ELX.L Regulatory News (ELX)

9 Nov 2007 16:17

El Oro And Exploration Co Plc09 November 2007 El Oro & Exploration Company plc Preliminary Announcement CHAIRMAN'S STATEMENT 9 November 2007 The Group profit before tax for the year ended 30 June 2007 was £5,427,232(eighteen months to 30 June 2006 was £12,018,986). The Group's net assets at 30June 2007 under IFRS were £85,511,983 or 793.5 pence per stock unit (2006:£71,970,463 or 668.0 pence per stock unit). The Board has declared a first and only interim dividend of 13.2p per stock unitfor the full year ended 30 June 2007, with the dividend paid on 25 October 2007to Members registered on the books of the Company at the close of business on 5October 2007. "Rock of Ages, cleft for me, let me hide myself in thee". Sadly, neither the spiritual solace once so confidently proclaimed fromBritain's pulpits in Cathedrals and Chapels, nor the solidity and security ofthe Banking system, seem sufficient today to provide shelter from the financialstorms confronting Western economies. Weighed down by the leaden lump ofunrestrained government spending, individual indebtedness and excessconsumption, personal and governmental profligacy threaten the very foundationsof our financial system: an assault ameliorated and deferred, but not deterred,by easing of interest rates, initially in the United States. The sale to Liggett Group by Jesse Boot of the company he had built with suchprescience and persistence over the previous 40 years, hugely enhancing andendowing Nottingham in the process even if unrecognised by its Castle museum,preceded the 1929 stock market crash. It remained for his son Lord Trent tore-purchase it with the help of British financiers. There are disturbingsimilarities to be seen in its recent sale to its deputy chairman and KKR, wherethe banks have been unable to offload the bonds issued to finance the deal; morerecently we have witnessed the collapse of the Qatari-backed bid forSainsbury's, where the pension fund was thankfully defended by the eponymous andformerly executive-family: these are potent portents that a Rubicon may havebeen crossed in the ability to finance substantial deals on one hand, and themore mundane buy-to-let housing deals on the other. Stories of very substantialwrite-downs on recently built new apartments abound, echoing those of abandonedhouses and streets within the United States: all bodes badly for property pricesand the banks that have provided finance. The first 12 months of results following the transition to AIM (as opposed tothe preceding 18 month period), whilst not reaching the heady heights ascendedpreviously, mingled with markets reaching their pinnacle in June and early July.This was before the iceberg of sub-prime, promulgated by the purveyors ofmortgages to the NINJA market (No Income No Job), holed the supposedlyimpregnable ship of the financial sector. Property stocks had already begun tobuckle under the weight of potential over-supply and increased borrowing costs:hence holdings such as Daejan fell from the inflated level reached on admittanceto the FTSE 250 heights to a price at which they, amongst others, sell at a deepdiscount to assets. We took the opportunity of converting some of our Greene King loan notes, issuedon the takeover of Hardys and Hanson, into Lowland Investment Trust and BritishPortfolio Trust eschewing the certainty of fixed interest and repayable loannotes for the vagaries of the equity market: a sector that, whatever theshort-term doubts, has hugely out-performed the fixed interest sector. The accounts refer in more detail to the IFRS and UK GAAP treatments ofappreciation. Credit is due to Steven McKeane for dealing with the thornyproblem of 'impaired value' and the complex calculations required for valuingstocks that have fallen in price for a sustained period of time: we use sixmonths as a guide. This is also symptomatic of the complexities of modern accounting standards, ofwhich 'mark to market' or 'mark to model' are perhaps the most seditious anddangerous. The caution that once prevailed within the portfolio of marking atlower of 'market or cost' has been supplanted by marking at market; thusexposing portfolio values to the greater volatility seemingly establishingitself today. More dangerous still is a practice utilised by some hedge fundsfor their portfolio valuations, which is termed 'mark to model' where apotentially self-administered theoretical valuation is applied, especially inthe U.S. to funds whose value may be highly questionable, not to mentionnegligible. The removal of 'pre-emption' is now proposed, transferring powerfrom current to future shareholders; over and above that, MIFID with its 'Day ofthe Triffids' connotation is another bureaucratic imposition spreading despairand frustration in the Financial community, with no apparent gain. Another questionable requirement is the need to account for dividends ondeclaration as opposed to receipt - a measure whose wisdom has been challengedby Northern Rock's cancellation of its previously declared dividend. Thisrecalls the catastrophic collapse of Burmah Oil in 1974, and its bailout by theGovernment. At least there the embedded value of its holding in BP sharesprovided significant salve for the taxpayers' wounds. No such Aladdin's Cave isapparent in Northern Rock: perhaps only Pandora's Box. We are reminded of events 40 years ago, when dissuaded by wiser and moreexperienced counsel, from seeking a higher yield from an advertised deposittaker by the adage that, 'higher interest implies higher risk'; sadly aneighbour's dividend cash was swallowed when the firm in question went bust;just as Orkney Council, years later and not privy to the City gossip which mighthave forewarned it, lost its rate payers' money in BCCI. That lesson is stillbeing learnt as First Quantum, which