Cqs Natural Resources Gr... Share Discussion Threads

[davebowler] 24/2/2011 11:24

Chairman's Statement



Investment and Share Price Performance

At 31 December 2010 your Company's net asset value stood at 394.4 pence, giving a net asset value total return for the six month period under review of 77.0 per cent and a share price total return of 84.8 per cent; the benchmark index returned 34.9 per cent.



This means that your Company followed a net asset value total return of 100.0 per cent for the 2009 calendar year with a net asset value total return for the 2010 calendar year of 80.2 per cent. Its share price performance was even stronger, with the 147.6 per cent total return of 2009 being followed by 85.6 per cent in 2010.



The share price return reflected a narrowing of the discount at which the Company's shares trade from 31.1 per cent at 31 December 2008 to 15.3 per cent at 31 December 2009 and 12.7 per cent at 31 December 2010. This does not, of course, represent straight line progress, but your Board and Manager have worked work hard to minimise the discount figure over a number of years, and it feels for the first time as though the market is, perhaps, moving to re-rate the Company's shares. Caution must, however, remain the watchword as the stability and reduced volatility that typically mitigate discount levels remain elusive.



Too many statistics obscure, but it is worth underlining the fact that your Company's net asset value increased from 52.1 pence on 1 August 2003, the date of its current incarnation, to 394.4 pence at 31 December 2010.



Income and Dividends

Nor has this capital performance been achieved at the expense of income. For a number of years the portfolio has been managed with income enhancement and a desire to progress the dividend firmly in mind, and the dividends paid in respect of the year to 30 June 2009 were 15.8 per cent higher than those paid in 2008, while the year to 30 June 2010 saw a further 20.8 per cent dividend increase. This represented a fifth successive year of dividend increases.



The yield on the Company's shares is 1.2 per cent as I write, and the revenue reserve stands at 5.9 pence per share, up from 5.7 pence per share at 30 June 2010.



We are always aware of the importance of income to investors. Two interim dividends of 0.69 pence have been paid in respect of this year, representing an increase of 11.3 per cent on the same period last year, in line with our policy of progressive dividend increases.



Investment Strategy and Outlook

When I wrote to you a year ago I said that we were slightly sceptical as to whether bank bail outs, low interest rates, quantitative easing and ballooning budget deficits amounted to a programme that would encourage a sustained global recovery, but that we kept faith in the strength of the commodity story over the medium term. I wrote to you again on 1 October 2010, noting that while we were not wholly convinced by the depth of the market rally, we were satisfied that the Company was well positioned to capitalise on the longer term demand for finite natural resources.



I am afraid that I can do no better than to express a similarly qualified optimism as we move into a new decade. Markets have been distorted by long-term interest rates which remain low; by government intervention which remains high; and, by levels of sovereign debt that remain excessive. Exchange rates fluctuate wildly, and once again the spectre of inflation stalks the land.



Equity markets have weathered these conditions well to date, but we remain on our guard, with gearing at a modest level. While the drivers that have benefited the performance of your Company remain to large extent still in place, namely: emerging markets growth; commodity price rises; mergers and acquisitions; and, sterling weakness, there are signs of overheating and inflation in that main generator of growth - Asia. In the short term if growth were to slacken its pace there, this would be felt in the natural resources arena, so we are not complacent.



All of that said, the essentials underlying the commodity story remain a touchstone in the medium and longer term, and your Company is well positioned to take advantage of the demand created by the shift of economic power from the old world to the new, as the former continues to pay for the partying of the last decade, so generously financed by the latter.





Manager's Review



The last six months have seen the Company's net asset value total return rise by 77.0 per cent and the share price total return by 84.8 per cent. The conditions in most equity markets have been buoyant and the Company's performance has been helped by strong moves in the underlying commodity prices, notably Gold, Uranium and Palm Oil.



Continued M&A activity has also been supportive of prices within the resources sector and the portfolio has been helped by the weakness in Sterling, particularly against the Australian and Canadian dollars.



