequently measured at FVPL is recognized in the consolidated statement of earnings (loss) and presented net within “Other expenses (income), net” in the period in which it arises. Financial liabilities Financial liabilities are subsequently measured at amortized cost using the effective interest method, except for financial liabilities at FVPL. Such liabilities, including derivatives that are liabilities, shall be subsequently measured at fair value. Financial assets and liabilities at fair value through profit and loss Financial assets and liabilities at amortized cost Financial instrument Total return swap (Note 7) Indexed deposit agreement (Note 7) Investment in equity instrument (Note 12) Restricted investment (Note 12) Cash and cash equivalents Accounts receivable Cash held in escrow (Note 7) Trade and accrued liabilities Long-term debt At each reporting date, the Company assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortized cost. The impairment methodology applied depends on whether there has been a Impairment significant increase in credit risk. For trade receivables, the Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the receivables (Note 27). The Company assumes that there is no significant increase in credit risk for instruments that have a low credit risk. Derivative financial instruments and hedging activities Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. For the year ended December 31, 2023 and 2022, the Company has no derivative financial instruments designated as a Embedded derivatives are recorded at fair value separately from the host contract when their economic characteristics and risks are not clearly and closely related to those of the host contract. Subsequent changes in fair value are recorded in financial expenses in the consolidated statement of earnings (loss). For the year ended December 31, 2023 and 2022, hedging instrument. Embedded financial liabilities derivatives the Company has no embedded derivative. Cash and cash equivalents Cash and cash equivalents comprise cash on hand. Cash held in escrow Cash held in escrow represents cash which is restricted pursuant to a contractual arrangement and is held in a separate bank account. Cash held in escrow is presented within “Other current assets”. 54 Consolidated Financial Statements ▪ 11 Consolidated Financial Statements ▪ 12 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss Financial instrument classification had been recognized. Such reversal is recognized in the consolidated statement of earnings (loss). Category Financial assets and liabilities at fair value through profit and loss Financial assets and liabilities at amortized cost Financial instrument Total return swap (Note 7) Indexed deposit agreement (Note 7) Investment in equity instrument (Note 12) Restricted investment (Note 12) Cash and cash equivalents Accounts receivable Cash held in escrow (Note 7) Trade and accrued liabilities Long-term debt Impairment At each reporting date, the Company assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the receivables (Note 27). The Company assumes that there is no significant increase in credit risk for instruments that have a low credit risk. Derivative financial instruments and hedging activities Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. For the year ended December 31, 2023 and 2022, the Company has no derivative financial instruments designated as a hedging instrument. Embedded financial liabilities derivatives Embedded derivatives are recorded at fair value separately from the host contract when their economic characteristics and risks are not clearly and closely related to those of the host contract. Subsequent changes in fair value are recorded in financial expenses in the consolidated statement of earnings (loss). For the year ended December 31, 2023 and 2022, the Company has no embedded derivative. Cash and cash equivalents Cash and cash equivalents comprise cash on hand. Cash held in escrow Cash held in escrow represents cash which is restricted pursuant to a contractual arrangement and is held in a separate bank account. Cash held in escrow is presented within “Other current assets”. Consolidated Financial Statements ▪ 11 Consolidated Financial Statements ▪ 12 55 Financial instruments Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Measurement At initial recognition, the Company measures a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs of financial assets or financial liabilities carried at FVPL are expensed in the consolidated statement of earnings (loss). Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Measurement in subsequent periods depends on the classification of the financial instrument. The Company has classified its financial instruments in the following categories depending on the purpose for which the instruments were acquired and their characteristics. Financial assets Debt instruments instruments: For the subsequent measurement, there are two measurement categories into which the Company classifies its debt - Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognized directly in the consolidated statement of earnings (loss) and presented in other gains (losses), together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the consolidated statement of earnings (loss). - Fair value through profit or loss (FVPL): Assets that do not meet the criteria for amortized cost or fair value through other comprehensive loss (FVOCI) are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognized in the consolidated statement of earnings (loss) and presented net within other expenses (income), net in the period in which it arises. Investment in equity instruments For the subsequent measurement, investments in equity instruments which the Company did not make an irrevocable election to present in FVOCI are measured at FVPL. A gain or loss on an investment in equity instruments that is subsequently measured at FVPL is recognized in the consolidated statement of earnings (loss) and presented net within “Other expenses (income), net” in the period in which it arises. Financial liabilities Financial liabilities are subsequently measured at amortized cost using the effective interest method, except for financial liabilities at FVPL. Such liabilities, including derivatives that are liabilities, shall be subsequently measured at fair value. 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) Inventories Inventories are carried at the lower of cost and net realizable value. Cost includes all expenditures directly attributable to the manufacturing process as well as suitable portions of related production overheads based on normal operating capacity. Costs of ordinarily interchangeable items are assigned using weighted average cost. Net realizable value is the estimated selling price in the ordinary course of business less costs of completion and any applicable selling expenses. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the impairment is reversed (i.e. the reversal is limited to the amount of the original impairment) so that the new carrying amount is the lower of the cost and the revised net realizable value. From time to time, when substantially all required raw materials are in inventory, the Company may choose to enter into long-term fixed-price sales contracts. The quantity of raw materials required to fulfill these contracts is specifically assigned, and the average cost of these raw materials is accounted for separately throughout the duration of the contract. Income taxes The tax expense for the year which comprises current and deferred tax is recognized in the consolidated statement of earnings (loss), except to the extent that it relates to items recognized in other comprehensive loss or directly in equity. In which case, the tax expense is also recognized in other comprehensive loss or directly in equity, respectively. a) Current tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of the consolidated statement of financial position in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. b) Deferred tax Share-based payments Deferred income tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that are enacted or substantively enacted at the date of the consolidated statement of financial position and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be used. Deferred income tax is presented to provide impact of temporary differences arising on investments in subsidiaries, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not be reversed in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority, on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Research and development expenses Research expenses are charged to the consolidated statement of earnings (loss) in the period they are incurred and are included under “Other expenses (income), net”. Development expenses which are directly attributable expenses, either internal or external, are charged to the consolidated statement of earnings (loss), except if the Company can demonstrate all of the following (in that case capitalised as an intangible assets – development costs): The technical feasibility of completing the intangible asset so that it will be available for use or sale; Its intention to complete the intangible asset and use or sell it; Its ability to use or sell the intangible asset; - How the intangible asset will generate probable future economic benefits. Among other things, the Company can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and Its ability to measure reliably the expenditure attributable to the intangible asset during its development. Employee future benefits are as follows: The Company contributes to two defined benefit pension plans. The significant policies related to employee future benefits The cost of pension and other post-retirement benefits earned by employees is actuarially determined using the projected benefit method prorated on service, market interest rates and management’s best estimate of expected plan investment performance, retirement age of employees and expected health care costs; Fair value is used to value the plan assets for the purpose of calculating the expected return on plan assets; and Actuarial gains and losses arising from experience adjustment and change in actuarial assumptions are charged or credited to equity in other comprehensive loss in the period in which they arise. - - - - - - - - The fair value of the equity-settled share-based payment plan is determined using the Black-Scholes model on the grant date. Measurement inputs include the share price on the measurement date, the exercise price of the instrument, expected volatility, weighted average expected life of the instrument, expected dividends, expected forfeiture rate, and the risk-free interest rate. The impact of service and non-market vesting conditions is not taken into account in determining fair value. The compensation expense of the equity-settled awards is recognized in the consolidated statement of earnings (loss) over the graded vesting period, where the fair value of each tranche is recognized over its respective vesting period. For cash-settled share-based payment plans, the compensation expense is determined based on the fair value of the liability incurred at each reporting date until the award is settled. The fair value of compensation expense is calculated by multiplying the number of units expected to vest with the fair value of one unit as of grant date based on the market price of the Company’s common shares. Until the liability is settled, the Company re-measures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in the consolidated statement of earnings (loss). Earnings per share Diluted earnings (loss) per share assume the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on the income per share. The treasury stock method is used to determine the dilutive effect of share options. 56 Consolidated Financial Statements ▪ 13 Consolidated Financial Statements ▪ 14 5N+ 2023 ANNUAL REPORT - - The technical feasibility of completing the intangible asset so that it will be available for use or sale; Its intention to complete the intangible asset and use or sell it; Its ability to use or sell the intangible asset; 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) Inventories Research and development expenses Research expenses are charged to the consolidated statement of earnings (loss) in the period they are incurred and are included under “Other expenses (income), net”. Development expenses which are directly attributable expenses, either internal or external, are charged to the consolidated statement of earnings (loss), except if the Company can demonstrate all of the following (in that case capitalised as an intangible assets – development costs): - - - - How the intangible asset will generate probable future economic benefits. Among other things, the Company can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and Its ability to measure reliably the expenditure attributable to the intangible asset during its development. Inventories are carried at the lower of cost and net realizable value. Cost includes all expenditures directly attributable to the manufacturing process as well as suitable portions of related production overheads based on normal operating capacity. Costs of ordinarily interchangeable items are assigned using weighted average cost. Net realizable value is the estimated selling price in the ordinary course of business less costs of completion and any applicable selling expenses. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the impairment is reversed (i.e. the reversal is limited to the amount of the original impairment) so that the new carrying amount is the lower of the cost and the revised net realizable value. From time to time, when substantially all required raw materials are in inventory, the Company may choose to enter into long-term fixed-price sales contracts. The quantity of raw materials required to fulfill these contracts is specifically assigned, and the average cost of these raw materials is accounted for separately throughout the duration of the contract. The tax expense for the year which comprises current and deferred tax is recognized in the consolidated statement of earnings (loss), except to the extent that it relates to items recognized in other comprehensive loss or directly in equity. In which case, the tax expense is also recognized in other comprehensive loss or directly in equity, respectively. Income taxes a) Current tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of the consolidated statement of financial position in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that are enacted or substantively enacted at the date of the consolidated statement of financial position and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be used. Deferred income tax is presented to provide impact of temporary differences arising on investments in subsidiaries, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not be reversed in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority, on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. b) Deferred tax Share-based payments Employee future benefits The Company contributes to two defined benefit pension plans. The significant policies related to employee future benefits are as follows: - - - The cost of pension and other post-retirement benefits earned by employees is actuarially determined using the projected benefit method prorated on service, market interest rates and management’s best estimate of expected plan investment performance, retirement age of employees and expected health care costs; Fair value is used to value the plan assets for the purpose of calculating the expected return on plan assets; and Actuarial gains and losses arising from experience adjustment and change in actuarial assumptions are charged or credited to equity in other comprehensive loss in the period in which they arise. The fair value of the equity-settled share-based payment plan is determined using the Black-Scholes model on the grant date. Measurement inputs include the share price on the measurement date, the exercise price of the instrument, expected volatility, weighted average expected life of the instrument, expected dividends, expected forfeiture rate, and the risk-free interest rate. The impact of service and non-market vesting conditions is not taken into account in determining fair value. The compensation expense of the equity-settled awards is recognized in the consolidated statement of earnings (loss) over the graded vesting period, where the fair value of each tranche is recognized over its respective vesting period. For cash-settled share-based payment plans, the compensation expense is determined based on the fair value of the liability incurred at each reporting date until the award is settled. The fair value of compensation expense is calculated by multiplying the number of units expected to vest with the fair value of one unit as of grant date based on the market price of the Company’s common shares. Until the liability is settled, the Company re-measures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in the consolidated statement of earnings (loss). Earnings per share Diluted earnings (loss) per share assume the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on the income per share. The treasury stock method is used to determine the dilutive effect of share options. Consolidated Financial Statements ▪ 13 Consolidated Financial Statements ▪ 14 57 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Significant management estimation and judgment in applying accounting policies 3. Adoption of New Accounting Standards and Future Changes in Accounting