TIDMSVE
RNS Number : 6072E
Starvest PLC
04 November 2015
Wednesday 4 November 2015
Starvest Plc ("Starvest" or "the Company")
Results for the year ended 30 September 2015
Chairman's statement
I am pleased to present my first annual statement to
Shareholders for the year ended 30 September 2015 and the fifteenth
since the Company was formed in 2000.
Bruce Rowan
It is a great personal sadness, shared by my fellow directors,
that for health reasons, Bruce found it necessary to step down from
the Board at the end of August 2015. Over many years, Bruce gained
a reputation for his successful support for small-cap mineral
exploration businesses both in his native Australia and throughout
the world. He had the vision to support a large number of such
businesses as a result of which he was much sought after. We wish
him all the very best in his retirement during which we will do our
very best to honour his trust in us and to enhance the value of the
Company's portfolio.
Results for the year
Following the three tough years of 2011 to 2013, 2014 showed a
marked improvement in the Company's net asset value. Sadly, that,
and more has been lost during the last year so that the closing net
asset value has fallen to a level not previously known. Many of our
portfolio companies exploring for gold, iron ore and other such
minerals have continued to find it difficult to raise essential
cash and so have seen share price falls in what has become a harsh
environment for early stage mineral explorers.
At the balance sheet date, more than 45% of the portfolio value
was attributed to oil stocks which have been hit by a collapse of
world oil prices. For example, a year ago we reported having seen a
dramatic rise in the price of Nordic Energy plc, a company then
valued at 7 pence per share, but which has since failed in its
attempt to be admitted to AIM leading to a boardroom hiatus and a
current price of 0.8 pence per share.
On a brighter note, we have two companies in the portfolio each
of which is edging towards gold production; we wait with
anticipation for continued good news from Ariana Resources plc and
KEFI Minerals plc.
Investing policy
The Company's investing policy is reproduced on page 3 of this
report and made available on our website, www.starvest.co.uk.
Trading portfolio valuation
A brief review of the major portfolio companies follows from
page 4; other investee companies are listed with the websites from
which further information may be obtained.
Shareholder information
The Company's shares are traded on AIM.
Announcements made to the London Stock Exchange are sent to
those who register at the Company's website, www.starvest.co.uk
where historic reports and announcements are also available.
Annual general meeting
We will hold our annual general meeting at 11.00 am on 10
December 2015 at the City office of Grant Thornton UK LLP, our
Nominated Adviser, when we look forward to meeting those
Shareholders able to attend.
Callum N Baxter
Chairman & Chief Executive
4 November 2015
Investing policy statement
About us
The Board, under the leadership of the previous chairman, Bruce
Rowan, has managed the Company as an investment company since
January 2002. Collectively, the Board has significant experience
over many years of investing in small company new issues and
pre-IPO opportunities in the natural resources and mineral
exploration sectors.
Following the appointment as chairman of Callum Baxter, the
Board will continue with a similar investment strategy, that is,
with a focus on the natural resources sector.
Company objective
The Company is established as a source of early stage finance to
fledgling businesses, to maximise the capital value of the Company
and to generate benefits for Shareholders in the form of capital
growth and modest dividends.
Investing strategy
Natural resources: Whilst the Company has no exclusive
commitment to the natural resources sector, the Board sees this as
having considerable growth potential in the medium term.
Historically, investments were generally made immediately prior to
an initial public offering, on AIM or ISDX as well as in the
aftermarket. As the nature of the market has changed since 2008, it
is more likely that the future investment portfolio will include a
spread of companies that generally have moved beyond the IPO stage
but remain in the early stages of identifying a commercial resource
and/or moving towards development with the appropriate finance.
Investment size: Initial investments are for varying amounts but
usually in the range of GBP100,000 - GBP300,000. These companies
are invariably not generating cash, rather they have a constant
requirement to raise new equity in order to continue exploration
and development. Therefore, after appropriate due diligence, the
Company may provide further funding support and make later market
purchases, so that the total investment may be greater than
GBP300,000.
