CHAIRMAN'S REVIEW

We are pleased to report that during 2016 your Company successfully advanced the Barruecopardo Project through the compulsory land acquisition stage and into the construction stage. As guided during the year, progress was somewhat reduced compared to original schedules with construction contracts having been rescheduled to run consecutively rather than concurrently. This strategy has proved timely as metal markets are now showing signs of a sustained recovery, leading in June 2017 to the Project company, Saloro SLU ("Saloro"), authorising the issuance of outstanding approvals on various equipment and plant construction contracts, such that Barruecopardo should now be coming on stream into a more favourable global economic environment.

Barruecopardo

During 2016, the Barruecopardo operating subsidiary Saloro SLU completed the acquisition of land for which title was clear and for which lease with option to purchase arrangements were in place. Most of the remaining land blocks required for construction had title or boundary were required to be addressed through the court compulsory acquisition procedures. As this could be a lengthy process, Saloro sought to expedite matters by requesting the Administration in Castilla y Leon to declare the remaining blocks of land as required for the common good and in need of "urgent occupation". This process required a vote of the Regional Legislative Assembly, which was forthcoming. It was most satisfying to see this strong commitment and support from the Government for the Project. A few procedural steps remained after this vote, but by December 2016, Saloro was the legal owner of all of the land required for the development of a mine at Barruecopardo.  

As this land acquisition process was being pursued, activity on the engineering design, equipment manufacture contracts and construction contracts was being advanced, albeit at a pace to match the expected land acquisition process. All main, longer lead time, processing plant has been identified and sized and contracts let for manufacture. Procurement of most of the secondary items of plant is similarly well advanced. Fairport Engineering, the company expediting the plant design and procurement, has also been awarded the Plant Construction Management Contract. These activities, when synchronised with the recent decision by Saloro to issue the outstanding approvals on various equipment and plant construction contracts, advances the Project into an accelerated construction and implementation phase, which sees mine plant commissioning during Q3 2018. This timing leaves a healthy interval in which to allow the commodity markets to consolidate their recent gains and move onwards.

A short five-hole exploratory drilling programme around the northern and central section of the proposed Barruecopardo open pit was completed during 2016. The main objective of this programme was to confirm extension to the tungsten mineralisation at depth beneath the main central part of the planned open pit, whilst also following up on a potentially expanded zone of mineralisation under the shallow northern end of the open pit. The results of this initial drilling program were most encouraging, lending support to the concept of a future Stage 2 underground mine at the Project.

Tungsten market

As the impediments to mine development are progressively removed and we advance construction, it is perhaps timely to look forward at the commodity markets and pricing. Tungsten pricing has traditionally followed the business cycle and, given the long lead times for mining projects, the base metal market may be a useful guide to the market place. Copper had undergone a long decline from $10,000/t in 2011 to around $4,500/t in late 2015, but a recovery kicked in during 2016 and pricing is now approaching the $6,000/t level. There has also been recoveries in the prices of other base metals including zinc, lead, tin, and to a lesser extent nickel and aluminium.

Clearly, the overall story is that Barruecopardo is now being developed in a time of metal price recovery.

In looking at the standalone tungsten market, the situation at the start of 2016 was somewhat confusing. The largest tungsten producer in the west, the Canadian mine Cantung, closed in 2015 and a number of the larger tungsten mines were clearly struggling with limited reserves, technical issues and profitability. Moreover, practically all advanced or resource based tungsten projects, previously being touted for development, were either abandoned or effectively mothballed. Against this background, there was an upswing in tungsten APT prices from $160/mtu early in 2016 to $220/mtu in May before dropping back to around $180/mtu during August 2016. The reason for this became more evident as the year progressed. The forecast primary supply shortage was indeed developing, with tungsten concentrates very clearly being sought as feedstock by the main APT producers, but it was equally clear that there was a surplus of APT in the market place, depressing prices. As industry practice is that mine produced concentrates are priced relative to the APT prices, anomalies in the latter are imposed on the former.

It became clear that until the surplus of APT, presumably largely produced pre-2016 from China, is consumed, that the fundamental true market supply-demand realities, based on primary mine production, would not dictate pricing. This process appears to be underway; tungsten APT prices have seen a slow but steady increase to its current level of $223/mtu, with many indicators now pointing towards a sustained increase in the tungsten price into the future. What is clear is that tungsten concentrates are in tight supply and are likely to become tighter as global economic activity increases and no new tungsten mines are developed. China's efforts to tighten up its tungsten industry, to enforce a crackdown on illegal mining and to ensure cut-backs in tungsten mine production, will also tend to reinforce this trend. In summary, tungsten supply-demand dynamics and pricing now look more favourable in advance of Barruecopardo coming on stream.            

Other Projects

The focus of your Company during the year has been the advancement of the Barruecopardo Project. The Company's Gold projects are being maintained, whilst the La Zarza Project remains under a review of disinvestment options with the directors deciding it appropriate for the holding value of this asset to be impaired by ?2 million, to a book value of ?3 million, to reflect their current assessment of the asset's present value.

Corporate and Financials

The Company has reported a loss for the year of ?2.41M, compared with a profit of ?2.07M for 2015.  Although the Group made a small operating profit for the year, however the effects of the ?2M impairment of its La Zarza asset and the share of loss in its associate investment (the Barruecopardo Joint Venture B.V., in which the Barruecopardo Project is held, and which is incurring losses during the Project's developed stage), resulted in the reported loss for the period.

Finally, I would like to thank shareholders, management, staff and other stakeholders for your support during the last year; we believe there is long-term value to be realised through the Barruecopardo asset and we thank you for your patience as we journey towards First Production.

Michael J. Donoghue

Chairman

Consolidated Statement of Comprehensive Income

Year ended 31 December 2016

Consolidated Statement of Financial Position

As at 31 December 2016

Consolidated Statement of Cash Flows

Year ended 31 December 2016

Consolidated Statement of Changes in Equity

Year ended 31 December 2016

1. The basic earnings /(loss) per share and the diluted earnings/(loss) per share have been calculated on a loss after taxation of ?2,409,000 (2015: profit of ?2,071,000) and a weighted average number of Ordinary Shares in issue for the year of 472,507,482 (2015: 472,507,482) for the basic earnings /(loss) per share and 472,507,482 (2015: 472,507,482) for the diluted earnings/(loss) per share.