OUTLOOK

Consistent with the Company’s past practice, and in view of the early stage of market adoption of our core lines of business, the Company is not providing specific revenue or net income (loss) guidance for 2024. The following is an outline of the Company’s strategy plus key developments that are expected to impact subsequent quarters.

Overall Strategy

PyroGenesis provides technology solutions to heavy industry that leverage the Company’s expertise in ultra-high temperature processes. The Company has evolved from its early beginnings as a specialty-engineering firm to being a provider of a robust technology eco-system for heavy industry that helps address key strategic goals.

The Company believes its strategy to be timely, as multiple heavy industries are committing to major carbon and waste reduction programs at the same time as many governments are increasingly supportive – from both a policy and financial perspective – of environmental technologies and infrastructure projects. Additionally, both industry and government are developing strategies to ensure the availability of critical minerals during the coming decades of increased output demand.

While there can be no guarantees, the Company believes the evolution of its strategy beyond greenhouse gas emission reduction, to an expanded focus that encapsulates the key verticals listed in the section “Q4 2024 Production and Sales Highlights”, both (i) improves the Company’s chances for success while (ii) also providing a clearer picture of how the Company’s wide array of offerings work in tandem to support heavy industry goals.

PyroGenesis’ market opportunity is significant, as major industries such as aluminum, steelmaking, manufacturing, cement, chemicals, defense, aeronautics, and government seek factory-ready, technology-based solutions to help steer through the paradoxical landscape of increasing demand, tightening regulations, and material availability.

As more of the Company’s offerings reach full commercialization, PyroGenesis will remain focused on attracting influential customers in broad markets while at the same time ensuring that operating expenses are controlled to achieve profitable growth.

Cost Controls and Efficiencies

PyroGenesis has been, and continues to, scrutinize both potential and existing projects to ensure that the utilization of labour and financial resources are optimized. The Company continues to only engage in projects that reflect significant benefits to PyroGenesis and the risks of which are defined. The Company intends to intensify its focus on project and budgetary clarity during this period of elevated inflationary pressures, by identifying alternative suppliers while constantly adjusting project resources. The early-stage project assessment process has also been refined to allow for a faster “go / no-go” decision on project viability.

Enhanced Sales and Marketing

Against the backdrop of this 3-tiered strategy, the Company continues to increase sales, marketing, and R&D efforts in-line with – and in some cases ahead of – the growth curve for industrial change related to greenhouse gas reduction efforts.

Initiatives during the second quarter 2024 included enhanced use of video, including a long form video message from the Company’s CEO as part of the Company’s annual general meeting.

Macroeconomic Conditions

With some continued uncertainty in the macroeconomic environment, including ambiguity in the banking sector with regard to interest rate adjustments, and the continued inflationary pressures causing shifting demand dynamics across various industries at different times, it may be difficult to assess the future impact these events and conditions will have on our customer base, the end markets we serve and the resulting effect on our business and operations, both in the short term and in the long term.

Despite these uncertainties, we continue to believe there is an accelerated need for PyroGenesis’ solutions in the industries we serve as heavy industry continues to decarbonize / transition their energy sources, manufacture utilizing both lighter metals (such as aluminum) and additive manufacturing techniques, and deal with tighter hazardous waste regulations.

While we expect these uncertainties and other macroeconomic conditions to continue to impact the variability in our quarter to quarter revenue, we believe our diversity in both customer base and solution set will continue to be a strong mitigating factor to these challenges. Additionally, the Company’s ongoing efforts to reduce costs through various measures including the sourcing of more high quality, cost-competitive suppliers, further bolsters the Company against cost fluctuations.

The various military conflicts in the Middle East and Eastern Europe continue to create some level of global economic uncertainty, as well as supply chain disruptions that can change at any time. However, it’s important to note that the Company does not have any operations, customers or supplier relationships in Russia, Belarus or Ukraine, and as such are not directly impacted at a customer level in these countries. The Company does have customer relationships and projects in Poland and will continue to monitor the situation in the region regarding challenges to the completion of current projects, which at this time are not inhibited.

As always, the Company monitors the potential impact macroeconomic events and conditions could have on the business, operations, and financial health of the Company.

Generally, the Company believes that broad-based threats to global supply chains increase awareness and interest in the many solutions the Company offers. This is particularly true within the minerals and metals industries, as manufacturers seek alternatives to off-shore suppliers as well as technologies that could optimize output or recycle critical material from byproducts or waste – solutions that the Company currently offers.

Business Line Developments

The upcoming milestones which are expected to confirm the validity of our strategies are outlined below (please note that these timelines are estimates based on information provided to us by the clients/potential clients, and while we do our best to be accurate, timelines can and will shift, due to protracted negotiations, client technical and resource challenges, or other unexpected situations beyond our or the clients’ control):

Business Line Developments: Near Term (0 – 3 months)

Financial

• Payments for Outstanding Major Receivables:
  Regarding the outstanding receivable under the Company’s existing $25 million+ Drosrite™ contract: as previously announced, PyroGenesis had agreed to a strategic extension of the payment plan, by the customer and its end-customer, geared to better align the pressures on the end-user’s operating cash flows created by increased business opportunities. In Q2 2024, the Company received a planned payment in the amount of $4.1 million. Another portion of the balance is expected to be paid in the near term.

