24 Oct 2008 09:15
El Oro & Exploration Company plc
Preliminary Announcement
CHAIRMAN'S STATEMENT
24 October 2008
The Group profit before tax for the year-ended 30 June 2008 was £6,699,292 (year-ended 30 June 2007 was £5,427,232) under IFRS. The Group's net assets at 30 June 2008 under IFRS were £74,638,810 or 692.6 pence per stock unit (2007: £85,511,984 or 793.5 pence per stock unit).
The Board has declared a first and only interim dividend of 14.0 pence per stock unit for the full year ended 30 June 2008, with the dividend paid on 24 October 2008 to Members registered on the books of the Company at the close of business on 3 October 2008.
The attempt by scientists supervising the Large Hadron Collider, to replicate the conditions leading to Big Bang has been overshadowed by the implosion occurring in the world's Financial markets: the gruesome truth has emerged that Bankers and their hired-hand Magicians, intoxicated by greed and dancing with the devilry of Derivatives, far from fostering a Golden Goose, have succeeded in producing Solfataric emissions so toxic to have nearly extinguished the Western Financial system.
Those of us who retain that deluded belief in Gold, that Barbarous Relic, fortified by its mystique and durability over thousands of years, can only wonder at the swift acceptance of the ultimately insane trust in Swaps and Derivatives, incomprehensible to all but their progenitors, and very likely including them: sadly one of the oldest Human vices pervaded the ranks of the financial sector, and suborned the politicians, who saw their electorate and themselves suddenly enriched by unbelievable asset growth.
The warnings of the wise against 'Financial Weapons of Mass Destruction' went unheeded and the downward spiral of the United States into a humiliated entity led by a former Master of the Universe, and teetering on the edge of Bankruptcy, threatens to bring down the Banking system as it has evolved over centuries. The Emperor has been discovered to have no clothes, and his cohorts have been found to be swimming naked.
In scenes reminiscent of the retreat of the Romans from Britain, the banking battalions have relinquished the ramparts, with no 'cohorts gleaming in purple and gold', but surreptitiously and swiftly; the Satraps have been abandoned, and their toys and trivia will clutter the auction catalogues for years to come.
The Financial tornado that has torn apart the core of Capitalism has destroyed value more quickly than in any preceding period, and leaves the world in a position markedly similar in its differences to the World pre-1914 to that pertaining at the conclusion of the Great War. The sweeping aside of Emperors, Kaisers, Kings and Sultans has been replicated over the last few weeks as the upper echelons of the Banking community have been eradicated or belittled; power has shifted irresistibly Eastwards and into the hands of Regulators. Whether either of those groups have the talent or ability to resurrect an effective alternative, remains to be seen.
Seldom can the predictions and forebodings of the pessimists have been so suddenly realised, even though their denouement has been deferred for so long: sadly, the consequences of that deferral now threaten impoverishment on a scale and breadth far beyond what more cautious and restrictive management of the economy could have achieved: this applies as much to the United States and Britain, as it does to the Southern perimeter of the European Union, where the housing bust is now engulfing Ireland and Spain, not to mention parts of Scandinavia and Iceland, due to wrong but equal levels of interest rates.
James V. vv 1,2:
Go to now, ye rich men, weep and howl for your miseries that shall come upon you. Your riches are corrupted, and your garments are moth-eaten. Your gold and silver is cankered; and the rust of them shall be a witness against you ...
Sadly for your portfolio the good times have come to a grinding halt, and our layers of protection prepared for these latter days have yet to fully justify their potential, steadfast as we remain in believing in the ultimate sanctuary of Gold.
The Pub sector in particular has seen substantial falls, precipitated by the decline in property prices, but more disturbingly driven by dismally disastrous Government interference: this has been catalogued in far greater detail by many chief executives, outlining the devastating effects of the smoking ban, allied to the plethora of asinine and ridiculous regulations and outrageous increases in beer duty: the survival of a sector historically at the heart of many communities and villages has been undermined and its existence threatened, often by unelected officials and at the behest of the cappuccino classes from Islington and Edinburgh.