High risk: The business is inherently high risk and of a
cyclical nature dependent upon fluctuations in world economic
activity which impacts on the demand for minerals. However, it
offers the investor a spread of investments in an exciting sector,
which the Board believes will continue to offer the potential of
significant returns for the foreseeable future.
Lack of liquidity: The investee companies, being small, almost
invariably lack share market liquidity, even if they are quoted on
AIM, ISDX, ASX, or TSX-V. Therefore, in the early years it is
rarely possible to sell an investment at the quoted market price
with the result that extreme patience is required whilst the
investee company develops and ultimately attracts market interest.
If and when an explorer finds a large exploitable resource, it may
become the object of a third party bid, or otherwise become a much
larger entity; either way an opportunity to realise cash is
expected to follow.
Success rate: Of the 25 to 30 investments held at any one time,
it is expected that no more than five will prove to be 'winners';
from half of the remainder we may expect to see modest share price
improvements. Overall, the expectation is that in time Shareholder
returns will be acceptable if not substantial. Accordingly, the
Board is unable to give any estimate of the quantum or timing of
returns.
Profit distribution: When profits have been realised and
adequate cash is available, it is the intention of the Board to
recommend the distribution of up to half the profits realised.
Other matters: The Company currently has investments in the
following companies, which themselves are investment companies:
Equity Investors plc; Equity Resources Limited and Guild
Acquisitions plc.
The Company takes no part in the active management of investee
companies, although directors of the Company are also non-executive
directors on the boards of four such companies. Callum Baxter,
newly appointed Chairman, is also the CEO of one such company.
Review of trading portfolio
Introduction
During the year to 30 September 2015, the portfolio comprised
interests in the companies commented on below. In addition, a
further 12 active companies were included but not commented on in
this review.
The tough trading and fundraising conditions of the past four
years have taken a toll on some of the businesses in which Starvest
is invested to such an extent that, as at 30 September 2015, the
net asset value had reduced by 74% in one year from a value of
GBP4.41m at 30 September 2014, to GBP1.14m. As a year ago, the
greater part of the value is in oil, gas and coal exploration
ventures, but the values have been significantly reduced; together
the Company's interests now amount to 66% of its portfolio; much of
the remainder is in gold exploration.
Transactions
During the year the Company sold its remaining stake in Beowulf
Mining plc. In addition, the Company subscribed to a placing in
Alba Mineral Resources plc which it sold at profit within four
weeks before purchasing a further holding as the price fell.
Otherwise there were no purchases or sales.
During the year, we received interest on short-term loans
advanced during the previous year to Goldcrest Resources plc;
Goldcrest also made a partial repayment of the capital.
Trading portfolio valuation
When reporting in previous years, attention was drawn to the
continuing adverse conditions in our chosen market for early stage
mineral exploration stocks. The year to September 2015 has been no
better with a dramatic decline in market prices.
Against this background, we continue to value our portfolio of
investments conservatively at the lower of cost or bid price or
lower directors' valuation, where we believe those facts of which
we are aware cast doubt on the market prices or where the Company's
interest is of such a size as to inhibit selling into a depressed
market. We attribute no value to those of our investments that do
not enjoy a market quote.
For the purpose of the quarterly valuation announced at the end
of September, we have one exception to this rule. Many years ago,
we took a founding stake in Concorde Oil & Gas plc which was
subsequently acquired by Kuwait Energy plc, a company registered in
Jersey which we understand is in the early stages of seeking a
public quotation, possibly in New York. In view of the significant
progress made by the company, we have valued the holding at a price
advised by a Kuwaiti broker which makes a local market in the
stock.
The Directors are satisfied that this is the only significant
management estimate made within the financial statements.
This cautious approach has proved to be appropriate in these
difficult times; additional provisions made during the year total
GBP140,000 (2014: GBP351,000).
A detailed review of the six leading portfolio companies
follows. This year, we are not commenting on the smaller companies,
although they are listed at the end of the review.
