Interim Results 30 June 2020

CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT for the six months ended 30 June 2020

Notes to the condensed consolidated interim financial statements

1.             General information

These condensed consolidated interim financial statements of Metals Exploration and its subsidiaries (the "Group") were approved by the Board of Directors on 30 October 2020. Metals Exploration is the parent company of the Group. Its shares are quoted on AIM, part of the London Stock Exchange. The registered address of Metals Exploration plc is 200 Strand, London, WC2R 1DJ.

The condensed consolidated interim financial statements for the period 1 January 2020 to 30 June 2020 are unaudited. In the opinion of the Directors, the condensed consolidated interim financial statements for the period presents fairly the financial position, and results from operations and cash flows for the period in conformity with the generally accepted accounting principles consistently applied. The condensed consolidated interim financial statements incorporate unaudited comparative figures for the interim period 1 January 2019 to 30 June 2019 and the audited financial year ended 31 December 2019.

The financial information set out in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The Group's statutory accounts for the year ended 31 December 2019 which were prepared under International Financial Reporting Standards ("IFRS") as adopted for use in the European Union, were filed with the Registrar of Companies.  The auditors reported on these accounts and their report was 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 a material uncertainty regarding Going Concern by way of emphasis.

2.             Basis of preparation

These condensed consolidated interim financial statements are for the six-month period ended 30 June 2020, using accounting policies consistent with IFRS as adopted for use in the European Union. The financial information has been prepared on the basis of IFRS that the Board of Directors expect to be applicable as at 31 December 2020.

These condensed consolidated interim financial statements have been prepared under the historical cost convention. There have been no changes in accounting policies as described in the 2019 annual financial statements

Notes to the condensed consolidated interim financial statements (continued)

3.             Going concern

These condensed consolidated interim financial statements of the Group have been prepared on a going concern basis, which contemplates the continuity of business activities and the realisation of assets and the settlement of liabilities in the normal course of business.

To date the Group has managed to limit the impact of COVID-19 on its operations, the main impacts that have arisen during the COVID-19 crises are the limitation on movement of personnel to/from the project site and in/out of the Philippines, and supply chain interruptions affecting receipt of spares and consumables. These pressures are being managed and gold production is at the time of this report returning to close to towards target levels. The longer the impacts of the pandemic continue the more at risk the operations become, however the Group's ability to keep the project in a positive cash flow position to date during the pandemic gives the Group reason to believe the impact of COVID-19 will not affect the future going concern status of the Group.

Notwithstanding the impact of COVID-19 the operational performance of the project combined with the recent gold price increases has resulted in results for the H1 2020 significantly improved compared to H1 2019.

Although as at 30 June 2020, the Group's current liabilities exceeded its current assets by US$111 million due primarily to the portion of the Group's external borrowings that was scheduled to be repaid by 30 June 2020, the Group has, in October 2020 completed a restructure of its debt such that there is no longer any set principal or interest repayment schedule.

Excess free cashflow will be paid to lenders on a quarterly basis only when net working capital is in excess of US$5million. In addition the Group is not in default if it is unable to make a quarterly payment to the lenders. As a result of this debt restructure and the ongoing existence of a US$5million positive net working capital balance, together with the sustained positive cash flows being produced by the Project, the Directors believe there is no longer material uncertainty over the Group's going concern.

Over the next financial periods, the continuing viability of the Group and its ability to operate as a going concern and to meet its commitments as and when they fall due is dependent upon the ability of the Group to operate the Runruno Project successfully so as to generate sufficient cash flows from the Runruno Project to enable the Group to settle its liabilities (including the restructured debt facilities) as they fall due.

On the basis of the above the Directors believe that the Runruno Project will continue to operate successfully and produce positive cash flows. As a result the Directors consider it appropriate that the half-year financial statements should be prepared on a going concern basis.

Notes to the condensed consolidated interim financial statements (continued)

4.             (Loss)/profit per share

The (loss)/profit per share was calculated on the basis of net (loss)/profit attributable to equity shareholders divided by the weighted average number of ordinary shares.

5.             Loans

On 28 May 2015, the Company entered into a loan Facility Agreement with two foreign international resource banks for US$83,000,000 in project finance.  In January 2020 the Facility Agreement was acquired by companies associated with the Mezzanine Lenders (the "New Lenders"). The principal plus capitalised interest balance owing by the Group under the Facility Agreement as at 30 June 2020 was US$70,818,508.

Since 2015 the Company entered into numerous facility agreements with two major shareholders, MTL (Luxembourg) Sarl and Runruno Holdings Limited (the "Mezzanine Lenders"). The purpose of these unsecured advances was for general corporate and working capital requirements of the Company and to enable completion of the Runruno project. The principal and accrued interest/fees balance owing by the Company to the Mezzanine Lenders as at 30 June 2020 was US$62,014,689.

