Widespread Energy Limited Interim Report

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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.

 

Widespread continues fast track work on Chatham Rise rock phosphate

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Widespread Energy Ltd is aiming to deliver its first year progress report on the Chatham Rise rock phosphate project by Christmas – two months early –managing director Chris Castle told a Russian conference today.
 

Mr Castle is currently in Gelendzhik, Russia, presenting a paper on “the technical and environmental challenges and economic opportunities of marine phosphate extraction in New Zealand” to an international Underwater Mining Institute conference.
 

In February Widespread was granted MPL 50270, covering 4726 square km on the central Chatham Rise, east of Christchurch.  It has been working to fast track the prospect’s evaluation so directors can make a decision on whether to apply for a mining licence at the end of 2011.  This would reduce the normal four-year time frame to two.
 

As well as preparing the first year report to Crown Minerals Mr Castle said the project team is planning an exploration programme for 2011, including environmental data collection and seabed sampling, establishing fertiliser market linkages and a university research programme.
 

While in Europe Mr Castle is meeting with potential suppliers of research ships and equipment and companies specialising in a range of extraction techniques.
 

This year the project team has reviewed historical data gathered in earlier exploration cruises, undertaken environmental studies, completed a pre-feasibility study and project valuation and evaluated underwater radiometric and seismic surveys.
 

The aim of the second year of activity will be to further define the resource and complete a bankable feasibility study following likely seabed sampling and environmental baseline monitoring, he told the conference.
 

A study by Rockpoint Corporate Finance earlier this year found the project had a realistic possibility of being commercially viable.  It found that, based on conservative modeling, 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 that 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 depth has not been done, though other minerals have been extracted at greater depths.  The phosphate, in nodules of 2mm to 150mm is located in a 1m layer of the soft, chalky clay sediment.  Mr Castle said extraction techniques were still being researched.  
 

He also said environmental considerations were a very 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.

On behalf of the Board

Chris Castle

Gelendzhik, Russia, 7 October 2010

To download and view the original release please click here.

 

Progress update for Chatham Rise 26 October

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In an announcement to the Stock Exchange Managing Director Chris Castle said Widespread Energy continues to make significant progress on the project. Recent milestones include:

  • Enhanced international profile of the project through speaking at an international conference in Russia
  • Successful meetings in Europe with several of the world’s largest dredging companies
  • Development of a dialogue with the German science establishment concerning previous research work undertaken on the Chatham Rise
  • Ongoing discussions with research ship operators
  • Establishment of a Chatham Rise linked university research programme
  • Submission to Crown Minerals of two completed reports required as part of the year-one work programme 
  • Further oceanographic and environmental research commissioned
  • Initiation of a dialogue with fertiliser sector parties 

Following on from his presentation to the Underwater Mining Institute conference in Gelendzhik, Russia, Mr 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 operating 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.  

The Joint Venture is still on track to deliver its first year progress report on the Chatham Rise rock phosphate project by Christmas 2010 – two months early. 

The aim of the second year of activity will be to further define the resource and complete a bankable feasibility study following likely seabed sampling and environmental baseline monitoring.

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 that 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 depth 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 plans overseas listing for Chatham Rise Project

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An interim $1.2 to $1.5 million fundraising is planned for the Chatham Rise project as a prelude to listing it on an offshore stock exchange.

The interim financing involves private placements to suitably qualified investors, and a share purchase plan with any shortfall tendered for. Further details will be announced by Friday 29 October. 

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

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 attracts 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 fertiliser sector companies are better understood, regularly researched and form a legitimate part of many investor’s portfolios.

These factors have lead the Boards of Widespread Energy and Widespread Portfolios to conclude 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 share market.

The markets under consideration are the ASX (Australia), HKEx (Hong Kong) and TSX.V (Canada). No final decision has been made but it appears the lack of local depth and investor interest in projects of this nature has made the decision to list offshore inevitable.

