Last checked at 7 Aug 2015 07:00
MINERAL & FINANCIAL LIMITED
("Mineral & Financial", "MAFL", or the "Company")
NET ASSET VALUE UPDATE
· NAV of 8.52p
· Significant cash position bolsters against commodity price weakness
· Continuing to seek strategic acquisitions
CHAIRMAN'S COMMENTARY
In our opinion, it feels as if time has been compressed and that three months has felt like a full year in the markets. It is our understanding that market observers normally look to the VIX (CBOE Volatility Index) as a measure of volatility, yet this measures the volatility of US equity markets (i.e. the S&P 500) alone, which have been subdued lately.
The Euro Stoxx 50 Index is up 14.8% in the past 12 months, and is up 4.5% in the past month. It is our belief that what was acceptable price performance over a year, now can occur in a week.
We also believe that abrupt price movements in rates are now also more normal - German 10 year rates are down 43.5% in the past 12 months, but one fifth of that move has been in the past month. We believe Switzerland was synonymous with low, but stable returns - yet in the past 12 months it's 10 year government bond rates have dropped 56 basis points to -0.06%, and 25% of this move has been in the past month.
We also believe this volatility has crept into foreign exchange rates - In the past 12 months the Euro declined 21.6% from peak to trough, and from this low it has risen 8.3%.
Additionally, we believe China's fluctuating equity markets are aggravating already heightened nervousness. We believe these are troubling signs.
In our opinion, this volatility highlights diminishing levels of stability resulting from exhausted central bank policies and that these policies are creating elevated valuations for financial assets and diminished valuations for physical assets such as metals and minerals. We believe these extremes in valuation will redress themselves.
We continue to witness a highly difficult market for junior mining companies to raise capital. This coincides with an increase in financial market commentators' opinions on why metals should be avoided.
But we continue to be certain that fundamentals will dictate the direction of metal prices. Our confidence in precious metals remains resolute as virtually all Central Bank policies are favouring short-term growth over medium term stability, combined with good supply/demand dynamics.
This is further supported by the LME stocks which have been declining for virtually all metals traded on the LME, with copper being a notable exception. Since the beginning of the year copper inventories are now 82% higher than where they were at the beginning of the year. Copper began the year as everyone's favourite metal.
We like base metals generally and zinc specifically while continuing to shy away from the oversupplied bulk commodity commodities.
This difficult environment has validated our cautious stance and our prudent investment position. Nevertheless, the weakness in all commodities has negatively affected our NAV despite our caution in retaining a meaningful cash position which represents 56% of our NAV.
Our deeply held belief is that superior returns are made when we invest intelligently at a time others cannot, or will not. We are at the juncture where good assets in need of financing are presenting themselves as highly attractive investments, some of which can be bought at substantial discounts.
Jacques Vaillancourt
Chairman
CHIEF INVESTMENT OFFICER'S COMMENTARY
It's been a tough time on the mining equity markets in recent months, as dollar strength has increased downward pressure on commodities prices across the board.
In particular, gold has weakened markedly, dropping from a price of around US$1,200 per ounce at the end of the previous quarter to a current price of US$1,095 at the time of writing.
Added to that, a severe equity rout in China, and a marked increase in volatility there has led to serious concerns that demand is likely to drop as economic activity slows and consumption falls.
It's in this context that we have kept a significant portion of the Company's investment portfolio weighted in cash. But we are nonetheless disappointed to have to report a decline in the Company's net asset value per share to 8.52p.
Aside from gold, copper has also been particularly affected in the recent market turmoil, as Chinese copper imports have fallen.
This weakness in copper has had a corresponding impact on our position in Glencore, which has weakened considerably during the period.
Our ETF holdings in base and precious metals have also weakened, although we remain broadly positive about the outlook for all the metals in our portfolio: gold, platinum, rhodium, and zinc.
Gold we regard as the prime hedge against global uncertainty, in spite of dollar strength. We also note with interest recent commentary from Investec which highlights that China looks set to challenge the London market as the key price-setter for gold.
The Shanghai benchmark could end up superseding London and the Comex, both in terms of price and clearing, for the simple reason that the Shanghai market consumes the most bullion. Whether the Chinese will be able to break the link between gold and the dollar in the process is open to question, but either way the long-term bull case for gold remains rooted in the east.
Platinum has had a torrid time of it lately as markets look well supplied and demand has remained weak as the global economy has struggled to gain traction in the context of weaker than anticipated US growth and the Greek crisis.
Nonetheless, the longer-term case for platinum, and for rhodium too, remains embedded in global growth: its use in catalytic converters to keep car engines clean. Even in China, which hasn't always had the best track record in terms of the environment, we see evidence that the government is beginning to wake up to the necessity of legislation to ensure cleaner vehicle emissions. Smog in the country's major cities is now very high on the political agenda as there is now a perceived clear and present danger to the nation's health.
Elsewhere, the value of our holding in Cap Energy, the West African oil and gas explorer with prospects offshore Guinea-Bissau and Senegal, also declined, although on minimal trading. Nonetheless, Cap's blocks continue to look highly prospective, especially in light of recent discoveries in the district by Cairn Energy, and it is actively seeking partners to help it make further progress.
Alastair Ford
Chief Investment Officer
For more information:
Katy Mitchell, WH Ireland +44 161 832 2174
Laurence Read, Director +44 20 3289 9923
Notes: The net asset value calculation is subject to audit and is made on the basis that the Company has 13,722,062 shares in issue. All listed investments, including investments on ISDX, are valued at the closing bid price as at 30th June 2015. The Company has an investment in one unquoted gold Company, which is currently valued at the price at which the gold Company in question last raised money, although this is subject to review.