Metals Exploration PLC – Half-year Report

Metals Exploration plc (AIM: MTL) (“Metals Exploration” or “the Company”), the natural resources exploration and development company with assets in the Pacific Rim region, announces its interim results for the six months ended 30 June 2019.

Highlights

·      Gold production of 30,774 ounces, an increase of 34% over the 2018 half-year of 22,952 ounces;

·      Gold recoveries of 66.1%, an increase of 20.6% over the 2018 half-year of 54.8%;

·      Gross profit of US$8.49 million achieved compared to gross loss for the 2018 half-year of US$3.46 million;

·      Positive cashflow from operations of US$3.47 million, compared to a cash outflow from operations for the 2018 half-year of US$1.16 million;

·      Restructuring negotiations with lenders continues to progress with a standstill agreement in place; and,

·      New management team in place.

Production Summary

Mining

Although impacted by continuing equipment availability issues the total material mined for the half year was 5.69Mt (million tonnes), a 41.1% increase in total material mined compared to the first six months of 2018. Total ore mined increased by 34.2% to 1.02Mt (2018: 0.76 Mt).

Long overdue re-builds of the Group’s mobile mining fleet have commenced since the period end.

Actual mine dilution rates continue to be higher than original forecasts, with recovery against model falling to 85%, due to mining in low confidence areas. The higher average dilution is reflective of the historical mining results and is expected to continue. The increased mine dilution rates of 25% have been adopted in the Company’s new internal forecasts, so that the plant feed grades and forward production can be more accurately budgeted. Efforts to improve resource confidence are required and a programme of infill resource and mine plan drilling has commenced in mine plan Stages 1, 1.5 and 2.

Process plant

Plant availability in the half-year has been negatively impacted by continual tailings pipe failures. External consultants have been engaged to provide both short and long term solutions to this issue. Notwithstanding this, the overall reliability of the process plant improved during Q2 2019. This allowed the operations team to increase throughput to offset the lower head grade, however, this impacted on flotation recovery with an overall net benefit to the operations.  Total ore milled increased by 13.2% to 0.92Mt (2018: 0.81Mt).

The key processing issues affecting the process plant during the half-year were frothing in BIOX®, and flotation recovery due to the higher throughput during Q2 2019. Working with the technical experts from the BIOX® licencing company, management has determined that there are two key components associated with the frothing, these being (i) the non-sulphide gang fines entrained in the flotation concentrate, and (ii) the reagent in use.  Various trials are taking place to determine the optimum method to reduce the frothing issue.

Review of Operations

During the half-year the Company commenced and completed the first stage of the review of the process plant. An engineering and offsite testing programme has been approved and commenced.  The focus of all work is on improving and increasing flotation capacity, understanding gold deportment and mineralogy and therefore overall gold recovery. 

In addition, a review of the future mine plan was undertaken with results to be delivered to management shortly.  A short-hole and long-hole infill drilling programme in Stage 2 of the mine plan will be undertaken during the next six-month period.

The organisational chart for the operations has now been filled with all operations and maintenance personnel on-boarded.

Residual Storage Impoundment (“RSI”)

Construction of the next raise of the RSI continues and the installation of a bituminous liner to the upper embankment is expected to be completed in the second half of 2019.

Community & Government Relations

Productive relations with both the community and the government continue. The Company is also in consultation with the government in relation to the impending need to remove illegal miners, their infrastructure and dwellings from those areas scheduled to be mined as part of mine plan Stages 3 and 4. The Company’s mine plan requires it to have access to Stage 3 before the end of the year in order to avoid disruption to operations.

Finance

On 31 March 2019 a standstill agreement was entered into with both the Group’s lenders, HSBC and BNP Paribas (the “Senior Lenders”) and its major shareholders, MTL Luxembourg SARL and Runruno Holdings Ltd, as holders of its mezzanine debt (the “Mezzanine Lenders”). Under this standstill agreement, the Group is not required to make interest or principal payments to either the Senior Lenders or the Mezzanine Lenders until further notice. This standstill agreement was extended on a number of occasions and it remains in place. The aim of this standstill has been to provide time for all parties to consider debt restructuring options.

No principal repayments were made during the quarter and as at the period end the Group had total borrowings of $104.14 million plus $13.81 million in outstanding interest/fees.

Discussions with both the Senior Lenders and the Mezzanine Lenders are ongoing and progressing.

Corporate

On 1 January 2019 Darren Bowden was appointed as a director and Chief Executive Officer; while Andrew Stancliffe was appointed as a non-executive director on 5 February 2019. Messrs Holzberger and Simovici resigned during this half year.

This Announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 (“MAR”). Upon the publication of this Announcement, this inside information is now considered to be in the public domain.

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