Quarterly Net Asset Value and Operational Update

RNS Number : 0907G

Mineral & Financial Invest. Limited

01 November 2018

 

MINERAL AND FINANCIAL INVESTMENTS LIMITED

Quarterly Net Asset Value and Operational Update

HIGHLIGHTS:

·     Acquisition of TH Crestgate completed on 4^th October, 2018, outside the NAV measurement period

·     The impact of TH Crestgate acquisition will be accounted for in the next NAV period.

·     Investment Portfolio performance negatively impacted by 22.1% YTD decline in zinc prices

·     NAV essentially flat against the same period last year: £2.36M  (Q1- 2017: £2.38M)

·     A new Brazilian gold investment in Tactical portfolio acquired during period

·     Lagoa Salgada's Resource update increased Zinc Eq.[1] metal content by 21% during period.

George Town, Cayman Islands, 1^st November, 2018 - Mineral and Financial Investments Limited (LSE-AIM: MAFL) ("M&FI" "MAFL" or the "Company") is very pleased to provide an unaudited quarterly update of its Net Asset Value and also provide an operational update for the quarterly period ending 30^th September, 2018. The directors believe the Q1 NAV report reflects the weakness in commodity prices and securities, notably zinc and commodity stocks, but not the benefit of the positive impact of acquiring the 51% of TH Crestgate GmbH (THC), which was completed on 4^th October, 2018. For the period ending 30^th September, 2018, the Company carries the 49% equity investment in TH Crestgate at the historical cost of £150,574. With the acquisition of the remaining 51% for £100,000, M&FI acquired 75% of Redcorp and cash and investments of approximately US$900,000.

Net Asset Value[2]

As at 30^th September, 2018, the fully diluted Net Asset Value per share was 6.78p or £2,358,580,  the decline in the NAV in the period under review, against the previous period was due to the decline in the value of the Company's  total holding of 2,052,546 shares of Ascendant Resources, as the share price fell 19% over the quarter.  The Company's cash position, as at year end is £388,547, while its working capital is £2,368,580 (see note 7 to the Company's audited accounts for the period ended 30^th June, 2018 ("2018 Accounts"), as to the mechanism for determining this).

The following is an extract from the 2018 Accounts, updated to include this unaudited NAV calculation:

	31 Dec. 2015 FYE[3]	31 Dec. 2016 FYE	31 Dec. 2017 FYE	30 June 2018 FYE	30 September 2017[4]	30 September 2018
NET ASSET VALUE	£908,476	£1,494,360	£2,546,875	£2,613,000	£2,377,321	£2,358,580
NET ASSET VALUE P/S	6.47p	6.25p	7.25p	7.49p	6.90p	6.78p

Economic Overview

M&FI uses the IMF Economic studies to assess global economic performance due to its consistent, disciplined and global span. The global economic performance, as measured by economic output, continues to be positive. Economic performance rose by 3.7% in 2017 and is now expected to rise by 3.7% for 2018/2019 according to International Monetary Fund's (IMF) World Economic Outlook, published 3^rd October, 2018. The IMF's 2018/19 forecast for 2018/19 is down slightly from its earlier forecast for the period of 3.9%. The report suggests that the slight downward revision is due to the introduction of trade tariffs by the USA casting a cloud of concern about the possibility of the outbreak of trade wars. Certain sectors have already been directly affected such as steel and aluminium. However, concerns reach beyond the known new tariffs and their impact, but also to the destabilizing potential future impact of new, and as of yet unknown trade tariffs.

Additionally, the IMF notes that financial liquidity should continue to tighten as the US, specifically, and global monetary policy trends towards more normal levels. The directors believe the result should be a continuation of the gentle, but unrelenting, rise in interest rates we have experienced to date this year.  US 10 Year treasury rates have risen from 2.41% to 3.06% from 1^st January, 2018, to 30^th September, 2018, a 27% increase in yields. The US experienced the largest lift in 10-year yields of the 4 largest economies in the Americas, resulting in the DXY Index, a trade-weighted index of the US dollar vs other currencies, rising 3.1% during the same period. The directors believe this is due to other economies competing for access to capital to fund their government budget deficits. In 2017 the World Bank cited 34 countries had budget surpluses, which included Germany, Norway, Hong Kong, Singapore, South Korea, Sweden, Iceland and New Zealand. In the same World Bank ranking of countries by budget surplus/deficit, at 131^st between Mali and Armenia is the USA, with a federal government deficit that represents 3.4% of GDP. The USA's 2018 federal government deficit is expected to exceed the 2017 deficit of $666B by 34.8%. Further complicating matters is that the US Fed is committed to gradually reducing the size of its balance sheet (i.e. sell bonds) (FOMC minutes, September 26, 2018). Therefore, the directors believe that it is a matter of time before other economies are forced to increase their rates to attract capital to fund their deficits, otherwise they will be crowded out by the USA. The directors also believe that this will result in a decline in the USD with the usual concomitant increase in USD denominated commodities. With the probable continuation of rising rates, we expect that equity markets indices will struggle to match their recent levels of performance, despite positive global economic growth.

