Final Announcement/Annual Report for the Year ended 31 March 2012

Financial Result

Your directors submit the audited financial statements of Chatham Rock Phosphate Limited (CRPL) for the year to 31 March 2012. The trading result for the period was a loss of $741,000 (2011 loss $629,000).

An analysis of the result is provided in the table below

 

Year to 31 March 2012
($,000)

Year to 31 March 2011
($,000)

Income 20 84 Administrative expenses 761 630

Exploration costs written down

  83 Impairment on investments    

Net Profit (loss) before income tax

(741) (629) Income tax     Net profit (loss) after tax (741) (629)

The increased reported deficit for the year to 31 March 2012 reflected a higher level of corporate activity.

Issued capital during the period increased from 34,526,660 to 64,710,179 shares. Shareholders’ Funds increased during the period from $4,603,000 to $8,245,000.

Operating highlights

For Chatham Rock Phosphate the past year has been one of major milestones in progressing our rock phosphate development project.

We achieved considerable success in raising further equity to finance the work programme and made enormous advances towards our key objective of starting to mine the deposit in 2014.

Our two main areas of focus this year have been the significant interaction with Boskalis on their detailed designs of the phosphate recovery system, and preliminary work required before we apply for a mining licence and a marine consent.

Very complex information is required for these two approvals and it involves highly technical scientific and engineering evaluation as well as widespread ongoing consultation with a range of government and non government organisations including the trade, resource, primary industry, environmental, conservation, iwi and community sectors.

In addition we have been building our public profile in the investment and industry sectors, both in New Zealand and internationally.

The progress achieved demonstrates the determination and enthusiasm of a highly skilled project team with a wealth of technical and commercial experience.

Capital Raising

In June 2011 we raised a further $1.6 million from the exercise of all the June 2011 options.

In late 2011 we decided to delay an Initial Public Offering on an international stock exchange because of poor market conditions and a decision was also made to fund ongoing activities by seeking existing shareholder support by means of a share purchase plan. This raised approximately $325,000 and in addition placements of 986,110 shares were made to qualified investors at 20c per share.

In February 2012 agreement was reached with United States-based private equity fund Subsea Investments to progressively invest $USD 6 million in the company. At the time of writing US$5.3 million of this had been invested.

As part of that investment, Subsea also holds 30 million options which, if all exercised, would generate an additional $US9 million in new capital for CRP.

Although it remains a priority to secure full funding for the project, we are considering alternative ways of financing this progressively through to the start of mining. These options still include an IPO on an international market when market conditions improve. Whichever option we select, we can act quickly because the documentation is well advanced, having prepared a draft prospectus and a project technical report.

As part of building the company’s presence in international capital markets, CRP has entered an arrangement with Edison Investment Research to produce independent research over the next year. Edison is one of the largest companies of its type worldwide with more than 300 corporate clients, including a big focus on mining research with nine dedicated analysts and coverage of 75 mining companies on major exchanges around the world.

CRP decided to invest in the research as investors and share brokers often ignore our company as an investment opportunity because regulations governing financial

advisers tend to discourage them from making recommendations because no third party research on the company presently exists.

Research cruises

Scientists and engineers are now in the midst of the mammoth job of studying the wealth of data gathered during 48 days of surveying on the Chatham Rise.

CRP used the 100 m Dorado Discovery, based in New Zealand over the summer, to conduct four research surveys, using a range of high tech equipment and collected 35 tonnes of phosphate rock and sandy silt as well as a wealth of technological data. Equipment used include a remote operated vehicle (ROV), as well as box coring, vibrocoring and grab sampling equipment.

The data and samples acquired by the four cruises will be used for:

  • The application for the mining licence
  • The environmental impact assessment report required to accompany the application for a marine (environmental) consent
  • Refinement of the design of the phosphate recovery and on-board separation systems
  • Acceleration of the rock phosphate beneficiation studies presently under way
  • Further design work in respect of the on-board glauconite separation systems
  • New fertiliser market development.

The information also contributes significantly to the store of public good information used by scientists to understand New Zealand’s oceanic environment.

The surveys collected geophysical data in December, bottom samples in February, environmental data in March and geotechnical data in April. The project team involved scientists, engineers and other technical staff gathered from the United States, Netherlands, Germany and New Zealand who put together the trip plans in just a few weeks.

Joining the last cruise was Dr Hermann Kudrass, who 30 years ago explored the seabed of the Chatham Rise. Dr Kudrass led a joint New Zealand-German government expedition on the German government research vessel Sonne in 1981 to explore the extent of phosphorite deposits distributed on the Rise seabed and then wrote a book discussing his findings.

December cruise:

The survey mapped 715 km2 of the sea floor with multi-beam swath bathymetry (seafloor topography) data and 199 km2 with side-scan sonar data. It collected 263 km of sub-bottom seismic reflection data and magnetic data.

The survey collected information about the shape and character of the sea floor and the properties of the shallow sediments that will help understand the distribution of the phosphate resource.

The data guided planning for subsequent surveys, assisted the development of mining technology and strategy, and contributed to the identification of priority areas for the first few years of mining. The ship recovered two oceanographic moorings that had collected current and turbidity data, now downloaded for processing and analysis.