• Warrant repricing:
  Post quarter end, in July 2024 [news release dated July 03, 2024], the Company announced that up to 4,107,850 common share purchase warrants will be amended such that the exercise price would be reduced to $0.75 per share provided that if the closing price of the common shares exceeds $0.9375 (such amount being 125% of $0.75) over any 5 consecutive trading days, the Company will be entitled to accelerate the expiry date of the warrants to the date that is 30 days following the date that notice of such acceleration is provided.
  

Energy Transition & Emission Reduction

• Aluminum Remelting Furnaces:
  As mentioned in the Q1 2024 Outlook, the Company has been working on aluminum remelting furnace solutions using plasma, for use by secondary aluminum producers or any manufacturer of aluminum components that uses recycled or scrap aluminum. With gas-fired furnaces responsible for much of the scope 1 emissions of secondary aluminum production, aluminum companies have been searching for solutions that can help in the decarbonization efforts of aluminum remelting and cast houses.
  
  The Company has two concepts: the retro-fitting of plasma torches in existing remelting and cast house furnaces that currently use other forms of heating, such as natural gas; and the manufacturing and sale of a PyroGenesis produced furnace based off the Company’s existing Drosrite metal recovery furnace design, which has been in use commercially for several years.
  
  Also as mentioned in previous Outlooks, the Company has been working with different companies over the past few years towards these goals. During Q2 2024, the Company announced a signed letter of intent with global aluminum product manufacturer Constellium for large-scale plasma remelting furnaces, and a contract with a global mining supply company, with the agreement related to the client’s intention to examine the use of plasma in decarbonizing its cast houses. Discussions remain underway with other clients for similar contracts.

• Aluminum Furnace Tests:
  The Company has started, and will continue in the near term, live furnace tests of plasma as a process heat source in melting and holding furnaces with major aluminum companies, and is in advanced discussions with other companies for similar live furnace tests of plasma as a process heat source in melting and holding furnaces. Due to the nature of these tests and the increasing number of similar tests, the Company may choose not to announce every test session it engages in.
  

• New Industry Contract for Plasma Torches:
  As noted in the Q1 2024 Production and Sales Highlights, in January 2024, the Company announced the signing of a framework master agreement with a client (whose name is being withheld for confidentiality and competitive reasons), which included the payment to the Company of a non-refundable downpayment for $667,000. As stated in the Q4 2023 Outlook, this marks PyroGenesis’ resumption of work in an industry that previously showed promise.
  
  Negotiations of a first substantial statement of work are ongoing and remain positive but depend in large part on the client’s ability to secure funding in a timely manner. The client now anticipates proceeding with the purchase of a single plasma torch system in the near term, followed by one or more larger orders in subsequent quarters, dependent upon the client’s financing. While there is no guarantee this statement of work or additional ones will be completed, if successful the Company foresees the potential for a multi-phase, multi-year partnership with the client that may result in many additional plasma torch orders over the next few years.

• Iron Ore Pelletization Torch Trials:
  As mentioned in previous Outlooks, the commissioning of the plasma torch systems – for use in the pelletization furnaces of a client previously identified as Client B – was underway, with the Company’s engineers onsite at Client B’s iron ore facility. The commissioning process includes installation, start-up, and site acceptance testing (SAT). The Company previously announced that it had shipped four 1 MW plasma torch systems for use in Client B’s iron ore pelletization furnaces, for trials toward potentially replacing fossil-fuel burners with plasma torches in Client B’s furnaces.
  
  As mentioned in previous Outlooks, this project continues to move forward, however the commissioning suffered a series of unforeseeable delays caused by, among other things, damaging regional torrential rainstorms that flooded and damaged the facility’s electrical system and furnace components, and intermittent power outages that led to damage of the plasma burners cooling system.
  
  Client B remains committed to the trials and additional process steps are being designed to account for the client’s particular mechanical and environmental risk variables.
  
  The client previously identified as Client A, a large international mining company which has also purchased a full plasma torch system for use in trials in its pelletization furnaces, continues its plasma torch initiative at its own pace, with no recent developments to report as per project timing or completion.

• Aluminum Cast House Decarbonization:
  The Company is part of a tendered bid process for the testing of plasma within an aluminum cast house of a leading global aluminum company. This is unrelated to the project announcement made in conjunction with Constellium. During the quarter, the Company was advanced past the preliminary tender phase to the full tender proposal phase.
  
  The Company’s full proposal is now due in August, with the final client decision expected in the near-to mid-term.

• Mining Industry Parts Manufacturer Decarbonization:
  As noted above, in April 2024 the Company announced the signing of a contract with a client to assess the applicability and examine the use of plasma as a heat source in the client’s cast furnaces. The client, a billion-dollar entity with facilities on five continents, is one of the world’s largest manufacturers of products that serve the mining and defense industries, amongst others.
  
  The tests noted as targeted for completion by the end of the Q2 were conducted and have concluded, successfully.
  
  Negotiations are now underway for the sale of initial plasma torch system(s) as well as the accompanying manipulation/handling components, as a per unit price of between US$500,000-$1,000,000 in revenues to PyroGenesis per torch.

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