Metals Exploration Regulatory News (MTL)

METALS EXPLORATION PLC

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016

Metals Exploration plc (AIM: MTL) (the "Company" or the "Group"), the natural resources exploration and development company with assets in the Pacific Rim region, is pleased to announce its final audited results for the year ended 31 December 2016.

Highlights

Operational - Runruno Gold Project

· First gold pour milestone achieved June 2016 with first gold sale in November 2016;

· Issue of regular export permits enabled multiple gold sales since first sale;

· 16,552 troy ounces contained in gold doré bullion produced as to the end of March 2017;

· Ore commissioning and debugging of processing plant and associated operations commenced in May 2016;

· Plant availability at expected levels since November 2016;

· Ore processing and gold recoveries continuing to ramp-up to design following interruptions caused by external and internal factors;

· Mining operation is achieving design production rates after a period when it was negatively impacted by external factors which caused an insufficiency of good quality waste storage areas during the recent wet period;

· Average number of personnel and full-time workforce numbers during the period was 664, with a further 300 employed by the Project's site based contractors;

· No material health and safety incidents experienced throughout the reporting period; and

· Project expected to achieve design during H2 2017.

Environment and Community

· Successfully maintained high environmental compliance standards;

· Implementation of industry leading initiatives to ensure the highest environment performance;

· Through various programs, 1.73 million endemic and cash-crop trees have been planted which is well in excess of its obligations; and

· Implemented, identified and prioritised successful community projects and programs across health, education, capacity, enterprise development and preservation of socio-cultural values;

Compliance

· High compliance standards practiced;

· 524 active permits successfully maintained to enable the Runruno operation; and

· No breeches recorded.

Corporate

· Appointment of Canaccord Genuity Limited as Nominated Adviser and Broker; and

· Mr J. W. D. Ayre resigned from the Board of Directors as a Non-Executive Director in April 2017;

Financial

· Cash and cash equivalents of £5.986 million (US $7.712 million) at period end;

· Loss on ordinary activities of the Group was £18.033 million (2015: loss of £2.149 million);

· In December 2016 the Project lenders, HSBC Bank Plc and BNP Paribas, agreed to reschedule the outstanding Runruno debt facility (US $81.0 million) and this became effective in January 2017;

· £21.302 million new equity was raised during the period from existing shareholders. The funds where raised as a result of delays in project completion and ramp up.

The ramping up of the operations of the Groups' Runruno Gold Project has taken longer than anticipated and has resulted in gold production and revenue from gold sales being lower than forecast. This has placed significant pressure on the cash reserves of the Group.

As at 31 December 2016, the Group had cash reserves of £5,986,493 and its current liabilities exceeded its current assets by £41,283,290 due primarily to the portion of the Group's external borrowings that is scheduled to be repaid by 31 December 2017. In the absence of the Group raising additional funds, or agreeing a further restructuring of the Group's financing facilities with its financiers prior to 30 June 2017, it is likely that the Group will be unable to meet interest, principal and fee payments as they fall due under the Group's financing facilities.

The Company has commenced discussions with potential providers of a working capital funding facility and the directors believe there is a reasonable expectation that the Company will successfully negotiate and implement such a facility prior to 30 June 2017.

The directors believe that there are reasonable grounds to believe that the use of the going concern basis remains appropriate as there is a reasonable expectation that the Group:

· will be able to raise additional working capital funding on or before 30 June 2017 to meet the Group's short term working capital requirements;

· will achieve forecast levels of gold production as the testing and debugging phase of operations becomes complete;

· will continue to have the support of its financiers; or

in the event that the above are considered unlikely to be achieved, then the Group may seek alternative financing from its shareholders.

For further information please visit or contact www.metalsexploration.com

CHAIRMAN'S STATEMENT

Dear Shareholder,

I have satisfaction in presenting Metals Exploration plc's (the 'Company' or the 'Group') twelfth set of audited financial results and the Annual Report for the year ended 31 December 2016.

2016 was a landmark year for your Company, as it completed its transition from explorer to emerging gold producer. Ore commissioning commenced in early June 2016 with the first gold pour shortly thereafter. Ramp up has been challenging and at a slower rate than planned. It had been anticipated that the Project would transition through ramp up and achieve design by the end of the year or in Q1 2017. Unfortunately, this did not transpire due to a number of internal and external factors. It is now reasonable, subject to external factors, to expect that the Project will achieve design during H2 2017. The Strategic Report provides a more comprehensive review of progress and developments covering the year to 31 December 2016 and the period subsequent to the financial year end.

The mining industry in the Philippines experienced very uncertain times during H2 2016 and Q1 2017 to the extent that the sector's future could be considered to have been questionable. These circumstances arose out of the actions, policies and statements of the then acting Secretary of the Department of Environment and Natural Resources ("DENR"), the government department responsible for regulating the industry. Recently a new nominee has been appointed as acting Secretary with the industry now hopeful of a period of stability for those companies such as ourselves, who are committed to responsible, world class mining, environmental and stakeholder practices.

