METALS EXPLORATION PLC

OPERATIONAL UPDATE QUARTER ENDED 31 DECEMBER 2011

Metals Exploration plc (AIM: MTL) ("Metals Exploration" or "the Company"), the natural resources exploration and development company with assets in the Pacific Rim region, is pleased to provide an operations update on matters relating to its Runruno gold-molybdenum project ("the Project") and exploration activities in the Philippines. 

The program consists of seven key activities:

·      Site earthworks;

·      Processing plant pad earthworks;

·      Construction camp;

·      Construction power;

·      Potable water system;

·      Erection of a concrete batching plant; and

·      Acquisition of selected units of the mobile fleet.

Site earthworks

A contract has been awarded to a Filipino earth moving contractor for a scope of work which includes the preparation of:

·      Site roads;

·      Construction of three permanent causeways across the Sulong river;

·      Preparation of the office, camp, concrete batch plant and construction lay-down pads; and

·      Road access to the pit.

The earthmoving equipment is at site and work is expected to commence in February.

Processing Plant Earthworks

Two contracts have been awarded for work on the processing plant site including the crusher pad; the first to a local community based group to undertake the construction of gabion walls as required and the second to a Filipino earth moving contractor.  All the required equipment is located at site.  Work commenced midway through December but was suspended over the Christmas - New Year period and resumed in mid January, following the festive period.

The work, which is expected to take around five months to complete, is proceeding well with excellent progress made to date.  The majority of the site has been cleared and grubbed and the establishment of the various levelled pads commenced.  Leighton Contractors Asia Limited ("Leighton") the selected EC&P contractor responsible for the design and construction of the processing plant, designed the pad and specified the pad construction parameters.  Whilst FCF's Owner's Team is supervising the contractor, Leighton are working with the Company to ensure the pad meets specifications.

Photographs of the site earthworks can be viewed on the Company's website in the article on the Company News page, dated 25/01/2012 at http://www.metalsexploration.com/company-news.html 

Construction Camp

A contract to construct the first accommodation module, ablutions and messing facilities of the 550 man construction camp has been let. Work is expected to commence during February.

General

Preparatory works are underway on the balance of the early site work activities.

EC&P - GMP Contract

In December the Company advised the market that it had issued a Letter of Intent ("LOI") to Leighton to enter into an Engineering and Construct contract and a Procurement contract ("EC&P") to design and construct the Runruno processing plant subject to availability of debt funding, final Board construction approval and full contract documentation.  This letter has been accepted by Leighton and it and the Company are now focused on the construction of the Runruno project.

The LOI was issued against Leighton's offer of a Guaranteed Maximum Price ("GMP") of US$95.1 million to construct the Runruno processing plant.  Leighton's offer is subject to revalidation at the time of execution of the construction contract.

FCF has also contracted Leighton to undertake a program of detailed design in advance of the full EC&P contract.  The cost of this program, which will run over five months, will be captured under the GMP cost.

The detailed engineering program will take the processing plant design to around an estimated 60% complete with a number of key areas being 100% complete.  Like the early site works program outlined above, the detailed engineering work program is designed to enable the full 15 month construction phase of the Project.  Work will be tailored so that all long lead time items can be ordered immediately on the commencement of full construction and footing and foundation works commenced after a minimal mobilisation stage.

Work commenced in December.

Metallurgical Testwork

A program of work to assess the potential variability in gravity and flotation performance of the ores forecast to be mined during the first four years of production commenced during the quarter.  Samples representing the first two years of production by quarters and years three and four by halves are being tested at AMMTEC's laboratory in Perth.  Results received for five of the twelve samples submitted reported excellent results with total process recoveries of gold (after allowing for BIOX® and carbon in leach processing) projected from the gravity and flotation recoveries in line or exceeding those projected from earlier work (93.3% combined).  The program will be completed during Q1, 2012.

The available results support the gold production forecasts for the early years by demonstrating that the ore should perform as forecast in the selected metallurgical circuit.

