Capital Metals Regulatory News (CMET)

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE UK VERSION OF THE MARKET ABUSE REGULATION NO 596/2014 WHICH IS PART OF ENGLISH LAW BY VIRTUE OF THE EUROPEAN (WITHDRAWAL) ACT 2018, AS AMENDED. ON PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN.

15 September 2023

Capital Metals plc

("Capital Metals", the "Company" or the "Group")

Final Results for the Year Ended 31 March 2023

&

Notice of General Meeting

Capital Metals (AIM: CMET), a mineral sands company approaching mine development stage at the high-grade Eastern Minerals Project in Sri Lanka (the "Project"), announces its final results for the financial year ended 31 March 2023 (the "Year").

The Group's Annual Report and Accounts, together with a notice convening a General Meeting ("GM") for the purposes of receiving and considering the Annual Report and Accounts, will be posted to shareholders later today and will be available shortly on the Company's website at www.capitalmetals.com. The GM will be held at the offices of 6 Heddon Street, London, W1B 4BT on 4 October 2023 at 11:15.

Key Points:

During the Year:

· Grant of the first two Industrial Mining Licences ("IMLs") in August 2022

o  Temporarily suspended as announced December 2022. The Company has engaged in actions to protect its rights and restore the IMLs which appear to be having a positive impact

· Completion of Development Study and Project Economics in May 2022 demonstrating robust economics with a base case NPV of $155 million and IRR of 56%

Post Year End:

· Offtake Memorandum of Understanding ("MoU") signed with LB Group (002601:SHENZHEN; Market Cap: US$5.7 billion), the world's No. 1 manufacturer of high-performance titanium dioxide pigments, in May 2023 to fund the Project into production

o  MoU extended in August 2023 through to 31 December 2023

· Preparing to commence Environmental Impact Assessment over EL199 in the southern area of the Project

o  EL199 holds approximately 60% of the total mineral sands resource of the Project stretching over 26 km from Panama in the south to Komari in the north

· Greg Martyr, previously Non-Executive Chairman, appointed as Executive Chairman in July 2023 to dedicate more time to resolving the Company's licence issues

o  Concurrently, Michael Frayne stepped down as CEO and director

· Board confident that process to reinstate IMLs is moving in the Company's favour

For further information, please visit www.capitalmetals.com or contact:

About Capital Metals

Capital Metals plc is a British company listed on the AIM segment of the London Stock Exchange and one of only a few foreign investors in Sri Lanka's mining industry. After investing US$11 million in exploration and development activities including detailed environmental assessments between 2017 and 2022, the Company's Sri Lankan subsidiary, Damsila Exports (Pvt) Limited, was issued an initial two licences in August 2022 to mine heavy mineral sands in the Eastern Province, containing industrial minerals including ilmenite, rutile, zircon, and garnet. 

CHAIRMAN'S REPORT

Welcome to the Annual Report for Capital Metals (the "Company") for the financial year ended 31 March 2023 (the "Year").

This was an extremely challenging year for the Company and its shareholders. Early in the Year, we were delighted to report that the Company had finally been granted in August 2022 the first two Industrial Mining Licences ("IMLs") for the Eastern Minerals heavy mineral sands project (the "Project") by the Geological Survey and Mines Bureau of the Government of Sri Lanka ("GSMB").

This authority allows us in due course to commence mining activities in accordance with the development plan outlined in the Development Study and Preliminary Economic Assessment ("PEA") completed in May 2022. This milestone also facilitated the selection of an offtaker resulting in the signing in May 2023, after the Year end, of a Memorandum of Understanding ("MoU") with LB Group, the world's number one manufacturer of high-performance titanium dioxide pigments, to fund the Project into production.

I expressed in my last Chairman's Report, our gratitude to the Sri Lankan authorities for their cooperation in the granting of the IMLs in challenging economic and political circumstances for the country. What a difference a year makes!

In December 2022, we announced that our two granted IMLs had been suspended by the GSMB, purportedly pending an investigation into the ownership structure of our licence-holding subsidiary, Damsila Exports Pvt Limited ("Damsila"), as it pertained to foreign ownership. The GSMB had been aware of the ownership structure of Damsila throughout years of dealings between 2017 and 2022 including the department's granting of exploration licences, environmental permits and the IMLs themselves. We worked hard with the GSMB to understand their purported concerns and agreed to undertake a restructuring to deliver Sri Lankan ownership of 60% of Damsila which in turn owned the EL168 permit area covering the northern part of the Project, containing the two granted IMLs.

Despite assurances from the GSMB that this would result in the reinstatement of the IMLs, we now understand that certain individuals in the GSMB and its governing Ministry of Environment had no intention of reinstating the IMLs and the request to change our ownership structure was illegal, indeed potentially part of a plan to illegally hand the Company's rights to favoured third parties.

After the Year end, in May 2023, despite the GSMB specifically instructing the Company to cease all mining activities as per its letter suspending the IMLs, the GSMB purported to cancel our IMLs on the grounds that we had not undertaken any mining activities. This clearly demonstrated the malfeasance of the GSMB and the Ministry of Environment and accordingly we promptly filed an appeal pursuant to the Mines and Minerals Act of Sri Lanka as well as separate writ actions in the Court of Appeal in Sri Lanka. We also lodged a Notice of Dispute with the Attorney General of Sri Lanka regarding potential breaches of the bilateral investment treaty between the United Kingdom and Sri Lanka for the promotion and protection of investments.

This has required a huge amount of work on the part of the board and management to determine and protect the Company's legal rights. We have been simultaneously engaging in lobbying actions directed towards the Sri Lankan Government, financial stakeholders such as the International Monetary Fund whose support of Sri Lanka is predicated among other things on tackling corruption, and other diplomatic stakeholders, with a view to resolving our issues amicably with the GSMB.

Our complaints appear to be having a positive impact, with the conduct of the chairman of the GSMB and Minister of Environment coming under intense scrutiny from the Committee on Public Enterprises in Sri Lanka ("COPE") which has appointed an independent sub-committee to investigate misappropriation, as has been widely reported in Sri Lankan media. We are encouraged by the ongoing exposure of issues within the GSMB and we understand that certain responsibilities for mining licence applications and appraisals will be transferred to the Board of Investment ("BOI"), which we believe would be a very positive step.

What has been most pleasing throughout this process is the support of our prospective future offtaker, LB Group, with whom we have been in discussions for some years. It is a testament to the quality of the Project that, despite the prevailing licence issues, LB Group still proceeded to sign an MoU with Capital Metals in May 2023 and then extended this, in August 2023, through to 31 December 2023. We believe Sri Lanka will benefit enormously from LB Group's involvement in the Project. We look forward to concluding this offtake agreement in due course.

In parallel with the Company's efforts to reinstate the IMLs in the northern part of the Project area, we will shortly commence an Environmental Impact Assessment ("EIA") over EL199 in the southern area of the Project, which is not subject to the illegal actions of the GSMB. EL199 holds approximately 60% of the total mineral sands resource of the Project stretching over 26 km from Panama in the south to Komari in the north. The EIA will also enable the short-term identification of further areas over which to apply for industrial mining licences. We aim to complete this work and submit applications for additional industrial mining licences before the end of 2023.

In July 2023, after the Year end, I took over the executive management of the Company as Executive Chairman to dedicate more time, including on the ground in Colombo, to resolving the Company's licence issues. At the same time, Michael Frayne stepped down as Chief Executive Officer and as a director of the Company. A new Chief Executive Officer with experience in mine construction and operation will be recruited in due course. I would like to reiterate our thanks to Michael for his contributions towards the development of the Project.

In conclusion, while there can be no certainty as to the outcome, I believe the process to reinstate the IMLs is moving in our favour. Given the exceptional project economics demonstrated in the PEA, even on conservative price assumptions, and before considering further upside from other areas of the Project, the future looks bright for the Company upon overcoming the interference of a small number of individuals. It is our intention when that happens to work with LB Group to deliver a Project that uses modern mining methods, incorporates in-country value-addition, offers local knowledge transfer, and generates significant export income for Sri Lanka.

We look forward to restoring normal relations with the GSMB with the ongoing input of the BOI. We had until the interference of a few bad actors been working cooperatively for many years with the GSMB including extensive work on our studies and Environmental Impact Assessments.

I would like to finish by thanking our management team in Sri Lanka for their unstinting efforts in the face of challenging circumstances, and our investors, including those who supported the Company's capital raises, after the Year end, in June and July 2023 which are enabling us to continue our actions to get Project development back on track. I sincerely hope all stakeholders will in due course be rewarded.

Gregory Martyr

Executive Chairman

14 September 2023

STRATEGIC REPORT

The Directors of the Company present their Strategic Report on the Group for the year ended 31 March 2023.

Strategic approach

The Group's aim is to create value for shareholders through the exploration and development of high-grade mineral sands. The Group's strategy is to continue to progress the development of the Project in Sri Lanka towards production in the near future.

Organisation overview

The Group's business is directed by the Board and is managed on a day-to-day basis by the Chief Executive Officer and since his departure by the Executive Chairman. The Board monitors compliance with objectives and policies of the Group through monthly performance reporting, budget updates and periodic operational reviews.

The Board comprises one Executive Chairman and two Non-Executive Directors.

Review of business

During the Year the work programme built on previous exploration efforts continued and the first two IMLs for the Project were granted by the GSMB as outlined in the PEA which was completed in May 2022.