Much has been written and spoken about in the Philippines with respect to responsible mining and Australian and Canadian mining standards setting the benchmark of achievement for operating mines. I wish to assure you that your mine at Runruno in Northern Luzon in the Philippines has been built to the highest standard. It includes multiple environmental management and mitigation initiatives such as a unique three stage neutralisation circuit, to render processing residue benign within the plant area before it is discharged into the purpose-built reservoir. Our Project is at least on a par with Australian or Canadian standards and often exceeds these standards. We have an obligation to replant every tree which is felled with 100 new sapling replacements; to date the Project has removed 700 trees but we are responsible for the planting of over 1.7 million sapling trees through various arborist programmes. This is a staggering statistic well in excess of our commitments and one I am personally proud of. This is only a small part of our social and community commitment which is undertaken with passion and conviction.

The delay in commencing and completing the ramping up process placed significant pressure on the cash reserves of the Group. The shareholders continued their unwavering support of the Group and the Runruno Project providing over £21 million in additional equity throughout 2016. The Runruno Project could not have achieved what it has without the steadfast support of its shareholders.

I am also appreciative of the ongoing support the Group has received from its financiers HSBC Bank Plc and BNP Paribas who agreed to a further rescheduling of the Group's repayments under the existing facility agreement. The restructuring provides the Group additional flexibility to manage its working capital position as it completes the ramp up phase into commercial production. The rescheduling was agreed in December 2016 and became effective in January 2017.

The development of the Runruno Gold Project has required skill, persistence and dedication and in this regard, I express my gratitude to the employees, consultants, contractors and suppliers who have contributed to the development of the Project.

On 7 April 2017, the Company announced the resignation of Non-Executive Director Mr. Jeremy Ayre. The Board appreciated the experience and support Jeremy has contributed to the development of the Group over the last three years and wishes him the very best for his future.

The Company's Board of Directors and management place great importance on developing constructive, sustainable and mutually beneficial relationships with the communities in which the Company operates and have made, and continue to make, significant investments in fostering opportunities for the development of sustainable income producing businesses by local community members. The Group also promotes responsible environmental management for the wellbeing of its local communities and during the year achieved ISO14001:2015 accreditation of the Company's environmental systems.

I would also like to thank the numerous regulatory agencies and the various levels of government who have worked closely with the Group as it has navigated the administrative labyrinths and complexities involved in obtaining more than 500 permits required for the ongoing operation of Runruno Project.

Currently the project is operating soundly as it continues ramp-up to design throughput and gold production. The economic fundamentals of the Runruno Project remain attractive with the existing mineral reserves and resources providing approximately ten years of production at cash costs that are in the lowest quartile for the industry.

It is with some confidence and optimism that I look to the year ahead in anticipation of reporting another year of significant achievement in 2017.

Ian R. Holzberger

Executive Chairman

19 May 2017

STRATEGIC REPORT

2016 provided a variety of challenges for the Company and the Runruno Gold Project (the "Project") but despite the operational and financial challenges it is notable as the year in which the Project achieved its first gold pour.

At the commencement of the year the Company was optimistic the first pour milestone would be achieved earlier than what transpired, but due to external factors the Project was restricted from this achievement until June 2016. Nevertheless, the Project has been able to produce and sell a high-quality gold doré as it has proceeded through ore commissioning and then on into ramp-up. The Project is still in the ramp-up stage. After achieving its first gold sale in November 2016, the Project has been able to routinely obtain the permits required to export for sale the doré bullion produced during this phase of the operations. Since commencing ore commissioning 16,552 troy ounces ("ozs") contained in gold doré bullion had been produced to the end of March 2017 of which 8,366 ozs were produced during Q1 of 2017.

The Project's performance during 2016 and Q1 2017 has been greatly influenced by technical issues, internal and external factors, and cash flow constraints resulting from the cumulative impacts of these influences. In an extremely challenging time for the whole of the Philippine mining industry the Project has made steady progress albeit not at the rate which was expected. Currently the project is operating soundly as it continues ramp-up to design throughput and gold production. There have been no changes to the Project's overall objectives, philosophies or strategies but there has been an acceptance that the cost of compliance in the Philippine industry, as measured in dollar terms and operational constraints has increased significantly. This is impacting all mining stakeholders in the Philippines and is not expected to be a short-lived phenomenon.

The continuation of the partial suspension order imposed in October 2015 on the construction activities in the Residual Storage Impoundment ("RSI"), seriously impacted the commencement of ore commissioning and full mining activities of the Project. This suspension order continued through to 25 April 2016 when it was lifted provided certain conditions, predominantly enhancement works, were completed to the satisfaction of the Mines and Geosciences Bureau ("MGB") the primary mining regulatory body. A further six months of commissioning and ramp-up was compromised whilst these enhancement works and attendant reporting were completed.

