SVE.L Regulatory News (SVE)

Wednesday 4 November 2015

Starvest Plc ("Starvest" or "the Company")

Results for the year ended 30 September 2015

Chairman's statement

I am pleased to present my first annual statement to Shareholders for the year ended 30 September 2015 and the fifteenth since the Company was formed in 2000.

Bruce Rowan

It is a great personal sadness, shared by my fellow directors, that for health reasons, Bruce found it necessary to step down from the Board at the end of August 2015. Over many years, Bruce gained a reputation for his successful support for small-cap mineral exploration businesses both in his native Australia and throughout the world. He had the vision to support a large number of such businesses as a result of which he was much sought after. We wish him all the very best in his retirement during which we will do our very best to honour his trust in us and to enhance the value of the Company's portfolio.

Results for the year

Following the three tough years of 2011 to 2013, 2014 showed a marked improvement in the Company's net asset value. Sadly, that, and more has been lost during the last year so that the closing net asset value has fallen to a level not previously known. Many of our portfolio companies exploring for gold, iron ore and other such minerals have continued to find it difficult to raise essential cash and so have seen share price falls in what has become a harsh environment for early stage mineral explorers.

At the balance sheet date, more than 45% of the portfolio value was attributed to oil stocks which have been hit by a collapse of world oil prices. For example, a year ago we reported having seen a dramatic rise in the price of Nordic Energy plc, a company then valued at 7 pence per share, but which has since failed in its attempt to be admitted to AIM leading to a boardroom hiatus and a current price of 0.8 pence per share.

On a brighter note, we have two companies in the portfolio each of which is edging towards gold production; we wait with anticipation for continued good news from Ariana Resources plc and KEFI Minerals plc.

Investing policy

The Company's investing policy is reproduced on page 3 of this report and made available on our website, www.starvest.co.uk.

Trading portfolio valuation

A brief review of the major portfolio companies follows from page 4; other investee companies are listed with the websites from which further information may be obtained.

Shareholder information

The Company's shares are traded on AIM.

Announcements made to the London Stock Exchange are sent to those who register at the Company's website, www.starvest.co.uk where historic reports and announcements are also available.

Annual general meeting

We will hold our annual general meeting at 11.00 am on 10 December 2015 at the City office of Grant Thornton UK LLP, our Nominated Adviser, when we look forward to meeting those Shareholders able to attend.

Callum N Baxter

Chairman & Chief Executive

4 November 2015

Investing policy statement

About us

The Board, under the leadership of the previous chairman, Bruce Rowan, has managed the Company as an investment company since January 2002. Collectively, the Board has significant experience over many years of investing in small company new issues and pre-IPO opportunities in the natural resources and mineral exploration sectors.

Following the appointment as chairman of Callum Baxter, the Board will continue with a similar investment strategy, that is, with a focus on the natural resources sector.

Company objective

The Company is established as a source of early stage finance to fledgling businesses, to maximise the capital value of the Company and to generate benefits for Shareholders in the form of capital growth and modest dividends.

Investing strategy 

Natural resources: Whilst the Company has no exclusive commitment to the natural resources sector, the Board sees this as having considerable growth potential in the medium term. Historically, investments were generally made immediately prior to an initial public offering, on AIM or ISDX as well as in the aftermarket. As the nature of the market has changed since 2008, it is more likely that the future investment portfolio will include a spread of companies that generally have moved beyond the IPO stage but remain in the early stages of identifying a commercial resource and/or moving towards development with the appropriate finance.

Investment size: Initial investments are for varying amounts but usually in the range of £100,000 - £300,000. These companies are invariably not generating cash, rather they have a constant requirement to raise new equity in order to continue exploration and development. Therefore, after appropriate due diligence, the Company may provide further funding support and make later market purchases, so that the total investment may be greater than £300,000.

High risk: The business is inherently high risk and of a cyclical nature dependent upon fluctuations in world economic activity which impacts on the demand for minerals. However, it offers the investor a spread of investments in an exciting sector, which the Board believes will continue to offer the potential of significant returns for the foreseeable future.

Lack of liquidity: The investee companies, being small, almost invariably lack share market liquidity, even if they are quoted on AIM, ISDX, ASX, or TSX-V. Therefore, in the early years it is rarely possible to sell an investment at the quoted market price with the result that extreme patience is required whilst the investee company develops and ultimately attracts market interest. If and when an explorer finds a large exploitable resource, it may become the object of a third party bid, or otherwise become a much larger entity; either way an opportunity to realise cash is expected to follow.

