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Monterrico Metals plc

('Monterrico' or the 'Company')

16 September 2008

Interim Results for the period ended 30 June 2008

Highlights

• Two conditional warrant agreements entered into with Agropecuaria Las Huaringas S.A., a private subsidiary of the Romero Group. 

• Appointment of Mr Fusheng Lan as Non-executive Chairman

• Head office relocation to Hong Kong to strengthen relationships with major shareholders in Asia

• Commission of a new trade off study to evaluate alternative technical options for the development of the Rio Blanco Project. Completion of study expected Q4 2008.

• Significant progress made on the Environmental and Social Impact Assessment license.

• Continued robust support from the Peruvian Government

• Financial Results

  • Operating loss for the period reduced to US$ 1,450,000 (30 June 2007: US$ 8,998,000)

  • Loss for the period improved to US$ 1,664,000 (30 June 2007: US$ 8,899,000)

  • Cash and cash equivalents at the end of June amounted to US$ 1,722,000

  • Available drawdown balance from loan with Zijin Consortium of US$7.5m, as at 30 June 2008.

Commenting on these results, Fusheng Lan, as Non-executive Chairman of the Company said:

'I am delighted to be appointed as the Non- Executive Chairman of the Company and I am also very pleased with the progress of the Company. The Company has taken great steps to ensure achieving sustainable development of its major project, Rio Blanco Copper Project.'

Enquiries:

Monterrico Metals plc

Susan Li, Finance Director                                               Tel: +852 2803 2738

Andrew Bristow, Investor Relations Manager           Tel: +511 226 3322

Evolution Securities Limited                                            Tel: +44 (0)20 7071 4300

(Nominated advisor)

Rob Collins

Tim Redfern

Adam James

Evolution Securities China Limited                               Tel: +44 (0)20 7220 4850

(Financial advisor and broker)

Nick Martin

Jerry Zheng

Chief Executive Officer's Statement

Dear Shareholder,

I am pleased to report that Monterrico is making steady progress to becoming a major mining company. Monterrico has moved its head office from London to Hong Kong to strengthen relationships with major shareholders in Asia as well as accessing the capital market both in London and Hong Kong to attract Asian investors.  The Board of the Company has been strengthened with the appointment of Mr Fusheng Lan as Non-executive Chairman, who brings extensive experience in the mining sector. We believe that as the Chairman of the Zijin Consortium and the Vice Chairman of Zijin Mining Group Co. Ltd., the largest shareholder of the Zijin Consortium, Mr Lan will bring strong guidance and technical support to the management of Monterrico. The outgoing non-executive Chairman, Mr Richard Ralph, has been invited to take the position of Senior Advisor to the Board of Rio Blanco Copper S.A., the Company's Peruvian subsidiary that is directly responsible for the development of the reputed Rio Blanco copper - molybdenum deposit.

Rio Blanco Copper S.A. has made a lot of progress with community relationships and in reviewing the results of the feasibility study in the past months. The Company has also consolidated the strong support from the Peruvian central and regional governments to develop the Rio Blanco Project.

On 28 August 2008, the Company granted two conditional warrant agreements to Agropecuaria Las Huaringas S.A. ('ALH'), a private company wholly owned by the Romero Group, a large Peruvian private business group. The Warrants are conditional upon, inter alia, the passing of the Resolutions to give the directors the authority to grant the Warrants and to disapply the statutory pre-emption rights under the Act in respect of such grant.  In addition, the second Warrant is conditional on the Company's Peruvian subsidiary, Rio Blanco Copper S.A. obtaining approval of the EIAS by the Peruvian Ministry of Energy and Mines for the Rio Blanco Project. The Warrants together grant ALH conditional rights to subscribe for up to 20 per cent of the Company's issued share capital in issue at the time of exercise as enlarged by the grant of such Warrants. The Company believes that a strategic partnership with ALH would provide significant in-country and industry expertise to the Group in connection with the production phase of the Rio Blanco Project.

