Annual Report and Accounts
Metals Exploration PLC
30 March 2007
METALS EXPLORATION PLC
Annual Report and Accounts for the year ended 30 September 2006
LONDON - 30 March 2007 - The Directors of Metals Exploration plc ('Metals Ex'),
the UK based gold exploration company with a focus on the Philippines, are
pleased to announce the audited final results for the period to 30 September
2006.
Highlights - up to 30 September 2006
• October 2005 - Diamond drilling commences at Runruno
• 07 March 2006 - Acquisition of 100% in Worlwide, near Baguio, a
copper+gold porphyry-style mineralization project. Exploration permit
applied for
• 11 May 2006 - For Runruno, within 6 months of the commencement of drilling,
an inferred mineral resource containing 1.7m oz of gold at 2.3gm/t and 34m
lbs of molybdenum at 0.07% is announced
• 18 May 2006 - New Nomad and broker, Collins Stewart, appointed
• 06 July 2006 - Announcement of a new Chief Executive, Jonathan Beardsworth,
to start 04 September 2006
Highlights- post 30 September 2006
• 18 October 2006 - Raised £5m pre-expenses through a placing at 25p
• 12 December 2006 - Runruno's inferred mineral resource upgraded to 2.03m
oz of gold at 2.23gm/t and 34.4m lbs of molybdenum at 0.06%
• 31 January 2007 - Preliminary metallurgical results show 92% extraction of
gold through gravity + flotation
Commenting on the results, Steven Smith, Chairman of Metals Exploration plc, said:
'It has been a year of considerable achievement for Metals Exploration plc,
during which we have made the transition from being a speculative
Country/exploration play to becoming established as an altogether more
substantive company based around a potentially world class gold deposit in
Runruno.
At the start of the accounting period we had not completed a single drillhole at
Runruno. By the end of the period we had announced an Inferred resource of 1.7
million ounces of gold (since increased to 2.03 million ounces) and 34 million
pounds of molybdenum. This is a most impressive rate of resource development,
and I congratulate all involved in the Philippines whose commitment and
professionalism have made it possible.'
Financial
In October 2006, the Company raised £5 million (£4.7 million net of expenses) in
a Secondary Placing on AIM, as a result of which we have sufficient funds for
normal operations for the foreseeable future.
Management
Realising that the successful development of the Company was going to place
greater demands on management, we were pleased to welcome Jonathan Beardsworth
as Chief Executive Officer in September 2006. Jonathan joined the Company from
Standard Bank where he was responsible for the bank's Mining & Metals team's
London, Moscow and Shanghai offices. He has been involved in corporate finance
and M&A in the mining industry for over a decade and brings substantial and
directly relevant skills and expertise.
Current Operations
A summary of the current operations follows in the statement by the Chief
Executive Officer.
Board Changes
Philip Barnett and Kevin Mahoney (both non-executive directors) resigned from
the Board (for personal reasons) since the last financial year end. We are
grateful to Philip and Kevin for their contribution and support to the Company
since the listing on AIM in October 2004 and we wish them well.
We expect to be in a position to announce a new Board member shortly. We also
intend to strengthen the Board further through the year, particularly from a
technical perspective, to reflect and assist the Company's move from exploration
into project development and ultimately mining operations.
Future Prospects
The various items I have mentioned: the continuing exploration success at
Runruno, our sound financial position, the strengthened management team, and
anticipated Board additions, all suggest that the Company is well positioned
for another year of achievement and success.
I would like to thank the various officers of the Company and the shareholders
for their support during the period under review.
ENQUIRIES:
Jonathan Beardsworth, CEO Metals Exploration +44 20 7927 6690
Jonathan Anderson, Investor Relations +44 7863 167070
Adrian Hadden, Collins Stewart Europe Limited +44 20 7523 8350
Simon Rothschild, Marc Cohen, Bankside Consultants +44 20 7367 8888
CHIEF EXECUTIVE'S REVIEW
It is with the greatest pleasure that I present what I hope will be the first of
many annual reviews of our Company's current position.
As an exploration company with ambitions to move into development, there are
essentially three questions that have to be addressed:
a) Does the company have a deposit or deposits that look viable?
b) Does the company have the people to bring its projects to account?
c) Is the country (i.e. the Philippines) one in which one can realistically
expect to be able to operate?
Let me address each of these issues briefly in turn.
Deposit Quality
Our flagship project is Runruno, to which we have rights to an 85% interest.
Runruno is shaping up to be a world class gold project with the potential also
of molybdenum credits. We have already announced on 6 December 2006 a Joint Ore
Resources Committee (JORC) inferred resource of 2.03 million ounces of gold and
34.4 million pounds of molybdenum, and we are confident of being able to
identify more. Our immediate aim is to firm up the existing resource through
Indicated and Measured JORC categories via a programme of infill drilling
through the rest of this calendar year. This will form the basis for the
production of a feasibility study, which we hope will demonstrate an economic
operation of approximately 200,000 ounces of gold a year.
We have previously identified potential similarities between Runruno and the
Cripple Creek gold mining operation (operated by the Cripple Creek & Victor Gold
Mining Company - a joint venture between AngloGold Ashanti and Golden Cycle Gold
Corporation) in Colorado, USA. We are investigating this further, but whether
the analogy is eventually considered to be valid or not, the point is that our
review of publicly available data about Cripple Creek has helped enhance our
understanding of the real potential of the area surrounding and incorporating
Runruno, and is already bearing fruit in exploration results.
Whilst we have an identified resource of 2.03 million ounces of gold, the upside
potential appears most encouraging, as we hope to demonstrate through the
remainder of this calendar year.