In September 2020 the Group reached a conditional in-principle agreement with its lenders to restructure its borrowings such that it will no longer be in default and result in a sustainable debt profile. On 23 October 2020 this agreement was completed. Refer to Note 7 - subsequent events.

The Group's outstanding loan positions (including outstanding interest/fees) were:

Notes to the condensed consolidated interim financial statements (continued)

6.             Contingent liabilities

The Group has no contingent liabilities identified as at 30 June 2020 (2019: US$nil), other than:

·      The Company has commenced a review of its options to comply with its RSI closure spillway obligations, which is a direct link to a non-current liability provision for mine rehabilitation. A preliminary assessment has been received from an external consulting group in relation to this matter. The Company is reviewing the implications of the conclusions in this report and as a result will implement various studies to assess the optimum engineering and logistical method to satisfy its RSI closure obligations.

These studies are at an early stage and will take several months to advance to a point where the Company can reliably estimate the potential cost of its future RSI closure obligations with any degree of certainty.

Accordingly, it is currently not practicable to reliably estimate this RSI closure obligation, however it is possible that the Company's potential closure cost estimation could change materially. The Company expects that to complete its studies within the next twelve months such that it can reliably estimate these additional closure costs.

7.             Subsequent events

On 23 October 2020 the Group completed a restructuring of its outstanding debt with its lenders, whereby both the Senior Facility and the Company's various pre-existing Mezzanine debt facilities (which are held by the New Lenders and Mezzanine Lenders) were replaced by (i) an amended and restated senior facility (the "New Senior Facility"); (ii) two amended and restated mezzanine facilities (the "New Mezzanine Facilities"); and (iii) a new revolving credit facility (the "RCF Facility") (together the "New Debt Facilities"). The material terms of the restructuring were announced on 8 September 2020 and are summarised below:

·      The Group will no longer be subject to set fixed principal and interest repayment schedules and will no longer be in default with effect from completion of the restructuring;

·      The Group will instead be required to make a quarterly repayment to the Lenders (a "Quarterly Payment") within five business days of each quarter end, being an amount that is equal to the Group's net working capital ("NWC"), subject to first establishing and maintaining a US$5 million cash buffer. NWC is defined as the Group's available cash on hand plus gold sales proceeds due, and gold doré on hand or in transit, less all current liabilities (including approved operational, CAPEX and exploration expenses, taxes, hedging costs and government charges, but excluding all unpaid debt principal and interest);

·      The Quarterly Payments will be applied in the following order: (i) to pay any applicable fees or costs of the Lenders under the facilities; (ii) interest on the New Senior Facility; (iii) New Senior Facility principal; (iv) interest on the New Mezzanine Facilities; and (v) principal on the New Mezzanine Facilities;

·      In September 2020 the Company paid RHL and MTLL US$4,000,000 in aggregate, being interest from 30 January 2020 to 31 August 2020 and a repayment of principal of approximately US$710,000 under the Senior Facility;

·      The New Senior Facility interest rate will be set at 7per cent per annum accruing daily and compounding quarterly;

·      The interest rate on the New Mezzanine Facilities will initially be set at 15per cent per annum accruing daily and compounding quarterly;

·      Upon full repayment of the New Senior Facility, the New Senior Facilities will be amended and restated so that all amounts then due under the New Mezzanine Facilities as at such date will instead become due under the New Senior Facility without any other amendment to the terms of the New Senior Facility.  This would result in the outstanding amount becoming secured as per the New Senior Facility, in exchange for the interest rate being reduced to 7 per cent. per annum;

·      The Group is no longer required to pay a 1.3 per cent. gross production fee upon gold production (which was a requirement under the existing mezzanine debt facilities in respect of the period up to 30 September 2022);

·      In circumstances where the Group is in default an additional penalty interest of 5per cent per annum will apply;

·      The 2011 Shareholder and Subscription Agreement has been replaced by new relationship agreements with RHL and MTLL, respectively, providing far greater compliance with current corporate governance guidance;

Notes to the condensed consolidated interim financial statements (continued)

7.             Subsequent events (continued)

·      The RCF is for an amount of £100,000 and has a term of 10 years from the date Company repays in full all amounts owed under the New Senior Facility and the New Mezzanine Facilities, unless terminated earlier by the lenders or by the Company repaying all amounts under the RCF, together with a redemption premium of £2 million to each of RHL and MTLL. Under the terms of the RCF, the Company has undertaken not to implement certain operational decisions without prior approval of the Lenders;

·      The New Debt Facilities incorporate operational covenants and events of default that are normal for these types of facilities, however a non-payment of a Quarterly Payment due to insufficient NWC is not an event of default; and

·      The Company agreed to pay the reasonable costs and expenses incurred by the Lenders in implementing the restructuring.