Metals Exploration Regulatory News (MTL)

30 Mar 2006 12:58

Metals Exploration PLC30 March 2006 METALS EXPLORATION PLC Group Report and Accounts for the period ended 30 September 2005 30 March 2006 LONDON - 30 March 2006 - The Directors of Metals Exploration plc ("Metals Ex"),the UK based gold exploration company with a focus on the Philippines, arepleased to announce its first audited final results for the period to 30September 2005. Highlights - up to 30 September 2005 • 22 October 2004 - Admission of the Company's Ordinary Shares to trading on AIM. • 23 December 2004 - Acquisition of a 70% interest in the Masapelid Project, Philippines. • 2 February 2005 - Acquisition of a 70% interest in the Runruno Project, Philippines. • 18 February 2005 - Acquisition of a 100% interest in the Jaclupan Project's Exploration Permit Application, Philippines. • 28 June 2005 - Acquisition of a 100% interest in the Puray Project's Exploration Permit Application, Philippines. • At Runruno, revaluation of historical data and recent mapping and sampling of the surface and high grade miners' tunnels have produced results which indicate mineralization over 2.5 km at the surface, 100m wide and 400m deep. • 14 September 2005 - Raised £1.25m pre expenses through a placing: at the same time appointing WH Ireland Limited as broker and nomad. Highlights - post 30 September 2005 • 23 November 2005 - Acquisition of an option to acquire a further 15% interest in the Runruno Project. • 25 January 2006 - JV with Medusa Group on the Masapelid Project with Metals Ex retaining a 16% interest or conversion to a 10% net profit share at its sole discretion. • 7 March 2006 - Acquisition of 100% in a copper project's exploration permit application, situated near Baguio, Philippines. • Runruno has and continues to produce exciting drilling results. Commenting on the results, Steven Smith, Chairman of Metals Exploration plcsaid: " It has been an exciting time for Metals Ex since coming to the AIM list inOctober 2004. We have secured a significant interest in five explorationprojects and in one of them, Runruno, our initial drilling and sampling haveproduced extremely encouraging results. We look forward to the second phasedrilling tests on this project with considerable optimism, and await our initialresults from the other projects. Since listing on AIM the Company hasdemonstrated its ability to acquire quality projects and it is envisaged thatshareholder value will continue to grow accordingly." Enquiries: Steven Smith - Chairman + 44 (0) 7797 721 858Jonathan Anderson - Investor Relations + 44 (0) 7950 410 680Philip Haydn-Slater - WH Ireland Limited + 44 (0) 2072 201 666 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 metal mining opportunitiespredominantly in the Western Pacific Rim region. Review of business Following the Company's admission to AIM in October 2004 Metals Ex has focusedits efforts on the acquisition of a significant interest in five mineralexploration projects, namely the Masapelid, Runruno, Jaclupan, Puray, and Baguioprojects, which are all located in the Philippines and are considered by theCompany to have substantial exploration potential. RUNRUNO PROJECT On 2 February 2005 the Board announced that Metals Ex had signed an optionagreement over the Runruno Project. The agreement allows Metals Ex to earn up toa 70% economic interest in the project by paying the two shareholders of FCFMining Corporation ("FCF"), the owner of the project, US$ 210,000 and 1,600,000ordinary shares in Metals Ex between them over a three year period. On 23rd November 2005, MetalsEx entered into an agreement with one of the twoshareholders of FCF, Christian Mining Inc ("CMI"), obtaining an option over afurther 15% of FCF, thus allowing Metals Ex to earn up to 85% of FCF. A summary of the key terms of the Option are: 1 MetalsEx shall pay to CMI an annual Option fee of US$65,000 until the Optionis either exercised or withdrawn by MetalsEx. MetalsEx has sole discretion toterminate the Option; 2 MetalsEx can exercise the Option, at any time, by acquiring CMI's remainingshareholding of FCF anywhere from 1% to 15%. The exercise price is the amount ofUS$400,000 for every 1% of CMI's shareholding of FCF, up to a maximum of US$6million for all of CMI's remaining 15% shareholding of FCF; and 3 In the event that MetalsEx decides to exercise the Option but only for a partof and not the entirety of CMI's 15% shareholding in FCF, MetalsEx has the rightto continue to have the Option to acquire the balance, by maintaining the termsand conditions of the Option. The exercise period of the Option is unlimited. Runruno is located approximately 200 km north of Manila in Nueva ViscayaProvince. Geologically, the area is underlain by prominent alkaline syenite andmonzonite intrusives and alkaline volcanic flows and tuffs. Gold mineralizationhas been know to exist in Runruno since the early 1960's and the property has along history of exploration. From 1969 1972 a local