The current thinking of the two Boards is Widespread Energy could become a dedicated vehicle for the Chatham Rise Project prior to an offshore listing occurring. This would likely mean transferring other Widespread Energy investments and issuing shares to Widespread Portfolios so Widespread Energy then holds 100% of the Chatham Rise Project. The benefits from this approach are 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.

 

What's new as at October 7 2010

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It’s full steam ahead on the Chatham Rise project with project leader Chris Castle coordinating technical advisers who are expanding the knowledge base while he raises the profile of the project both in New Zealand and overseas and continues talking with stakeholders.

Project status: Chris and the project’s principal scientist Dr Robin Falconer are visiting a number of companies in Europe during the first half of October to explore potential extraction techniques and meet with representatives of the German organisations involved in the research undertaken in the early 1980s. Meanwhile the team of experts - technical, environmental, scientific and financial – are all progressing various streams of the project.

Profile raising: Chris is one of more than 30 international speakers, including five from New Zealand at a conference on undersea mining in Russia from 4 to 7 October. Click here to download the presentation he gave. Chris also attended the national oil industry conference in Auckland on 20 September and made contact with a number of industry players.

The six page fold-out marketing brochure we’ve produced can be downloaded here.  We’ve also produced some business cards using the photograph from our website, which is receiving a great reaction because it is something a bit different.  Click here to see a mock-up of the card.

Options issued: The Widespread Energy board has agreed to issue 50c options to the project’s principal scientist Dr Robin Falconer, a marine geophysicist, who worked on an exploration programme of the central Chatham Rise in the early 1980s and who has agreed to provide consultancy services. As an incentive, and to align Dr Falconer’s interests with shareholders, Widespread has allotted 500,000 unlisted 50c options to him. The exercise price is a substantial premium to the prevailing share price, but reflects the significant value of the Chatham Rise resource as demonstrated in the Rockpoint Corporate Finance project valuation, announced to the market in May.

Backgrounder: For an interesting article on the phenomenon known as “peak phosphorus” read: "Landmark: Peak Phosphorus"

 

What's new

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The Chatham Rise rock phosphate project is making significant progress in determining the viability of its undersea reserves.

Project status: The joint venture has established a team of key technical, environmental, financial and other experts to bring together and evaluate existing data who are advancing a number of work streams. A group  of technical advisers and Widespread directors met in Wellington in late July for a two day workshop to share knowledge, identify information gaps and plan the next steps in the years one and two work programmes for the project. Further work is also being undertaken with several undersea mining organisations to evaluate the optimal approach to extraction of our seabed rock phosphate resource. A dialogue has also been initiated with representatives of the German organisations that played a central role in the exploration role in the early 1980s.

Data analysed: The data gathered in the exploration voyages of RV Valdivia and RV Sonne in the late 1970s and early 1980s has been digitised and is now being analysed.  

Profile raising: Chris Castle attended the Australian fertiliser industry annual conference and while there met representatives of a number of  fertiliser manufacturers and users. Click here to find out more about the conference. Chris will also be presenting a paper at a conference on undersea mining in Russia in October. A six page fold-out marketing brochure has been produced and is available to view and download here.

Shareholder presentation: Click here for a link to the presentation Chris Castle gave to Widespread Energy shareholders on 29 June.

Click here to read this article by Australian journalist Robin Bromby on the future of phosphate.

 

Chatham seabed phosphate worth $6.7 billion

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NZPA | Tuesday May 25, 2010 - 08:52pm

A preliminary feasibility study of mining the phosphate nodules scattered over the seabed on the Chatham Rise east of New Zealand suggests reserves of 30 million tonnes would be worth about $6.7 billion, or $156m a year at an annual recovery rate of 700,000 tonnes.

That would be enough to provide about half the phosphate the nation's two big fertiliser companies import -- mostly from Morocco -- to sell to farmers, according to the Widespread joint venture which wants to mine the phosphate from the seabed.

"Commercial development of the resource is a realistic possibility," the companies involved said today.