Success rate: Of the 25 to 30 investments held at any one time, it is expected that no more than five will prove to be 'winners'; from half of the remainder we may expect to see modest share price improvements. Overall, the expectation is that in time Shareholder returns will be acceptable if not substantial. Accordingly, the Board is unable to give any estimate of the quantum or timing of returns.

Profit distribution: When profits have been realised and adequate cash is available, it is the intention of the Board to recommend the distribution of up to half the profits realised.

Other matters: The Company currently has investments in the following companies, which themselves are investment companies: Equity Investors plc; Equity Resources Limited and Guild Acquisitions plc.

The Company takes no part in the active management of investee companies, although directors of the Company are also non-executive directors on the boards of four such companies. Callum Baxter, newly appointed Chairman, is also the CEO of one such company.

Review of trading portfolio

Introduction

During the year to 30 September 2015, the portfolio comprised interests in the companies commented on below. In addition, a further 12 active companies were included but not commented on in this review.

The tough trading and fundraising conditions of the past four years have taken a toll on some of the businesses in which Starvest is invested to such an extent that, as at 30 September 2015, the net asset value had reduced by 74% in one year from a value of £4.41m at 30 September 2014, to £1.14m. As a year ago, the greater part of the value is in oil, gas and coal exploration ventures, but the values have been significantly reduced; together the Company's interests now amount to 66% of its portfolio; much of the remainder is in gold exploration.

Transactions

During the year the Company sold its remaining stake in Beowulf Mining plc. In addition, the Company subscribed to a placing in Alba Mineral Resources plc which it sold at profit within four weeks before purchasing a further holding as the price fell. Otherwise there were no purchases or sales.

During the year, we received interest on short-term loans advanced during the previous year to Goldcrest Resources plc; Goldcrest also made a partial repayment of the capital.

Trading portfolio valuation

When reporting in previous years, attention was drawn to the continuing adverse conditions in our chosen market for early stage mineral exploration stocks. The year to September 2015 has been no better with a dramatic decline in market prices.

Against this background, we continue to value our portfolio of investments conservatively at the lower of cost or bid price or lower directors' valuation, where we believe those facts of which we are aware cast doubt on the market prices or where the Company's interest is of such a size as to inhibit selling into a depressed market. We attribute no value to those of our investments that do not enjoy a market quote.

For the purpose of the quarterly valuation announced at the end of September, we have one exception to this rule. Many years ago, we took a founding stake in Concorde Oil & Gas plc which was subsequently acquired by Kuwait Energy plc, a company registered in Jersey which we understand is in the early stages of seeking a public quotation, possibly in New York. In view of the significant progress made by the company, we have valued the holding at a price advised by a Kuwaiti broker which makes a local market in the stock.

The Directors are satisfied that this is the only significant management estimate made within the financial statements.

This cautious approach has proved to be appropriate in these difficult times; additional provisions made during the year total £140,000 (2014: £351,000).

A detailed review of the six leading portfolio companies follows. This year, we are not commenting on the smaller companies, although they are listed at the end of the review.

Raising new finance, an essential requirement for any mineral exploration business, has continued to be very tough leading to the heavy dilution of existing shareholders and to some failures.

As the net asset value has fallen substantially during the year to £1.14m, the loss before taxation has increased from £356k to £964k. In addition, the Company:

· has no debt other than a convertible loan from a shareholder and a bank overdraft facility only;

· continues to believe that it is in a strong position to benefit from an upturn in markets which will come in time;

· believes that the fundamentals have not changed: the world is becoming more affluent with an increasing number of people expecting refrigerators, motor cars, air conditioning, laptop computers and all other tools of 21st Century living which all require natural resources in order to both produce and power.

Financial Reporting Standards (FRS102)

To date we have prepared our financial statements under UK Generally Accepted Accounting Standards (UK GAAP). However, with effect from 1 October 2015 we will be required to adopt FRS 102 ("New UK GAAP"). The significant impact of this change will be on the valuation of the Company's investments. To date, we have been able to carry all our investments at the lower of cost or current value. However, under the new accounting standard, we will be required to mark-to-market all our investments. Based on the closing prices at 30 September 2015, the investments (and hence net assets of the group) will not be affected as all investments are carried at a loss to cost price.