Quality of Personnel
The greatest and most welcome finding in my first 6 months is the quality of the
people in the Company. We have a team of 25 full time staff in the Philippines,
all well educated, most professionally qualified, and several with international
experience. It is their collective professionalism, enthusiasm and commitment
that underpins the progress we have already made.
The Company is committed to its responsibilities towards the local community
and this is reflected in the level of support the Company receives from the
community. The Company with the Government of the Philippines are co-benefactors
of the Runruno Livelihood Foundation ('RLF'), which provides community projects,
education, health care and skill training. As recently as 17 March 2007 the
local Governor at a speech at Runruno congratulated the Company and RLF on how
the community programmes were operating.
Community relations are one of those intangible aspects to which it is
impossible to place a value, and yet the plain fact is that without community
support it would be difficult to develop an operation in the Philippines.
CHIEF EXECUTIVE'S REVIEW (continued)
Country Risk
We are very comfortable in the Philippines and find it a most conducive place in
which to work. In part this reflects the many years of accumulated experience
in the Company of working in-country. We have long established relationships
with key people and understand the bureaucratic procedures and process. This is
a serious asset in a country becoming increasingly attractive to international
investors who will not have this advantage at the outset.
At the macro level, the Philippines has made great strides in the last couple of
years to attract foreign investment generally, and mining investment in
particular. The landmark Supreme Court decision in December 2004 affirmed the
constitutionality of the 1995 Mining Act; a decision that the Supreme Court
ruled in February 2005 cannot be appealed. The 1995 Mining Act establishes a
legislative and regulatory regime consistent with international standards,
including provision for 100% foreign ownership of projects.
The legal support for mining is backed up by Executive Order No. 270 dated 16
January 2004, which specifically commits the Philippines to move from a position
of 'tolerance' of mining, to one of active promotion. The effect of these legal
and policy changes is apparent to those working on the ground, and we are
confident in the Philippines as a country supportive of mining.
Regional Development
Most of the value in the Company currently resides in the Runruno Project.
However we have also filed Exploration Permit ('EP') applications over the Puray
and Worldwide Projects, both of which look interestingly prospective, and we are
constantly reviewing a number of other prospective projects to add to our
project pipeline.
Inevitably most of the attention is focused upon Runruno, but we see scope for a
strong regional story in this extremely geologically prospective area, and aim
to add to our portfolio through the year.
Our focus in the northern Philippines, on Luzon Island, has caused us to
relinquish our interest in the Masapelid Project further south on Masapelid
Island following the advice from our joint venture partners in January 2007 that
they had withdrawn from the Joint Venture and subsequent relinquishment of their
interest in the project.
Funding
We remain well funded following our £5 million secondary placing in October
2006. We were gratified at the support from existing institutional shareholders
during the Placing, and pleased to welcome important new institutional
shareholders.
Future Strategy
Our strategy is very simple... to keep doing what we are already doing with what
we have already got. During the coming financial year:
• We aim to upgrade the 2.03 million ounce resource at Runruno through to
Indicated and Measured JORC categories;
• We will aim to expand the resource beyond 2.03 million ounces and will
seek to demonstrate the true potential of the Runruno project to contain
significantly more resources;
• We will initiate and continue with studies aimed at demonstrating the
economic viability of an operation at Runruno;
• We will progress our EP applications at Puray and Worldwide;
• We will seek to identify and secure new prospective projects to add to our
portfolio, and
• We will remain open to all corporate opportunities to increase shareholder
value.
I look forward with great confidence to another year of substantive achievement.
J Beardsworth
DIRECTORS' REPORT
The directors present their annual report on the affairs of the group, together
with the accounts and auditors' report for the year ended 30 September 2006. The
corresponding period represents the trade from incorporation on 8 April 2004
until 30 September 2005.
PRINCIPAL ACTIVITIES
The principal activity of Metals Exploration plc ('Metals Ex' or the 'Company')
is to identify and acquire mining companies, businesses or projects with
particular emphasis on precious and base metals mining opportunities
predominantly in the Western Pacific Rim region.
Since the Company's admission to AIM in October 2004, Metals Ex has focused
efforts on the acquisition of significant interests in exploration properties in
the Philippines which the Company considers to have substantial exploration
opportunities.
BUSINESS REVIEW
Runruno Project
Metals Ex, through a Memorandum of Agreement ('MOA') dated 1 February 2005,
acquired a 40% shareholding in FCF Mining Corporation ('FCF'), the holder of the
Runruno Exploration Permit. As part of the MOA, Metals Ex will acquire a
further 30% shareholding in FCF on completion of a bankable feasibility study on
Runruno. On 23 November 2005, Metals Ex announced that the Company has agreed
with Christian Mining Inc ('CMI') the terms of an option (the 'Option') that
gives Metals Ex the exclusive option to purchase an additional 15% shareholding
in FCF. The key terms of the Option are an annual option fee of US$65,000 and
an exercise price of US$6,000,000. The Option can be exercised or terminated at
the sole discretion of Metals Ex.
These agreements give Metals Ex rights to an 85% interest in FCF.
Runruno is located approximately 200 km north of Manila in Nueva Viscaya
Province. Geologically the area comprises an alkaline diatreme complex within a
Syenitic basement. Gold mineralization has been known to exist in Runruno since
the early 1960's and the property has a long history of exploration. In 1972 a
local Philippine company, Fil-Am, calculated a 13.4 million tonne resource at an
average grade of 1.41 g/t gold for a total of 607,500 contained ounces of gold.