Policies The following are significant management judgments used in applying the accounting policies of the Company that have the most significant effect on the consolidated financial statements. Adoption of new accounting standards Estimation uncertainty When preparing the consolidated financial statements, management undertakes a number of judgments, estimates and assumptions about recognition and measurement of assets, liabilities, revenues and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about the significant judgments, estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, revenues and expenses are discussed below. Impairment of non-financial assets An impairment loss is recognized for the amount by which an asset’s or CGU’s carrying amount exceeds its recoverable amount, which is the higher of fair value less cost of disposal and value in use. To determine the recoverable amount, significant judgement is required as management must estimate expected future cash flows from the asset or CGU and it must determine a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows, management makes assumptions about future operating results using the estimated forecasted prices obtained from various market sources. These key assumptions relate to future events and circumstances. The actual results will vary and may cause adjustments to the Company’s assets in future periods. In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and to asset-specific risk factors. Inventories Inventories are carried at the lower of cost and net realizable value, with cost determined using the average cost method. In estimating net realizable values, management takes into account the most reliable evidence available at the time the estimates are made. The Company’s core business is subject to changes in foreign policies and internationally accepted metal prices which may cause future selling prices to change rapidly. The Company evaluates its inventories using a group of similar items basis and considers expected future prices as well as events that have occurred between the consolidated statement of financial position date and the date of the completion of the consolidated financial statements. Net realizable value for inventory to satisfy a specific sales contract is measured at the contract price. Income taxes The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The Company has deferred income tax assets that are subject to periodic recoverability assessments. Realization of the Company’s deferred income tax assets is largely dependent on its achievement of projected future taxable income and the continued applicability of ongoing tax planning strategies. The Company’s judgments regarding future profitability may change due to future market conditions, changes in tax legislation and other factors that could adversely affect the ongoing value of the deferred income tax assets. These changes, if any, may require a material adjustment of these deferred income tax asset balances through an adjustment to the carrying value thereon in the future. This adjustment would reduce the deferred income tax asset to the amount that is considered to be more likely than not to be realized and would be recorded in the period such a determination was to be made (Note 18). For the year ended December 31, 2023, the Company evaluated the new accounting standards issued and effective under IFRS Accounting Standards and determined that they have no significant impact to its financial statements. As at December 31, 2023, the Company evaluated the new accounting standards issued but not yet effective under IFRS Accounting Standards and determined that none are applicable to the Company based on its current operations. Future Changes in accounting policies 4. Divestiture of Subsidiary On December 19, 2022, the Company divested its 100% interest in 5N Plus Belgium SA, previously included within its Performance Materials segment, and recognized a loss on divestiture of $7,834. The decision to cease the production of lower margin products used in catalytic and extractive applications was made following a strategic review of the Company’s legacy operations. As part of the transaction, a provision of $2,594 was recorded under Litigation and Restructuring to support the new owners to ensure site compliance with most recent environmental standards and for other related costs, of which 2.0 million euros or $2,133 is held in escrow. Prior to the divestiture, the Company recorded an impairment charge of $7,092 on Property, plant, and equipment (Note 8) following the intention to halt production at its manufacturing facility in Tilly, Belgium. These expenses are presented within the consolidated statement of earnings (loss) within Other expenses (income), net. 5. Accounts Receivable Gross trade receivables Loss allowance (Note 27) Trade receivables Sales taxes receivable Other receivables Total accounts receivable disclosed in Note 27. 2023 $ 25,155 (38) 25,117 4,963 3,357 33,437 2022 $ 26,255 (152) 26,103 3,265 3,504 32,872 The Company’s exposure to credit risks and the calculation of the loss allowance related to accounts receivable are Most of the accounts receivable are pledged as security for the revolving credit facility (Note 14). 58 Consolidated Financial Statements ▪ 15 Consolidated Financial Statements ▪ 16 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) Significant management estimation and judgment in applying accounting policies 3. Adoption of New Accounting Standards and Future Changes in Accounting Policies The following are significant management judgments used in applying the accounting policies of the Company that have the most significant effect on the consolidated financial statements. Adoption of new accounting standards Estimation uncertainty When preparing the consolidated financial statements, management undertakes a number of judgments, estimates and assumptions about recognition and measurement of assets, liabilities, revenues and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about the significant judgments, estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, revenues and expenses are discussed below. Impairment of non-financial assets An impairment loss is recognized for the amount by which an asset’s or CGU’s carrying amount exceeds its recoverable amount, which is the higher of fair value less cost of disposal and value in use. To determine the recoverable amount, significant judgement is required as management must estimate expected future cash flows from the asset or CGU and it must determine a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows, management makes assumptions about future operating results using the estimated forecasted prices obtained from various market sources. These key assumptions relate to future events and circumstances. The actual results will vary and may cause adjustments to the Company’s assets in future periods. In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and to asset-specific risk factors. Inventories Inventories are carried at the lower of cost and net realizable value, with cost determined using the average cost method. In estimating net realizable values, management takes into account the most reliable evidence available at the time the estimates are made. The Company’s core business is subject to changes in foreign policies and internationally accepted metal prices which may cause future selling prices to change rapidly. The Company evaluates its inventories using a group of similar items basis and considers expected future prices as well as events that have occurred between the consolidated statement of financial position date and the date of the completion of the consolidated financial statements. Net realizable value for inventory to satisfy a specific sales contract is measured at the contract price. Income taxes The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The Company has deferred income tax assets that are subject to periodic recoverability assessments. Realization of the Company’s deferred income tax assets is largely dependent on its achievement of projected future taxable income and the continued applicability of ongoing tax planning strategies. The Company’s judgments regarding future profitability may change due to future market conditions, changes in tax legislation and other factors that could adversely affect the ongoing value of the deferred income tax assets. These changes, if any, may require a material adjustment of these deferred income tax asset balances through an adjustment to the carrying value thereon in the future. This adjustment would reduce the deferred income tax asset to the amount that is considered to be more likely than not to be realized and would be recorded in the period such a determination was to be made (Note 18). For the year ended December 31, 2023, the Company evaluated the new accounting standards issued and effective under IFRS Accounting Standards and determined that they have no significant impact to its financial statements. Future Changes in accounting policies As at December 31, 2023, the Company evaluated the new accounting standards issued but not yet effective under IFRS Accounting Standards and determined that none are applicable to the Company based on its current operations. 4. Divestiture of Subsidiary On December 19, 2022, the Company divested its 100% interest in 5N Plus Belgium SA, previously included within its Performance Materials segment, and recognized a loss on divestiture of $7,834. The decision to cease the production of lower margin products used in catalytic and extractive applications was made following a strategic review of the Company’s legacy operations. As part of the transaction, a provision of $2,594 was recorded under Litigation and Restructuring to support the new owners to ensure site compliance with most recent environmental standards and for other related costs, of which 2.0 million euros or $2,133 is held in escrow. Prior to the divestiture, the Company recorded an impairment charge of $7,092 on Property, plant, and equipment (Note 8) following the intention to halt production at its manufacturing facility in Tilly, Belgium. These expenses are presented within the consolidated statement of earnings (loss) within Other expenses (income), net. 5. Accounts Receivable Gross trade receivables Loss allowance (Note 27) Trade receivables Sales taxes receivable Other receivables Total accounts receivable 2023 $ 25,155 (38) 25,117 4,963 3,357 33,437 2022 $ 26,255 (152) 26,103 3,265 3,504 32,872 The Company’s exposure to credit risks and the calculation of the loss allowance related to accounts receivable are disclosed in Note 27. Most of the accounts receivable are pledged as security for the revolving credit facility (Note 14). Consolidated Financial Statements ▪ 15 Consolidated Financial Statements ▪ 16 59 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 6. Inventories Raw materials Finished goods Total inventories 2023 $ 36,297 69,553 105,850 2022 $ 28,436 57,818 86,254 For the year ended December 31, 2023, a total of $101,176 of inventories was included as an expense in cost of sales (2022 – $118,643). For the year ended December 31, 2023, a total of $38 previously written down was recognized as a reduction of expenses in cost of sales concurrently with the related inventories being sold ($15 for the Specialty Semiconductors segment and $23 for the Performance Materials segment). For the year ended December 31, 2022, a total of $1,464 previously written down was recognized as a reduction of expenses in cost of sales concurrently with the related inventories being sold ($22 for the Specialty Semiconductors segment and $1,442 for the Performance Materials segment). The majority of inventories are pledged as security for the revolving credit facility (Note 14). 7. Other current assets Cash held in escrow (Note 4 and 29) Indexed deposit agreement Prepaids and others Total other current assets 2023 $ 2,212 - 3,495 5,707 2022 $ 10,613 5,517 3,727 19,857 During 2023, the Company recovered cash held in escrow for an amount of 7,950 euros. This amount, previously recorded since the acquisition as payable to the previous shareholder of AZUR, was recovered as per stipulations in the share purchase agreement not related to AZUR’s performance post-acquisition. In March 2023, the indexed deposit agreement entered with a major Canadian financial institution in June 2017, was amended to a total return swap wherein share price fluctuations are settled via cash annually. As part of this amendment, the Company received, $6,506 which represents the fair value of the indexed deposit agreement as at the amendment date. The Company entered into the total return swap, previously the indexed deposit agreement, to reduce its income exposure to fluctuations in its share price relating to the DSU, PSU, RSU and SAR programs. Pursuant to the agreement, the Company receives the economic benefit of the share price appreciation while providing payments to the financial institution for the institution’s cost of funds and any share price depreciation. The net effect of the total return swap partly offset movements in the Company’s share price impacting the cost of the DSU, PSU, RSU and SAR programs. As at December 31, 2023, the total return swap covered 2,571,569 common shares of the Company. 60 Consolidated Financial Statements ▪ 17 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) 6. Inventories Raw materials Finished goods Total inventories (2022 – $118,643). 7. Other current assets Cash held in escrow (Note 4 and 29) Indexed deposit agreement Prepaids and others Total other current assets For the year ended December 31, 2023, a total of $101,176 of inventories was included as an expense in cost of sales For the year ended December 31, 2023, a total of $38 previously written down was recognized as a reduction of expenses in cost of sales concurrently with the related inventories being sold ($15 for the Specialty Semiconductors segment and $23 for the Performance Materials segment). For the year ended December 31, 2022, a total of $1,464 previously written down was recognized as a reduction of expenses in cost of sales concurrently with the related inventories being sold ($22 for the Specialty Semiconductors segment and $1,442 for the Performance Materials segment). The majority of inventories are pledged as security for the revolving credit facility (Note 14). 2023 $ 36,297 69,553 105,850 2022 $ 28,436 57,818 86,254 2023 2,212 $ - 3,495 5,707 2022 $ 10,613 5,517 3,727 19,857 During 2023, the Company recovered cash held in escrow for an amount of 7,950 euros. This amount, previously recorded since the acquisition as payable to the previous shareholder of AZUR, was recovered as per stipulations in the share purchase agreement not related to AZUR’s performance post-acquisition. In March 2023, the indexed deposit agreement entered with a major Canadian financial institution in June 2017, was amended to a total return swap wherein share price fluctuations are settled via cash annually. As part of this amendment, the Company received, $6,506 which represents the fair value of the indexed deposit agreement as at the amendment date. The Company entered into the total return swap, previously the indexed deposit agreement, to reduce its income exposure to fluctuations in its share price relating to the DSU, PSU, RSU and SAR programs. Pursuant to the agreement, the Company receives the economic benefit of the share price appreciation while providing payments to the financial institution for the institution’s cost of funds and any share price depreciation. The net effect of the total return swap partly offset movements in the Company’s share price impacting the cost of the DSU, PSU, RSU and SAR programs. As at December 31, 2023, the total return swap covered 2,571,569 common shares of the Company. S T N E M E T A T S I L A C N A N I F D E T A D I L O S N O C O T S E T O N 1 3 r e b m e c e D d e d n e s r a e Y . C N I S U L P N 5 Consolidated Financial Statements ▪ 17 ) d e t a c i d n i e s i w r e h t o s s e n u l , s r a l l o d s e t a t S d e t i n U i t n e m p u q E d n a t n a P l f o s d n a s u o h t n i ( , y t r e p o r P . 