Metals Exploration Regulatory News (MTL)

30 Mar 2007 15:06

Metals Exploration PLC30 March 2007 METALS EXPLORATION PLC Annual Report and Accounts for the year ended 30 September 2006 LONDON - 30 March 2007 - The Directors of Metals Exploration plc ("Metals Ex"),the UK based gold exploration company with a focus on the Philippines, arepleased to announce the audited final results for the period to 30 September2006. Highlights - up to 30 September 2006 • October 2005 - Diamond drilling commences at Runruno• 07 March 2006 - Acquisition of 100% in Worlwide, near Baguio, a copper+gold porphyry-style mineralization project. Exploration permit applied for• 11 May 2006 - For Runruno, within 6 months of the commencement of drilling, an inferred mineral resource containing 1.7m oz of gold at 2.3gm/t and 34m lbs of molybdenum at 0.07% is announced• 18 May 2006 - New Nomad and broker, Collins Stewart, appointed• 06 July 2006 - Announcement of a new Chief Executive, Jonathan Beardsworth, to start 04 September 2006 Highlights- post 30 September 2006 • 18 October 2006 - Raised £5m pre-expenses through a placing at 25p • 12 December 2006 - Runruno's inferred mineral resource upgraded to 2.03m oz of gold at 2.23gm/t and 34.4m lbs of molybdenum at 0.06% • 31 January 2007 - Preliminary metallurgical results show 92% extraction of gold through gravity + flotation Commenting on the results, Steven Smith, Chairman of Metals Exploration plc, said: "It has been a year of considerable achievement for Metals Exploration plc,during which we have made the transition from being a speculativeCountry/exploration play to becoming established as an altogether moresubstantive company based around a potentially world class gold deposit inRunruno. At the start of the accounting period we had not completed a single drillhole atRunruno. By the end of the period we had announced an Inferred resource of 1.7million ounces of gold (since increased to 2.03 million ounces) and 34 millionpounds of molybdenum. This is a most impressive rate of resource development,and I congratulate all involved in the Philippines whose commitment andprofessionalism have made it possible." Financial In October 2006, the Company raised £5 million (£4.7 million net of expenses) ina Secondary Placing on AIM, as a result of which we have sufficient funds fornormal operations for the foreseeable future. Management Realising that the successful development of the Company was going to placegreater demands on management, we were pleased to welcome Jonathan Beardsworthas Chief Executive Officer in September 2006. Jonathan joined the Company fromStandard Bank where he was responsible for the bank's Mining & Metals team'sLondon, Moscow and Shanghai offices. He has been involved in corporate financeand M&A in the mining industry for over a decade and brings substantial anddirectly relevant skills and expertise. Current Operations A summary of the current operations follows in the statement by the ChiefExecutive Officer. Board Changes Philip Barnett and Kevin Mahoney (both non-executive directors) resigned fromthe Board (for personal reasons) since the last financial year end. We aregrateful to Philip and Kevin for their contribution and support to the Companysince the listing on AIM in October 2004 and we wish them well. We expect to be in a position to announce a new Board member shortly. We alsointend to strengthen the Board further through the year, particularly from atechnical perspective, to reflect and assist the Company's move from explorationinto project development and ultimately mining operations. Future Prospects The various items I have mentioned: the continuing exploration success atRunruno, our sound financial position, the strengthened management team, andanticipated Board additions, all suggest that the Company is well positionedfor another year of achievement and success. I would like to thank the various officers of the Company and the shareholdersfor their support during the period under review. ENQUIRIES: Jonathan Beardsworth, CEO Metals Exploration +44 20 7927 6690Jonathan Anderson, Investor Relations +44 7863 167070Adrian Hadden, Collins Stewart Europe Limited +44 20 7523 8350Simon Rothschild, Marc Cohen, Bankside Consultants +44 20 7367 8888 CHIEF EXECUTIVE'S REVIEW It is with the greatest pleasure that I present what I hope will be the first ofmany annual reviews of our Company's current position. As an exploration company with ambitions to move into development, there areessentially three questions that have to be addressed: a) Does the company have a deposit or deposits that look viable?b) Does the company have the people to bring its projects to account?c) Is the country (i.e. the Philippines) one in which one can realistically expect to be able to operate? Let me address each of these issues briefly in turn. Deposit Quality Our flagship project is Runruno, to which we have rights to an 85% interest.Runruno is shaping up to be a world class gold project with the potential alsoof molybdenum credits. We have already announced on 6 December 2006 a Joint OreResources Committee (JORC) inferred resource of 2.03 million ounces of gold and34.4 million pounds of molybdenum, and we are confident of being able toidentify more. Our immediate aim is to firm up the existing resource throughIndicated and Measured JORC categories via a programme of infill drillingthrough the rest of this calendar year. This will form the basis for theproduction of a feasibility study, which we hope will demonstrate an economicoperation of approximately 200,000 ounces of gold a year. We have previously identified potential similarities between Runruno and theCripple Creek gold mining operation (operated by the Cripple Creek & Victor GoldMining Company - a joint venture between AngloGold Ashanti and Golden Cycle GoldCorporation) in Colorado, USA. We are investigating this further, but whetherthe analogy is eventually considered to be valid or not, the point is that ourreview of publicly available data about Cripple Creek has helped enhance ourunderstanding of the real potential of the area surrounding and incorporatingRunruno, and is already bearing fruit in exploration results. Whilst we have an identified resource