Resource and Reserve Drilling

No in-pit resource or reserve drilling was undertaken during the quarter.  All drilling activities have been focused on step out drilling to the south of the pit and exploration drilling elsewhere in the FTAA area (refer to Regional Exploration section below).

Land Acquisition

Land acquisition activities continued successfully throughout the quarter.

Funding

The Company is currently engaged in detailed discussions with a number of resource banks and alternative funding sources to finalise a debt funding package on a "Project Finance Basis", aiming to support the construction of the Runruno project. The Company has progressed to detailed diligence with one of these potential funders and it  is being assisted in all of these endeavours by an experienced advisor.

It is the Company's intention to finalise a package during Q1, 2012.

FCF work at Runruno Highly Recognised at the Mineral Industry Environmental and Safety Awards

The Company's Philippine operating subsidiary, FCF, was recognised for its work at Runruno and in the host communities and environment by being identified as the outstanding achiever at the 2011 Presidential Minerals Industry Environmental Awards.  FCF received three awards, demonstrating its commitment to responsible mining, the environment and a zero harm culture:

·      The 2011 Presidential Mineral Industry Environment Award (Exploration Category);

·      Safest large scale Exploration project; and

·      Runner-up in the Best Mining Forests Award - Exploration Category.

The awards demonstrate the Company's commitment to being a responsible miner.

Regional Exploration  

Exploration activities within the Runruno FTAA but outside the Runruno orebody continued throughout Q4, 2011.  The work is designed to systematically assess the highly prospective FTAA for further gold mineralisation of the Runruno style and the potential for porphyry copper mineralisation.  Two diamond drill rigs are committed to the programme.

Work completed during the quarter included, diamond drilling, regional geochemistry and ground mapping within the FTAA.  A summary of the holes drilled is presented in the following table.

Runruno Mineral Resource Extension

Drill testing for extensions to the Runruno resource area to the south of the planned pit continued during the quarter.  Previously reported intercepts of gold and molybdenum mineralisation extended the Runruno mineralised zone 150m south of what had been the interpreted southern extent of the Runruno mineralisation.  Recent drilling has traced the mineralised zone closer to the surface and extended the potential for significant mineralisation further to the south.

A wide high-grade mineralised zone was intersected in hole MXD842 which traced the previously intersected deeper mineralisation on line 50N to the east. and closer to the surface.

Two step-out drill holes MXD845 and MXD846, drilled late in the quarter and collared a further 150m to the south, around 300m south of the proposed Runruno pit, intersected wide zones of gold and molybdenum mineralisation at depth.  These intersections lie about half way between the southern boundary of the proposed pit and the previously reported deep zone of mineralisation found in TUD012, 6m at 2.81 g/t Au from 241m at the Tulingan prospect.

With the information available from the holes drilled to date it appears possible to interpret a significant zone of flatly dipping gold and molybdenum mineralisation measuring between 8-12m thick and grading between 2- 3 g/t Au and occurring at depth extending south of the Runruno pit for 600m plus to the Tulingan prospect area and perhaps further south.  The potential width of the mineralisation has not been established but it has been intersected over 200m in an east west direction.  It appears from the data available that the mineralisation is truncated towards the east by the Malilbeg Fault, a possible mineralising structure, but remains open in both a westerly and southerly direction.  Of significant interest is that though the mineralisation is broadly analogous to and may be projected back into the main Runruno mineralisation through a zone of disturbance marking the southern end of the Runruno mineral resource, the character of the mineralisation is unique.  The mineralisation appears to exhibit slightly higher gold grades, displays much higher molybdenum grades and contains low but significant levels of copper unlike the Runruno mineralisation.

While the gold molybdenum mineralisation has been intersected at depths of between 75-180m below the surface the indicated widths and grades make it a target for underground mining.

Drilling to more fully test the potential of the zone is planned in 2012 with drilling having re-commenced following the Christmas - New Year break.  Significant assays reported during the quarter are shown below.

