TIDMOPP TIDMOPPP
RNS Number : 9724P
Origo Partners PLC
23 November 2016
23 November 2016
Origo Partners plc
("Origo" or the "Company")
Portfolio Update
Origo is a closed-end investment company which holds a portfolio
of investments in unquoted, and illiquid, publicly traded companies
based or principally active in China and Mongolia. Origo is
seeking, through an orderly realisation programme, to divest its
entire portfolio by November 2018. The Company provides the
following update in relation to its portfolio.
Highlights
-- Publicly quoted positions account for 14 per cent of the
portfolio by fair value as at 30 June 2016 (31 December 2015: 3 per
cent) following the successful listings of two portfolio companies
in China;
-- 68 per cent of the portfolio by fair value as at 30 June 2016
is now either listed or subject to indicative, non-binding, terms
of mergers or disposal; and
-- Settlement of costly and restrictive legal dispute completed in Q3 2016.
For further information about Origo please visit
www.origoplc.com or contact:
Origo Partners plc
Niklas Ponnert niklas@origoplc.com
Nominated Adviser and Broker
Smith & Williamson Corporate
Finance Limited
Azhic Basirov
Ben Jeynes +44 (0)20 7131 4000
Public Relations
Aura Financial
Andy Mills +44 (0)20 7321 0000
Macro-economic developments
The positive market trends seen in the first half of 2016, as
identified in the Company's Interim Results for the six months
ended 30 June 2016, have persisted during the course of the third
quarter. The recovery in commodity prices has continued and appears
sustainable for the remainder of 2016 and into 2017. Coking coal,
in particular, has rebounded strongly, rising by more than 210 per
cent since May. Gains posted by other commodities, to which the
Company is exposed, such as thermal coal, copper, and molybdenum
and tungsten, have been more modest but are nonetheless material.
While of less direct impact to the Company, the stabilization of
oil prices at around the US$40 to US$50 per barrel range is helpful
to the electric vehicle ("EV") and alternative fuel sector.
In May 2016 the Government of Mongolia approved the next stage
in the development of Rio Tinto's Oyu Tolgoi copper and gold mine
in Mongolia - unlocking an additional US$5.3 billion of much needed
investment in the country. There have been a number of attempts by
the Government of Mongolia to change the terms of the 2010
Investment Agreement which, among other policies, has reduced
foreign investment appetite. In June 2016 Mongolia's elections
returned the Mongolian People's Party to power after winning an 85
per cent majority in parliament. The campaign focused on renewing
economic growth and attracting foreign investment. The government
has since announced a US$5 billion economic stabilization plan
largely linked to the Oyu Tolgoi underground construction project.
It is possible that Kincora Copper Limited's ("Kincora") extensive
landholdings (which are along strike from Oyu Tolgoi) could be a
beneficiary of regional infrastructure development which includes
the planned commissioning of a Taven Tolgoi based independent power
producer, a possible smelter and other local infrastructure
facilities.
Turning to the Chinese based companies in our portfolio, the
Chinese government's support for the alternative energy and
environmental protection sector remains strong and consistent. The
impact of positive policy momentum during the course of the second
half of 2016 to date has been particularly strong in the EV sector
and in the related supply chain, as a new subsidy scheme, widely
considered favorable for battery producers, was announced in early
fall. Recycling, solid waste management, and water sectors too
continue to be sectors favored by China's policy makers and,
consequently, by capital markets.
The backdrop for agricultural products remains more muted, where
over-production, price reforms and volatility are becoming the
defining hallmarks of 2016. Government announcements of further
regulatory reform for the sector have introduced further policy
risk, which has had a clear and negative impact on investment
activity in the sector - with resultant effects on the Company's
ongoing efforts to complete disposal of assets in this sector.
Generally, rapidly growing debt levels across the Chinese
economy remains a concern. Liquidity conditions in China impact,
directly or indirectly, all of our Chinese investments as well as
the demands for our resource assets outside of China.