In December 2022 the Company announced that these IMLs were temporarily suspended purportedly due to concerns the GSMB had with the ownership structure of Damsila. This resulted in a restructure of the Group.

In May 2023 the GSMB sent a notice of cancellation of the IMLs purportedly due to failure to comply with certain licence conditions, primarily relating to a lack of mining activity, despite the GSMB's instructions when suspending the IMLs to "stop all mining and transport activities with immediate effect."

The Board is consulting with its international and local legal advisers but considers the reasons for the notice of cancellation to be devoid of merit and standing in contradiction to previous instructions issued by the GSMB.

The Group is following the appeal procedure in accordance with Sri Lanka's Mines and Minerals Act which stipulates that a cancellation shall not take effect unless and until an appeal has been disallowed. It has also been noted the GSMB is under investigation for misappropriation within its organisation.

The Board is confident both the notice of cancellation and temporary suspension of the licence will be lifted once due process has been completed.

In parallel with the Company's efforts to reinstate the IMLs in the northern part of the Project area, the Group will shortly commence an EIA over EL199 in the southern area of the Project, which is not subject to the illegal actions of the GSMB, with a view to also submit applications for additional industrial mining licences before the end of 2023.

Since the Year end, financing was raised with the completion of a Placing, raising a total of £500,000 through the placing of 50,000,000 Ordinary Shares. Further financing was raised through a subscription for 36,470,566 Ordinary Shares raising gross proceeds of £364,705.

Financial performance review

The loss of the Group for the year ended 31 March 2023 before taxation amounts to $1,138,538 (31 March 2022: $1,914,233).

The Board monitors the activities and performance of the Group on a regular basis. The Board uses financial indicators based on budget versus actual to assess the performance of the Group. The indicators set out below will continue to be used by the Board to assess performance over the period to 31 March 2024.

The three main KPIs for the Group are as follows. These allow the Group to monitor costs and plan future exploration and development activities:

Cash has been used to fund the Group's operations and facilitate its investment activities (refer to the Statements of Cash Flows).

Administrative expenses are the expenses related to the Group's ability to run the corporate functions to ensure they can perform their operational commitments.

Exploration costs capitalised during the period consist of exploration expenditure on the Group's exploration licences net of foreign exchange rate movements.

Our people

Our people are a key element in our success and the Company aims to attract, develop and retain talented people and to create a diverse and inclusive working environment, where everyone is accepted, valued and treated equally without discrimination, taking into account the current size of the Company.

Currently the Company comprises three directors, one key country manager and 18 employees in Sri Lanka, with the workforce by gender summarised below:

Principal risks and uncertainties

The management of the business and the execution of the Group's strategy are subject to a number of risks. The key business risks affecting the Group are outlined below.

The Company continuously monitors its risk exposures and reports to the Board on a regular basis. Risks are reviewed by management and the Board, and appropriate processes are put in place to monitor and mitigate them. If more than one event occurs, it is possible that the overall effect of such events would compound the possible adverse effects on the Group.

Exploration, evaluation and development risk

The exploration and mining business is controlled by a number of global factors, principally supply and demand which in turn is a key driver of global mineral prices; these factors are beyond the control of the Group. Exploration is a high-risk business and there can be no guarantee that any mineralisation discovered will result in proven and probable reserves or go on to be an operating mine. At every stage of the exploration process the projects are rigorously reviewed to determine if the results justify the next stage of exploration expenditure ensuring that funds are only applied to high priority targets.

The principal assets of the Group comprising the mineral exploration licences are subject to certain financial and legal commitments. If these commitments are not fulfilled the licences could be revoked. They are also subject to legislation defined by the Government; if this legislation is changed it could adversely affect the value of the Group's assets.

Dependence on key personnel

The Group and Company is dependent upon its executive management team and various technical consultants. Whilst it has entered into contractual agreements with the aim of securing the services of these personnel, the retention of their services cannot be guaranteed. The development and success of the Group depends on its ability to recruit and retain high quality and experienced staff. The loss of the service of key personnel or the inability to attract additional qualified personnel as the Group grows could have an adverse effect on future business and financial conditions.

Uninsured risk

The Group, as a participant in exploration and development programmes, may become subject to liability for hazards that cannot be insured against or third-party claims that exceed the insurance cover. The Group may also be disrupted by a variety of risks and hazards that are beyond control, including geological, geotechnical and seismic factors, environmental hazards, industrial accidents, occupational and health hazards and weather conditions or other acts of God.

Funding risk

The only sources of funding currently available to the Group are through the issue of additional equity capital in the parent company or through bringing in partners to fund exploration and development costs. The Company's ability to raise further funds will depend on the success of the Group's exploration activities and its investment strategy. The Company may not be successful in procuring funds on terms which are attractive and, if such funding is unavailable, the Group may be required to reduce the scope of its exploration activities or relinquish some of the exploration licences held for which it may incur fines or penalties.

Financial risks

The Group's operations expose it to a variety of financial risks that can include market risk (including foreign currency, mineral price and interest rate risk), credit risk, and liquidity risk. The Group has a risk management programme in place that seeks to limit the adverse effects on the financial performance of the Group by monitoring levels of debt finance and the related finance costs. The Group does not use derivative financial instruments to manage interest rate costs and, as such, no hedge accounting is applied.

Environmental risk

There may be unforeseen environmental liabilities resulting from both future or historic exploration or mining activities, which may be costly to remedy. In addition, potential environmental liabilities as a result of unfulfilled environmental obligations by the previous owners may impact the Group. If the Group is unable to fully remedy an environmental problem, it may be required to stop or suspend operations or enter into interim compliance measures pending completion of the required remedy.

Environmental management systems are in place to mitigate environmental risks, including the engagement of an independent and multi-disciplinary team of consultants.

Government regulation, political and country risks

The Project is located in Sri Lanka, where the Group's activities may be affected in varying degrees by political stability, governmental regulations and economic stability. Any changes in regulations or shifts in political attitudes in these countries or any other countries in which the Group may operate are beyond the control of the Group and may adversely affect its operations.

The Group actively monitors political and regulatory developments through its team of management, local partners, consultants and advisors.

Environmental, Social and Governance

The Project has the potential to open significant new economic opportunities in eastern Sri Lanka, and the Group's work with local communities and commitment to ecologically sensitive production procedures that ensures all mining areas are fully rehabilitated. Some benefits to the local community from development of the Project include:

· New high-quality construction, mining and processing work for local workers as well as demand for local contracting services. The Group's construction, mining and processing work will employ local workers, who will be trained and supported by local and foreign mining experts. Demand for contractor services is expected to create a multiplier effect benefiting the wider economy and transferring skills/knowledge to the local work force.

· Community initiatives include waste disposal programmes, assisting reforestation campaigns, ongoing financial and training support for the local farmers, provision of clean and safe drinking water during the dry seasons, sponsorships for local community based sports events and educational projects.

· Full consultation with the local community on any potential environmental impact from the Project, and commitment to modern international mineral sands processing integrating land rehabilitation into the mining process.

· Potential to free up the port for the local fishing industry and commercial shipping by removing the significant volume of sand that has filled the port area due to the coastal currents depositing sand in the harbour.

· Taxes and royalties flowing from the Group's operations will generate government revenues for reinvestment in Sri Lanka's continued economic development.

· The Country will also benefit from foreign direct investment to bring the mine into production and export earnings from the sale of the products into the international market.

The economic activity stimulated by the Project will be complemented by the Group's ongoing engagement with the Eastern Province's local community. The Company has already demonstrated its commitment to the coastal environment in which it will operate sponsoring beach cleaning programmes with community leaders and assisting a reforestation programme conducted by the local forest department.

The Group is working closely with local communities in the Project area, to empower local farmers by providing seedlings, and arranging expert advice through local agricultural experts sponsored by the group. Another initiative helps local youth to get more involved in sports by providing sporting equipment and sponsoring local community tournaments. Arrangements are also being made to promote programmes that increase language proficiency and IT literacy in the local A/L students in the project area.

The Board and local management team are monitoring the economic and political developments in Sri Lanka. The Board expects that recent policy changes should enable change to occur more rapidly with increased international cooperation and an overriding requirement to encourage foreign investment and job creation in the country.

Environmentally sensitive mining

The Group is committed to pursuing modern international mineral sands mining and rehabilitation processes that will respect the coastline along which the Project will operate.

The Project's commercial mineral sands will be extracted using proven non-chemical processing methods. The proposed mining method is staged mining of small 150m x 50m cells, with each cell continuously rehabilitated after mining and then fully available for alternative uses such as agriculture and tourism, or to remain as a wilderness.

Well-regulated mineral sands programmes integrate land rehabilitation into the mining process. The shallow depth of mineral sands deposits allow them to be mined using conventional surface mining methods including bulldozers, excavators and trucks. Topsoil, subsoil and clay is removed and stockpiled separately to allow it to be progressively returned after the mining process. The mineral sand deposit is then removed from the ground and then transported to a processing plant where the valuable heavy minerals are separated from the sand. The waste sand (mostly silica) is transported back to the mining cell, where it is returned to the ground. Subsoil and topsoil are then replaced and the land rehabilitated back to its original use.

Directors' statement under section 172 (1) of the Companies Act 2006

The Companies (Miscellaneous Reporting) Regulations 2018 require Directors to explain how they considered the interests of key stakeholders and the broader matters set out in section 172(1) (a) to (f) of the Companies Act 2006 ("S172") when performing their duty to promote the success of the Company under S172. This includes considering the interest of other stakeholders which will have an impact on the long-term success of the company.