The new detailed bathymetry data show the irregularity is primarily the result of underlying geology and iceberg scours up 15 m deep, 400 m wide and tens of km long. The data obtained are valuable for the detailed design of the dredging operations.

February cruise:

The survey collected 50 precisely located grab samples, bringing more that 35 tonnes of sediment back to analyse nodule content and distribution and test separation techniques. The bulk sediment also brought in considerable environmental data that contributed to the March environmental survey.

The project team conducted four ROV dives (the first ever on the Chatham Rise) to inspect the sea floor before and after grab sampling and to test the physical properties of the sediment, as well as expanding the geophysical mapping of the sea floor.

March cruise:

The team surveyed 13 of the environmental areas identified by NIWA (eight target mining areas and five reference areas outside mining zones) and collected more than 77 km of ROV video transects, recording more than 150 hours (or 700 Gb) of video and 62,000 observations from the video transects as well as 17,000 still photos.

In addition, the cruise collected 130 box cores from 38 sites, 3 km2 of high-resolution bathymetry and backscatter data and more than 500 km2 of regional bathymetry data. The ROV stopped on 12 occasions to take biology samples or close-up photos. The sampling and photography will enable detailed assessment of animals that live on the seafloor.

April cruise:

The cruise, with Boskalis engineers on board, involved the first investigation that

specifically focused on properties of the seafloor as they relate to design and construction of a mining machine. Four ROV dives tested the geotechnical properties of the sand and chalk, including how hydraulic jets could loosen the sediment without creating high turbidity before the phosphate and associated sediment can be pumped on board for separation.

Cone Penetration Test (CPT) measurements were done at 129 sites, collecting information about sediment strength, hardness, friction and porewater pressure. Fifteen short vibrocores returned 12.6 m of sediment. A vibrocorer uses vibration to work the core tube into the seabed as distinct to a corer that relies on gravity alone for penetration into the sediments. The cruise took four box core samples for environmental and geotechnical analysis.

Boskalis partnershp

Central to the project is our partnership with the world’s largest integrated dredging company, Royal Boskalis Westminster. Boskalis is undertaking a number of projects that collectively comprise phase one of the planned work programme, including design engineering, logistics studies and preliminary design work and environmental studies including turbidity assessments. These projects will lead to phase two activities incorporating final design, detailed engineering, construction and testing.

All of the data being analysed will be used in the design of the mining system bringing together technologies already used in a wide variety of extraction systems. Considerations range from evaluating the nature of the material and where it is deposited, to how it is lifted, separated and returned, the vessel design, and off- loading port selection.

The design process also includes developing a model to assess the environmental impacts of each stage of extraction. The research is looking at the potential impact of extraction and sediment deposition on local ecosystems and identifying sensitive species and areas of special environmental conservation, as part of habitat mapping.

The modelling and analysis will consider the natural dynamics of the area – the variation of water flow speed and direction over depth, turbidity, light attenuation in the water column, occurrence of upwelling events, natural settlement behaviour of fines, possible density currents and ecosystem resilience.

The research Boskalis has conducted has identified four main elements relating to the extraction of phosphate that will contribute to environmental changes. These are:

  • Removal of the top layer from the seabed
  • Turbidity generated by the extraction and sediment return process
  • Deposit of returned sediment, mainly on just mined areas of the seabed
  • Possible changes to and mixing of the water column, due to the outflow of water at a slightly different depth than the intake.

Boskalis environmental expert Gerard Van Raalte visited New Zealand in November to meet a range of government and other stakeholders. Mr Van Raalte is a senior Boskalis manager with a special focus on the environmental aspects of dredging and marine infrastructure design.

He is team leader of the Building With Nature research programme, initiated by Boskalis to gain an industry-wide insight into the impact hydraulic engineering projects have on ecosystems, with the aim of achieving a sound balance between ecological, economic and social sustainability. The Boskalis approach has been very successful in managing potentially contentious projects in environmentally sensitive locations and it was one of the key reasons CRP selected the company as its partner.

Environmental focus

All of the work being done to advance the project has environmental considerations as a key focus. One of our first steps was to undertake a full review of the existing environmental knowledge of the area and any other related information of use.

We commissioned NIWA to study the wider Chatham Rise ecosystem, as part of the work that will contribute to the Environmental Impact Report being coordinated by consultants Golder Associates as part of the planned application for a marine consent.

NIWA has already completed a number of reports for us concerning various aspects of the Chatham Rise seabed environment. These are available to interested groups to ensure there can be an informed discussion about what actually exists on and above the Chatham Rise and can put into context our planned activities there.

EEZ legislation

In June the Government confirmed it would enact legislation to manage the environmental impacts covering the Exclusive Economic Zone and extended Continental Shelf. We believe it will remove a lot of uncertainty and provide a framework to allow all of those with an interest to contribute to decisions about how the environmental effects of resources are administered. If the timeframe is achieved we expect to be among the first companies to use the new law.

CRP submitted on the Bill to provide the Local Government and Environment Select Committee with an early example to consider when evaluating the proposed new legislation.

We wanted to give the Select Committee an insight into how companies such as ours will be affected by the legislation and how we are practically planning to manage our environmental responsibilities. CRP is providing the Environmental Protection Agency,

the Ministry for the Environment and New Zealand Petroleum and Minerals with the opportunity to consider facets of the proposed regime as a “live” case study.