Company statistics

The Company considers the following statistics to be its Key Performance Indicators (KPIs) and is satisfied with the results achieved in the year given the uncertain market conditions.

These values include unrealised gains on elements of the trading portfolio that are not reflected in the financial statements. Since the year end, values have slightly improved; as at the close of business on 30 October 2015, the asset value net of debt was £1.3m.

Review of the current market

We and our investee companies have endured yet another tough year; extreme short termism leading to lower prices and/or greater volatility has become the norm. It is clear that many private investors upon whom we and our investee companies have relied for new capital have withdrawn their support or, at best, are awaiting a recognisable upturn in world-wide economic fortunes; this is compounded in that few institutional investors have an appetite for small early stage projects.

World markets continue to be volatile. For instance, in the past four years the gold price has been as high as $1,883 per oz. but has also been as low as $1,093; at the present time it is approximately $1,170, not far from where it was a year ago.

Then there is iron ore which is in plentiful supply but with Australia the dominant exporter. Prices have fallen from $130/t to below $50/t.

Demand for raw materials continues to fall. Although there may be timing issues, we expect demand to recover to be followed by prices. Meanwhile, opportunities for junior explorers to realise value and generate cash are few.

In spite of the challenging environment, the strengthening of the US$ has been and will be a factor in determining world commodity prices.

Patience continues to be the key as we await a recovery.

It is worth reminding ourselves of what we have consistently stated: we are investing in a high risk sector where positive returns are not guaranteed and that we never expect more than five of the 25 to 30 investments held at any one time to be 'winners'.

Interests in Gold exploration

Our interests in gold exploration have endured yet another tough year!

Following falls in the gold price to US$1,200, a year ago we predicted that further falls were likely. Indeed, the price fell in July 2015 by US$100, but has since increased so it now trades around US$1,170. Given all the uncertainty in world markets, the focus must be on cost reduction.

Amongst the Starvest investments, there are six with interests in gold exploration. Of these, we comment on two:

Ariana Resources plc (www.arianaresources.com)

Significant progress has been made by Ariana in the first half of this financial year where they are transitioning to become a gold producer in Turkey. With a market capitalisation of £7m today, it has experienced huge swings even in the past year. Having traded consistently in the range 0.8-1 pence per share for most of 2014 and up to June 2015 when it shot up to 1.30p, it has since fallen back to the range 0.8-0.9pps where it languishes today. But then, most other small-cap mineral exploration companies are suffering the same fate, if not worse, in this challenging market.

In spite of the languishing share price, Ariana has made significant progress towards revenue generation; it has:

• At the Red Rabbit Gold Project in south-western Turkey, 50% owned by Ariana, Kiziltepe Mine construction has advanced so that first gold production is scheduled during the second half of 2016 at 20,000 ounces per annum for the first eight years of operation.

• An expected cash cost of approximately US$600 per ounce.

• When it comes on stream, the Tavsan Sector is expected to add 30,000 ounces gold per annum.

• Further resource discoveries are expected in the vicinity.

• Kiziltepe mine development is fully funded, with all necessary land holdings secured.

• Once revenue becomes a reality, Ariana's other intended activities will be fully funded.

Meanwhile, Ariana is seeking a profitable exit from other development projects such as those in north-eastern Turkey in which Eldorado has a 51% interest; the inferred and indicated JORC totals 1.09 million ounces of gold.

Therefore, as Ariana nears production during 2016, it is not unreasonable to expect share price growth, although there must be some doubt that we will ever fully recover our investment in today's challenging economic climate

Kefi Minerals plc (www.kefi-minerals.com)

Kefi is an exploration and development company focussed on gold and copper deposits, primarily in the highly prospective Arabian-Nubian Shield.

With a market capitalisation of £9m and a price of just 0.45p, we believe that there is plenty of scope for upside. Edison estimated that the shares offer investors an IRR of 38.6% over twelve years such has been the significant progress at the 95% owned Tulu Kapi project in Ethiopia. The mine development plan is well advanced with 100,000 ounces per annum of gold expected for ten years; the reserve is estimated at 1.05million ounces @ 2.12g/t. Plant and mining contractors were recently appointed. The Ethiopian government is intending to contribute US$20m towards the cost of the mine estimated at US$120m.

In addition, Kefi has a 40% stake in the Jibal Qutman project in Saudi Arabia where it has recently discovered additional areas of gold mineralisation. The estimated gold resource totals 733,000 ounces.