It is our observation that the "Trump Bump" is turning into the "Trump Thump". The S&P 500 is now in negative territory for the calendar year to date. As interest rates are rising in, what we believe, is recognition of the economic growth of the past 5 years this appears to be matched with slightly compressing valuations. The directors believe that the Federal Reserve Chairman will be true to his word and rates will increase, although moderately. This could create a short-term environment that is more encouraging for precious metals over the next 6 to 9 months than industrial metals. The Bloomberg Commodity Index ended the third quarter down 2%. The index was buoyed by the 21.3% rise in petroleum prices (WTI) (+24.3% for Brent), and to a lesser extent agricultural commodity prices, during the first 9 months of 2018. However, during the same period base metals performed poorly (Zinc: -22%; Lead -19.9%, and copper -15.8%), while precious metals were also down (Gold -9.5%, and Silver -16.2%).

M&FI took the position three and half years ago that Zinc would outperform other metals and sought out a zinc investment.  The Company is now fully invested in zinc with 2,052,000 shares of Ascendant Resources and  75% of the Lagoa Salgada Project in Portugal.  Ascendant has an earn-in that would increase its interest to 80% of the Lagoa Salgada Project by spending US$9.0M and paying M&FI a further US$6.0M (£4,698,000 or 13.4p per M&FI share), subject to certain conditions being met.  Since announcing the earn-in, the Lagoa Salgada project's resource estimate, completed by AGP Mining Consultants, increased the Zinc Equivalent metal content for LS-1 by 20.3% to 1.49B/lbs, and for LS-1 Central by 26.3% to 235M/lbs. compared to the January, 2018 resource update, M&FI currently owns 75% of Redcorp (see the Company's announcement dated 13^th September, 2018 for full details of the resource update). Although at this stage, there is no guarantee that the zinc can be economically extracted.

The Company's belief is that, despite the recent fall in zinc prices, Zinc will continue to perform better than most other industrial metals. Zinc LME[5] inventories are currently at 157,000t, down 37% from July, 2018 levels of slightly over 250,000t, and represent only 13% of LME inventories held in January, 2013. According to Glencore (see Glencore announcement dated15/5/2018) there are very few new large sources of long-term supply on the horizon, and none would disrupt the market over the next 18 months. Therefore, the directors continue to be optimistic about the supply outlook for zinc. Specifically, with regards to Ascendant, it is succeeding in reducing its production costs. Ascendant's cash cost per Lb. of Zinc Equivalent metal sold was US$1.30, as of 30^th June, 2017, and by 30^th June, 2018 the cash cost had been reduced by 41.5% to US$0.76. It remains a higher cost mine, but in a rising price environment, we believe that the shares should offer better price performance to an improvement in the price of zinc.

As recently announced by CAP Energy, the improvement in global oil pricing has created a lift in interest in CAP Energy's offshore projects. CAP has made progress with its Djiffere offshore Senegal block by agreeing to buy-out its operating partner.

M&FI has a small position (less than 5% of NAV) in a private company called Cerrado Gold Inc. Cerrado's main project - Monte do Carmo is located in Brazil's province of Tocantins. The project has an internal estimated resource of 581,470 oz. with a grade of 2.07 g/t (using a 0.5 g/t cut-off) over a 17,000-hectare tenement at the Serra Alta zone. Having completed a recent drill programme, the objective is to publish a 43-101 technical report in which the formal resource calculation is expected to demonstrate an increase to about 1.0M oz of resource in the Q4 2018 period. Thereafter, Cerrado aims to raise capital for further drilling to increase the resource to 2.5m ozs.

M&FI also has a small investment in Toro Gold Limited, a private gold producer in Senegal. It's 90% owned Mako mine has been in commercial production since 26 January 2018. For the first six months of 2018 Toro produced 62,900 oz. of gold, which was slightly ahead of its planned 58,250 oz production plan for the period. The cash cost for the initial 6 month production period was US$745/oz against the planned cash cost estimate of US$875/oz, at the time of investment. The lead investors in Toro are private equity funds that, the directors expect, will seek a monetization event in the near future. Whether this will be in the form of an outright sale, or market listing will be guided by opportunities and pricing.

The directors look forward to providing shareholders with more information on all the investments, in due course.

FOR MORE INFORMATION:         

James Lesser, Mineral & Financial Investments Ltd.                     [phone]

Katy Mitchell and Jessica Cave, WH Ireland Group Limited        [phone]

Jon Belliss, Beaufort Securities Limited                                         [phone]

 

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[1] Zinc equivalent metal grade (ZnEq%) was calculated as follows: ZnEq% = ((Zn Grade * 25.35) + (Pb Grade * 23.15) + (Cu Grade * 67.24) + (Au Grade * 40.19) + (Ag Grade * 0.62)) / 25.35; Metal prices used: US$1.15/lb Zn, US$1.05/lb Pb, $3.05/lb Cu, US$19.40/oz Ag, and 1,250/oz Au; No recoveries were applied

[2] The net asset value calculation is subject to audit and is made on the basis that the Company has 35,037,895 shares in issue. All listed investments, including investments on NEX, are valued at the closing bid price as at September 30, 2018. The Company has investments in unquoted companies that are currently valued at the price at which they last raised capital, although this is subject to review. The Company also has an investment in TH Crestgate, the valuation of which is subject to quarterly review and is currently recognized at cost

[3] Full year NAVs are audited

[4] Quarterly NAV statements are unaudited

[5] https://www.lme.com

 

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