We are pleased the Bill paid heed to the balance between environmental considerations. Even within an environmental context there are offsets such as between the environmental benefits of our product and any impacts caused by the extraction of rock nodules. Chatham Rock Phosphate can offer benefits that include a reduced carbon footprint through much lower transport costs, fewer run-off effects on farmland when using it as a direct-application product and the low cadmium content of the product.

Market development

We have had an ongoing dialogue with both local and international fertiliser sector companies. Market development work has been undertaken in Australia and throughout South-East Asia. Responses to initial contacts made have been encouraging and we are confident we will have a healthy forward order book well before we are in full production.

We are encouraged by the interest of potential buyers in the merits of our initiative. As concerns grow over the certainty of supply of phosphate rock from the Middle East, its high cadmium levels, and the carbon emissions required to transport to this part of the world, the strategic value of the Chatham Rise rock phosphate resource asset can only continue to rise.

The scoping study underway will determine the feasibility and economics of beneficiating our rock phosphate (effectively raising the level of contained phosphorous). If successful the indications are that we will be able to sell more product and for a better unit price.

Glauconite deposits

CRP has undertaken a preliminary analysis that shows there are significant quantities of glauconite contained within the seabed sandy silt layer that also contains the phosphate nodules. Boskalis is considering a possible recovery system to gather both the phosphate nodules and the glauconite.

Glauconite is a mica-type clay mineral containing potassium, which makes it (like the Chatham Rise rock phosphate) an ideal slow release direct application fertiliser. It can also be used in glass manufacture and for paint pigments. Recent technological advances suggest that it’s now possible to separate potassium from glauconite, which could create another market opportunity as the demand for potassium (also known as potash) is substantial.

Some of the samples gathered in two areas within our licence not previously explored and which had not previously been tested for the presence of rock phosphate nodules. The good news is that rock phosphate nodules were found to be present in both areas.

Licence progress

In January, CRP formally advised NZPM of its plans for the second term of its prospecting licence. The four-year licence was granted in February 2010 for two two- year terms and we more than met all the conditions of the work programme for the first term of the licence. Among the highlights of work achieved were:

  • Forming a strong business alliance with engineering design and logistics company Royal Boskalis Westminster
  • Commissioning a study (with the support of New Zealand Trade and Enterprise) by Bateman Advanced Technologies and Mintek to assess whether beneficiation (to raise phosphorous and lower calcium carbonate levels) is feasible, thus reducing transport costs and improving processing versatility
  • Extensive stakeholder engagement and consultation
  • Literature review and data compilation
  • Digitising relevant technical data and developing a database
  • Underwater radiometric geophysical evaluation
  • Sediment sampling
  • Environmental baseline data collection
  • Current and turbidity sensor data collection
  • Environmental planning.

New neighbour

Earlier this year, L&M Group, which has a wide range of petroleum exploration and onshore mining interests, was granted a permit by New Zealand Petroleum and Minerals to explore seafloor phosphate deposits over a wide area to the west, south and east of the permit held by CRP. We welcomed the move, noting it reinforced the enormous potential value we see in the area, constantly being confirmed as we gather new technical data. L&M Group holds a large area surrounding CRP’s licence area, which has more unknowns but which could have real prospectivity for both rock phosphate and glauconite. We are keen to explore ways we can cooperate and share knowledge.

Post balance date

On 15 May the EEZ Bill was referred back from the Select Committee and is still expected to be enacted later this year. Of particular relevance to CRPL is the date on which the related regulations come into effect, as our Marine Consent application

cannot be submitted until then. This could also affect the timing of the mining licence application.

Outlook

The project continues to maintain momentum. We have a strong focus on setting objectives and achieving ongoing milestones, have met all our key deadlines so far and we are determined to keep delivering on our goals.

For and on behalf of the Board,

Keith T Hindle Chairman
Chris D Castle Director

Onekaka
25 May 2012

View or download this article as a pdf (including extra details on economic, environmental and market benefits

View the Chatham Rock Phosphate Ltd. Finiancial Statements for the year ended 31 March 2012

 

Chatham Rock Phosphate Limited - Final Announcement for the Year ended 31 March 2011

Financial Result

Your directors submit the audited financial statements of Chatham Rock Phosphate Limited (“CRPL”) for the year to 31 March 2011. The trading result for the period was a loss of $614,000 (2010 loss $198,000). 

An analysis of the result is provided in the table below 

  Year to 31 March 2011 ($,000) Year to 31 March 2010 ($,000) Income 84 34 Administrative expenses 513 142 Exploration costs written down 83   Impairment on investments   91 Net Profit (loss) before income tax (614) (198) Income tax     Net profit (loss) after tax (614) (198)

The increased reported deficit for the year to 31 March 2011 reflected a significantly higher activity overall and substantial one-off costs relating to the year-end reconstruction. These one off costs included independent expert reports, plus additional accounting, tax, legal, share registry and NZX fees. There was also a write-down in respect of PEP 50439 relinquished during the year.

Issued capital during the period increased from 20,387,263 shares to 34,526,660.

Shareholders’ Funds increased during the period from $1,159,000 to $4,603,000.  Some of this increase was due to $1,069,000 raised in cash (less expenditure written off). However the substantial component of the increase in net assets resulted from the equity- funded acquisition for $3.4 million of the 10% of the Chatham Rock Phosphate Project previously held by Widespread Portfolios Limited. 

