Widespread Portfolios Interim Report to 30 September 2010
Widespread Portfolios Limited
Interim Report
for the six months to 30 September 2010
Your directors submit the financial statements of Widespread Portfolios Limited for the six months to 30 September 2010.
The trading result for the period was a loss of $187,000 (6 months to 30 September 2009, $298,000 loss).
An analysis of the result is provided in the table below
|
|
Six months to 30 September 2009 ($,000) |
|
|
Gains on the sale of shares |
59 |
47 |
|
Unrealised gains (losses) on trading stock |
(8) |
- |
|
Other income |
119 |
71 |
|
Total Income |
170 |
118 |
|
Expenses |
(277) |
(287) |
|
Impairment on investments |
- |
- |
|
Share of Widespread Energy loss |
(37) |
(8) |
|
Net Profit (loss) before income tax |
(144) |
(177) |
|
Income tax |
(7) |
(10) |
|
Net profit (loss) after tax |
(151) |
(187) |
Major Investments
Our major investments are detailed in the table below on the basis of their market values as at the date of this report.
|
|
Market Value or |
Per cent |
|
Investment |
Indept. Valn |
of total |
|
Asian Minerals |
2,738,153 |
23.4% |
|
King Solomon |
1,021,972 |
8.7% |
|
Fischer-Watt Gold |
280,206 |
2.4% |
|
Glass Earth |
152,400 |
1.3% |
|
Golden Phoenix |
369,089 |
3.1% |
|
Widespread Energy |
948,781 |
8.1% |
|
Trading & treasury stock |
257,615 |
2.2% |
|
Chatham Rise direct 10% |
2,090,000 |
17.8% |
|
Chatham Rise indirect 18% |
3,635,026 |
31.0% |
|
Cash |
226,455 |
1.9% |
|
|
11,719,698 |
100.0% |
The direct and indirect shareholdings in the Chatham Rise project are based on an independent valuation prepared by Rockpoint Corporate Finance in May 2010.
The indirect 18% holding, although it is held by Widespread Energy (our shareholding in which also appears in the table), is listed separately as the market capitalisation of Widespread Energy has not significantly changed since the Chatham Rise Prospecting Licence was granted on 25 February 2010.
All listed assets are included at market values with the exception of Asian Minerals which (as has been the case for eight of the last ten years) is currently included at directors’ valuation. This valuation is based on our share of Asian Minerals net assets and takes into account independent project valuation data, the strategic nature of the shareholding, our close association with the company (including board representation) and some management involvement.
Chatham Rise Rock Phosphate Project (presently 48.8% of our portfolio)
Project Background
On 25 February 2010, a consortium comprising Widespread Energy and associated company Widespread Portfolios Limited, (“the Joint Venture or JV”) was granted an offshore prospecting permit by the Crown Resources division of the Ministry of Economic Development covering an area of 4,726 km2 on the central Chatham Rise. The permit area, which is in New Zealand territorial waters, is located 400 km east of Christchurch and includes significant shallow seabed deposits of rock phosphate and other potentially valuable minerals.
The initial term of the permit is two years with further priority rights to either extend the prospecting permit or apply for a mining licence.
An independent valuation of the project by Rockpoint Corporate Finance earlier this year found the project had a realistic possibility of being commercially viable.
It found that, based on conservative modelling, the project has a current value of $20.9 million and could earn net profit before tax of $40 million a year.
Widespread’s own models put the NPAT figure as high as $80 to $100 million a year.
In addition to its financial potential, the project offers a number of benefits to New Zealand including:
- Reduced exposure to currency and commodity risk and reduced import burden
- Known, fixed costs
- Reduced carbon footprint from lower transport costs
- Possible export earnings
- The project is also New Zealand owned and controlled.
The challenges identified of extracting the resource include its sporadic distribution (it averages 66 kg per square metre but there is great variability). Also extracting phosphate at 400m depths has not been achieved, though other minerals have been extracted at greater depths. The phosphate, in nodules of 2mm to 150mm, is located in a 1m layer of sandy silt above a chalky clay sediment basement.
Environmental considerations are an important part of the work being done and the company has a wide-ranging programme of consultation with fishing, conservation, Maori and other interest groups.