The economic backdrop has continued to be mixed with patchy growth in the economies of the Developed nations offset by further growth in the Emerging nations. A lack of resolution to the Sovereign Debt problems and further expansion of the Federal Reserve balance sheet by the implementation of QE2 has further clouded the picture.



None of the above factors have been negative for Gold, which hit an all time high during December. The Company's large weighting in the sector was enhanced by the focus on the growth companies, at the expense of the large stocks which generally underperformed during the period.



Corporate activity and absence of new supply were consistent themes across many commodity sectors, but never more so than in the Uranium space. The bid for Mantra Resources, which was developing the Mkuju project in Tanzania, by ARMZ Uranium Holdings, a Russian company, being the most significant transaction. The Russians have been the largest source of Uranium supply for the last few years via the HEU agreement and it is noteworthy that this is the second acquisition this year after the earlier purchase of 51 per cent of Uranium One. The uranium price rose from $42 to $66 during the period.



The Rare Earth sector has been in the market's spotlight over the period and never did we think that a drunken Chinese fisherman could have such an influence on the Company's performance. The unfortunate mariner's detention by the Japanese authorities and the retaliatory reduction in Rare Earth export quotas by the Chinese led to a scramble to find companies outside of China who were capable of producing these elements that are vital to new technologies. The performances of Lynas Corporation, Great Western Minerals and Neo Material Technologies all reflected the surge in prices of the Rare Earth basket.



Looking forward, we are conscious of inflation creeping back, particularly in the prices of food and energy, in developing countries. The housing market continues to be a drag on any revival in the United States, and, elsewhere, political risk would appear to be the dominant theme for at least the first half of the year.

[davebowler] 23/2/2011 14:00

21 Feb Basic NAV 394.04

[davebowler] 21/2/2011 09:52

16 Feb Basic NAV 394.97

[davebowler] 15/2/2011 10:28

15 Feb Basic NAV 392.09

[davebowler] 04/2/2011 14:44

Basic NAV 382.07 3/02/2011

[davebowler] 01/2/2011 12:24

28 Jan NAV Basic 373.63

[cockneyponce] 31/1/2011 11:28

DB

IC are right on the money look at how well Geiger is performing this morning

[bpdon] 31/1/2011 11:10

Will be interesting to see what the published NAV is tomorrow. Trustnet has an estimated NAV of 372 which has us back at a discount of circa 15%. If we drift to 300p I might buy some more.

[davebowler] 31/1/2011 10:14

Imvestors Chronicle cover this week..... "Uranium set to surge." Inside on page 8 they say why - Chinese demand.

[bpdon] 28/1/2011 14:57

A few of the top ten holdings are off 3-5% today. Probably explains the drop. Not complaining after such a fantastic 6 months.

[melody9999] 26/1/2011 23:44

if you think the recent sell off in gold has bottomed out, then this might not be a bad time to add a few more here.

[davebowler] 18/1/2011 11:11

14/01/2011 RNS
Basic NAV 397.52 incl. Income

[davebowler] 31/12/2010 16:10

China to cut exports of rare earth minerals

By Leslie Hook in Beijing

Published: December 28 2010 18:41 | Last updated: December 28 2010 18:41

China will cut rare earth exports next year, a move that heightens global concerns over the country's near-monopoly on production of the minerals.

The commerce ministry set a quota of 14,446 tonnes for the first half of 2011 – much lower than the figure issued for the first half of 2010, 22,282 tonnes, but higher than the quota for the second half, 7,976 tonnes.
EDITOR'S CHOICE
US rare-earths concern says it can beat Chinese - Oct-27
Japan secures rare earths deal with Australia - Nov-24
Business alliance in rare earths plea - Nov-05
Bubble fear as rare earth prices soar - Oct-24

The lower quota will tighten the market for rare earths, a group of 17 ­elements crucial for products from BlackBerry devices and iPhones to wind turbines and guided missiles.