of 2.03 million ounces of gold, the upsidepotential appears most encouraging, as we hope to demonstrate through theremainder of this calendar year. Quality of Personnel The greatest and most welcome finding in my first 6 months is the quality of thepeople in the Company. We have a team of 25 full time staff in the Philippines,all well educated, most professionally qualified, and several with internationalexperience. It is their collective professionalism, enthusiasm and commitmentthat underpins the progress we have already made. The Company is committed to its responsibilities towards the local communityand this is reflected in the level of support the Company receives from thecommunity. The Company with the Government of the Philippines are co-benefactorsof the Runruno Livelihood Foundation ("RLF"), which provides community projects,education, health care and skill training. As recently as 17 March 2007 thelocal Governor at a speech at Runruno congratulated the Company and RLF on howthe community programmes were operating. Community relations are one of those intangible aspects to which it isimpossible to place a value, and yet the plain fact is that without communitysupport it would be difficult to develop an operation in the Philippines. CHIEF EXECUTIVE'S REVIEW (continued) Country Risk We are very comfortable in the Philippines and find it a most conducive place inwhich to work. In part this reflects the many years of accumulated experiencein the Company of working in-country. We have long established relationshipswith key people and understand the bureaucratic procedures and process. This isa serious asset in a country becoming increasingly attractive to internationalinvestors who will not have this advantage at the outset. At the macro level, the Philippines has made great strides in the last couple ofyears to attract foreign investment generally, and mining investment inparticular. The landmark Supreme Court decision in December 2004 affirmed theconstitutionality of the 1995 Mining Act; a decision that the Supreme Courtruled in February 2005 cannot be appealed. The 1995 Mining Act establishes alegislative and regulatory regime consistent with international standards,including provision for 100% foreign ownership of projects. The legal support for mining is backed up by Executive Order No. 270 dated 16January 2004, which specifically commits the Philippines to move from a positionof "tolerance" of mining, to one of active promotion. The effect of these legaland policy changes is apparent to those working on the ground, and we areconfident in the Philippines as a country supportive of mining. Regional Development Most of the value in the Company currently resides in the Runruno Project.However we have also filed Exploration Permit ("EP") applications over the Purayand Worldwide Projects, both of which look interestingly prospective, and we areconstantly reviewing a number of other prospective projects to add to ourproject pipeline. Inevitably most of the attention is focused upon Runruno, but we see scope for astrong regional story in this extremely geologically prospective area, and aimto add to our portfolio through the year. Our focus in the northern Philippines, on Luzon Island, has caused us torelinquish our interest in the Masapelid Project further south on MasapelidIsland following the advice from our joint venture partners in January 2007 thatthey had withdrawn from the Joint Venture and subsequent relinquishment of theirinterest in the project. Funding We remain well funded following our £5 million secondary placing in October2006. We were gratified at the support from existing institutional shareholdersduring the Placing, and pleased to welcome important new institutionalshareholders. Future Strategy Our strategy is very simple... to keep doing what we are already doing with whatwe have already got. During the coming financial year: • We aim to upgrade the 2.03 million ounce resource at Runruno through to Indicated and Measured JORC categories; • We will aim to expand the resource beyond 2.03 million ounces and will seek to demonstrate the true potential of the Runruno project to contain significantly more resources; • We will initiate and continue with studies aimed at demonstrating the economic viability of an operation at Runruno; • We will progress our EP applications at Puray and Worldwide; • We will seek to identify and secure new prospective projects to add to our portfolio, and • We will remain open to all corporate opportunities to increase shareholder value. I look forward with great confidence to another year of substantive achievement. J Beardsworth DIRECTORS' REPORT The directors present their annual report on the affairs of the group, togetherwith the accounts and auditors' report for the year ended 30 September 2006. Thecorresponding period represents the trade from incorporation on 8 April 2004until 30 September 2005. PRINCIPAL ACTIVITIES The principal activity of Metals Exploration plc ("Metals Ex" or the "Company")is to identify and acquire mining companies, businesses or projects withparticular emphasis on precious and base metals mining opportunitiespredominantly in the Western Pacific Rim region. Since the Company's admission to AIM in October 2004, Metals Ex has focusedefforts on the acquisition of significant interests in exploration properties inthe Philippines which the Company considers to have substantial explorationopportunities. BUSINESS REVIEW Runruno Project Metals Ex, through a Memorandum of Agreement ("MOA") dated 1 February 2005,acquired a 40% shareholding in FCF Mining Corporation ("FCF"), the holder of theRunruno Exploration Permit. As part of the MOA, Metals Ex will acquire afurther 30% shareholding in FCF on completion of a bankable feasibility study onRunruno. On 23 November 2005, Metals Ex announced that the Company has agreedwith Christian Mining Inc ("CMI") the terms of an option (the "Option") thatgives Metals Ex the exclusive option to purchase an additional 15% shareholdingin FCF. The key terms of the Option are an annual option fee of US$65,000 andan exercise price of US$6,000,000. The Option can be exercised or terminated atthe sole discretion of Metals Ex. These agreements give