The acquisition of the 10% holding was based on a Chatham Rock Phosphate project valuation of $34 million that was supported by two independent valuations (Simmons Corporate Finance and McDouall Stuart Securities).

In order to be consistent with this transaction the board had resolved to revalue the project to $34 million and draft year-end financial statements were prepared on this basis.

However, during the audit process it became apparent that International Financial Reporting Standards (IFRS) would not permit this project revaluation. This is apparently because the Standards do not accept the revaluation of mineral properties and it’s an issue a number of Australasian mining companies have encountered since the inception of IFRS.

Due to this nonsense we now hold in our financial statements 10% of the project at acquisition cost ($3.4 million) and the other 90% at $883,000 (based on capitalised exploration and project costs).

This folly results in an absurd hybrid valuation of the project in our books of $4.283 million and in our view significantly distorts our financial statements, an outcome that IFRS was presumably intended to avoid. 

Shareholders should be aware that if we held the project at $34 million our net assets would increase to $34.3 million from the present $4.6 million. 

Investment Summary

Following the Widespread group reconstruction at the end of March 2011, Chatham Rock Phosphate is now a single project company with a sole asset, the Chatham Rock Phosphate proect. 

Until 31 March 2011, Widespread Energy held the following investments that were divested on that date:

  • Petroleum exploration permit (PEP) 38526 over the prolific oil seeps at Kotuku on the West Coast (100%)
  • An 11.8% interest in Green Gate Limited, the holder of PEP 51150 in Taranaki.
  • An investment in Akura Limited, a Fiji based private company, which holds three Petroleum Exploration Licenses in Fiji, predominantly offshore.

Highlights of the Year

Chatham Rise Rock Phosphate has had an exceptionally busy year with the operational focus on the rock phosphate project.  Considerable effort was also devoted toward raising further equity to finance the work programme. The other corporate initiative that required several months of coordinated planning and execution was the reconstruction of Widespread Energy that transformed it from an oil and gas focussed investment company into a sole purpose fertiliser sector player.

Operational Milestones

At an operational level the main objectives during the year were to complete the first 12 months work programme included in our permit conditions. These included

  • A literature review of all previous reports and studies arising from the extensive earlier exploration work programmes
  • Digitisation of all geological, geochemical and geophysical data gathered in these earlier programmes
  • Subsequent analysis of this data in order to plan future seabed sampling requirements
  • Evaluation of other possible exploration techniques including underwater radiometric surveys
  • Environmental base-line monitoring
  • A progress report to Crown Minerals.   

This programme was completed and a report submitted to Crown Minerals in December 2010, more than two months ahead of due date.

In addition to these activities CPRL undertook or commissioned the following initiatives:

  • NIWA was contracted to undertake a series of environmental studies in order to fully understand the marine environment in our licence area
  • Rockpoint Corporate Finance was mandated to complete a pre-feasibility study, an independent project valuation and comprehensive fertiliser studies
  • The Project was extensively marketed the to the share-broking community in Wellington, Taranaki and Auckland
  • A Wellington based project headquarters was established at Level 1, 93 The Terrace.
  • A new project focussed website www.rockphosphate.co.nz was established  
  • The project was presented at conferences in Russia (UMI) and Auckland (AusIMM)
  • A Waikato University research study on related aspects of Chatham Rise mineralisation was commissioned   
  • Contact was initiated with the leading international dredging companies with the aim of establishing their degree of interest in designing and operating mining systems to recover rock phosphate from the sea bed of the Chatham Rise
  • Four of these companies showed significant interest in working with Chatham Rock Phosphate Limited and in January 2011 it was announced that agreement  had been reached with three of the world's largest dredging companies to carry out two jointly funded mining concept studies. The mining concept studies were to be funded  50/50 by Chatham Rock Phosphate and the dredging companies.
  • Later in January a third mining concept study was announced
  • The three mining concept studies were completed and received by CRPL in March. All the studies confirmed that recovery of the rock phosphate nodules was considered to be feasible and achievable at a cost per tonne broadly consistent with CRPL management estimates based on other published feasibility studies.
  • The mining concept studies were then critically reviewed by four international marine mining experts engaged to assess the reports and then report whether or not they considered there were any fatal flaws in the mining systems designs.  

Capital Raised

As noted above, the company raised $1,069,000 during the year by means of private placements and a share purchase plan.

Following these issues the issued capital at balance date comprised 34,526,660 shares and 16,080,076 10c options. It is intended that no further shares will be issued by means of private placement.

The focus is now on encouraging the early conversion of the options (which expire on June 30, 2011) in order to enable the continuation of the Chatham Rock work programme on Mineral Prospecting License 50270 prior to undertaking the proposed initial public offering in Canada.

Since balance date option holders have been exercising their options. At the time of writing 2,284,000 (14.2%) had been exercised and most of the major option holders have confirmed they will be exercising their options in the next few weeks.

Steps are presently being taken to put in place an underwriting panel to ensure that all the options are exercised.

Company Reconstruction

In October 2010 a decision was made to reconstruct the various assets held by the two Widespread companies (Widespread Energy and Widespread Portfolios) in order to facilitate the raising of the significant capital required to develop the Chatham Rock Phosphate project.

