Director's Report

The directors have pleasure in submitting their report and the accounts for the year ended 31 March 1997.

Principal activities and business review

The principal activity of Anglesey Mining plc during the year was the development of the Parys Mountain project. The company also evaluated other mineral exploration and development opportunities.

The loss for the year before taxation was £98,446 (1996 £49,571). During the year £135,268 (1996 - £125,037) was capitalised in respect of the development of the Parys Mountain property and £97,040 (1996 - £26,205) was expended on administration costs and the investigation of exploration and development opportunities.

At an extraordinary general meeting held on 23 October 1996 immediately following last year's annual general meeting, a total of £2,963,387 of liabilities due by the company was converted into 59,267,740 ordinary shares. 54,000,000 of these shares were issued to Juno Limited ("Juno") which is now the company's controlling shareholder. The company has entered into a controlling shareholder agreement with Juno to formally structure the relationship between the companies.

The company is accelerating the development of the Parys Mountain property by its geological re-assessment programme, diamond core drilling and further lithogeochemical studies. Diamond core drilling and geological re-evaluation is also planned at the new Dolaucothi site. In order to do this further funding is required. The directors remain attentive for opportunities to be involved in appropriate new mineral ventures. The company will continue to defend itself against the litigation referred to below.

The directors are unable to recommend a dividend. Since the date of the accounts the activities of the company have continued in accordance with the directors' expectations.

Post balance sheet events

The company consolidated its land holdings at Parys Mountain by firstly purchasing for £120,000 the freehold of the western area of the property, subject to a royalty secured by a rent charge, and secondly taking a head lease over the land and minerals of the remaining eastern portion of the property. These transactions give the company ownership rights to Parys Mountain and will have the effect of reducing the annual rentals due in respect of the property from approximately £36,000 to £18,000. All of the company's current mineral reserves and planned mining activities are located in the western area of the mountain, of which the company is now the freehold owner.

The company purchased, for a consideration of 2,000,000 ordinary shares, Parys Mountain Mines Limited a Canadian company whose subsidiary was the original lessee of the Parys Mountain property and from which Intermine Limited derives whatever interest it may have in the property. Together with Intermine Limited, Parys Mountain Mines Limited holds a net profits interest royalty in respect of the mining lease of the property.

On 27 August 1997 the company announced a private placing to raise £485,000 net of expenses by the issue of 9,800,000 ordinary shares at a price of 5 pence per share.

Also on 27 August 1997 the company completed the purchase of Anglo Canadian Exploration (Ace) Limited, which holds a 35 year lease from the Crown to work gold and silver under an area of approximately 11,000 acres near Lampeter in mid-Wales. Ace was purchased from Norsub Limited, a subsidiary of Juno the company's parent, for £1. This price was approved by an independent committee of the board, consisting of Lord Crickhowell and Malcolm Swallow, neither of whom are connected with Juno. The acquisition was effected by Anglesey purchasing the entire share capital of Ace for £1. Ace's liability of £282,000 to its former controlling shareholder, QSR Limited, a Canadian company, was discharged in full on behalf of Ace by the allotment of 2,000,000 ordinary 5 pence shares of Anglesey.

Litigation

In January 1996 a statement of claim, filed in the Ontario Courts in Canada, was served on the company by Intermine Limited ("Intermine"), a private corporation incorporated in Ontario, as plaintiff claiming :

• (a) a declaration that the 1984 option agreement (by which the company acquired its
  holding of the mining lease of Parys Mountain) has been terminated;
• (b) a declaration that the options granted to the company pursuant to the option
  agreement have expired;
• (c) a declaration that the company is to deliver up vacant possession of the Parys Mountain property;
• (d) in the alternative, damages from the company of Canadian $96 million and
• (e) interest, costs and other relief.

Intermine holds a portion of the net profits interest ('NPI') royalty payable under the 1984 agreement and is one of two optionors under the agreement. The other optionor is Parys Mountain Mines Limited. Intermine has alleged that the company did not properly exercise its option to acquire the mining lease in 1991, in that the company did not comply with an obligation in the agreement to commence production on the property within three years from April 1991 and to continue operations at not less than 100,000 tons per year.

The 1984 agreement provides that the company may conduct any operations on the property which it, in its sole judgement, considers appropriate and the agreement shall not be construed as creating an obligation on the company to place the property into production. The 1984 agreement also provides that the company has the unfettered right to suspend or curtail operations as it, in its sole discretion, may determine and that production may be discontinued where in the reasonable opinion of the company it is not commercially viable to maintain mining operations.

