Half Yearly Report

RNS Number : 1426P

Golden Prospect Precious Metals Ltd

22 October 2012

 

GOLDEN PROSPECT PRECIOUS METALS LIMITED

("Golden Prospect" "GPPM" or "the Company")

Interim Report and Financial Statements

for the period ended 30 June 2012

Golden Prospect Precious Metals Limited today announces its interim results for the period ended 30 June 2012.

The Company's objective is to provide investors with capital growth, from a portfolio of companies involved in the precious metals sector.  The Interim Report will shortly be circulated to shareholders and will also be available on the investment manager's website at www.ncim.co.uk 

If you would like to receive the monthly factsheet on Golden Prospect Precious Metals Limited or any of the other New City Investment Managers' trusts please email [e-mail]

For the full set of results please click on, or paste the following link into your web browser, to view the associated PDF document

http://www.rns-pdf.londonstockexchange.com/rns/1426P_1-2012-10-19.pdf

 

Enquiries:

Legis Fund Services Limited Patrick Farncombe	Tel: [phone]
Singer Capital Markets Limited James Maxwell/Jennifer Wyllie	Tel: [phone]
Newgate Threadneedle Beth Harris	Tel: [phone]

Chairman's Statement

I am pleased to present the Chairman's statement to Shareholders for the six months under review. 

Over the six months to 30 June, gold prices were range bound beginning the year at $1,563.70 per ounce going up to $1,784.23 per ounce on 28 February and falling to $1,539.57 per ounce on 16 May before staging a recovery to finish the half year at $1,597.40 per ounce. This gave the investor a return of 2.16% in US dollars or 1.01% in Sterling terms.  The NAV of the Company opened the year at 97.85p and finished at 77.67p, a negative return of 20.6%.  As I write, the NAV is 101.22p.

The shares in gold mining companies underperformed gold during the six months primarily due to lack of capital discipline and the pursuit of a growth strategy at any price.  As a consequence, investors have expressed their disappointment and new Chief Executives have been appointed at five significant gold mining companies. I foresee greater focus on dividends and the shelving or deferment of expensive projects. 

On the macro view, gold is and will remain the best insurance policy against:

(1) the global debt crises;

(2) the deflation to inflation cycle;

(3) geopolitical uncertainties with specific reference to Middle East situation and

(4) continued decline in the US dollar.

Additional factors include demand still outstripping supply, central bank buying reflecting a positive stance towards long term bullion prices, the large emerging markets still generating wealth creation with much of it being channelled into bullion.  An anticipated sustained appreciation in gold prices over the next few years will enable the better quality producers to generate increasing cash flows from which earnings will support stronger dividend policies at a time when the investment community is demanding better yields from asset allocation.

Gold and silver shares as a consequence should benefit substantially going forward and some will be subject to healthy premiums from an expected rise in M&A activity. 

Malcolm Burne

Chairman

Investment Manager's Report

Within the gold and silver mining space, the first six months were not encouraging. After a brief rally in February, gold mining companies underperformed gold and in absolute terms declined fairly aggressively until May. There were a number of reasons for this. Firstly, some major gold mining companies have not had much capital discipline. These companies had been pursuing a strategy of growth at any price. As a result, whether it was poor acquisitions, or whether it was building projects with low returns on capital, or simply mining lower grade material we saw lower returns and hence erosion of capital.  Secondly, investors have not favoured 'risk on' assets, preferring securities perceived as defensive.

On the positive side, investors have since made their views known and over the last few months, we had changes in CEOs of a number of gold mining companies, including Barrick Gold, Kinross, Semafo, Centerra Gold and Great Basin Gold. I believe the message at last is getting through and we are seeing companies starting to pay or increase their dividends to shareholders. In addition, large capital projects are now being shelved or deferred indefinitely. These steps are crucial in restoring the health of gold mining companies, especially when capital markets are difficult to access.

One side development of this changing view is the impact on explorers.  As a consequence, I believe that this will make gold exploration much more difficult to finance and only projects which indicate high grades and low capital costs are likely to succeed in the future.  Those companies who are finding gold in remote locations with very high capital costs are going to find it very difficult to finance their projects while those with very low grades might also potentially struggle.

This de-rating in gold mining companies has presented us with a very interesting and challenging opportunity. We see clearly the path to navigate through these difficult times and we have been adjusting the portfolio to reflect our strategy. We have increased our weighting in quality producers in both gold and silver miners with good management teams. We have also taken our explorers' weighting down. We are re-positioning the type of explorers in our portfolio to include only those which we believe have a high chance of being developed or acquired by larger companies in the future.

Our medium and long term views of gold and silver mining companies have not changed. We believe that the macro environment is very conducive for precious metals securities and hence have taken the opportunity of recent lower share price levels to increase our gearing.  I am confident in the sector and believe the portfolio is well positioned to enhance shareholder value.

John Wong

New City Investment Managers

 

END

 

 

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