REG - Global Resources Inv - Half-year Report <Origin Href="QuoteRef">GRIT.L</Origin>

Grit Investment TrustAnnouncement

29/09/2017 12:46

RNS Number : 2711S
Global Resources Investment Tst PLC
29 September 2017
To: RNS
From: Global Resources Investment Trust plc
LEI:  2138005OJKGWG3X4SY51
Date: 29 September 2017
Chairman's Statement
Introduction
Since I last wrote to you, your Company has made extremely encouraging progress in restoring shareholder value.
Investment and Share Price Performance
On 30 June 2017 your Company's net asset value was 20.3 pence, a decrease of 10.3% from the 22.4 pence at which it stood on 31 December 2016. In stark contrast, the Company's ordinary share price rose by 53.1% from 8.0p to 12.25p over the same period, as the discount at which its ordinary shares trade to net asset value narrowed from 64.3% to 39.5%. This re-rating of the Company's shares is a welcome development, and one which we look to see continue.
The net asset value has risen since the period end, currently standing at 21.0 pence.
A more comprehensive overview of the investment portfolio is contained in the Investment Manager's Review.
9% Cumulative Unsecured Loan Stock 2017 ('CULS')
The Company issued 5 million nominal of CULS in 2014 to provide working capital, of which 2.7 million remained in issue at 31 December 2016. This outstanding balance was repaid during the first quarter, leaving the Company ungeared and removing a significant constraint on performance.
Change to Investment Strategy and Outlook
The change in the Company's investment policy reflected our desire to reduce the portfolio's exposure to exploration and early stage development companies, and to focus more on companies with potentially large scale assets that are likely to be brought into production in the foreseeable future. It is here that we see the best opportunities to create value for shareholders.
The principal factor underpinning the increase in the Company's net asset value since the period end has been the more than trebling in value of our investment in the Bougainville based Kalia Holdings, which is elaborated upon in more detail in the Investment Manager's Review. This investment is directly in line with our new, focussed investment strategy.
The marked recovery in both sentiment and in commodity prices continues, with confidence bolstered by stability and growth in a China that remains determinedly committed to its $5 trillion Belt and Road initiative. This will help to sustain demand over the next decade.
Board Changes
After I took on the role of non-executive Chairman in March 2014, we experienced a longer than expected bear market in commodity prices which necessitated substantial change and restructuring, both to ensure that the CULS holders were repaid and to restore value to shareholders. This has been accomplished.
It has always been my desire to serve one term of office, and to this end I shall be retiring and handing on the baton to the able stewardship of Simon Farrell at the end of November. The concomitant process of Board refreshment will be carried out with a careful eye to Board balance.
Lord St John
Chairman
29 September 2017
Investment Manager's Review
In general it has been a better six months for the natural resource sector, and although the net asset value shows a small decline, there has been a significant improvement in the share price.
Since the year end, the IAMGOLD bid for Merrex Gold completed and subsequently the majority of our new holding in IAMGOLD was sold to allow the full repayment of the outstanding convertible loan notes.
As indicated in the Annual Report, and following the changes to the investment policy approved at the Annual Meeting in January this year, the investment portfolio is now a much more focused portfolio, as we have made a conscious decision to sell the investments where we are minority shareholders, to focus on the investments where we have a meaningful exposure and where the potential for delivering higher returns is better. The three largest investments are now; Siberian Goldfields Ltd, Anglo African Minerals plc and Kalia Holdings Pty Ltd.
The investment in Siberian Goldfields Ltd was originally made via a convertible loan note instrument in a private offshore company which was a joint venture with its Russian partner in the Zhefezny Kryazh gold project in Russia. In anticipation of listing the company on a recognised stock exchange, Siberian Goldfields agreed a corporate restructuring with its Russian partner, so that a new holding company (also called Siberian Goldfields) was created to own 100% of the operational asset and consequently we agreed to convert our loan notes and accrued interest into ordinary shares in the new company. The new Siberian Goldfields is currently looking to raise additional money via a pre-IPO fund raising, in anticipation of a listing in late 2017, early 2018. Significant pre-production work has been done on site, but additional funding is required to complete early stage construction items and technical documentation for the IPO.
Anglo African Minerals continues in its progression from explorer to producer as it looks to finalise a joint venture on its FAR Project with a major Chinese State Owned enterprise. This will provide full project funding, mining services and an "off take" agreement with production anticipated by Q2 2018. The company is also working to increase the reserves of its other two major projects, Somalu and Toubal which have potential resources of over 2 billion tonnes.
Kalia Holdings Pty Ltd, is a new portfolio investment and is a private Australian company that is the parent company of a Papua New Guinean registered subsidiary Kalia Investments Limited. Kalia Investments Limited holds contractual rights to explore for minerals and develop mines in the Tinputz district of North Bougainville, Papua New Guinea which is prospective for gold copper and other minerals. The area over which Kalia holds contractual rights is known as the Tore Project.
Bougainville is one of the last undeveloped mineralised provinces of the world. The island straddles the Pacific "Ring of Fire" tectonic plate boundary, an ideal setting for the porphyry copper-gold and associated epithermal gold mineralisation. Rio Tinto developed the Panguna Mine (the world's largest copper mine) in the 1960s until it shut down in 1989. During its 17 years of operation the Panguna Mine produced 3m tonnes of copper and 9m ounces of gold.
Since we invested in Kalia there have been several significant developments. The moratorium on exploration and mining, in place since 1971, was lifted and the President of the Autonomous Bougainville Government announced that applications for exploration licences would be accepted. Kalia lodge applications for the Tore Project area on 19 June 2017 and in September 2017, Kalia completed mining warden hearings in the Tore Project area.
As was announced to the Stock Exchange on 22 September 2017, GB Energy Limited (ASX: GBX) an Australian listed company exercised an option to acquire the outstanding share capital of Kalia Holdings Pty Ltd, for the issue of new GB Energy Limited shares. We have subsequently advised GB Energy that we will not be accepting this offer but will instead be entering into a Shareholder's Agreement with the company. However going forward we will be valuing our investment in Kalia on a "see through" value of the offer of the GB Energy shares, which has resulted in significate uplift in value for the investment. While still an exploration project, it remains a very exciting investment.
Given the concentration of the portfolio in the three holdings as outlined above (they represent 79% of shareholders' funds) the fund's future performance is now directly linked to their future performance and consequently we will be monitoring and working closely with each of the companies in order to maximise our returns.
David Hutchins 
Director
29 September 2017
Enquiries:
David Hutchins
Director
Tel: +44 (0) 207 290 8541
Maitland Administration Services (Scotland) Limited
Martin Cassels
Tel: +44 (0) 131 550 3760
Income Statement