 

1.  Detailed Feasibility Study ('DFS') Review

Over the past months the Company's DFS has been reviewed, both internally, by the new management, and in conjunction with the principal consultants involved.  From the review, management has concluded that the DFS has a number of deficiencies and that the current design does not represent the optimum plan for the long term development of the Rio Blanco Project.

The rising cost of capital items over the past year, even without the inclusion of the preferred pipeline option, makes it prudent to consider a wider range of scales of operation, in order to optimize the economic return of the project.

Certain elements of the project, notably the design and location of the Tailings Storage Facility ('TSF'), require further evaluation to ensure the design is suitable for long term use and that all aspects meet international environmental standards.

The transport of concentrates was to be by truck in the DFS published in 2007. Management anticipates transport of the concentrate from the mine site to the port will now be by pipeline which will improve environmental and safety performance and will also reduce operating costs through energy savings.  

To address the deficiencies in the current design, a new trade-off study was commissioned to evaluate alternative technical options for the development of the Rio Blanco Project. The objective of this study is to arrive at a design which will maximize value from the resource defined to date at Rio Blanco, optimizing the economics of the project whilst improving environmental and social outcomes. The trade-off study result is expected to be completed during the fourth quarter of 2008. Based on the result, a revised DFS will be produced by a selected group of international consultants.

 

 

2.  Environmental and Social Impact Assessment ('ESIA') Update 

Management continues to progress on the ESIA, which is expected to be completed before the third quarter of 2009. The ESIA will be conducted in accordance with international standards of environmental protection and corporate social responsibility.

 

 

3.  Social Program Update

A major priority for the Company has been the continued development of its social programs and the improvement of its contact and communication with local communities through newly installed information centers and more effective social teams. These are designed to win the support of local people for the development of Rio Blanco Project by fostering their inclusion in the formal economy through parallel development initiatives. In the future, the Company aims to focus on developing local skills which could then be utilized by the Rio Blanco Project.  These initiatives demonstrate to the people the ways in which Rio Blanco Project provides them with opportunities local through integration with a mining project and the associated infrastructure to be implemented in this isolated and impoverished region in Northern Peru.

The Peruvian Government remains robustly supportive and committed to mining in general, and the Rio Blanco Project in particular, as demonstrated by the Stability Agreement which Rio Blanco Copper S.A. concluded with the Peruvian Government during the course of the year. 

Since the Company's key projects are located in Peru, the Zijin Consortium and Monterrico management are also developing strategies to encourage more local participation.

 

 

4.  Corporate Development and Other Projects

Management has been evaluating new project development opportunities in the South American region.

 

 

5.  Internal Control and Management

Management has implemented a series of ISO standards in different management areas of the Company including human resources, accounting & financing, logistics, administration, legal department, operations and technical departments. Monterrico is also adopting an overall budget control system to closely monitor the expenditures of the Group and identify any weaknesses on internal control procedures. Internal audit work has been conducted at Monterrico's head office, and at Rio Blanco Copper S.A., to improve internal control and management. Management is also improving the human resources of the Company, building and training the teams for a producing mining company.

6.    Financials

The Company's expenditure for the period ended 30 June 2008 was principally comprised of costs incurred in relation to social programs, the review of the DFS for the Rio Blanco Copper Project and the EISA works. The Company's operating loss for the period amounted to US$1,450,000 (30 June 2007: US$8,998,000). The Company did not generate any income other than finance income. The total finance income for the period was US$157,000 (30 June 2007: US$179,000). The total interest payable by the Company to Zijin Consortium, the largest shareholder of the Company amounted to US$302,000 (30 June 2007: US$80,000). The Company's loss for the period was US$1,664,000 (30 June 2007: US$8,899,000).

The Company entered into a loan facility agreement with Zijin Consortium on 4 February 2008 with the aggregate amount of US$10 million to cover the working capital need for the Company in 2008. The available drawdown balance of the loan is US$7.5 million as at 30 June 2008.

