WIDESPREAD PORTFOLIOS LIMITED
Final Announcement for year to 31 March 2008
The year to 31 March 2008 was a year when our portfolio, in market value terms at least, just marked time. Operationally, our two major investments were active and achieved a number of significant milestones, but this was not reflected in their market value.
During the year the Asian Mineral Resources share price fell from CAD 1.80 to 1.50 and that of King Solomon Mines from AUD 20 cents to 12.
Despite an offsetting 50% increase in the market value of our 26.7% shareholding in Widespread Energy, our shareholders' funds reduced by 9.3% from NZD 19.367m to NZD 17.562m. Excluding new capital raised (principally from warrant conversions) the fall was 16.7%.
This adjustment should perhaps more reasonably be viewed in the context of the spectacular growth achieved from March 2005 to March 2007 when shareholders funds increased from NZD 7.4 million to NZD 19.4 million, an increase of 126.1% (excluding new capital raised) during the two years.
Notwithstanding the reduction in net assets during the year to 31 March 2008, the market value of the company, including the listed warrants, actually increased from NZD 16.7 million to NZD 17.1 million.
Operating Result for the year
The after tax operating result, including unrealised losses on the share-trading portfolio and other non-cash provisions, was a loss of NZD 751,000 (2007, loss of NZD 398,000). An analysis of the trading result is provided in the table below
Year to 31 March 08 ($,000)Year to 31 March 07 ($,000)410955Gains on the sale of shares(680)(1051)Unrealised gains (losses) on trading stock188225Other income(82)129Total Income(500)(611)Operating expenses (288)Warrant expense(582)(770)Net profit before income tax184 19Income tax(398)(751) Net profit (loss) after tax
Disregarding unrealised losses and non-cash provisions, the outcome for the year was a pre-tax profit of NZD 569,000 (2007 NZD 98,000)
This improved trading result was due to improved realised profits from our share trading portfolio and increases in income earned from management and directors fees.
Historic Shareholder Returns
The table below summarises the returns to shareholders in the 12 months to 31 March 2008, together with corresponding figures for 5, 10, and the 19 years since the company's inception in September 1989.
Average annual increase in net assets to 31 March 2008Average annual increase in net assets to 31 March 200791.2%(18.1%)Year to 31 March28.0%22.8%5 years to 31 March30.0%26.1%10 years to 31 March21.2%18.0%19 years to March 07
Asian Mineral Resources ("ASN")
During the last 12 months ASN has achieved a number of milestones, including:
- granting of mining license
- Commencement of mine development and construction of the procession plant and mining camp
- Raising USD 60 million in equity by means of private placements
- Signing an offtake agreement with nickel smelter Jinchuan
- Reactivation of an aggressive nickel exploration programme.
Easily the most significant achievement, after a three-year application process, was the grant in December 2007 of the license to mine the Ban Phuc nickel deposit in north-west Vietnam.
Construction of the processing plant and the mining camp started immediately, in parallel with development of the mine. All three aspects of the development are well advanced and the present indications are that mining and processing of the ore will commence in the first quarter of 2009.
ASN has also made significant inroads into accessing the capital required for the development (USD 73.6 million) and has already raised USD 60 million in the last nine months by means of a series of private share placements. These placements have diluted Widespread's shareholding from 10.8% to 7% of ASN's expanded capital but have placed both ASN and Widespread in a much stronger position than before.
It's particularly noteworthy that these funds have been sourced from sophisticated mineral sector investors who have in most cases paid a premium over the ruling ASN market price in order to acquire a shareholding.
On a per share basis, these investors have paid up to eight times the average cost of each of the 6.94 million ASN shares held by Widespread.
Further funding, in the form of both private share placements and project finance (debt) is presently being sourced by ASN.
ASN also recently advised that it had entered into an offtake agreement with China based nickel smelter Jinchuan to sell all nickel concentrates produced during the estimated five-year life of mine of stage one of the Ban Phuc project. ASN has also granted Jinchuan first refusal rights on additional nickel concentrates that may be produced in subsequent mining phases.
Following the issue of the mining license, ASN filed applications for exploration licenses covering 97 km2 of the 150 km2 area comprising the Ban Phuc Project Area. Budgeted exploration expenditures for the next 12 to 15 months are $7.1 million, made up of $1.6 million for massive sulfide exploration activities within the mining license area; $0.5 million for disseminated sulfide exploration activities within the mining license area; $1.7 million for disseminated feasibility activities; and $3.3 million for regional nickel exploration activities.