We hear from Shropshire of the imposition of new fire Regulations, and the requirement to spend huge sums to be able to resume and continue a business that has traded satisfactorily and safely to the enjoyment of many, for nigh on 30 years. In the opinion of the Gauleiters, this was deserving of instant closure, posing an 'imminent threat to life'. We read of many similar stories, and doubt whether many of the smaller businesses will be able to survive this assault of recent and largely irrelevant regulation. No doubt the officials of this caustic new order are fulfilling their obligations to the letter; as with the demise of the Douglas Dakota, and the QE2, whether at the diktat of the UK or EU, we are uncertain: what is sure is that the costs for some, at a time when the economy is predicted to cool rapidly, if not fall off a cliff, may be terminal.
Amongst the endless absurdities of the Health and Safety Executive and its minions, we learn that Champagne bottles may no longer be opened in the offices of a leading firm of accountants (presumably only the insolvency side would be considering such an action); The estimable Ian from Burton on Trent Civic Society, reports that on advising the Council where they would be planting bulbs as had been their practice for many years, he was told a Risk Assessment would be required, and submitted to 5 different departments. In consequence: No Bulbs for Burton.
Our property holdings have suffered with the drought in commercial lending, and downward revisions to Asset Values, exacerbated amongst AIM listed trading companies, such as Adnams and Young's by the 80% increase in Capital Gains applicable to that sector. If ever there was a case of Government action being timed to perfection to make a bad situation worse, this is a fine example. Several deals within our own portfolio, promising at the time of their announcement, now appear in jeopardy due to the dearth of liquidity.
The pressure has been particularly severe in the mining sector: commodity prices have declined precipitously, in some cases by more than 50%, accentuated by the cessation of production in parts of China during the Olympics, thereby perhaps helping our Oarsmen, women and cyclists to gain more Silver, Gold and Glory during that refreshing interlude to summer squalls and financial mayhem.
Mining share prices have declined by an even greater extent, and such earlier stalwarts as Albidon and International Ferro Metals that were until recently riding the crest of the Resources wave, have been dumped onto the reef. Doubtless there has been distress selling as funds dispose of their profitable positions in the quest for liquidity or facing redemptions; this, combined with the belief by many that the Bubble has burst for Resources, has greatly reduced values across the board, whilst the Platinum price has halved, faced by reduced demand for cars, the travails of the United States' motor industry, and consequent lower demand for Catalytic converters.
We are not convinced that China's slowdown justifies such dramatic and persistent falls, though we can be rebuked for failing to follow Warren Buffet's maxim of trying to be ' fearful when others are greedy', despite some modest reductions in our profitable positions. Perhaps the counterpoint to that quote is now applicable:' to be greedy when others are fearful'.
The rapid retreat of the price of Gold after surpassing $1,000 in March has also been double-echoed by the falls in the prices of our Gold mining shares, and in some cases, such as recently announced by Serabi Mining, their impending closure. Troy has at least paid a dividend, albeit reduced, and we are heartened by the fortuitous timing of its sale of the Comaplex holding, and the development of its Iron ore project in conjunction with its Andorinhas Gold Mine. Two new mines, 50,000 ounces of gold per annum, and half the share price underpinned by cash, would indicate to us some sort of bottom; how wrong we have been so far.
We do believe that Troy is well poised to benefit from a change in sentiment or an increase in the price of Gold and that applies to many cash or ounce-rich Companies, and the Promised Land remains on the horizon, even if just out of reach: we think of Archipelago with production now in sight after such a fraught wait, and many other projects hit by the double-whammy of a falling price and restricted credit.
We congratulate the directors of Sunshine Gas on brightening our bedraggled summer with their proposed merger with Queensland Gas, and a sizeable uplift on our own position: another win for Rhodesian refugees from the monster Mugabe.
We are now confronted by the nationalisation of the United States' Financial system and the priming of the printing presses by the combination of one of the Investment Banks' foremost beneficiaries, with an academic who declared he was prepared to drop money from helicopters to avoid deflation: thereby bringing us closer to the abyss than ever before. Anyone who can seriously regard the United States as a going concern, confronted by One, or even Three trillion Dollar liability to bail out the Banks and housing sector, is more sanguine and optimistic than befits these pages.