The Company had cash and bank balances of US$1,722,000 as at 30 June 2008.

Having been the CEO of Monterrico for over a year, I am optimistic and confident of the future of Monterrico as the owner of the Rio Blanco Copper Deposit. I believe there is every reason for shareholders to be able to benefit from such a deposit and from the bright future of Monterrico.  

XIAODONG HUANG

Chief Executive Officer

12 September 2008

  THE RIO BLANCO PROJECT

 

  CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2008

			For the six months ended            30 June				Year ended 31December
	Notes		2008		2007		2007
			(Unaudited)		(Unaudited)		(Audited)
			US$’000		US$’000		US$’000
Administrative expenses			(1,450)		(2,611)		(3,940)
Non-recurring administrative expenses			-		(5,930)		(5,930)
Other income and gains			-		36		19
Exploration cost written off			-		(493)		(495)
Operating loss			(1,450)		(8,998)		(10,346)
Finance income	5		157		179		464
Finance expenses	5		(371)		(80)		(754)
LOSS BEFORE TAX	6		(1,664)		(8,899)		(10,636)
Tax	7		-		-		-
LOSS FOR THE PERIOD/ YEAR			(1,664)		(8,899)		(10,636)
Attributable to:
Equity holder of the parent			(1,664)		(8,899)		(10,636)
LOSS PER SHARE ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY
- Basic and diluted (US cents)	8		(6.3)		(33.8)		(40.4)

 

    

  CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2008

 

			30 June		30 June		31 December
	Notes		2008		2007		2007
			(Unaudited)		(Unaudited)		(Audited)
			US$’000		US$’000		US$’000
ASSETS
Non-current assets
Property, plant and equipment			646		267		283
Intangible assets – deferred exploration costs			48,246		40,537		44,200
Other receivables			3,347		3,578		2,969
Total non-current assets			52,239		44,382		47,452
Current assets
Prepayments and other receivables			123		135		350
Cash and cash equivalents			1,722		2,402		5,044
Total current assets			1,845		2,537		5,394
TOTAL ASSETS			54,084		46,919		52,846
EQUITY AND LIABILITIES
Equity
Share capital			4,546		4,546		4,546
Reserves			33,815		37,693		35,164
Total equity			38,361		42,239		39,710
Current liabilities
Trade and other payables			546		633		777
Interest bearing loans and borrowings	10		15,177		4,047		12,359
Total current liabilities			15,723		4,680		13,136
TOTAL EQUITY AND LIABILITIES			54,084		46,919		52,846

    

  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2008

		Share	Exchange
	Share	Share	option	fluctuation	Accumulated	Total
	capital	premium	reserve	reserve	losses	equity
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
At 1 January 2008	4,546	50,178	38	3,213	(18,265)	39,710
Income for the period
recognised directly
in equity
- Exchange realignment	-	-	-	134	-	134
Loss for the period	-	-	-	-	(1,664)	(1,664)
Total recognised loss
for the period	-	-	-	134	(1,664)	(1,530)
Share-based payment	-	-	181	-	-	181
At 30 June 2008	4,546	50,178*	219*	3,347*	(19,929)*	38,361
At 1 January 2007	4,546	50,178	1,092	2,494	(8,327)	49,983
Income for the period
recognised directly
in equity	-	-	-	834	-	834
- Exchange realignment
Loss for the period	-	-	-	-	(8,899)	(8,899)
Total recognised loss
for the period	-	-	-	834	(8,899)	(8,065)
Share-based payment	-	-	321	-	-	321
At 30 June 2007	4,546	50,178*	1,413*	3,328*	(17,226)*	42,239

    

*    These reserves accounts comprise the consolidated reserves of US$33,815,000 (30 June 2007: US$37,693,000) in the condensed consolidated balance sheet.