MINING OPERATIONS

The mining operations and mining equipment have performed satisfactorily. However, the requirement to continue "enhancement works" within the RSI and a prolonged four month period of continuous rain commencing in November 2016 limited the efficient operation of the mine by hampering waste stripping to expose sulphide ore in the mine. To maintain production and lower stripping ratios during this period, inferior near surface ore was mined which resulted in lower grade ores being delivered and poorer recoveries in the processing plant. This became especially prevalent during January and February 2017. Prior to the impact of the wet period, mining activity was largely directed to mining waste material for the construction work in the RSI and to enhancement works required as conditions to the lifting of the RSI partial suspension order. Sufficient ore was mined during the period from the commencement of ore commissioning in the process plant to December 2016 to support the ore commissioning and ramp-up activities.

A long term application to the Department of Environment and Natural Resources ("DENR") for a tree cutting permit has not been forthcoming at this time. This has prevented the establishment of a planned alternate waste dump for the disposal of wet and overflow waste materials limiting the mine's ability to produce waste during the wet season. The combined effect of not having the required permit and the planned alternate waste dump available has inhibited mining progress in the ramp up stage.

Since the end of the wet season in March 2017, the mining operation has been re-established and is achieving design criteria. The mine has been rescheduled to accelerate the availability of significant volumes of sulphide ore to the processing plant. A number of additional permits have also been applied for, which once issued, will facilitate the further acceleration of mining operations.

The mine design calls for the majority of the ore and waste mined to be free dug, however harder areas of the operation will require blasting to enable efficient mining. One such area of sulphide ore has been outlined in the mine to date. It has taken much longer than anticipated to obtain a site blasting permit for the operation which would enable the early mining of this area. A permit enabling the first blast has recently been issued by the MGB. This delay required a re-design of the operation in this area to mitigate the inefficiency of having to mine around this area.

The delay in the issuing of the third tree cutting permit, identified above, precluded the proper operational management of waste over the last nine month period. The development of a planned and previously designed overflow waste dump site in an area known as Tullingan prior to the recent wet season would have prevented this issue. The Tullingan development could only have been undertaken on the issue of the third tree cutting permit. Following lodgement over two years ago the application progressed through the various stages of assessment but it has not been issued by the DENR Secretary. The delays experienced in the issue of this routine permit placed the project in a limbo situation where mining decisions were required to be made for the benefit of the environment and the Project. Alternative strategies for waste management are currently being developed in advance of the 2017-18 wet season to prevent a repeat of the circumstances recently experienced should the tree cutting permit be delayed further. The Project far exceeds its tree planting obligations of around 80,000 trees at a ratio of 100 trees planted for each tree removed and to date is responsible for more than 1.7 million trees being planted in the Philippines.

PROCESS PLANT

The Project's first gold pour milestone was achieved on 13 June 2016 after ore commissioning commenced early in June. First gold sale occurred on 29 November 2016.

After a period of relative inactivity the process plant re-commenced commissioning, "test running and debugging" operations and ramp-up in June 2016, following the conditional lifting of the RSI suspension order and the commissioning of the RSI and slurry and return water pipelines. Dry commissioning had been completed in December 2015 and wet commissioning and snagging works followed on after the issue of the permits required to operate the process equipment early in 2016. However, ore commissioning could not commence until the RSI was available to accept tailing material from the process plant. Consequently, the process plant sat in an almost idle state for a number of months before ore commissioning began. A number of mechanical and electrical failures which followed can be attributed to natural deterioration during this period while other failures are attributed to construction and design related issues. The more significant mechanical issues included the failure of the feed end trunnion bearing on the SAG mill and the deterioration of the rollers on the limestone mill.

Shortly after the completion of load commissioning of the SAG mill a critical failure was experienced on the feed-end trunnion bearing causing milling activities to be suspended in June 2016. The suspension lasted until mid-July 2016 and corrective action involved the mill manufacturer's engineers and an independent Philippine based engineering services company. A replacement trunnion bearing was sourced and fitted and other works undertaken to address the cause of the failure. The mill has operated reliably since this incident. A number of minor design issues mainly involving material movement which restricted the operation of the plant have been identified and rectified.

The plant has now been made mechanically and operationally sound and has been operating routinely since November 2016. A number of the unit operations are at or around design throughput and recovery criteria:

· The crushing and grinding circuit is operating reliably at or above design throughput;

· The gravity circuit is operating around design recoveries of 30%;

· Flotation is operating soundly with performance around design when fed with sulphidic ores. Oxide ore feed compromises the flotation recovery;

· The carbon in leach circuit is operating at or above design recovery when fed with BIOX® derived product; and

· The ancillary systems including counter current decantation, neutralisation, reagents, cyanide destruction and residue disposal circuits are all operating to design.