After signing the MOA in February 2005, Metals Ex carried out a review of all
previous works and reports, a basic structural analysis of the deposit, field
mapping and sampling, and extensive sampling of the small scale miners' tunnels
found on the property.
In November 2005, after completion of the underground tunnel sampling programme,
a diamond drilling programme commenced with the objective to define a resource
with better grades than previously obtained in the 1970's, and to increase the
known resource size.
On 9 May 2006 the Company announced a preliminary resource estimate for Runruno
on the basis of its first 17 diamond drill holes, together with two drill holes
from Greenwater Mining Corporation who had conducted some work on the property
in 2000. The resource was calculated to total an estimated 23 million tonnes at
an average grade of 2.3 g/t gold and 0.07% molybdenum for a total of 1.7 million
ounces of gold and 34 million pounds of molybdenum.
The Resource estimate was classified as an inferred resource as defined by the
JORC Code, the Australasian Code for Reporting Identified Mineral Resources and
Ore Reserves.
Metals Ex maintains an active camp at Runruno with staff that includes
geologists, surveyors, accountants, geological aides, samplers and field
workers.
DIRECTORS REPORT (continued)
Puray project
The Company has held the option to purchase the Puray copper-zinc-silver-gold
project located in the Philippines ('Puray') since June 2005.
Puray comprises one Exploration Permit Application originally covering some
6,075 hectares and is located only 28 kilometres from the city of Manila. Puray
has been explored and partially mined since the 1930's. The mineralization is
polymetallic, containing high grade and disseminated copper-zinc-silver-gold.
The style of mineralization is similar to the Kuroko style of massive sulphide
deposits which have been major producers of copper, zinc, silver, gold and lead
in Canada (eg. Kidd Creek, Ontario, Canada). The high grade and commonly high
precious metal content of Kuroko deposits make them attractive exploration
targets.
A 200 tonne parcel of ore from Puray was reportedly mined and shipped to Japan
in the early 1970's grading 20% copper, 5.75% g/t gold, and 196 g/t silver.
Samples obtained from the surface during a field visit by the Company returned
assays ranging up to 8.9% copper, 1.7% zinc, and 1.3 g/t gold.
The occurrence of bornite and chalcopyrite ore indicates the potential for
delineating high grade Kuroko style mineralization of significant size over a
potential strike length of up to 6 kilometres.
Recently, the Exploration Permit Application has been subject to area
clearances, and once it has been granted, Metals Ex intends apply modern
exploration techniques to define the project's size and grade potential.
Worldwide Project
On 7 March 2006 the Company announced that it had applied for an Exploration
Permit for a property ('Worldwide') located in the district of Northern Luzon,
Philippines, adjoining the historic Santa Nino copper-gold producer.
The Exploration Permit Application (EPA) covers an area of approximately 5,845
hectares and is located about 10 kilometres to the northeast of Baguio City.
The property is underlain by quartz diorite and andesite rock types and was
previously the subject of extensive exploration for copper-gold-molybdenum
porphyry mineralization during the 1970's.
On 20th June 2006 the Company further announced that certain historical data had
been obtained and collated in respect of the application. Between 1974 and
1981, Worldwide Mineral and Industrial Corporation (WMIC), a Philippine
corporation, reputedly completed 44 diamond drill holes for an aggregate total
of 12,989 metres over a surface area of 600m x 1,200m. The data package
obtained related to 34 of these holes, drilled on a grid spacing of between 100
and 200 metres, for an aggregate total of 10,407 metres. WMIC estimated a
non-JORC compliant resource of approximately 150Mt at an average grade of 0.3%
copper and 0.2 g/t gold.
In 1982, Worldwide submitted a small batch of samples (21kg) to the nearby
Philex Metallurgical and Assay Laboratory for metallurgical testing. The
laboratory reported that 'the submitted sample was fast floating and no problem
was encountered in producing separate concentrates of copper and molybdenum of
marketable grade'.
Given the limited nature of the data collated so far, no assurance or
implication is being given, or should be assumed to be being given, by the
inclusion of this historical data that the mineralization has been, or will in
the future be, deemed to be economic.
The Company intends to carry out some confirmatory drilling once the EPA is
granted and will then evaluate the results to determine the next phase.
Masapelid project
The Company announced the acquisition of a 70% interest in the Masapelid project
in December 2004.
DIRECTORS REPORT (continued)
On 25th January 2005 the Company announced that it had signed a joint venture
agreement over Masapelid with Medusa Mining Limited ('Medusa') and Philsaga
Mining Corporation ('Philsaga') under which Medusa and Philsaga had the right to
earn an 84% share of the Company's interest in Masapelid under certain terms.
The Company has since relinquished its interest in Masapelid (see Post Balance
Sheet Events - below).
Other projects
The Company has a policy of reviewing projects as they are offered to the
Company and is continually looking for other exploration/mining opportunities
within the Western Pacific Rim and in particular, the Philippines.
OUTLOOK
The Directors consider, as outlined in the above descriptions of Runruno, Puray
and Worldwide, that each of the projects have considerable merit.
The Company will keep its shareholders fully informed as these projects advance.
RESULTS AND DIVIDENDS
The Group recorded a loss of £1,118,086 (2005: loss of £176,914) for the year.
The Directors do not recommend a dividend (2005: nil).
FINANCIAL RISK MANAGEMENT
The Group's main financial risk relates to foreign exchange risk, and in
particular the exposure to the US dollar, with payments made for costs of
exploration in this currency. The Company does not have a formal policy in
place to manage this currency risk, but the directors monitor the Company's
exposure on a regular basis. The remaining other assets and liabilities of Group
are in Sterling.