company (Fil-Am) completed a total of 69 diamond drillholes for a total of 7,300 metres. Using the results from this program theycalculated a 13.4 million tonne resource at an average grade of 1.41 g/t gold,and 0.8 g/t gold cutoff, for a total contained 607,500 ounces gold. In 1974, Consolidated Goldfields of Australia optioned the property from Fil-Amfor one year and drilled 9 widely spaced diamond drill holes. Following thiswork approximately 9,000 metres of drilling had been completed on Runruno. In1978 Fil-Am commissioned a feasibility study from Kurimoto Ironworks and NisshoIwai and Co Ltd of Japan to be based on the available diamond hole data. Thestudy found that the property was economically viable with an estimated resourceof approximately 450,000 ounces of gold mineable by block-caving method. Golden Arrow Mining took out an option over the property in 1980 and carried outfurther drilling until they relinquished the option in 1998 due to financial andinternal management problems. Base Metal Mineral Resources signed an exclusiveagreement with Fil-Am in 1995 allowing them to explore, develop and operate the property. In 1996 ACA Howe International Ltd was engaged tocalculate a resource estimate for the property. In their report ACA Howeestimated an inferred resource containing 607,000 ounces of gold, and that theresource might be understated by up to 30% due to poor core recovery. In 2000 Greenwater Mining Corporation together with others carried out furtherwork on the resource. Unpublished reports suggested that with further work a 2million ounce gold resource was achievable. Mr Powell was given access to coresamples drilled by Greenwater during his due diligence visit in November 2004and his conclusion was that the quality of work carried out was of a highstandard and therefore their results can be regarded as not requiring anysubstantial verification process. Metals Ex has, since acquiring its option over Runruno in February 2005, carriedout a careful review of all previous works and reports, a basic structuralanalysis of the deposit, field mapping and sampling and extensive sampling ofthe small scale miner's tunnels. During the review and collation of dataprocess, it was noted that the sample recoveries experienced during the 1970'sdrilling by Fil-Am was very poor. The Company then determined that if corerecovereies could be improved. In addition the higher grade zones observed inthe local miners tunnels did not appear to be recovered in the previousdrilling. Results of sampling and mapping of the local miners' tunnels located at theBalcony 1, Balcony 2, Main Runruno, Tayab and Malilibeg areas have confirmed theexistence of the high grade (41.4g/t Au) potential of gold mineralisation (andmolybdenum) in the hanging-wall and foot-wall zones of the main Runrunomineralisation. Five meter channel samples (315 samples) were taken continuously along the sidewalls and backs of the local miners' tunnels. Results of the channel samplesrepresent the grades of the high-grade material that the local miners have beenleaving behind. Table 1: Summary of average grades returned from sampling the local miners' tunnels. Tunnel Locations No. of Tunnels sampled No. of Samples Au Mo Ag g/t g/t g/t Balcony 1 7 50 5.7 754 3.7Balcony 2 1 14 5.5 978 5.2Main Runruno 5 42 3.1 420 2.3Tayab 19 100 4.5 1060 4.5Malilibeg 18 109 3.9 1642 6.6Totals 50 315Weighted Average Grades 4.3 1,125 4.8 The local miners' tunnels occur over a lateral distance of approximately 2kilometres. The main Runruno mineralisation, which has been mapped at surfaceover a strike distance of 2.5 kilometres. Since November 2005, the Company has been drilling over a surface area ofapproximately 1,000m x 700m. This area encompasses the southern most portion ofthe area previously drilled area by Fil-Am upon which their resource calculationwas based. Table 2: Summary of drillhole intercepts - Runruno Project Drill-hole Intercept (metres) Au Mo Au eq* Number From to Width g/t % g/t MXD1 38 40 2 1.82 0.068 3.78 42 50 8 4.00 0.059 5.70 107 110 3 2.57 0.041 3.75 116 120 4 1.44 0.002 1.50 122 135 13 1.68 0.039 2.80Total combined intercept 30 2.37 0.038 3.46MXD2 72 80 8 1.86 0.079 4.13MXD3 37 40 3 2.20 0.044 3.47 45 46 1 1.54 0.018 2.06 47 53 6 3.31 0.045 4.60Total combined intercept 10 2.80 0.042 4.01MXD4 39 40 1 1.30 0.105 4.32 88 90 2 2.32 0.024 3.01 92 98 6 1.98 0.012 2.33Total combined intercept 9 1.98 0.025 2.70MXD5 37 40 3 2.33 0.027 3.11 84 95 11 4.33 0.079 6.60Total combined intercept 14 3.90 0.068 5.86MXD6 114 116 2 2.07 0.012 2.42 120 125 5 1.39 0.026 2.14 156 166 10 2.05 0.026 2.80Total combined intercept 17 1.86 0.024 2.55MXD7 116 121 5 2.64 0.083 5.03 123 125 2 1.86 0.111 5.05 131 135 4 2.09 0.164 6.81 148 156 8 2.36 0.045 3.65Total combined intercept 19 2.32 0.087 4.82MXD8 83 88 5 2.93 0.029 3.76 112 119 7 6.62 0.044 7.89 138 148 10 2.29 0.098 5.11Total combined intercept 22 3.81 0.065 5.68 Notes: 1. Au eq 'gold equivalent grade' represents an arithmetic calculation of thevalue in US$ of the contained metal per tonne using the current metal prices (asat 27 March 2006) of US$560/oz gold and US$23.5/lb molybdenum. Given the limitednature of exploration activities to date, no assurance or implication is beinggiven, or should be assumed to be being given, by the inclusion of these valuesin this report that the Runruno Project has been, or will in the future be,deemed to be economic. 