But further scientific studies of the extent and distribution of the resource, engineering and environmental studies to develop and refine a recovery system, and market studies were required, they said.

Two mining entrepreneurs, Widespread Energy and Widespread Portfolios, jointly applied in August 2007 for prospecting rights over a 3048km area, 600km east of Christchurch, which includes seabed deposits of rock phosphate, and now has mining rights over 4726km.

The deposits, also known as phosphorite, are at depths of about 400m.

In the 1980s, Fletcher Challenge investigated mining some of the 100 million tonnes of phosphorite deposits spread along 400km of seabed on the Chatham Rise -- variously valued at between $10 billion and $50 billion -- as a potential substitute for imported rock-phosphate used in fertiliser.

The area covered by the Widespread consortium's licence application was later reported to have been surrounded by a subsequent application for 71,750sq km by Auckland company Chatham Phosphate.

Widespread Portfolios, which said it has been approached by major fertiliser companies, holds 10 percent of the joint venture, and the rest is held by Widespread Energy, but as Widespread Portfolios also holds 20 percent of its joint venture partner, it effectively has an 18 percent interest in the project.

The phosphate nodules are found in layers up to 700mm thick. Their phosphorus content is 9.4 percent, higher than manufactured super-phosphate, but lower than most of the million tonnes of phosphate rock imported annually.

Rockpoint Corporate Finance has valued the project at $20.9 million, but an appraisal programme including the require scientific, engineering, environmental and market studies could take four years and cost over $30 million, it said.

There is a realistic probability about 20 percent of the project going ahead, Rockport said.

An initial financial model prices the phosphate at $223/tonne, with reserves of 30m tonnes and annual recovery rates of 700,000 tonnes giving the project a 40 year life.

It would require capital costs of $65m for specialist dredging and annual operating costs of $117 million, which the company said implied annual tax paid earnings of approximately $30 million throughout the 40 years.

If the Rockpoint independent valuation of the project was adopted as the carrying value, Widespread Energy's net assets would increase by $18.75m to $19.9m, and Widespread Portfolio's net assets would rise by $5.84m to $10.68m.

Widespread Portfolios Ltd today reported a $336,000 loss for the year to March 31, compared to a $6.66 million loss in the same period last year.

Disregarding unrealised losses and non-cash provisions, the company reported a pre-tax loss of $269,000 compared to a loss of $776,000 last year. No dividend was declared.

"Apart from our associate company, Widespread Energy, which had quite an active year that saw its market capitalisation double, most of our portfolio was in a walking-wounded state," the company said in a statement to NZX. Asian Minerals, Glass Earth, King Solomon Mines and Golden Phoenix had all reined in their activity.

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Chatham Rise Rock Phosphate Project Valuation

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Rockpoint Corporate Finance has undertaken a preliminary feasibility study of the Chatham Rise phosphate resource contained within Mineral Prospecting Licence 50270 recently granted to the Widespread Energy/Widespread Portfolios joint venture. 

This preliminary study confirms that commercial development of the resource is a realistic possibility. 

However, further scientific studies are required to satisfactorily establish the extent and distribution of the resource, engineering and environmental studies to develop and refine the recovery system, and market studies to assess supply to both domestic and export markets. 

The Widespread Joint Venture and Rockpoint have considered the appraisal work programme required to address outstanding issues leading up to an investment decision. Rockpoint has advised the Joint Venture that, based on its central assumptions and the risk parameters leading up to an investment decision, the current valuation of the project is $20.9 million. This valuation is effectively the present value of the prospecting licence that the Widespread Joint Venture now holds.  

The project valuation comprises two parts, the appraisal programme to point of investment decision, and then the value of the development project.  The appraisal programme involves several stages, presenting numerous decision points, including:

  • scientific studies, including further sampling and testing, to satisfactorily establish the extent and distribution of the resource;
  • engineering studies to review, design and test recovery and separation systems;
  • environmental studies to assess existing ecosystems and the impact of recovery operations;
  • market studies to assess supply opportunities in both domestic and export markets; and
  • financial modelling to establish project feasibility. 