Six months ended 30 June 2017


Revenue
Capital
Total


Unaudited
Unaudited
Unaudited

Notes
'000
'000
'000
Losses on investments 

-
(77)
(77)
Exchange gains

-
15
15
Foreign exchange forward contract loss

-
(121)
(121)
Income

58
-
58
Investment management fee

(25)
(229)
(254)
Other expenses

(273)
-
(273)
Net return before finance costs and taxation

(240)
(412)
(652)





Interest payable and similar charges

(24)
-
(24)
Net return on ordinary activities before taxation

(264)
(412)
(676)





Tax on ordinary activities

-
-
-





Net return attributable to equity shareholders

(264)
(412)
(676)





Loss per ordinary share
2
(0.63)p
(0.99)p
(1.62)p

Six months ended 30 June 2016


Revenue
Capital
Total


Unaudited
Unaudited
Unaudited

Notes
'000
'000
'000
Gains on investments 

-
3,144
3,144
Exchange gains

-
77
77
Foreign exchange forward contract loss

-
-
-
Income

228
-
228
Investment management fee

(80)
-
(80)
Other expenses

(244)
-
(244)
Net return before finance costs and taxation

(96)
3,221
3,125





Interest payable and similar charges

(209)
-
(209)
Net return on ordinary activities before taxation

(305)
3,221
2,916





Tax on ordinary activities

-
-
-





Net return attributable to equity shareholders

(305)
3,221
2,916





(Loss)/gain per ordinary share
2
(0.76)p
8.06p
7.30p

Year ended 31 December 2016


Revenue
Capital
Total


Audited
Audited
Audited

Notes
'000
'000
'000
Gains on investments 

-
1,664
1,664
Exchange gains

-
114
114
Foreign exchange forward contract loss

-
(38)
(38)
Income

258
-
258
Investment management fee

(155)
-
(155)
Other expenses

(638)
-
(638)
Net return before finance costs and taxation

(535)
1,740
1,205





Interest payable and similar charges

(374)
-
(374)
Net return on ordinary activities before taxation

(909)
1,740
831





Tax on ordinary activities

-
-
-





Net return attributable to equity shareholders

(909)
1,740
831





(Loss)/gain per ordinary share
2
(2.28)p
4.35p
2.08p
The 'total' column of this statement represents the Company's profit and loss account, prepared in accordance with IFRS. All revenue and capital items in this statement derive from continuing operations. All of the loss for the period is attributable to the owners of the Company.
No operations were acquired or discontinued in the year.
A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above Income Statement.
Balance Sheet 


