Net Asset Value Update

RNS Number : 5014Y

Mineral & Financial Invest. Limited

27 January 2014

 



MINERAL & FINANCIAL LIMITED

("Mineral & Financial", "MAFL", or the "Company")

NET ASSET VALUE UPDATE

MAFL, the AIM quoted resources investment specialist, today announces an NAV and operations update on its activities for the period ended 31^st December 2013.

Highlights

·     Net assets of £1,055 million, or 7.75p per share (unaudited)

·     Second consecutive quarter of increased NAV 

·     Exit from Webb Funds complete, bringing total cash recovered to £512,000

·     New investments in uranium sector

·     Increased exposure to gold

·     Total cash at period end: £797,000, or 5.8p per share

Post period end

·     Evaluating assets for MAFL to take active participation in with potential co-investors, with MAFL to help deliver asset value

·     Activity in global mining equities beginning to pick up

·     Laurence Read appointed Executive Director (from NED)

Commenting today Jacques Vaillancourt, Chairman, of MAFL said: "We are cautiously watching as signs of activity return to the resources market. While we have reservations about some aspects of global growth forecasting it is interesting to watch the dynamics of the mining industry shift. Our new board has significant experience centred round what drives value in resources equities, and is not interested in companies that want to spend money simply to make a project bigger. While we continue trading activities in regard to our investment portfolio the Company is also discussing mid-term initiatives with co-investment parties to take more active roles in prospective assets."

Commenting today Alastair Ford, CIO of MAFL said: "We are excited by the potential for creating value at this stage of the market cycle and believe that now is the time that attractive deals can be done. Equity market valuations are beginning to bottom out and there is a restless sense in the market that a recovery may be brewing. We look forward to more positive newsflow from the sector at the Indaba conference at Cape Town next month."

For more information:

Katy Mitchell, WH Ireland                                [phone]

Laurence Read, Director                                   [phone]

Chairman's Statement

In recent months there has been an improvement in economic activity and confidence in the Western economies that has pushed equity markets upwards. Though the IMF has just recently reduced its 2014 global GDP forecast by 0.2 per cent to 3.6 per cent, this nevertheless remains an encouraging pace of growth.

But a critical issue that commentators have ceased to consider and now seem to accept without question - are the promises of central bankers that interest rates will be held low until 2015.

With rising interest rates pressure on economic growth can occur with a consequent knock on effect to equity market valuations. MAFL believes that economic growth will be positive, but less robust than the markets are currently discounting.

However, we also believe that the long-term key for commodity prices is sturdy demand from emerging markets, as these markets continue to industrialize.

In 2014 there will be a few large projects coming into production, such as Rio Tinto's Oyu Tolgoi copper-gold project in Mongolia and Anglo American's Minas-Rio iron ore project in Brazil. But beyond 2014 there will be very few large projects disrupting metal pricing dynamics due to industry wide capital expenditure controls and very limited market funding availability for juniors.

We have watched with interest Gold Fields' divestment of its massive South African gold mines and $270 million acquisition of Barrik Gold's production assets in politically stable Australia. With rising operating costs ravaging the majors it may well take a long time for these large companies to find a comfortable equilibrium  operating "tier one" projects.

This leaves opportunity for smaller projects with sensible economics, especially in the gold space, to become attractive and a near term "easy" route to production.

The lack of new large projects is also creating a very positive outlook in the mid-term for metal prices. In 2014 metals such as zinc and precious metals should do better as supply constraints increase, while we believe that iron ore, aluminium, will struggle.

Although we like copper, 2014 will be a year when meaningful metal price increases - if any - will be difficult to achieve, as supply will increase faster than will demand.

MAFL is also currently interested in industrial metals that can yield attractive margins from low CAPEX mining operations, even if it is at the expense of a short mine life. While we can all track bulk commodities going up and down (even if the spot price doesn't really accurately reflect true pricing) the lead times involved for major projects make plotting economics extremely difficult. Finding smaller assets, with strategically important commodities, that need little beneficiation or infrastructure is one of the activities we are currently undertaking.

This year has already seen a few mining merger deals being realised, but at prices that continue to be dilutive to legacy shareholders. This is an encouraging sign that opportunists, if not investors, are returning to the sector.

We are confident that 2014 will be a year of significant opportunity for Mineral & Financial Investments to continue creating value for our shareholders.

Jacques Vaillancourt, CFA

Chief Investment Officer's Statement

The Company's Net Asset Value (NAV) as of December 31^st 2013, has risen from 7.6 pence to 7.7 pence, the second consecutive quarterly rise after a prolonged period of falls. 

The Company believes these recent increases in NAV will be the precursor to significant value creation in the coming months and years.

But it won't be immediate. Mining equity markets around the globe remained severely depressed during the past quarter - notwithstanding one or two bright spots - and in that context the Company's portfolio remained heavily weighted towards cash.

During the period, the Company completed its exit from its holdings in the Sharefunds SF t1ps Smaller Companies Gold Fund and in the SF t1ps Growth Fund, bringing the total realised cash value from sales in these funds to £516,000.

However, the persistent gold price weakness did allow the Company to increase its exposure to physical gold at attractive prices, such that at the end of December the value of our gold holdings was showing a modest gain.

The Company also took the view during the preceding quarter that the uranium price is likely to increase over the next few quarters as the absence of supply from the decommissioned Russian nuclear stockpile begins to make itself felt. The Company also notes the rapid pace at which new nuclear plants are being constructed around the world, even allowing for the temporary hiatus following the disaster at Fukushima.

Accordingly, the Company sought direct exposure to the uranium price through the purchase of shares of Uranium Participation Corporation, a TSX-quoted vehicle. The Company also acquired shares in Cameco, Canada's biggest uranium miner, which benefits from exceptionally high grades at its major uranium projects in Canada.

We continue our stated policy of focussing primarily on the more liquid mid-tier and larger companies. However, it is also pleasing to note recent positive developments at one of our legacy investments, Cap Energy, an ISDX-listed vehicle, in which the Company holds 400,000 shares.

The directors now believe that mining equities are bottoming out, and as such would anticipate deploying more of the Company's cash in the market in 2014. We look forward to the next 12 months with cautious optimism.

                                                                                                           Alastair Ford

Notes:

The net asset value calculation is subject to audit and is made on the basis that the Company has 13,722,062 shares in issue. All listed investments, including investments on ISDX, are valued at the closing bid price as at 31^st December 2013. The Company has an investment in one unquoted gold Company, which is currently valued at the price at which the gold Company in question last raised money, although this is subject to review. The Company is also currently in the process of converting its loan note in Silvermere Energy into equity in the newly-named Tern PLC, as a CVA draws to a close. The Company took a significant write-down on the value of this loan note last year, and is currently valuing this investment on the basis of the market value of the shares in TERN it is likely to receive.

 

END

 

 

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