Metals Ex rights to an 85% interest in FCF. Runruno is located approximately 200 km north of Manila in Nueva ViscayaProvince. Geologically the area comprises an alkaline diatreme complex within aSyenitic basement. Gold mineralization has been known to exist in Runruno sincethe early 1960's and the property has a long history of exploration. In 1972 alocal Philippine company, Fil-Am, calculated a 13.4 million tonne resource at anaverage grade of 1.41 g/t gold for a total of 607,500 contained ounces of gold. After signing the MOA in February 2005, Metals Ex carried out a review of allprevious works and reports, a basic structural analysis of the deposit, fieldmapping and sampling, and extensive sampling of the small scale miners' tunnelsfound on the property. In November 2005, after completion of the underground tunnel sampling programme,a diamond drilling programme commenced with the objective to define a resourcewith better grades than previously obtained in the 1970's, and to increase theknown resource size. On 9 May 2006 the Company announced a preliminary resource estimate for Runrunoon the basis of its first 17 diamond drill holes, together with two drill holesfrom Greenwater Mining Corporation who had conducted some work on the propertyin 2000. The resource was calculated to total an estimated 23 million tonnes atan average grade of 2.3 g/t gold and 0.07% molybdenum for a total of 1.7 millionounces of gold and 34 million pounds of molybdenum. The Resource estimate was classified as an inferred resource as defined by theJORC Code, the Australasian Code for Reporting Identified Mineral Resources andOre Reserves. Metals Ex maintains an active camp at Runruno with staff that includesgeologists, surveyors, accountants, geological aides, samplers and fieldworkers. DIRECTORS REPORT (continued) Puray project The Company has held the option to purchase the Puray copper-zinc-silver-goldproject located in the Philippines ("Puray") since June 2005. Puray comprises one Exploration Permit Application originally covering some6,075 hectares and is located only 28 kilometres from the city of Manila. Purayhas been explored and partially mined since the 1930's. The mineralization ispolymetallic, containing high grade and disseminated copper-zinc-silver-gold.The style of mineralization is similar to the Kuroko style of massive sulphidedeposits which have been major producers of copper, zinc, silver, gold and leadin Canada (eg. Kidd Creek, Ontario, Canada). The high grade and commonly highprecious metal content of Kuroko deposits make them attractive explorationtargets. A 200 tonne parcel of ore from Puray was reportedly mined and shipped to Japanin the early 1970's grading 20% copper, 5.75% g/t gold, and 196 g/t silver.Samples obtained from the surface during a field visit by the Company returnedassays ranging up to 8.9% copper, 1.7% zinc, and 1.3 g/t gold. The occurrence of bornite and chalcopyrite ore indicates the potential fordelineating high grade Kuroko style mineralization of significant size over apotential strike length of up to 6 kilometres. Recently, the Exploration Permit Application has been subject to areaclearances, and once it has been granted, Metals Ex intends apply modernexploration techniques to define the project's size and grade potential. Worldwide Project On 7 March 2006 the Company announced that it had applied for an ExplorationPermit for a property ("Worldwide") located in the district of Northern Luzon,Philippines, adjoining the historic Santa Nino copper-gold producer. The Exploration Permit Application (EPA) covers an area of approximately 5,845hectares and is located about 10 kilometres to the northeast of Baguio City.The property is underlain by quartz diorite and andesite rock types and waspreviously the subject of extensive exploration for copper-gold-molybdenumporphyry mineralization during the 1970's. On 20th June 2006 the Company further announced that certain historical data hadbeen obtained and collated in respect of the application. Between 1974 and1981, Worldwide Mineral and Industrial Corporation (WMIC), a Philippinecorporation, reputedly completed 44 diamond drill holes for an aggregate totalof 12,989 metres over a surface area of 600m x 1,200m. The data packageobtained related to 34 of these holes, drilled on a grid spacing of between 100and 200 metres, for an aggregate total of 10,407 metres. WMIC estimated anon-JORC compliant resource of approximately 150Mt at an average grade of 0.3%copper and 0.2 g/t gold. In 1982, Worldwide submitted a small batch of samples (21kg) to the nearbyPhilex Metallurgical and Assay Laboratory for metallurgical testing. Thelaboratory reported that "the submitted sample was fast floating and no problemwas encountered in producing separate concentrates of copper and molybdenum ofmarketable grade". Given the limited nature of the data collated so far, no assurance orimplication is being given, or should be assumed to be being given, by theinclusion of this historical data that the mineralization has been, or will inthe future be, deemed to be economic. The Company intends to carry out some confirmatory drilling once the EPA isgranted and will then evaluate the results to determine the next phase. Masapelid project The Company announced the acquisition of a 70% interest in the Masapelid projectin December 2004. DIRECTORS REPORT (continued) On 25th January 2005 the Company announced that it had signed a joint ventureagreement over Masapelid with Medusa Mining Limited ("Medusa") and PhilsagaMining Corporation ("Philsaga") under which Medusa and Philsaga had the right toearn an 84% share of the Company's interest in Masapelid under certain terms. The Company has since relinquished its interest in Masapelid (see Post BalanceSheet Events - below). Other projects The Company has a policy of reviewing projects as they are offered to theCompany and is continually looking for other exploration/mining opportunitieswithin the Western Pacific Rim and in particular, the Philippines. OUTLOOK The Directors consider, as outlined in the above descriptions of Runruno, Purayand Worldwide, that each of the projects have considerable merit. The Company will keep its shareholders fully informed as these