2. The drill holes were drilled towards the top of the hill at approximately100m to 200m spacings. MXD-08 was drilled 100m downhill from, and intersectedthe mineralised zone beneath MXD-04. 3. Reporting of the above composited intercepts was determined by applying anupper and lower boundary defined by a low grade cut-off of 0.7g/t Au. Somecomposited intercepts include single metre, internal intercept grades of lessthan 0.7g/t Au. Isolated single metre intercepts are not reported unlessconsidered to be significant. No high grade cut-off has been applied to theindividual gold or molybdenum assays. RUNRUNO - SAMPLING & ANALYSIS PROTOCOLS Sample Preparation The drill core is taken from the drill site to a secure compound at theCompany's field camp and is logged by the geologist. The drill core is thensplit into two equal halves along its long axis, with one half being sampled atpredetermined intervals, bagged and sent for analysis. The remaining half-coreis retained in core boxes and stored on site for future reference. The bagged half-core samples are being submitted to an independent 'ISO17025accredited' laboratory for sample preparation and analyses for gold andmolybdenum. All of the half-core samples are crushed by the laboratory and a900-1000 gram split is taken, pulverized and presented for analysis. The remaining crushed sample is retained in bags and stored at the laboratoryfor a period of three months before being returned to the Company for storageThese remaining crushed samples will be used in the future for additionalanalyses for gold, molybdenum, silver, sulphur and other elements as deemednecessary, for example, for resource estimation work. Analytical Techniques Gold: Gold analysis is by classical 'Screen Fire Assay' technique that involvessieving a 900-1000 gram sample to 200 mesh (75microns). The entire oversize andduplicate undersize fractions are fire assayed and the weighted average goldgrade calculated. This is one of the most appropriate methods for determininggold content if there is a 'coarse gold' component to the mineralisation. Molybdenum: The sample is dissolved in Aqua Regia (3:1 HCl:HNO3) and Molybdenumanalysis is carried out by Inductively Coupled Plasma-Optical EmissionSpectrometry (ICP-OES) method. EXPLANATION OF TERMS Au chemical symbol for goldMo chemical symbol for molybdenumHCl chemical symbol for Hydrochloric AcidHNO3 chemical symbol for Nitric Acidg gramt tonneg/t grams per tonne, which is equivalent to parts per million (g/t Au = grams of gold per tonne)% percent (0.034% Mo = 340 parts per million of molybdenum)lb avoirdupois pound (= 453.59237 grams)oz troy ounce (= 31.103477 grams)Micron A unit of length equal to one thousandth of a millimetre or one millionth of a metre200 mesh the number of openings (200) in one linear inch of screen mesh (200 mesh approximately equals 75 microns) MASAPELID PROJECT The Board announced the acquisition of a 70% interest in the Masapelid projecton 23 December 2004. The project was identified by Mr Gary Powell (Metals ExDirector) as having potential for the definition of gold and copper resources.Mr Powell carried out field investigations and due diligence at the project inNovember 2004 to verify the existence of previous mining and explorationactivities. Metals Ex signed an agreement with the claim owner of the MasapelidProject (San Manuel Mining Corporation) on 23 December 2004. The agreementallowed Metals Ex to earn a 70% economic interest in the Project by paying SanMiguel Mining Corp US$ 105,000 and issuing 1,250,000 ordinary shares in MetalsEx over a three year period. Metals Ex is able to withdraw from the Agreement at any time,without any encumbrances or liabilities, in return for relinquishing itseconomic interest. On January 25 2006 The Company signed a Joint Venture Agreement with MedusaMining Limited and Philsaga Mining Corporation over the Masapelid project. In summary the principal terms of the JVA are: • the Medusa Group has the right to earn an 84% share of the Interest, withMetals Ex retaining a 16% share of the Interest or alternatively retaining a 10%Net Profit Interest ("NPI") from Medusa in any mining operation; • the Medusa Group is to expend the first US$1million on the Masapelid Projectand is to partly fund Metals Ex's remaining acquisition cost of the Interest; • the Medusa Group is to operate the Masapelid Project; • the remaining shares and cash consideration to acquire the Interest will beshared 84% by Medusa and 16% by Metals Ex with the following payments to bemade: (i) on or before 