As the operator of these joint-venture projects, Kefi is well positioned to develop them prudently while continuing to add value through further exploration.

The remaining four companies are: Goldcrest Resources plc (www.goldcrestresourcesplc.com), Ghana, Greatland Gold plc (www.greatlandgold.com), Australia, Minera IRL Limited (www.minera-irl.com), Peru and Red Rock Resources plc (www.rrrplc.com), Ivory Coast and Kenya.

Interests in energy

We have four companies in the energy sector on which we comment as follows:

Alba Mineral Resources plc (www.albamineralresources.com)

Alba is a UK-based exploration company with an overall strategy to develop a portfolio of well-researched, promising and prospective exploration interests.

A year ago it expanded its interests to include a 5% stake in Horse Hill Developments Limited, a company with a 65% interest in drilling for oil and gas in Surrey at Horse Hill, just to the north of Gatwick Airport (www.horsehilldev.co.uk) During the past year, it doubled its stake when it acquired a further 5% from Regency Mines plc and more recently has - acquired a further 5% thus increasing its stake to 15%, together with an option to farm into 5% of a production licence which includes the nearby Brockham Oil Field.

For its part, Horse Hill Developments has completed the drilling programme and, as expected, has located hydrocarbons but further testing is required to establish the commerciality of the find.

Since September, Alba has secured an option to earn up to 70% of a graphite project in southern Greenland which is also prospective for gold, nickel, copper and platinum group metals. Alba will manage the project and, on achieving agreed targets, will increase its percentage interest.

Otherwise, Alba has projects prospective for:

• uranium in Mauritania;

• gold, nickel and base metals in western Ireland.

Kuwait Energy plc (www.kuwaitenergy.co)

The Company's interest in Kuwait Energy arises from it having been a major founding shareholder in Concorde Oil and Gas plc in 2006, which was subsequently taken over by Kuwait Energy. After much delay, Kuwait Energy announced an intention to seek a listing on the London Stock Exchange which, we were advised, was planned for the fourth quarter 2014. In the event, the oil price collapse intervened and, so far as we know today, there is no replacement plan although in a recent webinar, one was alluded to.

Kuwait Energy is an independent oil and gas company actively engaged in the exploration, appraisal, development and production of hydrocarbons. Since being established in 2005, the company has built a high-quality, diversified portfolio of oil and gas assets focused on exploration and production activities in the MENA region (Middle East and North Africa). It has interests in Egypt, Iraq, Yemen, Oman and Pakistan where it has built strong relationships with national oil and gas companies and so provides valuable technical expertise, advice and assistance to the companies and local governments on oil and gas projects that are important to these countries' economic development.

Production at its Block 9 project in Iraq has recently been started with more expected in 2016.

In view of the obvious progress made during the past year, we have revisited our earlier decision to make a full provision for the cost of Kuwait Energy. On advice, we have reinstated a cost equal to a value equivalent to the price at which stock has changed hands during the past three months in private deals organised by a Kuwaiti broker.

Nordic Energy plc (www.nordicenergyplc.com)

Unfortunately, Nordic's attempt to move from ISDX to AIM coincided with a severe fall in the oil price. The bid share price collapsed from 7 pence at 30 September 2014 to 0.8 pence a year later, thus accounting for a large part of the value loss in the past year.

It is our belief that there remains the possibility for Nordic to recover value. We wait with interest.

Nordic is focussed on oil and gas opportunities in Denmark, Norway, and the North Sea sectors of the Netherlands and the UK where it holds licence 1/13 in the Danish sector, the largest exploration and production licence in the Danish North Sea, covering an area of 3,600 sq. km; the licence is located approximately 50 km from the edge of the Central Graben, where existing production and multiple discoveries are located, and 100 km from the Siri Area which has a number of tertiary fields.

A CPR which was delivered in June 2014 identified multiple drilling targets to be followed by farm-out discussions with major players.

Oracle Coalfields plc (www.oraclecoalfields.com)

Oracle Coalfields development plans for its Block VI of the Thar Coalfield in the Sindh Province of South East Pakistan continue to progress towards first production of lignite coal by end 2018, intended to supply a new 600MW mine-mouth power plant.

This project is of national importance to Pakistan which suffers from a chronic shortage of electricity generating capacity. The need for substantial fuel imports impacts severely on the country's economy and contributes to population unrest.