  

 

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2008

			For the six months ended              30 June				Year ended 31 December
	Notes		2008		2007		2007
			(Unaudited)		(Unaudited)		(Audited)
			US$’000		US$’000		US$’000
CASH FLOWS FROM OPERATING ACTIVITES
Loss before tax			(1,664)		(8,899)		(10,636)
Adjustments for:
Depreciation			28		45		97
Impairment on property, plant and equipment			50		-		-
Share-based payment			181		321		453
Exploration cost written off			-		493		495
Interest income			(39)		(179)		(332)
Interest expenses			302		80		384
			(1,142)		(8,139)		(9,539)
Increase in other receivables			(1,142)		(8,139)
and prepayments			(151)		(131)		(698)
Increase/(decrease) in trade and other payables			(231)		968		(801)
Cash used in operation			(1,524)		(7,302)		(11,038)
Interest received			39		179		332
Net cash outflow from operating activities			(1,485)		(7,123)		(10,706)
CASH FLOWS FROM INVESTING ACTIVITES
Purchase of property, plant and equipment			(441)		(12)		(77)
Exploration and evaluation expenditures			(4,046)		(5,702)		(9,402)
Net cash outflow from investing activities			(4,487)		(5,714)		(9,479)
CASH FLOWS FROM FINANCING ACTIVITES
Proceed from borrowings			2,516		4,012		11,853
Net cash inflow from financing activities			2,516		4,012		11,853

 

  CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2008

		For the six months ended                30 June				Year ended 31 December
		2008		2007		2007
		(Unaudited)		(Unaudited)		(Audited)
		US$’000		US$’000		US$’000
NET DECREASE IN CASH AND
CASH EQUIVALENTS		(3,456)		(8,825)		(8,332)
Cash and cash equivalents at beginning of
period/year		5,044		12,576		12,576
Effect of foreign exchange rate changes, net		134		(1,349)		800
CASH AND CASH EQUIVALENTS
AT END OF PERIOD/YEAR		1,722		2,402		5,044
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Cash and bank balances		1,722		2,402		5,044

  NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

1.  CORPORATE INFORMATION

The condensed consolidated interim financial statements of the Group for the six months ended 30 June 2008 were authorised to issue in accordance with a resolution of the directors on 12 September 2008.

Monterrico Metals Plc is a limited company incorporated in United Kingdom and its shares are publicly traded in the AIM of the London Stock Exchange.

2.  BASIS OF PREPARATION

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31December 2007.

    

The interim financial statements are neither audited nor reviewed and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. Comparatives figures for the year ended 31 December 2007 have been extracted from the Group's financial statements which received an unqualified opinion from the auditors and did not contain any statement under Section 287(2) or (3) of the Companies Act 1985 and have been filed with the Registrar of Companies. The Group's financial statements are also available on the Group's website, www.monterrico.co.uk.

      The interim financial statements are presented in United States Dollar ('US$').

The directors have a reasonable expectation that the Company will receive continued support from Zijin Consortium, the largest shareholder of the Company and based on a review of the Group's budget and cash flow plans, the directors are satisfied with the Group has sufficient resources to continue its operations and to meet its commitments in the foreseeable future. The financial statements have therefore been prepared on a going concern basis.

3.  SIGNIFICANT ACCOUNTING POLICIES

The Group prepares its financial statements on the basis of International Financial Reporting Standards ('IFRS') as adopted by the European Union.

The accounting policies and basis of preparation adopted in the preparation of these interim financial statements are the same as those used in the annual financial statements for the year ended 31 December 2007, except for the adoption of new Standards and Interpretations, noted below: 

• IFRIC 11     IFRS 2 -Group and Treasury Share Transactions 
  This interpretation requires arrangements whereby an employee is granted rights to an entity's equity instruments, to be accounted for as an equity-settled scheme, even if the entity buys the instruments from another party, or the shareholders provide the equity instruments needed. 

