Big bounce in NAV in Q1 for Global Resources

On 31 July 2015, Global Resources announced that it had extended its accounting period from 31 August to 31 December. The rationale behind this move was to better align the company’s accounting period with those of the majority of its investee companies and also the payment periods attaching to its Convertible Unsecured Loan Stock “CULS”. GRIT has today announced results covering the period from 1 September 2014 to 31 December 2015.

At 31 December 2015 the NAV was 20.3 pence, down 60.8% since 31 August 2014. The NAV at 27 April 2016 was 25.7p, an increase of 27%. The Company’s ordinary share price continued to decline faster than the NAV, falling 81.3% to 6.4p during the sixteen month period to 31 December 2015. The share price has stabilised since the year end and is currently 6.1p, representing a discount to the prevailing NAV per share of 76%.

The Chairman says sentiment has improved significantly since the year end, with precious metal producers a particular beneficiary. Concrete evidence of this can be seen in the company’s sale of NuLegacy Gold in April for GBP2.2m; this compared with a carrying value of GBP0.9m at 31 December 2015.

9% Cumulative Unsecured Loan Stock 2017 (‘CULS’) and Going Concern

The Company issued GBP5 million nominal of CULS in 2014 to provide working capital. The CULS provide a degree of structural gearing and the Company was 41.0% geared at 31 December 2015. Under the terms of the CULS the Company gave an undertaking that the cover ratio (being the ratio of the value of its investment portfolio to the principal amount of the outstanding CULS) must be at all times no less than 4:1. The steep decline in NAV meant that this ceased to be the case and on 14 March 2016 LIM Asia Multi-Strategy Fund (“LIM”), the largest CULS holder (owning GBP3.5m of the GBP4.7m CULS still in issue) formally requested repayment of its CULS.

The Company does not have sufficient cash or liquid assets to repay the amount owed immediately. LIM and the other two CULS holders have all indicated in writing a current intention to support the Company through the realisation of assets over a longer period with the purpose of enabling the Company to repay the CULS. The ability of the Company to continue as a going concern is therefore dependent on the continued support of the CULS holders in not seeking immediate repayment which would result in a liquidation event.

As reported above, the Company sold its whole position in NuLegacy Gold in April, realising GBP2.2m, and the Manager has said that it expects to be able to realise sufficient proceeds from the sale of a small number of quoted positions over a period of 3-4 months to allow the CULS to be repaid.

The manager says the fund has over forty per cent exposure to developing gold companies all of which are making steady progress. The largest listed gold holding, Merrex, and its joint venture partner, Iamgold, reported excellent results from the last phase of its 2015 drill programme, and a maiden resource statement recently disclosed an indicated and inferred resource of 1.2m ounces. Further drilling in the current year is likely to expand this highly promising project. Inca One, which is processing high grade gold ore from the artisanal miners in Peru, has embarked on an ambitious expansion programme to treble production over the next 2-3 years. NuLegacy Gold completed its fifth phase of drilling in the Cortez trend in Nevada, to earn a 70% working interest in the project from Barrick Gold. An initial estimate of the resource is put at over 100m tonnes at an average grade of 1g/t. It recently completed the acquisition of the remaining 30% for equity, with the result that Barrick now owns 16% of the company and also holds a 2% net profits royalty interest. Since the year end, the entire NuLegacy holding has been sold on market.

Prior to the year end, a decision was taken to write down to nil the Company’s entire investment in Alhambra Resources Ltd, after the Specialised Interdistrict Economic Court of the Akmola Oblast in Kazakhstan ordered that Alhambra’s wholly owned Kazakhstan subsidiary Saga Creek Gold Company JV LLP be declared bankrupt.

Another company to fall victim of the particularly difficult conditions in the natural resource sector and where the Company has had to take another major write down is Arakan Resources.  Arakan’s wholly owned subsidiary Posit Coal Pty Ltd had a joint venture to operate the Kara Keche Coal Mine in the Kyrgyz Republic.  The Kara Keche contracts are now in dispute with the Kyrgyz Government and Posit Coal has engaged legal counsel to seek arbitration proceedings against the Government.  As a result of the significant uncertainly that this legal action has created about Arakan’s major asset, they have decided to write down to nil the Company’s investment in Arakan. However, if over time, the company should be successful in its arbitration proceedings against the Kyrgyz Government they will have the ability to revalue the investment to reflect this success.

GRIT : Big bounce in NAV in Q1 for Global Resources

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