Oracle plans a first phase open pit development producing 5m tonnes per annum from a proven reserve of 113m tonnes and a JORC compliant resource of 529m tonnes. Production is expected to be doubled to 10m tonnes in phase two with a doubling of power plant output. The mining lease is for 30 years, extendable for a further 30 years.

SEPCO, a leading Chinese power construction group, backed by Chinese export credit guarantees, is contracted to construct the mine and the power plant. The need is such that the Pakistan Government has provided incentives; also, the Sindh Provincial Government is strongly supportive. Oracle's project has been further supported by its inclusion as a priority project in the programme of the recently created China-Pakistan Economic Corridor. Oracle expects to retain a controlling interest in each local company.

The basis for the coal price for supply to the power plant has been agreed with the Thar Coal and Energy Board (TCEB) under a pricing mechanism incorporating fiscal incentives and an allowable 20% IRR in US$, thus protecting against world-wide markets. When the coal price is determined, Oracle will apply for an initial electricity tariff for the power plant. With financial closure expected by the second quarter of 2016, Oracle is presently engaged in negotiating contracts for both the mine and the power plant and is planning for Sinosure's export credit financing and other bank finance.

Meanwhile work is progressing on the planned resettlement of two communities in the vicinity of the mine-site and the implementation of a corporate social responsibility programme to benefit them in terms of water, basic healthcare and veterinary support.

Despite Oracle's present lowly AIM capitalisation, reflecting past interim stock issue fund-raising and recent market volatility of resource stocks, the expected positive news-flow in the months ahead should generate increasing interest in both the project and in Oracle.

Other investments

The remaining non-core investments are available for sale when the conditions are deemed to be right. These include: International Mining & Infrastructure Corporation plc (www.imicplc.com), CAP Energy plc (www.capenergy.co.uk); Marechale Capital plc (www.marechalecapital.com), Regency Mines plc (www.regency-mines.com), Sunrise Resources plc (www.sunriseresourcesplc.com). In addition, there are a number of failed or almost failed ventures to which we attribute no value, although we always hope and seek to crystallise value where possible

Strategic report

Principal activities and business review

Since Bruce Rowan was appointed Chief Executive on 31 January 2002, the Company's principal trading activity has been the use of his expertise to identify and, where appropriate, support small company new issues, pre IPO and on-going fundraising opportunities with a view to realising profit from disposals as the businesses mature in the medium term. The directors expect this to continue in the future under the leadership of Callum Baxter, newly appointed Chief Executive.

The Company's key performance indicators and developments during the year are given in the Chairman's statement and in the trading portfolio review, all of which form part of the Directors' report.

Key risks and uncertainties

This business carries with it a high level of risk and uncertainty, although the rewards can be outstanding. The risk arises from the very nature of early stage mineral exploration where there can be no certainty of outcome. In addition, often there is a lack of liquidity in the Company's trading portfolio, most of which is, or in the case of pre IPO commitments is expected to be, quoted on AIM or ISDX, such that the Company may have difficulty in realising the full value in a forced sale. Accordingly, a commitment is only made after thorough research into both the management and the business of the target, both of which are closely monitored thereafter. Furthermore, the Company limits the amount of each commitment, both as to the absolute amount and percentage of the target company.

Profit and loss account

for the year ended 30 September 2015

There are no recognised gains and losses in either year other than the result for the year.

All operations are continuing.

Balance sheet

As at 30 September 2015

Cash flow statement

for the year ended 30 September 2015

Notes:

The financial information set out above does not constitute statutory accounts as defined in the Companies Act 2006.

The balance sheet at 30 September 2015, the profit and loss account and the cash flow statement for the year then ended have been extracted from the Company's statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under Section 498 of the Companies Act 2006. These statements were approved and signed on 4 November 2015.

Loss per share

The basic loss per share is derived by dividing the loss for the year attributable to ordinary shareholders by the weighted average number of shares in issue.

Copies of the report and financial statements will be posted to Shareholders on 16 November 2015 and will be available for a period of one month thereafter from the Company Secretary at the following address: 67 Park Road, Woking, Surrey GU22 7DH or by email at emali@starvest.co.uk

Alternatively, from 16 November 2015 the report may be downloaded from the Company's website, www.starvest.co.uk

Enquiries to:

Callum Baxter, Chairman; callum@starvest.co.uk or John Watkins, Finance Director 07768 512404; john@starvest.co.uk

Colin Aaronson or Harrison Clarke - Grant Thornton UK LLP 020 7383 5100.

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