This S172 statement explains how the Directors have regard to:

(a) the likely consequences of any decision in the long term,

(b) the interests of the Company's employees,

(c) the need to foster the Company's business relationship with suppliers, customers and others,

(d) the impact of the Company's operations on the community and environment,

(e) the desirability of the Company maintaining a reputation for high standards of business conduct, and

(f) the need to act fairly as between members of the Company.

The S172 statement focuses on matters of strategic importance to the Company and the Group, and the level of information disclosed is consistent with the size and the complexity of the business.

General confirmation of Directors' duties

The Board has a clear framework for determining the matters within its remit and has approved Terms of Reference for the matters delegated to its Committees. Certain financial and strategic thresholds have been determined to identify matters requiring Board consideration and approval. When making decisions, each Director ensures that they act in good faith in the way most likely to promote the Company's success for the benefit of its members as a whole.

S172(1) (a) "The likely consequences of any decision in the long term"

The application of the Section 172 (1) requirements can be demonstrated in relation to some of the key decisions made during the reporting period, including:

• completion of the Preliminary Economic Assessment ('PEA')

• grant of Industrial Mining Licences for the Project

• completion of equity financing post year end raising £500,000 to further the company's exploration program

• completion of a post year end subscription raising gross proceeds of £364,705

• commitment to developing an exploration strategy for the Project towards increasing the overall resource and target of high value areas of the Project

• continued assessment of corporate overheads and expenditure

The Group is focused on the development of the Eastern Minerals Project in Sri Lanka. The raising of new capital advances the Company's objective, facilitating access to a significant and globally respected financial market to raise funds from deep pools of institutional and private investors, towards the development of the Project, whilst providing important liquidity to shareholders.

Although the current resource is of sufficient size for commercial mining operations, the Group is to develop an exploration strategy towards increasing the size of the resource and target of high value areas, enhance the economics of the Project and drive further value to shareholders, as well as further socio-economic benefits to stakeholders through increased production. The undertaking of further significant drilling will be subject to procuring sufficient further funding.

Management assesses overheads and expenditure on an ongoing basis towards the most effective utilisation of funds to meet Group business and strategic objectives to the benefit of shareholders.

S172(1) (b) "The interests of the company's employees"

The Board recognises that the Company's employees are fundamental and core to our business and delivery of our strategic ambitions. The success of our business depends on attracting, retaining and motivating employees. From ensuring that we remain a responsible employer, from pay and benefits to our health, safety and workplace environment, the Directors factor the implications of decisions on employees and the wider workforce, where relevant and feasible.

S172(1) (c) "The need to foster the company's business relationships with suppliers, customers and others"

Delivering on our strategy to develop the Project requires strong mutually beneficial relationships with suppliers, customers, governments, and local partners. We aim to have a positive and enduring impact on the communities in which we operate, including engagement with local suppliers, and through payments to governments in taxes and other fees. The Group values all of its suppliers and aims to build strong positive relationships through open communication and adherence to trade terms. The Group is committed to being a responsible entity and doing the right thing for its customers, suppliers and business partners.

S172(1) (d) "The impact of the company's operations on the community and the environment"

As a mineral sands Group operating in Sri Lanka, the Board takes seriously its ethical responsibilities to the communities and environment in which it works. We abide by the local and relevant UK laws on anti-corruption and bribery. The Group is committed to following modern international practices on environmental aspects of our work and the development of the Project. We actively engage with the local communities in order to ensure we maintain our social licence to operate and develop the Project. Management and employees conduct site visits and hold external stakeholder engagements. Wherever possible, local communities are engaged in the Group's activities and the development of the Project will provide much needed employment and wider socio-economic benefits to the local communities.

S172(1) (e) "The desirability of the company maintaining a reputation for high standards of business conduct"

The Group aims to achieve the development of the Project in ways which are economically, environmentally and socially responsible. The Board periodically reviews and approves clear frameworks, such as the Company's Code of Business Ethics, to ensure that its high standards are maintained both within the Group and the business relationships we maintain. This, complemented by the various ways the Board is informed and monitors compliance with relevant governance standards, help ensure its decisions are taken and that the Group acts in ways that promote high standards of business conduct.

S172(1) (f) "The need to act fairly as between members of the company"

After weighing up all relevant factors, the Directors consider which course of action best enables delivery of our strategy over the long-term, taking into consideration the impact on stakeholders. The Directors believe they have acted in the way they consider most likely to promote the success of the Company for the benefit of its members as a whole.

The Board is committed to maintaining good communication and having constructive dialogue with its shareholders. The Company has close ongoing relationships with key private shareholders, analysts and brokers, providing the opportunity to discuss issues and provide feedback at meetings with the Company. All shareholders are encouraged to attend the Company's Annual General Meeting and any general meetings held by the Company.

Outlook

The reporting period saw positive progress towards the major milestones with the approval of the EIA and IMLs which was clearly undermined by the illegal activities in the GSMB to ultimately seek to cancel the Licences. The Board remains confident that the Licences will be reinstated but there can be no guarantee in this regard.

In common with many exploration and evaluation entities, the Group will need to raise further funds within the next 12 months, in order to meet its expected expenditures, and progress the Group into construction and finally into production. For further details please see the going concern disclosure in Note 2.4.

We look forward to reporting on the next phase of the Project, including reinstatement of the Licences and raising finance from potential offtakers towards construction and bringing the Project into production.

Greg Martyr

Executive Chairman

14 September 2023

DIRECTORS' REPORT

The Directors present their Annual Report on the affairs of Capital Metals plc together with the Financial Statements for the year ended 31 March 2023.

Principal activities

The principal activity of the Group is the development of the Eastern Minerals Project located in the Ampara District of the Eastern Province of Sri Lanka.

Dividends

The Directors do not recommend the payment of a dividend for the year (2022: Nil).

Directors & Directors' interests

The Directors who served during the year ended 31 March 2023 are shown below and had, at that time the following beneficial interests in the shares of the Company:

(1) Michael Frayne resigned on 30 June 2023

Further details on options can be found in Note 16 to the Financial Statements.

Substantial shareholders

The substantial shareholders at 31 March 2023 are shown below:

Post year end there was a placing to raise gross proceeds of £500,000 through a placing of 50,000,000 new ordinary shares and a subscription to raise gross proceeds of £364,705 through a subscription for 36,470,566 new ordinary shares.

Corporate responsibility

The Board is committed to ensuring good standards of corporate governance in so far as practicable for a company of this size. The London Stock Exchange has required all AIM companies to apply a recognised corporate governance code. In connection with these requirements, the Quoted Companies Alliance has published a Corporate Governance Code which the Company has adopted. The Company has adopted and operates a share dealing code for Directors and senior employees on substantially the same terms as the Model Code appended to the Listing Rules of the UK Listing Authority. Information in relation to the Corporate Governance of the Group is contained within the Corporate Governance Report.

Environmental

The Group's operations are, and will be, subject to environmental regulation (with regular environmental impact assessments and evaluation of operations required before any permits are granted to the Group) in the jurisdiction in which it operates. Although the Group intends to be in compliance with all applicable environmental laws and regulations, there are certain risks inherent to its activities, such as accidental spills, leakages or other circumstances, which could subject the Group to extensive liability. Further, the Group may fail to obtain the required approval from the relevant authorities necessary for it to undertake activities which are likely to impact the environment. The Group is unable to predict the effect of additional environmental laws and regulations which may be adopted in the future, including whether any such laws or regulations would materially increase the Group's cost of doing business or affect its operations in any area. No environmental breaches have been notified by any governmental agency as at the date of this report.

Health and safety

The Group operates a comprehensive health and safety programme to ensure the wellness and security of its employees. The control and eventual elimination of all work-related hazards requires a dedicated team effort involving the active participation of all employees. A comprehensive health and safety programme is the primary means for delivering best practices in health and safety management. This programme is regularly updated to incorporate employee suggestions, lessons learned from past incidents and new guidelines related to new projects with the aim of identifying areas for further improvement of health and safety management. This results in continuous improvement of the health and safety programme. Employee involvement is regarded as fundamental in recognising and reporting unsafe conditions and avoiding events that may result in injuries and accidents.

Employment policies and remuneration

The Company is committed to promoting policies which ensure that high calibre employees are attracted, retained and motivated, to ensure ongoing success for the business. Employees and those who seek to work with the Company are to be treated equally regardless of sex, marital status, creed, age, colour, race or ethnic origin.

Directors' remuneration

The Group remunerates the Directors at a level commensurate with the size of the Group and the experience of its Directors. The Board has reviewed the Directors' remuneration and believes it upholds the objectives of the Company and the Group with regard to this issue.

Please refer to Note 20 for details of Directors' remuneration.

Energy and carbon report

The Group is not required to report energy and emissions information under The Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, given its size. The Group will review providing voluntary disclosures in future reporting periods, where it continues to be below the reporting thresholds.

Corporate and social responsibility

The Company maintains high, ethical standards in its business activities. We act responsibly, promoting accountability as individuals and as a company. We operate with ethics and fairness and comply with all required rules and regulations.

The Company requires that in respect to all of it operations there runs alongside this a comprehensive community engagement plan. It is vital that we engage, listen and communicate effectively with local communities, particularly when they begin the process of planning new developments. Whilst the Company is cognisant of its corporate social responsibilities, the Company considers that it is not of the size to warrant a formal policy.