8 8 1 ▪ s t n e m e t a t S l i a i c n a n F d e t a d i l o s n o C $ l a t o T 6 2 5 1 8 , 3 9 9 4 , 6 9 2 5 1 , ) 7 ( ) 2 3 0 3 ( , ) 7 1 7 1 1 ( , ) 2 9 0 7 ( , - ) 6 1 0 2 ( , 1 5 9 7 7 , 3 5 3 , 0 2 ) 2 7 6 ( ) 3 6 8 , 3 ( ) 7 9 2 , 0 1 ( - 8 2 1 , 1 0 0 6 , 4 8 ) 0 5 3 2 6 ( , , 1 0 3 0 4 1 1 5 9 7 7 , 7 7 9 , 5 5 1 ) 7 7 3 , 1 7 ( 0 0 6 , 4 8 - - $ 9 7 5 2 , 4 1 5 5 3 ) 9 0 7 ( - 6 5 7 ) 9 7 ( ) 1 ( 2 3 3 ) 1 4 4 ( 6 1 9 2 , - 5 4 1 7 2 2 9 , 2 5 7 2 6 , ) 9 5 3 3 ( , 6 1 9 2 , 6 7 6 , 6 ) 4 5 7 , 3 ( 2 2 9 , 2 - - $ 6 0 5 2 , - 8 7 3 ) 9 1 1 ( ) 4 0 3 1 ( , 0 1 ) 2 5 ( ) 3 ( 0 0 5 ) 6 5 5 ( 9 1 4 1 , - 5 1 8 1 3 9 3 , 1 5 3 1 5 , ) 6 1 7 3 ( , 9 1 4 1 , 6 3 1 , 5 ) 3 4 7 , 3 ( 3 9 3 , 1 - - - - $ 0 6 0 4 1 , ) 9 7 3 ( 1 8 0 3 1 , - - ) 4 2 2 ( ) 7 2 6 6 ( , 1 1 9 9 1 , 8 9 5 , 8 1 ) 1 7 5 , 3 ( ) 7 9 5 , 7 1 ( 8 5 3 9 9 6 , 7 1 - 1 1 9 9 1 , 1 1 9 9 1 , - 9 9 6 , 7 1 9 9 6 , 7 1 $ 7 1 0 5 , 7 3 7 1 , 6 9 7 6 4 , ) 3 ( - ) 0 4 9 8 ( , ) 9 9 5 4 ( , 4 6 2 4 , ) 1 1 5 1 ( , 1 6 7 2 4 , 3 9 8 ) 8 8 2 ( ) 2 7 6 ( ) 5 3 5 , 8 ( 7 3 5 , 7 1 6 0 7 2 0 4 , 2 5 7 5 1 0 9 , ) 6 9 3 7 4 ( , 1 6 7 2 4 , 5 7 6 , 7 0 1 ) 3 7 2 , 5 5 ( 2 0 4 , 2 5 l d o h e s a e L s t n e m e v o r p m i k c o t s g n i l l o r d n a t n e m p u q e i e c i f f o , e r u t i n r u F s s e r g o r p n i n o i t c u r t s n o C n o i t c u d o r P t n e m p u q e i $ 5 8 5 5 1 , d n a d n a L s g n d i l i u b - 6 8 ) 4 ( ) 4 6 7 ( ) 2 3 0 3 ( , ) 4 7 3 2 ( , ) 0 5 1 ( 7 9 5 1 , 4 4 9 0 1 , - 0 3 ) 5 6 7 ( - - ) 5 2 ( 4 8 1 , 0 1 3 2 8 8 1 , ) 9 7 8 7 ( , 4 4 9 0 1 , 1 9 7 , 8 1 ) 7 0 6 , 8 ( 4 8 1 , 0 1 ) 9 2 e t o N ( e a s l l r o f d e h s t e s s a o t n o i t a c i f i s s a l c e R 1 2 0 2 , 1 3 r e b m e c e D t a s a e u a v k o o b t e N l n o i t a n b m o c i s s e n i s u B s n o i t i d d A s l a s o p s i D s e i r o g e t a c n e e w t e b r e f s n a r T e g n a h c x e n g e r o f i f o t c e f f E n o i t a i c e r p e D t n e m r i a p m I 2 2 0 2 , 1 3 r e b m e c e D t a s a e u a v l k o o b t e N s n o i t i d d A s l a s o p s i D 3 2 0 2 , 1 3 r e b m e c e D t a s a e u a v k o o b t e N l s e i r o g e t a c n e e w t e b r e f s n a r T e g n a h c x e n g e r o f i f o t c e f f E n o i t a i c e r p e D t n e m r i a p m I 2 2 0 2 , 1 3 r e b m e c e D t a s A t s o C n o i t a i c e r p e d d e t a u m u c c A l e u a v l k o o b t e N 3 2 0 2 , 1 3 r e b m e c e D t a s A t s o C n o i t a i c e r p e d d e t a u m u c c A l l e u a v k o o b t e N 61 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) During 2023, the Company recorded an impairment of non-current assets of $672 in relation to Property, plant and equipment included within the Performance Materials segment, to reflect the assessment of the carrying value of production equipment following the Company’s decision to switch to higher capacity equipment. During 2022, the Company recorded an impairment of non-current assets of $7,092, included in the Performance Materials segment, to reflect the assessment of the carrying value of property, plant and equipment following the intention to halt production at its manufacturing facility in Tilly, Belgium. Consequently, the Company’s projections regarding the future cashflows from the property, plant and equipment of Tilly were minimal. The impairment charges are recognized under Other expenses within the consolidated statement of earnings (loss) (Note 4). As at December 31, 2023, property, plant and equipment include $6,669 of prepayments for construction in progress ($4,001 as at December 31, 2022). Most of the property, plant and equipment are pledged as security for the revolving credit facility (Note 14). Variable lease payments not included in the measurement of lease liabilities(3) 9. Leases Right-of-use assets Net book value as at December 31, 2021 Business combination Additions Modification to lease contracts Divestiture of subsidiary (Note 4) Depreciation Effect of foreign exchange and others Net book value as at December 31, 2022 Additions Modification to lease contracts Depreciation Effect of foreign exchange and others Net book value as at December 31, 2023 As at December 31, 2022 Cost Accumulated depreciation Net book value As at December 31, 2023 Cost Accumulated depreciation Net book value Buildings $ 31,543 (938) 2,300 198 - (2,364) (1,167) 29,572 229 654 (2,292) 618 28,781 35,319 (5,747) 29,572 35,357 (6,576) 28,781 Production equipment $ 238 - 107 - (55) (128) (4) 158 12 24 (66) - 128 Office equipment and rolling stock $ 417 - 290 - (140) (210) (5) 352 207 - (180) 2 381 305 (147) 158 335 (207) 128 509 (157) 352 737 (356) 381 Total $ 32,198 (938) 2,697 198 (195) (2,702) (1,176) 30,082 448 678 (2,538) 620 29,290 36,133 (6,051) 30,082 36,429 (7,139) 29,290 Lease liabilities Current portion Non-current portion Total lease liabilities Amounts recognized in the consolidated statements of earnings: Imputed interest(1) Income from sub-leasing right-of-use assets(2) Expenses relating to short-term leases(3) Expenses relating to leases of low-value assets, excluding short-term leases of low-value assets(3) Included in financial expenses. Included in other expenses (income), net. (1) (2) (3) Included in cost of sales and selling, general and administrative expenses. 10. Intangible Assets Net book value as at December 31, 2021 Business combination Additions Divestiture of subsidiary (Note 4) Amortization Impairment Additions Amortization Effect of foreign exchange Net book value as at December 31, 2022 Effect of foreign exchange Net book value as at December 31, 2023 As at December 31, 2022 Cost Accumulated amortization Net book value As at December 31, 2023 Cost Accumulated amortization Net book value 2023 $ 1,811 28,328 30,139 2023 $ 690 (71) 200 103 256 $ 13,597 (3,534) 993 (66) (1,320) (263) (129) 9,278 902 (1,364) 103 8,919 15,465 (6,187) 9,278 16,503 (7,584) 8,919 2022 $ 2,136 28,266 30,402 2022 $ 605 (123) 235 188 173 Total $ 40,474 (973) 993 (66) (3,313) (5,386) (166) 31,563 902 (3,275) 114 29,304 40,913 (9,350) 31,563 41,973 (12,669) 29,304 Customer relationship Trade name, software, development costs Technology and others $ 15,805 (423) - - - - - (742) (5,123) 9,517 (688) 8,829 10,425 (908) 9,517 10,425 (1,596) 8,829 $ 11,072 2,984 - - - - (1,251) (37) 12,768 (1,223) 11 11,556 15,023 (2,255) 12,768 15,045 (3,489) 11,556 62 Consolidated Financial Statements ▪ 19 Consolidated Financial Statements ▪ 20 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) During 2023, the Company recorded an impairment of non-current assets of $672 in relation to Property, plant and equipment included within the Performance Materials segment, to reflect the assessment of the carrying value of production equipment following the Company’s decision to switch to higher capacity equipment. During 2022, the Company recorded an impairment of non-current assets of $7,092, included in the Performance Materials segment, to reflect the assessment of the carrying value of property, plant and equipment following the intention to halt production at its manufacturing facility in Tilly, Belgium. Consequently, the Company’s projections regarding the future cashflows from the property, plant and equipment of Tilly were minimal. The impairment charges are recognized under Other expenses within the consolidated statement of earnings (loss) (Note 4). As at December 31, 2023, property, plant and equipment include $6,669 of prepayments for construction in progress ($4,001 as at December 31, 2022). Most of the property, plant and equipment are pledged as security for the revolving credit facility (Note 14). 9. Leases Right-of-use assets Net book value as at December 31, 2021 Business combination Additions Modification to lease contracts Divestiture of subsidiary (Note 4) Depreciation Effect of foreign exchange and others Net book value as at December 31, 2022 Modification to lease contracts Additions Depreciation Effect of foreign exchange and others Net book value as at December 31, 2023 As at December 31, 2022 Accumulated depreciation Net book value As at December 31, 2023 Cost Cost Accumulated depreciation Net book value Buildings Production equipment Office equipment and rolling stock $ 31,543 (938) 2,300 198 - (2,364) (1,167) 29,572 229 654 (2,292) 618 28,781 35,319 (5,747) 29,572 35,357 (6,576) 28,781 $ 238 107 - - (55) (128) (4) 158 12 24 (66) - 128 305 (147) 158 335 (207) 128 $ 417 290 - - (140) (210) (5) 352 207 (180) - 2 381 509 (157) 352 737 (356) 381 Total $ 32,198 (938) 2,697 198 (195) (2,702) (1,176) 30,082 448 678 (2,538) 620 29,290 36,133 (6,051) 30,082 36,429 (7,139) 29,290 Lease liabilities Current portion Non-current portion Total lease liabilities Amounts recognized in the consolidated statements of earnings: Imputed interest(1) Income from sub-leasing right-of-use assets(2) Variable lease payments not included in the measurement of lease liabilities(3) Expenses relating to short-term leases(3) Expenses relating to leases of low-value assets, excluding short-term leases of low-value assets(3) (1) (2) (3) Included in financial expenses. Included in other expenses (income), net. Included in cost of sales and selling, general and administrative expenses. 10. Intangible Assets 2023 $ 1,811 28,328 30,139 2023 $ 690 (71) 200 103 256 Net book value as at December 31, 2021 Business combination Additions Divestiture of subsidiary (Note 4) Amortization Impairment Effect of foreign exchange Net book value as at December 31, 2022 Additions Amortization Effect of foreign exchange Net book value as at December 31, 2023 As at December 31, 2022 Cost Accumulated amortization Net book value As at December 31, 2023 Cost Accumulated amortization Net book value Customer relationship $ 15,805 (423) - - (742) (5,123) - 9,517 - (688) - 8,829 10,425 (908) 9,517 10,425 (1,596) 8,829 Trade name, software, development costs and others $ 13,597 (3,534) 993 (66) (1,320) (263) (129) 9,278 902 (1,364) 103 8,919 Technology $ 11,072 2,984 - - (1,251) - (37) 12,768 - (1,223) 11 11,556 15,023 (2,255) 12,768 15,045 (3,489) 11,556 15,465 (6,187) 9,278 16,503 (7,584) 8,919 2022 $ 2,136 28,266 30,402 2022 $ 605 (123) 235 188 173 Total $ 40,474 (973) 993 (66) (3,313) (5,386) (166) 31,563 902 (3,275) 114 29,304 40,913 (9,350) 31,563 41,973 (12,669) 29,304 Consolidated Financial Statements ▪ 19 Consolidated Financial Statements ▪ 20 63 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) In 2022, the Company recorded an impairment of non-current assets of $5,386, included in the Specialty Semiconductors segment, to reflect the assessment of the carrying value of intangible assets impacted by the invasion of Ukraine by Russia, more precisely in reference to Russia based customers. The Company’s initial assumptions regarding the timing of future cashflows from these customers can no longer be supported given the uncertainty associated with recent international sanctions against Russia, and the unknown duration of the conflict. The impairment charges are recognized under Other expenses within the consolidated statement of earnings (loss). As at December 31, 2023, intangible assets that were not depreciated until ready for their intended use amounted to $1,568 (2022 ─ $812). The category of development costs which includes capitalized costs of $11,295 (2022 - $10,798), consists of internally generated intangible assets. 11. Goodwill Beginning of year Business combination End of year 2023 $ 11,825 - 11,825 2022 $ 13,841 (2,016) 11,825 Senior secured revolving facility of $124,000 with a syndicate of banks, maturing in April 2026 Subordinated term loan, maturing in March 2024 Goodwill is allocated to the Specialty Semiconductor segment. For the purposes of the Company’s annual goodwill impairment test, AZUR is considered as its own CGU. Based on the result of this test, no impairment charges are required. The recoverable amount was determined based on the CGU’s value in use which was calculated by using a discounted cash flow (DCF) approach. Less current portion of long-term debt Senior secured revolving facility The key assumptions used for the purposes of the DCF are outlined below: - - Cash flows: Estimated cash flows were projected based on actual operating results from internal sources as well as industry and market trends. The first three years of the five-year projection period were forecasted by Management. The extended two-year period was calculated using the 2018-2023 Compound Annual Growth Rate for the revenues; Terminal growth rate: A terminal growth rate of 5.0% is used to extrapolate the Company’s projection and it was determined using the industry expectation and market trends; and - Discount rate: Cash flows are discounted using pre-tax discount rate which is estimated based on the historical industry average weighted-average cost of capital. The discount rate used is 9.2% (2022 – 9.9%). 12. Other assets Deferred costs Investment in equity instruments Prepaids Restricted investment and other Total other assets 2023 $ 519 3,000 836 604 4,959 2022 $ 777 2,000 - 623 3,400 In December 2023 and January 2021, the Company acquired a minority equity stake in Microbion Corporation (Microbion) for an amount of $1,000 and $2,000 respectively. The Company also owns a restricted investment of $603 (2022 - $620) which is valued at fair value through profit or loss. 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 13. Trade and Accrued Liabilities Trade payables Accrued liabilities(1) Consideration payable (Note 7 and 29) Total trade and accrued liabilities 14. Long-Term Debt (1) As at December 31, 2023, an amount of $2,210 was still outstanding with respect to the provision of $2,675 outstanding as at December 31, 2022. Provisions of $289 were taken in 2023, of which $152 was still outstanding as at December 31, 2023. 2023 $ 17,906 19,118 - 37,024 2023 $ 83,500 25,000 108,500 (25,000) 83,500 2022 $ 14,281 17,440 8,479 40,200 2022 $ 96,000 25,000 121,000 - 121,000 In June 2022, the Company signed a senior secured multi-currency revolving credit facility of $124,000 maturing in April 2026 to replace its existing $124,000 senior secured revolving facility maturing in April 2023. At any time, the Company has the option to request that the credit facility be expanded through the exercise of an additional $30,000 accordion feature, subject to review and approval by the lenders. This revolving credit facility can be drawn in US dollars, Canadian dollars or Hong Kong dollars (up to $4,000). Drawings bear interest at either the Canadian prime rate, US base rate, Hong Kong base rate or SOFR, plus a margin based on the Company’s senior net debt to consolidated EBITDA ratio. Under the terms of its credit facility, the Company is required to satisfy certain restrictive covenants as to financial ratios. As at December 31, 2023, the Company had met all covenants. Subordinated term loan In February 2019, the Company signed a five-year subordinated term loan with Investissement Québec. The loan was disbursed in two tranches: the first tranche of $5,000 on February 6, 2019 and the second tranche of $20,000 on March 22, 2019. The two tranches of the term loan bear interest equivalent to the 5-year US dollar swap rate plus a margin of 4.19%, which equals to 6.82% and 6.64% respectively. Under the terms of the loan, the Company is required to satisfy certain restrictive covenants as to financial ratios. As at December 31, 2023, the Company has met all covenants. 64 Consolidated Financial Statements ▪ 21 Consolidated Financial Statements ▪ 22 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) In 2022, the Company recorded an impairment of non-current assets of $5,386, included in the Specialty Semiconductors segment, to reflect the assessment of the carrying value of intangible assets impacted by the invasion of Ukraine by Russia, more precisely in reference to Russia based customers. The Company’s initial assumptions regarding the timing of future cashflows from these customers can no longer be supported given the uncertainty associated with recent international sanctions against Russia, and the unknown duration of the conflict. The impairment charges are recognized under Other expenses within the consolidated statement of earnings (loss). As at December 31, 2023, intangible assets that were not depreciated until ready for their intended use amounted to $1,568 (2022 ─ $812). The category of development costs which includes capitalized costs of $11,295 (2022 - $10,798), consists of internally generated intangible assets. 13. Trade and Accrued Liabilities Trade payables Accrued liabilities(1) Consideration payable (Note 7 and 29) Total trade and accrued liabilities 2023 $ 17,906 19,118 - 37,024 2022 $ 14,281 17,440 8,479 40,200 (1) As at December 31, 2023, an amount of $2,210 was still outstanding with respect to the provision of $2,675 outstanding as at December 31, 2022. Provisions of $289 were taken in 2023, of which $152 was still outstanding as at December 31, 2023. 2023 $ - 11,825 11,825 2022 $ 13,841 (2,016) 11,825 14. Long-Term Debt Senior secured revolving facility of $124,000 with a syndicate of banks, maturing in April 2026 Subordinated term loan, maturing in March 2024 Less current portion of long-term debt 2023 $ 83,500 25,000 108,500 (25,000) 83,500 2022 $ 96,000 25,000 121,000 - 121,000 Senior secured revolving facility In June 2022, the Company signed a senior secured multi-currency revolving credit facility of $124,000 maturing in April 2026 to replace its existing $124,000 senior secured revolving facility maturing in April 2023. At any time, the Company has the option to request that the credit facility be expanded through the exercise of an additional $30,000 accordion feature, subject to review and approval by the lenders. This revolving credit facility can be drawn in US dollars, Canadian dollars or Hong Kong dollars (up to $4,000). Drawings bear interest at either the Canadian prime rate, US base rate, Hong Kong base rate or SOFR, plus a margin based on the Company’s senior net debt to consolidated EBITDA ratio. Under the terms of its credit facility, the Company is required to satisfy certain restrictive covenants as to financial ratios. As at December 31, 2023, the Company had met all covenants. Subordinated term loan In February 2019, the Company signed a five-year subordinated term loan with Investissement Québec. The loan was disbursed in two tranches: the first tranche of $5,000 on February 6, 2019 and the second tranche of $20,000 on March 22, 2019. The two tranches of the term loan bear interest equivalent to the 5-year US dollar swap rate plus a margin of 4.19%, which equals to 6.82% and 6.64% respectively. Under the terms of the loan, the Company is required to satisfy certain restrictive covenants as to financial ratios. As at December 31, 2023, the Company has met all covenants. 