The Chatham Rise Rock Phosphate Project continues to be rapidly and significantly progressed.
Milestones
Recent milestones include:
- Enhanced international profile of the project through speaking at an international underwater mining conference in Russia
- Successful meetings in Europe and subsequently in New Zealand with representatives of the world’s largest dredging companies
- Development of a dialogue with the German science establishment concerning previous research work undertaken on the Chatham Rise
- Ongoing discussions with research ship operators
- Establishment of a Chatham Rise linked university research programme
- Submission to Crown Minerals of two completed reports required as part of the year-one work programme
- Further oceanographic and environmental research commissioned
- Initiation of a dialogue with fertiliser sector parties
Following on from his presentation to the Underwater Mining Institute conference in Gelendzhik, Russia, Widespread director Chris Castle and project principal scientist Dr Robin Falconer met in Europe with several leading dredging companies. Meetings were also held with the owners of research ships and with German science organisations.
Four of the five dredging and undersea mining companies met expressed interest in the project and in either adapting existing underwater mining technology or developing new purpose-built technology. Discussions are ongoing.
Three meetings were held with sections of the German science establishment to re-establish links with the organisations centrally involved in the Chatham Rise exploration and research projects that took place in the late 70s/early 80s. The exploration cruises of the RV Valdivia and RV Sonne, were accompanied by a sizeable contingent of New Zealand and German scientists. The recent meetings gave a much better understanding of the cruise data still held in Germany and possible ways it could better assist our knowledge of the phosphorite deposit.
A meeting was also held with representatives of the company that operates RV Sonne with a view to possible use of the ship when in New Zealand waters during 2011. Discussion on the use of this vessel and other alternatives are also ongoing.
The Widespread Joint Venture has also agreed to sponsor a university research programme related to certain properties of the phosphorite nodules and is seeking to fund other related university research.
Widespread has also recently commissioned NIWA to undertake further work to enable us to more completely understand the oceanographic and benthic characteristics of our license area in the context of the entire Chatham Rise.
Project Timing
The Joint Venture is still on track to complete its first year work programme by Christmas 2010 – two months early. At the time of writing it also appears likely that environmental baseline monitoring and other data collection at sea (notionally part of the second year programme) will be commenced well ahead of schedule.
The second year of activity will include ongoing environmental baseline monitoring, further definition of the resource, completion of a bankable feasibility study following ongoing seabed sampling, and concept design of plant to recover rock phosphate from the seabed.
Offshore Listing of Chatham Rise Rock Phosphate Project
The two companies that hold the Chatham Rise Joint Venture are listed in New Zealand. Widespread Energy Limited (with a 90% interest) is listed on the smaller NZAX market and Widespread Portfolios Limited (with a 10% interest) on the main board NZSX market. Both are thinly traded, because they are small and operate in a sector (mining and mineral exploration) that is scarcely researched and which attracts relatively few local investors.
Further, there are no NZX listed fertiliser companies, therefore no comparable stocks, and little point (despite its present $20.9 million independent valuation) in listing the project on the local market.
On overseas markets the activities of minerals and fertilizer sector companies are better understood, regularly researched and form a legitimate part of many investors’ portfolios. As a result these companies are often readily able to raise significant quantities of new capital to finance exploration and project development.
These factors have lead the Boards of Widespread Energy and Widespread Portfolios to conclude that the interests of both groups of shareholders would be far better served if the Chatham Rise project were to be restructured with a view to a new listing in an overseas sharemarket.
The markets under consideration are the ASX (Australia) and TSX.V (Canada). No final decision has been made yet but it appears the lack of local depth and investor interest in financing projects of this nature have made the decision to list offshore an inevitability.
The current thinking of the two Boards is that Widespread Energy could become a dedicated vehicle for the Chatham Rise Project prior to an offshore listing occurring. This would likely mean transferring all other Widespread Energy investments as well as undertaking an issue of shares to Widespread Portfolios so that Widespread Energy then holds 100% of the Chatham Rise Project. The key benefits from this approach are that the operations of Widespread Energy would be singularly focussed for taking to an offshore market to raise