This appraisal programme could take up to four years, could cost over $30 million, and given the uncertainties being addressed, offers a realistic probability of a final investment decision to proceed of some 20%. 

A financial model has been developed starting at the point of final investment decision and is based on initial estimates of all input parameters, estimates that will be progressively refined through the appraisal programme. The key elements of the model are:

  • phosphate prices, derived from current market price ex- Morocco, and current shipping costs, assuming $223/tonne;
  • reserves of 30 million tonnes based on existing estimates (Cullen Report), with recovery rates of 700,000 tonnes annually (implying half of domestic market), giving a 40 year project life;
  • capital costs of $65 million, based on specialist equipment to be provided by global dredging company Jan De Nul, in addition to development of land-based port receival, separation and storage facilities;
  • operating costs of $117 million annually, based on estimates provided by Jan De Nul Group combined with port, separation, storage and marketing costs; and
  • these assumptions imply annual tax paid earnings of approximately $30 million throughout the 40 year project life.

The project, from final investment decision, is considered to be viable across a wide range of likely scenarios. While the base case assumptions are considered conservative, the $20.9 million current valuation (derived by discounting the project to reflect the uncertainties to be overcome before the final investment decision) should be considered speculative given the appraisal programme is addressing material uncertainties spanning scientific, engineering, environmental and market issues.

Effect of Project Valuation on Widespread Energy (WEN) and Widespread Portfolios (WID) Balance Sheets

The Chatham Rise Rock Phosphate Joint Venture is held by WEN (90%) and WID (10%). As 20% of WEN is held 20% by WID, WID has a further indirect interest of 18% in the Joint Venture. 

The Rockpoint independent valuation of the project has not yet been adopted as the carrying value of this asset in the financial statements of WEN and WID, but if it were that would have the following effects on the balance sheets of the two companies:

  • WEN’s reported net assets (as at 31 March 2010) would increase by $18.75 million to $19.9 million
  • WID’s reported net assets (as at 31 March 2010) would increase by $5.84 million to $10.68 million

On behalf of the Board
Chris Castle

Onekaka, 25 May 2010

 

Widespread wins Chatham Rise permit

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Widespread Energy and its associate Widespread Portfolios have been granted a prospecting permit on the Chatham Rise, allowing them to test whether the area contains an estimated 100 million tonnes of rock phosphate, which could be worth $28 billion.

The estimates come from 30-year-old data derived from exploration work carried out by the government and companies such as Fletcher Challenge in the 1970s and 1980s. Widespread director Chris Castle says current market prices for phosphate, used by the fertiliser industry, could make extraction feasible, replacing imports from Morocco that amount to about 1 million tones a year.

Shares of Widespread Energy, which owns 90% of the joint venture, fell 17% to 10 cents yesterday.

Six investors have agreed to stump up $200,000 to help fund preliminary work on the permit, having already subscribed for similar sum at 12 cents apiece.

The venture is highly speculative and Castle acknowledges on his website that investors require plenty of “intestinal fortitude” to go along for the ride.
Based on the company’s assumptions of costs and an extraction rate of 500,000 tonnes a year, the project could generate pretax earnings of US$55 million a year, Widespread Portfolios said in a statement yesterday.

Alternatively, the joint venture could on-sell the resource on-situ, which could be worth US$10 million, or $2.12 per Widespread Portfolios share, it said.

Widespread aims to review data for the 4,726 square kilometre permit area over 12 months then work up a “full bankable feasibility study” and gather seabed samples in year two.

“The broad expressions of interest in this project from investors, the fertiliser sector and other mineral exploration companies indicate that funding of this later phase will be achievable,” the company said.

The rock phosphate is in the form of phosphorite, in pebble-like form sitting in the top third of a metre of ocean floor. The estimated size of the resource was suggested in a 1987 report by David Cullen called ‘The Submarine Phophate Resource on Central Chatham Rise.’

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