DIRECTORS AND THEIR INTERESTS
The directors at the year end and their interests in the shares of the company
are shown below:
Ordinary shares of £1 each
30 September 30 September
2006 2005
SM Smith* (Chairman) 1,500,000 1,500,000
J Beardsworth (Chief Executive - appointed 4 September 2006) - -
GR Powell (Non-executive) 1,000,000 -
KD Mahoney (Non-executive - resigned 6 November 2006) 500,000 -
* - SM Smith's holding is held through Reef Securities Limited, a company
controlled by him.
PC Barnett resigned as director on 25 April 2006.
See note 3 to the accounts for warrants and share options held by the Directors.
POST BALANCE SHEET EVENTS
Runruno Project
On 6 December 2006 the Company announced the definition of a total inferred
mineral resource of 28.3 million tonnes at an average grade of 2.23 g/t gold and
0.06% molybdenum, containing a total of 2.03 million ounces of gold and 34.4
million pounds of molybdenum.
DIRECTORS REPORT (continued)
On the 31 January 2007, the Company announced preliminary metallurgical test
results that demonstrated gold recoveries of 92% on a fresh composite sample
using a combination of gravity concentration followed by flotation.
Testwork is continuing to improve the recoveries of both gold and molybdenum.
The following is a summary of the metallurgical test work results received to
date:
Test work Process Summary Results
Au recovery 60% Gold recovery
by Gravity + CIL 35% Gold recovered by conventional gravity circuit
25% Gold recovered by conventional CIL process
Au recovery 93% Gold recovery
by Gravity + Flotation 25% Gold recovered by conventional gravity circuit
68% Gold recovered by Flotation process
Mo recovery 38% Molybdenum recovery
by Flotation 38% Molybdenum recovered by Flotation process
Metallurgical testwork is continuing to determine optimum processing
methodologies to recover gold from the concentrates, including:
• Ultra-fine grinding of sulphide concentrate + cyanidation;
• BiOx - Bio-oxidation of sulphide concentrate;
• Pressure Oxidation of sulphide concentrate, and
• Roasting of sulphide concentrate
Similarly there is ongoing testwork to improve the recovery of the molybdenum.
Masapelid project
On 31 January 2007, the Company announced that Medusa Mining Limited through
Phsamed Mining Corporation, in accordance with Clause 5.1 of the Masapelid Joint
Venture agreement, had given notice to the Company of its withdrawal from the
Masapelid Joint Venture effective on 31 January 2007. After reviewing the
results of the exploration programme and given the Company's current focus on
the Runruno Project and the northern Luzon area, the Company in turn, in
accordance with Clause 5 of the Memorandum of Agreement, has advised San Manuel
Mining Corporation that it is withdrawing from the Agreement effective 31
January 2007.
The Company now has no retained equity or ongoing obligations in the Masapelid
Project.
POLICY AND PRACTICE OF PAYMENT OF SUPPLIERS
The Group's policy on payment of suppliers is to settle the amounts due on a
timely basis taking into account the credit period given. At 30 September 2006,
the Group had an average of 43 days (2005: 60 days) purchases outstanding.
DISCLOSURE OF INFORMATION TO THE AUDITORS
Each director of the company has confirmed that in fulfilling their duties as a
director, they have.
• Taken all the necessary steps in rules to make themselves aware of any
information relevant to the audit and to establish that the auditors are
aware of that information; and
• So far as they are aware, there is no relevant audit information of
which the auditors have not been made aware
DIRECTORS REPORT (continued)
AUDITORS
After the year end our auditors, Nexia Audit Limited, changed their name to
Nexia Smith & Williamson Audit Limited and now trade as Nexia Smith &
Williamson. A resolution to reappoint the auditors, Nexia Smith & Williamson,
will be proposed at the next AGM.
Approved by the board of directors and signed on behalf of the board
SM Smith
SECRETARY
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ACCOUNTS
Company law requires the directors to prepare accounts for each financial year
which give a true and fair view of the state of affairs of the company and of
the profit or loss of the company for that period. In preparing those accounts,
the directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and estimates that are reasonable and prudent;
• State whether applicable accounting standards have been followed,
subject to any material departure disclosed and explained in the accounts;
• Prepare the accounts on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position for the
company and to enable them to ensure that the accounts comply with the Companies
Act 1985. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
Nexia Smith & Williamson
Independent auditors' report to the shareholders of Metals Exploration plc
We have audited the group and parent company accounts ('the accounts') of Metals
Exploration plc for the year ended 30 September 2006 which comprise the
Consolidated Profit and Loss Account, the Consolidated and Company Balance
Sheets, the Consolidated Cash Flow Statement and the related notes 1 to 23.
These accounts have been prepared under the accounting policies set out therein.
This report is made solely to the company's members, as a body, in accordance
with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the company's members those matters we are required to
state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the accounts
in accordance with applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice) are set out in the
Statement of Directors' Responsibilities.
Our responsibility is to audit the accounts in accordance with relevant legal
and regulatory requirements and International Standards on Auditing (UK and
Ireland).