The process plant ramp-up was designed to initially treat oxides ores predominantly to maximise gold recovery from the gravity and carbon in leach (CIL) circuits. This stage was expected to last for a period of 2-3 months while the BIOX® circuit was ore commissioned after which the circuit was to be progressively transitioned to sulphidic or fresh ores in line with the BIOX® ramp-up. As a "living" circuit using bacteria to oxidise gold bearing sulphide ore for subsequent recovery of gold from through the CIL circuit the BIOX® circuit must be established, activated and ramped up with care over a 2-3 month period before a steady state operation is established. Increasing tonnages of gold bearing sulphide concentrate is feed into the BIOX® circuit progressively as the bio-mass increases and its activity levels improve until design throughput and oxidation rates are established. The Runruno Gold Project is designed to recover 30% of its gold from gravity and 70% from the BIOX process in steady state operations.

The mill, gravity and flotation circuits commissioned and ramped up well. However, some process issues have been experienced with the ramp-up of the BIOX® circuit which are attributed to the supply of "inferior" low sulphide oxide ore produced from the mine during the extended rain season (as reported above, in Mining Operations). Prior to mining of predominantly oxide ore and the subsequent processing of these ores in the plant commencing in December 2016, the BIOX® process had been performing well with throughput having been built up to around 70% of design. Once supplies of available sulphidic ore were exhausted, and oxide ores were the only available alternative the performance of the BIOX® circuit progressively deteriorated until it effectively passivated. Following the re-establishment of a reliable sulphide ore feed to the process plant in March / April 2017 the bacteria are being re-activated with positive effect. An earlier short term interruption occurred during October 2016 which was fully resolved at the time and was attributed to commissioning and "housekeeping" issues.

Following the disturbance in the BIOX® the ramp-up plan has been re-established.

RESIDUAL STORAGE IMPOUNDMENT (RSI)

On 21 October 2015, the Mines and Geosciences Bureau ("GMB") of the Philippines imposed a partial suspension order on the construction of the Project's Residual Storage Impoundment ("RSI"). Super Typhoon Lando had passed over the Project and caused water related damage in the area downstream of the RSI's embankment, but no damage was sustained to the RSI structure. Restoration works were immediately undertaken and completed quickly but enhancement works continued through until mid-February 2016. A further two months were absorbed engaging in independent geotechnical verification of the works and presentations to the MGB of the total package of works undertaken. The result of these reports was to recommend further enhancement works which were not initially contemplated but which the Project embraced and directed effort and finances towards. Fortunately the enhancement works were undertaken during the dry season but this delayed Project mining works which had been planned to be undertaken during this period.

Stage 2 of the RSI construction, the level required to commence the discharge of tailing materials, was completed in Q2 2016 complete with a number of enhancements including shotcrete lining of the upper spillway, construction of a sediment pond, polishing pond, energy dissipation concrete constructs and a number of other enabling works. On completion of these works the design contractors Resource Development Consultants Limited, "RDCL" (RSI wall) and GHD certified the various works resulting in the conditional lifting of the partial suspension order by the MGB. The RSI was then available for commissioning and deposition of tailing material.

GHD took over the design and monitoring of the ongoing lifting of the RSI commencing with Stage 3 of the wall which is being built in two sub-stages. Stage 3a which involved lifting the wall 6 m and the construction of a new high volume "over the wall" spillway from roller emplace concrete and gabion baskets and mattresses commenced in June and was completed in November. Stage 3b a further 9 m lift is ongoing.

The RSI is operating to design with an excellent environmental performance.

MAILILIBEG DUMP SITE

One other area of concern for the MGB following Typhoon Lando and included in the partial suspension order was the stability of an engineered filled waste dump known as the Malilibeg Dump Site ("MDS"). An independent geotechnical report confirmed the MDS was stable and that the typhoon inflicted no structural damage, although some superficial embankment erosion had been experienced. The report identified various enhancement recommendations including rock sheeting over the surface of the dump site, about 500 metres long by 37metres high to improve the factor of safety and prevent surface erosion. The recommendations were embraced and the enhancement works undertaken to comply with the MGB's requirements. The surface of the dump has now been rehabilitated using a mixture of endemic and specialised species to further enhance the stability and erosion performance.

COMMUNITY AND SOCIAL DEVELOPMENT

The Community & Social Development Department, the community interface arm of the Company, maintains strong partnerships with various national agencies and local governments from the Barangay to the Provincial level in the implementation of identified and prioritized projects and programs under them as a component of the Company's Corporate Social Responsibility programs.

It is the Company's objective to benefit its host communities by undertaking sustainable development within the community with programs focused in key areas:

· Health;

· Education;

· Capacity building;

· Community development and empowerment;

· Enterprise development, improvement and networking;

· Infrastructure development; and

· Preservation and respect of socio-cultural values.