27 February 2006, proportionate payments to a total ofUS$25,000 cash and the issue of 40,000 shares by Metals Ex and shares equivalentin value to 210,000 Metals Ex shares by Medusa, such value to be determined withreference to the average price of one ordinary share in Metals Ex during the 5days of trading on AIM immediately preceding 24 January 2006; (ii) on or before 27 January 2007, proportionate payments to a total ofUS$25,000 cash and the issue of 40,000 shares by Metals Ex and shares equivalentin value to 210,000 Metals Ex shares by Medusa; and (iii) on or before 27 January 2008, proportionate payments to a total ofUS$30,000 cash and the issue of 80,000 shares by Metals Ex and shares equivalentin value to 420,000 Metals Ex shares by Medusa. • on completion of the expenditure of US$1 million, Metals Ex has the exclusiveright to choose to contribute 16% of the on-going expenditure or to dilute to a10% NPI (in which case Medusa would then own 100% of the Interest); and • on commencement of any production, the present shareholders of SMMC willreceive a 1.5% Net Smelter Royalty ("NSR"). PLANNED WORK PROGRAMME - MEDUSA The Medusa Group is expected to immediately commence a confirmatory diamonddrilling programme which, dependent upon results, may be followed by undergroundexploration and development. ABOUT MEDUSA The Medusa Group is currently conducting exploration in Eastern Mindanao.Philsaga have just received a Special Mining Permit which enables them toconduct commercial full scale underground mining operations at the Co-O goldmine in Agusan del Sur, for a period of one year, renewable for like period.Philsaga has been operating the narrow-vein Co-O mine for the last 5 years. The Medusa Group has advised that it will immediately commence the developmentrequired for full scale mining operations at the Co-O mine to provide the orefeed to the Co-O treatment plant that is leased by Medusa and which is currentlyundergoing its first upgrade to an initial nominal capacity of 400 tonnes of oreper day (approximately 150,000 tonnes per annum). As the Medusa Group has demonstrated the technical and financial ability todevelop and exploit narrow high gold-grade vein deposits in the eastern Mindanaoregion, which encompasses the Masapelid Project area, the board of Metals Exregard the JVA as an excellent way of expediting the development of theMasapelid Project and, at the same time, enabling Metals Ex to maintain itsfocus on Runruno. HISTORY The Masapelid Project is located in the northeast corner of Mindanao in theProvince of Surigao, approximately 750 km south of Manila. The project coversthe entire Masapelid Island. The Island is composed of tertiary andesite and basalt flows and sub-volcanicswith lesser amounts of pyroclastic. These volcanic rocks are uncomfortablyoverlain by limestone of younger tertiary age. Pervasive silica-clay-pyritealteration is most pronounced in the andesitic units and is characteristic ofMasapelid. Quartz-gold-polymetallic veins have been mined historically on theIsland since Spanish colonial times, with records of production starting in the1930's. This production was restricted to two northeasterly trending veins. Atotal of approximately 21,000 tons of ore with a grade of 16 to 24g/t Au wasreportedly mined to a depth of approximately 90 metres. An assessment of thedeveloped parts of these veins in 1941 by H. Lindblom showed that there wasapproximately 133,000 tons of ore blocked out ready for mining at that time. Theoutbreak of World War II stopped all mining activities. During the 1980's artisanal gold miners worked on the Island; however, thediscovery of the rich Diwalwal gold mining area located further to the South onMindanao Island eventually resulted in the decline of mining on Masapelid. Western Mining Corporation carried out a regional soil sampling program and somediamond drilling in the early 1990's. This generated a comprehensive databasecovering the whole Island. 11 rock chip samples were collected during a reconnaissance survey in February2005 of the historical Layong Vein mining area. The samples were submitted to anindependent, certified laboratory (Intertech Testing Laboratories) in SurigaoCity, for multi-element analyses. Table 1. Gold and Silver results Rock-chip sampling Masapelid Project,Philippines Sample Gold Silver Description of Rock Sample Number (g/t) (g/t) MSP001 0.12 0.1 altered diorite with minor quartz veinlets MSP002 0.92 0.7% Cu and an additional 28 milliontonnes of possible resources at an unspecified grade for the remainingdisseminated sulphide mineralisation. The resources calculations were derivedfrom the results of sampling surface trenches and tunnels, although they are notverifiable, and do not necessarily comply with the JORC guidelines for thereporting of mineral resources. ERCC did not consider other metals such as zinc, gold or silver as beingsignificant, therefore it appears that assaying for these metals were not alwayscarried out. The current