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Baker Steel says Ivanhoe stake valued below cash

Baker Steel Resources Trust reports a 4% fall in its net asset value for the six months ended 30 June 2015, much better than the 10.9% fall reported for the Euromoney Global Mining 100 Index.

The report says the fall in NAV can largely be attributed to a 11.8% fall in the share price of Ivanhoe Mines Limited on the Toronto Stock Exchange and a mark down in the price of Global Oil Shale Group Limited to reflect a €2.5m fund raising at €0.50. At 30 June 2015, this equated to 35.5 pence per share compared with Global Oil Shale’s previous fund raising at 40 pence per share.

The fall in the share price of Ivanhoe is particularly notable: during the first half of 2015, it successfully raised C$105 million from a new Chinese strategic investor, Zijin Mining Group at a price of C$1.36 per share, being a 51% premium to the share price at 30 June 2015. Following this, Ivanhoe agreed with Zijin to sell a 49.5% stake in the Kamoa copper project in the Democratic Republic of Congo for $412m with Zijin also undertaking to source the project finance for the mine. Even after these very positive developments, Ivanhoe’s market capitalisation at 30 June 2015 was below its underlying cash and receivables. This suggests that zero value was being attributed to Ivanhoe’s three Tier 1 mining projects despite Kamoa now having a clear path towards production as well as good progress having been made on its other projects: the Platreef platinum/nickel development in South Africa and the Kipushi Zinc mine in the DRC.

Baker Steel Resources sold its entire holding in Ferrous Resources Limited for $2.06m, following a tender offer from Icahn Enterprises Holdings L.P., and a convertible loan to Aquila Resources Limited was repaid for which the Company received C$580,000.

They say the majority of the Company’s remaining investments continue to make progress; Metals Exploration Plc, which although delayed by a few months, has now commenced commissioning of its 100,000 ounce per annum Runruno gold project in the Philippines. First gold pour is scheduled for the third quarter of 2015. Importantly, the project remains within budget and is expected to have sufficient funds to achieve positive cashflow by the end of 2015.

Following the Indonesian government’s 2014 legislation to ban the export of mineral concentrate from the country, Black Pearl was obliged to bring forward a plan to further process its product. In June 2015, after months of negotiation and due diligence, Black Pearl signed a framework agreement with Anshan Iron & Steel Group Corporation (“Anshan”), a major Chinese steel producer, for a significant investment into the Black Pearl project and the development of a large scale steel plant in Indonesia. The finalisation of agreements with Anshan, government and local organisations, incorporating the refinancing of the enlarged project, will necessarily take time and consequently repayment of the Company’s convertible loan to Black Pearl is now scheduled for the fourth quarter of 2015.

After they publish their NAV for 31 July 2015, the Board intends to implement a Discount Management Policy. They outlined this in the prospectus dated 26 January 2015. Under this Policy, the Company will calculate the aggregate net cash proceeds of any realisation which has taken place in the preceding six month period. If the Ordinary Shares are trading at a discount in excess of 15 per cent to their Net Asset Value, the Board intends to allocate at least 50% of such realisation proceeds (less the aggregate value of any Ordinary Shares already bought back during the preceding six month period) to buy back its own Ordinary Shares. In accordance with this Policy, subject to working capital requirements, at least 50% of the proceeds from the realisation of the Ferrous and Aquila investments have been earmarked for the buy-back programme which commenced at the beginning of August 2015. To date a total of £40,000 has been utilised.

BSRT : Baker Steel says Ivanhoe stake valued below cash

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