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El Oro Ltd - Interim Report as at 31 December 2018

CHAIRMAN'S STATEMENT                                                    

Interim Report as at 31 December 2018


The El Oro Group's loss before taxation and dividend for the six month period ended 31 December 2018 was £6,576,288 (profit before taxation for the six month period ended 31 December 2017: £1,723,982). The Group's net assets at 31 December 2018 were £45,828,196 or 72.5p per share (net assets at 30 June 2018: £53,668,935 or 85.0p per share).


The figures referred to above reflect the adjustment of the Group's assets and liabilities to liquidation accounting rather than on a going concern basis (see note 2.3 for more detail) and includes a reduction of £2.3 million in the valuation of, primarily unquoted, shares where their disposal prior to liquidation at the fair value price previously recorded might be challenging. This possibility was alluded to in the Annual General Meeting of 2016, when the liquidation proposal was first introduced, and passed by a narrow margin.


It is not dissimilar to the reality currently facing the EU and especially Eire in the event of Britain leaving without a deal. Estimates currently being presented show a substantial reduction in trade in Germany, Netherlands, Italy and Eire, of which the politicians appear blissfully unaware. Such are the consequences of abrogating a long-term relationship without a coherent and rationally arranged agreement. Indeed, the determination displayed by members of the Commission to punish Britain for its willful vote in favour of its own legislature rather than an unelected triumvirate, and mention of 'lies and damnation' for those foolish enough to have preferred such an approach, displays an insouciant disregard for the welfare of the citizens of Europe. No doubt disruption will occur after a No Deal exit, if that is what happens, but we suspect the noise surrounding its 'disaster' will be far greater than the reality, after a relatively short period.


Happily at the start of the current year we were rewarded by two post-Christmas presents firstly in the form of a secondary sale of our holding in Vena Solutions, a technology company from Toronto developing an ancillary to Excel; this has been held for several years, and has rewarded patient shareholders with a substantial uplift on its original price, despite being written down last June. Braver souls may well have retained some or all of their holdings for further accretion, but in the light of the forthcoming liquidation of your company, we decided to withdraw at this stage and take our cash.


We have also reaped the rewards of our investment in Reservoir Minerals some time ago, and its takeover by Nevsun. Last year a bid was made by Lundin Mining, which was ultimately capped by Ziangzhi : the proceeds were received in early January, whilst a resource adjacent to Freeport McMoRan's Bor Mine in Serbia has been added to the firepower of China's Belt and Road programme.


In recent weeks, Asahi has announced its purchase of Fuller's iconic Chiswick Brewery, for £250m, with Fullers withdrawing from beer production. We have always been loyal supporters of London Pride, and admirers of the appearance of the site at Chiswick Roundabout, but whilst tinged with sadness and regret, the generosity of the Japanese is not to be spurned. Happily the pubs and hotels will continue under the aegis of Fullers as hitherto, and hopefully thrive, as has Young's for so many years.


The downturn in world markets experienced in November and December was to some extent ameliorated for El Oro by sales enacted over the Summer in anticipation of an agreement proposed for September which fell at the final hurdle.


Whilst the old Stock Exchange motto 'My word is my bond' was for us a Shibboleth to be scrupulously observed, its validity in today's world would appear to be less rigorously applied; nevertheless, we are grateful, in the light of subsequent falls that many long-standing holdings were realised, giving us a substantial cash balance at the end of December.


This has been added to in recent months, as liquidation or its equivalent beckons. Disgorging stocks that have formed the bedrock of the portfolio for many years is not an especially pleasant pastime, particularly when their performance and future seems positive. Many Gold stocks would appear to have passed their nadir, especially as the price of the metal seems content to abide above $1,300. Recent mergers, of Randgold with Barrick last year, and more recently Goldcorp with Newmont amongst others have added to a renewed sense of optimism that the worst of the Mining declines have now passed. Miners appear intent on supplementing their reserves by acquisition rather than exploration.


Regrettably our Bacanora lithium project at Sonora in Mexico has thus far not recovered from the failed fund raising last year, and a more negative view towards lithium, and languishes at lows not seen for several years. A similar fate is being suffered by Critical Elements, whose neighbour Nemaska Lithium is struggling to finance its project.


In contrast Anglo-Pacific, with its astute royalty agreements and able executives continues its ascent, bolstered by the improvement in iron ore prices, following the tragedy in Brazil and also the proposed expansion of the Kestrel Coal Mine in Australia. Perhaps Rio is now regretting its departure from the Coal market at or near the bottom. Of some concern in recent days is the sight of Glencore  providing an apologia to the Green lobby, instead of rejoicing in its unassailable position in providing energy for the developing world. China has in recent days restricted imports of coal from Australia into the port of Dalian. This is almost certainly a political move, but demonstrates the dangers of relying on China as one's principal customer. Happily Atalaya progresses below the radar, with its growing production of copper near Seville, as does Central Asian Metals, in Kazakhstan.


