Free Cash Flowing Philippines Gold Miner Funds Nicaragua Expansion with Zero Debt Strategy

• Metals Exploration is debt-free, generating approximately $10 million in free cash flow monthly, with all-in sustaining costs of about $1,000 per ounce.
• The company plans to use existing cash flow to fund growth without new debt, including the Condor Gold project in Nicaragua targeting production by Q4 2026.
• They've acquired a second-hand processing plant for $10 million (representing significant savings) and are rapidly progressing the Nicaragua project with groundbreaking scheduled for May.
• Metals Exploration aims to become a two-mine operation by 2028, with potential for 145,000 gold ounces annually from Nicaragua and continued production from the Philippines.
• The company is exploring the Dupax VMS deposit near its existing Runruno operation, targeting a maiden resource by year-end, which could extend Philippine operations beyond the current 2027 mine life.

Metals Exploration (LSE:MTL), a gold producer with operations in the Philippines, recently provided an update on its current operations and strategic growth initiatives. The company, now debt-free and generating significant free cash flow, is using its strong financial position to fund new projects without taking on additional debt. CEO Darren Bowden outlined the company's plans to expand its portfolio with assets in Nicaragua while also exploring opportunities to extend the life of its existing Philippine operations. 

Financial Position and Current Operations

Metals Exploration is currently in an enviable financial position. The company has cleared all its debt and is generating approximately $10 million in free cash flow per month from its Runruno operation in the Philippines. With all-in sustaining costs (AISC) of around $1,000 per ounce, which includes corporate overhead, the operation remains highly profitable even as it approaches its scheduled closure in 2027.

"Last year was a great year for us. We paid down all the debt that the company had, so we were debt-free. We're currently still in that position. $96 million free cash flow last year, all-in costs of about $1,000, and that includes our corporate overhead, so that's not just project level, that's everything."

This strong cash position provides the company with significant optionality for growth while also serving as a defence mechanism in volatile markets. The majority of closure costs for the Runruno operation have been built into their numbers through the end of 2026, with the largest being the finalization of infrastructure around the tailings facility by mid-2026. Beyond that, total closure costs are estimated at approximately $4 million, which is relatively small compared to the projected $200+ million in free cash the company expects to generate over the next two years.

Nicaragua Strategy

A central element of Metals Exploration's growth strategy is the development of the Condor Gold project in Nicaragua, which the company acquired recently. Rather than strictly adhering to the 2022 Bankable Feasibility Study (BFS) completed by the previous owners, Metals Exploration is taking a more aggressive approach to development.

The company has purchased a second-hand processing plant for $10 million, representing significant cost savings compared to new construction. The front-end of this plant matches their existing operations, and they only need to add tanks for carbon-in-leach (CIL) processing. Transportation costs are estimated at $2.5 million with engineering work already underway.

While the original BFS was designed for processing 850,000 tonnes per year, Metals Exploration is targeting a capacity of 1.4 million tonnes annually. This expanded approach includes bringing three open-pit operations online simultaneously rather than just one, with underground mining beginning in year one and a second underground operation starting in year three.

Bowden is confident about the project's economics: 

"If we look at a $2,800 gold price at a 1.4 million ton a year plant, you're looking at 145,000 ounces a year. You're talking a billion-dollar valuation. All-in sustaining costs are actually less than current Runruno costs."

The company has already assembled a project management team with Latin American expertise, with many members being either Latin American nationals or fluent Spanish speakers. Groundbreaking is scheduled for May, with concrete contractors arriving in June and the plant equipment expected in August. Management anticipates the project will be 50-60% complete by the end of this year, with full commercial production targeted for Q4 2026.

Interview with CEO Darren Bowden

Exploration & Resource Expansion in Nicaragua

Metals Exploration isn't waiting for production to begin before pursuing exploration opportunities in Nicaragua. The company has initiated a 50,000-meter drilling program focusing on extensions to existing resources, particularly targeting underground expansions where preliminary evidence suggests increasing grades with depth.

To accelerate this exploration effort, the company is implementing innovative drilling techniques, using combination rigs that can perform reverse circulation (RC) drilling to quickly reach target depths, then switch to core drilling for the mineralized zones. This approach is expected to significantly increase the rate of drilling compared to traditional methods used in the country.

