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31 July 2023

Capital Metals plc

("Capital Metals" or the "Company")

Lobbying, Legal & Project Development 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 on the Company's response to the temporary suspension of Industrial Mining Licences 16236 and 16237 (the "IMLs") and on Project development activities.

Update re Temporary Suspension of IMLs

Lobbying actions

In response to the illegal temporary suspension by the Geological Survey and Mines Bureau ("GSMB") of the IMLs announced on 12 December 2022, and subsequent notice of cancellation (under appeal) announced on 30 May 2023, the Company has been engaged in extensive lobbying actions, with Greg Martyr, Executive Chairman of the Company having been recently in Colombo, including at the highest level of the Sri Lankan Government, with a view to resolving its issues amicably with the GSMB.

The Board notes that its complaints and lobbying efforts in Sri Lanka appear to be having a positive impact, with the conduct of the chairman of the GSMB and Minister of Environment coming under intense scrutiny from the Committee on Public Enterprises ("COPE") in Sri Lanka which has appointed an independent sub-committee to investigate misappropriation, as has been widely reported in Sri Lankan media. Following several recent meetings in Colombo, the Board is encouraged by the ongoing exposure of issues within the GSMB and believes it may at some point lead to the implementation of reforms in the mineral licensing process for foreign investors.

Legal actions - international

As previously announced, in order to protect shareholders' interests in the event that an amicable resolution cannot be reached, the Board has in parallel been taking all necessary legal steps both locally and internationally to protect the Company's legal rights.

Capital Metals has instructed international law firm Boies Schiller Flexner ("BSF") to analyse and advise on the GSMB's conduct in the context of Sri Lanka's international treaty obligations. BSF is a disputes-only law firm founded in 1997 by famed U.S. lawyers David Boies and Jonathan Schiller and has offices in the U.S., London, and Milan. Leading BSF's team for Capital Metals are Timothy L. Foden, a specialist in mining disputes, and London partner David Hunt. Mr Foden recently acted for subsidiaries of Indiana Resources (ASX: IDA) in its US $109 million victory over the Government of Tanzania.

Capital Metals, with the assistance of BSF, has formally issued a Notice of Dispute 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") arising from investments made in Sri Lanka by Capital Metals between 2017 and 2022.  

Legal actions - local

On 27 July 2023, Capital Metals, through its Sri Lankan subsidiary, Damsila Exports (Private) Limited ("Damsila"), instituted legal proceedings in the Court of Appeal of the Democratic Socialist Republic of Sri Lanka ("Court"), seeking the intervention of the Court in respect of the notice of cancellation of the IMLs issued to Damsila by the GSMB, amongst other attempts made by the GSMB to frustrate Damsila's right to conduct industrial mining in the areas specified in the two previously granted IMLs as well as seven other IML applications, all included in the northern Exploration Licence 168 area of the Project. Damsila is asking the Court, inter alia, to quash any decisions to temporarily suspend and cancel the IMLs and prevent the Respondents (as listed below) from issuing to a third-party licences which impinge upon the IMLs.

Damsila has named Mr Naseer Ahamed, the Minister of Environment, Dr Anil Jasinghe, the Secretary to the Ministry of the Environment, the GSMB, and the Board of Management of the GSMB as respondents to the said legal proceedings (the "Respondents"), who will be called upon to explain their conduct before two Honourable Judges of the Court during the course of the proceedings.

Project Development Update

In parallel with the Company's efforts to reinstate its rights in the northern part of the Project area, Capital Metals is pleased to advise that it will be commencing an Environmental Impact Assessment ("EIA") over its Exploration Licence ("EL") 199 in the southern area of the Project, which is not subject to the illegal actions of the GSMB. EL199 holds approximately 60% of the total mineral sands resource of the Project stretching over 26 km from Panama in the south to Komari in the north.

Subsequent to the recent receipt of the Terms of Reference for the EIA from the Department of Coast Conservation and Coastal Resource Management, which will oversee the approval of the EIA, as it did with the EIA completed for the EL168 northern area, the Board has approved a budget for the commencement of the EIA which will also enable the short term identification of further areas over which to apply for industrial mining licences.  The Company is targeting completion of the EIA, and submission of industrial mining licence applications, before the end of this year.

At the Company's EL430 area to the north of EL168 (which was granted in March 2022 and is therefore not currently included in the Project resource estimate), a recent programme of 116 hand auger drill holes was completed in the Oluvil Port area which is covered by the licence with samples currently being prepared for assay. This drilling activity will also assist with the Company's understanding of the requirements to remove sand from the port's mouth to enable it to become operational again. The Company plans to build its processing facilities at the port and utilise the port for transhipment of end-products.

Greg Martyr, Executive Chairman, commented:

"We believe the net is closing in on the small number of individuals within the GSMB and Government who are frankly out of control and whom we believe are seeking to illegally hand the Company's rights to favoured third parties. This is evident in the COPE investigation, the widespread media reports, and the local intelligence that I received during my recent visit to Sri Lanka, including that procedural reforms for mineral licensing may be on the horizon. We are continuing our efforts to accelerate that outcome while simultaneously protecting the interests of shareholders through local writs and international arbitration.

We are pleased that in parallel with these actions, we are now advancing development activities with the commissioning of the EIA which will lead to applications for industrial mining licences at EL199 in the southern area of the Project, which holds the majority of the total mineral sands resource of the Project and is not subject to the illegal activities of the GSMB."

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.