(MORE TO FOLLOW) Dow Jones Newswires
November 04, 2015 12:23 ET (17:23 GMT)
Raising new finance, an essential requirement for any mineral
exploration business, has continued to be very tough leading to the
heavy dilution of existing shareholders and to some failures.
As the net asset value has fallen substantially during the year
to GBP1.14m, the loss before taxation has increased from GBP356k to
GBP964k. In addition, the Company:
-- has no debt other than a convertible loan from a shareholder
and a bank overdraft facility only;
-- continues to believe that it is in a strong position to
benefit from an upturn in markets which will come in time;
-- believes that the fundamentals have not changed: the world is
becoming more affluent with an increasing number of people
expecting refrigerators, motor cars, air conditioning, laptop
computers and all other tools of 21(st) Century living which all
require natural resources in order to both produce and power.
Financial Reporting Standards (FRS102)
To date we have prepared our financial statements under UK
Generally Accepted Accounting Standards (UK GAAP). However, with
effect from 1 October 2015 we will be required to adopt FRS 102
("New UK GAAP"). The significant impact of this change will be on
the valuation of the Company's investments. To date, we have been
able to carry all our investments at the lower of cost or current
value. However, under the new accounting standard, we will be
required to mark-to-market all our investments. Based on the
closing prices at 30 September 2015, the investments (and hence net
assets of the group) will not be affected as all investments are
carried at a loss to cost price.
Company statistics
The Company considers the following statistics to be its Key
Performance Indicators (KPIs) and is satisfied with the results
achieved in the year given the uncertain market conditions.
30 September 30 September Change
2015 2014 %
at BID values at BID values
as adjusted as adjusted
* Trading portfolio value GBP1.04m GBP4.15m -75%
* Company asset value net of debt GBP1.14m GBP4.41m -74%
* Net asset value per share 3.09p 11.87p -74%
* Closing share price 2.75p 5.88p -53%
* Share price discount to net asset value 11% 50%
* Market capitalisation GBP1.02m GBP2.18m -53%
These values include unrealised gains on elements of the trading
portfolio that are not reflected in the financial statements. Since
the year end, values have slightly improved; as at the close of
business on 30 October 2015, the asset value net of debt was
GBP1.3m.
Review of the current market
We and our investee companies have endured yet another tough
year; extreme short termism leading to lower prices and/or greater
volatility has become the norm. It is clear that many private
investors upon whom we and our investee companies have relied for
new capital have withdrawn their support or, at best, are awaiting
a recognisable upturn in world-wide economic fortunes; this is
compounded in that few institutional investors have an appetite for
small early stage projects.
World markets continue to be volatile. For instance, in the past
four years the gold price has been as high as $1,883 per oz. but
has also been as low as $1,093; at the present time it is
approximately $1,170, not far from where it was a year ago.
Then there is iron ore which is in plentiful supply but with
Australia the dominant exporter. Prices have fallen from $130/t to
below $50/t.
Demand for raw materials continues to fall. Although there may
be timing issues, we expect demand to recover to be followed by
prices. Meanwhile, opportunities for junior explorers to realise
value and generate cash are few.
In spite of the challenging environment, the strengthening of
the US$ has been and will be a factor in determining world
commodity prices.
Patience continues to be the key as we await a recovery.
It is worth reminding ourselves of what we have consistently
stated: we are investing in a high risk sector where positive
returns are not guaranteed and that we never expect more than five
of the 25 to 30 investments held at any one time to be
'winners'.
Interests in Gold exploration
Our interests in gold exploration have endured yet another tough
year!
Following falls in the gold price to US$1,200, a year ago we
predicted that further falls were likely. Indeed, the price fell in
July 2015 by US$100, but has since increased so it now trades
around US$1,170. Given all the uncertainty in world markets, the
focus must be on cost reduction.