11. Goodwill Beginning of year Business combination End of year 12. Other assets Deferred costs Investment in equity instruments Prepaids Restricted investment and other Total other assets Goodwill is allocated to the Specialty Semiconductor segment. For the purposes of the Company’s annual goodwill impairment test, AZUR is considered as its own CGU. Based on the result of this test, no impairment charges are required. The recoverable amount was determined based on the CGU’s value in use which was calculated by using a discounted cash flow (DCF) approach. The key assumptions used for the purposes of the DCF are outlined below: - Cash flows: Estimated cash flows were projected based on actual operating results from internal sources as well as industry and market trends. The first three years of the five-year projection period were forecasted by Management. The extended two-year period was calculated using the 2018-2023 Compound Annual Growth Rate for the revenues; - Terminal growth rate: A terminal growth rate of 5.0% is used to extrapolate the Company’s projection and it was determined using the industry expectation and market trends; and - Discount rate: Cash flows are discounted using pre-tax discount rate which is estimated based on the historical industry average weighted-average cost of capital. The discount rate used is 9.2% (2022 – 9.9%). 2023 $ 519 3,000 836 604 4,959 2022 $ 777 2,000 - 623 3,400 In December 2023 and January 2021, the Company acquired a minority equity stake in Microbion Corporation (Microbion) for an amount of $1,000 and $2,000 respectively. The Company also owns a restricted investment of $603 (2022 - $620) which is valued at fair value through profit or loss. Consolidated Financial Statements ▪ 21 Consolidated Financial Statements ▪ 22 65 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 15. Employee Benefit Plan Obligations The Company operates two defined pension plans in Germany based on employee pensionable earnings and length of service. Unfunded defined benefit plan Former general and senior managers had been provided with direct benefit commitments. Employees had been provided with indirect benefit commitments via the Unterstützungseinrichtung der HEK GmbH e.V. Such promises had been made for employees with an entry date of December 31, 1993 or earlier. Funded defined benefit plan The pension obligations are via a pension fund with commitments to old-age, disability and survivors’ pension to managers as well as employees. Such promises had been made for employees with an entry date of December 31, 2007 or earlier. Vesting of benefits is being determined by the employers’ pension-plan act (Gesetz über die Verbesserung der betrieblichen Altersversorgung). The pension scheme is fully funded by two absolute return strategies funds at Generali Pensionsfond AG. These investment funds have quoted prices in active markets. Fair value of plan assets Present value of funded obligation Present value of net obligation for funded obligation Present value of unfunded obligation Present value of net obligations Movement in the defined benefit obligations is as follows: Beginning of year Current service cost Interest cost Effect of foreign exchange Benefits paid Actuarial losses (gains) From changes in financial assumptions From changes in other assumptions End of year Unfunded $ 10,581 39 432 374 (695) 761 331 Funded $ 3,425 - 140 131 (187) 304 26 2023 Total $ 14,006 39 572 505 (882) 1,065 357 11,823 3,839 15,662 Movement in plan assets is as follows: Beginning of year Interest income Return on plan assets, excluding amounts included in interest income Contributions Pension benefits paid Effect of foreign exchange End of year 66 2023 $ 2,269 3,839 1,570 11,823 13,393 Unfunded $ 14,725 58 165 (862) (655) Funded $ 5,575 - 63 (350) (177) 2022 $ 2,363 3,425 1,062 10,581 11,643 2022 Total $ 20,300 58 228 (1,212) (832) (3,481) (1,728) (5,209) 631 10,581 42 3,425 673 14,006 Specific to employee benefit obligations, the Company is mainly exposed to economic and demographic risks such as salary inflation and changes in life expectancy. The plans’ obligations are to provide benefits for the duration of the life of its members, therefore, increases in life expectancy will result in an increase in the plans’ liabilities. In addition, the obligations are impacted by the discount rate. 2023 $ 2,363 97 (150) 65 (187) 81 2,269 2022 $ 3,069 34 (377) - (177) (186) 2,363 Consolidated Financial Statements ▪ 23 Consolidated Financial Statements ▪ 24 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) The principal actuarial assumptions as at December 31 were as follows: Unfunded 3.5% 2.5% 2.3% 2023 Funded 3.5% 2.5% 2.0% Unfunded 4.2% 2.5% 2.3% 2022 Funded 4.2% 2.5% 2.0% Discount rate Salary growth rate Pension growth rate benefit plan. Assumptions regarding mortality are based on mortality tables “Richttafeln 2018 G” by Prof. Dr. Klaus Heubeck as biometrical basis in accordance with age of earliest retirement by law RV-Altersgrenzenanpassungsgesetz, dated April 20, 2007 for the unfunded defined benefit plan and with age of earliest retirement by 65 years for the funded defined The sensitivity of the defined benefit obligations to changes in assumptions is set out below. The effects on each plan of a change in an assumption are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented. Impact on defined benefit obligations Change in assumption Increase in assumption Decrease in assumption Discount rate Salary growth rate Pension growth rate Unfunded Funded Unfunded 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% (5.02%) 0.24% 4.51% Funded (5.93%) -% 5.28% Unfunded 5.50% (0.23%) (4.18%) Funded 6.58% -% (4.88%) Increase by 1 year in assumption Decrease by 1 year in assumption Unfunded 4.05% Funded 3.48% Unfunded (3.58%) Funded (3.11%) Life expectancy detailed below: The weighted average duration of the unfunded and funded defined benefit obligations are 10.51 years and 12.35 years (2022 – 10.29 years and 12.10 years). Though its defined benefit pension plans, the Company is exposed to a number of risks, the most significant of which are Defined benefit pension plan assets are invested in order to meet funded pension obligations. The ability of the Company’s fund assets to meet employee benefit obligations is subject to market risk such as foreign currency risk, interest rate risk, and other price risk. Credit risk also affects plan assets, as they are partially comprised of investments in bonds. The default of a bond issuer would decrease plan assets and the Company’s corresponding ability to meet employee benefit obligations. 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 15. Employee Benefit Plan Obligations service. Unfunded defined benefit plan The Company operates two defined pension plans in Germany based on employee pensionable earnings and length of Former general and senior managers had been provided with direct benefit commitments. Employees had been provided with indirect benefit commitments via the Unterstützungseinrichtung der HEK GmbH e.V. Such promises had been made for employees with an entry date of December 31, 1993 or earlier. Funded defined benefit plan The pension obligations are via a pension fund with commitments to old-age, disability and survivors’ pension to managers as well as employees. Such promises had been made for employees with an entry date of December 31, 2007 or earlier. Vesting of benefits is being determined by the employers’ pension-plan act (Gesetz über die Verbesserung der betrieblichen Altersversorgung). The pension scheme is fully funded by two absolute return strategies funds at Generali Pensionsfond AG. These investment funds have quoted prices in active markets. Fair value of plan assets Present value of funded obligation Present value of net obligation for funded obligation Present value of unfunded obligation Present value of net obligations Movement in the defined benefit obligations is as follows: Beginning of year Current service cost Interest cost Effect of foreign exchange Benefits paid Actuarial losses (gains) From changes in financial assumptions From changes in other assumptions End of year Beginning of year Interest income Contributions Pension benefits paid Effect of foreign exchange End of year Movement in plan assets is as follows: Return on plan assets, excluding amounts included in interest income $ 10,581 39 432 374 (695) 761 331 3,425 $ - 140 131 (187) 304 26 2023 Total $ 14,006 39 572 505 (882) 1,065 357 11,823 3,839 15,662 Unfunded $ 14,725 58 165 (862) (655) Funded $ 5,575 - 63 (350) (177) 2023 $ 2,269 3,839 1,570 11,823 13,393 2023 $ 2,363 97 (150) 65 (187) 81 2,269 2022 $ 2,363 3,425 1,062 10,581 11,643 2022 Total $ 20,300 58 228 (1,212) (832) 2022 $ 3,069 34 (377) - (177) (186) 2,363 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) The principal actuarial assumptions as at December 31 were as follows: Discount rate Salary growth rate Pension growth rate Unfunded 3.5% 2.5% 2.3% 2023 Funded 3.5% 2.5% 2.0% Unfunded 4.2% 2.5% 2.3% 2022 Funded 4.2% 2.5% 2.0% Assumptions regarding mortality are based on mortality tables “Richttafeln 2018 G” by Prof. Dr. Klaus Heubeck as biometrical basis in accordance with age of earliest retirement by law RV-Altersgrenzenanpassungsgesetz, dated April 20, 2007 for the unfunded defined benefit plan and with age of earliest retirement by 65 years for the funded defined benefit plan. The sensitivity of the defined benefit obligations to changes in assumptions is set out below. The effects on each plan of a change in an assumption are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented. Impact on defined benefit obligations Change in assumption Increase in assumption Decrease in assumption Discount rate Salary growth rate Pension growth rate Unfunded 0.50% 0.50% 0.50% Funded 0.50% 0.50% 0.50% Unfunded (5.02%) 0.24% 4.51% Funded (5.93%) -% 5.28% Unfunded 5.50% (0.23%) (4.18%) Funded 6.58% -% (4.88%) Unfunded Funded Life expectancy Increase by 1 year in assumption Decrease by 1 year in assumption Unfunded 4.05% Funded 3.48% Unfunded (3.58%) Funded (3.11%) The weighted average duration of the unfunded and funded defined benefit obligations are 10.51 years and 12.35 years (2022 – 10.29 years and 12.10 years). Though its defined benefit pension plans, the Company is exposed to a number of risks, the most significant of which are detailed below: (3,481) (1,728) (5,209) 631 10,581 42 3,425 673 14,006 Specific to employee benefit obligations, the Company is mainly exposed to economic and demographic risks such as salary inflation and changes in life expectancy. The plans’ obligations are to provide benefits for the duration of the life of its members, therefore, increases in life expectancy will result in an increase in the plans’ liabilities. In addition, the obligations are impacted by the discount rate. Defined benefit pension plan assets are invested in order to meet funded pension obligations. The ability of the Company’s fund assets to meet employee benefit obligations is subject to market risk such as foreign currency risk, interest rate risk, and other price risk. Credit risk also affects plan assets, as they are partially comprised of investments in bonds. The default of a bond issuer would decrease plan assets and the Company’s corresponding ability to meet employee benefit obligations. Consolidated Financial Statements ▪ 23 Consolidated Financial Statements ▪ 24 67 2023 ANNUAL REPORT 5N+ Earnings (loss) before income tax Canadian statutory income tax rates Income tax on earnings (losses) at Canadian statutory rate Increase (decrease) resulting from: Unrecorded losses carried forward Non-deductible expense for tax purposes Non-taxable litigation and restructuring income (Non-taxable) non-deductible foreign exchange Effect of difference of foreign tax rates compared to Canadian tax rates Withholding tax on group dividend Adjustment in respect of prior years’ estimates Other Income tax expense operates. Movement in the deferred income tax amounts is as follows: Tax charge relating to components of other comprehensive income (loss) Credited to consolidated statement of earnings Beginning of year Business combination Impact of foreign exchange End of year 2023 $ 18,674 26.5% 4,949 911 312 (2,341) (1,354) 3 410 431 (46) 3,275 2023 (957) $ - 492 3,399 43 2,977 ) 2022 $ (18,288) 26.5% (4,846) 3,268 3,670 - 1,868 299 522 (56) (14) 4,711 2022 $ (638) (1,071) (1,300) 2,154 (102) (957) The Company’s applicable tax rate is the Canadian combined rates applicable in the jurisdiction in which the Company Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Expected maturity analysis of undiscounted pension liability: A reconciliation of income taxes at Canadian statutory rates with the reported income taxes is as follows: Less than a year Between 1 and 5 years Over 5 years Total Unfunded $ 710 2,984 14,553 18,247 Funded $ 198 845 5,537 6,580 2023 Total $ 908 3,829 20,090 24,827 Unfunded $ 676 2,796 14,140 17,612 Funded $ 186 786 5,378 6,350 Expected contributions to pension benefit plans for the year ending December 31, 2024 are $908. 16. Deferred revenue Prepayments from clients Current portion of deferred revenue related to long-term contracts Current portion of deferred revenue Non-current portion of deferred revenue related to long-term contracts Non-current portion of deferred revenue Total deferred revenue 2023 $ 11,591 1,846 13,437 5,629 5,629 19,066 2022 Total $ 862 3,582 19,518 23,962 2022 $ 9,409 2,321 11,730 2,354 2,354 14,084 For the year ended December 31, 2023, $10,441 (2022 - $5,605) of revenue was realized in relation to the deferred revenue balance outstanding at the beginning of the year. 17. Other Liabilities Beginning of year Divestiture of subsidiary (Note 4) Increase in liabilities Utilized Effect of foreign exchange End of year 18. Income Taxes Current tax: Current tax for the year Adjustment in respect of prior years’ estimates Total current tax Deferred tax: Recognition and reversal of temporary differences Adjustment in respect of prior years’ estimates Total deferred tax Income tax expense 68 2023 $ 2,141 - 1,723 (231) 36 3,669 2023 $ 6,459 215 6,674 (3,615) 216 (3,399) 3,275 2022 $ 1,255 (195) 1,140 - (59) 2,141 2022 $ 7,213 (348) 6,865 (2,446) 292 (2,154) 4,711 Consolidated Financial Statements ▪ 25 Consolidated Financial Statements ▪ 26 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) Expected maturity analysis of undiscounted pension liability: A reconciliation of income taxes at Canadian statutory rates with the reported income taxes is as follows: Less than a year Between 1 and 5 years Over 5 years Total $ 710 2,984 14,553 18,247 $ 198 845 5,537 6,580 Unfunded Funded Unfunded Funded 2023 Total $ 908 3,829 20,090 24,827 $ 676 2,796 14,140 17,612 $ 186 786 5,378 6,350 Expected contributions to pension benefit plans for the year ending December 31, 2024 are $908. 16. Deferred revenue Prepayments from clients Current portion of deferred revenue related to long-term contracts Current portion of deferred revenue Non-current portion of deferred revenue related to long-term contracts Non-current portion of deferred revenue Total deferred revenue For the year ended December 31, 2023, $10,441 (2022 - $5,605) of revenue was realized in relation to the deferred revenue balance outstanding at the beginning of the year. Earnings (loss) before income tax Canadian statutory income tax rates Income tax on earnings (losses) at Canadian statutory rate Increase (decrease) resulting from: Unrecorded losses carried forward Non-deductible expense for tax purposes Non-taxable litigation and restructuring income (Non-taxable) non-deductible foreign exchange Effect of difference of foreign tax rates compared to Canadian tax rates Withholding tax on group dividend Adjustment in respect of prior years’ estimates Other Income tax expense 2023 $ 18,674 26.5% 4,949 911 312 (2,341) (1,354) 3 410 431 (46) 3,275 2022 $ (18,288) 26.5% (4,846) 3,268 3,670 - 1,868 299 522 (56) (14) 4,711 The Company’s applicable tax rate is the Canadian combined rates applicable in the jurisdiction in which the Company operates. Movement in the deferred income tax amounts is as follows: Beginning of year Business combination Tax charge relating to components of other comprehensive income (loss) Credited to consolidated statement of earnings Impact of foreign exchange End of year 2023 $ (957) - 492 3,399 43 ) 2,977 2022 $ (638) (1,071) (1,300) 2,154 (102) (957) 2022 Total $ 862 3,582 19,518 23,962 2022 $ 9,409 2,321 11,730 2,354 2,354 14,084 2022 $ 1,255 (195) 1,140 - (59) 2,141 2022 $ 7,213 (348) 6,865 (2,446) 292 (2,154) 4,711 2023 $ 11,591 1,846 13,437 5,629 5,629 19,066 2023 2,141 $ - 1,723 (231) 36 3,669 2023 $ 6,459 215 6,674 (3,615) 216 (3,399) 3,275 17. Other Liabilities Beginning of year Divestiture of subsidiary (Note 4) Increase in liabilities Utilized Effect of foreign exchange End of year 18. Income Taxes Adjustment in respect of prior years’ estimates Recognition and reversal of temporary differences Adjustment in respect of prior years’ estimates Current tax: Current tax for the year Total current tax Deferred tax: Total deferred tax Income tax expense Consolidated Financial Statements ▪ 25 Consolidated Financial Statements ▪ 26 69 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) e m a s e h t n i h t i w s e c n a l a b f o g n i t t e s f f o e h t n o i t a r e d i s n o c o t n i g n i k a t t u o h t i w , r a e y e h t g n i r u d s e i t i l i b a i l d n a s t e s s a x a t e m o c n i d e r r e f e d n i t n e m e v o m e h T ) d e t a c i d n i e s i w r e h t o s s e n u l , s r a l l o d s e t a t S d e t i n U f o s d n a s u o h t n i ( S T N E M E T A T S I L A C N A N I F D E T A D I L O S N O C O T S E T O N 1 3 r e b m e c e D d e d n e s r a e Y . C N I S U L P N 5 $ l a t o T 7 0 0 7 , $ ) 0 0 8 3 ( , y b t e s f f O n o i t c i d s i r u 2 0 0 6 , ) 5 2 0 3 ( , j l a t o T s r e h t O $ ) 3 2 3 ( 7 0 8 0 1 , ) 5 5 ( ) 0 0 3 1 ( , ) 2 0 1 ( 7 2 0 9 , 5 8 3 , 4 3 4 2 9 4 $ 3 3 8 ) 9 4 ( 4 6 2 - ) 2 0 1 ( 6 4 9 1 6 4 - 3 4 1 6 2 , 8 ) 6 8 6 , 5 ( 7 4 9 , 3 1 0 5 4 , 1 $ l a t o T 5 4 6 7 , $ ) 0 0 8 3 ( , y b t e s f f O n o i t c i d s i