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29 September 2023

Capital Metals plc

("Capital Metals" or the "Company")

AGM Statement

Project Development & Legal Updates

Capital Metals (AIM: CMET), a mineral sands company approaching mine development stage at the high-grade Eastern Minerals Project in Sri Lanka (the "Project"), provides the following updates, ahead of today's Annual General Meeting, on Project development activities and the Company's actions to resolve the illegal suspension of Industrial Mining Licences 16236 and 16237 (the "IMLs").

Project Development Update

Procedural reforms

The Company is pleased to note that a Sri Lankan government cabinet paper setting out a change in mineral licensing procedures was approved in late July 2023. Pursuant to this new policy, the Company understands that the Board of Investment of Sri Lanka (the "BOI"), the investment promotion agency, will now be involved in the appraisal of and recommendation for the approval of mineral licences while the GSMB will have a continuing role in managing licences. The Sri Lankan authorities have not yet issued a policy statement confirming such policy changes; however, the Company has been informed by the BOI that it has started acting based on the approved cabinet paper and is developing procedures whereby the BOI will impose time limits on the receipt of approvals required from the GSMB. The Company is in the final stages of establishing a BOI company which will hold all its interests in Sri Lanka and will be afforded the direct protections against nationalisation under the Constitution of Sri Lanka as well as other fiscal incentives.

Environmental Impact Assessment ("EIA") - EL199

The Company is in the advanced stages of preparing to carry out the EIA according to the terms of reference issued by the CCD but will delay the commencement of the study until the Company receives clarity on the IML situation. 

Other Project updates

The Company is currently refining the minimum areas of ground required to cover the Project resource in the EL168 tenement area and ensure that land access applications can be completed in a more efficient manner. It is anticipated as a result that the Company will be able to relinquish ground that is not required and therefore reduce costs.

Update re Suspension of IMLs

Legal actions: Court of Appeal

The first hearing in the proceedings issued by the Company in the Court of Appeal of the Democratic Socialist Republic of Sri Lanka was held on 29 August  2023. The Board has been encouraged by the cooperative approach to the proceedings demonstrated by the attorneys from the Attorney General's department acting for the Respondents (as listed in the Company's 31 July 2023 announcement) (the "Respondents' Attorneys").

The Respondents' Attorneys requested that further proceedings be deferred until after the Company's statutory appeal before the Secretary of the Ministry of Environment (the "Secretary") against the notice of cancellation of the IMLs issued by Geological Survey and Mines Bureau (the "GSMB") (as announced on 12 December 2022) has taken place. While there can be no certainty as to the outcome of the statutory appeal hearing, the request for deferment until after the statutory appeal hearing decision gave the Board cause for some optimism around its outcome. 

The Respondents' Attorneys also provided assurances to the Company that the GSMB will provide guidance on any outstanding matters in connection of the Company's multiple pending applications for additional Industrial Mining Licences related to the Project. The Respondents' Attorneys also confirmed that the areas covered by Exploration Licence 168 shall be protected during the proceedings and not be awarded to any third party thereby safeguarding the Company's rights. In recent discussions with the Department of Coast Conservation and Coastal Resource Management ("CCD") the CCD also confirmed that, as the Company has completed the Environmental Impact Assessment over the relevant area, no third party can obtain a mining licence over the same area. 

Legal actions: statutory appeal

The statutory appeal hearing before the Secretary was held on 27 September 2023, with a new independent legal officer, who had been appointed pursuant to the Committee on Public Enterprises' inquiry into the conduct of the GSMB, actively assisting the Secretary.

The Company's Country Manager and legal counsel made submissions in the capacity of the appellant; while the Chairman, Director General, and other senior officers of the GSMB and legal counsel appeared for the respondent. The Director General of the GSMB refused to speak despite all the correspondence regarding the temporary suspension and notice of cancellation of the IMLs coming from him. This was noted by the Secretary.

The Board is confident of a positive outcome from the hearing in due course; however, should a definitive positive outcome not be forthcoming from the statutory appeal, the Company can refer the matter to the Supreme Court of Sri Lanka in addition to continuing the Court of Appeal proceedings.

Legal actions - international

Preparatory work is ongoing with Boies Schiller Flexner to pursue a claim against the Government of Sri Lanka under the Bilateral Investment Treaty agreement between the Government of the United Kingdom and Northern Ireland and the Government of Sri Lanka for the promotion and protection of investments (the "BIT"). The next stage is to secure the support of a litigation fund to advance the BIT claim should it be necessary.

Greg Martyr, Executive Chairman, commented:

"Through a combination of procedural reforms and public inquiries, it is pleasing to see the ability to abuse authority and frustrate the mineral licensing process is gradually ebbing away from officials in the GSMB. This can only be a good thing for the country and our situation.

We have a good relationship with the BOI and earlier this month I held encouraging meetings in Sri Lanka with the department who acknowledged our long-term commitment to the Project and the country, and recognised the benefits that will flow from much-needed foreign direct investment, taxes, royalties, employment, and knowledge transfer. We look forward to working much closer with the BOI in the development of the Project.

The legal proceedings in which we have participated to date have been conducted in a professional manner with the cooperation of the senior Sri Lankan authorities involved. This reinforces our view that the suspension of the Company's IMLs is the work of a minority of bad actors and is not supported by the state. It is disappointing that the Chairman of the GSMB appears still to be pursuing his own agenda, which is clearly not aligned with the state, but we remain confident that the rule of law will prevail. We are working towards that outcome while positioning the Company to seek recourse under the BIT should it be necessary to resort to international arbitration.

In the meantime, the Company is closely monitoring costs to ensure we have sufficient funds to cover overheads while keeping any ground activity to a minimum until we get a positive response on the IMLs."

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

About Capital Metals

Capital Metals plc is a British company listed on the AIM segment of the London Stock Exchange and one of only a few foreign investors in Sri Lanka's mining industry. After investing US$11 million in exploration and development activities including detailed environmental assessments between 2017 and 2022, the Company's Sri Lankan subsidiary, Damsila Exports (Pvt) Limited, was issued an initial two licences in August 2022 to mine heavy mineral sands in the Eastern Province, containing industrial minerals including ilmenite, rutile, zircon, and garnet.