The refusal of the National Audit Office to sign off the United Kingdom's accounts due to the uncertainty surrounding Northern Rock indicates the possible insolvency of the United Kingdom; all this before HBOS and Bradford and Bingley hit the buffers. Lord Healey will no doubt be watching with wry amusement the impending arrival of the IMF, with a rescue package and obligatory spending cuts, not so long ago the preserve of Asia during their crisis in 1998.
The death throes of this magnificently and boundlessly incompetent administration and its enormous client state, constructed with such guardianista glee for the past 11 years, will inflict pain and suffering across a huge swathe of British society. So much so that those Gurkhas awarded the Victoria Cross for Gallantry fighting for Britain, and yet, until recently denied entry by junior bureaucrats as having 'insufficient connection with Britain', may well think twice about re-applying; whilst perhaps some of the 10,500 Afghans already granted citizenship will look elsewhere. Perhaps.
Almost every Government initiative has made a bad situation worse, and raised costs at a time of rising prices due to food and energy increases: closing excellent and viable schools, whilst offering to provide nursery places for 2 year olds; the Climate change levy, Congestion charges, Rubbish charges, HIPS inflicted on an already dying housing market, the Energy Efficiency Survey on let property; the Power of Attorney has not escaped the grasp of these mad meddlers, so that a brief visit to a solicitor has been replaced by up to three-month's wait and a bill for as much as £1,000.
Perhaps most ominous and catastrophic of all, the compliance with the European Directive on Renewable Energy threatens to precipitate the closure of most of our Nuclear Power Stations, and rely on the fantasy of some grossly ineffective windmills and 'renewables' providing power to Britain: thus risking running rapidly out of energy and greatly inflating the price of power to the populace and industry; mainly undertaken as a sop to the increasingly strident and economically naive-Green lobby so that even former civil servants in the Power sector are now warning of the 'Energy Poverty Trap'. Our Government, in selling British Energy, has decided to depend on the French for our future nuclear power, with all its ominous connotations for the British Civil Engineering sector, thereby abnegating its role as provider of last resort, to concentrate no doubt, on expanding the Civil Service.
Surely the final ignominy is the proposal by the Ministry of Defence to investigate the sale of H.M.S. Victory, due to the cost of its upkeep: having so disgracefully underfunded our serving soldiers and services, it now proposes disposing of one of the greatest of all emblems of Britain's Power and Glory, which gave us mastery of the Oceans for the nearly 150 years.
The sale of Damien Hirst's Golden Calf summarises succinctly the excess and folly of these final days of heaven: occurring as it did at the same moment that the US financial system was being sacrificed on the altar of State intervention. We do not think its purchasers will fare any better than those who worshipped Aaron's original. We do not share the sentiment of the following quote, recently received from the successors to the late and lamented Ian Notley:
"Gold is not necessary. I have no interest in gold. We'll build a solid state without an ounce of gold behind it." Adolf Hitler.
Echoed in the U.S.A.: by the order of President Roosevelt, anyone found hoarding over $100 in gold or gold certificates was made subject to two years imprisonment and $10,000 fine.
Perhaps the days of confiscation are already at hand, just as short-selling has been stopped on financial stocks: it is possible that the price is already indicating the death of confidence in those great edifices constructed by man's ingenuity and cunning.
As we see the demise of Britain's once solid economy, destroyed by vacuousness and vapidity, we hear of scions of British industry in tears as workers are laid off from empires carefully constructed after years of endeavour, great estates put up for sale, and most tragic of all, the death of those unable to cope with the humiliation of losing their homes or businesses.
We recall the words of Joel:
That which the palmerworm hath left hath the locust eaten; that which the locust hath left hath the cankerworm eaten; and that which the cankerworm hath left hath the caterpillar eaten. (Joel 1.v 4).