projects advance. RESULTS AND DIVIDENDS The Group recorded a loss of £1,118,086 (2005: loss of £176,914) for the year.The Directors do not recommend a dividend (2005: nil). FINANCIAL RISK MANAGEMENT The Group's main financial risk relates to foreign exchange risk, and inparticular the exposure to the US dollar, with payments made for costs ofexploration in this currency. The Company does not have a formal policy inplace to manage this currency risk, but the directors monitor the Company'sexposure on a regular basis. The remaining other assets and liabilities of Groupare in Sterling. DIRECTORS AND THEIR INTERESTS The directors at the year end and their interests in the shares of the companyare shown below: Ordinary shares of £1 each 30 September 30 September 2006 2005 SM Smith* (Chairman) 1,500,000 1,500,000J Beardsworth (Chief Executive - appointed 4 September 2006) - -GR Powell (Non-executive) 1,000,000 -KD Mahoney (Non-executive - resigned 6 November 2006) 500,000 - * - SM Smith's holding is held through Reef Securities Limited, a companycontrolled by him. PC Barnett resigned as director on 25 April 2006. See note 3 to the accounts for warrants and share options held by the Directors. POST BALANCE SHEET EVENTS Runruno Project On 6 December 2006 the Company announced the definition of a total inferredmineral resource of 28.3 million tonnes at an average grade of 2.23 g/t gold and0.06% molybdenum, containing a total of 2.03 million ounces of gold and 34.4million pounds of molybdenum. DIRECTORS REPORT (continued) On the 31 January 2007, the Company announced preliminary metallurgical testresults that demonstrated gold recoveries of 92% on a fresh composite sampleusing a combination of gravity concentration followed by flotation. Testwork is continuing to improve the recoveries of both gold and molybdenum. The following is a summary of the metallurgical test work results received todate: Test work Process Summary Results Au recovery 60% Gold recoveryby Gravity + CIL 35% Gold recovered by conventional gravity circuit 25% Gold recovered by conventional CIL process Au recovery 93% Gold recoveryby Gravity + Flotation 25% Gold recovered by conventional gravity circuit 68% Gold recovered by Flotation process Mo recovery 38% Molybdenum recoveryby Flotation 38% Molybdenum recovered by Flotation process Metallurgical testwork is continuing to determine optimum processingmethodologies to recover gold from the concentrates, including: • Ultra-fine grinding of sulphide concentrate + cyanidation; • BiOx - Bio-oxidation of sulphide concentrate; • Pressure Oxidation of sulphide concentrate, and • Roasting of sulphide concentrate Similarly there is ongoing testwork to improve the recovery of the molybdenum. Masapelid project On 31 January 2007, the Company announced that Medusa Mining Limited throughPhsamed Mining Corporation, in accordance with Clause 5.1 of the Masapelid JointVenture agreement, had given notice to the Company of its withdrawal from theMasapelid Joint Venture effective on 31 January 2007. After reviewing theresults of the exploration programme and given the Company's current focus onthe Runruno Project and the northern Luzon area, the Company in turn, inaccordance with Clause 5 of the Memorandum of Agreement, has advised San ManuelMining Corporation that it is withdrawing from the Agreement effective 31January 2007. The Company now has no retained equity or ongoing obligations in the MasapelidProject. POLICY AND PRACTICE OF PAYMENT OF SUPPLIERS The Group's policy on payment of suppliers is to settle the amounts due on atimely basis taking into account the credit period given. At 30 September 2006,the Group had an average of 43 days (2005: 60 days) purchases outstanding. DISCLOSURE OF INFORMATION TO THE AUDITORS Each director of the company has confirmed that in fulfilling their duties as adirector, they have. • Taken all the necessary steps in rules to make themselves aware of any information relevant to the audit and to establish that the auditors are aware of that information; and • So far as they are aware, there is no relevant audit information of which the auditors have not been made aware DIRECTORS REPORT (continued) AUDITORS After the year end our auditors, Nexia Audit Limited, changed their name toNexia Smith & Williamson Audit Limited and now trade as Nexia Smith &Williamson. A resolution to reappoint the auditors, Nexia Smith & Williamson,will be proposed at the next AGM. Approved by the board of directors and signed on behalf of the board SM SmithSECRETARY STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ACCOUNTS Company law requires the directors to prepare accounts for each financial yearwhich give a true and fair view of the state of affairs of the company and ofthe profit or loss of the company for that period. In preparing those accounts,the directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgements and estimates that are reasonable and prudent; • State whether applicable accounting standards have been followed, subject to any material departure disclosed and explained in the accounts; • Prepare the accounts on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position for thecompany and to enable them to ensure that the accounts comply with the CompaniesAct 1985. They are also responsible for safeguarding the assets of the companyand hence for taking reasonable steps for the prevention and detection of fraudand other irregularities. Nexia Smith & Williamson Independent auditors' report to the shareholders of Metals Exploration plc We have audited the group and parent company accounts ('the accounts') of MetalsExploration plc for the year ended 30 September 2006 which comprise theConsolidated Profit and Loss Account, the Consolidated and Company BalanceSheets, the Consolidated Cash Flow Statement and the related notes 1 to 23.These accounts have been prepared under the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordancewith Section 235 of the Companies Act 1985. Our audit work has been undertakenso that we might state to the company's members those matters we are required tostate to them in an auditors' report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the company and the company's members