When the company exercised its option to acquire the mining lease in April 1991, it also served notice of its intention to exercise its right under the 1984 agreement to acquire one half of the NPI royalty. Intermine has alleged that the company did not properly exercise its right to acquire one half of the NPI royalty. From time to time since 1991 the company has been in discussions with Intermine regarding the purchase of the half interest or the purchase of all of the outstanding NPI royalty. Intermine has been disputing the purchase price at which the company was entitled to purchase one half of this royalty, despite the fact that the price of nil value was determined in accordance with the 1984 agreement by Kilborn, the independent consulting engineers who prepared the feasibility study.

The company has filed a defence rejecting the statement of claim and is defending the action. In June 1996, as a result of an application filed by the company, the court required the plaintiff to deposit with the court Canadian $12,000 as security for the company's costs of the preliminary stages of the case. In March 1997 as a result of an application filed by the company the Ontario court ruled that it should not assume the jurisdiction to hear claims (a), (b) and (c) set out above and ordered that the action against the company in respect of such claims be permanently stayed. The court also awarded costs to the company in the amount of C$3,000. Intermine has appealed against this decision on the grounds that the high court judge erred on six points of law in finding in favour of the company.

Parys Mountain Mines (UK) Limited, a private company registered in England and a wholly owned subsidiary of Parys Mountain Mines Limited, which holds the balance of the NPI royalty and which was the previous and original holder of the mining lease, and with which Intermine entered into an agreement in 1971 under which Intermine could earn an interest in the mining lease, has not joined Intermine in its litigation against the company. As described above, Parys Mountain Mines Limited became a subsidiary of the company in September 1997.

As a result of the purchase of the freehold and new head lease referred to above the company is the legal owner of the lands and minerals at Parys Mountain, subject to and with the benefit of the mining lease which is also beneficially owned by the company. The company itself is also entitled, through its wholly owned subsidiary Parys Mountain Mines, to one third of the NPI royalty payable under the 1984 agreement.

The directors believe that the company has properly exercised the option in the 1984 agreement to acquire the mining lease and one half of the NPI royalty, that Intermine has not suffered any damage and that other than an entitlement to the payment of a 5% net profits royalty (representing two thirds of the half of the NPI royalty not acquired by the company) the plaintiff has no claim against the property or the company. If the company is not successful in this litigation (upon final appeal whether in the Ontario courts, the British Columbia courts or the courts of the United Kingdom) the result could be the loss of the lessee's interest in the mining lease or the award of an amount of damages against the company which it would be unable to satisfy.

Intangible fixed assets

Development expenditure incurred by the company is carried in the financial statements classified as intangible assets at cost. The directors continue to give careful consideration to the value at which this development expenditure should be shown. The balance sheet value may exceed that which could be obtained were the property offered for sale at this time. However the results of the independent feasibility study conducted in 1990 and other studies since that date, taken together with the directors' reasonable forecast of metal prices during the projected life of the mine, continue to demonstrate that this development expenditure, together with other expenditure required to bring the mine into production, will be recovered by the operation of the mine. Consequently no provision, amortisation or write down in the value of intangible fixed assets has been made. Operation of the mine is dependent on finance being available to fund mine development and mill construction.

Going concern basis

As in previous years the directors have given careful consideration to the appropriateness of the going concern concept in the preparation of the financial statements. The validity of the going concern concept is dependent on finance being available for the continuing working capital requirements of the company and finance for the development of the Parys Mountain property eventually becoming available.

The directors believe that the steps outlined earlier in this report represent solid progress towards resolving these conditions and that, whilst there is uncertainty as to whether these conditions will be met, the going concern basis is appropriate for these financial statements.

Directors' responsibilities

The directors are required by UK company law to prepare accounts for each financial year that give a true and fair view of the state of affairs of the company as at the end of the financial year and of the profit or loss of the company for that period.

The directors confirm that suitable accounting policies have been used and applied consistently, and that reasonable and prudent judgements and estimates have been made in the preparation of the accounts for the year ended 31 March 1997. The directors also confirm that applicable accounting standards have been followed and that the financial statements have been prepared on the going concern basis.