We report to you our opinion as to whether the accounts give a true and fair
view and are properly prepared in accordance with the Companies Act 1985. We
report to you whether in our opinion the information given in the Directors'
Report is consistent with the accounts. We also report to you if, in our
opinion, the company has not kept proper accounting records, if we have not
received all the information and explanations we require for our audit, or if
the information specified by law regarding directors' remuneration and
transactions with the company is not disclosed.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited accounts. This other information comprises only
the Directors' Report, the Chairman's Statement and the Chief Executive's
Statement. We consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the accounts. Our
responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the accounts. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the
accounts, and of whether the accounting policies are appropriate to the
company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
Opinion
In our opinion:
• the accounts give a true and fair view, in accordance with United
Kingdom Generally Accepted Accounting Practice, of the state of the group's
and parent company's affairs as at 30 September 2006 and of the group's
loss for the year then ended;
• the accounts have been properly prepared in accordance with the
Companies Act 1985; and
• the information given in the Directors' Report is consistent with the
accounts.
Nexia Smith & Williamson 25 Moorgate
Chartered Accountants London
Registered Auditors EC2R 6AY
29 March 2007
CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 SEPTEMBER 2006
Notes 2006 2005
£ £
Turnover 1 - -
Administrative expenses (1,155,611) (187,378)
Operating loss (1,155,611) (187,378)
Interest receivable 30,875 10,819
Interest payable 4 (478) (355)
Loss on ordinary activities before taxation 5 (1,125,214) (176,914)
Tax on profit on ordinary activities 6 - -
Loss after tax 14 (1,125,214) (176,914)
Minority interest 3,564 -
Loss for the year (1,121,650) (176,914)
Basic and diluted loss per share 7 (2.20p) (0.67p)
All of the group's operations are classed as continuing. There were no gains or
losses in the period other than those included in the above profit and loss
account.
The company has taken advantage of Section 230 of the Companies Act 1985 not to
publish its own profit and loss account.
CONSOLIDATED BALANCE SHEET as at 30 SEPTEMBER 2006
Notes 2006 2005
£ £
Fixed assets
Intangible assets 8 2,011,023 1,587,992
Tangible assets 9 95,524 -
2,106,547 1,587,992
Current assets
Debtors 11 107,776 11,204
Cash at bank 371,501 1,178,687
479,277 1,189,891
Creditors: amounts falling due within one year 12 (234,554) (193,021)
Net current assets 244,723 996,870
Net assets 2,351,270 2,584,862
Shareholders' equity
Called up share capital 13 556,953 471,683
Share premium amount 14 2,696,623 1,694,271
Shares to be issued 15 92,000 288,000
Profit and loss account 14 (1,298,564) (176,914)
2,047,012 2,277,040
Minority interests - equity 304,258 307,822
2,351,270 2,584,862
The accounts were approved by the Board of Directors on 29 March 2007 and were
signed on its behalf by:
S M Smith
Director
COMPANY BALANCE SHEET as at 30 SEPTEMBER 2006
Notes 2006 2005
£ £
Fixed assets
Intangible assets 8 692,572 561,919
Investments 10 549,132 718,251
1,241,704 1,280,170
Current assets
Debtors 11 1,074,359 11,204
Cash at bank 337,259 1,178,687
1,411,618 1,189,891
Creditors: amounts falling due within one year 12 (158,823) (193,021)
Net current assets 1,252,795 996,870
Net assets 2,494,499 2,277,040
Shareholders' equity
Called up share capital 13 556,953 471,683
Share premium amount 14 2,696,623 1,694,271
Shares to be issued 15 92,000 288,000
Profit and loss account 14 (851,077) (176,914)
2,494,499 2,277,040
The accounts were approved by the Board of Directors on 29 March 2007 and were
signed on its behalf by:
S M Smith
Director
CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 SEPTEMBER 2006
Notes 2006 2005
£ £
Net cash outflow from operating activities 17 (865,963) (35,131)
Returns on investments and servicing of finance
Interest received 30,875 10,819
Interest paid (478) (355)
Net cash inflow from returns on investments and servicing 30,397 10,464
of finance
Capital expenditure
Payments to acquire intangible fixed assets (752,364) (858,956)
Payments to acquire tangible fixed assets (110,878) -
Net cash outflow from capital expenditure (863,242) (858,956)
Acquisitions
Payments to acquire subsidiary undertakings - (53,763)
Financing
Issue of ordinary share capital (net of expenses) 891,622 2,116,073
(Decrease)/Increase in cash in the year 18 (807,186) 1,178,687
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006
1. Accounting policies
The accounts have been prepared in accordance with United Kingdom Generally
Accepted Accounting Practice. A summary of the more important accounting
policies adopted are described below.
Basis of accounting
The accounts have been prepared under the historical cost convention.
Basis of consolidation
The group accounts consolidate those of the company and its subsidiary
undertakings using the acquisition method of accounting.
Exploration and development costs
Costs relating to the acquisition, exploration and development of mineral
properties are capitalised until such time as an economic reserve is defined and
mining commences or the mining property is abandoned.
Once mining commences the asset is amortised on a depletion percentage basis.
Provision is made for impairments to the extent that the asset's carrying value
exceeds its net recoverable amount.
Tangible fixed assets
Depreciation is provided to write off the cost, less estimated residual value,
of each asset on a straight line basis over its expected useful life, as
follows:
Leasehold improvements - 5 years
Motor vehicles - 5 years
Fixtures, fittings & equipment - 3 years
Investments
Investments held as fixed assets are stated at cost less provision for any
impairment.
Deferred taxation
Deferred tax is provided for on a full provision basis on all timing differences
which have arisen but not reversed at the balance sheet date. No timing
differences are recognised in respect of (i) property revaluation surpluses
where there is no commitment to sell the asset; (ii) gains on sale of assets
where those assets have been rolled over into replacement assets; and (iii)
additional tax which would arise if profits of overseas subsidiaries are
distributed except where otherwise required by accounting standards. A deferred
tax asset is not recognised to the extent that the transfer of economic benefit
in future is uncertain. Any assets and liabilities recognised have not been
discounted.