Going concern

These financial statements have been prepared on the going concern basis, as set out in Note 2.4.

The Directors have prepared cash flow forecasts for the period ending 31 March 2025, which take into account the cost and operational structure of the Group and Parent Company, planned exploration and evaluation expenditure, licence commitments and working capital requirements. These forecasts indicate that the Group and Company's cash resources are not sufficient to cover the projected expenditure for the period of 12 months from the date of approval of these financial statements. These forecasts indicate that the Group and Parent Company, in order to meet their operational objectives, and expected liabilities as they fall due, will be required to raise additional funds within the next 12 months.

Whilst the Directors are confident that they will be able to secure the necessary funding, the current conditions do indicate the existence of a material uncertainty that may cast significant doubt regarding the applicability of the going concern assumption and the auditors have made reference to this in their audit report. The Directors are confident in the Company's ability to raise additional funds as required, from existing and/or new investors, within the next 12 months. Thus, they continue to adopt the going concern basis of accounting preparing these financial statements.

Directors' and Officers' indemnity insurance

The Company maintains a directors' and officers' liability policy on normal commercial terms which includes third party indemnity provisions. 

Financial Risk Management Objectives

The Group's activities expose it to foreign currency, credit and liquidity risks. The size of the Company means that it is unnecessary and impractical for the Directors to delegate the responsibility of monitoring financial risk management to a sub-committee of the Board. Refer to Note 3.1 of the financial statements, for further details.

Events after the reporting period

Events after the reporting period are set out in Note 27 to the Financial Statements.

Future developments

Details of future developments for the Group are disclosed in the Chairman's Report.

Provision of information to Auditor

So far as each of the Directors is aware at the time this report is approved:

• there is no relevant audit information of which the Company's auditor is unaware; and

• the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.

Appointment of Auditors

The Group appointed PKF Littlejohn LLP as auditor in September 2022 in accordance with Section 485 of the Companies Act 2006. PKF Littlejohn LLP has signified its willingness to continue in office as auditor.

This report was approved by the Board on 14 September 2023 and signed on its behalf.

Greg Martyr

Executive Chairman

14 September 2023

STATEMENT OF DIRECTORS RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group and Company financial statements in accordance with UK adopted international accounting standards. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period.

In preparing these Financial Statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgments and accounting estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with UK adopted international accounting standards subject to any material departures disclosed and explained in the financial statements;

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's and Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Company, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Website publication

The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

The Company is compliant with AIM Rule 26 regarding the Company's website.

The Directors confirm that they have complied with the above requirements in preparing the Financial Statements.

CORPORATE GOVERNANCE REPORT

The Company continues to be guided by the Quoted Companies Alliance Corporate Governance Code. Throughout the past year, the Company has complied with all aspects of the QCA Code and completed periodic reviews of its charter in order to maintain the robustness of its governance systems. No material issues were identified over the past twelve months.

The Company is committed to maintaining the highest standards in corporate governance throughout its operations and to ensure all of its practices are conducted transparently, ethically and efficiently. The Company believes scrutinising all aspects of its business and reflecting, analysing and improving its procedures will result in the continued success of the Company and deliver value to shareholders. Therefore, and in accordance with the AIM Rules for Companies (the "AIM Rules"), the Company has chosen to formalise its governance policies by complying with the UK's Quoted Companies Alliance Corporate Governance Code 2018 (the "QCA Code").

The Board currently consists of three Directors: the Executive Chairman, and two Non-Executive Directors ("NED"s). The Board considers that appropriate oversight of the Company is provided by the currently constituted Board.

Corporate Governance Report

The QCA Code sets out 10 principles that should be applied. These are listed below together with a short explanation of how the Company applies each of the principles:

Principle One

Business Model and Strategy

The business objective of the Group is to successfully evaluate, permit, finance and develop the Eastern Minerals Project in Sri Lanka into a profitable mining operation in a socially and environmentally responsible way. The Company's business model and strategy are outlined in the strategic report.

Principle Two

Understanding Shareholder Needs and Expectations

The Board is committed to maintaining good communications and having constructive dialogue with its shareholders. Institutional shareholders and analysts have the opportunity to discuss issues and provide feedback at meetings with the Company. In addition, all shareholders are encouraged to attend the Company's Annual General Meeting and any other General Meetings that are held throughout the year.

Investors also have access to current information on the Company through its website www.capitalmetals.com and its Executive Chairman, who is available to answer investor relations enquiries at: info@capitalmetals.com. The Company provides regulatory, financial and business news updates through the Regulatory News Service in accordance with the AIM Rules for Companies.

Principle Three

Considering Wider Stakeholder and Social Responsibilities

The Board recognises that the long-term success of the Group is reliant upon the collective efforts of management, employees, consultants, suppliers, regulators and other stakeholders. The Board has put in place a range of processes and systems to ensure that there is close oversight and contact with its key resources and relationships, including ongoing two-way communication, control and feedback processes to enable appropriate and timely response. 

As part of the Industrial Mining Licences application by the Group for the Project in Sri Lanka, which were subsequently granted in the year, a detailed social impact assessment study was undertaken, as well as a public stakeholder consultation process. The results of this public consultation and engagement process have been overall positive, with the Project receiving overall support from relevant stakeholders.

Principle Four

Risk Management

The Board regularly reviews the risks to which the Group is exposed and ensures through its meetings and regular reporting that these risks are minimised as far as possible whilst recognising that its business opportunities carry an inherently high level of risk. The principal risks and uncertainties facing the Group at this stage and in the foreseeable future are detailed in the Risk Factors report of the Company's AIM Admission Document which is available on the Company's website www.capitalmetals.com.

Principle Five

A Well-Functioning Board of Directors

The Board's role is to agree the Company's long-term direction and strategy and monitor achievement of key milestones against its business objectives. The Board meets formally at regular intervals for these purposes and holds additional meetings when necessary to transact other business. The Board receives reports for consideration on all significant strategic, operational and financial matters.

The Board is comprised of a Chief Executive Officer (Michael Frayne who resigned on 30 June 2023); Executive Chairman (Greg Martyr) and two NEDs (James Leahy and Teh Kwan Wey). Each member of the Board is committed to spending sufficient time to enable them to carry out their duties as a Director. The Board meets regularly throughout the year as deemed appropriate formally and informally, in person and by telephone.

The Company constantly keeps under review the constitution of the Board and may seek to add more members as required as the Company grows and develops. Biographies for each member of the Board is provided on the Company's website www.capitalmetals.com.

The Board as a whole considers the NEDs to be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement.

The Board has implemented an effective committee structure to assist in the discharge of its responsibilities. All committees of the Board have written terms of reference dealing with their authority and duties. The Company Secretary acts as secretary to each of these committees.

Details of the Directors' attendance at the Board and Board committee meetings are set out below:

Principle Six

Appropriate Skills and Experience of the Directors

The Board considers the current balance of sector, financial and public market skills and experience which it embodies is appropriate for the size and stage of development of the Company and that the Board has the skills and requisite experience necessary to execute the Company's strategy and business plan whilst also enabling each Director to discharge their fiduciary duties effectively. Biographies for each member of the Board is provided on the Company's website www.capitalmetals.com. 

All Directors, through their involvement in other listed companies as well as the Company, including attendance at seminars, forums and industry events and through their memberships of various professional bodies, keep their skill sets up to date.

The Board reviews annually, and when required, the appropriateness of its mix of skills and experience to ensure that it meets the changing needs of the Company.

The Company has a professional Company Secretary in the UK who assists the Board in preparing for and running effective Board meetings, including the timely dissemination of appropriate information. The Company Secretary provides advice and guidance to the extent required by the Board on the legal and regulatory environment.

Principle Seven

Evaluation of Board Performance

Review of the Group's progress against the long-term strategy and aims of the business provides a means to measure the effectiveness of the Board. This progress is reviewed in Board meetings held at least six times a year. The Chief Executive Officer's performance is reviewed once a year by the Board and measured against a definitive list of strategic targets set by the Board.

The Group conducts periodic reviews of its Board succession planning protocols which includes an assessment of the number of Board members and relative experience of each Board member vis-a-vis the Company's requirements given its stage of development, with the goal of having in place an adequate and sufficiently experienced Board at all times.

Principle Eight

Corporate Culture

The corporate culture of the Company is promoted throughout its employees and consultants and is underpinned by compliance with local regulations and the implementation and regular review and enforcement of various policies including a Share Dealing Policy and Code, Anti-Corruption and Anti-Bribery Policy, Matters Reserved for the Board, Code of Business Ethics, Whistle Blowing Policy, and Media and Communications Policy, so that all aspects of the Company are run in a robust and responsible way. 

The Board is aware that the culture set by the Board will impact all aspects of the Group and the way that employees and consultants behave. The exploration, evaluation and development of mineral resources can have a significant impact and it is important that the communities view the Group's activities positively. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the Group to successfully achieve its corporate objectives.

Principle Nine

Maintenance of Governance Structures and Processes

The Board is responsible for setting the vision and strategy for the Company to deliver value to the Company's shareholders by effectively putting in place its business model.

The roles and responsibility of the Chief Executive Officer, Executive Chairman and other Directors are laid out below:

· The Chief Executive Officer's primary responsibilities are to: implement the Company's strategy in consultation with the Board; take responsibility for the Company's projects in Sri Lanka; run the Company on a day-by-day basis; implement the decisions of the Board; monitor, review and manage key risks; act as the Company's primary spokesman; communicate with external audiences such as investors, analysts and media; and be responsible for the administration of all aspects of the Company.

