Metals Exploration : Interim Results 30 June 2020

Review of Operations

COVID-19 Impact

The world-wideCOVID-19 pandemic had a negative impact on the Group's operations during H1 2020. Mining and gold production activities continued uninterrupted, albeit at mining rates and gold recovery rates less than those being achieved prior to the pandemic.

To comply with the Philippine government COVID-19 guidelines the Group restricted the movement of personnel to and from the mine site. Travel restrictions have resulted in a number of senior personnel being unable to return to site. In particular, senior maintenance managers have been unable to return which, together with the delays in sourcing appropriate spare parts, placed pressure on the Company's operations and maintenance procedures. Recently some senior expat personnel have managed to return to the project site, however, this does not include key maintenance managers.

Notwithstanding these issues H1 2020 resulted in gold sales of US$52.9 million, an increase of 31.3% over H1 2019: (US$40.3 million). Operations resulted in positive free cash flow of US$8.6 million, a 43.3% increase on H1 2019 (US$6 million).

The Company's on-site procedures for testing for, and quarantining, of potential COVID-19 cases has to date successfully ensured the safety of its employees and contractors. The Company continues to be compliant with all relevant government directives with regards COVID-19. To date, only one employee who has tested COVID-19 positive has been at the mine site. A small number of other employees and contractors have also tested positive for COVID-19, but the Company's processes have prevented all but one of these people from accessing the mine site.

The outstanding safety record of the operation continues with in excess of 11 million man-hours with no lost time incidents occurring since the last lost time incident in December 2016. All employees and contractors are to be congratulated on this ongoing achievement.

Finance

On 30 January 2020 Runruno Holdings Ltd and MTL (Guernsey) Ltd, (an associated company of MTL Luxembourg SARL), the Company's two major shareholders and mezzanine lenders, completed a sale agreement with HSBC and BNP Paribas to purchase all the rights and obligations under Runruno Facility Agreement (the "Senior Facility"). The Senior Facility was acquired 70.6% by MTL Guernsey Ltd and 29.4% by Runruno Holdings Ltd.

On 9 March 2020, the Company announced that it had been unable to reach agreement on the continuation of the Standstill Agreement in respect of the Senior Facility (which had been in place since March 2019) and, due to the material uncertainty of the Company's financial condition, its shares were suspended from trading on the AIM market of the London Stock Exchange.

Post half year end on 23 October 2020 the Company announced it had completed a debt restructuring with its lenders. The concessions negotiated as part of this debt restructuring, in the Company's opinion, removed the financial uncertainty that brought about the suspension of trading of its shares on the AIM market. As a result, the Company's shares resumed trading on the AIM market on 26 October 2020.

As part of the restructuring the 2011 Shareholder and Subscription Agreement was terminated and was replaced by market standard Relationship Agreements between the Company and its two largest shareholders. This outcome updates the Company's corporate governance practices such that it is in far greater compliance with the QCA Code and which will assist the Company being able to seek new independent directors to join the Board.

Further details of the terms of the debt restructure agreement with the lenders can be found in Note 7 - Subsequent Events.

As at half-year end the Group's total debt, including unpaid interest and fees, was US$132.8 million. No debt principal repayments were made during H1 2020. Details of these debt facilities can be found in Note 5.

Mining

Mining production of ore and waste was 5.5Mt for H1 2020 and the total ore mined was 1.12Mt, slightly in excess of budget. Mining activity had been significantly reduced from early April 2020 as operations were scaled back in response to the impact of the COVID-19 government measures. Offsetting the reduced mining activity certain cost savings were achieved, including from reduced contract machinery usage. Notwithstanding this, total ore production for H1 2020 was not materially impacted as the reduced material movement was largely limited to advance waste movements. Since the half-year end mining operations have returned to normal.

Access to Stage 3 of the mine plan which is critical to advancing mining operations has been hampered during H1 2020 by the resettlement of the illegal miners from this area. However, the resettlement process has progressed during (and since) the half- year period and the Company now has full access to the areas required to develop Stage 3. Work is ongoing in relation to the resettlement of illegal miners from Stages 4 and 5 of the mine plan.