The logic supporting this decision was along the following lines:

  • The two NZ companies that held the Chatham Rise project were thinly traded, partly because they are small and operate in a sector (mining and mineral exploration) that is unfashionable, scarcely researched and which attracts relatively few local investors.
  • Further, there are no NZX listed fertiliser companies, therefore no comparable stocks, and therefore little point in trying to raise significant capital and list the project on the local market.
  • In overseas markets (particularly the Toronto Stock Exchange) the activities of minerals and fertiliser sector companies are better understood, regularly researched and form a legitimate part of many investors’ portfolios.
  • As a result these companies are often readily able to raise significant quantities of new capital to finance exploration and project development. In Toronto alone there are 17 listed fertiliser stocks, which collectively raised over C$187 million in the first three months of 2011.
  • These factors lead the Boards of Widespread Energy and Widespread Portfolios to conclude that the interests of both groups of shareholders would be far better served if the Chatham Rise project were to be restructured with a view to a new listing in an overseas sharemarket.
  • Widespread Energy would become the dedicated vehicle for the Chatham Rise Project prior to an offshore listing occurring.
  • This would require selling all other Widespread Energy investments as well as undertaking an issue of shares to Widespread Portfolios so that Widespread Energy would then hold 100% of the Chatham Rise Project.
  • The key benefit of that approach were that the operations of Widespread Energy would be singularly focussed for taking to an offshore market to raise capital and a New Zealand domiciled and listed company (Widespread Portfolios) would remain a significant shareholder.

In order to complete this restructuring a number of approvals were required under the Takeovers Code, NZX Listing Rules and from Crown Minerals. Independent adviser reports were also necessary. These reports and approvals were completed and the transactions were subsequently approved on 30 March 2011 by the shareholders of both Widespread Energy and Widespread Portfolios.

On April 14 the transformation of Widespread Energy, previously an investor in predominantly oil and gas projects, into a fertiliser project development company, was consummated by the name change to Chatham Rock Phosphate Limited.

Chatham Rock Phosphate – why we are so excited about this project 

The concept of recovering rock phosphate from the seabed in New Zealand territorial waters has a significant number of economic, environmental and market benefits.

  • The economic benefits include

  • Import substitution of up to $300 million annually
  • Possible exports to near markets
  • Reduced commodity risk for fertiliser manufacturers and farmers
  • Reduced foreign exchange risk for fertiliser manufacturers and farmers
  • Development of a new industry
  • Generation of additional income tax, GST and royalty income for the local economy
  • Security of supply (most rock phosphate is imported from potentially unstable regimes in North Africa and the Middle East) 

The environmental benefits include

  • Local product is significantly lower in cadmium and uranium than imported product
  • Much lower carbon footprint than imported product
  • If applied as a direct application fertiliser CRP has less run off than super-phosphate, is applied once every three years, and is a more effective, slower acting product
  • Extraction will affect only 1/1000th of the Chatham Rise total area and will be intermittent
  • Extraction will occur in accordance with International Marine Mining environmental guidelines

The market benefits include

  • Much cheaper source than Morocco
  • 25+ years security of supply
  • Known extraction costs will allow fixed price contracts over several years which will benefit fertiliser companies, farmers and agriculture outputs generally as fertiliser pricing will be less of a lottery

Post Balance Events

The project now has significant momentum. Since balance date there have been further developments on various fronts including operational matters, cash generation, and the Canadian IPO.  

Operational

  • In recent months there has been an ongoing dialogue with three fertiliser sector companies and we now expect to be able to sell product to all three. Other market development initiatives included added value processing for exports are also underway
  • NIWA has recently completed for CRPL six reports concerning various aspects of the Chatham Rise seabed environment. We intend to publish these reports in order that there can be an informed discussion about what actually exists on and above the Chatham Rise and can put into context our planned activities there
  • CRPL representatives will next week be meeting the dredging companies, together with our selected panel of international marine mining experts. The expected outcome of these meetings will be a determination of  the best way forward with one chosen mining services provider
  • This week environmental baseline monitoring equipment will be stationed within our permit area on the Chatham Rise. This equipment will be monitoring currents, water temperatures, water turbidity, etc, in order to create baseline environmental records for our permit area. Some rock phosphate samples may also be gathered.     
  • There is an ongoing dialogue with stakeholders in the project with ongoing briefings of government and non-government agencies. 

Cash Raising

As noted earlier in this report, we are raising the cash to maintain forward momentum by encouraging option holders to exercise their options well before the witching hour of 30 June this year. Options not exercised by their holders by that date will likely finish up in the hands of the underwriters who will then be able to exercise them and acquire CPRL shares for 10 cents.

Option holders who are not in a position to exercise their options can sell them in the market. They are in the money at the present CPRL price of 14 cents and at the time of writing there was a buying bid for the options at 3 cents. Option holders who are uncertain about what to do or who require an option exercise form should contact Chris Castle at chris@widespread.co.nz  

Canadian IPO

During February and March 2011 a number of meetings were held in Toronto with investment banks potentially interested in sourcing equity in Canada for Chatham Rock Phosphate. Several of these firms subsequently indicated firm interest in further discussions, subject to first receiving an independent technical report on the project. This report, required to be prepared in respect of any resources-based new listing in Canada, is known as a National Instrument  43 101. (43 101).

