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.

20 February 2023

Capital Metals plc

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

Update re Temporary Suspension of Industrial Mining Licences; Group Restructuring

Capital Metals (AIM: CMET), a mineral sands company approaching mine development stage at the high-grade Eastern Minerals Project in Sri Lanka (the "Project"), provides the following update regarding the temporary suspension of the Company's Industrial Mining Licences ("IML") announced on 12 December 2022.

As notified on 10 February 2023, following receipt of the notice from Sri Lanka's Geological Survey and Mines Bureau ("GSMB") to the Company's Sri Lankan IML-holding subsidiary Damsila Exports Pvt Limited ("Damsila"), the Company has been in frequent and productive dialogue with senior GSMB and other officials in Colombo seeking to resolve concerns around the ownership structure of Damsila. While the Company's legal position remains that the ownership structure conformed with the relevant requirements, the Board's objective has been to derive a pragmatic solution to satisfy the GSMB that the spirit of the law requiring local ownership of mining and primary processing activities is reflected. This has resulted in a restructuring of the Group (the "Restructuring") as set out below.

Under the Restructuring, an effective 60 percent of the ownership of Damsila has been issued to a Sri Lankan national who is known to, and who has worked with, the Company since 2015. The shareholder agreements governing Damsila provide protections to the Company principally by requiring a 75 percent vote on all key decisions to be made by Damsila. A new secondary processing company ("ProcessCo") is in the process of being formed as a Section 17 Board of Investment of Sri Lanka ("BOI") company which is allowed to be wholly foreign owned by Capital Metals, enabling it to apply through the BOI for such benefits as customs duty concessions, accelerated depreciation, and protection from nationalisation enshrined in the constitution. Damsila and a wholly owned subsidiary of the Company, Redgate Lanka (Pvt) Limited ("Redgate"), have entered into an exclusive commercial offtake agreement which will be assigned by Redgate to ProcessCo as soon as ProcessCo is formed according to the BOI process. The offtake agreement will enable ProcessCo to acquire all material from Damsila after it has been mined and screened, whereby it will then undertake secondary processing to produce various Heavy Mineral Sands products. The agreement runs for the life of the Project. As the Company will continue to fund the capital and operations of the Project, the Restructuring has been completed without materially impacting the Company's economic value in the Project.

The Company has provided evidence to the GSMB of the Restructuring having taken place and requested that the temporary suspension of the IMLs be lifted by the GSMB as soon as possible. The Company will provide further updates as required.

Michael Frayne, Chief Executive Officer, commented:

"While we were advised that our ownership structure was legally correct, the Restructuring has been completed to satisfy the GSMB that the spirit of the law is reflected in our ownership structure, whilst ensuring the Company retains the vast majority of the economic value in the Project. We look forward to having the temporary suspension lifted and to the completion of our advanced negotiations with prospective local strategic partners and offtake partners, which have continued positively."

Additional Information Related to the Restructuring

Damsila currently has 26,354,812 shares in issue. The Restructuring involves Damsila issuing 39,548,694 new shares to Keynes Investment (Pvt) Limited ("Keynes"), which is 99.98% owned by a Sri Lankan national, Mr Dinal Peiris, who is well known to the Company, with the remaining 0.02% owned by an existing Capital Metals shareholder, giving Keynes a 60.01 percent interest in Damsila and the Sri Lankan national an effective 60.0 percent of Damsila. The consideration for the above issue of ordinary shares in Damsila to Keynes is 1 Sri Lankan rupee per share (equivalent to US$108,353 at 365 SLR: 1 USD).

As at 31 March 2022, Damsila recorded a loss of US$151,000 on turnover of US$0. At that date its net assets amounted to US$480,000 (including intercompany debt owed to the Group of US$604,000). As at 30 September 2022, the net asset value of Damsila was US$363,000 (unaudited).

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

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.