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006
1. Accounting policies (continued)
Foreign currencies
Transactions denominated in a foreign currency are translated into sterling at
the rate of exchange ruling at the date of the transaction. At the balance
sheet date, monetary assets and liabilities denominated in foreign currency are
translated at the rate ruling at that date. All exchange differences are dealt
with in the profit and loss account. Exchange differences arising from the
translation of the net investment in a subsidiary company at the rate of
exchange ruling at the balance sheet date and that subsidiary's profit and loss
account at an average rate for the year, are recorded as movements on reserves.
Turnover
Turnover, excluding value added tax, represents net invoiced sales of the
Company's share of revenues in the period. Turnover is recognised as sales as
invoiced throughout the period.
Segmental reporting
The group's operating loss is derived from the company's principal activities
based in the Philippines, with a Head Office function based in the UK.
Operating loss by geographical location 2006 2005
£ £
United Kingdom 499,108 187,378
Philippines 656,503 -
Operating loss 1,155,611 187,378
Net assets by geographical location 2006 2005
£ £
United Kingdom 947,199 1,208,943
Philippines 1,404,071 1,375,919
Net assets 2,351,270 2,584,862
2 Directors' emoluments 2006 2005
£ £
S M Smith 60,000 16,000
P C Barnett * (resigned 25 April 2006) 18,000 12,000
K D Mahoney * (resigned 6 November 2006) 8,000 12,000
G Powell 56,790 13,228
J Beardsworth (appointed 4 September 2006) 8,000 -
150,790 53,228
* - Non-executive directors
No directors accrued retirement benefits under a money purchase pension scheme.
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued)
3 Employee information
The average number of persons employed by the Group was as follows:
2006 2005
Number Number
Head office (including directors) 19 3
Exploration 117 -
136 3
Warrants to directors
The warrants held by directors are as follows:
Warrant holder Date Exercise Exercise period (from Number of shares
price date of grant) under warrant
G Powell 3 November 2005 12p Up to 7 years 1,000,000
3 November 2005 40p Up to 7 years 500,000
Reef Securities 30 September 2004 3.25p Up to 7 years 1,000,000
Limited *
3 November 2005 20p Up to 7 years 1,000,000
3 November 2005 40p Up to 7 years 500,000
P Barnett 30 September 2004 3.25p Up to 7 years 1,000,000
3 November 2005 20p Up to 7 years 500,000
3 November 2005 40p Up to 7 years 500,000
* Reef Securities Limited is a company controlled by SM Smith
Directors warrants and share option commitments
The Company has committed to grant Jonathan Beardsworth 1,000,000 warrants
at 26.25 pence exercisable one year from the grant date, 1,000,000 warrants
at 39.275 pence exercisable two years from the grant date and 500,000
warrants at 52.5 pence exercisable three years from the grant date.
In addition to the warrants disclosed above, the Company has committed to
grant Jonathan Beardsworth 2,000,000 unapproved share options at a price
of 26.25p per share, exercisable any time 3 years after the date of grant.
4 Interest payable 2006 2005
£ £
Bank loans and overdrafts 478 355
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued)
5 Loss on ordinary activities before taxation is stated 2006 2005
after charging: £ £
Impairment of fixed asset investment 332,897 -
Depreciation 15,354 -
Auditors' remuneration
- audit services 30,000 8,000
- all other services 19,238 -
The audit services fee includes £30,000 (2005: £8,000) in respect of the Company.
6 Tax on profit on ordinary activities 2006 2005
£ £
(a) UK corporation tax at 30% - -
(b) Factors affecting tax charge for period £ £
Loss on ordinary activities before tax (1,121,650) (176,914)
Loss on ordinary activities multiplied by standard (336,495) (53,074)
rate of corporation tax in the UK 30%
Effects of:
Income not taxable (96,957) -
Expenses not deductible for tax purposes - 120
Tax losses carried forward 433,452 52,954
Current tax charge for year - -
A deferred tax asset of £486,046 (2005: £52,954) due to on-going tax
losses has not been recognised due to uncertainty over its future
reversal.
7 Loss per share
Basic loss per share has been calculated on the basis of loss after
taxation of £1,121,650 (2005: Loss £176,914) divided by the weighted
average number of shares in the year of 50,970,424 (2005: 26,313,414).
The diluted loss per share calculation is identical to that used for
basic loss per share as the exercise of warrants and share options would
have the effect of reducing the loss per share and therefore is not
dilutive under the terms of Financial Reporting Standard 22:
'Earnings per Share'.
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued)
8 Intangible fixed assets - Group Costs of
Exploration
£
Cost
At 30 September 2005 1,587,992
Additions 1,025,124
Disposal (602,093)
At 30 September 2006 2,011,023
Intangible fixed assets - Company Costs of
Exploration
£
Cost
At 30 September 2005 561,919
Additions 130,653
At 30 September 2006 692,572
9 Tangible fixed assets - Group
Leasehold Motor vehicles Fixtures, Total
improvements fittings &
equipment
£ £ £ £
Cost
1 October 2005 - - - -
Additions 20,106 25,768 65,004 110,878
30 September 2006 20,106 25,768 65,004 110,878
Depreciation
1 October 2005 - - - -
Charge for the year 1,745 4,877 8,732 15,354
30 September 2006 1,745 4,877 8,732 15,354
Net book value
30 September 2006 18,361 20,891 56,272 95,524
30 September 2005 - - - -
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued)
10 Investments
£
Cost
At 30 September 2005 718,251
Additions 163,778
At 30 September 2006 882,029
£
Provision for impairment
At 30 September 2005 -
Charge for the year 332,897
At 30 September 2006 332,897
Net book value
30 September 2006 549,132
30 September 2005 718,251
The above investments are unlisted, as follows:
Company Country of % holding Nature of business
registration
San Manuel Mining Corporation Philippines 16% Holder of mining
rights
FCF Mining Corporation Philippines 70% Holder of mining
rights
MTL Philippines Philippines 100% Trading Mining
Operation
On 23 December 2004, the company concluded an agreement which resulted
in the purchase of 70% of the subscribed share capital in San Manuel
Mining Corporation ('SMMC').