We cannot pretend to any pleasure in seeing such wanton destruction wreaked over our country, and over your portfolio, even though we remain convinced, however unappealing the reasons will prove, that Gold will underpin our own recovery. We also own a wide spread of stocks in excellent companies, that will thrive again in due course once this leaden weight of lunatic interference is removed. Now that growth has dissolved into the ether perhaps even the Conservatives will think about cutting the monstrous excess of state spending, and release the people from the tyranny of Government interference on all fronts. It is even possible that the British financial sector will emerge in a stronger position, if that of the United States is regulated to extinction, under its new hair-shirt regime of salving the sensibilities of Main Street.
The United States has eschewed the advice of its finest statesmen, such as Paul Volcker, Warren Buffet and Charlie Munger; and is paying a heavy price for such denial. It does however, have vitality powerfully visible in the singing of the incomparable Boss, Bruce Springsteen, when performing at Manchester not long after the triumph over Russian money of the United team in Moscow. To perform for two and a half hours non-stop with such gusto cannot but help restore one's confidence in the endurance and ability of America's finest.
To encounter San Franciscan Marjorie on the train from Omaha to Sacramento was another serendipitous occasion and restorer of faith: she survived fraud at her night-clubs in an early business venture; unabashed set up in succession a telephone answering-service, a language school, and two newspapers; whilst travelling between 8 different houses; and at the age of 83 still made time before boarding the train in Chicago to visit Pastor Wright's Church, to gain first-hand experience of Prospective President Barack Obama's place of worship: these are the people whose tenacity and vigour and curiosity and resilience have made America great, and whose spirit will do so again.
Whatever the effortless accumulation of wealth amongst overweight Russians, quaffing champagne and ogling scantily dressed ladies at St. Tropez, or the emergence of a country whose entrepreneurs are prepared to poison its own people for a little extra profit margin, the model of the United States economy remains supreme, and is molested at the peril of the entire world. The cancellation or removal of the Credit Default Swaps, presently sucking the lifeblood out of the Western World's financial system, holds the key to our survival. Cauterising this fetid wound will require radical and prolonged treatment, and will inevitably involve vast write-downs and considerable suffering, but is now imperative and unavoidable.
Outlook
The outlook is hugely gloomy, but filled with promise:
It only remains for me to thank my co-directors for their resilience and support in a year which began with so many high hopes, and also to our loyal staff, Steven, Abbie and Vicky, coping gallantly and cheerfully with the slings and arrows of outrageous fortune.
C. Robin Woodbine Parish CONSOLIDATED INCOME STATEMENT unaudited
for the year ended 30 June
| 30 June 2008 £ | 30 June 2007 £ | |
| Revenue | 2,345,644 | 2,448,192 |
| Net gains on investments | 14,023,177 | 8,987,984 |
| Impairment loss on available for sale investments | (5,832,572) | (2,466,602) |
| Expenses | (1,826,483) | (2,017,602) |
| Profit before finance costs and taxation | 8,709,766 | 6,951,972 |
| Finance costs | ||
| Interest expense | (2,010,474) | (1,524,740) |
| Profit before taxation | 6,699,292 | 5,427,232 |
| Taxation | (1,948,655) | (1,681,632) |
| Profit after taxation | 4,750,637 | 3,745,600 |
| Earnings per stock unit (basic and diluted) | 44.08p | 34.70p |
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE unaudited
for the year ended 30 June 2008
| 30 June 2008 £ | 30 June 2007 £ | |
| Profit for the year | 4,750,637 | 3,745,600 |
| Revaluation of available for sale investments during the year | (7,243,164) | 16,291,894 |
| Deferred tax on revaluation of available for sale investments during the year | 2,028,086 | (3,619,943) |