As at 
30 June 2017
As at 
31 December 2016


Unaudited
Audited

Notes
'000
'000
Fixed assets



Investments

7,431
10,235




Current assets



Debtors

954
663
Cash at bank and on deposit

157
3,142


1,111
3,805




Creditors: amounts falling due within one year



Other creditors

(43)
(2,484)
9% Convertible Unsecured Loan Stock 2017

-
(2,700)



Net current liabilities

(43)
(5,184)




Net assets

8,499
8,946




Capital and Reserves



Called up share capital 

420
400
Share premium 

36,880
36,800
Capital reserve 

(25,594)
(25,311)
Revenue reserve 

(3,207)
(2,943)




Equity shareholders' funds

8,499
8,946




Net asset value per share 
3
20.25p
22.38p
Statement of Changes in Equity
For the 6 months to 30 June 2017 (unaudited)

Share capital
Share premium account
Capital reserve
Revenue reserve
Total

'000
'000
'000
'000
'000
Balance at 31 December 2016
400
36,800
(25,311)
(2,943)
8,946
Return on ordinary activities after taxation
-
-
(412)
(264)
(676)
Investment management fee - charged to capital
-
-
229
-
229
Issue of shares
20
80
(100)
-
-
Balance at 30 June 2017
420
36,880
(25,594)
(3,207)
8,499
For the 6 months to 30 June 2016 (unaudited)

Share capital
Share premium account
Capital reserve
Revenue reserve
Total

'000
'000
'000
'000
'000
Balance at 31 December 2015
400
36,800
(27,051)
(2,034)
8,115
Return on ordinary activities after taxation
-
-
3,221
(305)
2,916
Balance at 30 June 2016
400
36,800
(23,830)
(2,339)
11,031
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
Cash Flow Statement 


Six months ended 
30 June 2017
Six months ended 
30 June 2016


Unaudited
Unaudited


'000
'000
Operating activities



(Losses)/gains before finance costs and taxation
(652)
3,125
Gains/(losses) on investments

77
(3,144)
Increase in other receivables

(61)
(211)
Decrease in forward exchange creditor

(2,412)
-
Decrease in other payables

(28)
(61)
Value of share issued in lieu of management fee
229
-




Net cash outflow from operating activities before interest and taxation
(2,847)
(291)
Interest paid

(24)
(209)




Net cash outflow from operating activities 

(2,871)
(500)




Investing activities



Purchases of investments

(1,306)

Sales of investments

4,123
2,508
Advanced Loan to AAM

(231)
(744)
Interest received

-
1




Net cash inflow from investing activities

2,586
1,765




Financing



Redemption of CULS

(2,700)
-




Net cash outflow from financing 

(2,700)
-
(Decrease)/Increase in cash and cash equivalents
(2,985)
1,265




Net cash at the start of the period

3,142
331




Net cash at the end of the period

157
1,596
The accompanying notes are an integral part of the financial statements.
Notes
1. Accounting Policies
Going Concern basis of accounting
The Company's operations have been cash flow negative since its inception; the Company relies on the sale of investments to generate the cash needed to continue to operate. 4.1m was realised from the sale of investments during the 6 month period under review.
2. Return per Ordinary Share
The revenue loss per ordinary share for the six months ended 30 June 2017 is based on a net loss after taxation of 264,000 and on a weighted average of 41,786,233 ordinary shares in issue during the period.
The capital return per ordinary share for the six months ended 30 June 2017 is based on a net capital loss after taxation of 412,000 and on a weighted average of 41,786,233 ordinary shares in issue during the period.
3. Net Asset Value per Ordinary Share
The net asset value per ordinary share is based on net assets of 8,499,000 (31 December 2016: 8,900,000) and on 41,964,512 (31 December 2016: 39,970,012) ordinary shares, being the number of ordinary shares in issue at the period end.
4 . 9% Convertible Unsecured Loan Stock 2017 
 