The programs assist the residents of the Barangay of Runruno and surrounding Barangays, the Municipality of Quezon and the Province of Nueva Vizcaya.

HEALTH AND SAFETY

There have been no material health and safety incidents throughout the construction phase and transition into commissioning. A safe working culture is actively promoted by a dedicated department and is embraced across the Project site and in departments, with all staff recognising their individual responsibilities to their own safety and the safety of others. During 2016, the company achieved a very commendable 6,008,406 man-hours before incurring the first of three lost time incidents recorded during the year.

ENVIRONMENT

The Company is active in promoting and implementing "responsible mining" practices. It is a leader in the Philippine mining industry in its environmental and environmental rehabilitation practices. It recognises good environmental management as a key parameter in its Corporate Social Responsibility ("CSR") charter. The Company maintains its commitment to the effective stewardship, protection and enhancement of the environment in and around the areas where it operates, and the conduct of its business in an environmentally sound manner is the driving thrust towards the goal of sustainable development and reducing potential significant impacts of the project upon the environment.

REAFFORESTATION AND REHABILITATION

The Company actively reduces the potential environmental impacts of its operations and enhances its environmental performance in mined-out and disturbed areas through immediate and continuous rehabilitation activities and by the re-greening of barren lands, establishment of protection forests and the provision of habitat for wildlife within the FTAA area. These programs demonstrably improve the environment within and surrounding the Company's operations and are designed for beautification, stabilisation, off-set green-house gas emissions and the impacts of the Company's operations. Through its various programs, the Company is responsible for the planting of more than 1.7 million endemic and cash crop trees.

A major nursery holding up to 80,000 trees seedlings along with native and engineered grasses is maintained at Runruno. To supplement these activities the Company works closely with the Nueva Viscaya State University in the furtherance of its reforestation programs.

ENVIRONMENTAL MONITORING

The Company maintains very high compliance standards and employs a number of industry leading initiatives to ensure the highest environmental performance. It regularly conducts its own internal comprehensive environmental monitoring program to ensure compliance with its licence provisions, Philippine regulations and any appropriate contemporary standards. These programs extend to reference sites outside the immediate operational area and are used to provide reference and base-line data for future use. The Company also engages an independent third party consultant group specialising in environment monitoring services to conduct independent monitoring of its environmental performance.

LEGAL COMPLIANCE

High compliance standards are practiced across the Company in the maintenance of its operations. A large site based team is dedicated to managing the high levels of compliance mandated within the Philippines. The site is regularly audited with upwards of 50 audits, verifications or reviews of its operations undertaken annually by the various regulators. As of April 2017, the Company has 524 active permits with a number of additional permits in process. The wide range of permits to operate in the Philippines are secured from a number of Government agencies and regulators including the DENR, MGB, Environmental Management Bureau, Forrest Management Bureau, Bureau of Internal Revenue, Bureau of Customs, Bureau of Investment, Provincial Government, Municipality, Philippines National Police, National Telecommunications Commission, Water Management Bureau, and the Local Government Units (LGU).

PRIVATE SHARE PLACEMENTS

This Project's challenge was compounded with a need to find additional cash reserves to complete the RSI works and carry the Project into its gold producing and selling phase. The Project had experienced its current cash reserves being depleted over the suspension period which absorbed an additional amount of US $4million for remediation and enhancement works, and a further US $11.5million in working capital cash burn. It could not have been forecast how long the suspension period would last. Once out of suspension stages 2 and 3 RSI construction works were required to be accelerated together with the remaining Process Plant commissioning, to be made ready for dispersal of processing residue into the reservoir. Throughout this period of time the Lenders were kept fully aware of Project developments and weekly cash flow information was provided to enable them to understand the financial constraints the Project was working under.

An amount of US $6million which had been funded from equity in 2015 was held in a Project reserve account controlled by the Lenders. These funds were reserved to provide operational start-up working capital, and when applied for it was agreed with the Lenders they would be released from the Project reserve account for immediate operating expenses. A capital payment of US $2million which was due to be paid on 31 March 2016 was funded from cash released from the Debt Service Reserve Account. An amount of interest to the value of US $0.181 million was due on 31 March 2016 relating to additional margin interest pursuant to debt rescheduling, was also settled from funds in the DSRA reducing the balance in that account to US $0.155 million.

The Company projected that due to its depleting cash resources the Project required to quickly raise working capital that would suffice for a period of time. That period of time was estimated to be for two months, wherein it was expected that the Project would achieve commercial operations and have a positive cash flow. During March 2016 management entered into discussions with its Lenders to realign the economic variables of the Project with a less aggressive capital repayment profile and to a more achievable timeline. The expectation was that the Lenders' facility would be restructured to achieve this and that this could be completed by the end of June 2016 with all parties working to that end.