On 25 January 2005 the company signed a joint venture agreement (JVA)
with Medusa Mining Limited and Philsaga Mining Corporation in respect of
the Company's interest in San Manuel Mining Corporation. This agreement
superseded the agreement signed on 23 December 2004.
The principal terms of the JVA are that the company will retain a 16%
share of the interest or alternatively retain a 10% net profit interest,
in return for a reduced payment schedule.
The agreement allows Metals Exploration plc to earn 16% of the economic
interest in the Masapelid project on completion of the following payment
schedule:
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued)
10 Investments (continued)
Cash (US$) Shares in the
Company
January 2005 On completion 25,000 250,000
March 2006 One year after completion 25,000 40,000
January 2007 Two years after completion 25,000 40,000
January 2008 Three years after completion 30,000 80,000
On 31 January 2007, the Company announced that Medusa Mining Limited had
given notice of its withdrawal from the JVA. Having reviewed the results
of the exploration programme and the Company's focus on Runruno, the
Company has withdrawn from its agreement and the investment has been
impaired.
On 1 February 2005, Metals Exploration plc signed an agreement which
resulted in the purchase of 70% of the share capital in FCF Mining
Corporation.
The agreement allows Metals Exploration plc to earn 70% of the economic
interest in the Runruno project on completion of the following payment
schedule:
Cash (US$) Shares in the
Company
February 2005 On completion 100,000 400,000
February 2006 One year after completion 30,000 400,000
February 2007 Two years after completion 40,000 400,000
February 2008 Three years after completion 40,000 400,000
In November 2005, the company signed an option agreement with Christian
Mining Inc to acquire an additional 15% shareholding in FCF Mining Corp.,
the holder of the Runruno permit, which if exercised would give the
company an 85% interest. The company shall pay a $65,000 per annum option
fee until the option is either exercised or withdrawn, although the
company has sole discretion to terminate the option. The exercise price
of the option is $400,000 for each additional 1% per shareholding,
subject to a maximum fee of $6million. The exercise period of the option
is indefinite.
In March 2006, the company issued 40,000 new 1p ordinary shares to
satisfy a payment obligation of the company pursuant to an agreement with
Medusa Mining Limited and Philsaga Mining Corporation.
In December 2005 the company set up MTL Philippines Inc, a mining
operating company located in the Philippines with the payment of £122,789
for the share capital of the company.
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued)
11 Debtors
Group Company
2006 2005 2006 2005
£ £ £ £
Other debtors 7,874 6,337 - 6,337
Amounts due from group - - 993,166 -
undertakings
Taxation 18,336 - - -
Prepayments 81,566 4,867 81,193 4,867
107,776 11,204 1,074,359 11,204
12 Creditors: amounts falling due within one year
Group Company
2006 2005 2006 2005
£ £ £ £
Other creditors 10,848 - - -
Accruals 223,706 193,021 158,823 193,021
234,554 193,021 158,823 193,021
13 Called up share capital
£ £
Authorised
150,000,000 (2005:100,000,000) ordinary shares of 1p each 1,500,000 1,000,000
Allotted, called up and fully paid
55,695,248 (2005: 47,168,332) ordinary shares of 1p each 556,953 471,683
On 6 October 2005 the Company increased the authorised share capital to 150,000,000 ordinary shares
of 1p each.
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued)
13 Called up share capital (continued)
During the year the Company issued the following ordinary 1p shares:
2,500,000 ordinary shares at a price of 3.25p per share, realising £81,250.
40,000 ordinary shares at a price of 7.5p to Manuel Arteficio as part
consideration for his stake in that company.
996,708 ordinary shares at a price of 8p per share, realising £79,737.
400,000 ordinary shares at a price of 11.5p per share in consideration
for receipt of a 70% stake in FCF Mining Corporation.
4,590,210 ordinary shares at a price of 20p per share, realising £918,042.
Share options
On 29 March 2006 the Company issued 1,200,000 unapproved share options
to certain employees at a price of 12p per share, which can be exercised
from 12 months from grant date.
The Company has committed to grant Jonathan Beardsworth 2,000,000
unapproved share options at a price of 26.25p per share, exercisable
any time 3 years after the date of grant.
Warrants
On 3 November 2005 the Company issued 1,300,000 warrants at a price of
12p, 2,500,000 warrants at a price of 20p and 2,000,000 warrants at a
price of 40p.
On 1 December 2005 the Company issued a further 1,404,231warrants at a
price of 20p.
The Company has committed to grant Jonathan Beardsworth 1,000,000
warrants at 26.25 pence exercisable one year from the grant date,
1,000,000 warrants at 39.275 pence exercisable two years from the grant
date and 500,000 warrants at 52.5 pence exercisable three years from
the grant date.