excels in its mining of copper and copingwith the intricacies of Africa, placed funds on advice from its bankers' HSBC,with Coventree in Canada, along with other mining firms, only to find itsability to repay called into question in the sub-prime debacle. The direresults from Merrill Lynch show how far the mighty have fallen, in the pursuitof those extra points of interest: a folly perpetuated by our present PrimeMinister and his Treasury cohorts when selling our Gold at US $ 250 per ounce,partly because it had no yield. The preservation of capital in the face of the grotesque imbalance in thefinancial sector, both government and private, has now become the principalchallenge confronting us: this at a time when government spending is runningamok, disarray over levels of depositor protection is every day apparent and theGovernor of the Bank of England considers himself restrained from covert actionby a European directive, which is subsequently attributed to an imposition bythe Treasury. The folly of the division of supervisory and regulatory roles isnow fully exposed. As we watch the Lifeboat tossing amongst the tumultuouswaves, we realise that the Chancellor is no Grace, nor is he the Special One.We are not heartened by the prospect of being led by politicians from eithermain party lacking evident practical experience in business or finance. In the case of Europe, the refusal of our current Prime Minister to consider areferendum of a new (or old) Treaty means the EC will continue with itsincreasingly confrontational and Statist policies, devoid of entrepreneurialinspiration, such as the malign attack on Microsoft, which almostsingle-handedly has transformed the way in which world business operates. Theimbedded deficits in France, the debt levels of Spain, the fractured society ofgovernment-less Belgium, dubious financial practices and levels of localsubsidy, combined with the soaring level of the Euro, not to mention dismaldemographics and a declining birth rate amongst the original population,threaten the very structure of the European Union and as such, are symptoms andpart of a quagmire best avoided. Meanwhile our own Government threatens the stability of the United Kingdom byits unannounced, uninvited and unapproved-by-the-electorate level ofimmigration: indiscriminate between the cognoscenti and contributors fromriff-raff from sundry sections of the globe, many with no historical allegianceor connection to Britain. Their entry seems to be expedited or ignored, whilstthe departure of British citizens from its airports is subjected to almostunbearable intrusion and inconvenience, with its adverse effects on business.The threat to stability has been highlighted in areas such as Cambridge; age-oldbalances and checks within our indigenous population are undone, and the faithand self-assurance of our society is assailed, whilst the Health Service andHousing are burdened with its insatiable demands, and an exorbitant level of taxis exacted on those citizens too compliant or too immobile to avoid itsclutches. Housing, education, health and our landscape are increasinglyconfronted with dereliction and their provision denied to British tax-payers;the Armed Forces, already cut to the bone, under-equipped and stretched tobreaking point, are to be reduced further, if reports regarding the Navy are tobe believed; even centuries' old Village Schools, such as Lydbury North's, faceclosure by a Shropshire Council hell-bent on cutting its peripheries, ignoringexcellence and creating ever larger and more inaccessible monolithic structures;those great pinnacles of education, Oxford and Cambridge are accused of elitism,the crime to which they should be most assiduously aspiring. The release of Foot and Mouth virus from a government-owned laboratory is aconsequence of the chronic malaise and incompetence that has permeated thehitherto sound structures of the British Government where the diversion orreduction of resources often for political ends is increasingly visible:especially in the immigration service, where the absence of any checks at mostairports is only too apparent, and has left our society open to corruption,disease and criminality. Seldom since the time of Moses has a governmentperpetrated pestilence on its own land and people on such a scale: animalsslaughtered either from infection or the consequent export ban, and individualsfalling in their thousands as a result of hospital-acquired infection. Piling Ossa on Pelion, our by-ways are festooned with speed cameras, the tarmaccoruscated with humps, and an ever-dafter array of requirements under Health andSafety imposed, such as the absurd HIPS, 150 Year Flood Test for Reservoirs, NoSmoking Notices in Churches. All point to the extension of Government beyondRepresentation and Protection. All these measures, however laughable and absurdin themselves, involve an ever-rising cost of compliance, whilst the vibranteconomies pursue production, profit and development with astonishing speed, asevident by the predominantly overseas-purchasers of prime London property. Perhaps one of the few benefits of a slowing economy may be that thenewly-resurgent St. Paul's, recently unwrapped to reveal and revel in itsgleaming glory, and the City skyline itself, may at least temporarily be savedfrom Shards of Glass and other inappropriate intrusions: the ruin of Wrenaverted by a Northern Wreck. The guff of responsibility for Global-warming and other Malthusian-like scaresmove us inexorably into a fully-compliant, eco-friendly, fully-insulated,multi-cultural, sexually uncertain, smoke-free, carbon-neutral cocoon; blindedto the economic, competitive and cultural destruction of our Society. TheClassical simplicity and Georgian serenity, so evident in cities such asLiverpool and Edinburgh, is replaced by ugliness and pretence, such