Settlement of previous dispute
At a corporate level, the resolution of the protracted dispute
over the Company's convertible zero dividend preference shares (now
renamed 'redeemable preference shares'), has improved the Company's
ability to effectively advance its investing policy. Prior to this
settlement, while the Company was facing winding-up proceedings,
the provisions of Section 167 of the Isle of Man Companies Act 1931
meant that any disposition of property of the Company after the
commencement of the winding up by the Isle of Man Court would be
void unless the Isle of Man Court ordered otherwise.
Consequently, for as long as the as long as the Isle of Man
winding-up proceedings were ongoing, disposals of assets by the
Company without Court approval were rendered void and would
therefore have been likely to have been subject to challenge. The
resulting uncertainty had the effect of complicating discussions
with relevant counterparties and more generally instilled doubts
about future ownership and the alignment of interest between the
Company and related stakeholders.
The restructuring proposals approved by shareholders on 26
September 2016 brought to an end a significant period of
uncertainty and expense for the Company and its shareholders and
has enabled the board to seek to return Origo to a more stable
footing.
Realisation Update
Notwithstanding these challenges, the Company has worked
alongside Origo Advisors Limited ("OAL"), the Company's investment
consultant, and the management teams of the relevant Origo investee
companies, to achieve a number of important milestones in
progressing the Company's investing policy:
-- May 2016 listing of Jinan Heng Yu Environmental Protection
Technology Co., Ltd. ("Heng Yu"), the operating company of Niutech
Energy Ltd ("Niutech") on China's "New Third Board" (30 June 2016
carrying value: US$11.5 million). The shares of all current
shareholders are subject to lock-up restrictions until the end of
November 2016. Further, Heng Yu is yet to proceed with an offering
of shares to institutional investors, which would initiate the
trading in Heng Yu's listed stock. As such, Origo do not expect to
realise part or all of its investment in Heng Yu in the short term.
However, by providing access to a domestic Chinese investor base,
Origo expects that the New Third Board listing will serve as a
critical milestone in facilitating the realisation of this
investment over the course of the Company's investing policy
period.
-- May 2016 listing of Beijing Rising Information Technology
Ltd, also on China's New Third Board (30 June 2016 carrying value:
US$1 million).
-- Entry into a non-binding letter of intent in June 2016 with a
group of well-capitalized Chinese state-owned enterprises in
respect of a strategic partnership and a contemplated future merger
with the operating subsidiary of China Rice Ltd ("China Rice"),
which is expected to facilitate the disposal of Origo's interest in
the business during the course of the investing policy (30 June
2016 carrying value: US$31.0 million). While no immediate deal is
expected, due to ongoing government reform of the sector, we
continue to believe that the formation of this new venture is
likely to proceed and offer Origo an opportunity to realise its
investment in the business within the time-frame of the Company's
investing policy.
-- Progression of the previously announced intended sale of
Celadon Mining Ltd's ("Celadon") main asset, ChangTan West, with
the net proceeds of any such sale to be distributed to Celadon
shareholders (30 June 2016 carrying value: US$24.6 million). In May
2016, we were informed that the proposed buyer's coal-to-gas
conversion project was included in China's Thirteenth Five Year
Plan; final approvals from relevant central authorities for that
project are pending. Once the project receives these approvals we
expect negotiations in respect of the Chang Tan West deposit to
continue.
-- The receipt of C$0.5 million from Kincora and the conversion
of the remaining balance of Origo's Kincora convertible notes (C$2
million) into quoted Kincora common shares on terms expected to be
value accretive for Origo shareholders.
-- Entering into a binding agreement to dispose all of Origo's
interest held in Shanghai Evtech New Energy Technology Ltd and its
related entities for a minimum of US$0.32 million and a maximum of
US$0.88 million at applicable exchange rates (30 June 2016 carrying
value: US$0.45 million).