metal prices for these other metals, however isconsidered by the Company to be of some economic importance when reviewing thepotential for this project. Samples obtained from the surface during a recentfield visit by the Company returned assays ranging up to 8.9% Cu, 1.7% Zn and1.3g/t Au. The occurrence of 'direct shipping' bornite and chalcopyrite ore indicates thepotential for the delineation of high-grade Kuroko-style mineralisation ofsignificant size over a potential strike length of up to 6 kilometres. Upon granting of the Exploration Permit Application, it is the intention ofMetals Exploration to exercise the option to purchase agreement and apply modernexploration techniques to define the project's size and grade potential. TheCompany considers the acquisition of the Puray polymetallic project an excitingopportunity to enhance its projects portfolio and ultimately deliver increasedvalue to the shareholders. BAGUIO EPA PROJECT The Baguio regional office of the Mines & Geosciences Bureau ("MGB") hasrecently accepted an Application for an Exploration Permit ("EPA") from theCompany. The application is for a property located in the district of NorthernLuzon, Philippines, and adjoins the Santo Nino property, previously acopper-gold producer. The EPA covers an area of approximately 5,845 hectares and is located about 10kilometres to the northeast of Baguio City. The property is underlain by quartzdiorite and andesite rock types and was previously the object of extensiveexploration for copper+gold+molybdenum porphyry mineralisation during the 1970s. Between 1974 and 1980, Worldwide Mineral and Industrial Corporation ("Worldwide"), a Philippine corporation, completed 44 drill holes for an aggregate total of12,989 metres. Worldwide also carried out a combined IP and Resistivitygeophysical survey in 1978. The Company is in the process of obtaining and collating all availablehistorical data. JACLUPAN PROJECT The Jaclupan Project is located within 5 kilometres of the large open-cast andunderground copper-gold mines of Atlas Consolidated Mines & DevelopmentCorporation (pre-mining reserve of 1 billion tonnes grading 0.46% Cu and 0.25 g/t Au). The Jaclupan Project is an Exploration Permit Application. Once the applicationis granted exploration will commence with the aim of defining drill targets. OUTLOOK The Directors consider, as outlined in the above descriptions of Runruno,Masapelid, Puray, Jaclupan and Baguio Copper that each of the projects haveconsiderable merit. Metals Ex will keep its shareholders fully informed as these projects advance. Results for the year and dividends The loss for the period after taxation was £176,914. The directors do notrecommend the payment of a dividend. Directors and their interests The directors of the company at 30 September 2005, and their interests in theshare capital of the company, were: Number of ordinary Number of shares warrants of 1p 2005 2005 S M Smith (appointed 13 July 2004) 1,500,000 1,000,000P C Barnett (appointed 13 July 2004) NIL 1,000,000K D Mahoney (appointed 29 September 2004) NIL 500,000G R Powell (appointed 27 August 2004) NIL -St James Square Secretaries (appointed 8 April 2004, resigned 13 July - -Limited 2004) Post balance sheet events The company has issued a number of warrants to subscribe to 1p ordinary sharessince the balance sheet date, the details of which are set out in note 20 to theaccounts. 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 2005,the Group had an average of 60 days purchases outstanding. Auditors The auditors, Nexia Audit Limited, were appointed in the period. A resolutionfor the reappointment of Nexia Audit Limited will be proposed at the AnnualGeneral Meeting. Approved by the board of directorsand signed on behalf of the board S M SmithDirector 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 toany material departure disclosed and explained in the accounts; • Prepare the accounts on the going concern basis unless it is inappropriate topresume 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. Independent auditors' report We have audited the accounts of Metals Exploration Plc for the period ended 30September 2005 which comprises the consolidated Profit and Loss Account, theconsolidated Balance Sheet, the company Balance Sheet, the consolidated CashFlow Statement, and the related notes 1 to 21. These accounts have been preparedunder the historical cost convention and the accounting policies set outtherein. 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 As described in the Statement of Directors' Responsibilities the company'sdirectors are responsible for the preparation of the accounts in accordance withapplicable law and United Kingdom Accounting Standards (United Kingdom GenerallyAccepted Accounting Practice). Our responsibility is to audit the accounts in accordance with relevant legaland regulatory requirements and UK Auditing Standards. 