Magnetite Creek

The Magnetite Creek area, 2km south-east of the Runruno orebody, is believed to be highly prospective for porphyry Cu-Au style mineralisation.  Previously reported drilling returned encouraging zones of anomalous copper and gold indicative of being in close proximity to a mineralising system.

Two deeper holes were completed during the quarter to test for continuation and development of the  of the mineralised zones previously encountered in holes MAD001 and MAD005. 

MAD008 intersected narrow intervals of anomalous gold and copper mineralisation throughout the hole including an interval of 73m averaging 0.10% Cu from 149m.  This included narrower higher grade sections of 9m at 0.23% Cu from 154m and 10m at 0.13% Cu from 175m which correlate with the anomalous copper intersections previously reported from MAD001. 

Hole MAD010 intersected a number of zones of copper and gold mineralisation which can be correlated with mineralised zones intersected in MAD005.  Most encouraging was that the drill hole contained some of the best mineralisation intersected to date at Magnetite Creek.  Of special interest was an interval of 24.65m from 229.35m which averaged 1.01% Cu and 0.43 g/t Au within a 31m zone averaging 0.85% Cu and 0.35 g/t Au between 227m and 258m.

These holes continue to confirm the potential of the area for significant copper and gold mineralisation.  Drilling is continuing to test the identified mineralised zones both along strike and at depth. 

Significant drill hole assay results are shown in the table below.

Regional Exploration

Geological mapping and rock geochemistry sampling continued within the Runruno FTAA.  Work was concentrated in the Magnetite Creek and Burnt Tree Creek localities in conjunction with the diamond drilling programme.

Drill Hole Location

The locations of the drill holes referred to in this report are shown in the tables below.

Runruno Mineral Resource Extension

Magnetite Creek

Corporate Activity

Acquisition of Remaining 15 % of the Runruno Project

During the Quarter the Company announced that it had exercised its pre-existing option with Christian Mining Inc, a domestic Philippine company, to purchase the remaining 15% of FCF Minerals Corporation's ("FCF") shares in issue which it did not previously own, for US$6.0 million.

The cost of the option was equivalent to US$44.44 per reserve ounce or US$28.78 per resource ounce (total, including reserves).

The transaction has now completed and Metals Exploration's beneficial ownership of Runruno is now 100%.

Approval

Mr Ian Holzberger, a director of the Company, who has been involved in the mining industry for more than 39 years, is a Member of the Australasian Institute of Mining and Metallurgy and the Australian Institute of Geoscientists, has compiled, read and approved the technical disclosure in this regulatory announcement.

Forward Looking Statements

Statements relating to the estimated or expected future production, operating results, cash flows and costs and financial condition of Metals Explorations, planned work at the Company's projects and the expected results of such work are forward-looking statements. Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by words such as the following: expects, plans, anticipates, forecasts, believes, intends, estimates, projects, assumes, potential and similar expressions. Forward-looking statements also include reference to events or conditions that will, would, may, could or should occur. Information concerning exploration results and mineral reserve and resource estimates may also be deemed to be forward-looking statements, as it constitutes a prediction of what might be found to be present when and if a project is actually developed.

These forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable at the time they are made, are inherently subject to a variety of risks and uncertainties which could cause actual events or results to differ materially from those reflected in the forward-looking statements, including, without limitation: uncertainties related to raising sufficient financing to fund the planned work in a timely manner and on acceptable terms; changes in planned work resulting from logistical, technical or other factors; the possibility that results of work will not fulfil projections/expectations and realize the perceived potential of the Company's projects; uncertainties involved in the interpretation of drilling results and other tests and the estimation of gold reserves and resources; risk of accidents, equipment breakdowns and labour disputes or other unanticipated difficulties or interruptions; the possibility of environmental issues at the Company's projects; the possibility of cost overruns or unanticipated expenses in work programs; the need to obtain permits and comply with environmental laws and regulations and other government requirements; fluctuations in the price of gold and other risks and uncertainties.