The adoption of these interpretations did not have any material effect on the financial position or performance of the Group.

 

4.  SEGMENT INFORMATION

The Group's only business segment is the exploration for and development of copper and associated metals.

 

5.  FINANCE INCOME AND EXPENSES

 

		For the six months                   ended 30 June
		2008		2007
		(Unaudited)		(Unaudited)
		US$’000		US$’000
Finance income
Unwind of discount on IGV receivable		90		-
Interest on short-term deposit		39		179
Exchange gain on foreign current denominate
bank and loan accounts		28		-
		157		179
Finance expenses
Interest on other loan wholly repayable within five years		302		80
Discounting of IGV receivable		69		-
		371		80

        

    

        

 

 

6.  LOSS BEFORE TAX

 

		For the six months                 ended 30 June
		2008		2007
		(Unaudited)		(Unaudited)
		US$’000		US$’000
Depreciation		28		45
Impairment on property, plant and equipment		50		-

 

7.  TAX

 

Provision for United Kingdom profit tax has been provided at the rate of 29% (2007: 30%) on the assessable profits arising in United Kingdom for the period. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries/jurisdictions in which the Group operates, based on existing legislation, interpretation and practices in respect thereof.

As all entities within the Group are loss making, there is no tax charge for the period (six months ended 30 June 2007: nil).

 

 

 

9.   INTERIM DIVIDEND

The Board does not recommend the payment of any interim dividend for the six months ended 30 June 2008 (six months ended 30 June 2007: Nil).

 

10.  INTEREST BEARING LOANS AND BORROWINGS

On the 4 February, 2008 the Company entered into a loan facility agreement with Zijin Consortium, the majority shareholder of the Company. The loan facility is for an aggregate amount of up to US$10 million at an interest rate of not greater than 1 per cent above LIBOR, as published by the British Bankers Association ('BBA'). The loan is repayable on 4 February 2009. At the option of the Company the whole or part of the loan may be converted into ordinary shares in the Company ('Ordinary Shares') at a conversion price of the lower of (i) 350 pence per Ordinary Share and (ii) the average mid-market price of an Ordinary Share over the three business days preceding the date of conversion.  As at 30 June 2008, US$2.5 million was drawdown. 

 

11.  RELATED PARTY TRANSACTIONS

For the six months ended 30 June 2008, the Group had interest charged by the Zijin Consortium of US$302,000 (six months ended 30 June 2007: US$80,000). The interest is charged, with reference to the market rates, at interest rates of 3.0675% to 6.5% (six months ended 30 June 2007: 6.5%) per annum.

The balance due to Zijin Consortium included in the interest bearing loans and borrowings as at 30 June 2008 was approximately US$15,177,000 (31 December 2007: US$12,359,000), of which, approximately US$4,284,000 was charged at an interest rate of not greater than 1 percent above the base rate from time to time of Barclays Bank plc and approximately US$10,893,000 was charged at an interest rate of not greater than 1 percent above the LIBOR rate from time to time as published by the BBA. Of the total US$15,177,000 approximately US$12,665,000 was repayable on demand and approximately US$2,512,000 was repayable on 4 February 2009.

12.    POST BALANCE SHEET EVENTS

Subsequent to the balance sheet date, on 28 August 2008, the Company granted two conditional warrants to Agropecuaria Las Huaringas S.A. ('ALH'), a private company wholly owned by the Romero Group, a large Peruvian private business group. 

The first warrant ('Warrant A') is exercisable in respect of 2,922,896 ordinary shares provided however, that in the event Warrant B (as defined below) is exercised before Warrant A, then Warrant A shall be exercisable in respect of 3,653,621 Ordinary Shares. Warrant A may be exercised by ALH any time following the first anniversary of the Warrant Agreement but before the third anniversary of the Warrant Agreement ('Warrant A Exercise Period'). The purchase price of the Warrant Shares to be issued pursuant to Warrant A is 190 pence per share, which represents a premium of 37.7 per cent to the mid-market price as at the close of trading on 22 August 2008. To the extent that ALH does not serve a notice to exercise Warrant A on or before the date that is three years from the date of the Warrant Agreement, Warrant A shall automatically expire, and all rights and obligations of the parties thereunder shall automatically terminate, without any further liability with respect thereto. 