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. Wealso report to you if, in our opinion, the Directors' Report is not consistentwith the accounts, if the company has not kept proper accounting records, if wehave not received all the information and explanations we require for our audit,or if the information specified by law regarding directors' remuneration andtransactions with the company is not disclosed. We read the Directors' Report and consider the implications for our report if webecome aware of any apparent misstatements within it. Basis of audit opinion We conducted our audit in accordance with UK Auditing Standards issued by theAuditing Practices Board. An audit includes examination, on a test basis, ofevidence relevant to the amounts and disclosures in the accounts. It alsoincludes an assessment of the significant estimates and judgements made by thedirectors in the preparation of the accounts, and of whether the accountingpolicies are appropriate to the company's circumstances, consistently appliedand 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 of the state of thecompany and the group's affairs as at 30 September 2005 and of the loss of thegroup for the period then ended and have been properly prepared in accordancewith the Companies Act 1985.Nexia Audit Limited 25 MoorgateChartered Accountants LondonRegistered Auditors EC2R 6AYDate Consolidated profit and loss account Notes 2005 £Turnover 1 -Administrative expenses (187,378 )Operating loss (187,378 )Interest receivable 10,819Interest payable 4 (355 )Loss on ordinary activities before taxation 5 (176,914 )Tax on profit on ordinary activities 6 -Loss for the financial period 13 (176,914 )Basic loss per share 7 (0.67p )Diluted loss per share 7 (0.56p ) 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 Notes 2005 £Fixed assetsIntangible assets 8 1,587,992Current assetsDebtors 10 11,204Cash at bank 1,178,687 1,189,891Creditors: amounts falling due within one year 11 193,021Net current assets 996,870Net assets 2,584,862Shareholders' equityCalled up share capital 12 471,683Share premium amount 13 1,694,271Shares to be issued 14 288,000Profit and loss account 13 (176,914 ) 2,277,040Minority interests equity 307,822 2,584,862 The accounts were approved by the Board of Directors on 29 March 2006 and weresigned on its behalf by: S M Smith Company balance sheet Notes 2005 £Fixed assetsIntangible assets 8 561,919Investments 9 718,251 1,280,170Current assetsDebtors 10 11,204Cash at bank 1,178,687 1,189,891Creditors: amounts falling due within one year 11 193,021Net current assets 996,870Net assets 2,277,040Shareholders' equityCalled up share capital 12 471,683Share premium amount 13 1,694,271Shares to be issued 14 288,000Profit and loss account 13 (176,914 ) 2,277,040 The accounts were approved by the Board of Directors on 29 March 2006 and weresigned on its behalf by: S M SmithDirector Consolidated cash flow statement Notes 2005 £Net cash outflow from operating activities 16 (35,131 )Returns on investments and servicing of financeInterest received 10,819Interest paid (355 )Net cash inflow from returns on investments and servicing of finance 10,464Capital expenditure and financial investmentPayments to acquire intangible fixed assets (858,956 )AcquisitionsPayments to acquire subsidiary undertakings (53,763 )FinancingIssue of ordinary share capital (net of expenses) 2,116,073Increase in cash in the year 17 1,178,687 Notes to the accounts 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. 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. 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 balance sheetdate, 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 activity, allbased in the UK. Of the group's net assets, £1,375,919 relates to assets held inthe Philippines, the remainder relates to net assets held in the UK. 2. Directors' fees 2005 £S M Smith 16,000P C Barrett * 12,000K D Mahoney * 12,000G Powell 13,228 53,228 *?Non-executive directors Other than the directors' fees disclosed above, the company paid S M Smith£13,000 in the period for accountancy services and £10,000 for generalconsultancy. Additionally, the Group paid £13,304 in consultancy fees toBoonjarding Limited, a company controlled by G Powell and paid £17,000 inconsultancy fees to P Barrett. No directors accrued retirement benefits under a money purchase pension scheme. 3. Employee information The company had no employees under a contract for service in the period. 4. Interest payable 2005 £Bank loans and overdrafts 355 5. Loss on ordinary activities before taxation is stated after charging: 2005 £Auditors' remuneration-audit (group and company) 8,000 6. Tax on profit on ordinary activities 2005 £(a)UK corporation tax at 30% - (b)Factors affecting tax charge for period £Loss on ordinary activities before tax (176,914 )Loss on ordinary activities multiplied by standard rate of corporation tax in the UK 30% (53,074 )Effects of:Expenses not deductible for tax purposes 120Tax losses carried forward 52,954Current tax charge for period - A deferred tax asset of £52,954 due to on-going tax losses has not beenrecognised 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£176,914 divided by the weighted average number of shares in issue since the AIMadmission of 26,313,414. The diluted loss per share includes 5,455,993 of warrants exercisable at pricesbetween 3.25p and 20p. The share price on 30 September 2005 was 10p per share.The weighted number of shares for the diluted earnings per share is therefore31,769,407. 