Amongst the Starvest investments, there are six with interests
in gold exploration. Of these, we comment on two:
Ariana Resources plc (www.arianaresources.com)
Significant progress has been made by Ariana in the first half
of this financial year where they are transitioning to become a
gold producer in Turkey. With a market capitalisation of GBP7m
today, it has experienced huge swings even in the past year. Having
traded consistently in the range 0.8-1 pence per share for most of
2014 and up to June 2015 when it shot up to 1.30p, it has since
fallen back to the range 0.8-0.9pps where it languishes today. But
then, most other small-cap mineral exploration companies are
suffering the same fate, if not worse, in this challenging
market.
In spite of the languishing share price, Ariana has made
significant progress towards revenue generation; it has:
-- At the Red Rabbit Gold Project in south-western Turkey, 50%
owned by Ariana, Kiziltepe Mine construction has advanced so that
first gold production is scheduled during the second half of 2016
at 20,000 ounces per annum for the first eight years of
operation.
-- An expected cash cost of approximately US$600 per ounce.
-- When it comes on stream, the Tavsan Sector is expected to add
30,000 ounces gold per annum.
-- Further resource discoveries are expected in the vicinity.
-- Kiziltepe mine development is fully funded, with all
necessary land holdings secured.
-- Once revenue becomes a reality, Ariana's other intended
activities will be fully funded.
Meanwhile, Ariana is seeking a profitable exit from other
development projects such as those in north-eastern Turkey in which
Eldorado has a 51% interest; the inferred and indicated JORC totals
1.09 million ounces of gold.
Therefore, as Ariana nears production during 2016, it is not
unreasonable to expect share price growth, although there must be
some doubt that we will ever fully recover our investment in
today's challenging economic climate
Kefi Minerals plc (www.kefi-minerals.com)
Kefi is an exploration and development company focussed on gold
and copper deposits, primarily in the highly prospective
Arabian-Nubian Shield.
With a market capitalisation of GBP9m and a price of just 0.45p,
we believe that there is plenty of scope for upside. Edison
estimated that the shares offer investors an IRR of 38.6% over
twelve years such has been the significant progress at the 95%
owned Tulu Kapi project in Ethiopia. The mine development plan is
well advanced with 100,000 ounces per annum of gold expected for
ten years; the reserve is estimated at 1.05million ounces @
2.12g/t. Plant and mining contractors were recently appointed. The
Ethiopian government is intending to contribute US$20m towards the
cost of the mine estimated at US$120m.
In addition, Kefi has a 40% stake in the Jibal Qutman project in
Saudi Arabia where it has recently discovered additional areas of
gold mineralisation. The estimated gold resource totals 733,000
ounces.
As the operator of these joint-venture projects, Kefi is well
positioned to develop them prudently while continuing to add value
through further exploration.
The remaining four companies are: Goldcrest Resources plc
(www.goldcrestresourcesplc.com), Ghana, Greatland Gold plc
(www.greatlandgold.com), Australia, Minera IRL Limited
(www.minera-irl.com), Peru and Red Rock Resources plc
(www.rrrplc.com), Ivory Coast and Kenya.
Interests in energy
We have four companies in the energy sector on which we comment
as follows:
Alba Mineral Resources plc (www.albamineralresources.com)
Alba is a UK-based exploration company with an overall strategy
to develop a portfolio of well-researched, promising and
prospective exploration interests.
A year ago it expanded its interests to include a 5% stake in
Horse Hill Developments Limited, a company with a 65% interest in
drilling for oil and gas in Surrey at Horse Hill, just to the north
of Gatwick Airport (www.horsehilldev.co.uk) During the past year,
it doubled its stake when it acquired a further 5% from Regency
Mines plc and more recently has - acquired a further 5% thus
increasing its stake to 15%, together with an option to farm into
5% of a production licence which includes the nearby Brockham Oil
Field.
For its part, Horse Hill Developments has completed the drilling
programme and, as expected, has located hydrocarbons but further
testing is required to establish the commerciality of the find.
Since September, Alba has secured an option to earn up to 70% of
a graphite project in southern Greenland which is also prospective
for gold, nickel, copper and platinum group metals. Alba will
manage the project and, on achieving agreed targets, will increase
its percentage interest.