· The Executive Chairman's primary responsibilities are to: lead the Board and to ensure the effective working of the Board; in consultation with the Board, ensure good corporate governance and set clear expectations with regards to the Company culture, values and behaviour; set the Board's agenda and ensures that all Directors are encouraged to participate fully in the decision-making process of the Board and take responsibility for relationships with the Company's professional advisers and major shareholders. 

· The Company's NEDs participate in all Board level decisions and play a particular role in the determination and articulation of strategy. The Company's NEDs provide oversight and scrutiny of the performance of the Executive Directors, whilst both constructively challenging and inspiring them, thereby ensuring the business develops, communicate and execute the agreed strategy and operate within the risk management framework.

· The Company Secretary is responsible for ensuring that Board procedures are followed and applicable rules and regulations are complied with.

The whole Board is responsible for the appointment of all additional and replacement Executive and Non-Executive Directors.

The Board is supported by the audit and remuneration committees as described below.

Audit Committee

The Audit Committee comprises Greg Martyr (Chair) and Teh Kwan Wey. 

The Audit Committee reviews reports from management and from PKF Littlejohn LLP, the Company's auditor, relating to the interim and annual accounts and to the system of internal financial control.

The Audit Committee is responsible for assisting the Board's oversight of the integrity of the financial statements and other financial reporting, the independence and performance of PKF Littlejohn LLP, the regulation and risk profile of the Company and the review and approval of any related party transactions. The Audit Committee may hold private sessions with PKF Littlejohn LLP without management present. Further, the Audit Committee is responsible for making recommendations to the Board on the appointment of PKF Littlejohn LLP and the audit fee and reviews reports from management and PKF Littlejohn LLP on the financial accounts and internal control systems used throughout the Company.

The Audit Committee meets at least two times a year and is responsible for ensuring that the Company's financial performance is properly monitored, controlled and reported. The Audit Committee is responsible for the scope and effectiveness of the external audit and compliance by the Company with statutory and other regulatory requirements.

The Audit Committee:

· monitors in discussion with PKF Littlejohn LLP the integrity of the financial statements of the Company, any formal announcements relating to the Company's financial performance and reviews significant financial reporting judgments contained in them;

· reviews the Company's internal financial controls and reviews the Company's internal control and risk management systems;

· considers annually whether there is a need for an internal audit function and makes a recommendation to the Board;

· makes recommendations to the Board for it to put to the shareholders for their approval in the general meeting, in relation to the appointment, re-appointment and removal of PKF Littlejohn LLP and to approve the remuneration and terms of engagement of PKF Littlejohn LLP;

· reviews and monitors PKF Littlejohn LLP's independence and objectivity and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements;

· develops and implements policy on the engagement of PKF Littlejohn LLP to supply non-audit services, taking into account relevant external guidance regarding the provision of non-audit services by PKF Littlejohn LLP; and

· reports to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken.

PKF Littlejohn LLP were appointed as the Group's external auditor in September 2022. Prior to this, the audit was conducted by BDO LLP.

Having assessed the performance, objectivity and independence of the auditor, the Committee will be recommending the reappointment of PKF Littlejohn LLP as auditor to the Company at the 2023 Annual General Meeting.

The Audit Committee also reviews arrangements by which the staff of the Company and the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters and ensure that arrangements are in place for the proportionate and independent investigation of such matters with appropriate follow-up action.

Remuneration Committee

The Remuneration Committee comprises James Leahy (Chair) and Greg Martyr.

The Remuneration Committee is responsible for considering all material elements of remuneration policy, the remuneration and incentivisation of Executive Directors and senior management (as appropriate) and to make recommendations to the Board on the framework for executive remuneration and its cost. The role of the Remuneration Committee is to keep under review the Company's remuneration policies to ensure that the Company attracts, retains and motivates the most qualified talent who will contribute to the long-term success of the Company. The Remuneration Committee also reviews the performance of the Chief Executive Officer and sets the scale and structure of his remuneration, including the implementation of any bonus arrangements, with due regard to the interests of shareholders.

The Remuneration Committee is also responsible for reviewing the terms of granting options by the Company, in particular, the price per share and the application of the performance standards which may apply to any grant, ensuring in determining such remuneration packages and arrangements, due regard is given to any relevant legal requirements, the provisions and recommendations in the AIM Rules and The QCA Code.

The Remuneration Committee:

· determines and agrees with the Board the framework or broad policy for the remuneration of the Chief Executive Officer and Executive Chairman;

· determines targets for any performance-related pay schemes operated by the Company;

· ensures that contractual terms on termination and any payments made are fair to the individual, the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised;

· determines the total individual remuneration package of the Chief Executive Officer and Executive Chairman, including bonuses, incentive payments and share options;

· is aware of and advises on any major changes in employees' benefit structures throughout the Company;

· ensures that provisions regarding disclosure, including pensions, as set out in the (Directors' Remuneration Policy and Directors' Remuneration Report) Regulations 2019, are fulfilled; and

· is exclusively responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the Remuneration Committee.

Principle Ten

Shareholder Communication

The Board is committed to maintaining good communication and having constructive dialogue with its shareholders. The Company has close ongoing relationships with key private shareholder, analysts and brokers, providing the opportunity to discuss issues and provide feedback at meetings with the Company.

The Company also provides regular updates on the progress of the Company, detailing recent business and strategy developments, in news releases which is available on the Company's website www.capitalmetals.com. The Company's financial reports can also be found on its website.

All shareholders are encouraged to attend the Company's Annual General Meeting and any general meetings held by the Company. The Company has elected to host its AGMs in London. The Directors believe hosting the AGM in London will enhance engagement with the Company's shareholders by making the meeting more accessible. The Board is always open to receiving feedback from shareholders. Communications should be directed to info@capitalmetals.com. The Chief Executive Officer has been appointed to manage the relationship between the Company and its shareholders and will review and report to the Board on any communications received.

The Company also participates in various investor events including conferences and presentation evenings, at which shareholders can meet with management in person to answer queries, provide information on current developments and to take into consideration shareholder views and suggestions.

Greg Martyr

Chairman

14 September 2023

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF CAPITAL METALS PLC

Opinion on the financial statements

We have audited the financial statements of Capital Metals plc (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 March 2023 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated and Parent Company Statements of Changes in Equity, the Consolidated and Parent Company Statements of Cash Flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted international accounting standards and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

In our opinion:

· the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 31 March 2023 and of the group's loss for the year then ended;

· the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;

· the parent company financial statements have been properly prepared in accordance with UK-adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and

· the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material uncertainty related to going concern

We draw attention to note 2.4 in the financial statements, which indicates that the group and parent company will need to raise additional funding within twelve months from the date of approval of the financial statements in order to fund its ongoing working capital requirements. As outlined in note 7, the group's Industrial Mining Licenses ("IMLs") were suspended at the year end, and subsequently cancelled subject to appeal, which could materially alter the future financial position of the group and its ability to raise funds. As stated in note 2.4, these events or conditions, along with the other matters as set forth in note 2.4 and note 7, indicate that a material uncertainty exists that may cast significant doubt on the group and parent company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

In auditing the financial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the group and parent company's ability to continue to adopt the going concern basis of accounting included the following:

· Obtaining the directors' going concern assessment and evaluating the appropriateness of the assessment;

· Reviewing the budgets/cashflow forecasts which cover the period to 31 March 2025 and challenging management's basis for the underlying assumptions in the forecast, agreeing to supporting documentation such as the review of post year end bank statements, management accounts and regulatory news service announcements;

· Evaluating the feasibility of management's plans for future actions in relation to its going concern assessment, including an assessment of the cancellation of the IMLs and the impact on the group's future plans;

· Reviewing the external market factors affecting the group and its future economic viability, and ensuring this is appropriately reflected in the forecasts; and

· Reviewing the adequacy of the disclosures in respect of going concern including the uncertainties over the ability to raise additional funds.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Our application of materiality

The scope of our audit was influenced by our application of materiality. The quantitative and qualitative thresholds for materiality determine the scope of our audit and the nature, timing and extent of our audit procedures.

The materiality applied to the group financial statements was $119,000, based on 2.5% of the group's gross assets. Gross assets were selected as the benchmark because the intangible exploration assets are the primary assets, and their development is the principal activity of the group. The materiality applied to the parent company financial statements was $118,000 which has been assessed based on 2.5% of the parent company gross assets and capped below the overall group materiality. Gross assets were selected as the benchmark for the parent company materiality as the significant balances in the parent company financial statements are the investments, which own and operate the underlying exploration projects.

We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures. The performance materiality for the group was $83,000 and $82,000 for the parent company, being 70% of materiality for the financial statements as a whole.

In determining performance materiality, we considered the following factors:

· Our knowledge of the group and its environment, including industry specific trends;

· Significant transactions during the year; and

· The level of judgement required in respect of the key accounting estimates.

Whilst materiality for the financial statements as a whole was set at $119,000, each significant component of the group was audited to an overall materiality ranging between $44,000 and $118,000, with performance materiality set at 70%.

We agreed with the audit committee that we would report all audit differences identified during the course of our audit in excess of $5,900 at both group and parent company level, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We applied the concept of materiality in planning and performing our audit and in evaluating the effect of misstatement. No significant changes have come to light during the audit which required a revision of our materiality for the financial statements as a whole.