r u j 9 5 9 6 , ) 5 2 0 3 ( , $ l a t o T 1 7 0 1 , 5 4 4 1 1 , ) 3 2 3 ( ) 9 0 2 2 ( , 6 8 9 4 8 9 9 , 4 8 2 , 5 ) 6 8 6 , 5 ( 0 7 9 , 0 1 $ 6 6 - - 5 9 1 6 1 7 8 8 4 2 s r e h t O 7 2 ▪ s t n e m e t a t S l i a i c n a n F d e t a d i l o s n o C ) 5 5 1 2 ( , ) 7 4 3 ( 4 8 9 , 8 ) 7 9 6 ( 7 8 2 , 8 3 1 ) 3 1 ( - - $ 6 2 4 ) 6 6 ( - $ 5 8 8 ) 7 5 2 ( 8 9 1 6 2 8 9 0 6 , 1 5 3 4 , 2 t i f e n e b n o i t a g i l b o t n e m e r i t e R - $ 9 5 4 4 , ) 9 7 3 ( ) 0 0 3 1 ( , - 0 8 7 2 , - 0 0 4 2 9 4 2 7 6 , 3 - $ 1 7 0 1 , 8 6 0 0 1 , s t e s s a l e b i g n a t n I $ ) 4 7 2 ( 6 7 8 3 , ) 9 8 7 ( - - 3 1 8 2 , 2 3 9 , 3 - - 5 4 7 , 6 - - - - $ 7 0 3 7 0 3 0 6 1 - - 7 6 4 s e i r o t n e v n I t n e m p u q e i , y t r e p o r P d n a t n a p l - $ 4 2 4 9 6 9 - - 3 9 3 1 , ) 8 8 3 ( - - 5 0 0 1 - $ 8 0 9 ) 0 2 1 ( - - 8 8 7 ) 0 8 1 ( - - 8 0 6 d r a w r o f y r r a c s s o L s t e s s a l e b i g n a t n I s e i r o t n e v n I , y t r e p o r P d n a t n a p l t n e m p u q e i : s w o l l o f s a s i , n o i t c i d s i r u j ) 4 e t o N i ( y r a d i s b u s f o e r u t i t s e v i D 1 2 0 2 , 1 3 r e b m e c e D t a s A s t e s s a x a t d e r r e f e D d e t a d i l o s n o c o t d e t i d e r c ) d e g r a h C ( i s g n n r a e f o s t n e m e t a t s e m o c n i e v i s n e h e r p m o c o t d e t i d e r C e g n a h c x e n g e r o f i f o t c e f f E 2 2 0 2 , 1 3 r e b m e c e D t a s A d e t a d i l o s n o c o t d e t i d e r c ) d e g r a h C ( i s g n n r a e f o s t n e m e t a t s e m o c n i e v i s n e h e r p m o c o t d e t i d e r C e g n a h c x e n g e r o f i f o t c e f f E 3 2 0 2 , 1 3 r e b m e c e D t a s A ) 4 e t o N i ( y r a d i s b u s f o e r u t i t s e v i D 1 2 0 2 , 1 3 r e b m e c e D t a s A n o i t a n b m o c i s s e n i s u B s e i t i l i b a i l x a t d e r r e f e D d e t a d i l o s n o c o t ) d e t i d e r c ( d e g r a h C i s g n n r a e f o s t n e m e t a t s d e t a d i l o s n o c o t ) d e t i d e r c ( d e g r a h C i s g n n r a e f o s t n e m e t a t s 2 2 0 2 , 1 3 r e b m e c e D t a s A 3 2 0 2 , 1 3 r e b m e c e D t a s A 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Deferred income tax liabilities have not been recognized for the withholding tax and taxes that would be payable on the unremitted earnings of certain subsidiaries. Such amounts are permanently reinvested. Unremitted earnings totalled $60,089 as at December 31, 2023 (2022 - $43,260). As at December 31, 2023, the Company had the following operating tax losses available for carry forward for which no deferred tax benefit has been recorded in the accounts: $ 15,631 36,736 10,014 Expiry No limit No limit No limit As at December 31, 2023, the Company had other deductible temporary differences of $323 for which no deferred tax Belgium United States Hong Kong benefit has been recorded (2022 – $440). 19. Fair Value of Financial Instruments The fair value of a financial instrument is determined by reference to the available market information at the reporting date. When no active market exists for a financial instrument, the Company determines the fair value of that instrument based on valuation methodologies as discussed below. In determining assumptions required under a valuation model, the Company primarily uses external, readily observable market data inputs. Assumptions or inputs that are not based on observable market data incorporate the Company’s best estimates of market participant assumptions, and are used when external data is not available. Counterparty credit risk and the Company’s own credit risk are taken into account in estimating the fair value of all financial assets and financial liabilities. The following assumptions and valuation methodologies have been used to measure fair value of financial instruments: - - - - The fair value of its short-term financial assets and financial liabilities, including cash and cash equivalents, accounts receivable, cash held in escrow and trade and accrued liabilities approximates their carrying value due to the short-term maturities of these instruments; The fair value of its investment in equity is determined using significant unobservable inputs such as the best The fair value of its restricted investment is determined using the expected mortality of life, present value of the estimated future cash flows and estimated discount rates. Assumptions are based on market conditions prevailing information available. at each reporting date. The fair value of derivative instruments, which include the total return swap and the indexed deposit agreement, is calculated as the present value of the estimated future cash flows using an appropriate interest rate yield curve, foreign exchange rate and the stock price. Assumptions are based on market conditions prevailing at each reporting date. Derivative instruments reflect the estimated amount that the Company would receive or pay to settle the contracts at the reporting date; and - The fair value of long-term debt is estimated based on discounted cash flows using current interest rate for instruments with similar terms and remaining maturities. 70 Consolidated Financial Statements ▪ 28 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) Deferred income tax liabilities have not been recognized for the withholding tax and taxes that would be payable on the unremitted earnings of certain subsidiaries. Such amounts are permanently reinvested. Unremitted earnings totalled $60,089 as at December 31, 2023 (2022 - $43,260). As at December 31, 2023, the Company had the following operating tax losses available for carry forward for which no deferred tax benefit has been recorded in the accounts: Belgium United States Hong Kong $ 15,631 36,736 10,014 Expiry No limit No limit No limit As at December 31, 2023, the Company had other deductible temporary differences of $323 for which no deferred tax benefit has been recorded (2022 – $440). 19. Fair Value of Financial Instruments The fair value of a financial instrument is determined by reference to the available market information at the reporting date. When no active market exists for a financial instrument, the Company determines the fair value of that instrument based on valuation methodologies as discussed below. In determining assumptions required under a valuation model, the Company primarily uses external, readily observable market data inputs. Assumptions or inputs that are not based on observable market data incorporate the Company’s best estimates of market participant assumptions, and are used when external data is not available. Counterparty credit risk and the Company’s own credit risk are taken into account in estimating the fair value of all financial assets and financial liabilities. The following assumptions and valuation methodologies have been used to measure fair value of financial instruments: - - - - - The fair value of its short-term financial assets and financial liabilities, including cash and cash equivalents, accounts receivable, cash held in escrow and trade and accrued liabilities approximates their carrying value due to the short-term maturities of these instruments; The fair value of its investment in equity is determined using significant unobservable inputs such as the best information available. The fair value of its restricted investment is determined using the expected mortality of life, present value of the estimated future cash flows and estimated discount rates. Assumptions are based on market conditions prevailing at each reporting date. The fair value of derivative instruments, which include the total return swap and the indexed deposit agreement, is calculated as the present value of the estimated future cash flows using an appropriate interest rate yield curve, foreign exchange rate and the stock price. Assumptions are based on market conditions prevailing at each reporting date. Derivative instruments reflect the estimated amount that the Company would receive or pay to settle the contracts at the reporting date; and The fair value of long-term debt is estimated based on discounted cash flows using current interest rate for instruments with similar terms and remaining maturities. Consolidated Financial Statements ▪ 28 71 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) The carrying values which approximate the fair values of financial instruments, by class, are as follows as at December 31, 2023 and 2022: Fair value hierarchy As at December 31, 2023 Financial assets Cash and cash equivalents Accounts receivable Derivative financial assets Other current assets Other non-current assets Total Financial liabilities Trade and accrued liabilities Long-term debt Total As at December 31, 2022 Financial assets Cash and cash equivalents Accounts receivable Other current assets Other non-current assets Total Financial liabilities Trade and accrued liabilities Long-term debt Total At fair value through profit or loss $ At amortized cost $ Financial liabilities at amortized cost $ - - 591 - 3,603 4,194 - - - 34,706 33,437 - 2,212 - 70,355 - - - At fair value through profit or loss $ At amortized cost $ - - 5,517 2,620 8,137 - - - 42,691 32,872 10,613 - 86,176 - - - - - - - - - 37,024 108,500 145,524 Financial liabilities at amortized cost $ - - - - - 40,200 121,000 161,200 Carrying value Total $ 34,706 33,437 591 2,212 3,603 74,549 37,024 108,500 145,524 Carrying value Total $ 42,691 32,872 16,130 2,620 94,313 40,200 121,000 161,200 The fair value hierarchy reflects the significance of the inputs used in making the measurements and has the following levels: - - - Level 1: Level 2: Quoted prices (unadjusted) in active markets for identical assets or liabilities; Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs). The following table presents the financial instruments, by level, which are recognized at fair value in the consolidated statements of financial position: As at December 31, 2023 Level 1 Financial assets At fair value through profit or loss Total return swap (Note 7) Investment in equity instruments (Note 12) Restricted investment (Note 12) Total Financial assets At fair value through profit or loss Indexed deposit agreement (Note 7) Investment in equity instruments (Note 12) Restricted investment (Note 12) Total As at December 31, 2022 Level 1 $ - - - - $ - - - - Level 2 $ 591 - - 591 Level 2 $ 5,517 - - 5,517 Level 3 3,000 603 3,603 Level 3 $ - $ - 2,000 620 2,620 72 Consolidated Financial Statements ▪ 29 Consolidated Financial Statements ▪ 30 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) The carrying values which approximate the fair values of financial instruments, by class, are as follows as at December 31, Fair value hierarchy 2023 and 2022: As at December 31, 2023 Financial assets Cash and cash equivalents Accounts receivable Derivative financial assets Other current assets Other non-current assets Total Financial liabilities Trade and accrued liabilities Long-term debt Total As at December 31, 2022 Financial assets Cash and cash equivalents Accounts receivable Other current assets Other non-current assets Total Financial liabilities Trade and accrued liabilities Long-term debt Total At fair value through profit or loss $ At amortized cost $ Financial liabilities at amortized cost $ 591 3,603 4,194 34,706 33,437 2,212 70,355 - - - - - - $ - - - - - - - - - - - - - - - - 37,024 108,500 145,524 Financial liabilities at amortized cost $ 40,200 121,000 161,200 - - - - - - - - - At fair value through profit or loss At amortized cost $ 5,517 2,620 8,137 42,691 32,872 10,613 86,176 Carrying value Total $ 34,706 33,437 591 2,212 3,603 74,549 37,024 108,500 145,524 Carrying value Total $ 42,691 32,872 16,130 2,620 94,313 40,200 121,000 161,200 The fair value hierarchy reflects the significance of the inputs used in making the measurements and has the following levels: - - - Level 1: Level 2: Level 3: Quoted prices (unadjusted) in active markets for identical assets or liabilities; Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Inputs for the asset or liability that are not based on observable market data (unobservable inputs). The following table presents the financial instruments, by level, which are recognized at fair value in the consolidated statements of financial position: As at December 31, 2023 Financial assets At fair value through profit or loss Total return swap (Note 7) Investment in equity instruments (Note 12) Restricted investment (Note 12) Total As at December 31, 2022 Financial assets At fair value through profit or loss Indexed deposit agreement (Note 7) Investment in equity instruments (Note 12) Restricted investment (Note 12) Total Level 1 $ - - - - Level 1 $ - - - - Level 2 $ 591 - - 591 Level 2 $ 5,517 - - 5,517 Level 3 $ - 3,000 603 3,603 Level 3 $ - 2,000 620 2,620 Consolidated Financial Statements ▪ 29 Consolidated Financial Statements ▪ 30 73 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 20. Operating Segments The following tables summarize the information reviewed by the entity’s chief operating decision maker when measuring performance: 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) The geographic distribution of the Company’s revenues based on the location of the customers for the years ended December 31, 2023 and 2022, and the identifiable non-current assets as at December 31, 2023 and 2022 are summarized Specialty Semiconductors Performance Materials Total revenue Specialty Semiconductors Performance Materials Corporate and unallocated Adjusted EBITDA(1) Interest on long-term debt, imputed interest and other interest expense Depreciation and amortization Share-based compensation expense Foreign exchange and derivative (gain) loss Impairment of non-current assets (Note 29) Loss on divestiture of subsidiary (Notes 4 and 29) Loss on disposal of property, plant and equipment (Note 8 and 29) Loss on disposal of assets held for sale (Note 8 and 29) Litigation and restructuring (income) costs (Note 29) Earnings (loss) before income tax 2023 $ 156,479 85,892 242,371 27,544 21,948 (11,169) 38,323 8,834 16,110 1,432 (136) 672 - 1,051 - (8,314) 18,674 2022 $ 121,918 142,305 264,223 24,318 17,277 (11,567) 30,028 5,192 17,732 999 42 12,478 7,834 - 216 3,823 (18,288) (1) Earnings (loss) before income tax, depreciation and amortization, share-based compensation expense, impairment of non-current assets, loss on divestiture of subsidiary, loss on disposal of property, plant and equipment, loss on disposal of assets held for sale, litigation and restructuring (income) costs and financial expense. Non-current assets (other than deferred tax assets and financial instruments) Capital expenditures Specialty Semiconductors Performance Materials Corporate and unallocated Total Assets excluding the deferred tax assets Specialty Semiconductors Performance Materials Corporate and unallocated Total 2023 $ 12,838 4,458 45 17,341 2023 $ 195,087 131,570 15,284 341,941 2022 $ 10,038 5,944 80 16,062 2022 $ 180,473 129,901 31,609 341,983 For the year ended December 31, 2023, one customer represented approximately 23% (2022 – 17%) of revenues of which 23% (2022 – 14%) is within the Specialty Semiconductors segment and nil (2022 – 3%) is within the Performance Materials 21. Supplemental Cash Flow Information a) Net change in non-cash working capital balances related to operations consists of the following: 2023 $ 12,846 4,270 20,211 107,158 9,128 43,284 5,334 3,425 9,426 23,709 3,580 242,371 2023 $ 3,132 12,382 31,566 109,295 156,375 2023 $ 74 (18,844) 3,811 7,838 (7,774) (4,245) 4,340 (14,800) 2022 $ 10,815 4,453 27,139 95,517 19,911 41,314 7,276 9,604 13,831 29,587 4,776 264,223 2022 $ 3,411 13,590 27,156 108,044 152,201 2022 $ 5,364 2,435 (437) (427) (1,691) 3,169 1,830 10,243 as follows: Revenues Asia China Japan Other(1) United States Americas Other Europe Germany Belgium Netherlands France Other(1) Other Total (1) None exceeding 10% Segment. Asia United States Canada Germany Total Decrease (increase) in assets: Accounts receivable Inventories Income tax receivable Other current assets (Decrease) increase in liabilities: Trade and accrued liabilities Income tax payable Deferred revenue Net change 74 Consolidated Financial Statements ▪ 31 Consolidated Financial Statements ▪ 32 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 20. Operating Segments measuring performance: Specialty Semiconductors Performance Materials Total revenue Specialty Semiconductors Performance Materials Corporate and unallocated Adjusted EBITDA(1) Interest on long-term debt, imputed interest and other interest expense Depreciation and amortization Share-based compensation expense Foreign exchange and derivative (gain) loss Impairment of non-current assets (Note 29) Loss on divestiture of subsidiary (Notes 4 and 29) Loss on disposal of property, plant and equipment (Note 8 and 29) Loss on disposal of assets held for sale (Note 8 and 29) Litigation and restructuring (income) costs (Note 29) Earnings (loss) before income tax Capital expenditures Specialty Semiconductors Performance Materials Corporate and unallocated Total Assets excluding the deferred tax assets Specialty Semiconductors Performance Materials Corporate and unallocated Total 2023 $ 156,479 85,892 242,371 27,544 21,948 (11,169) 38,323 8,834 16,110 1,432 (136) 672 1,051 - - (8,314) 18,674 2023 $ 12,838 4,458 45 17,341 2023 $ 195,087 131,570 15,284 341,941 2022 $ 121,918 142,305 264,223 24,318 17,277 (11,567) 30,028 5,192 17,732 999 42 12,478 7,834 - 216 3,823 (18,288) 2022 $ 10,038 5,944 80 16,062 2022 $ 180,473 129,901 31,609 341,983 The following tables summarize the information reviewed by the entity’s chief operating decision maker when 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) The geographic distribution of the Company’s revenues based