as plasticwindows, and the soul of the nation left scarred as it panders to aphantasmagoria of practices and faiths. Confronted by immediate financial uncertainty, the growth of the Brazilian,Russian, Indian and Chinese (BRIC) economies remains crucial to the continuingstrength of metal markets. Whilst the shambles of the sell off in August led tosubstantial declines in mining shares the underlying metals themselves only fellmodestly. At the time of writing most shares have more than made up for thosefalls, underpinned by new highs in Gold and the upward ascent of Copper, Lead,Oil and Wheat. Troy Resources' new CEO has been greeted by the return of the share pricetowards its old highs, amidst promising developments at its new Brazilian goldmine. Smelter problems at International Ferro Metals reduced its share pricefrom its recent highs, and the continuing impasse with its gold mining permit inSulawesi has restrained Archipelago. Nighthawk has excelled with its United States' exploration successes, andEgdon's Portland Gas storage scheme awaits the planners' decision. WhilstBritish sportsmen in Rowing and Rugby have relinquished their titles, we retainour faith for future triumphs in these and many others in our mining portfoliowhilst continually monitoring new mines and regions. We believe that along withGold, the mining market will take up and compensate for the reduced growth weanticipate in the British market although such favourites as James Halsteadcontinue to astound and exceed expectations. Many others remain and thrive atthe core of the portfolio, such as Young's with their impressive array ofattractive pubs, Fullers and Wadworths, even if the near term outlook issignificantly less favourable than a year ago. Outlook We are soundly positioned for an uncertain future accompanied by siren voicespredicting a slow-down; the housing imbroglio in the United States and theunknown identity of the next President of the United States promise extrainterest in 2008 and 2009; as does the leadership and attitude of Russia and thebelligerence of Iran. The profligacy of a spendthrift nation allied to the powerof the printing press has inundated the emerging economies with prodigiousquantities of dollars; supplying Sovereign Wealth Funds with almost limitlessfirepower, and reasserting the Sage of Omaha's warning two years ago about thethreat of Foreigners buying the Farm, and its political implications: the onlyassets able to absorb them are the purchase of major U.S. corporations, or justpossibly and eventually, Gold itself. Our Gold holdings we believe will come to the fore, along with many ships in themining sector, whilst we would expect our high quality portfolio of leadingsmall capitalisation companies to continue to flourish. We are as always grateful to the team at Cheval Place where Steven McKeanequietly transforms into figures an array of questions thrown at him; Abbiecalmly copes with a plethora of trades and Vicky grapples with the latest mobileand computer technologies with good grace and a smile. I am equally indebted to my co-Directors, brokers and advisers, whose sageadvice collectively places your Company in such a powerful position for all newchallenges. C. Robin Woodbine Parish8 November 2007 CONSOLIDATED INCOME STATEMENTfor the year ended 30 June 2007 12 months to 18 months to 30 June 2007 30 June 2006 £ £Revenue 2,448,192 3,251,972Net gains on investments 8,987,984 15,544,692Impairment loss on available for sale investments (2,466,602) (2,893,963)Expenses (2,017,602) (2,582,000)Profit before finance costs and taxation 6,951,972 13,320,701Finance costsBanks 1,524,740 1,295,415Other - 6,300 1,524,740 1,301,715Profit before taxation 5,427,232 12,018,986Taxation 1,681,632 3,753,302Profit after taxation 3,745,600 8,265,684Earnings per stock unit (basic and diluted) 34.70p 76.06p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the year ended 30 June 2007 12 months to 18 months to 30 June 2007 30 June 2006 £ £Profit for the period 3,745,600 8,265,684Recognition of financial instruments at 1 January 2005:- Other reserve - available for sale - 25,640,476- Derivative financial instruments - (232,664)Revaluation of available for sale investments during the period 14,493,284 27,676,702Deferred tax on revaluation of available for sale investments during (3,080,360) (8,303,011)the periodTotal recognised income and expense for the period 15,158,524 53,047,187 CONSOLIDATED BALANCE SHEETas at 30 June 30 June 2007 30 June 2006 £ £ Assets Non-current assets Property, plant and equipment 726,955 747,417 Investment properties 495,091 406,014 1,222,046 1,153,431Current assetsTrade and other receivables 232,310 236,940Financial assetsAvailable for sale investments 134,809,425 107,253,063Financial assets at fair value through the income statementCommodities 1,609,430 1,619,941Cash and cash equivalents 1,881,480 256,656 138,532,645 109,366,600LiabilitiesCurrent liabilitiesFinancial liabilitiesBorrowings 33,082,955 21,174,845Trade and other payables 1,074,356 613,624Current tax liabilities 947,934 542,507 35,105,245 22,330,976Net current assets 103,427,400 87,035,624Non-current liabilitiesDeferred tax liabilities 19,137,463 16,218,592Net assets 85,511,983 71,970,463Stockholders' equityCapitalStock units 538,825 541,785ReservesShare premium 6,017 6,017Capital redemption reserve 347,402 344,442Merger reserve 3,564 3,564Other reserve - available for sale 49,482,060 38,069,136Retained earnings 35,134,115 33,005,519Total equity 85,511,983 71,970,463 For further information, please contact: C. Robin Woodbine ParishChairmanEl Oro and Exploration Company plcTelephone: 020 7581 2782 Philip SecrettNominated AdviserGrant Thornton Corporate FinanceTelephone: 020 7383 5100 This information is provided by RNS The company news service from the London Stock Exchange