In conjunction with the above a private share placement was completed during March 2016 to raise £4,300,716 by the issue of 148,300,536 new ordinary 1 pence shares at a subscription price of 2.9 pence per new share. The price of 2.9 pence per new ordinary share represented a 29.7 per cent discount to the closing mid-price of 4.13 pence per ordinary share as at 10 March 2016, and a 35.8 per cent discount to the 1-year average closing mid-price of 4.52 pence per ordinary share. This placement comprised the major shareholders of the Company taking up an offer on a prorata basis as follows: 

During July 2016 there became a need for a second private share placement to raise additional working capital funds for the Group primarily due to three reasons:

· discussions with the Lenders taking longer than expected

· a commissioning problem encountered by the Project's mill

· conditions attaching the release of the Project's US $6 million working capital contingency

Management had been in discussions since March 2016 with its senior debt Lenders (HongKong and Shanghai Banking Corporation Limited and BNP Paribas) to find a solution for the Project's cash requirements during the period prior to achieving a sustainable cash flow from operations. It had been hoped that a restructured package could have been put in place by 30 June 2016, which unfortunately was not achieved. A third bank was invited to enter the restructuring process and was undertaking its due diligence process thereby increasing the timeline to completion which was expected to be finalised by the end of August 2016. This meant that the Company could not meet its capital payment of US $15 million scheduled for 30 June 2016 but the Company had hoped to have the debt rescheduled by 30 June 2016, a date which had not been achieved.

On 24 June 2016 the Company announced the milling operations at the Project were suspended due to an issue on the feed end trunnion bearing of the mill. The mill was undergoing commissioning activities when a failure occurred. The downtime experienced due to the mill being out of operation caused a delay receiving revenue from gold sales. The Project had achieved its first and second gold pours producing 119 ounces of gold before the situation with the mill occurred. Management was reasonably optimistic of receiving revenues from gold sales but due to the mill failure it reforecast these revenues down to zero.

US $6 million of equity had been deposited into a reserve account bank during 2015 which was an amount of working capital which would be released to the Project's proceeds accounts once the Project had entered the commissioning phase of operations. In May 2016 management approached the Lenders to have the US $6 million released after the partial suspension order was lifted and when the Company had announced entering the operations debugging phase (a term defined in the Project's Financial or Technical Assistance Agreement). The Lenders agreed to release of the US $6 million working capital for the benefit of the Project but with certain conditions attached. These conditions were that the interest due 30 June 2016 would be reserved out of these funds. An amount of US $2,874,420 was reserved on drawdown of the US $6 million working capital on 3 June 2016 and the interest was paid to the lenders on 30 June 2016.

The 30 June 2016 capital amount due of US $15 million was deferred by a waiver agreement until the earlier of the debt rescheduling or 31 December 2016. The debt was finally rescheduled by an Amendment Agreement dated 15 December 2016 and a new capital payment profile agreed.

The Company had an imminent requirement to raise US $5 million (approximately £3.8 million) for working capital purposes and to bridge the period of time to when it was expected that the mill would be repaired and the company could commence its ramp up period; during which it would be producing and selling gold.

Because of the immediate need to raise the funds, management approached its major shareholders for financial assistance and received binding commitments to raise £3,806,421 from a private share placement of 76,128,414 new issued 1 pence ordinary shares at a placing price of 5.0 pence per share. The subscription price of 5.0 pence per new ordinary share represented a 41.2 per cent discount to the closing mid-price of 8.5 pence per ordinary share as at 22 July 2016, and a 3.2 per cent premium to the 1-year average closing mid-price of 4.85 pence per ordinary share. This placement comprised the major shareholders of the Company taking up an offer on a prorata basis as follows:

During September and November 2016 management approached its major shareholders twice more to raise further working capital funds for a total of £4,850,109 and £8,344,906 respectively. Ongoing operational delay issues continued to hamper the Group's ability to generate sustainable cash flow resulting in a further requirement to raise additional funds for working capital purposes. The ongoing debt rescheduling discussions continued but during October 2016 a third bank which had been introduced as a potential additional lender and which completed its due diligence exercise, informed the Company that it had decided to withdraw from the restructuring exercise. The bank cited the developing political risk profile in the Philippines caused by the newly elected administration as the main reason for their decision. There was full support within their credit committee for the Project otherwise.

It was hoped that this bank would become an equal partner in a restructured facility which would be increased to US $90 million through the injection of an additional US $9 million of cash for the benefit of the Project. Without the third bank the current Lenders agreed to reschedule the outstanding capital amount of $81m by rolling the two facilities (US $73 million senior debt facility and US $8 million cost overrun facility) into one facility and extending the tenor to accommodate a less aggressive repayment schedule.