as a body, for our audit work,for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report and the accountsin accordance with applicable law and United Kingdom Accounting Standards(United Kingdom Generally Accepted Accounting Practice) are set out in theStatement of Directors' Responsibilities. Our responsibility is to audit the accounts in accordance with relevant legaland regulatory requirements and International Standards on Auditing (UK andIreland). We report to you our opinion as to whether the accounts give a true and fairview and are properly prepared in accordance with the Companies Act 1985. Wereport to you whether in our opinion the information given in the Directors'Report is consistent with the accounts. We also report to you if, in ouropinion, the company has not kept proper accounting records, if we have notreceived all the information and explanations we require for our audit, or ifthe information specified by law regarding directors' remuneration andtransactions with the company is not disclosed. We read other information contained in the Annual Report and consider whether itis consistent with the audited accounts. This other information comprises onlythe Directors' Report, the Chairman's Statement and the Chief Executive'sStatement. We consider the implications for our report if we become aware of anyapparent misstatements or material inconsistencies with the accounts. Ourresponsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the accounts. It also includes an assessment of the significantestimates and judgements made by the directors in the preparation of theaccounts, and of whether the accounting policies are appropriate to thecompany's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the accounts are free frommaterial misstatement, whether caused by fraud or other irregularity or error.In forming our opinion we also evaluated the overall adequacy of thepresentation of information in the accounts. Opinion In our opinion: • the accounts give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the group's and parent company's affairs as at 30 September 2006 and of the group's loss for the year then ended;• the accounts have been properly prepared in accordance with the Companies Act 1985; and• the information given in the Directors' Report is consistent with the accounts. Nexia Smith & Williamson 25 MoorgateChartered Accountants LondonRegistered Auditors EC2R 6AY 29 March 2007 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 SEPTEMBER 2006 Notes 2006 2005 £ £ Turnover 1 - - Administrative expenses (1,155,611) (187,378) Operating loss (1,155,611) (187,378) Interest receivable 30,875 10,819 Interest payable 4 (478) (355) Loss on ordinary activities before taxation 5 (1,125,214) (176,914) Tax on profit on ordinary activities 6 - - Loss after tax 14 (1,125,214) (176,914) Minority interest 3,564 - Loss for the year (1,121,650) (176,914) Basic and diluted loss per share 7 (2.20p) (0.67p) All of the group's operations are classed as continuing. There were no gains orlosses in the period other than those included in the above profit and lossaccount. The company has taken advantage of Section 230 of the Companies Act 1985 not topublish its own profit and loss account. CONSOLIDATED BALANCE SHEET as at 30 SEPTEMBER 2006 Notes 2006 2005 £ £ Fixed assetsIntangible assets 8 2,011,023 1,587,992Tangible assets 9 95,524 - 2,106,547 1,587,992Current assetsDebtors 11 107,776 11,204Cash at bank 371,501 1,178,687 479,277 1,189,891 Creditors: amounts falling due within one year 12 (234,554) (193,021) Net current assets 244,723 996,870 Net assets 2,351,270 2,584,862 Shareholders' equityCalled up share capital 13 556,953 471,683Share premium amount 14 2,696,623 1,694,271Shares to be issued 15 92,000 288,000Profit and loss account 14 (1,298,564) (176,914) 2,047,012 2,277,040 Minority interests - equity 304,258 307,822 2,351,270 2,584,862 The accounts were approved by the Board of Directors on 29 March 2007 and weresigned on its behalf by: S M SmithDirector COMPANY BALANCE SHEET as at 30 SEPTEMBER 2006 Notes 2006 2005 £ £ Fixed assetsIntangible assets 8 692,572 561,919Investments 10 549,132 718,251 1,241,704 1,280,170 Current assetsDebtors 11 1,074,359 11,204Cash at bank 337,259 1,178,687 1,411,618 1,189,891 Creditors: amounts falling due within one year 12 (158,823) (193,021) Net current assets 1,252,795 996,870 Net assets 2,494,499 2,277,040 Shareholders' equityCalled up share capital 13 556,953 471,683Share premium amount 14 2,696,623 1,694,271Shares to be issued 15 92,000 288,000Profit and loss account 14 (851,077) (176,914) 2,494,499 2,277,040 The accounts were approved by the Board of Directors on 29 March 2007 and weresigned on its behalf by: S M SmithDirector CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 SEPTEMBER 2006 Notes 2006 2005 £ £ Net cash outflow from operating activities 17 (865,963) (35,131) Returns on investments and servicing of financeInterest received 30,875 10,819Interest paid (478) (355) Net cash inflow from returns on investments and servicing 30,397 10,464of finance Capital expenditure Payments to acquire intangible fixed assets (752,364) (858,956)Payments to acquire tangible fixed assets (110,878) - Net cash outflow from capital expenditure (863,242) (858,956) AcquisitionsPayments to acquire subsidiary undertakings - (53,763) FinancingIssue of ordinary share capital (net of expenses) 891,622 2,116,073 (Decrease)/Increase in cash in the year 18 (807,186) 1,178,687 NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 1. Accounting policies The accounts have been prepared in accordance with United Kingdom GenerallyAccepted Accounting Practice. A summary of the more important accountingpolicies adopted are described below. Basis of accounting The accounts have been prepared under the historical cost convention. Basis of consolidation The group accounts consolidate those of the company and its subsidiaryundertakings using the acquisition method of accounting. Exploration and development costs Costs relating to the acquisition, exploration and development of mineralproperties are capitalised until such time as an economic reserve is defined andmining commences or the mining property is abandoned. Once