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:
Enhanced international profile of the project through speaking at an international underwater mining conference in Russia
Successful meetings in Europe and subsequently in New Zealand with representatives 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, 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.
+64 21 5581985
chris@crpl.co.nz
PhosphateKing