At present nickel prices ASN is forecasting a payback period of nine months, total stage one revenues of USD 477 million, and a stage one discounted cash flow valuation of USD 192 million.
Stage one of the project involves mining the high grade massive sulfide deposit which contains 34,800 tonnes of nickel. Stage two would involve, if it proceeds, mining the adjacent disseminated sulfide deposit which is presently calculated to contain 188,000 tonnes of nickel.
At present market values, ASN is capitalised, on a fully diluted basis, at CAD 177m, or CAD 800 for every tonne of contained nickel in the two Ban Phuc nickel deposits. However, a representative cross section of comparable nickel miners is presently valued, on average, at CAD 4,900 per tonne of contained nickel. Recent takeovers of nickel miners Allegiance and Jubilee attributed values of over CAD 5,500 per tonne of contained nickel.
On the basis of these statistics it would not be unreasonable to expect that the ASN market value could increase substantially as the nickel mine goes into production.
Presently Widespread holds 7% of ASN and it represents, at a market value of CAD 1.61, 73.6% of our total assets. Chris Castle is a director of ASN and chairman of the Audit Committee.
King Solomon Mines
ASX listed King Solomon Mines ("KSO") is an active minerals explorer with gold and copper projects principally in the Sonid region of Inner Mongolia in China. Sonid is on the edge of the Gobi desert - along strike and across the Mongolian-Chinese border from Ivanhoe's well-known and huge Oyu Tolgoi copper/gold deposit.
KSO listed on the ASX during 2007 after raising $A10 million (in 50 million 20 cent shares) in a well supported IPO. Following listing the company has traded actively in the range AUD 11 to 29 cents with most recent sales at 19 cents.
After significant exploration activity during 2007 the 2008 exploration focus is on drilling of identified targets at Marmot Ridge, Naogaoshandu and Beyinhar North with an extensive geochemical sampling survey commencing at Wuritu.
The current drilling at Marmot Ridge is aimed at finding and defining a possible copper-molybdenum orebody that may exist following earlier drilling that identified persistently anomalous molybdenum values. This programme is ongoing.
At Naogaoshandu the first drilling of KSO's 2008 program was undertaken at the Three Eagles gold prospect. Eight holes for approximately 1,100m were drilled to test a 500m section of an east-west trending, steeply dipping, one to ten metre wide zone of veining and silicification within chlorite schists. The holes encountered veining and sulphides over several metre widths at depths varying from 80m to 120m below surface. The first shipment of samples was despatched shortly after the end of March and assays results are expected to be received in the near future.
At Beyinhar North, where KSO is also looking for gold, work undertaken to date has identified drilling target zones and drilling commenced during April 2008. Also during April a geophysical survey crew from Xian province arrived to commence approximately 45 line km of induced polarisation survey as a preliminary step towards identifying other zones of interest.
A comprehensive review of the geology, mineralisation and geophysical data collected to date at the Wuritu copper prospect has recently been completed. Following this review it was decided that a step-back to more widespread geochemical sampling was considered desirable. A 36 line km soil sampling program was consequently initiated in March with results are expected in late May.
Widespread Portfolios is the largest KSO shareholder with 11% of the present issued capital of 90,775,040 shares and is represented on the board by Chris Castle.
Widespread Energy ("WEN")
During the last year, WEN made tremendous progress in building up an exciting portfolio of oil and gas exploration opportunities.
Milestones achieved during the year included:
- The acquisition of a 11.7% interest in Green Gate Limited, the holder of four petroleum exploration permits (PEPs) in three South Island areas (Canterbury, Murchison and Great South Basin)
- Application for and the subsequent grant of PEP 38526 over the prolific oil seeps at Kotuku on the West Coast
- Application for and the subsequent grant of PEP 50439 for an area of 3,269 km2, off the West Coast of the South Island between Hokitika and Punakaiki.
- Widespread Energy, on behalf of a consortium comprising Widespread Energy and associated company Widespread Portfolios, applied in November 2007 for an offshore prospecting permit covering an area of 3,048 km2 on the central Chatham Rise The area encompassed by the permit is located 600 km east of Christchurch and includes significant seabed deposits of rock phosphate and other potentially valuable minerals
WEN's involvement in these projects means the company effectively has six live opportunities in the oil and gas exploration business in New Zealand and a significant potential opportunity in the fertiliser industry. The fertiliser industry, due to bio-fuel demand driving fertiliser prices, is now increasingly linked to the energy sector.