"Instead of drilling 20 or 30 meters a day with a core rig to go 200 meters to drill an 8-meter intersection of core, we're going to take that 200 meters, do it in 3 days with an RC rig, change over to a core rig, and core the vein. We can amplify and put our drilling, one, cheaper, but two, on steroids at a quicker pace compared to what anybody else can in country."

Dupax: Extending Philippine Operations

While Nicaragua represents the company's near-term growth focus, Metals Exploration is also actively exploring opportunities to extend its presence in the Philippines beyond the current 2027 end-of-mine life for Runruno. The most promising of these opportunities is the Dupax deposit, a VMS (volcanogenic massive sulfide) deposit located near the existing operation.

Initial work including ground mapping has been completed, with geophysics scheduled to begin in the next four weeks and drilling expected to start within six weeks. By the end of this year, the company aims to have a preliminary economic assessment and a maiden resource of between 8-10 million tonnes.

The proximity to existing infrastructure makes Dupax particularly attractive as it would allow Metals Exploration to quickly transition operations with minimal capital expenditure, essentially moving existing equipment across to the new site. The deposit is described as "super high grade" copper-gold-zinc mineralization, with a 10 km strike length and veins already mapped over a kilometer with evidence of continuation 9 km away.

If Dupax proves viable, management expects it could generate three to four times the revenue of Runruno from similar production levels, making it a significant potential value driver beyond 2027.

Long-Term Growth Vision

Metals Exploration has articulated a clear timeline for its growth strategy. The company sees Nicaragua as its two-year plan, Dupax as its 3-5 year plan, and additional opportunities in the Philippines as its 5-10 year plan. By 2028, the goal is to have two producing mines that together could generate between $400-500 million in free cash flow annually.

While mergers and acquisitions remain on the table, the company emphasizes that its organic growth pipeline is robust enough that external acquisitions are not necessary for significant growth. Management believes the company has the potential to become a billion-dollar business based solely on the successful development of Nicaragua and Dupax, with additional upside from other opportunities within their existing tenements.

The company also indicated that by 2028, once both operations are cash flowing, they will likely be in a position to start paying dividends, providing an additional potential return mechanism for investors.

The Investment Thesis for Metals Exploration

• Strong Cash Position: Debt-free with $10 million monthly free cash flow and low AISC of $1,000/oz, providing robust financial foundation for organic growth
• Efficient Capital Allocation: Using existing cash flow to fund growth rather than taking on debt, with significant cost savings achieved through strategic second-hand plant acquisition for Nicaragua ($10M vs. typical $60M cost)
• Near-Term Production Growth: Nicaragua project on accelerated timeline with production by Q4 2026, potentially increasing total gold production from current 80,000oz to 145,000oz annually
• Two-Mine Strategy: Targeting two operating assets by 2028 with potential for $400-500M annual free cash flow, with dividend potential beginning in 2028
• Resource Upside: Aggressive 50,000-meter drilling program in Nicaragua plus high-potential Dupax deposit in Philippines could significantly extend mine life and increase resource base
• Management Execution: Demonstrated operational success at Runruno provides confidence in team's ability to deliver on Nicaraguan project and Dupax exploration
• Attractive Valuation Proposition: Management sees potential for "billion-dollar business" based on Nicaragua and Dupax alone, suggesting significant upside from current valuation

Macro Thematic Analysis

The gold mining sector is experiencing favorable conditions with gold prices reaching record highs above $2,900 per ounce in early 2025, driven by global economic uncertainty, geopolitical tensions, and concerns about inflation. This price environment provides gold producers like Metals Exploration with expanded margins and increased cash flow potential. The sector is seeing significant consolidation through mergers and acquisitions, but Metals Exploration has positioned itself differently by focusing on organic growth funded through internal cash generation rather than dilutive financing or leveraging its balance sheet during a high interest rate environment.

Mid-tier producers with strong balance sheets and growth potential are increasingly attractive to investors seeking exposure to gold without the execution risks of major mergers or the exploration uncertainties of junior miners. Metals Exploration fits this profile perfectly, with its debt-free status and clear growth pathway. The company's strategy of using existing cash flow to fund growth provides a hedge against potential market volatility.

As CEO Darren Bowden articulated: 

"We're  looking at a build and growth of our company through the cash flow that's coming off our existing operations. We're not looking at financing, we're not looking at taking on any more debt in the near term." 

This approach positions the company well in the current macro environment, allowing it to capitalize on high gold prices while maintaining financial flexibility.