We commissioned this report during March from a Vancouver based consulting engineering group, and a final draft was submitted last week to the TSX and has already been provisionally approved by them.

The 43 101 report was then circulated to the Toronto investment banks and presentations are being made to them tomorrow. The time for talking turkey has commenced.

A prospectus is also required for the IPO and drafting of this is underway. The timing of the IPO remains early July as we have been advised that options should first convert.

Notwithstanding this other preparations are underway with suitably qualified Toronto based legal advisers, a company secretary and a chief finance officer signed up subject to the IPO proceeding.   

Outlook

The continuation of the present level of activity and that foreshadowed over the next two years is reliant upon the success of the TSX listing and the proposed IPO. 

At the time of writing we are confident of success in our market of choice (Canada) but markets change and we cannot predict the future.

However, even if we do face setbacks in Canada we do have fallback plans in place for other markets and other possible funding scenarios.

The project itself has very low fixed overheads and these can be reduced even further if necessary while still adhering to the work programme in our permit conditions.   

For and on behalf of the Board

Keith T Hindle                          Chris D Castle
Chairman                                 Director                

Onekaka

20 May 2010

Results for announcement to the market – NZX Format

Reporting Period Year ended 31 March 2011 Previous Reporting Period Year ended 31 March 2010

  Amount (000s) Percentage change Revenue from ordinary activities $84, 34 147% Profit (loss) from ordinary activities after tax attributable to security holder. $(629), (198) (218%) Net profit (loss) attributable to security holders. $(629), (198) (218%)       Interim/Final Dividend Amount per security Imputed amount per security It is not proposed to pay a dividend for the reporting period. N/A N/A

Record Date Not Applicable Dividend Payment Date Not Applicable

Comments: On the 30th March 2011 Chatham Rock Phosphate Limited purchased Widespread Portfolios Limited 10% interest in Chatham Rise Joint Venture for a purchase price of $3.4m. This value was determined with reference to two independent reports which support a board valuation of the current value for the Chatham Rock Phosphate Project being $34 million. This valuation was reviewed by Simmons Corporate Finance on behalf of Chatham Rock Phosphate shareholders and by McDouall Stuart Corporate Finance for Widespread Portfolios shareholders, which both concurred with the fairness of the valuation. This transaction was approved by the shareholders of both companies. Consideration for this purchase was by way of an asset swap whereby the non-project assets of Chatham Rock Phosphate Limited including shareholdings in Akura Limited, a Fijian oil prospector, and Green Gate Limited, a private oil explorer which no longer holds any licence interests, together with exploration expenditure capitalised in Kotuku PEP 38526 were transferred to Widespread Portfolios Limited. Additionally Widespread Portfolios Limited was issued with 4,099,627 shares in Chatham Rock Phosphate Limited at an issue price of $0.70587 cents. 
Widespread Energy does not operate any dividend or distribution reinvestment plan.

 

Widespread Energy Limited Interim Report

A summary of the latest progress on the Chatham Rise rock phosphate project was issued to shareholders of project owner Widespread Energy Ltd and the New Zealand Stock Exchange today.

Widespread Energy Limited

Interim Report
Six months to 30 September 2010

Financial Result

Your directors submit the unaudited financial statements of Widespread Energy Limited for the six months to 30 September 2010. The trading result for the period was a loss of $185,000 (2009 loss $29,000). An analysis of the result is provided in the table below:

  Six months to 30 Sept 2010 ($,000) Six months to 30  Sept 2009 ($,000) Income 15 29 Expenses (117) (58) Exploration costs written down (83)   Net Profit (loss) before income tax (185) (29) Income tax - - Net profit (loss) after tax (185) (29)

The increased deficit for the six months to 30 September 2010 reflected a significantly more active period as the first year programme for the Chatham Rise Rock Phosphate Project kicked off. The write-off of expenditure relating to PEP 50439 (following the decision to relinquish it) also adversely affected the result.

Operations Review

Widespread Energy holds the following investments:

  • Mineral  Prospecting Licence (MPL) 50270 covering an area of 4,726 km2 on  the central Chatham Rise that includes significant seabed deposits of rock  phosphate and other potentially valuable minerals. (90% Widespread Energy, 10%  Widespread Portfolios)
  • Petroleum  exploration permit (PEP) 38526 over the prolific oil seeps at Kotuku on the  West Coast (100%)
  • An 11.8% interest  in Green Gate Limited, the holder of PEP 51150 in Taranaki. 
  • An investment in  Akura Limited, a Fiji based private company, which holds three Petroleum Exploration Licenses in Fiji,  predominantly offshore. 

Chatham Rise Project Background

On 25 February 2010, a consortium comprising Widespread Energy and associated company Widespread Portfolios Limited, (“the Joint Venture or JV”) was granted an offshore prospecting permit by the Crown Resources division of the Ministry of Economic Development covering an area of 4,726 km2 on the central Chatham Rise. The permit area, which is in New Zealand territorial waters, is located 600 km east of Christchurch and includes significant shallow seabed deposits of rock phosphate and other potentially valuable minerals.

The initial term of the permit is two years with further priority rights to either extend the prospecting permit or apply for a mining licence.

An independent valuation of the project by Rockpoint Corporate Finance earlier this year found the project had a realistic possibility of being commercially viable.