The second warrant ('Warrant B') is exercisable in respect of 2,922,896 Ordinary Shares provided however, that in the event Warrant A is exercised before Warrant B, then Warrant B shall be exercisable in respect of 3,653,621 Ordinary Shares. Warrant B may be exercised by ALH any time before the date occurring three years and thirty days from the date of the Warrant Agreement subject to receipt by the Company's Peruvian subsidiary, Rio Blanco Copper S.A., of the approval of the Peruvian Ministry of Energy and Mines for the EIAS relating to the construction and exploitation of the Rio Blanco Project. The purchase price of the Warrant Shares to be issued pursuant to Warrant B shall be 190 pence per share, which represents a premium of 37.7 per cent to the mid-market price as at the close of trading on 22 August 2008. In the event the Peruvian Ministry of Energy and Mines does not approve the EIAS on or before the date that is three years and thirty days from the date of the Warrant Agreement, the warrants granted under Warrant B shall not become exerciseable, and all rights and obligations of the parties thereunder shall automatically terminate without any further liability with respect thereto.

The Warrants are conditional upon, inter alia, the passing of the Resolutions to give the directors the authority to grant the Warrants and to disapply the statutory pre-emption rights under the Act in respect of such grant. In addition, the second Warrant is conditional on the Company's Peruvian subsidiary, Rio Blanco Copper S.A. obtaining approval of the EIAS by the Peruvian Ministry of Energy and Mines for the Rio Blanco Project. The Warrants together grant ALH conditional rights to subscribe for up to 20 per cent of the Company's issued share capital in issue at the time of exercise as enlarged by the grant of such Warrants. 

 

13.  COMPARATIVE AMOUNTS

      Certain comparative amounts have been reclassified, where appropriate, in order to conform to the 
      current period's presentation.

  

Corporate Information

Directors

Fusheng Lan (Non-Executive Chairman)

Xiaodong Huang (Chief Executive Officer)

Shan Shan (Susan) Li (Finance Director)

Guobin Hu (Technical Director)

Wenzhou Huang (Non-Executive Director)

Harry Cooper (Non-Executive Director)

Company Secretary

Shan Shan (Susan) Li

Corporate Head Office

Monterrico Metals plc

Suite 1608, West Tower

Shun Tak Centre

168-200 Connaught Road Central

Sheung Wan

Hong Kong

Tel: +852 2803 2738

Fax: +852 2803 0878

e-mail: info@monterrico.com

website: www.monterrico.com 

Head Office in Peru

Rio Blanco Copper S.A.

Av. San Borja Sur No 143

San Borja

Lima 41
Peru

Tel: +511 226 3322

Fax: +511 226 3320

Nominated Adviser

Evolution Securities Limited
100 Wood Street

London EC2V 7AN
United Kingdom

  

Broker

Evolution Securities China Limited

29-30 Comhill

London EC3V 3NT
United Kingdom

Reporting Accountants and Auditors

Ernst & Young LLP

1 More London Place

London SE1 2AF
United Kingdom

Solicitors to the Company

Lawrence Graham LLP

4 More London Riverside

London SE1 2AU
United Kingdom

Registrars

Capita IRG plc

Bourne House
34 Beckenham Road

Beckenham

Kent BR3 4TU
United Kingdom

Registered Office

Monterrico Metals plc

2nd Floor
50 Gresham Street

London EC2V 7AY
United Kingdom

Share Capital (as at 12 September 2008)

Issued and outstanding: 26,306,068

ENDIR FKPKDABKDCCD