will eim follow cliffs lead ?

The net asset value of the Emerging Resources Company Share Fund declinedby 23.4% in June compared with a decline of 18.7% in the ASX small resources share price index.

Background market conditions generally worsened. Uncertainty about the level of ongoing U.S. Federal Reserve asset purchases leading to worries about the level of support for markets and normal seasonal patterns (resulting in prices of small cap resource stocks being weaker in June than in any other month) detrimentally affected sector prices.

· The S&P/ASX 100 resources index fell by 9.4% pushing the 12 month performance spread between the large cap stocks and the small listed resource companies to 49 percentage points, the widest differential at any time in the past 20 years.

· Prices of the main daily traded nonferrous metals - aluminium, copper, lead, nickel, tin and zinc - were all lower by between 3% and 8%.

· Gold and silver prices fell by 12% and the platinum price fell 8.5%.
· Crude oil prices (WTI) rose 5.3%.
· The average iron ore price declined 7.7%.

Revaluation of the portfolio’s holding in Pluton Resources accounted for 60% of the total portfolio loss in the month. Changes in the value of the remaining stocks in the portfolio were well within the movement of the small resources share price index.

Pluton Resources was reinstated to official quotation by ASX on 7 June after not having traded since 23 January. The company released a set of accounts for the period to December 2012, including details of its current financial position after receiving prepayments for the sale of iron ore from its Cockatoo Island project.

To complete a proper valuation analysis of the company after its lengthy suspension from trading, during which time uncertainty about its business prospects and funding
had grown, the Manager submitted a number of questions to the managing director and chairman of the company. A copy of those questions, all of which arose directly from the
need to clarify aspects of the company’s market disclosures, can be reviewed at

http://www.eimcapital.com.au/monthly%20reports/PLV_quests.pdf

Although the company refused to address any of the questions for several weeks, the Manager has now met separately with the chairman and the managing director for nearly five hours in total. Those meetings have resulted in greater clarity about the financial position of the company but they have also demonstrated quite clearly several material shortcomings in the quality of the company’s disclosure to investors.

For several years, the underlying Pluton Resources investment proposition has involved development of an iron ore deposit on Irvine Island off the coast of Western Australia.

The Cockatoo Island investment is now expected to add little or no direct value to the company aside from some logistics flexibility due to its established loading facilities and proximity to Irvine Island. Consequently, the Manager has told the company it would not support mining the Cockatoo Island deposit at the expense of Irvine Island unless directors could demonstrate an attractive longer term valuation trajectory from an
alternative development strategy. The company agreed to a further meeting to discuss corporate strategy issues at a future date after the Manager had reviewed the information received in response to its questions


EIM Questions to PLV link here!

EIM June full report link here!