It found that, based on conservative modelling, the project has a current value of $20.9 million and could earn net profit before tax of $40 million a year.

Widespread’s own models put the NPAT figure as high as $80 to $100 million a year.

In addition to its financial potential, the project offers a number of benefits to New Zealand including:

  • Reduced exposure  to currency and commodity risk and reduced import burden
  • Known, fixed  costs
  • Reduced carbon  footprint from lower transport costs
  • Possible export  earnings 
  • The project is  also New Zealand owned and controlled.

The challenges identified of extracting the resource include its sporadic distribution (it averages 66 kg/m but there is great variability).  Also extracting phosphate at 400m depths has not been achieved, though other minerals have been extracted at greater depths.  The phosphate, in nodules of 2mm to 150mm, is located in a 1m layer of sandy silt above a chalky clay sediment basement.

Environmental considerations are an important part of the work being done and the company has a wide-ranging programme of consultation with fishing, conservation, Maori and other interest groups.

Widespread Energy Ltd continues to make rapid and significant progress on its Chatham Rise Rock Phosphate Project.

Milestones

Recent milestones include:

  1. Enhanced international profile of the project through speaking at an international underwater mining conference in Russia
  2. Successful meetings in Europe and subsequently in New Zealand with representatives of the world’s largest dredging companies
  3. Development of a dialogue with the German science establishment concerning previous research work undertaken on the Chatham Rise
  4. Ongoing discussions with research ship operators
  5. Establishment of a Chatham Rise linked university research programme
  6. Submission to Crown Minerals of two completed reports required as part of the year-one work programme
  7. Further oceanographic and environmental research commissioned
  8. Initiation of a dialogue with fertiliser sector parties 

Following on from his presentation to the Underwater Mining Institute conference in Gelendzhik, Russia, Widespread director Chris Castle and project principal scientist Dr Robin Falconer met in Europe with several leading dredging companies. Meetings were also held with the owners of research ships and with German science organisations.

Four of the five dredging and undersea mining companies met expressed interest in the project and in either adapting existing underwater mining technology or developing new purpose-built technology. Discussions are ongoing.

Three meetings were held with sections of the German science establishment to re-establish links with the organisations centrally involved in the Chatham Rise exploration and research projects that took place in the late 70s/early 80s. The exploration cruises of the RV Valdivia and RV Sonne, were accompanied by a sizeable contingent of New Zealand and German scientists. The recent meetings gave a much better understanding of the cruise data still held in Germany and possible ways it could better assist our knowledge of the phosphorite deposit. 

A meeting was also held with representatives of the company that operates RV Sonne with a view to possible use of the ship when in New Zealand waters during 2011. Discussion on the use of this vessel and other alternatives are also ongoing.

The Widespread Joint Venture has also agreed to sponsor a university research programme related to certain properties of the phosphorite nodules and is seeking to fund other related university research.

Widespread has also recently commissioned NIWA to undertake further work to enable us to more completely understand the oceanographic and benthic characteristics of our license area in the context of the entire Chatham Rise.  

Project Timing

The Joint Venture is still on track to complete its first year work programme by Christmas 2010 – two months early. At the time of writing it also appears likely that environmental baseline monitoring and other data collection at sea (notionally part of the second year programme) will be commenced well ahead of schedule.

The second year of activity will include ongoing environmental baseline monitoring, further definition of the resource, and completion of a bankable feasibility study following ongoing seabed sampling, and concept design of plant to recover rock phosphate from the seabed.

Offshore Listing of Chatham Rise Rock Phosphate Project

The two companies that hold the Chatham Rise Joint Venture are listed in New Zealand. Widespread Energy Limited (with a 90% interest) is listed on the smaller NZAX market and Widespread Portfolios Limited (with a 10% interest) on the main board NZSX market. Both are thinly traded, because they are small and operate in a sector (mining and mineral exploration) that is scarcely researched and which attracts relatively few local investors.

Further, there are no NZX listed fertiliser companies, therefore no comparable stocks, and therefore little point (despite its present $20.9 million independent valuation) in listing the project on the local market.

On overseas markets the activities of minerals and fertilizer sector companies are better understood, regularly researched and form a legitimate part of many investor’s portfolios. As a result these companies are often readily able to raise significant quantities of new capital to finance exploration and project development.

These factors have lead the Boards of Widespread Energy and Widespread Portfolios to conclude that the interests of both groups of shareholders would be far better served if the Chatham Rise project were to be restructured with a view to a new listing in an overseas sharemarket.

The markets under consideration are the ASX (Australia) and TSX.V (Canada). No final decision has been made yet but it appears the lack of local depth and investor interest in financing projects of this nature have made the decision to list offshore an inevitability.

The current thinking of the two Boards is that Widespread Energy could become a dedicated vehicle for the Chatham Rise Project prior to an offshore listing occurring. This would likely mean transferring all other Widespread Energy investments as well as undertaking an issue of shares to Widespread Portfolios so that Widespread Energy then holds 100% of the Chatham Rise Project. The key benefits from this approach are that the operations of Widespread Energy would be singularly focussed for taking to an offshore market to raise capital and a New Zealand domiciled and listed company would remain a significant shareholder.

If a restructuring did occur in the above manner a number of approvals would be required under the Takeovers Code, NZX Listing Rules and from Crown Minerals. Independent adviser reports would also be necessary. Therefore all shareholders would receive significant information and the opportunity to express their views before any such restructuring was implemented.