China, which produces 97 per cent of rare earths, has reduced exports repeatedly over several years, sending prices higher and prompting a rush of investment in mines outside China.

Beijing's curbs have prompted outcries from Japan and Europe. The US trade representative's office said on Tuesday it would continue to push for freer trade in rare earths. "We have raised our concerns with China," an official said.

Last week the USTR said it was continuing an investigation into whether China's rare earths export policies constituted a violation of its commitments to the World Trade Organisation.

Beijing did not elaborate on how the quotas were calculated but the Chinese government has long maintained that restrictions on exports are essential to combat illegal mining and environmental degradation.

"These quota levels . ;. . are part of a unified effort to govern the sector that includes better environmental regulations, better mining regulations, and measures on all fronts," said Niu Jingkao, deputy secretary-general of the Chinese Society for Rare Earths. He expects that prices for rare earths will continue to rise next year until they reach a level that is "reasonable".

Industry executives were disappointed that the ministry did not make provisions to differentiate between some light rare earth elements, which are common and relatively cheap, and the more expensive heavy rare earths.

Separately, Wang Caifeng, a former government official, said on the sidelines of an industry ­conference that an association representing China's rare earth mining companies could be formed as early as May.

Companies in Japan, which buys more rare earths from China than any other country, have been investing in non-China sources of supply.

Hitachi Metals last week announced a joint venture with Molycorp, a company trying to develop a rare earth mine in California, that could ultimately produce rare earth magnets in the US.

Toyota Tsusho announced a deal with India earlier in the month to build a plant to process rare earths.
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[davebowler] 31/12/2010 16:06

Article follows to do with rare earth metals -part of CYN's strategy

[davebowler] 31/12/2010 12:04

29 Dec Basic NAV 388.65

[davebowler] 27/12/2010 10:47

https://www.winsresearch.co.uk/secure/files.php?file_id=802&file_type=analyst-note

[davebowler] 24/12/2010 13:31

22 Dec NAV 374.12

[davebowler] 21/12/2010 10:35

21/12 NAV Pence per Share 363.24

[davebowler] 17/12/2010 17:22

Basic NAV 17 Dec 358.84

[davebowler] 07/12/2010 10:04

7/12 Basic NAV 355.33

[davebowler] 03/12/2010 13:19

Basic NAV 344.06 1Dec

[davebowler] 01/12/2010 16:03

Winterfloods;

Strong performance from mid and small-cap portfolio



City Natural Resources invests in a diverse range of resources companies including gold, silver, copper, rare earth metals, coal, uranium, and palm oil with a focus on small and mid-cap companies. The portfolio is diversified with over 200 holdings, including around 50 warrants. The portfolio also contains corporate bonds and convertibles, which account for approximately 20% of assets. The fund has performed strongly and the NAV is up 301% over the last five years compared with 138% for the HSBC Global Mining Index. The 46% fall in the NAV in 2008 has been more than recovered. 2010 has been a very strong year for the fund with its NAV up 53%, on a total return basis, compared with an increase of 22% for the HSBC Global Mining Index.



Winterflood View



In common with the rest of the Resources sector, City Natural Resources has enjoyed strong absolute performance in the last few years. In addition, the fund has outperformed the HSBC Global Mining Index. In our opinion, the fund offers investors the possibility of high returns, combined with a progressive dividend. However, given the nature of the resources sector and the fund's bias towards small and mid-cap companies, performance is likely to be volatile and investors should be comfortable with a higher than average level of risk. For investors willing to accept this, we view this fund as complementary to the more mainstream BlackRock World Mining.



The specialist management team of Will Smith and Merfyn Roberts has considerable experience in investing in resource companies. The departure of Richard Lockwood from day-to-day management must be viewed as a loss to the fund as performance has been strong under his management. However, we view his continued involvement at a strategic level as positive. Both Will Smith and Merfyn Roberts have worked alongside Richard Lockwood for a number of years and in our opinion, the change in the management team is unlikely to produce any major changes to the fund.

This note is available in full on our web-site: in the section "Latest Research".