In October 2012, Legendary negotiated a small stake in VirtualStock Limited for a consideration which included just over £50,000 in cash. In addition, Legendary negotiated a warrant to double its stake in VS at an increased valuation. VS is a cloud-based software as a service business ("SaaS") which enables retailers to increase dramatically the range of products they sell online without the associated costs of and risks of holding inventory.
Subsequent to the investment, VS reached a significant milestone in delivering services to its growing list of clients by implementing an "end-to-end turn-key solution" for the online branded product range of Bear Grylls Ventures LLP through its website, www.beargryllsstore.com.
Post the year end in June 2013, VS signed a landmark three-year renewable contract with one of the UK's largest retailers. The contract is to supply a SaaS solution which will enable the retailer to increase significantly its online presence by expanding its non-stocked product range supplied by hundreds of its drop-ship suppliers. The VS solution will form a key component of the retailer's online technology infrastructure, providing its suppliers with a tool which enables them to manage fully the selling of their products through itscorporate website
In the second half of the year, in December 2012, Medgold Resources Limited ("Medgold"), in which Legendary invested £50,000 in July 2011, listed on the TSX-V in Canada by reversing into Emerick Resources Corp. Based on the closing price of the new Medgold, Medgold Resources Corp., following the listing, Legendary's return was 1.9x in 16 months.
Medgold is run by an experienced management team and focuses on gold exploration and development in Portugal, Italy and Spain. Since its listing, Medgold has continued to make progress. It is reviewing several projects in Spain, with licences under application in Galicia, targeting the Pinzas area, which hosts similar geology to the Boticas project in Portugal, for which Medgold has been awarded an exploration licence.
Along with the entire sector and with the fall in the gold price, Medgold's share price has fallen since its listing. As mentioned above, however, Medgold continues to make progress, and Legendary continues to hold its stake.
In July 2012, Legendary invested £100,000 into Kyrgyzstan based Manas. Manas owns the Padsha Ata Licence to mine for coal in the Asksy region of Jalal-Abad. Soviet surveys suggest that the region contains 182 million tonnes of coal reserves of which 116 million is of coking coal quality. Jalal-Abad is strategically located within 200 km of the Chinese border. Legendary's investment is by way of a convertible loan note and a warrant. Together the convertible loan and warrant should give Legendary at a return of at least 1.75x on the initial investment.
In 2012, Manas engaged Wardell Armstrong to conduct a Competent Persons Report and a technical work program was commenced. The initial results suggest that the coal formation is more intense than suggested by the Soviet era studies and the thickness of the seams is greater than suggested by those studies. The value of the coal is estimated in at over US$15bn (US$85 per tonne). Value crystallisation is expected in the near to medium term. Legendary continues to assist Manas.
In the second half of the year, in January 2013, Legendary purchased 19m shares in Creon Resources PLC ("Creon"), listed on AIM, in exchange for cash and shares in an off-market transaction. Creon was recapitalised last year and its strategy was reset to focus on resources and resource infrastructure investments. We consider that Creon's new shareholders and management are financially strong, well-connected and experienced.
Shortly after the recapitalisation, Creon invested in a new oil and gas rig construction joint venture with a multi-billion dollar Singaporean listed shipbuilder, Yangzijiang Shipbuilding (Holdings) Ltd. The new oil and gas rig joint venture then secured its first rig order of US$170m for delivery in mid-2015. The development of the new construction yard is progressing with land compacting continuing and skidway construction expected to commence shortly. The rig order itself is also progressing well, now with an enhanced specification. Following Legendary's investment, Creon acquired a 49% stake in a ferrous metal and ferrous ore trader, MGR Resources. This investment is expected to provide Creon with near term recurring income.
Creon, with its new shareholders, management and strategy is just beginning what we believe will be an exciting journey. The sectors that it has targeted are buoyant and are expected to remain so. The ticket size in the sectors, at around the US$200m mark for rigs, is an order of magnitude larger than Creon's current market capitalisation of around the £19m mark. While rig builds take two to three years, Creon has secured immediate recurring income through its investment in MGR Resources. Legendary is assisting Creon in various ways to add value rapidly and is pleased to have secured the investment at an early stage in a promising company.
While all the above investments are now listed, Legendary identified and made the investments at an early stage for the investee companies prior to listing, and in the case of Creon, shortly after its recapitalisation and new management and strategy were put in place. Legendary assisted and continues to assist the investee companies.
While all the listings were successful, and one exit generated a 4.3x return, Medgold's and Sula's prices have suffered with the mining sector as a whole. Both companies are making progress and should they achieve their stated goals, we believe that their share prices should have meaningful upside potential. The investment in Creon was made near the start of its re-launch and given its shareholders, management, strategy and the sectors in which it invests, we believe that there is both relative and absolute substantial upside potential with the investment being the largest Legendary has made to date at £125,000.
New investment and listing of Sula Iron and Gold PLC
In the first half of the year, in July 2012, Legendary invested £50,000 in a convertible loan note in a pre-IPO funding round for Sula Iron and Gold PLC ("Sula"). Legendary also received warrants in Sula. In the second half of the year, in October 2012, Sula was admitted to trading on AIM, and Legendary invested another £50,000 for further shares and warrants. Based on the October price, Legendary had generated a return of 1.7x on its initial investment in 3 months and 15% on its further investment.
Sula is an iron ore and gold exploration company focused on Sierra Leone. Its main project is the Exploration Licence EL54/2011, in Northern Sierra Leone, which is 153 square kilometres in area and occupies a position south of Lake Sonfon and north of African Mineral Limited's Tonkolili iron ore mine which has a JORC compliant ore resource of 12.8 billion tonnes. Sula has defined an exploration programme to delineate a maiden JORC compliant iron resource in 2013. A drilling programme has been commenced targeting iron mineralisation and five target areas have been identified as hosting potential for hard rock gold mineralisation.
In common with the sector as a whole, Sula's share price has declined since its listing. With drilling underway, however, and Sula's plans to delineate a JORC compliant resource this year, Legendary continues to hold its stake.
Existing investment - Bosques Energeticos EBE S.A. de C.V.
Bosques has made steady progress over the last few years. It has a research, development and innovation based philosophy and has scored many "firsts" in Mexico and the region: it was the first company to germinate pongamia seeds; it was the first to root successfully pongamia scions; and it was the first to have pongamia flowers (within 2.5 years of planting compared with the normal time of 4-5 years). In addition, it is ahead of the curve in innovating a multi-plant strategy using pongamia, jatropha and castor.
Bosques currently has 11ha under cultivation with 16,000 pongamia trees, 20,000 jatropha plants and 3,000 castor plants. Having proven its techniques on the 11ha test plantation, it is currently seeking partners with which to cultivate pilot plantations of several thousand ha.
Legendary has a substantial minority stake of 40% in Bosques. Companies similar to Bosques in size of test plantation and number of plants are valued at several million pounds. We believe that Legendary's stake could be worth a multiple of Legendary's current market capitalisation. Value crystallisation might be expected in the medium term. Legendary continues to assist Bosques in its development.
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