-- Commencement of the disposals of a number of smaller
positions, including Aquila Resources Inc and Shanta Gold Ltd,
(aggregate 30 June 2016 carrying value: US$0.45 million).
As a result of the above, publicly quoted positions now
represent 14 per cent in terms of the 30 June 2016 fair value of
the portfolio as compared to 3 per cent as at 31 December 2015. A
total of 68 per cent of the portfolio (in terms of fair value as of
30 June 2016) is now either listed or subject to indicative terms
of merger or disposals.
Portfolio operational update
In addition, OAL continues to engage with our portfolio
companies on a wide range of operational, business and strategic
matters which are expected to materially improve the prospects of
these businesses over the next 12 months and to facilitate an exit
for Origo in due course:
-- Introduced and negotiated two new key contracts with two
state-owned bus manufacturers for Unipower Battery Ltd ("Unipower")
on significantly better payment terms than the industry norm.
Having completed an extensive product validation and diligence
process, both parties entered into framework-agreements (to be
confirmed by monthly sales orders) for the purchase of up to 130
million Ah per annum of batteries which has drastically boosted
Unipower's sales levels and improved the liquidity of the business.
Unipower is now one of few licensed, private suppliers with a
certified and proven product portfolio. To date, some 1,000 buses
and 2,500 other vehicles equipped with Unipower's batteries are
running on China's roads.
-- Managed Unipower's relationships with potential investors,
strategic partners and banks; improved the collection of
receivables from customers and payment terms to suppliers.
-- Identified, introduced and assisted Niutech in approaching a
potential new customer with plans to build two major tyre recycling
facilities across China. This opportunity alone has the potential
to dramatically increase Niutech's sales over the next couple of
years. In total, Niutech has contracted and indicative orders of
280,000 MT of capacity to be fulfilled over the next few years,
which should be compared to maximum sales of 60,000 MT of equipment
in any financial year since Origo's initial investment.
-- Initiated and oversaw a number of corporate events at
Kincora, including the expansion of its portfolio of licenses and
the successful financing of Kincora via the completed merger with
High Power Ventures Inc. Following the transaction, Kincora has a
100 per cent interest in a portfolio covering over 1,500km(2) and
the majority of the prospective exploration licenses that dominate
a key geological trend between and along strike from the Oyu Tolgoi
and Tsagaan Suvarga copper mines. Kincora will also benefit from an
enhanced management team. On 17 November 2016 Kincora announced an
updated exploration strategy and confirmed the presence of a
copper-gold porphyry mineralization within a large scale Devonian
"Oyu Tolgoi style" complex in its licence area which would be its
priority drilling target.
-- Devised a strategy, and negotiated support from the majority
shareholder of Moly World Ltd ("MolyWorld"), in respect of a number
of items, including short-term financing strategy for MolyWorld,
application to convert the existing exploration license to a mining
license, a new management structure, and a plan for liquidity for
MolyWorld and its shareholders. Moly World, through its subsidiary,
owns an exploration license, covering 2,360 hectares in the Mandal
area of Mongolia (the "Mandal Project") which holds a JORC resource
of 203Mt in situ material at 0.126 per cent Molybdenum and 0.026
per cent Tungsten. A successful conversion of the exploration to a
mining license during course of next year will be a necessary
condition to achieve the desired liquidity in the targeted time
frame.
Overall, against the backdrop of a slightly improved
macro-economic outlook and on the basis of the progress achieved
during the course of the year to date, the Company remains
cautiously optimistic about the prospects of materially progressing
the investing policy in the year ahead. However, none of the above
opportunities are expected to result in substantial liquidity for
the Company in the short term. Furthermore, significant market,
pricing and execution risks remain, and the time-frame for
completing the realisation program, as defined in the investing
policy, is limited.
Special note concerning the Market Abuse Regulation
Certain of the information contained in this announcement is
deemed to constitute inside information for the purposes of article
7 of Regulation 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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