TIDMMAFL
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: GBP2.36M (Q1- 2017: GBP2.38M)
-- 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 GBP150,574. With the acquisition of the remaining 51% for
GBP100,000, 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 GBP2,358,580, 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 GBP388,547,
while its working capital is GBP2,368,580 (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. 31 Dec. 31 Dec. 30 June 30 30
2015 2016 2017 2018 September September
FYE[3] FYE FYE FYE 2017[4] 2018
NET ASSET VALUE GBP908,476 GBP1,494,360 GBP2,546,875 GBP2,613,000 GBP2,377,321 GBP2,358,580
----------- ------------- ------------- ------------- ------------- -------------
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 (GBP4,698,000 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. +44 777 957 7216
Katy Mitchell and Jessica Cave, WH Ireland Group Limited +44 161 832 2174
Jon Belliss, Beaufort Securities Limited +44 207 382 8300
[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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END
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