Our approach to the audit

Our audit is risk based and is designed to focus our efforts on the areas at greatest risk of material misstatement, aspects subject to significant management judgement as well as greatest complexity, risk and size.

As part of designing our audit, we determined materiality, as above, and assessed the risk of material misstatement in the financial statements. In particular, we looked at areas involving significant accounting estimates and judgement by the directors and considered future events that are inherently uncertain. These areas of estimate and judgement included:

· the recoverability of intangible assets and investments in subsidiary undertakings, as the future exploration results are inherently uncertain;

· the group's assessment of control and subsequent consolidation of Damsila Exports (Pvt) Limited; and

· the fair value assessment of the deferred and contingent consideration. 

We also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

The scope of our audit was based on the significance of component's operations and materiality. Each component was assessed as to whether they were significant or not to the group by either their size or risk.

The Sri Lankan subsidiaries Damsila Exports (Pvt) Limited ("DEL") and Eastern Minerals (Pvt) Limited ("EML") have been assessed as significant components of the group. The key balances held within these entities are exploration and evaluation assets. These significant components were audited by component auditors in Sri Lanka operating under our instruction. There was regular interaction with the component auditors during all stages of the audit, and we were responsible for the scope and direction of the audit process. We reviewed key working papers and reporting appendices to understand the work performed and conclusions reached, in order to gain sufficient appropriate evidence for our opinion on the group financial statements.

The parent company was also assessed as a significant component. All audit work on other components was conducted by the group audit team in London.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section we have determined the matters described below to be the key audit matters to be communicated in our report.

Other information

The other information comprises the information included in the Annual Report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the group and parent company financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements, or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, 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.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

· the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

· the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

· adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

· the parent company financial statements are not in agreement with the accounting records and returns; or

· certain disclosures of directors' remuneration specified by law are not made; or

· we have not received all the information and explanations we require for our audit.

Responsibilities of Directors

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the group and parent company financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the group and parent company financial statements, the directors are responsible for assessing the group and the parent 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 the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the 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 ISAs (UK) 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 financial statements.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

· We obtained an understanding of the group and parent company and the sector in which they operate to identify laws and regulations that could reasonably be expected to have a direct effect on the financial statements. We obtained our understanding in this regard through discussions with management about the potential instances of non-compliance with laws and regulations both in the UK and in overseas subsidiaries. We also selected a specific audit team based on experience with auditing exploration entities of a similar size.

· We determined the principal laws and regulations relevant to the group and parent company in this regard to be those arising from:

o  The Companies Act 2006;

o  AIM Rules;

o  Local industry regulations in Sri Lanka;

o  The operating terms set out in the exploration licences and IMLs; and

o  Local tax and employment law in the UK and Sri Lanka.

· We designed our audit procedures to ensure the audit team considered whether there were any indications of non-compliance by the group and parent company with those laws and regulations. These procedures included, but were not limited to:

o  Conducting enquiries of management regarding potential instances of non-compliance;

o  Reviewing Regulatory News Service (RNS) announcements;

o  Reviewing legal and professional fees ledger accounts;

o  Discussions with the component auditors to report on the good standing of the significant subsidiaries; and

o  Reviewing board minutes and other correspondence from management.

· We also identified the risks of material misstatement of the financial statements due to fraud. We considered, in addition to the non-rebuttable presumption of a risk of fraud arising from management override of controls, whether key management judgements could include management bias. The potential for bias was identified in relation to the carrying value of the exploration assets and assessment of control of DEL. We addressed these items as outlined in the Key Audit Matters section. The potential for management bias also existed in the:

o  Assessment of the carrying value of the investment in subsidiaries; and

o  Fair value assessment of the deferred consideration.

Audit procedures were performed in this regard to review and challenge management's impairment and fair value assessments.

· As in all of our audits, we addressed the risk of fraud arising from management override of controls by performing audit procedures which included, but were not limited to: the testing of journals; reviewing accounting estimates for evidence of bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

· Compliance with laws and regulations at the subsidiary level was ensured through enquiry of management, communication with the component auditor and reviewing correspondence for any instances of non-compliance.

Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities.This description forms part of our auditor's report.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditor's 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.

Adam Humphreys (Senior Statutory Auditor)

For and on behalf of PKF Littlejohn LLP

Statutory Auditor

14 September 2023

15 Westferry CircusCanary WharfLondon E14 4HD

CONSOLIDATED & COMPANY STATEMENTS OF FINANCIAL POSITION

For the year ended 31 March 2023

Company number: 05555087

The Company has elected to take the exemption under Section 408 of the Companies Act 2006 from presenting the Parent Company Income Statement and Statement of Comprehensive Income. The loss for the Company for the year ended 31 March 2023 was $730,044 (year ended 31 March 2022: $1,699,017).

The Financial Statements were approved and authorised for issue by the Board of Directors on 14 September 2023 and were signed on its behalf by:

Greg Martyr

Executive Chairman

CONSOLIDATED INCOME STATEMENT

For the year ended 31 March 2023

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2023

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2023

COMPANY STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2023

STATEMENT OF CASH FLOWS

For the year ended 31 March 2023

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2023

1. General information

The principal activity of Capital Metals plc (the 'Company') and its subsidiaries (together the 'Group') is the exploration and development of the Eastern Minerals Project located in the Ampara District of the Eastern Province of Sri Lanka. The Company's shares are quoted on AIM of the London Stock Exchange. The Company is incorporated and domiciled in England.

The address of its registered office is 6 Heddon Street, London, W1B 4BT.

2. Summary of significant Accounting Policies

The principal Accounting Policies applied in the preparation of these Consolidated Financial Statements are set out below. These Policies have been consistently applied to all the periods presented, unless otherwise stated.

2.1. Basis of preparation of Financial Statements

These financial statements have been prepared in accordance with UK adopted International Accounting Standards and in accordance with the requirements of the Companies Act 2006. The Financial Statements have also been prepared under the historical cost convention, except as modified for assets and liabilities recognised at fair value on business combination.

The Financial Statements are presented in US Dollars. In the prior year the financial statements were rounded to the nearest dollar. The functional currency of the Company is Pound Sterling.

The preparation of financial statements in accordance with the applicable financial reporting framework requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Accounting Policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Consolidated Financial Statements are disclosed in Note 4.

2.2. New and amended standards

(a) New and amended standards adopted by the Group and Company

A number of new and amended standards and interpretations issued by the International Accounting Standards Board (IASB) have become effective for the first time for financial periods beginning on (or after) 1 April 2022 and have been applied by the Company and Group in these financial statements. None of these new and amended standards and interpretations had a significant effect on the Company or Group because they are either not relevant to the Company or Group's activities or require accounting which is consistent with the Company or Group's current accounting policies.

(b) New standards, amendments, and interpretations in issue but not yet effective or not yet endorsed and not early adopted.

No material impact expected on the financial statements.

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods and which have not been adopted early. 

2.3. Basis of Consolidation

These consolidated financial statements comprise the financial statements of Capital Metals plc and its subsidiaries as at 31 March 2023. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Control exists where the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Where subsidiaries follow differing accounting policies from those of the Group, those accounting policies have been adjusted to align with those of the Group. Inter-company balances and transactions between Group companies are eliminated on consolidation, though foreign exchange differences arising on inter-company balances between subsidiaries with differing functional currencies is recognised in profit or loss.

When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

During the year, the Group completed a restructure which resulted in the disposal of a subsidiary and disposal of an equity proportion of a subsidiary whilst control was maintained. Refer to Note 18 for further details. Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

2.4. Going concern

These financial statements have been prepared on the going concern basis. The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement and the Strategic Report.

As at 31 March 2023, the Group had cash and cash equivalents of $216,213. The Directors have prepared cash flow forecasts to 31 March 2025, which take account of the cost and operational structure of the Group and Company, planned exploration and evaluation expenditure, licence commitments and working capital requirements. These forecasts indicate that the Group and Company, in order to meet their operational objectives, and meets their expected liabilities as they fall due, will be required to raise additional funds within the next 12 months.

In common with many exploration and evaluation entities, the Company will need to raise further funds within the next 12 months in order to meet its expected liabilities as they fall due and progress the Group into definitive feasibility and then into construction and eventual production of revenues. The Directors are confident in the Company's ability to raise additional funds as required, from existing and/or new investors, within the next 12 months. The Company has demonstrated its access to financial resources, as evidenced by the successful completion of a Placing in June 2023 with an equity raising of £500,000 and a further equity subscription raising total proceeds of £364,705.

Whilst the Directors are confident that they will be able to secure the necessary funding, the current conditions do indicate the existence of a material uncertainty that may cast significant doubt regarding the applicability of the going concern assumption and the auditors have made reference to this in their audit report. The Directors are confident in the Company's ability to raise additional funds as required, from existing and/or new investors, within the next 12 months and the reinstatement of the IMLs as discussed in Note 7. Thus, they continue to adopt the going concern basis of accounting preparing these financial statements.

2.5. Segment reporting

An operating segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments.

The Directors are of the opinion that the Group operates in two geographical areas, the UK and Sri Lanka. The Company operates in one geographical area, the UK. Activities in the UK are mainly administrative in nature whilst activities in Sri Lanka relate to exploration and evaluation of mineral sand resources. The reports used by the chief operating decision maker are based on these geographical segments.