| Total recognised income and expense for the year | (464,441) | 16,417,551 |
CONSOLIDATED BALANCE SHEET unaudited
as at 30 June
| 30 June 2008 £ | 30 June 2007 £ | |
| Assets | ||
| Non-current assets | ||
| Property, plant and equipment | 708,073 | 726,955 |
| Investment properties | 131,941 | 495,091 |
| 840,014 | 1,222,046 | |
| Current assets | ||
| Trade and other receivables | 1,492,279 | 232,311 |
| Financial assets | ||
| Available for sale investments | 113,124,805 | 134,809,425 |
| Financial assets at fair value through the income statement | ||
| Commodities | 3,248,078 | 1,609,430 |
| Cash and cash equivalents | 536,463 | 1,881,480 |
| 118,401,625 | 138,532,646 | |
| Liabilities | ||
| Current liabilities | ||
| Financial liabilities | ||
| Borrowings | 12,908,051 | 18,082,955 |
| Financial liabilities at fair value | 1,337,123 | - |
| Trade and other payables | 821,843 | 1,074,356 |
| Current tax liabilities | 849,967 | 947,934 |
| 15,916,984 | 20,105,245 | |
| Net current assets | 102,484,641 | 118,427,401 |
| Non-current liabilities | ||
| Borrowings | 15,000,000 | 15,000,000 |
| Deferred tax liabilities | 13,685,845 | 19,137,463 |
| 28,685,845 | 34,137,463 | |
| Net assets | 74,638,810 | 85,511,984 |
| Stockholders' equity | ||
| Capital | ||
| Stock units | 538,825 | 538,825 |
| Reserves | ||
| Share premium | 6,017 | 6,017 |
| Capital redemption reserve | 347,402 | 347,402 |
| Merger reserve | 3,564 | 3,564 |
| Other reserve - available for sale | 35,280,747 | 49,482,060 |
| Retained earnings | 38,462,255 | 35,134,116 |
| Total equity | 74,638,810 | 85,511,984 |
| Net asset value per stock unit | 692.6p | 793.5p |
CONSOLIDATED CASH FLOW unaudited STATEMENT for the year ended 30 June
|
30 June 2008 £ |
30 June 2007 £ | ||
| Operating activities | |||
| Profit before taxation | 6,699,292 | 5,427,232 | |
| Adjustments for | |||
| Depreciation | 19,704 | 25,042 | |
| Exchange (gains) / losses | (988,343) | 396,704 | |
| Net losses / (gains) on fair value of investment properties | 4,205 | (17,898) | |
| Net gains on impaired available for sale investments | 5,832,572 | 2,466,602 | |
| Movement in fair value of investments through the income statement | (544,775) | 140,150 | |
| Finance costs | 2,010,474 | 1,524,740 | |
| Cash flow from operating profit before changes in working capital | 13,033,129 | 9,962,572 | |
| Increase in available for sale investments | (3,778,664) | (16,295,694) | |
| Decrease in fair value of investments through the income statement | 293,691 | 1,636,198 | |
| Increase in forward gold contracts | - | (1,749,580) | |
| Increase in trade and other receivables | (1,259,968) | (235) | |
| (Increase) / decrease in trade and other payables | (252,513) | 434,742 | |
| Cash generated from operations | 8,035,675 | (6,011,997) | |
| Income taxes paid | (1,822,827) | (1,437,695) | |
| Cash flow from operating activities | 6,212,848 | (7,449,692) | |
| Investing activities | |||
| Cost of stock units repurchased and cancelled | - | (323,527) | |
| Purchase of property, plant and equipment | (822) | (4,580) | |
| Sale of investment properties | 357,512 | - | |
| Cash flow from investing activities | 356,690 | (328,107) | |
| Financing activities | |||
| Interest paid | (2,016,957) | (1,517,511) | |
| Dividends paid to stockholders | (1,443,400) | (1,275,341) | |
| Forfeited dividends | - | 627 | |
| Repayment of mortgages | (307,760) | (5,018) | |
| Cash flow from financing activities | (3,768,117) | (2,797,243) | |
| Net increase / (decrease) in cash and cash equivalents | 2,801,421 | (10,575,042) | |
| Opening cash and cash equivalents | (30,891,807) | (20,648,219) | |
| Effect of foreign exchange rate changes | 718,798 | 331,454 | |
| Closing cash and cash equivalents | (27,371,588) | (30,891,807) | |
| The accompanying notes form an integral part of these financial statements. | |||
For further information, please contact:
C. Robin Woodbine Parish Philip Secrett
Chairman Nominated Adviser
El Oro and Exploration Company plc Grant Thornton Corporate Finance
Telephone: 020 7581 2782 Telephone: 020 7383 5100