on the location of the customers for the years ended December 31, 2023 and 2022, and the identifiable non-current assets as at December 31, 2023 and 2022 are summarized as follows: Revenues Asia China Japan Other(1) Americas United States Other Europe Germany Belgium Netherlands France Other(1) Other Total (1) None exceeding 10% 2023 $ 12,846 4,270 20,211 107,158 9,128 43,284 5,334 3,425 9,426 23,709 3,580 242,371 2022 $ 10,815 4,453 27,139 95,517 19,911 41,314 7,276 9,604 13,831 29,587 4,776 264,223 For the year ended December 31, 2023, one customer represented approximately 23% (2022 – 17%) of revenues of which 23% (2022 – 14%) is within the Specialty Semiconductors segment and nil (2022 – 3%) is within the Performance Materials Segment. (1) Earnings (loss) before income tax, depreciation and amortization, share-based compensation expense, impairment of non-current assets, loss on divestiture of subsidiary, loss on disposal of property, plant and equipment, loss on disposal of assets held for sale, litigation and restructuring (income) costs and financial expense. Non-current assets (other than deferred tax assets and financial instruments) Asia United States Canada Germany Total 2023 $ 3,132 12,382 31,566 109,295 156,375 21. Supplemental Cash Flow Information a) Net change in non-cash working capital balances related to operations consists of the following: Decrease (increase) in assets: Accounts receivable Inventories Income tax receivable Other current assets (Decrease) increase in liabilities: Trade and accrued liabilities Income tax payable Deferred revenue Net change 2023 $ 74 (18,844) 3,811 7,838 (7,774) (4,245) 4,340 (14,800) 2022 $ 3,411 13,590 27,156 108,044 152,201 2022 $ 5,364 2,435 (437) (427) (1,691) 3,169 1,830 10,243 Consolidated Financial Statements ▪ 31 Consolidated Financial Statements ▪ 32 75 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) b) The reconciliation of assets/liabilities arising from financing activities consists of the following: 23. Earnings per Share December 31 2022 $ 121,000 30,402 Cash flows $ (12,500) (2,858) Imputed interest $ - 690 Non-Cash changes Foreign exchange movement $ - 779 Fair value changes $ - - Non-cash working capital $ - 1,126 December 31 2023 $ 108,500 30,139 151,402 (15,358) 690 779 - 1,126 138,639 December 31 2021 $ 116,000 109 32,640 Cash flows $ 5,000 - (2,999) Imputed interest $ - - 605 Non-Cash changes Foreign exchange movement $ - - (1,617) Fair value changes $ - (109) - Non-cash working capital $ - - 1,773 December 31 2022 $ 121,000 - 30,402 148,749 2,001 605 (1,617) (109) 1,773 151,402 number of shares due to their anti-dilutive effect due to net loss for the year. Long-term debt Lease liabilities Total net liabilities from financing liabilities Long-term debt Interest rate swap Lease liabilities Total net liabilities from financing liabilities c) The consolidated statements of cash flows exclude or include the following transactions: Excluded additions unpaid at end of the year: Additions to property, plant and equipment Included additions unpaid at beginning of year: Additions to property, plant and equipment Excluded non-cash proceeds on the disposal of Property, plant and equipment (Note 29) d) Additions to property, plant and equipment consist of the following: Additions to property, plant and equipment before prepayments Prepayments for construction in progress Less: Non-cash deposits for construction in progress Additions to property, plant and equipment 22. Share Capital 2023 $ 2,826 2,329 2,515 2023 $ 17,387 2,469 (2,515) 17,341 2022 $ 2,329 3,095 - 2022 $ 12,193 3,869 - 16,062 The following table reconciles the numerators and denominators used for the computation of basic and diluted earnings Net earnings (loss) for the year (loss) per share: Numerators Denominators Dilutive effect: Stock options Basic weighted average number of shares Diluted weighted average number of shares 2023 $ 15,399 2023 2022 $ (22,999) 2022 88,533,263 88,330,236 517,120 89,050,383 - 88,330,236 As at December 31, 2023, a total number of 219,864 stock options was excluded from the diluted weighted average number of shares due to their anti-dilutive effect. As at December 31, 2022, a total number of 1,598,938 stock options was excluded from the diluted weighted average 24. Share-Based Compensation Restricted Share Unit and Performance Share Unit Plan On November 4, 2015, the Company adopted a new Restricted Share Unit (“RSU”) and Performance Share Unit (“PSU”) Plan (the “RSU & PSU Plan”) to replace the previous RSU Plan, for the purpose of enhancing the Company's ability to attract and retain talented individuals to serve as employees, officers and executives of the Company and its affiliates and promoting a greater alignment of interests between such employees, officers and executives and the shareholders of the Company. The RSU & PSU Plan enables the Company to award eligible participants: (i) phantom RSUs that vest no later than three years following the grant date; and (ii) phantom PSUs that vest after certain periods of time, not exceeding three years, and subject to the achievement of certain performance criteria as determined by the Board of Directors. Such plan provides for the settlement of RSUs and PSUs through either cash or the issuance of common shares of the Company from treasury, for an amount equivalent to the volume weighted average of the trading price of the common shares of the Company on the TSX for the five trading days immediately preceding the applicable RSU vesting determination date or PSU vesting determination date. In the case of a participant’s termination by the Company for cause or as a result of a voluntary resignation by the participant before the end of a performance cycle, all RSUs and PSUs will be forfeited immediately as of the date on which the participant is advised of his termination or resigns. In the case of a participant’s termination by the Company other than for cause, if such participant is deemed to be on long- term disability or if such participant retires before the end of a performance cycle, the number of RSUs which will vest at such event will be prorated based on the number of months worked at the end of the performance cycle and all PSUs will be forfeited immediately. In the case of a participant’s death before the end of a performance cycle, the number of RSUs which will vest will be prorated based on the number of months worked at the end of the fiscal year preceding the participant’s death and all PSUs will be forfeited immediately. An unlimited number of common shares, participating, with no par value, entitling the holder to one vote per share; and An unlimited number of preferred shares, issuable in one or more series with specific terms, privileges and restrictions to be determined for each class by the Board of Directors. As at December 31, 2023 and 2022, no preferred shares were issued. Authorized: - Consolidated Financial Statements ▪ 33 Consolidated Financial Statements ▪ 34 - 76 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) b) The reconciliation of assets/liabilities arising from financing activities consists of the following: 23. Earnings per Share Non-Cash changes Foreign Imputed exchange interest movement Fair value changes December 31 2022 Cash flows $ 121,000 30,402 $ (12,500) (2,858) 151,402 (15,358) December 31 2021 Cash flows $ 116,000 109 32,640 5,000 $ - (2,999) Long-term debt Lease liabilities Total net liabilities from financing liabilities Long-term debt Interest rate swap Lease liabilities Total net liabilities from financing liabilities $ - 779 779 $ - - (1,617) $ - 690 690 $ - - 605 605 Non-Cash changes Imputed interest Foreign exchange movement Fair value changes Non-cash working capital 148,749 2,001 (1,617) (109) 1,773 151,402 c) The consolidated statements of cash flows exclude or include the following transactions: Non-cash working capital $ - 1,126 1,126 December 31 2023 $ 108,500 30,139 138,639 December 31 2022 121,000 $ - $ - - 1,773 30,402 $ - - - $ - - (109) 2023 $ 2,826 2,329 2,515 2023 $ 17,387 2,469 (2,515) 17,341 2022 $ 2,329 3,095 - 2022 $ 12,193 3,869 - 16,062 Excluded additions unpaid at end of the year: Additions to property, plant and equipment Included additions unpaid at beginning of year: Additions to property, plant and equipment Excluded non-cash proceeds on the disposal of Property, plant and equipment (Note 29) d) Additions to property, plant and equipment consist of the following: Additions to property, plant and equipment before prepayments Prepayments for construction in progress Less: Non-cash deposits for construction in progress Additions to property, plant and equipment 22. Share Capital Authorized: - - share; and An unlimited number of common shares, participating, with no par value, entitling the holder to one vote per The following table reconciles the numerators and denominators used for the computation of basic and diluted earnings (loss) per share: Numerators Net earnings (loss) for the year Denominators Basic weighted average number of shares Dilutive effect: Stock options Diluted weighted average number of shares 2023 $ 15,399 2023 2022 $ (22,999) 2022 88,533,263 88,330,236 517,120 89,050,383 - 88,330,236 As at December 31, 2023, a total number of 219,864 stock options was excluded from the diluted weighted average number of shares due to their anti-dilutive effect. As at December 31, 2022, a total number of 1,598,938 stock options was excluded from the diluted weighted average number of shares due to their anti-dilutive effect due to net loss for the year. 24. Share-Based Compensation Restricted Share Unit and Performance Share Unit Plan On November 4, 2015, the Company adopted a new Restricted Share Unit (“RSU”) and Performance Share Unit (“PSU”) Plan (the “RSU & PSU Plan”) to replace the previous RSU Plan, for the purpose of enhancing the Company's ability to attract and retain talented individuals to serve as employees, officers and executives of the Company and its affiliates and promoting a greater alignment of interests between such employees, officers and executives and the shareholders of the Company. The RSU & PSU Plan enables the Company to award eligible participants: (i) phantom RSUs that vest no later than three years following the grant date; and (ii) phantom PSUs that vest after certain periods of time, not exceeding three years, and subject to the achievement of certain performance criteria as determined by the Board of Directors. Such plan provides for the settlement of RSUs and PSUs through either cash or the issuance of common shares of the Company from treasury, for an amount equivalent to the volume weighted average of the trading price of the common shares of the Company on the TSX for the five trading days immediately preceding the applicable RSU vesting determination date or PSU vesting determination date. In the case of a participant’s termination by the Company for cause or as a result of a voluntary resignation by the participant before the end of a performance cycle, all RSUs and PSUs will be forfeited immediately as of the date on which the participant is advised of his termination or resigns. In the case of a participant’s termination by the Company other than for cause, if such participant is deemed to be on long- term disability or if such participant retires before the end of a performance cycle, the number of RSUs which will vest at such event will be prorated based on the number of months worked at the end of the performance cycle and all PSUs will be forfeited immediately. An unlimited number of preferred shares, issuable in one or more series with specific terms, privileges and restrictions to be determined for each class by the Board of Directors. As at December 31, 2023 and 2022, no preferred shares were issued. In the case of a participant’s death before the end of a performance cycle, the number of RSUs which will vest will be prorated based on the number of months worked at the end of the fiscal year preceding the participant’s death and all PSUs will be forfeited immediately. Consolidated Financial Statements ▪ 33 Consolidated Financial Statements ▪ 34 77 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) The maximum number of common shares which may be issued under the RSU & PSU Plan is 5,000,000. Common shares in respect of RSUs or PSUs to be settled through the issuance of common shares but that have been forfeited, cancelled or settled in cash shall be available for RSUs or PSUs to be granted thereafter pursuant to this plan. No RSUs or PSUs to be settled through the issuance of common shares may be granted to any participant unless the number of common shares: (a) issued to "Insiders" within any one-year period; and (b) issuable to "Insiders" at any time, under the plan, or when combined with all of the Company's other security-based compensation arrangements, could not exceed 10% of the total number of issued and outstanding common shares, respectively. For the year ended December 31, 2023, the Company granted 155,873 RSUs (2022 – 95,881), 111,458 RSUs were paid (2022 – 146,549) and 3,000 RSUs were forfeited (2022 – 13,110). As at December 31, 2023, 319,896 RSUs were outstanding (2022 – 278,481). For the year ended December 31, 2023, the Company granted nil PSUs (2022 – nil), nil PSUs were paid (2022 – nil) and nil PSUs were cancelled (2022 – 200,000). As at December 31, 2023, nil PSUs were outstanding (2022 – nil). Stock Appreciation Rights Plan On June 7, 2010, the Company adopted a Restricted Share Unit for Foreign Employees Plan (the “RSUFE Plan”) which was slightly amended on November 7, 2012 by the Company to become the Stock Appreciation Rights plan (the “SAR Plan”) which replaced the RSUFE Plan. The SAR Plan enables the Company to award eligible participants phantom stock options to foreign directors, officers and employees. SARs usually have a six-year term and vest equally over a four-year period at an annual rate of 25% per year beginning one year following the SARs grant date. The amount of cash payout is equal to the sum of the positive differences between the volume weighted average trading price of the common shares of the Company on the TSX in the last twenty (20) trading days immediately preceding the exercise date and the grant price of each SAR redeemed. At the end of each financial period, changes in the Company’s payment obligations due to changes in the market value of the common shares on the TSX are recorded as an expense. For the year ended December 31, 2023, the Company granted 63,839 SARs (2022 – 171,025), 127,874 SARs were paid (2022 – 200,000) and 16,250 SARs were forfeited (2022 – 377,500). As at December 31, 2023, 843,872 SARs were outstanding (2022 – 924,157). Deferred Share Unit Plan On May 7, 2014, the Company adopted a Deferred Share Unit (“DSU”) Plan (the “DSU Plan”) which enables the Company to provide Board directors and key officers and employees designated by the Board with phantom share units to enhance the Company's ability to attract and retain individuals with the right combination of skills and experience to serve on the Company’s Board or as Company’s executives. Unless the Board of Directors decides otherwise at its sole discretion, DSUs vest entirely at their date of grant and become payable in cash upon termination of services of a director, or termination of employment of an officer or employee. The amount of cash payout is equal to the volume weighted average trading price of the common shares of the Company on the TSX of the twenty (20) trading days immediately preceding the date of payment of the DSU. For the year ended December 31, 2023, the Company granted 156,701 DSUs (2022 – 476,152) and nil DSUs were paid (2022 – 348,277). As at December 31, 2023, 1,859,544 DSUs were outstanding (2022 – 1,702,843). 