The directors are responsible for keeping proper accounting records, for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Directors

The names of directors with brief biographies are shown on page 28. In accordance with the articles of association, Danesh Varma retires by rotation and, being eligible, offers himself for re-election.

Danesh Varma is a director and, through his family interests, a significant shareholder of Juno. The company had during the year substantial liabilities to Juno. These amounts were converted into shares as a result of the capitalisation in October 1996. Since the year end Juno has made further advances to the company on normal commercial terms.

Danesh Varma is also a director of Mid Ocean Investments Limited which holds 10.8% of the company's ordinary shares. John Kearney is a director of a subsidiary of Juno. There are no other contracts of significance in which any director has or had during the year a material interest.

Directors' shareholdings

The interests at 31 March 1997 of the directors and their families in the share capital of the company, all of which are beneficial, are set out below. These holdings were unchanged in amount at 22 September 1997. The holdings are expressed as a percentage of 103,343,858 shares, this being the number of shares in issue at 22 September 1997.

At 31 March 1997 At 31 March 1996

Directors' remuneration

There are no directors' service contracts and no arrangements in force whereby the company is under an obligation to pay fees, salaries, pensions or any other remuneration to any of the directors. During the year no remuneration was paid to any director except that 400,000 ordinary shares with a nominal value of £20,000 were issued to Lord Crickhowell in consideration for his services. At the time of this issue on 18 December 1996 the mid-market share price was 3.75 pence. In view of the small size of the board, the directors do not consider it appropriate to formally constitute the remuneration committee which is recommended by section A of the best practice provisions annexed to the London Stock Exchange listing rules. In any matter concerned with directors' remuneration, decisions are made by the entire board. Three of the board's four members are non-executive directors.

The company's policy with regard to directors' remuneration is to provide a remuneration package which will attract, retain and motivate directors of the calibre required and also be consistent with the company's limited ability to pay for such a package in cash. In determining the company's policy with regard to directors' remuneration the board gave full consideration to section B of the best practice provisions annexed to the London Stock Exchange listing rules.

Directors' options

Details of share options held by directors are set out below. These holdings were unchanged in amount at 22 September 1997:

There are performance criteria to be met in respect of share options marked with an asterisk, namely that the company's share price performance must exceed that of the companies in the top quartile of the FTSE 100 index. There are no performance criteria to be met in respect of other share options. Each option was granted at a cost of £1. No share options have been exercised during the year.

The market price of the ordinary shares at 31 March 1997 was 5 pence, the high for the year to 31 March 1997 was 5.5 pence and the low for the year was 3 pence.

All directors and employees are eligible to receive options. In determining the amount of options to be granted to each individual, the directors take into account the need for and value of his services, the amount of time he spends on the business of the company and any other remuneration receivable by him from the company.

Taxation

The company is not a close company within the provisions of the Income and Corporation Taxes Act 1988 and this position has not changed since the end of the financial year.

Creditor payment policy

The company's policy in relation to the payment of its creditors is to settle its terms of payment with each creditor when agreeing the terms of each business transaction. The creditor is made aware of the terms, which may be varied subsequently by agreement. It is company practice to abide by the agreed terms of payment. The company's average creditor payment period at 31 March 1997 was 68 days (1996 - 180 days).

Substantial shareholders

At 22 September 1997 the following shareholders had advised the company of an interest in the ordinary share capital of the company. So far as the company is aware there are no other interests of more than 3% in the ordinary share capital of the company.

Authority to allot shares

Although the directors would usually allot any new share capital on a pre-emptive basis they believe it is appropriate to have a larger amount available for issue at their discretion without pre-emption, than is usually the case. Accordingly a resolution will be put to the AGM to renew the directors' authority to allot equity securities for cash without pre-emption. In the case of allotments other than for rights issues, it is proposed that such authority will be for up to £650,000, being approximately 12.6% of the issued ordinary share capital at 22 September 1997. This continues the authority granted to the directors at each annual general meeting since 1993 and whilst such authority is in excess of the 5% of existing issued ordinary share capital which is normal for listed companies, it will provide additional flexibility which the directors believe is in the best interests of the company in its present circumstances.

Charitable and political contributions

The company made no contributions during the year. (1996 - nil).

Auditors

A resolution to reappoint Coopers & Lybrand as the company's auditors will be proposed at the annual general meeting.

By order of the board
Ian Cuthbertson
Company Secretary
Amlwch, 29 September 1997