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LONDON (Alliance News) - Metals Exploration PLC Thursday said its gold project in the Philippines is "on the cusp" of production to become a commercial operation, which could occur in October if its subsidiary can secure the required permits in time.
However, the project is months behind schedule which has caused cost overruns and deprived the company of much needed cashflow, meaning it has had to return to the market to raise much needed funds to repay its debts.
The miner, focused on its flagship Runruno gold and molybdenum project in the Philippines, said the process plant is 99.5% complete with only a few things, including painting, left to complete, whilst the second stage development of the residual storage facility will be completed before the end of September. The tailings return water pipe is 90% complete and the tailings discharge pipe is 70% complete.
"Staged commissioning of the processing plant was commenced in July with satisfactory progress achieved to date. These activities are continuing throughout September but are contingent upon receiving the requisite permits to occupy and operate," said the company.
"The first gold pour and commencement of commercial operations could occur during October but are dependent on FCF Minerals Corp, the company's Philippine operating subsidiary, obtaining all necessary occupation and operating permits including those for the tailings pipelines and return water line," it added.
Several hundred permits are required to operate the project but the company "does not expect any impediments to receiving the permits apart from time constraints."
Metals Exploration said the uncertainty about the timing of the permits has "made it difficult" to forecast the total cost of the project or when it will turn to a commercial operation. The most recent forecast suggests the project will cost a total of USD191.0 million, which is above its original budget of USD182.8 million.
It is forecast the USD8.4 million over-run on the total project expenditure will be caused by the residual storage facility costing twice as much as originally expected, its process plant costing USD3.0 million more than forecast and higher indirect and owner costs.
To date, Metals Exploration has spent USD184.1 million on the project.
The miner reported a GBP1.3 million pretax loss in the first six months of 2015, narrowing from the GBP6.5 million loss a year earlier.
That was mainly the result of the fair value of its forward sales contracts yielding a GBP1.8 million gain in the period compared to a GBP3.1 million loss a year ago. Administrative and finance costs also fell year-on-year.
At the end of the period, the company held USD10.7 million in cash, down from USD16.5 million at the end of June 2014.
"The delays encountered to the project transitioning into commercial operations have had an impact on the company's ability to generate cash flow in 2015. It was expected the plant would be operational by June 2015 and this would provide six months operational cash flow," said the company.
Metals Exploration planned to use that cashflow to pay its interest and capital repayments in 2015, totalling USD13.0 million, but due to the delays the company said it now has "insufficient funds to make any further financial commitments".
The company is currently waiting for equity funds from a planned share issue of 108.0 million shares at 3.0 pence per share to raise USD5.0 million, which was announced last Friday. It is also planning on raising a further EUR5.0 million from the issue of another 100.0 million shares at the same price through an open offer.
Final discussions are also underway to receive commitments from certain shareholders to raise up to a further USD5.0 million for working capital and contingency purposes by way of the creation and issue of debt securities.
However, it said its lenders have agreed to make the company's operating expenditure account available to the company, worth USD6.0 million, if it needs it to ensure the company does not become insolvent.
Metals Exploration shares were down 0.8% to 3.35 pence per share on Thursday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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