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Stock Option Plan On April 11, 2011, the Company adopted a new stock option plan (the “Stock Option Plan”) under which a maximum number of options granted cannot exceed 5,000,000. Options granted under the Stock Option Plan may be exercised during a period not exceeding ten years from the date of grant. The stock options outstanding on December 31, 2023, may be exercised during a period not exceeding six years from their date of grant. Unless the Board of Directors decides otherwise at its sole discretion, options vest at a rate of 25% (100% for directors) per year, beginning one year following the grant date of the options. Any unexercised options will expire one month after the date beneficiary ceases to be an employee, director or officer (collectively the “optionee”) and one year after the optionee’s death, retirement or permanent disability, as the case may be, or prior to the expiration of the term of the option, whichever occurs earlier. The following table presents information concerning all outstanding stock options: Number of options Weighted average exercise price Number of options Weighted average exercise price 2023 CA$ 1.91 2.74 2.28 1.90 2.10 Outstanding, beginning of year Granted Exercised Outstanding, end of year Exercisable, end of year 1,598,938 140,712 (374,488) 1,365,162 458,454 825,968 772,970 - 1,598,938 457,749 The outstanding stock options as at December 31, 2023 are as follows: Exercise price Number of options February 2024 March 2025 March 2026 May 2027 December 2027 March 2028 May 2028 February 2029 Exercisable Outstanding contractual life Low CA$ 2.71 3.43 2.10 3.38 2.42 2.27 1.23 2.74 High CA$ 2.71 3.43 2.10 3.38 2.42 2.27 1.23 2.74 35,165 30,940 24,106 175,000 18,243 175,000 - - 35,165 30,940 12,163 48,212 325,000 72,970 700,000 140,712 458,454 1,365,162 The fair value of stock options at the grant date was measured using the Black-Scholes option pricing model. The historical share price of the Company’s common shares is used to estimate expected volatility, and government bond rates are used to estimate the risk-free interest rate. The following table illustrates the inputs used in the average measurement of the fair values of the stock options at the grant date granted during the years ended December 31, 2023 and 2022: Expected stock price volatility Dividend Risk-free interest rate Expected option life Fair value – weighted average of options issued 2023 60% None 3.81% 4 years CA$1.36 2022 53% None 2.59% 4 years CA$0.57 2022 CA$ 2.46 1.33 - 1.91 2.41 0.15 1.17 2.17 3.36 3.92 4.18 4.39 5.15 4.10 Weighted average remaining (in years) 78 Consolidated Financial Statements ▪ 35 Consolidated Financial Statements ▪ 36 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) The maximum number of common shares which may be issued under the RSU & PSU Plan is 5,000,000. Common shares in respect of RSUs or PSUs to be settled through the issuance of common shares but that have been forfeited, cancelled or settled in cash shall be available for RSUs or PSUs to be granted thereafter pursuant to this plan. No RSUs or PSUs to be settled through the issuance of common shares may be granted to any participant unless the number of common shares: (a) issued to "Insiders" within any one-year period; and (b) issuable to "Insiders" at any time, under the plan, or when combined with all of the Company's other security-based compensation arrangements, could not exceed 10% of the total number of issued and outstanding common shares, respectively. For the year ended December 31, 2023, the Company granted 155,873 RSUs (2022 – 95,881), 111,458 RSUs were paid (2022 – 146,549) and 3,000 RSUs were forfeited (2022 – 13,110). As at December 31, 2023, 319,896 RSUs were outstanding (2022 – 278,481). For the year ended December 31, 2023, the Company granted nil PSUs (2022 – nil), nil PSUs were paid (2022 – nil) and nil PSUs were cancelled (2022 – 200,000). As at December 31, 2023, nil PSUs were outstanding (2022 – nil). Stock Appreciation Rights Plan On June 7, 2010, the Company adopted a Restricted Share Unit for Foreign Employees Plan (the “RSUFE Plan”) which was slightly amended on November 7, 2012 by the Company to become the Stock Appreciation Rights plan (the “SAR Plan”) which replaced the RSUFE Plan. The SAR Plan enables the Company to award eligible participants phantom stock options to foreign directors, officers and employees. SARs usually have a six-year term and vest equally over a four-year period at an annual rate of 25% per year beginning one year following the SARs grant date. The amount of cash payout is equal to the sum of the positive differences between the volume weighted average trading price of the common shares of the Company on the TSX in the last twenty (20) trading days immediately preceding the exercise date and the grant price of each SAR redeemed. At the end of each financial period, changes in the Company’s payment obligations due to changes in the market value of the common shares on the TSX are recorded as an expense. For the year ended December 31, 2023, the Company granted 63,839 SARs (2022 – 171,025), 127,874 SARs were paid (2022 – 200,000) and 16,250 SARs were forfeited (2022 – 377,500). As at December 31, 2023, 843,872 SARs were outstanding (2022 – 924,157). Deferred Share Unit Plan On May 7, 2014, the Company adopted a Deferred Share Unit (“DSU”) Plan (the “DSU Plan”) which enables the Company to provide Board directors and key officers and employees designated by the Board with phantom share units to enhance the Company's ability to attract and retain individuals with the right combination of skills and experience to serve on the Company’s Board or as Company’s executives. Unless the Board of Directors decides otherwise at its sole discretion, DSUs vest entirely at their date of grant and become payable in cash upon termination of services of a director, or termination of employment of an officer or employee. The amount of cash payout is equal to the volume weighted average trading price of the common shares of the Company on the TSX of the twenty (20) trading days immediately preceding the date of payment of the DSU. For the year ended December 31, 2023, the Company granted 156,701 DSUs (2022 – 476,152) and nil DSUs were paid (2022 – 348,277). As at December 31, 2023, 1,859,544 DSUs were outstanding (2022 – 1,702,843). 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) Stock Option Plan On April 11, 2011, the Company adopted a new stock option plan (the “Stock Option Plan”) under which a maximum number of options granted cannot exceed 5,000,000. Options granted under the Stock Option Plan may be exercised during a period not exceeding ten years from the date of grant. The stock options outstanding on December 31, 2023, may be exercised during a period not exceeding six years from their date of grant. Unless the Board of Directors decides otherwise at its sole discretion, options vest at a rate of 25% (100% for directors) per year, beginning one year following the grant date of the options. Any unexercised options will expire one month after the date beneficiary ceases to be an employee, director or officer (collectively the “optionee”) and one year after the optionee’s death, retirement or permanent disability, as the case may be, or prior to the expiration of the term of the option, whichever occurs earlier. The following table presents information concerning all outstanding stock options: Outstanding, beginning of year Granted Exercised Outstanding, end of year Exercisable, end of year Number of options 1,598,938 140,712 (374,488) 1,365,162 458,454 2023 Weighted average exercise price CA$ 1.91 2.74 2.28 1.90 2.10 Number of options 825,968 772,970 - 1,598,938 457,749 2022 Weighted average exercise price CA$ 2.46 1.33 - 1.91 2.41 The outstanding stock options as at December 31, 2023 are as follows: Exercise price Number of options February 2024 March 2025 March 2026 May 2027 December 2027 March 2028 May 2028 February 2029 Low CA$ 2.71 3.43 2.10 3.38 2.42 2.27 1.23 2.74 High CA$ 2.71 3.43 2.10 3.38 2.42 2.27 1.23 2.74 Exercisable Outstanding 35,165 30,940 - 24,106 175,000 18,243 175,000 - 458,454 35,165 30,940 12,163 48,212 325,000 72,970 700,000 140,712 1,365,162 Weighted average remaining contractual life (in years) 0.15 1.17 2.17 3.36 3.92 4.18 4.39 5.15 4.10 The fair value of stock options at the grant date was measured using the Black-Scholes option pricing model. The historical share price of the Company’s common shares is used to estimate expected volatility, and government bond rates are used to estimate the risk-free interest rate. The following table illustrates the inputs used in the average measurement of the fair values of the stock options at the grant date granted during the years ended December 31, 2023 and 2022: Expected stock price volatility Dividend Risk-free interest rate Expected option life Fair value – weighted average of options issued Consolidated Financial Statements ▪ 35 2023 60% None 3.81% 4 years CA$1.36 2022 53% None 2.59% 4 years CA$0.57 Consolidated Financial Statements ▪ 36 79 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) The following table shows the share-based compensation expense recorded in the consolidated statements of earnings for the years ended December 31, 2023 and 2022: 27. Financial Risk Management Expense RSUs SARs DSUs Stock options Total return swap (Note 7) Total The following amounts were recorded: Liability RSUs SARs DSUs Total Intrinsic value of vested units 25. Commitments and Contingencies Commitments 2023 $ 304 528 1,662 274 (1,336) 1,432 2023 $ 474 1,007 5,051 6,532 6,046 2022 $ 202 244 1,121 326 (894) 999 2022 $ 375 562 3,906 4,843 4,015 As at December 31, 2023, in the normal course of business, the Company contracted letters of credit for an amount of $551 (2022 – $883). Contingencies In the normal course of operations, the Company is exposed to events that could give rise to contingent liabilities or assets. As at the date of issue of the consolidated financial statements, the Company was not aware of any significant events that would have a material effect on its consolidated financial statements. 26. Related Party Transactions The Company’s related parties are its directors and executive members. Unless otherwise stated, none of the transactions incorporated special terms and conditions and no guarantees were given or received. Outstanding balances are settled in cash. Key management compensation Key management includes directors (executive and non-executive) and certain senior management. The compensation expense paid or payable to key management for employee services is as follows: In the normal course of operations, the Company is exposed to various financial risks. These risk factors include market risk (foreign currency risk, interest rate risk and other price risk), credit risk and liquidity risk. Market risk is the risk that changes in market price, such as foreign exchange rates, equity prices and interest rates, will affect the Company’s net earnings or the value of financial instruments. The objective of market risk management is to mitigate exposures within acceptable limits, while maximizing Market risk returns. a) Foreign currency risk Foreign currency risk is defined as the Company’s exposure to a gain or a loss in the value of its financial instruments as a result of fluctuations in foreign exchange rates. The Company is exposed to foreign exchange rate variability primarily in relation to certain sales commitments, expected purchase transactions, certain local operating expenses and debt denominated in a foreign currency. In addition, these operations have exposure to foreign exchange rates primarily through cash and cash equivalents and other working capital accounts denominated in currencies other than their functional currencies. The following table summarizes in US dollar equivalents the Company’s major currency exposures as at December 31, 2023: Cash and cash equivalents Accounts receivable Derivative financial assets Other current assets Other non current assets Trade and accrued liabilities Lease liabilities Net financial assets (liabilities) HKD MYR 2023 Other CA$ $ 489 1,662 591 - - EUR $ 1,999 6,594 - 2,212 603 (6,360) (16,605) (297) 1,762 GBP $ 67 - - - - - $ 34 - - - - (116) (69) (151) (12,987) (9,349) (436) (166) (55) (369) (129) (46) $ 36 1 - - - - $ 9 - - - - - For the Company’s subsidiaries with a functional currency other than the US dollar, their exposures of financial assets and financial liabilities denominated in US dollars are $10,401 and $496 respectively with a net position of $9,905. A strengthening or weakening in the exchange rate between the functional currencies of these subsidiaries and the US dollar of five-percentage points results in a decrease or increase of $495 to earnings before income tax. The following table shows the impact on earnings before income tax of a five-percentage point strengthening or weakening of foreign currencies against the US dollar as at December 31, 2023 for the Company’s financial instruments denominated in non-functional currencies: Wages and salaries Share-based compensation and others (Note 24) Total 2023 $ 2,160 2,563 4,723 2022 $ 1,995 1,677 3,672 5% Strengthening 5% Weakening CA$ $ (830) 830 EUR $ 88 (88) GBP $ (18) 18 HKD MYR Other $ (8) 8 $ (6) 6 $ (2) 2 80 Consolidated Financial Statements ▪ 37 Consolidated Financial Statements ▪ 38 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) The following table shows the share-based compensation expense recorded in the consolidated statements of earnings 27. Financial Risk Management for the years ended December 31, 2023 and 2022: Stock options Total return swap (Note 7) The following amounts were recorded: Expense RSUs SARs DSUs Total Liability RSUs SARs DSUs Total Intrinsic value of vested units 25. Commitments and Contingencies Commitments $551 (2022 – $883). Contingencies 2023 $ 304 528 1,662 274 (1,336) 1,432 2023 $ 474 1,007 5,051 6,532 6,046 2022 $ 202 244 1,121 326 (894) 999 2022 $ 375 562 3,906 4,843 4,015 As at December 31, 2023, in the normal course of business, the Company contracted letters of credit for an amount of In the normal course of operations, the Company is exposed to events that could give rise to contingent liabilities or assets. As at the date of issue of the consolidated financial statements, the Company was not aware of any significant events that would have a material effect on its consolidated financial statements. 26. Related Party Transactions The Company’s related parties are its directors and executive members. Unless otherwise stated, none of the transactions incorporated special terms and conditions and no guarantees were given or received. Outstanding balances are settled in cash. Key management compensation Key management includes directors (executive and non-executive) and certain senior management. The compensation expense paid or payable to key management for employee services is as follows: In the normal course of operations, the Company is exposed to various financial risks. These risk factors include market risk (foreign currency risk, interest rate risk and other price risk), credit risk and liquidity risk. Market risk Market risk is the risk that changes in market price, such as foreign exchange rates, equity prices and interest rates, will affect the Company’s net earnings or the value of financial instruments. The objective of market risk management is to mitigate exposures within acceptable limits, while maximizing returns. a) Foreign currency risk Foreign currency risk is defined as the Company’s exposure to a gain or a loss in the value of its financial instruments as a result of fluctuations in foreign exchange rates. The Company is exposed to foreign exchange rate variability primarily in relation to certain sales commitments, expected purchase transactions, certain local operating expenses and debt denominated in a foreign currency. In addition, these operations have exposure to foreign exchange rates primarily through cash and cash equivalents and other working capital accounts denominated in currencies other than their functional currencies. The following table summarizes December 31, 2023: in US dollar equivalents the Company’s major currency exposures as at Cash and cash equivalents Accounts receivable Derivative financial assets Other current assets Other non current assets Trade and accrued liabilities Lease liabilities Net financial assets (liabilities) CA$ $ 489 1,662 591 - - (12,987) (6,360) (16,605) EUR $ 1,999 6,594 - 2,212 603 (9,349) (297) 1,762 GBP $ 67 - - - - (436) - (369) HKD $ 34 - - - - (116) (69) (151) MYR $ 36 1 - - - (166) - (129) 2023 Other $ 9 - - - - (55) - (46) For the Company’s subsidiaries with a functional currency other than the US dollar, their exposures of financial assets and financial liabilities denominated in US dollars are $10,401 and $496 respectively with a net position of $9,905. A strengthening or weakening in the exchange rate between the functional currencies of these subsidiaries and the US dollar of five-percentage points results in a decrease or increase of $495 to earnings before income tax. The following table shows the impact on earnings before income tax of a five-percentage point strengthening or weakening of foreign currencies against the US dollar as at December 31, 2023 for the Company’s financial instruments denominated in non-functional currencies: Wages and salaries Share-based compensation and others (Note 24) Total 2023 $ 2,160 2,563 4,723 2022 $ 1,995 1,677 3,672 5% Strengthening 5% Weakening CA$ $ (830) 830 EUR $ 88 (88) GBP $ (18) 18 HKD $ (8) 8 MYR $ (6) 6 Other $ (2) 2 Consolidated Financial Statements ▪ 37 Consolidated Financial Statements ▪ 38 81 2023 ANNUAL REPORT 5N+ Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) The Company will occasionally enter into foreign exchange forward contracts to sell US dollars in exchange for Canadian dollars and Euros. These contracts would hedge a portion of ongoing foreign exchange risk on the Company’s cash flows since much of its non-US dollar expenses are incurred in Canadian dollars and Euros. The Company may also enter into foreign exchange contracts to sell Euros for US dollars. As at December 31, 2023, the Company has no foreign exchange contracts outstanding. b) Interest rate risk Interest rate risk refers to the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company’s policy is to limit its exposure to interest rate risk fluctuation by ensuring that a reasonable portion of its long-term debt is made of subordinated debts at fixed rate. The Company is exposed to interest rate fluctuations on its revolving credit facility, which bears a floating interest rate. A 1% increase/decrease in interest rates would have an impact of approximately $835 on the Company’s earnings before income tax on a twelve-month horizon based on the balance outstanding on December 31, 2023. c) Other price risk Other price risk is the risk that fair value or future cash flows will fluctuate because of changes in market prices, other than those arising from interest rate risk or currency risk. Credit risk Credit risk refers to the possibility that a customer or counterparty will fail to fulfill its obligations under a contract and, as a result, create a financial loss for the Company. The Company has a credit policy that defines standard credit practice. This policy dictates that all new customer accounts be reviewed prior to approval and establishes the maximum amount of credit exposure per customer. The creditworthiness and financial well-being of the customer are monitored on an ongoing basis. The Company applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss allowance for trade receivables. The expected loss rates are based on the Company’s historical credit losses experienced over the three-year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Company’s customers. Historically, the Company has not incurred any significant losses in respect of its trade receivables. Therefore, the loss allowance at the end of each period and the change recorded for each period is insignificant. The past due receivables are as follows: Current More than 30 days past due More than 60 days past due Gross carrying amount Loss allowance Total trade receivables 82 2023 $ 23,889 71 1,195 25,155 (38) 25,117 2022 $ 24,152 192 1,911 26,255 (152) 26,103 Consolidated Financial Statements ▪ 39 Consolidated Financial Statements ▪ 40 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) The following table summarizes the changes in the loss allowance for trade receivables: 2023 152 $ 2 (116) 38 2022 149 $ 3 - 152 Beginning of year Increase during the year Unused amounts reversed End of year recovery. Liquidity risk The loss allowance is included in selling, general and administrative expenses in the consolidated statement of earnings, and is net of any recoveries that were provided for in prior periods. Amounts charged to the loss allowance account are generally written off when there is no reasonable expectation of Counterparties to financial instruments may also expose the Company to credit losses in the event of non-performance. Counterparties for derivative and cash transactions are limited to high credit quality financial institutions, which are monitored on an ongoing basis. Counterparty credit assessments are based on the financial health of the institutions and their credit ratings from external agencies, therefore no impairment loss was identified as at December 31, 2023. Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages liquidity risk through the management of its capital structure. It also manages liquidity risk by continually monitoring actual and projected cash flows, taking into account the Company’s sales and receipts and matching the maturity profile of financial assets and financial liabilities. The Board of Directors reviews and approves the Company’s annual operating and capital budgets as well as any material transactions out of the ordinary course of business, including proposals on acquisitions and other major investments. The following table reflects the contractual cash flows of the Company’s financial liabilities as at December 31, 2023: Carrying amount $ 37,024 108,500 30,139 175,663 1 year 2 years 3 years 4 years $ 37,024 31,184 2,761 70,969 $ - 5,766 2,642 8,408 $ - 85,422 2,558 87,980 Over 5 years $ - - $ - - 2,534 2,534 26,803 26,803 2023 Total $ 37,024 122,372 37,298 196,694 The Company’s objective when managing capital is to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce The Company requires the approval of its lenders on some of the capital transactions such as the payment of dividends and capital expenditures over a certain level. The Company monitors capital on the basis of the debt-to-equity ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as total borrowings (comprising long-term debt in the consolidated statement of financial position) less cash and cash equivalents. Any introduced IFRS 16 reporting measures in reference to lease liabilities are excluded from the calculation. Trade and accrued liabilities Long-term debt Lease liabilities Total 28. Capital Management the cost of capital. 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) The Company will occasionally enter into foreign exchange forward contracts to sell US dollars in exchange for Canadian The following table summarizes the changes in the loss allowance for trade receivables: dollars and Euros. These contracts would hedge a portion of ongoing foreign exchange risk on the Company’s cash flows since much of its non-US dollar expenses are incurred in Canadian dollars and Euros. The Company may also enter into foreign exchange contracts to sell Euros for US dollars. As at December 31, 2023, the Company has no foreign exchange contracts outstanding. b) Interest rate risk c) Other price risk Credit risk ongoing basis. Interest rate risk refers to the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company’s policy is to limit its exposure to interest rate risk fluctuation by ensuring that a reasonable portion of its long-term debt is made of subordinated debts at fixed rate. The Company is exposed to interest rate fluctuations on its revolving credit facility, which bears a floating interest rate. A 1% increase/decrease in interest rates would have an impact of approximately $835 on the Company’s earnings before income tax on a twelve-month horizon based on the balance outstanding on December 31, 2023. Other price risk is the risk that fair value or future cash flows will fluctuate because of changes in market prices, other than those arising from interest rate risk or currency risk. Credit risk refers to the possibility that a customer or counterparty will fail to fulfill its obligations under a contract and, as a result, create a financial loss for the Company. The Company has a credit policy that defines standard credit practice. This policy dictates that all new customer accounts be reviewed prior to approval and establishes the maximum amount of credit exposure per customer. The creditworthiness and financial well-being of the customer are monitored on an The Company applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss allowance for trade receivables. The expected loss rates are based on the Company’s historical credit losses experienced over the three-year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Company’s customers. Historically, the Company has not incurred any significant losses in respect of its trade receivables. Therefore, the loss allowance at the end of each period and the change recorded for each period is insignificant. The past due receivables are as follows: Current More than 30 days past due More than 60 days past due Gross carrying amount Loss allowance Total trade receivables 2023 $ 23,889 71 1,195 25,155 (38) 25,117 2022 $ 24,152 192 1,911 26,255 (152) 26,103 Beginning of year Increase during the year Unused amounts reversed End of year 2023 $ 152 2 (116) 38 2022 $ 149 3 - 152 The loss allowance is included in selling, general and administrative expenses in the consolidated statement of earnings, and is net of any recoveries that were provided for in prior periods. Amounts charged to the loss allowance account are generally written off when there is no reasonable expectation of recovery. Counterparties to financial instruments may also expose the Company to credit losses in the event of non-performance. Counterparties for derivative and cash transactions are limited to high credit quality financial institutions, which are monitored on an ongoing basis. Counterparty credit assessments are based on the financial health of the institutions and their credit ratings from external agencies, therefore no impairment loss was identified as at December 31, 2023. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages liquidity risk through the management of its capital structure. It also manages liquidity risk by continually monitoring actual and projected cash flows, taking into account the Company’s sales and receipts and matching the maturity profile of financial assets and financial liabilities. The Board of Directors reviews and approves the Company’s annual operating and capital budgets as well as any material transactions out of the ordinary course of business, including proposals on acquisitions and other major investments. The following table reflects the contractual cash flows of the Company’s financial liabilities as at December 31, 2023: Carrying amount $ 37,024 108,500 30,139 175,663 1 year $ 37,024 31,184 2,761 70,969 2 years $ - 5,766 2,642 8,408 3 years $ - 85,422 2,558 87,980 4 years $ - - 2,534 2,534 Over 5 years $ - - 26,803 26,803 2023 Total $ 37,024 122,372 37,298 196,694 Trade and accrued liabilities Long-term debt Lease liabilities Total 28. Capital Management The Company’s objective when managing capital is to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company requires the approval of its lenders on some of the capital transactions such as the payment of dividends and capital expenditures over a certain level. The Company monitors capital on the basis of the debt-to-equity ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as total borrowings (comprising long-term debt in the consolidated statement of financial position) less cash and cash equivalents. Any introduced IFRS 16 reporting measures in reference to lease liabilities are excluded from the calculation. Consolidated Financial Statements ▪ 39 Consolidated Financial Statements ▪ 40 83 2023 ANNUAL REPORT 5N+ In January 2024, the Company increased its minority equity stake in Microbion Corporation (Microbion) for an amount of $1,000. As at December 31, 2023, the Company’s stake in Microbion was valued at $3,000 (Note 12). Notes to Consolidated Financial Statements 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 Years ended December 31 (in thousands of United States dollars) (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Debt-to-equity ratios as at December 31, 2023 and 2022 are as follows: 30. Subsequent Event Long-term debt including current portion Total debt Less: Cash and cash equivalents Net debt Shareholders’ equity Debt-to-equity ratio 29. Expenses by Nature Expenses by nature include the following: Wages and salaries Depreciation of property, plant and equipment (Note 8) Depreciation of right-of-use assets (Note 9) Amortization of other assets (Note 12) Other expenses (income), net Amortization of intangible assets (Note 10) Share-based compensation expense (Note 24) Loss (gain) on disposal of property, plant and equipment(1) Loss on disposal of assets held for sale (Note 8)(2) Loss on divestiture of subsidiary (Note 4) Impairment of non-current assets (Notes 4, 8 and 10) Research and development, net of tax credits(3) Litigation and restructuring (income) costs, net(4) Other income 2023 $ 108,500 108,500 (34,706) 73,794 128,592 57% 2023 $ 54,772 10,297 2,538 258 3,275 1,432 973 - - 672 2,890 (8,314) (172) 2022 $ 121,000 121,000 (42,691) 78,309 112,776 69% 2022 $ 55,107 11,717 2,702 260 3,313 999 (13) 216 7,834 12,478 4,638 3,823 (291) (1) (2) Includes a loss on disposal of $1,051 on production equipment following a change of technical requirements and functionalities by the Company. The Company disposed this production equipment in a non-monetary transaction with the supplier in exchange for a credit to be applied against future purchases of production equipment. A loss of $216 on the disposal of assets held for sale was recorded in 2022 within “Other expenses (income), net” within the consolidated statement of earnings (loss). The asset, which was previously presented as held for sale within the Specialty Semiconductors segment, pertains to a reclassification from buildings for an amount of $3,032 in 2022. The reclassification relates to the planned relocation of operations from Canada of one of the Company’s subsidiaries situated in Asia, announced in the third quarter of 2020. (3) Reduced research and development, net of tax credits by an amount of $4,060 for the year ended December 31, 2023 resulting from research and development subsidies. There is an outstanding receivable related to these grants as at December 31, 2023 for an amount of $2,045 included within Accounts receivable. Reduced research and development, net of tax credits by an amount of $3,667 for the year ended December 31, 2022 resulting from research and development subsidies. There is an outstanding receivable related to these grants as at December 31, 2022 for an amount of $1,460 included within Accounts receivable. (4) In 2023, the Company recorded litigation and restructuring costs. The main costs are as follows: - Income of $8,974 received from the previous shareholder of AZUR. The income was received as per stipulations in the share purchase agreement and is not related to AZUR’s performance post-acquisition; - Costs related to site closure in Asia for an amount of $131; - Changes in senior management for an amount of $158; and - Charge related to a non-trade receivable which became non recoverable during the year for an amount of $228. In 2022, the Company recorded litigation and restructuring costs. The main costs are as follows: - Costs related to the divestiture of a subsidiary of $2,594 (Note 4); - Change in senior executive management for an amount of $241; - Settlement of a contract by mutual agreement for an amount of $372; and - Costs related to site closure in Asia for an amount of $358. 84 Consolidated Financial Statements ▪ 41 Consolidated Financial Statements ▪ 42 5N+ 2023 ANNUAL REPORT 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars) Debt-to-equity ratios as at December 31, 2023 and 2022 are as follows: 30. Subsequent Event In January 2024, the Company increased its minority equity stake in Microbion Corporation (Microbion) for an amount of $1,000. As at December 31, 2023, the Company’s stake in Microbion was valued at $3,000 (Note 12). Consolidated Financial Statements ▪ 42 85 Long-term debt including current portion Less: Cash and cash equivalents Total debt Net debt Shareholders’ equity Debt-to-equity ratio 29. Expenses by Nature Expenses by nature include the following: Wages and salaries Depreciation of property, plant and equipment (Note 8) Depreciation of right-of-use assets (Note 9) Amortization of other assets (Note 12) Other expenses (income), net Amortization of intangible assets (Note 10) Share-based compensation expense (Note 24) Loss (gain) on disposal of property, plant and equipment(1) Loss on disposal of assets held for sale (Note 8)(2) Loss on divestiture of subsidiary (Note 4) Impairment of non-current assets (Notes 4, 8 and 10) Research and development, net of tax credits(3) Litigation and restructuring (income) costs, net(4) Other income 2023 $ 108,500 108,500 (34,706) 73,794 128,592 57% 2023 $ 54,772 10,297 2,538 258 3,275 1,432 973 - - 672 2,890 (8,314) (172) 2022 $ 121,000 121,000 (42,691) 78,309 112,776 69% 2022 $ 55,107 11,717 2,702 260 3,313 999 (13) 216 7,834 12,478 4,638 3,823 (291) (1) Includes a loss on disposal of $1,051 on production equipment following a change of technical requirements and functionalities by the Company. The Company disposed this production equipment in a non-monetary transaction with the supplier in exchange for a credit to be applied against future purchases of production equipment. (2) A loss of $216 on the disposal of assets held for sale was recorded in 2022 within “Other expenses (income), net” within the consolidated statement of earnings (loss). The asset, which was previously presented as held for sale within the Specialty Semiconductors segment, pertains to a reclassification from buildings for an amount of $3,032 in 2022. The reclassification relates to the planned relocation of operations from Canada of one of the Company’s subsidiaries situated in Asia, announced in the third quarter of 2020. (3) Reduced research and development, net of tax credits by an amount of $4,060 for the year ended December 31, 2023 resulting from research and development subsidies. There is an outstanding receivable related to these grants as at December 31, 2023 for an amount of $2,045 included within Accounts receivable. within Accounts receivable. Reduced research and development, net of tax credits by an amount of $3,667 for the year ended December 31, 2022 resulting from research and development subsidies. There is an outstanding receivable related to these grants as at December 31, 2022 for an amount of $1,460 included (4) In 2023, the Company recorded litigation and restructuring costs. The main costs are as follows: - Income of $8,974 received from the previous shareholder of AZUR. The income was received as per stipulations in the share purchase agreement and is not related to AZUR’s performance post-acquisition; - Costs related to site closure in Asia for an amount of $131; - Changes in senior management for an amount of $158; and - Charge related to a non-trade receivable which became non recoverable during the year for an amount of $228. In 2022, the Company recorded litigation and restructuring costs. The main costs are as follows: - Costs related to the divestiture of a subsidiary of $2,594 (Note 4); - Change in senior executive management for an amount of $241; - Settlement of a contract by mutual agreement for an amount of $372; and - Costs related to site closure in Asia for an amount of $358. Consolidated Financial Statements ▪ 41 2023 ANNUAL REPORT 5N+ 86 5N+ 2023 ANNUAL REPORTCorporate Information Stock Exchange 5N Plus is listed on the Toronto Stock Exchange, under the symbol VNP. Transfer Agent and Registrar Computershare Investor Services Inc. Auditors PricewaterhouseCoopers LLP Head Office 4385 Garand Street, Montreal, Quebec H4R 2B4 For more information, please contact: Investor Relations 5N Plus Inc. 4385 Garand Street, Montreal, Quebec H4R 2B4 T: 514-856-0644 invest@5nplus.com Si vous souhaitez obtenir une copie en français de ce rapport annuel, communiquez avec : Relations avec les investisseurs 5N Plus inc. 4385, rue Garand, Montréal (Québec) H4R 2B4 Aussi disponible à l’adresse www.5nplus.com 5 N + | 2 0 2 3 T A R N O N P E U R A L L A R U E P N O N R A T 3 2 0 2 | + N 5 5N Plus Inc. 4385 Garand Street Montréal, Quebec, Canada H4R 2B4 www.5nplus.com A D A N A C N I D E T N R P I 

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