The Company received binding commitments to raise £4,850,109 and on 14 September 2016 a private share placement realised the issue of 97,002,174 new issued 1 pence ordinary shares at a placing price of 5.0 pence per share. The subscription price of 5.0 pence per new ordinary share represented an 11.1 per cent discount to the closing mid-price of 5.625 pence per ordinary share as at 7 September 2016, and a 2.6 per cent discount to the 1-year average closing mid-price of 5.136 pence per ordinary share. This placement comprised the major shareholders of the Company taking up an offer on a prorata basis as follows:

The withdrawal of the potential additional funding partner changed the nature of the planned refinancing from a funding package of higher value (US $90 million), to a rescheduling of the existing level of debt (US $81 million). The deliverables of the Project were realigned with a rescheduled capital and interest profile and the tenor of the facility extended to December 2019. No additional hedging was required by the Lenders and the Company can, at its discretion place hedge contracts.

The Company received binding commitments to raise working capital funds totalling £8,344,906 and on 17 November 2016 a private share placement realised the issue of 166,898,117 new issued 1 pence ordinary shares at a placing price of 5.0 pence per share. The subscription price of 5.0 pence per new ordinary share represented a 14.97 per cent discount to the closing mid-price of 5.88 pence per ordinary share as at 11 November 2016, and a 10.07 per cent discount to the 1-year average closing mid-price of 5.56 pence per ordinary share. This placement comprised the major shareholders of the Company taking up an offer on a prorata basis as follows:

DECEMBER 2016 DEBT RESCHEDULING

The Company entered 2016 by announcing it had successfully rescheduled the senior debt facility it had entered into with the Lenders on 28 May 2014. The rescheduling was necessary due to a lack of cash flow caused by external time delay factors experienced in 2015 disabling the Runruno Gold Project achieving commercial production.

Due to the various challenges the Project faced in 2016 which transpired to delay commercial operations, management sought to restructure the senior debt facility by increasing the loan amount to US $90 million through the introduction of a third lender into a new structured facility. It was extremely unfortunate that the third lender had completed its due diligence with a favourable view of the Project but declined to participate solely due to a higher risk profile its credit committee applied to the Philippines. Eventually in Q4 2016 the two original lenders agreed to reschedule the debt facilities but the value of the loan would remain at US $81 million, after a US $2 million capital payment had been made in March 2016. One of the conditions attached to the restructuring was that the Project would have poured a 500 ounce gold production target, which was achieved in H2 2016.

The main commercial terms of the rescheduled loan are as follows:

· BNP Paribas have replaced Hong Kong Shanghai Banking Corporation as the technical bank for the life of the facility;

· the tenor of the loan was extended by 12 months until 31 December 2019;

· a less aggressive capital payment profile was applied details of which are in the table below;

· to facilitate the new capital payment profile an amount equal to US $28,160,000 was expired from the front end of the capital payment profile rescheduled in January 2016, and applied to the back end of the newly rescheduled capital payment profile; see table below for details;

· the two outstanding facilities (a. US $71 million senior facility and b. US $8 million cost overrun facility) were rolled into one senior debt facility;

· the facility interest rate pre Project Completion¹ payable is US 6 month LIBOR plus a 5.75% margin;

· post Project Completion the interest rate applied is US 6 month LIBOR plus a 4.75% margin;

· an accelerated 35% cash sweep is applied as capital payments payable to the Lenders, on available free cash;

· no additional hedging was included but the Company can at its election enter into hedge contracts;

· the cost of providing the rescheduled facility was 1.25% of the outstanding capital amount or US $1,012,500 payable in four quarterly instalments of which three payments have been made in H1 2017

Note¹ Project Completion occurs following the successful application of a 90 day physical and financial performance testing regime during which design throughput, recovery and operating costs are demonstrated. Typically the testing will be initiated by the Company once the plant ramp-up is complete and following a period of stable operations.

Notes:

¹ The original capital payment profile included in the Facility Agreement signed 28 May 2014 with the Lenders

² The original capital payment profile was rescheduled in a revised Amendment Deed date 29 October 2015, with the Lenders

³ To facilitate an extension of the tenor of the loan to 31 December 2019 an amount of US $28,160,000 of new loan funds was drawn down in full on the date of an Amendment Deed on 15 December 2016 and utilised to extinguish capital amounts due on 3 June 2016 and 31 December 2016 to the total amount of US $28,160,000; the capital payment of the new loan funds (US $28,160,000) together with the balance of the total capital amounts outstanding (US $52,840,000) have been rescheduled in new quarterly amounts payable to the Lenders commencing 31 March 2017 and ending 31 December 2019.

HEDGING

Under the hedging requirements of the senior debt Facility Agreement dated 28 May 2014, FCF entered into contracts for interest rate swaps for an aggregate notional principal amount that is at least 40% but not more than 100% of the interest rate commitments over the term of the loan facility. The commitments were calculated based on company forecast. The variable six month US Libor rate is swapped out for a fixed rate of 1.575% over the term. No further interest rate swap contracts were required after the January 2016 or December 2016 debt rescheduling agreements. The cost to the company payable upon settlement dates of this hedge facility during 2016 was US $162,405.