With liquidation of your company approaching, our unlisted holdings are especially vulnerable as is reflected by the provision made to fair values (see note 2.3 to the financial statements). This may be exacerbated if these holdings were to remain in the portfolio at the time that a liquidator is appointed. Any interested buyers should contact the team at Cheval Place!


As already mentioned many profits were taken in the technology sector last year, and only a few stocks have been added, primarily large-cap and liquid US stocks, such as Microsoft, PayPal and Walt Disney. These are deemed to be readily saleable, even if out of character for our traditionally small-cap portfolio and less prone to market volatility, although that remains to be seen.


One sincerely hopes that the 'abyss' forecast by Corrierre that Britain is destined to fall into after a No Deal Brexit will not be replicated by your company. Given a choice between a portfolio of excellent stocks and a cash pile, I myself would choose the former, and await developments amongst the unlisted where realisations will occur over time. Unfortunately that is no longer on our side, unlike the lyrics of the Rolling Stones' song of 1964.


Whilst April 12th or May 22nd have now replaced the long-promised departure date of March 29th, an unyielding EU appear determined to drag down the edifice they have presided over with utter disregard for its citizens or their well-being.


The verruca on the foot of Eire similarly seems determined to exacerbate age-old tensions even if the alternative to the back-stop is a severe reduction in trade damaging the entire nation. Rationality has disappeared, along with Bargaining prowess, and the disloyalty displayed by such as the Balls/Boles/Left-wing proposals beggars belief of anyone prepared to accept the result of a clear verdict in a One-off Referendum. Hopefully the latest renegades from the Conservative party will face deselection and dismissal from the electorates they have betrayed.


The vision-less leaders of our nation persevere with absurd and grotesque projects such as HS2 and Hinkley Point, closing our coal suppliers with no alternative available, and even threatening our wood-burning stoves. Their attack on diesel, once heralded as a pollution free fuel has wreaked untold damage on Jaguar Land Rover, and more recently Toyota and Honda - although the usual apologists blame Brexit, as in everything.


Despite all these threats and empty gestures, we are sure that a speedy exit from the embrace of socialism and state control as exemplified by the EU, burnished by a bonfire of regulations and hefty reductions in taxation, will unleash a rich seam of talent and endeavour that will bring huge and lasting benefit to Britain.


The concept of attempting to improve well-being that is within the power of the provider, as espoused by Jordan Peterson, rather than spending trillions on an unattainable objective attempted vainly by Canute, in his case of the tide, and of today in reversing the temperature of the planet, appears to us a far more beneficial solution than those currently espoused.


By improving nutrition, and raising the well-being of a substantial portion of the population, more might be achieved in securing supporters of the planet's health than by punishing them with excessive fuel bills and other hindrances to daily life.


We read that the volcanic eruption in Iceland a few years' ago, in four days negated 5 Years' effort to control CO2 emissions on our planet: the very carbon dioxide that is vital for the growth of every plant. There are around 200 active volcanoes spewing out matter every single day; just as Mt.Pinatubo in 1991 spewed out more gases than the human race has emitted in all its years on earth.


Sadly at present the surfeit of power awarded to the Green lobby and its accolytes, not to mention the large subsidies in which they wallow, militates against rational and achievable policies being put in place.


The Climate Change Levy is shortly to be increased, and in a few years, the sulphur content of bunker fuel, on which all our shipping depends, is to be lowered to 0.5% adding a vast new increase in the transport costs of goods, upon which modern man now depends.


Within our own investment world, myriad new regulations primarily but not solely exemplified by MIFID, are reducing coverage of smaller companies, and threatening the smaller brokerage sector, as well as exacerbating costs and demands on management time. Large institutions and private equity are swallowing an expanding share of funds for investment, although all studies show that over the longer-term, it is the small companies where the best returns are achieved. Happily, Herald Investment Trust, of which we have been contented shareholders, has shown an increase in NAV of 1224.85% since its foundation in 1994, whilst the Smaller Companies and AIM index has increased by 181%.


Such spectacular returns are seldom to be found in the large-cap sector, although certainly Reckitt-Benckiser amongst a select few has demonstrated its possibility.


The gloomy predictions of mankind's demise have been selling since Malthus' first forecast its imminent demise, yet in reality poverty, hunger, dirty air and other detriments have all decreased on a vast scale. Life is infinitely better than even 30 years ago, and even Manchester United is resurgent and smiling. Perhaps with a young crew, Oxford will surprise in the Boat Race.


Let us look with optimism to the future and slough off our subjugation to the gloomsters and their hair-shirt solutions to the World's problems. We at least will be wearing our wool or cotton, and munching our meat, whilst the nay-sayers persist in draping their limbs in polypropylene and other products related to plastic.


Genesis 1:31, 'And God saw everything that he had made, and behold, it was very good'.


My thanks to our team at Cheval Place remain profound how lucky we have been to find such an able band of brothers, or in this case, mostly sisters. Abbie, Nancy, Nick and Una well done; also to Chris and Sophie in Guernsey.




Robin Woodbine Parish

1 April 2019            



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31 December 2018




30 June 2018



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Net asset value per share

72.5 p


85.0 p





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