8. Intangible fixed assets - Group Costs of Exploration £CostOn incorporation -Additions 1,587,992At 30 September 2005 1,587,992Intangible fixed assets - Company Costs of Exploration £CostOn incorporation -Additions 561,919At 30 September 2005 561,919 9. (a) Investments Subsidiary Undertakings £CostOn incorporation -Additions 718,251At 30 September 2005 718,251 The above investments are unlisted. The subsidiary companies are as follows:Company Country of registration % holding Nature of businessSan Manuel Mining Corporation Philippines 70% Holder of mining rightsFCF Mining Corporation Philippines 70% Holder of mining rights (b) Analysis of acquisitions On 23 December 2004, the company concluded an agreement which resulted in thepurchase of 70% of the subscribed share capital in SMMC. The agreement allowsMetals Ex to earn 70% of the economic interest in the project on completion ofthe following payment schedule: Cash (US$) Shares in the Company On completion 25,000 250,000One year after completion 25,000 250,000Two years after completion 25,000 250,000Three years after completion 35,000 500,000 The fair value of the assets acquired were: Fair value (£) Intangible assets mining rights 602,093Metals Exploration plc - proportion of economic interest 421,465Fair value of consideration 421,465Goodwill - On 2 February 2005, Metals Ex signed an agreement which resulted in the purchaseof 70% of the share capital in FCF Mining Corporation. The following paymentschedule has been agreed, with payments made to its two former shareholders;Filminera Resources Corp and Christian Mining Inc. Cash (US$) Shares in the Company Shares in the CompanyOn completion 100,000 400,000One year after completion 30,000 400,000Two years after completion 40,000 400,000Three years after completion 40,000 400,000 The fair value of the assets acquired were: Fair value (£)Intangible assets mining rights 424,146Metals Exploration plc - proportion of economic interest 296,902Fair value of consideration 296,902Goodwill - 10. Debtors 2005 £Other debtors 6,337Prepayments 4,867 11,204 11. Creditors: amounts falling due within one year £Accruals 193,021 12. Called up share capital £Authorised 100,000,000 ordinary shares of 1p each 1,000,000Allotted, called up and fully paid47,168,332 ordinary shares of 1p each 471,683 On incorporation the Company's authorised share capital was 100,000,000 ordinaryshares of 1p each and the Company issued 2 1p ordinary shares at par. TheCompany additionally made the following issues of 1p ordinary shares in theperiod: Date of issue Number of shares Price per share Overall consideration 30 September 2004 7,499,998 1p 75,00022 October 2004 18,093,332 3p 542,80023 December 2004 250,000 * -31 January 2005 500,000 3.25p 16,25017 March 2005 300,000 3.25p 9,75010 August 2005 3,000,000 9.15p 274,50016 August 2005 400,000 ** -2 September 2005 1,500,000 9.875p 148,12514 September 2005 15,625,000 8p 1,250,000 * The Company issued 250,000 1p ordinary shares in consideration for receipt of10,000 ordinary shares in San Manuel Mining Corporation, which represents a 70%stake in that company. ** The Company issued 400,000 1p ordinary shares in consideration for receipt of500,000 ordinary shares in FCF Mining Corporation, which represents a 70% stakein that company. All the authorised and allotted shares are of the same classand rank pari passu. Warrants The company issued the following warrants to subscribe to 1p ordinary shares inthe period: Date of issue Number of shares Warrant price Number exercised in period 30 September 2004 3,500,000 3.25p 200,00015 October 2004 1,800,000 3.25p 800,00010 August 2005 4,000,000 3.25p -2 September 2005 2,000,000 3.25p -15 September 2005 1,496,708 8p 500,00015 September 2005 6,408,274 20p 2,116,651 13. Reserves Shares to be issued Share Premium Profit & Loss Account Total £ £ £ £ On incorporation - - - -Loss for the year - - (176,914 ) (176,914 )Premium on share issue - 1,943,933 - 1,943,933Issue expenses - (249,662 ) - (249,662 )Deferred consideration 288,000 - - 288,000At 30 September 2005 288,000 1,694,271 (176,914 ) 1,805,357 14. Shares to be issued Under the arrangements of the deferred consideration on the purchase of certainmining rights set out in note 9, an additional 2,200,000 ordinary 1p shares areto be issued to the vendors, to be issued at various points in the next 3 years. For valuation purposes these shares have been valuedbetween 7.5p and 11.5p, the price on completion of the transactions. 