mining commences the asset is amortised on a depletion percentage basis.Provision is made for impairments to the extent that the asset's carrying valueexceeds its net recoverable amount. Tangible fixed assets Depreciation is provided to write off the cost, less estimated residual value,of each asset on a straight line basis over its expected useful life, asfollows: Leasehold improvements - 5 yearsMotor vehicles - 5 yearsFixtures, fittings & equipment - 3 years Investments Investments held as fixed assets are stated at cost less provision for anyimpairment. Deferred taxation Deferred tax is provided for on a full provision basis on all timing differenceswhich have arisen but not reversed at the balance sheet date. No timingdifferences are recognised in respect of (i) property revaluation surpluseswhere there is no commitment to sell the asset; (ii) gains on sale of assetswhere those assets have been rolled over into replacement assets; and (iii)additional tax which would arise if profits of overseas subsidiaries aredistributed except where otherwise required by accounting standards. A deferredtax asset is not recognised to the extent that the transfer of economic benefitin future is uncertain. Any assets and liabilities recognised have not beendiscounted. NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 1. Accounting policies (continued) Foreign currencies Transactions denominated in a foreign currency are translated into sterling atthe rate of exchange ruling at the date of the transaction. At the balancesheet date, monetary assets and liabilities denominated in foreign currency aretranslated at the rate ruling at that date. All exchange differences are dealtwith in the profit and loss account. Exchange differences arising from thetranslation of the net investment in a subsidiary company at the rate ofexchange ruling at the balance sheet date and that subsidiary's profit and lossaccount at an average rate for the year, are recorded as movements on reserves. Turnover Turnover, excluding value added tax, represents net invoiced sales of theCompany's share of revenues in the period. Turnover is recognised as sales asinvoiced throughout the period. Segmental reporting The group's operating loss is derived from the company's principal activitiesbased in the Philippines, with a Head Office function based in the UK. Operating loss by geographical location 2006 2005 £ £ United Kingdom 499,108 187,378 Philippines 656,503 - Operating loss 1,155,611 187,378 Net assets by geographical location 2006 2005 £ £ United Kingdom 947,199 1,208,943 Philippines 1,404,071 1,375,919 Net assets 2,351,270 2,584,862 2 Directors' emoluments 2006 2005 £ £ S M Smith 60,000 16,000 P C Barnett * (resigned 25 April 2006) 18,000 12,000 K D Mahoney * (resigned 6 November 2006) 8,000 12,000 G Powell 56,790 13,228 J Beardsworth (appointed 4 September 2006) 8,000 - 150,790 53,228 * - Non-executive directors No directors accrued retirement benefits under a money purchase pension scheme. NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued) 3 Employee information The average number of persons employed by the Group was as follows: 2006 2005 Number Number Head office (including directors) 19 3 Exploration 117 - 136 3 Warrants to directors The warrants held by directors are as follows: Warrant holder Date Exercise Exercise period (from Number of shares price date of grant) under warrant G Powell 3 November 2005 12p Up to 7 years 1,000,000 3 November 2005 40p Up to 7 years 500,000 Reef Securities 30 September 2004 3.25p Up to 7 years 1,000,000 Limited * 3 November 2005 20p Up to 7 years 1,000,000 3 November 2005 40p Up to 7 years 500,000 P Barnett 30 September 2004 3.25p Up to 7 years 1,000,000 3 November 2005 20p Up to 7 years 500,000 3 November 2005 40p Up to 7 years 500,000 * Reef Securities Limited is a company controlled by SM Smith Directors warrants and share option commitments The Company has committed to grant Jonathan Beardsworth 1,000,000 warrants at 26.25 pence exercisable one year from the grant date, 1,000,000 warrants at 39.275 pence exercisable two years from the grant date and 500,000 warrants at 52.5 pence exercisable three years from the grant date. In addition to the warrants disclosed above, the Company has committed to grant Jonathan Beardsworth 2,000,000 unapproved share options at a price of 26.25p per share, exercisable any time 3 years after the date of grant. 4 Interest payable 2006 2005 £ £ Bank loans and overdrafts 478 355 NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued) 5 Loss on ordinary activities before taxation is stated 2006 2005 after charging: £ £ Impairment of fixed asset investment 332,897 - Depreciation 15,354 - Auditors' remuneration - audit services 30,000 8,000 - all other services 19,238 - The audit services fee includes £30,000 (2005: £8,000) in respect of the Company. 6 Tax on profit on ordinary activities 2006 2005 £ £ (a) UK corporation tax at 30% - - (b) Factors affecting tax charge for period £ £ Loss on ordinary activities before tax (1,121,650) (176,914) Loss on ordinary activities multiplied by standard (336,495) (53,074) rate of corporation tax in the UK 30% Effects of: Income not taxable (96,957) - Expenses not deductible for tax purposes - 120 Tax losses carried forward 433,452 52,954 Current tax charge for year - - A deferred tax asset of £486,046 (2005: £52,954) due to on-going tax losses has not been recognised due to uncertainty over its future reversal. 