14 Reserves - Group
Shares to be Share Profit & Loss Total
issued Premium Account
£ £ £
£
At 30 September 2005 288,000 1,694,271 (176,914) 1,805,357
Loss for the year - - (1,121,650) (1,121,650)
Share Issue (49,000) 44,600 - (4,400)
Cancellation of share to (147,000) - - (147,000)
be issued
Premium on other share - 998,159 - 998,159
issues
Issue expenses - (40,407) - (40,407)
At 30 September 2006 92,000 2,696,623 (1,298,564) 1,490,059
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued)
14 Reserves (continued)
Company
Shares to be Share Profit & Loss Total
issued Premium Account
£ £ £
£
At 30 September 2005 288,000 1,694,271 (176,914) 1,805,357
Loss for the year - - (674,163) (674,163)
Share Issue (49,000) 44,600 - (4,400)
Cancellation of share to (147,000) - - (147,000)
be issued
Premium on other share - 998,159 - 998,159
issues
Issue expenses - (40,407) - (40,407)
At 30 September 2006 92,000 2,696,623 (851,077) 1,937,546
15 Shares to be issued
Under the arrangements of the deferred consideration on the purchase of certain
mining rights set out in note 10, an additional 800,000 ordinary 1p shares are
to be issued to the vendors, to be issued at various points in the next 2 years.
For valuation purposes these shares have been valued at 11.5p, the price on
completion of the transactions.
16 Reconciliation of movements in Shareholders' funds - 2006 2005
Group £ £
Loss for the year (1,121,650) (176,914)
Issue of share capital 1,038,622 2,165,954
Shares to be issued - 288,000
Cancellation of shares to be issued (147,000) -
Net change in the year (230,028) 2,277,040
Opening shareholders' funds 2,277,040 -
Closing shareholders' funds 2,047,012 2,277,040
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued)
17 Reconciliation of operating profit to net £ £
cash outflow from operating activities
Operating loss (1,155,611) (187,378)
Depreciation 15,354 -
Increase in debtors (96,572) (11,204)
Increase in creditors 41,533 163,451
Minority interest (3,564) -
Impairment of fixed asset investments 332,897 -
Net cash outflow from operating activities (865,963) (35,131)
18 Reconciliation of net cash flow to movement in net funds 2006 2005
£ £
(Decrease)/Increase in cash in the period (807,186) 1,178,687
Net funds at 1 October 2005 1,178,687 -
Net funds at 30 September 2006 371,501 1,178,687
19 Analysis of funds 1 October Cash flow 30 September
2006
2005
£ £ £
Cash in hand, at bank 1,178,687 (807,186) 371,501
Total 1,178,687 (807,186) 371,501
20 Finance lease commitments 2006 2005
£ £
Motor vehicles - leases which expire:
Less than one year 4,792 -
21 Related party transactions
The Group paid nil (2005: £13,304) in consultancy fees to Boonjarding
Limited, a company controlled by G Powell.
The Group paid £nil (2005: £10,000) to Steven Smith in respect of
accountancy services in the year and £13,055 to Amity Events Limited,
a company which Steven Smith is a director.
NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued)
22 Post balance sheet events
Between 17 October 2006 and 26 March 2007, the company issued a total
of 20,899,419 new 1p ordinary shares at prices ranging between 12.5p
and 26p per share.
The company issued 1,590,379 new 1p ordinary shares at prices ranging
from 12.5p to 26p, pursuant to the exercise of existing warrants with
exercise periods from 2 to 7 years from the date of grant.
On 16 October 2006, the company raised £5 million through a placing to
raise funds for the company project Runruno gold molybdenum project in
the Philippines. The company issued 20,000,000 new 1p ordinary shares
which have been issued at a price of 25p per share.
On 5 February 2007, the company issued 400,000 new 1p ordinary shares in
connection with the company's interest in the Runruno project. The shares
were issued together with cash payments of US$40,000 in respect of the
company's outstanding obligations under the terms of the existing
agreement entered into on 1 February 2005.
On 31 January 2007, the Company announced that Medusa Mining Limited
through Phsamed Mining Corporation had given notice to the Company of its
withdrawal from the Joint Venture Agreement in respect of Masapelid.
Having reviewed the results of the exploration programme and given the
Company's current focus on the Runruno Project, the Company has advised
San Miguel Mining Corporation that it is withdrawing from its Agreement
in respect of Masapelid effective 31 January 2007.
23 Financial instruments
The Company's financial instruments comprise cash at bank and various
items such as other debtors and creditors that arise directly from its
operations and are therefore excluded from the disclosures. The main
purpose of these instruments is to provide finance for operations. The
Company has not entered into derivative transactions nor does it trade
financial instruments as a matter of policy.
Other than the immaterial, floating rate bank overdraft interest on the
Group's Sterling bank account, the Group does not pay interest on any of
its other financial liabilities; nor is it likely to in the future.
Interest rate risk profile on financial assets
The only financial assets (other than the costs of exploration and short
term debtors) are cash at bank, which comprise inter bank sterling
deposits with interest earned at a fixed average rate of 4.12 %.
The Directors believe the fair value of the financial instruments is
not materially different to the book value.
Currency exposure
At the year end, the Company's currency exposure is predominantly to
the US dollar, with payments made for costs of exploration in this
currency. The Company does not have a formal policy in place
to manage this currency risk, but the directors monitor the Company's
exposure on a regular basis. The remaining other assets and liabilities
of Group are in Sterling.
In 2007, the company bought US$1,963,000 at foreign exchange rate 1.963
to benefit from the favourable US Dollar to Sterling rate. The
Philippine Peso is linked into the US Dollar performance.
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