The long over-due critical fleet maintenance programme that commenced in Q3 2019 took longer than expected to complete as delays in delivery of replacement parts occurred. However, the programme has now been completed.

Operations also took receipt of three 100 tonne Komatsu 785 trucks which were put into operations during July. This addition to the mining fleet is critically important to support the longer haulage journeys that will unfold as the outer pit dump develops, as well as reducing the reliance on mining contractor's equipment.

The programme of infill resource and mine plan drilling that commenced in Q3 2019 and was expected to be completed by the end of Q2 2020 has been delayed due to COVID-19. However, management have been working on the development of a new resource model to attempt to better reflect sulphur and ore variability into a more advanced structural model. Further drilling is required in Stages 3 to 5 of the mine plan; however, this has been delayed due to the need to complete the resettlement of illegal miners in the area. Operations are targeting to complete this drilling during 2021.

Process plant

Throughput for H1 2020 of 1.05Mt was on budget, however, operations were managed to a lower feed grade. Overall recovery for H1 2020 was negatively impacted by BIOX downtime, caused predominantly by external and internal power failures leading to a reduction in carbon-in-leach (CIL) gold recovery. Although H1 2020 gold production was slightly in excess of H1 2019 it was under budget at 31,940 ounces at a recovery rate of 68.5%.

Unplanned process downtime that impacted on production during H1 2020 included: power outages, compressor trips, blocked SAG mill discharge gates, tails line failures, BIOX agitator gearbox failure/repair and conveyor belt repairs.

On 29 March 2020 and again in June 2020, an external power failure and subsequent internal back systems and cable failures led to extended downtime in the agitation and air supply to BIOX. Unfortunately, this lack of air to BIOX resulted in a collapse of the BIOX bacteria culture and the BIOX oxidation process. BIOX reactivated in the first week of May and returned to full production by mid-May. A second internal failure of the BIOX power supply occurred on 27 June which resulted in a 14 hour loss of air to the BIOX circuit while a new cable was spliced and tested. Again this lack of air led to a BIOX collapse. The operational team, on this occasion, were able to bring the BIOX circuit back on-line and return the circuit to a stable operating manner within three weeks. During these periods of BIOX being off-line the process plant continued to operate feeding flotation concentrate directly to CIL at reduced recoveries.

With the lack of available resources, on-site senior maintenance management personnel, supervision and contractors to assist with site maintenance, the reliability of BIOX and the complete plant was a significant issue during H1 2020. These issues have continued since half-year end and will be of ongoing concern for operations while the COVID-19 pandemic impacts on the movement of people and supplies.

Since half-year end there have been a further two significant power failures that have impacted on the BIOX circuit, however, the operations team were able to bring the BIOX system back online within 7-10 days of the outage, thereby minimising the overall impact of these events.

Sulphur feed tonnes remained above design for most of H1 2020, with a large portion of the feed being sent directly to CIL while the BIOX circuit was recovering. Oxidation is therefore difficult to calculate for H1 2020. CIL recovery was affected by the numerous losses of the BIOX circuit, however by managing a lower grade feed and maintaining where possible higher grade in stocks, losses were minimised.

With the lack of available resources and parts, operations are prioritising keeping equipment running rather than attempting to enhance production outcomes. All major shutdowns have been delayed including the scheduled maintenance to the blowers and the mill. The mill grates are targeted to be replaced in November 2020 which will aid in plant throughput and the new blower is targeted to arrive in Q1 2021.

Residual Storage Impoundment ("RSI")

The RSI is operating to design with an excellent environmental performance record. Staged construction of the RSI continues with development of Stage 5.5 expected to be completed in 2021.

The performance of the RSI is continuously monitored by an independent international consulting group.

Community & Government Relations

Productive relations with both the community and the government continue. The Company has continued with its consultation with the government in relation to removing illegal miners, their infrastructure and dwellings from those areas scheduled to be mined as part of mine plan Stages 3 and 4. Access to Stage 3 of the mine is being developed.

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.

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

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