Last checked at 25 Jul 2013 07:00
Praetorian Resources Limited
("Praetorian Resources" or the "Company")
Preliminary results for the period from the Company's incorporation on 22 February 2012 to 31 March 2013
Praetorian Resources (AIM: PRAE) is pleased to announce its preliminary audited results for the period from incorporation to 31 March 2013. The financial information set out below does not constitute the statutory audited accounts for the period ended 31 March 2013 but is derived from those accounts. The full Annual Report and Accounts, including the audit report, will soon be posted to applicable shareholders and available on the Company's website: www.praetorianresources.com.
Commenting on the preliminary statements the Company's Chairman Robert King - said "It is with much regret that our inaugural financial statements are so disappointing.
"As you are aware investment timing is a critical part of an investment strategy and with the benefit of hindsight we were premature in anticipating a cyclical upturn in the natural resources sector.
"With specific regard to the Praetorian Resources portfolio, after an unquestionably tough start our strategy has been to concentrate the portfolio into six key positions where we will continue to take a hands on approach with management to maximize these opportunities. These six core investee companies now equate to approx. 75% of the NAV and utilising our collective skills the Directors are determined to restore lost shareholder funds. The Directors have looked carefully at the central costs of the Company and these are being reduced to reflect our current position.
"Looking to the immediate future, our specific challenge is building on the July 2012 IPO by procuring a second round of additional finance to scale up our contrarian investment activities. The Company remains under capitalised in the current attractively priced environment."
Contact: For further information, please contact:-
Registered Office: 11 New Street, St Peter Port, Guernsey, GY1 2PF
Chairman's Report
Dear Shareholder
It is with much regret that our inaugural financial statements are so disappointing. At the period end our net assets attributable to the Ordinary Shareholders was £16,128,166 resulting in a Net Asset Value per Ordinary Share of 32 pence a decline of 34% from the initial launch price. The Net Asset Value per Ordinary Share as at 30 June 2013 has fallen further, to 19 pence, a decline of 41% since period end and a total of 61% since launch.
As you are aware investment timing is a critical part of an investment strategy and with the benefit of hindsight we were premature in anticipating a cyclical upturn in the natural resources sector. We believed and still do that launching a contrarian investment vehicle following a major collapse in stock prices in our target sectors was a low risk strategy albeit caveated by the possibility that we may still face one final market capitulation. We did not however anticipate the further substantial indiscriminate decline that has destroyed share prices of many of the sector's emerging stars.
As we write the only certainty is continued uncertainty with valuations remaining at demoralised levels and prudence dictates that the contrarian approach should in time prove to be a highly lucrative strategy. We believe exceptional investment opportunities lie ahead and if investors are not yet "contrarian" at this stage then they risk missing out on a spectacular upswing that could mark a historic bottom and one that may herald in one of the best money making periods in this particular commodity space for several decades. It is becoming increasingly apparent to the Directors and their peers that the next twelve months may witness the greatest washout of junior mining stocks that the resources sector has ever seen and it is highly likely that a substantial number of the smaller exploration companies will simply not be around this time next year. The severe capital funding drought currently plaguing the sector may not abate until the cyclical changes in the commodity space turn upwards again.
Paradoxically this will be a fertile time for Praetorian Resources' Investment and Advisory Team to exercise its proven skills as some excellent assets are being trapped in the shakeout providing new and potentially rewarding investment opportunities. Inevitably a new wave of mergers and acquisitions and other corporate activity will also help values to improve. There are still far too many juniors scrambling around the globe looking for bonanza grades absorbing vast amounts of investors' cash with very little to show for their efforts. They have clogged up investment portfolios and as a result have left a sour taste in the mouth of both managers and their investors. Moreover the discovery cycle, which is usually in full swing by now following a period of frenzied exploration spending, still stubbornly refuses to help kick-start the sector. After some savage declines in explorers' share prices in the last two years perhaps today's low cost entry point is going to prove very astute compared to the high cost entry point in 2010. So far the decimation of market caps has failed to attract the usual bottom feeders.