2.6. Foreign currencies

(a) Functional and presentation currency

Items included in the Financial Statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The functional currency of the UK parent entity is Pound Sterling, the functional currency of the BVI subsidiaries is US Dollars and the functional currency of the Sri Lankan subsidiaries is Sri Lankan Rupee. The Financial Statements are presented in US Dollars which is the Group's presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where such items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

(c) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

· assets and liabilities for each period end date presented are translated at the period-end closing rate;

· income and expenses for each Income Statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

· all resulting exchange differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of monetary items receivable from foreign subsidiaries for which settlement is neither planned nor likely to occur in the foreseeable future, are taken to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in the Income Statement as part of the gain or loss on sale.

2.7. Intangible assets

Exploration and evaluation assets

Exploration and evaluation assets include the cost of acquisition, exploration, determination of resources and recoverable reserves, technical studies, economic feasibility studies and all technical and administrative overheads directly associated with these assets, where a mineral deposit has development potential.

Exploration and evaluation assets which are acquired are recognised at fair value. Capitalised exploration and evaluation expenditure is recorded and held at cost. 

The Group performs an impairment test on the exploration and evaluation assets when specific facts and circumstances indicate an impairment test is required, including:

i) the Group's right to explore in an area has expired, or will expire in the near future without renewal;

ii) no further exploration or evaluation is planned or budgeted for;

iii) a decision has been taken by the Board to discontinue exploration and evaluation in an area due to the absence of a commercial level of reserves; and

iv) sufficient data exists to indicate that the book value will not be fully recovered from future development and production.

If any such facts or circumstances are noted, the Group, as a next step, perform an impairment test in accordance with the provisions of IAS 36 "Impairment of Assets". In such circumstances, the aggregate carrying value of the exploration and assets is compared against the expected recoverable amount of the cash-generating unit. The recoverable amount is the higher of value in use and the fair value less costs to sell. Management considers all licences relating to the Project to represent one asset when undertaking their impairment assessment.

2.8. Investments in subsidiaries

Investments in Group undertakings are stated at cost, which is the fair value of the consideration paid, less any impairment provision.

2.9. Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is provided on all property, plant and equipment to write off the cost less estimated residual value of each asset over its expected useful economic life on a straight-line basis at the following annual rates:

Computer & office equipment - 3 years

Motor vehicles - 4 years

Field equipment - 5 years

Drilling equipment - 10 years

Furniture & fittings - 5 years

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. If an impairment review is conducted following an indicator of impairment, assets which are not able to be assessed for impairment individually are assessed in combination with other assets within a cash generating unit.

Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognised within 'Other (losses)/gains' in the Income Statement.

2.10. Impairment of non-financial assets

Assets that have an indefinite useful life, for example, intangible assets not ready to use, and goodwill, are not subject to amortisation and are tested annually for impairment. Property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

2.11. Financial assets

(a) Recognition and measurement

Management determines the classification of its financial assets at initial recognition, the classification of which depends on the purpose for which the financial assets were acquired.

Financial assets are classified in four categories:

i) amortised cost;

ii) fair value through other comprehensive income ("FVOCI") with gains or losses recycled to profit or loss on derecognition;

iii) FVOCI with no recycling of gains or losses to profit or loss on derecognition; and

iv) fair value through profit or loss ("FVTPL").

Financial assets are classified as at amortised cost only if both of the following criteria are met:

· the asset is held within a business model whose objective is to collect contractual cash flows; and

· the contractual terms give rise to cash flows that are solely payments of principal and interest

The Group's financial assets comprise cash and receivables which are classified as financial assets at amortised cost. The Company's financial assets comprise cash and loans to subsidiaries and connected parties, which are classified as financial assets at amortised cost.

The Company accounts for loan receivables at amortised cost as the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. After classification as amortised cost, the financial assets are initially measured at fair value plus directly attributable transaction costs, and subsequently measured at amortised cost using the effective interest method, less provision for impairment. 

Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred, and the Group has transferred substantially all of the risks and rewards of ownership.

(b) Impairment

Impairment provisions for loans to subsidiaries are recognised based on a forward-looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset.

For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

2.12. Financial liabilities

Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument.

All financial liabilities are initially recognised at fair value and subsequently measured either as:

· amortised cost using the effective interest method, with interest-related charges recognised as an expense in the income statement; or

· financial liabilities measured at FVTPL, re-measured at subsequent reporting dates to fair value through the income statement. 

During the reporting period, the Group's financial liabilities comprised trade and other payables, deferred consideration payable, loans and convertible bonds. The trade and other payables, and loans, are classified at amortised cost. 

The deferred consideration payable in respect of the acquisition of the Project is treated as a financial liability measured at FVTPL.

The convertible bonds were assessed to contain an embedded derivative conversion feature and the Group elected to treat the entire instrument as a financial liability measured at FVTPL.

A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires.

2.13. Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand.

2.14. Equity

Equity comprises the following:

• "Share capital" represents the nominal value of the Ordinary shares;

• "Share Premium" represents consideration less nominal value of issued shares and costs directly attributable to the issue of new shares;

• "Other reserves" represents the capital contribution reserve, deferred share reserve, merger reserve, foreign currency translation reserve, reverse acquisition reserve and share option and warrant reserve where;

o  "Merger reserve" represents the difference between the fair value of an acquisition and the nominal value of the shares allotted in a share exchange;

o  "Foreign currency translation reserve" represents the translation differences arising from translating the financial statement items from functional currency to presentational currency;

o  "Reverse acquisition reserve" represents a non-distributable reserve arising on the acquisition of Capital Metals Limited;

o  "Share option and warrant reserve" represents share options and warrants awarded by the Group;

o  Capital contribution reserve - represents capital contributed by one or more of the members without taking shares in return or creating a debt. 

o  Deferred share reserve - represents shares to be issued upon certain conditions being met.

o  "Retained earnings" represents retained losses.

2.15. Share capital, share premium and deferred shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity, as a deduction, net of tax, from the proceeds provided there is sufficient premium available. Should sufficient premium not be available placing costs are recognised in the Income Statement. All ordinary shares are fully paid and carry full voting, dividend and capital distribution (including on winding up) rights.

Deferred shares are classified as equity. Deferred shares represent shares to be issued upon certain conditions being met. The holders of deferred shares do not have any right to receive written notice of or attend, speak or vote at any general meeting of the Company. As regards income, on any dividend or other distribution of the Company, the holders of deferred shares shall be entitled to payment in priority to any dividend or distribution to the holders of any other class of shares in the Company, £1 in aggregate. Upon any capital distribution of the Company (including upon winding up), the holders of the deferred shares shall be entitled to payment in priority to any distribution to the holders of any other class of shares in the Company, £1 in aggregate. The deferred shares may be cancelled by the Company at any time at its determination for no payment and without obtaining sanction of such holders.

2.16. Share based payments

The Group has granted options over its unissued share capital to certain Directors, management, employees and consultants as part of their remuneration. The fair value of options granted in respect of services provided, is measured at the grant date and recognised as an expense over the vesting period, with a corresponding increase in the Share warrants and options reserve.

The fair value of the share options and warrants are determined using the Black Scholes valuation model or Monte Carlo analysis, as appropriate, taking into account the terms and conditions upon which the warrants or options were issued or granted.

Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense or charge is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the Income Statement or equity as appropriate, with a corresponding adjustment to a separate reserve in equity.

When the options are exercised, the Group issues new shares. The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium when the options are exercised.

2.17. Taxation

No current tax is yet payable in view of the losses to date.

Deferred tax is recognised for using the liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred 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.

In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets (including those arising from investments in subsidiaries), are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be used.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred 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 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.

Deferred tax is calculated at the tax rates (and laws) that have been enacted or substantively enacted by the statement of financial position date and are expected to apply to the period when the deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets and liabilities are not discounted.

3. Financial risk management

3.1. Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (foreign currency risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. None of these risks are hedged.

Risk management is carried out by the management team under policies approved by the Board of Directors.

Market risk

(a) Foreign currency risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Sri Lankan Rupee (LKR), US Dollar (USD) and the British Pound Sterling (GBP or £). Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

The Group negotiates all material contracts for activities in relation to its subsidiaries in either LKR, AUD or USD. The Group does not hedge against the risks of fluctuations in exchange rates. The volume of transactions is not deemed sufficient to enter into forward contracts as most of the foreign exchange movements result from the retranslation of intercompany loans. The Group has sensitised the figures for fluctuations in foreign exchange rates, as the Directors acknowledge that, at the present time, the foreign exchange retranslations have resulted in rather higher than normal fluctuations and is predominantly due to the exceptional nature of the LKR exchange rate in the current economic climate.

As at 31 March 2023, the exposure of the Group to foreign exchange rates is summarised as follows:

As at 31 March 2023, if Sterling had gained or lost 10 per cent. against the USD, the impact on comprehensive loss would have been as follows:

As at 31 March 2023, if the Sri Lankan Rupee had gained or lost 10 per cent. against the USD, the impact on comprehensive loss would have been as follows:

Credit risk

Credit risk is the risk of financial loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligations.

Credit risk relating to the Group's financial assets which comprise principally cash and cash equivalents, arises from the potential default of counterparties. The credit risk on liquid funds is limited because the counterparties are reputable banks with high credit ratings assigned by international credit-rating agencies.

The carrying amount of financial assets represents the maximum credit exposure, which at the reporting date was:

The expected credit risk for both the Group and the Company was assessed as not material.

Liquidity risk

In keeping with similar sized mineral exploration groups, the Group's continued future operations depend on the ability to raise sufficient working capital through the issue of equity share capital or debt. The Directors are reasonably confident that adequate funding will be forthcoming with which to finance operations. Controls over expenditure are carefully managed.