Nominal value of CULS 
'000
Opening balance at 31 December 2016
2,700
Repayment of CULS
(2,700)
Balance at 30 June 2017
-
5. Warrant Instrument
The Company issued 5,000,000 warrants in 2014. The warrants are unlisted and are exercisable up to the fifth anniversary of admission in amounts or multiples of 50,000 warrants at 1.00 per ordinary share.
6. Related Party Transactions 
The Board of Directors is considered to be a related party. All of the Directors are considered to be independent, with the exception of Mr Hutchins who was appointed at the conclusion of the General Meeting noted in 7 below. No Director has an interest in any transactions which are, or were, unusual in their nature or significant to the nature of the Company except as noted in 7 below.
The Directors of the Company received fees for their services. Total fees for the six months to 30 June 2017 were 42,000 (six months ended 30 June 2016: 38,000) of which 3,750 (30 June 2016: 12,000) remained payable at the period end.
RDP Fund Management LLP ('RDP') received 25,000 in relation to the six months ended 30 June 2017, (six months ended 30 June 2016: 80,000) of which nil (30 June 2016: 13,000) remained payable at the period end.
The issue of up to four tranches of shares to RDP were approved at the General Meeting, each of 2,000,000 shares at a price of 0.05, subject to the satisfying of certain conditions, in particular share price triggers. The first tranche of shares was issued following the General Meeting and RDP received 1,994,500 shares; 5,500 further shares remain to be issued. The second tranche of shares falls to be issued if the Company's share price remains for a period of at least one month at or above 14p; the third and fourth tranches similarly fall to be issued at trigger prices of 16p and 18p respectively.
7. Change of Management Arrangements
On 17 January 2017 at the Company's General Meeting, the Shareholders voted in favour of Resolutions 1-3. Resolution 1 authorised the Directors of the Company to allot shares up to a maximum of 80,000, resolution 2 resulted in the termination of the Management Agreement and resolution 3 approved a New Investing Policy as detailed below. As a result of the approval of these resolutions, the Company became a self-managed trust run by its Board and David ('Sam') Hutchins was appointed as an Executive Director of the Company.
The New Investment Policy is as follows:
"GRIT will seek to achieve its investment objective through investment in companies globally which have a significant focus on natural resources and mining. GRIT will invest in companies that are in the field of the exploration and production of oil, gas, precious and industrial metals, and industrial and commercial minerals which, in the opinion of GRIT's investment manager, have the potential to increase their value considerably. These companies may be producing companies with a historical track record of production or they may be development companies or companies with exploration potential. GRIT will seek to ensure,through active shareholder involvement, that investee companies act to maximise long-term shareholdervalue. GRIT will invest primarily in companies with shares and securities which are listed, quoted or areadmitted to dealing, on a relevant exchange (including debt securities which are convertible into quotedequity securities). For the purpose of this investment policy, a "relevant exchange" is (i) a regulated market,recognised investment exchange, recognised stock exchange, recognised overseas investment exchange or
designated investment exchange, or (ii) a junior market operated by the operator of an exchange referred to in (i). However GRIT may hold some investments in non-quoted, seed capital or pre-IPO companies."
8. Post Balance Sheet Events
On 22 September the Company announced to the Stock Exchange that GB Energy Limited had exercised an option to acquire the outstanding share capital of Kalia Holdings Pty Ltd for the issue of new GB Energy Limited shares. The Company has not accepted this offer, but instead intends to enter into a Shareholder's Agreement with the company. Going forward the Company is valuing its investment in Kalia on a "see through" value of the offer of the GB Energy shares. This resulted in a significant uplift in value for the investment.
9. Financial Information
The financial information set out above does not constitute the Company's statutory accounts for the six months ended 30 June 2017.The statutory accounts for the twelve months ended 31 December 2016 are audited and the Auditors have issued an unqualified opinion. 
Directors' Statement of Principle Risks and Uncertainties
The risks, and the way in which they are managed, are described in more detail in the Strategic report contained within the Annual Report and Financial Statements for the year ended 31 December 2016. In the opinion of the Directors, the Company's principal risks and uncertainties have not changed materially since the date of the report and are not expected to change materially for the rest of the Company's financial reporting period to 31 December 2017.
Statement of Directors' Responsibilities in Respect of the Interim Report
We confirm that to the best of our knowledge:
 the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' and gives a true and fair view of the assets, liabilities, financial position and profit of the Company;
 the Chairman's Statement and Investment Manager's Review (together constituting the Interim Management Report) include a fair review of the information required by the Disclosure Guidance and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the year and their impact on the financial statements;
 the Statement of Principle Risks and Uncertainties referred to above is a fair review of the information required by DTR 4.2.7R; and
 the condensed set of financial statements included a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the year and that have materially affected the financial position or performance of the Company during the period.
On behalf of the Board
Lord St. John
Chairman
29 September 2017

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