The drought of liquidity has been extreme and the substantial recovery in the general equity markets worldwide has also taken the emphasis away from the resources sector. Logically if the investor is making significant gains from the wider markets there is little reason to keep supporting the one sector that is in decline.
We believe that not every penny resources stock casualty has a bad project - on the contrary many of those that have crashed still have some excellent projects in the development phase but admittedly desperately bereft of new capital. They are temporarily trapped in the current shake out, and this is where the true distressed value investors with the necessary consummate skills will be rewarded. A remarkable opportunity has arisen for the money which is traditionally used for bargain basement and fundamental value investing. Previous extreme bear markets in juniors have seen wild upswings from the bottom as the better management teams and better projects jump out of the pack to claim another chance of returning significant capital gains.
Short term volatility should never detract from medium to long term investing. And whilst mining and exploration shares have suffered such a dramatic shift in market sentiment, investment companies are provided with a renewed opportunity to take advantage of the heavily oversold positions, which we believe now boast exceptional intrinsic values. There are numerous share price anomalies that have arisen in this rout which are undoubtedly there to be exploited and seldom has such intrinsic value been so obvious.
The future trend of course depends on the big picture. China and the other BRIC's still have the major influential effect on global commodity prices while Quantitative Easing, the Eurozone, currency wars and other geopolitical factors also weigh heavily on the outlook for growth which will ultimately determine the course of renewed inflation. Unless a 'black swan' event dictates otherwise it still looks like 18 months down the track before any meaningful inflation kicks in.
With specific regard to the Praetorian Resources portfolio, after an unquestionably tough start our strategy has been to concentrate the portfolio into six key positions where we will continue to take a hands on approach with management to maximize these opportunities. These six core investee companies now equate to approx. 75% of the NAV and utilising our collective skills the Directors are determined to restore lost shareholder funds.
As part of our immediate strategy for the Company and following our difficult first year the Directors have looked carefully at the central costs of the Company and these are being reduced to reflect our current position. Mr Andrew Ferguson and Mr Malcolm Burne voluntarily resigned from the Board for no compensation with effect from 27 June 2013. Mr Burne will retain his position on the Company's Advisory and Execution Team alongside Charles Cannon-Brookes. Mr Burne and Mr Cannon-Brookes have each agreed to defer any future fees or personal entitlements due to them until further notice in order to minimise cash payments out of the Company. These deferred fees and entitlements will be accrued and reflected within the Company's NAV. Furthermore the remaining Directors have either reduced the level of their fees or deferred the payment of their fees until further notice. A further review of the cost of Praetorian Resources' third party service providers will also be undertaken. In aggregate these changes should reduce the annual central administrative costs by in excess of £200,000, which the Directors believe better reflects the challenging conditions that we are all facing.
Looking to the immediate future, our specific challenge is building on the July 2012 IPO by procuring a second round of additional finance to scale up our contrarian investment activities. The Company remains under capitalised in the current attractively priced environment.
Robert King - Chairman
Consolidated Statement of Comprehensive Income for the period from incorporation on 22 February 2012 to 31 March 2013
All activities derive from continuing operations. All income is attributable to the holders of the Ordinary Shares of the Company.
Consolidated Statement of Financial Position as at 31 March 2013
Consolidated Statement of Changes in Equity for the period 22 February 2012 to 31 March 2013
Consolidated Statement of Cash Flows for the period from incorporation on 22 February 2012 to 31 March 2013
1. FINANCIAL INFORMATION
The financial information set out above does not constitute the Company's statutory audited accounts for the period ended 31 March 2013 but is derived from those accounts. The full Annual Report and Accounts, including the audit report, will soon be posted to applicable shareholders and available on the Company's website: www.praetorianresources.com.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") which comprise standards and interpretations as issued and approved by the International Accounting Standards Board ("IASB"), and International Accounting Standards Interpretations Committee's interpretations approved by the International Accounting Standards Committee ("IASC") that remain in effect, and to the extent that they have been adopted by the European Union, and reflect the following policies, which have been adopted and applied consistently.