15. Reconciliation of movements in Shareholders' funds Group 2005 £ Loss for the financial period (176,914 )Issue of share capital 2,165,954Shares to be issued 288,000Opening shareholder's funds -Closing shareholders' funds 2,277,040 16. Reconciliation of operating profit to net cash outflow from operatingactivities £ Operating loss (187,378 )Increase in debtors (11,204 )Increase in creditors 163,451Net cash outflow from operating activities (35,131 ) 17. Reconciliation of net cash flow to movement in net funds 2005 £ Increase in cash in the period 1,178,687Movement in net funds in the year 1,178,687Net funds on incorporation -Net funds at 30 September 2005 1,178,687 18. Analysis of net debt On At 30 September incorporation Cash flow 2005 £ £ £ Cash in hand, at bank - 1,178,687 1,178,687Total - 1,178,687 1,178,687 19. Related party transactions Other than the directors' fees disclosed in note 3, the company paid SM Smith£13,000 in the period for accountancy services and £10,000 for generalconsultancy. Additionally the Group paid £13,304 in consultancy fees toBoonjarding Limited, a company controlled by G Powell and paid £17,000 inconsultancy fees to P Barnett. 20. Post balance sheet events On 3 November 2005, the company granted warrants to certain directors and thirdparties to subscribe to up to 5,800,000 1p ordinary shares. The principal termsof the warrants issued to the related parties were: Warrant holder Exercise Exercise period (from date of Number of shares under Total warrants price grant) warrant held G Powell 12p Up to 7 years 1,000,000 1,500,000 40p Up to 7 years 500,000 Reef Securities Limited*20p Up to 7 years 1,000,000 2,500,000 40p Up to 7 years 500,000 P Bennett 20p Up to 7 years 500,000 2,000,000 40p Up to 7 years 500,000 * Reef Securities Limited is a company controlled by SM Smith The additional warrants were issued at exercise prices ranging from 12 p to 40p,with exercise periods from 2 to 7 years from the date of grant. Between 14 November 2005 and 10 March 2006, the company issued 3,298,053 new 1pordinary shares at prices ranging between 3.25p per share and 20p per share,pursuant to the exercise of existing warrants. In November 2005, the company signed an option agreement with Christian MiningInc to acquire an additional 15% shareholding in FCF Mining Corp., the holder ofthe 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 eitherexercised or withdrawn, although the company has sole discretion to terminatethe 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 ofthe option is indefinite. On 25 January 2005 the company signed a joint venture agreement (JVA) withMedusa Mining Limited and Philsaga Mining Corporation in respect of theCompany's interest in San Manuel Mining Corporation. The principal terms of theJVA are that the company will retain a 16% share of the interest oralternatively retain a 10% net profit interest, in return for a reduced paymentschedule. On 21 February 2006, the company issued 400,000 new 1p ordinary shares inconnection with the company's interest in the Runruno project. The shares wereissued together with cash payments of US$30,000 in respect of the company'soutstanding obligations under the terms of the existing agreement entered intoon 1 February 2005. On 7 March 2006, the company issued 40,000 new 1p ordinary shares to satisfy apayment obligation of the company pursuant to an agreement with Medusa MiningLimited and Philsaga Mining Corporation. In March 2006 the company obtained an exploration permit for the Baguio regionaloffice of the Mines and Geosciences Bureau for a 5,845 hectare property locatedin Northern Luzou in the Philippines. 21. Financial Instruments The Company's financial instruments comprise cash at bank and various items suchas other debtors and creditors that arise directly from its operations and aretherefore excluded from the disclosures. The main purpose of these instrumentsis to provide finance for operations. The Company has not entered intoderivative transactions nor does it trade financial instruments as a matter ofpolicy. Other than the immaterial, floating rate bank overdraft interest on the Group'sSterling bank account, the Group does not pay interest on any of its otherfinancial 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 termdebtors) are cash at bank, which comprise inter bank sterling deposits withinterest earned at a fixed average rate of 4.12%. The Directors believe the fairvalue of the financial instruments is not materially different to the bookvalue. Currency exposure At the period end, the Company's currency exposure is predominantly to the USdollar, with payments made for costs of exploration in this currency. TheCompany does not have a formal policy in place to manage this currency risk, butthe directors believe the risk of material change in rates is minimal. Theremaining other assets and liabilities of Group are in Sterling. This information is provided by RNS The company news service from the London Stock Exchange