7 Loss per share Basic loss per share has been calculated on the basis of loss after taxation of £1,121,650 (2005: Loss £176,914) divided by the weighted average number of shares in the year of 50,970,424 (2005: 26,313,414). The diluted loss per share calculation is identical to that used for basic loss per share as the exercise of warrants and share options would have the effect of reducing the loss per share and therefore is not dilutive under the terms of Financial Reporting Standard 22: "Earnings per Share". NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued) 8 Intangible fixed assets - Group Costs of Exploration £ Cost At 30 September 2005 1,587,992 Additions 1,025,124 Disposal (602,093) At 30 September 2006 2,011,023 Intangible fixed assets - Company Costs of Exploration £ Cost At 30 September 2005 561,919 Additions 130,653 At 30 September 2006 692,572 9 Tangible fixed assets - Group Leasehold Motor vehicles Fixtures, Total improvements fittings & equipment £ £ £ £ Cost 1 October 2005 - - - - Additions 20,106 25,768 65,004 110,878 30 September 2006 20,106 25,768 65,004 110,878 Depreciation 1 October 2005 - - - - Charge for the year 1,745 4,877 8,732 15,354 30 September 2006 1,745 4,877 8,732 15,354 Net book value 30 September 2006 18,361 20,891 56,272 95,524 30 September 2005 - - - - NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued) 10 Investments £ Cost At 30 September 2005 718,251 Additions 163,778 At 30 September 2006 882,029 £ Provision for impairment At 30 September 2005 - Charge for the year 332,897 At 30 September 2006 332,897 Net book value 30 September 2006 549,132 30 September 2005 718,251 The above investments are unlisted, as follows: Company Country of % holding Nature of business registration San Manuel Mining Corporation Philippines 16% Holder of mining rights FCF Mining Corporation Philippines 70% Holder of mining rights MTL Philippines Philippines 100% Trading Mining Operation On 23 December 2004, the company concluded an agreement which resulted in the purchase of 70% of the subscribed share capital in San Manuel Mining Corporation ("SMMC"). On 25 January 2005 the company signed a joint venture agreement (JVA) with Medusa Mining Limited and Philsaga Mining Corporation in respect of the Company's interest in San Manuel Mining Corporation. This agreement superseded the agreement signed on 23 December 2004. The principal terms of the JVA are that the company will retain a 16% share of the interest or alternatively retain a 10% net profit interest, in return for a reduced payment schedule. The agreement allows Metals Exploration plc to earn 16% of the economic interest in the Masapelid project on completion of the following payment schedule: NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued) 10 Investments (continued) Cash (US$) Shares in the Company January 2005 On completion 25,000 250,000 March 2006 One year after completion 25,000 40,000 January 2007 Two years after completion 25,000 40,000 January 2008 Three years after completion 30,000 80,000 On 31 January 2007, the Company announced that Medusa Mining Limited had given notice of its withdrawal from the JVA. Having reviewed the results of the exploration programme and the Company's focus on Runruno, the Company has withdrawn from its agreement and the investment has been impaired. On 1 February 2005, Metals Exploration plc signed an agreement which resulted in the purchase of 70% of the share capital in FCF Mining Corporation. The agreement allows Metals Exploration plc to earn 70% of the economic interest in the Runruno project on completion of the following payment schedule: Cash (US$) Shares in the Company February 2005 On completion 100,000 400,000 February 2006 One year after completion 30,000 400,000 February 2007 Two years after completion 40,000 400,000 February 2008 Three years after completion 40,000 400,000 In November 2005, the company signed an option agreement with Christian Mining Inc to acquire an additional 15% shareholding in FCF Mining Corp., the holder of the Runruno permit, which if exercised would give the company an 85% interest. The company shall pay a $65,000 per annum option fee until the option is either exercised or withdrawn, although the company has sole discretion to terminate the option. The exercise price of the option is $400,000 for each additional 1% per shareholding, subject to a maximum fee of $6million. The exercise period of the option is indefinite. In March 2006, the company issued 40,000 new 1p ordinary shares to satisfy a payment obligation of the company pursuant to an agreement with Medusa Mining Limited and Philsaga Mining Corporation. In December 2005 the company set up MTL Philippines Inc, a mining operating company located in the Philippines with the payment of £122,789 for the share capital of the company. NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued) 11 Debtors Group Company 2006 2005 2006 2005 £ £ £ £ Other debtors 7,874 6,337 - 6,337 Amounts due from group - - 993,166 - undertakings Taxation 18,336 - - - Prepayments 81,566 4,867 81,193 4,867 107,776 11,204 1,074,359 11,204 12 Creditors: amounts falling due within one year Group Company 2006 2005 2006 2005 £ £ £ £ Other creditors 10,848 - - - Accruals 223,706 193,021 158,823 193,021 234,554 193,021 158,823 193,021 13 Called up share capital £ £ Authorised 150,000,000 (2005:100,000,000) ordinary shares of 1p each 1,500,000 1,000,000 Allotted, called up and fully paid 55,695,248 (2005: 47,168,332) ordinary shares of 1p each 556,953 471,683 On 6 October 2005 the Company increased the authorised share capital to 150,000,000 ordinary shares of 1p each. NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued) 13 Called up share capital (continued) During the year the Company issued the following ordinary 1p shares: 2,500,000 ordinary shares at a price of 3.25p per share, realising £81,250. 40,000 ordinary shares at a price of 7.5p to Manuel Arteficio as part consideration for his stake in that company. 996,708 ordinary shares at a price of 8p per share, realising £79,737. 400,000 ordinary shares at a price of 11.5p per share in consideration for receipt of a 70% stake in FCF Mining Corporation. 