This portfolio offers both diversity and considerable upside if there is exploration success in any one project.
WEN's issued capital is now 14,306,925 ordinary shares and 13,494,425 June 2011 10 cent options. In recent months the shares and options have traded at 15 cents and 7 cents respectively.
Widespread Portfolios holds 26.7% of the fully diluted capital and is a cornerstone, long-term shareholder in the company.
WEN recently announced a share purchase plan offering each of its 199 shareholders an opportunity to acquire further shares at a price of 12.5 cents, together with a free June 2011 option. Widespread Portfolios will be taking up its entitlement and will be tendering for further shares in order to maintain its shareholding in WEN at or near present levels.
Widespread Portfolios Share Purchase Plan
On 1 May, 2008 Widespread shareholders were advised that it was intended to raise approximately NZD 829,000 by means of a share purchase plan offering each of our 829 shareholders the opportunity to acquire a further 80,000 shares at a price of 1.25 cents. Shareholders were also advised they could apply for another 320,000 shares from the possible issue shortfall. These additional shares would be allotted to the extent possible once the size of the shortfall, if any, had been established.
The offer documentation was sent to shareholders on 16 May and the offer is open until Friday 13 June 2008.
Trading since Balance Date
The year to 31 March 2008 has opened on a very quiet note. Little share trading has occurred and no major holdings have been sold. The pre-tax operating profit for the first two months, including fee income and one realised share-trading gain, is a small loss.
These operating results has been more than offset by substantial increases in the value of our two major investments, which has driven net assets from NZD 17.6 million as at 31 March 2008 to an unaudited NZD 20 million as at today's date.
Objectives for 2008/2009
The milestones we would like to achieve in the next 12 months include:
- The commissioning of ASN's nickel mine in north-western Vietnam
- A successful ASN exploration programme
- Exploration success for King Solomon Mines in Inner Mongolia
- Advances in the Widespread Energy work programmes in respect to the Green Gate, offshore West Coast and Kotuku oil and gas prospects
- Granting of the Chatham Rise mineral exploration permit followed by an active work programme
- Building value in our other strategic holdings
- An increase of at least 20% in the Widespread net asset backing per share
- A positive pre-tax trading profit for the year (in other words excluding non realised gains and losses)
The Annual General Meeting of shareholders will be held at 5pm, 27 July at The Wellesley, 2-8 Maginnity Street, Wellington.
Auditors, Dividend & Directors
WHK Sherwin Chan & Walshe have confirmed their willingness to continue in office as Auditors to the Company.
The directors do not propose to recommend a dividend in respect of the period under review. This is in accordance with the Company's stated core philosophy concerning dividends.
In accordance with the Constitution, Chris Castle and Jill Hatchwell retire by rotation and being eligible offer themselves for re-election to the board.
For and on behalf of the Board,
Linda J Sanders Chris D Castle
Takaka, 27 May 2008
Appendix 1 - NZX Format Financial Summary
Widespread Portfolios Limited
Year ended 31 March 2008
This report has been prepared in a manner which complies with generally accepted accounting practice and gives a true and fair view of the matters to which the report relates and is based on audited accounts.
CONSOLIDATED OPERATING STATEMENT
NZ$'000: Current Year; Previous corresponding Year
Total operating revenue: 183; 148
OPERATING SURPLUS (DEFICIT) BEFORE UNUSUAL ITEMS AND TAX: (770); (582)
Unusual items for separate disclosure: Nil
OPERATING SURPLUS (DEFICIT) BEFORE TAX: (770); (582)
Less tax on operating profit: (19); 84
OPERATING SURPLUS (DEFICIT) AFTER TAX BUT BEFORE MINORITY INTERESTS: (751); (666)
Less minority interests: Nil
Equity earnings: Nil
OPERATING SURPLUS (DEFICIT) AFTER TAX ATTRIBUTABLE TO MEMBERS OF LISTED ISSUER: (751); (666)
Extraordinary items after tax attributable to Members of the Listed Issuer: Nil
OPERATING SURPLUS (DEFICIT) AND EXTRAORDINARY ITEMS AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE LISTED ISSUER: (751); (666)
Earnings per share: (0.0008); (0.0014)
Interim/Final/Special Dividend: Nil
Record Date: n/a. Date Payable: n/a
Imputation tax credit on latest dividend: n/a
This announcement is in relation to the year ended 31 March 2008.
Widespread Portfolios Limited will lodge with the NZX and send to holders its Annual Report once completed.