Otherwise, Alba has projects prospective for:
-- uranium in Mauritania;
-- gold, nickel and base metals in western Ireland.
Kuwait Energy plc (www.kuwaitenergy.co)
(MORE TO FOLLOW) Dow Jones Newswires
November 04, 2015 12:23 ET (17:23 GMT)
The Company's interest in Kuwait Energy arises from it having
been a major founding shareholder in Concorde Oil and Gas plc in
2006, which was subsequently taken over by Kuwait Energy. After
much delay, Kuwait Energy announced an intention to seek a listing
on the London Stock Exchange which, we were advised, was planned
for the fourth quarter 2014. In the event, the oil price collapse
intervened and, so far as we know today, there is no replacement
plan although in a recent webinar, one was alluded to.
Kuwait Energy is an independent oil and gas company actively
engaged in the exploration, appraisal, development and production
of hydrocarbons. Since being established in 2005, the company has
built a high-quality, diversified portfolio of oil and gas assets
focused on exploration and production activities in the MENA region
(Middle East and North Africa). It has interests in Egypt, Iraq,
Yemen, Oman and Pakistan where it has built strong relationships
with national oil and gas companies and so provides valuable
technical expertise, advice and assistance to the companies and
local governments on oil and gas projects that are important to
these countries' economic development.
Production at its Block 9 project in Iraq has recently been
started with more expected in 2016.
In view of the obvious progress made during the past year, we
have revisited our earlier decision to make a full provision for
the cost of Kuwait Energy. On advice, we have reinstated a cost
equal to a value equivalent to the price at which stock has changed
hands during the past three months in private deals organised by a
Kuwaiti broker.
Nordic Energy plc (www.nordicenergyplc.com)
Unfortunately, Nordic's attempt to move from ISDX to AIM
coincided with a severe fall in the oil price. The bid share price
collapsed from 7 pence at 30 September 2014 to 0.8 pence a year
later, thus accounting for a large part of the value loss in the
past year.
It is our belief that there remains the possibility for Nordic
to recover value. We wait with interest.
Nordic is focussed on oil and gas opportunities in Denmark,
Norway, and the North Sea sectors of the Netherlands and the UK
where it holds licence 1/13 in the Danish sector, the largest
exploration and production licence in the Danish North Sea,
covering an area of 3,600 sq. km; the licence is located
approximately 50 km from the edge of the Central Graben, where
existing production and multiple discoveries are located, and 100
km from the Siri Area which has a number of tertiary fields.
A CPR which was delivered in June 2014 identified multiple
drilling targets to be followed by farm-out discussions with major
players.
Oracle Coalfields plc (www.oraclecoalfields.com)
Oracle Coalfields development plans for its Block VI of the Thar
Coalfield in the Sindh Province of South East Pakistan continue to
progress towards first production of lignite coal by end 2018,
intended to supply a new 600MW mine-mouth power plant.
This project is of national importance to Pakistan which suffers
from a chronic shortage of electricity generating capacity. The
need for substantial fuel imports impacts severely on the country's
economy and contributes to population unrest.
Oracle plans a first phase open pit development producing 5m
tonnes per annum from a proven reserve of 113m tonnes and a JORC
compliant resource of 529m tonnes. Production is expected to be
doubled to 10m tonnes in phase two with a doubling of power plant
output. The mining lease is for 30 years, extendable for a further
30 years.
SEPCO, a leading Chinese power construction group, backed by
Chinese export credit guarantees, is contracted to construct the
mine and the power plant. The need is such that the Pakistan
Government has provided incentives; also, the Sindh Provincial
Government is strongly supportive. Oracle's project has been
further supported by its inclusion as a priority project in the
programme of the recently created China-Pakistan Economic Corridor.
Oracle expects to retain a controlling interest in each local
company.
The basis for the coal price for supply to the power plant has
been agreed with the Thar Coal and Energy Board (TCEB) under a
pricing mechanism incorporating fiscal incentives and an allowable
20% IRR in US$, thus protecting against world-wide markets. When
the coal price is determined, Oracle will apply for an initial
electricity tariff for the power plant. With financial closure
expected by the second quarter of 2016, Oracle is presently engaged
in negotiating contracts for both the mine and the power plant and
is planning for Sinosure's export credit financing and other bank
finance.