With exception to deferred taxation, financial liabilities are all due within one year.

3.2. Capital risk management

The Directors consider the Group's capital to comprise of share capital and reserves stated on the statement of financial position. The Group manages its capital to ensure the Group will be able to continue on a going concern on a long term basis while ensuring the optimal return to shareholders and other stakeholders through an effective debt and equity balance. No changes were made in the objectives, policies and processes during the current or previous year.

The share capital, including share premium, and reserves totalling $3,417,112 (2022: $5,070,465) provides the majority of the working capital required by the Group. Management reviews the capital structure and makes adjustment to it in the light of changes in economic conditions.

4. Critical accounting estimates and judgements

The preparation of the Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the period. Actual results may vary from the estimates used to produce these Financial Statements.

Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Items subject to such estimates and assumptions, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial years, include but are not limited to:

Impairment of intangible assets - exploration and evaluation costs

Management make the judgement as to which costs are directly associated with the exploration and evaluation assets and are to be capitalised, including the allocation of applicable salary and overhead costs.

Exploration and evaluation costs have a carrying value at 31 March 2023 of $4,451,811 (31 March 2022 $4,556,210) Such assets have an indefinite useful life as the Group has a right to renew exploration licences and the asset is only amortised once extraction of the resource commences. Management tests for impairment annually whether exploration projects have future economic value in accordance with the accounting policy stated in Note 2.7. Each exploration project is subject to an annual review by either a consultant or senior company geologist to determine if the exploration results returned during the period warrant further exploration expenditure and have the potential to result in an economic discovery. This review takes into consideration long term metal prices, anticipated resource volumes and supply and demand outlook. In the event that a project does not represent an economic exploration target and results indicate there is no additional upside a decision will be made to discontinue exploration; an impairment charge will then be recognised in the Income Statement.

DEL Licence (EL168/R/4) expired on 31 October 2020, but was subject to the Group's nine IML Applications, two of which were granted during the year. It is noted that the IML's granted are for select areas within license EL168/R/4 and there remains areas within this license which are not covered by an IML.

Whilst there is no certainty that the remaining IML's will be granted, management are of the judgement that there is a reasonable expectation given the Group received approval for two IML's during the year and based on the ongoing discussions with the Geological Survey and Mines Bureau, despite the current suspension, that the remaining IMLs will be approved in due course. Given this judgement it was deemed that no impairment test was required to be performed. Should the Group not be successful with the remaining IML applications or the reinstatement of the suspended IMLs, then Directors would expect to consider an impairment of the E&E assets. See Note 7 for further considerations at the year end. 

Carrying value of intercompany loans

At 31 March 2023 management reassessed the recovery profile of the Parent Company loans granted to subsidiaries and noted the updated project development timetable would mean that it is unlikely that repayments from subsidiaries would commence in the next 12 months and accordingly the loans have been classified as non-current receivables in the current year. See Note 9 for further information.

Share based payment transactions

Management measured the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of shares was determined by the share price at the date of grant. The fair value of options and warrants was determined using Monte Carlo simulations and the Black-Scholes model respectively. Management estimated the number of options that are expected to vest based on the non-market vesting conditions. The valuation of these options and warrants involved making a number of critical estimates relating to price volatility, future dividend yields, expected life of the options and forfeiture rates. These assumptions are described in more detail in Note 16.

Control and consolidation of Damsila Exports (Pvt) Limited

If an entity with a 40% shareholding has a contractual arrangement that gives it the power to direct the relevant activities of the other entity, it can maintain control and is required to consolidate the financial statements of the other entity. After the restructure of the Group during the year, the contractual arrangements in place to determine whether they have the power to direct the relevant activities of another entity and, as a result, maintain control were carefully assessed and it was concluded Redgate Lanka maintains control of Damsila Exports and as such they shall remain consolidated within the Group accounts. No non-controlling interest has been recognised against the net assets as the Group continues to have full rights to the returns of the subsidiary. Please refer to Note 18 for details of the Group restructure.

Fair value of deferred and contingent consideration

Deferred consideration represents amounts payable in respect of the acquisitions of Damsila Exports (Pvt) Limited and Eastern Minerals (Pvt) Limited. The amounts fall due and payable upon completion of certain milestones within the Group, being for each of Damsila Exports (Pvt) Limited and Eastern Minerals (Pvt) Limited: $625,000 in cash (recognised at 95% of face value) upon completion of feasibility studies on the relevant project and $750,000 in cash (recognised at 80% of face value) upon commencement of first commercial production from the relevant project. At the reporting year end, the probability estimated for the likelihood of completion of Tranche 2 and 3 of the deferred and contingent consideration was considered, and management continue to estimate 95% probability for Tranche 2 and 80% probability for Tranche 3. If these estimates prove incorrect then the amounts payable in respect of the acquisition may be different to those stated within the financial statements.

5. Segment information

As at 31 March 2023, the Group operates in two geographical areas, the UK and Sri Lanka. The Company operates in one geographical area, the UK. Activities in the UK are mainly administrative in nature whilst activities in Sri Lanka relate to exploration and evaluation of mineral sand resources. The reports used by the chief operating decision maker are based on these geographical segments.

The Group generated no revenue during the year ended 31 March 2023 (2022: $Nil).

Segment assets and liabilities are allocated based on geographical location.

6. Property, plant and equipment

The movement on the property, plant and equipment asset accounts are shown in aggregate as follows:

7. Intangible assets

Intangible assets comprise exploration and evaluation costs. The movement on the exploration and evaluation assets was as follows:

All exploration and evaluation assets relate to Group subsidiaries and the Eastern Minerals Project in Sri Lanka.

The Directors undertook a review of the impairment indicators and none were identified. In performing their review, the Directors noted the following:

· DEL Licence (EL430) was issued for a period of 24 months until 13 March 2024.

· Completion of the Preliminary Economic Assessment ('PEA') was completed in May 2022.

· The 2 IMLs were approved by the GSMB on 3 August 2022.

· Significant further exploration and evaluation activity is planned, including an EIA for EL199.

· A Memorandum of Understanding (MoU) was signed with LB Group on 9 May 2023 and extended to December 2023. See Note 26.

· Mineral sands prices remain strong, and the Group are continuing off-take discussions following a number of approaches from strategic and industrial Groups.

It is noted the IML licences granted during the year were subsequently purported to be cancelled by the GSMB in May 2023. However, in accordance with Sri Lankan law, the cancellation is not effective until such time as the legislated appeal process has been completed. Therefore, effectively the licences are not cancelled and are effectively only suspended. 

The GSMB purported to cancel the licences on the grounds that mining activities were not being undertaken on the licence areas but the GSMB specifically stated that our licences were suspended pending a further investigation and that we should cease all mining activities forthwith. Given these facts, the Groups lawyers are very confident that the purported cancellations will be reversed, and we will in fact be given our licences back free of any suspension.

It is also noted, the two IMLs only apply to a fraction of the total resource of the Eastern Minerals Project, which comprises 47 1x1km grids in EL168 and 37 1x1km grids in EL199. The two IMLs themselves only apply to small areas in four of the total 47 grids in EL168 however the outstanding 7 IML applications result in coverage of all of the 47 grids in EL168. The Groups disputes with the GSMB concern the EL168 area and there is no dispute over the EL199 area. Damsila Exports also holds a valid exploration licence, EL430, where exploration activities are ongoing unhindered. Management are of the judgement that there is a reasonable expectation, once the IMLs have been reinstated, that the remaining IML applications will be approved in due course, however the appeal is ongoing and therefore the result uncertain.

Following their assessment, the Directors concluded that no impairment charge was required at 31 March 2023.

8. Investments in subsidiaries

Investments in Group undertakings are stated at cost, which is the fair value of the consideration paid, less any impairment provision.

Subsidiaries

All subsidiary undertakings are included in the consolidation.

Keynes Investments Lanka (Pvt) Limited was disposed as part of the Group restructure during the year. Please refer to Notes 10 and 18 for further details.

The proportion of the voting rights in the subsidiary undertakings held directly by the parent company do not differ from the proportion of ordinary shares held.

9. Loans to subsidiaries

The fair value of all receivables is the same as their carrying values stated above and are repayable on demand. Interest on the principal of the loans is charged at a rate of 2% per annum.

The Directors have assessed that there are no expected credit losses to recognise in respect of the loans to subsidiaries as at the balance sheet date, based on their assessment of the recovery strategies, which indicate that the Company would fully recover the outstanding balance of the loans. As such the Directors concluded that no impairment was required at 31 March 2023. Please refer to Note 7 for further details.

At 31 March 2023 Management reassessed the recovery profile of the Company loans to Subsidiaries and note the updated project development timetable would mean that it is unlikely that repayments from subsidiaries would commence in the next 12 months and accordingly the loans have been classified as non-current receivables in the current year.

10. Other loans

The loan to Keynes Investment Lanka (Pvt) Limited has arisen due to the restructure of the Group, which took place in the year (please refer to Note 18). As such Keynes have been deconsolidated from the Group. The loan balance is a loan balance held with Damsila Exports (Pvt) Limited that had previously been eliminated on consolidation.

11. Trade and other receivables

The fair value of all receivables is the same as their carrying values stated above. The Directors have assessed that there are no expected credit losses to recognise in respect of the trade and other receivables.

12. Cash and cash equivalents