FCF entered into a series of gold forward sales contracts for 30% of the annual forecast gold production of the Project over three years with contracts settling on a quarterly basis for 7,500 ounces of gold each quarter. The initial forward sales orders placed totalling 90,000 ounces of gold at twelve quarterly intervals of 7,500 ounces each quarter. At the election of the Lenders a further 15,000 ounces of gold may be contracted for settlement in 2018 in two quarterly tranches of 7,500 ounces of gold each. To date these elections have not been taken up by the Lenders and no further gold forward sales contracts were required after the January 2016 or December 2016 debt rescheduling agreements.

All forward sales contracts are cash settled instruments. Cash settlements for 2016 were for the benefit of the Project of US $1,778,233 (2015; US $1,887,150). In Q1 2017 US $370,466 and Q2 2017 US $320,494 were received for the benefit of the Project.

The fixed average weighted forward price achieved on the forward sales contacts for 90,000 ounces of gold is US $1,287.36.

The remaining forward gold price swap contracts outstanding as at 31 December 2016 in their maturing years is:

The Company decided to close out the eight forward gold sales contracts maturing in 2016 by placing stop loss orders for each settlement, to preserve the value in the hedge contracts for the benefit of the Project in a period when the gold price was rising towards the strike price; and wherein the Project had no matching gold sales. The Lenders were in agreement with this strategy on the basis the Project had no matching gold deliveries and preferred the Project would not have a cash payment exposure in its current liquidity situation. The table below explains the result of the decision to close out the four quarterly hedge contracts and whereby the Project benefited by receiving a total of US $1,334,800 when the contracts settled.

Two forward gold sales contract maturing in Q1 2017 but settling in Q2 2017 naturally matured at the market closing price on the contracted fixing date, 31 March 2017 as follows:

INTEREST PAYMENTS

All interest payments due and payable to the Lenders have been made by the Project and a total of US $5,392,204 interest payments were made in 2016 (2015: US $4,382,252) and a further US $1,324,180 paid during H1 2017.

FOREIGN EXCHANGE

The Group recognised other comprehensive income of £17,565,678 (2015: £182,115) on the translation of the financial statements of foreign operations into GBP principally as a result of a depreciation of the GBP against the Philippine Peso during the 2016 financial year.

CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME for the year ended31 DECEMBER 2016

CONSOLIDATED BALANCE SHEET as at 31 DECEMBER 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 DECEMBER 2016

Equity is the aggregate of the following:

· Share capital; being the nominal value of shares issued

· Share premium account; being the excess received over the nominal value of shares issued less direct issue costs

· Shares to be issued reserve; being the credit side of the entry relating to the expense recognised in the Statement of Total Comprehensive Income for share based remuneration

· Translation reserve; being the foreign exchange differences on the translation of foreign subsidiaries

· Remeasurement reserve: being the cumulative actuarial gains and losses, return on plan assets and changes in the effect of the asset ceiling (excluding net interest on defined benefit liability) recognised in the Statement of Comprehensive Income.

· Profit and loss account; being the cumulative loss attributable to equity shareholders

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 DECEMBER 2015

CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 DECEMBER 2016

NOTES

1. Loss per share

The loss per share was calculated on the basis of net loss attributable to equity shareholders divided by the weighted average number of ordinary shares. The basic and diluted loss per share is the same, as the exercise of share options and warrants would reduce the loss per share and therefore, are anti-dilutive.

2. Net cash used in operating activities - Group

3. Annual report and accounts

A copy of the annual report and accounts will be posted to the shareholders shortly and will also be available from the Company's registered office, 200 Strand, London, WC2R 1DJ, and on the Company's website: www.metalsexploration.com. Notice of an annual general meeting of the Company to be held at 11:00 a.m. on 15 June 2017 will be posted together with the annual report and financial statements.

4. Financial information

The financial information set out in this announcement does not comprise the Group's statutory accounts for the year ended 31 December 2016 or for the year ended 31 December 2015.

The financial information has been extracted from the statutory accounts of the Group for the year ended 31 December 2016 and the year ended 31 December 2015. The auditors reported on these accounts. Their reports were unqualified and did not contain a statement under either Section 498 (2) or Section 498 (3) of the Companies Act 2006. The auditors drew attention to the Going Concern principle by way of emphasis in their reports on the statutory accounts for the years ended 31 December 2016 and 31 December 2015.

The statutory accounts for the year ended 31 December 2015 have been delivered to the Registrar of Companies, whereas those for the year ended 31 December 2016 will be delivered to the Registrar of Companies following the Company's annual general meeting.

The accounting policies are consistent with those applied in the preparation of the interim results for the period ended 30 June 2016 and the statutory accounts for the year ended 31 December 2015, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.