4,590,210 ordinary shares at a price of 20p per share, realising £918,042. Share options On 29 March 2006 the Company issued 1,200,000 unapproved share options to certain employees at a price of 12p per share, which can be exercised from 12 months from grant date. The Company has committed to grant Jonathan Beardsworth 2,000,000 unapproved share options at a price of 26.25p per share, exercisable any time 3 years after the date of grant. Warrants On 3 November 2005 the Company issued 1,300,000 warrants at a price of 12p, 2,500,000 warrants at a price of 20p and 2,000,000 warrants at a price of 40p. On 1 December 2005 the Company issued a further 1,404,231warrants at a price of 20p. The Company has committed to grant Jonathan Beardsworth 1,000,000 warrants at 26.25 pence exercisable one year from the grant date, 1,000,000 warrants at 39.275 pence exercisable two years from the grant date and 500,000 warrants at 52.5 pence exercisable three years from the grant date. 14 Reserves - Group Shares to be Share Profit & Loss Total issued Premium Account £ £ £ £ At 30 September 2005 288,000 1,694,271 (176,914) 1,805,357 Loss for the year - - (1,121,650) (1,121,650) Share Issue (49,000) 44,600 - (4,400) Cancellation of share to (147,000) - - (147,000) be issued Premium on other share - 998,159 - 998,159 issues Issue expenses - (40,407) - (40,407) At 30 September 2006 92,000 2,696,623 (1,298,564) 1,490,059 NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued) 14 Reserves (continued) Company Shares to be Share Profit & Loss Total issued Premium Account £ £ £ £ At 30 September 2005 288,000 1,694,271 (176,914) 1,805,357 Loss for the year - - (674,163) (674,163) Share Issue (49,000) 44,600 - (4,400) Cancellation of share to (147,000) - - (147,000) be issued Premium on other share - 998,159 - 998,159 issues Issue expenses - (40,407) - (40,407) At 30 September 2006 92,000 2,696,623 (851,077) 1,937,546 15 Shares to be issued Under the arrangements of the deferred consideration on the purchase of certainmining rights set out in note 10, an additional 800,000 ordinary 1p shares areto be issued to the vendors, to be issued at various points in the next 2 years.For valuation purposes these shares have been valued at 11.5p, the price oncompletion of the transactions. 16 Reconciliation of movements in Shareholders' funds - 2006 2005 Group £ £ Loss for the year (1,121,650) (176,914) Issue of share capital 1,038,622 2,165,954 Shares to be issued - 288,000 Cancellation of shares to be issued (147,000) - Net change in the year (230,028) 2,277,040 Opening shareholders' funds 2,277,040 - Closing shareholders' funds 2,047,012 2,277,040 NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued) 17 Reconciliation of operating profit to net £ £ cash outflow from operating activities Operating loss (1,155,611) (187,378) Depreciation 15,354 - Increase in debtors (96,572) (11,204) Increase in creditors 41,533 163,451 Minority interest (3,564) - Impairment of fixed asset investments 332,897 - Net cash outflow from operating activities (865,963) (35,131) 18 Reconciliation of net cash flow to movement in net funds 2006 2005 £ £ (Decrease)/Increase in cash in the period (807,186) 1,178,687 Net funds at 1 October 2005 1,178,687 - Net funds at 30 September 2006 371,501 1,178,687 19 Analysis of funds 1 October Cash flow 30 September 2006 2005 £ £ £ Cash in hand, at bank 1,178,687 (807,186) 371,501 Total 1,178,687 (807,186) 371,501 20 Finance lease commitments 2006 2005 £ £ Motor vehicles - leases which expire: Less than one year 4,792 - 21 Related party transactions The Group paid nil (2005: £13,304) in consultancy fees to Boonjarding Limited, a company controlled by G Powell. The Group paid £nil (2005: £10,000) to Steven Smith in respect of accountancy services in the year and £13,055 to Amity Events Limited, a company which Steven Smith is a director. NOTES TO THE ACCOUNTS for the year ended 30 SEPTEMBER 2006 (continued) 22 Post balance sheet events Between 17 October 2006 and 26 March 2007, the company issued a total of 20,899,419 new 1p ordinary shares at prices ranging between 12.5p and 26p per share. The company issued 1,590,379 new 1p ordinary shares at prices ranging from 12.5p to 26p, pursuant to the exercise of existing warrants with exercise periods from 2 to 7 years from the date of grant. On 16 October 2006, the company raised £5 million through a placing to raise funds for the company project Runruno gold molybdenum project in the Philippines. The company issued 20,000,000 new 1p ordinary shares which have been issued at a price of 25p per share. On 5 February 2007, the company issued 400,000 new 1p ordinary shares in connection with the company's interest in the Runruno project. The shares were issued together with cash payments of US$40,000 in respect of the company's outstanding obligations under the terms of the existing agreement entered into on 1 February 2005. On 31 January 2007, the Company announced that Medusa Mining Limited through Phsamed Mining Corporation had given notice to the Company of its withdrawal from the Joint Venture Agreement in respect of Masapelid. Having reviewed the results of the exploration programme and given the Company's current focus on the Runruno Project, the Company has advised San Miguel Mining Corporation that it is withdrawing from its Agreement in respect of Masapelid effective 31 January 2007. 23 Financial instruments The Company's financial instruments comprise cash at bank and various items such as other debtors and creditors that arise directly from its operations and are therefore excluded from the disclosures. The main purpose of these instruments is to provide finance for operations. The Company has not entered into derivative transactions nor does it trade financial instruments as a matter of policy. Other than the immaterial, floating rate bank overdraft interest on the Group's Sterling bank account, the Group does not pay interest on any of its other financial liabilities; nor is it likely to in the future. Interest rate risk profile on financial assets The only financial assets (other than the costs of exploration and short term debtors) are cash at bank, which comprise inter bank sterling deposits with interest earned at a fixed average rate of 4.12 %. The Directors believe the fair value of the financial instruments is not materially different to the book value. Currency exposure At the year end, the Company's currency exposure is predominantly to the US dollar, with payments made for costs of exploration in this currency. The Company does not have a formal policy in place to manage this currency risk, but the directors monitor the Company's exposure on a regular basis. The remaining other assets and liabilities of Group are in Sterling. In 2007, the company bought US$1,963,000 at foreign exchange rate 1.963 to benefit from the favourable US Dollar to Sterling rate. The Philippine Peso is linked into the US Dollar performance. 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