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The same accounting policies and methods of computation have been followed as were applied in the preparation of the Group's interim financial statements for the period ended 30 September 2012, which are available on the Company website (www.praetorianresources.com).
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of revision and future periods, if the revision affects both current and future periods.
In the process of applying the Group's accounting policies, management has made the following judgements, which have had the most significant effects on the amounts recognised in the financial statements:
Going concern
After making all reasonable enquires the Directors believe that it is appropriate to adopt the going concern basis in preparing the Financial Statements since the assets of the Group consist mainly of securities which are readily realisable and the liabilities of the Group are minimal, accordingly, the Group has adequate financial resources to continue in operational existence for the foreseeable future.
Fair value of unlisted investments
The Group uses valuation techniques that include inputs that are not based on observable market data to estimate the fair value of unlisted financial investments.
The Group receives indicative net assets values of their unlisted investments from the administrators of those entities.
In determining the fair value of these investments a risk adjusted discount factor of 50% has been applied to these indicative net asset values due to the nature of the underlying investments and their potentially illiquid nature. For each 5% discount applied to the potentially illiquid investments the fair value of the investments falls by £40,227.
The Directors believe that the applied valuation techniques and assumptions used are appropriate in determining the fair value of unlisted financial investments.
4. Basic and diluted deficit per ordinary share
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Basic and diluted deficit per ordinary share |
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£ |
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Loss for the period | (8,549,735) |
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Weighted average number of ordinary shares in issue | 48,625,982 |
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EPS (pence) | (17.58) |
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The earnings per share is based on the loss for the period and on the weighted average number of ordinary shares in issue for the period. |
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The Group's subscription shares could potentially dilute the earnings per share in the future. | ||||||||||||
5. Net asset value per ordinary share
£ | ||||||
Net assets | 16,128,166 | |||||
Ordinary shares in issue | 50,093,901 | |||||
Net asset value per share (pence) | 32.20 | |||||
Subsequent to the year end the Company announced an on market share buy back of 1,000,000 ordinary shares at a price of 31 pence each. These buy back shares will be held in the Company as Treasury shares.
6. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Level 1 | Level 3 | Total | |||
£ | £ | £ | |||
Additions at cost - in specie | 14,713,092 | 1,314,499 | 16,027,591 | ||
Additions at cost - cash | 11,160,840 | - | 11,160,840 | ||
Disposals proceeds | (3,873,013) | - | (3,873,013) | ||
Net realised gain on disposal of investments | 131,432 | - | 131,432 | ||
Closing portfolio cost | 22,132,351 | 1,314,499 | 23,446,850 | ||
Net unrealised loss on investments | (7,208,780) | (912,227) | (8,121,007) | ||
Closing valuation | 14,923,571 | 402,272 | 15,325,843 | ||
Net unrealised loss on investments | (7,208,780) | (912,227) | (8,121,007) | ||
Net realised gain on disposal of investments | 131,432 | - | 131,432 | ||
Net capital loss on fair value of financial assets designated at fair value through profit or loss | (7,077,348) | (912,227) | (7,989,575) | ||
Investment income | 25,735 | - | 25,735 | ||
Total losses on Financial Assets at fair value through profit or loss | (7,051,613) | (912,227) | (7,963,840) | ||
There were no transfers of financial assets between fair value hierarchy levels during the period. | |||||
7. Events after the reporting date
Subsequent to the year end the Company announced an on market share buy back of 1,000,000 ordinary shares at a price of 31 pence each. These buy back shares will be held in the Company as Treasury shares.
On 28 June 2013 the Company announced the resignation of Malcolm Burne and Andrew Ferguson from the Board of Directors as part of a review of the central costs of the Company.
8. Annual General Meeting
The Company's Annual General Meeting will be held at Legis House, 11 New Street, St Peter Port, Guernsey on 22 August 2013 at 11 a.m. The notice of AGM together with proxy forms will be posted to shareholders shortly. Additional copies are available on the Company's website and on request directly from the Company.
END OF ANNOUNCEMENT