Meanwhile work is progressing on the planned resettlement of two
communities in the vicinity of the mine-site and the implementation
of a corporate social responsibility programme to benefit them in
terms of water, basic healthcare and veterinary support.
Despite Oracle's present lowly AIM capitalisation, reflecting
past interim stock issue fund-raising and recent market volatility
of resource stocks, the expected positive news-flow in the months
ahead should generate increasing interest in both the project and
in Oracle.
Other investments
The remaining non-core investments are available for sale when
the conditions are deemed to be right. These include: International
Mining & Infrastructure Corporation plc (www.imicplc.com), CAP
Energy plc (www.capenergy.co.uk); Marechale Capital plc
(www.marechalecapital.com), Regency Mines plc
(www.regency-mines.com), Sunrise Resources plc
(www.sunriseresourcesplc.com). In addition, there are a number of
failed or almost failed ventures to which we attribute no value,
although we always hope and seek to crystallise value where
possible
Strategic report
Principal activities and business review
Since Bruce Rowan was appointed Chief Executive on 31 January
2002, the Company's principal trading activity has been the use of
his expertise to identify and, where appropriate, support small
company new issues, pre IPO and on-going fundraising opportunities
with a view to realising profit from disposals as the businesses
mature in the medium term. The directors expect this to continue in
the future under the leadership of Callum Baxter, newly appointed
Chief Executive.
The Company's key performance indicators and developments during
the year are given in the Chairman's statement and in the trading
portfolio review, all of which form part of the Directors'
report.
Key risks and uncertainties
This business carries with it a high level of risk and
uncertainty, although the rewards can be outstanding. The risk
arises from the very nature of early stage mineral exploration
where there can be no certainty of outcome. In addition, often
there is a lack of liquidity in the Company's trading portfolio,
most of which is, or in the case of pre IPO commitments is expected
to be, quoted on AIM or ISDX, such that the Company may have
difficulty in realising the full value in a forced sale.
Accordingly, a commitment is only made after thorough research into
both the management and the business of the target, both of which
are closely monitored thereafter. Furthermore, the Company limits
the amount of each commitment, both as to the absolute amount and
percentage of the target company.
Profit and loss account
for the year ended 30 September 2015
Year ended Year ended
30 September 30 September
2015 2014
GBP GBP
Turnover 123,891 262,940
Cost of sales (112,916) (194,801)
-------------------------------------------- ------------- -------------
Gross profit 10,975 68,139
Administrative expenses (234,766) (206,837)
Amounts written off trade investments (749,671) (220,101)
-------------------------------------------- ------------- -------------
Operating loss (973,462) (358,799)
Interest receivable 9,326 2,475
Loss on ordinary activities before taxation (964,136) (356,324)
Tax on loss on ordinary activities - -
-------------------------------------------- ------------- -------------
Loss on ordinary activities after taxation (964,136) (356,324)
-------------------------------------------- ------------- -------------
Loss per share - basic and diluted (2.60) pence (0.96) pence
-------------------------------------------- ------------- -------------
There are no recognised gains and losses in either year other
than the result for the year.
All operations are continuing.
Balance sheet
As at 30 September 2015
30 September 30 September
2015 2014
GBP GBP
------------------------------------------- ------------ ------------
Current assets
Debtors 55,040 100,184
Trade investments 1,033,096 1,855,061
Cash at bank and in hand 228,318 239,540
------------------------------------------- ------------ ------------
1,316,454 2,194,785
Creditors - amounts falling due within one
year (125,155) (44,350)
------------------------------------------- ------------ ------------
Net current assets 1,191,299 2,150,435
------------------------------------------- ------------ ------------
Share capital and reserves
(MORE TO FOLLOW) Dow Jones Newswires
November 04, 2015 12:23 ET (17:23 GMT)
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