Oil and Gas Interests

PEP 38526 - Kotuku

PEP 38526 is located north of Lake Brunner, on the West Coast, South Island. The permit covers the northern half of the Kotuku Structure and a significant portion of the associated Grey Valley Trough.

As part of the year-two work programme Widespread Energy started drilling a stratigraphic exploration bore in mid March 2010.  The aims of the bore were to confirm the shape of the Kotuku anticline, recover samples of the rock strata and determine the nature of any fluids contained within it.

The drill rig encountered technical issues shortly after commencing Widespread 1 and relocated to an adjacent site and spudded as Widespread 1A. A week later Widespread 1A encountered oil shows from 21m-90m, and then began to flow gas from 90m depth. The gas was not expected to be encountered at this depth so well control procedures were undertaken and the flow of gas was shut off so that a coring rig could be mobilised in order to continue drilling to the target depth of 250 metres.

In mid April Widespread 1A was recommenced and several attempts were made to re-enter the well. These failed (due to engineering difficulties with the 6 inch casing) and the decision was made to plug and abandon the bore.

While the target depth of 250 metres was still not reached the earlier persistent oil shows that occurred between 21 metres and 90 metres are of considerable interest.

We are have undertaken a detailed analysis of the data gathered to date and are now planning the next stages of the exploration programme. Potential partners to assist with both financing and operating this exploration programme are presently being sought.

PEP 38526 also contains a number of other promising targets so our interest in this licence remains very much alive and well.

Green Gate Limited

Green Gate was established as a private oil and gas exploration company in 2003, and built up a promising portfolio of South Island focused petroleum exploration permits in North Canterbury, Murchison and the Solander/Great South Basin as well as a one third interest in PEP 51150 in Taranaki.

However, falling oil prices and difficult equity market conditions have severely hampered Green Gate’s exploration strategy and the company now holds only one PEP, a 100% interest in PEP 51150.

At 374.2 km2, on-shore PEP 51150 in South Taranaki is one of the larger blocks granted and is surrounded by producing oil and gas fields – Kapuni to the west, Cheal and Waihapa to the north, Kauri to the southeast and the offshore Kupe mining permit (under development) to the south.

Green Gate has identified a number of prospects in the course of its pre-bid study and is presently expected, subject to rig availability, to drill an exploration well in 2010.

Akura Limited

Widespread Energy continues to hold a small investment in Akura Limited, a Fiji based private company, which has recently been granted three Petroleum Exploration Licences by the Mineral Resources Department of Fiji. These cover an area of 17,667 square kilometres, most of this being offshore of Fiji.

Interim Fundraising Programme

It was announced on 25 October that Widespread Energy would undertake an immediate fundraising programme with the intention of raising $1.2m to $1.5m.

The funds would be utilised for working capital, to finance the initial steps of the Chatham Rise year-two work programme and fund costs relating to the overseas stock exchange listing. The listing process was expected to take six months with a present target date of early May 2011.

The interim financing programme will consist of private placements to suitably qualified investors, and a share purchase plan with the provision for any shortfall to be placed with qualified habitual or strategic investors.

The first stage of the financing programme concluded last week with the successful placement of 1,250,000. shares @ 12 cents. The share purchase plan is now underway and discussions are ongoing in respect of further possible placements 

Outlook

Following the grant of the Chatham Rise MPL in February the direction of your company has been transformed with a primary focus on advancing development of this strategically located rock phosphate deposit.

A lot has been achieved in a very short time and it’s intended that this project continue to be as rapidly progressed as we can manage with the resources at our disposal. A successful IPO during 2011 will materially assist us with the achievement of this objective    

For and on behalf of the Board,

Keith T Hindle
Chairman      Chris D Castle
Director

Onekaka

21 November 2010

NZX Format Result Summary

Results for announcement to the market Reporting Period Six months to 30 September 2010 Previous Reporting Period Six months to 30 September 2009 Amount (000s) Percentage change Revenue from ordinary activities $15 $29 (48%) Profit (loss) from ordinary activities after tax attributable to security holder ($185) ($29) (538%) Net profit (loss) attributable to security holders ($185) ($29) (538%) Interim/Final Dividend Amount per security Imputed amount per security It is not proposed to pay a dividend for the reporting period N/A N/A Record Date Not Applicable Dividend Payment Date Not Applicable Comments: Widespread Energy has not  gained or lost control over any entities during the year. There have been no major changes or trends in Widespread Energy’s business subsequent to 30 September 2010.


There are no unrealised gains resulting from the revaluation of assets included as separate items after profit before extraordinary items.

The operating deficit has increased considerably due to exploration expenses written off. These costs had been capitalised in relation to Permit 50439, Offshore West Coast which was surrendered during the period. As the Company has expanded its business, the costs associated with running a business have also increased. Primarily Directors Fees were $35,000 this half year compared to nil in the half year to September 2009.

Widespread Energy does not operate any dividend or distribution reinvestment plan.

Widespread Energy has not gained or lost control over an entity during the Reporting Period.

Widespread Energy, with a 90% interest, has an unincorporated joint venture with Widespread Portfolios Limited who has a 10% interest.

The joint venture holds the prospecting permit for the Chatham Rise Rock Phosphate project.