LSG lion selection group limited

for the converted lsg fans and those thinking abou

  1. 635 Posts.
    Attached is the Chairman's address to the AGM.
    Well worth a study.
    Note the comment about tax treatment of dividend.
    One of the benefits of PDF investments.
    LSG should be rewarding as we go forward.
    Long term holder.

    Chairman`s Address to Shareholders

    2002-12-10 ASX-SIGNAL-G
    HOMEX -Melbourne

    When established, our charter was to provide patient equity capital
    to emerging Australian companies. We were not established as an
    investment fund, and indeed by virtue of the Pooled Development Fund
    Act, are precluded from dealing, limiting any short term profits. We
    are restricted to the provision of new capital, and, in return, you,
    our shareholders receive tax free capital gains and dividends. It was
    therefore with much satisfaction, that in the year under review, we
    recorded our first annual profit of $9.3 million, and declared a
    maiden dividend. Because our business, is in the buying and patiently
    holding securities, long enough for a satisfactory outcome, our
    stream of profits from sales, unlike say, a manufacturing business,
    will perforce be lumpy. Rates of profit growth will not, even under
    ideal circumstances, follow a smooth upward trend. But the pipeline
    is now established and the outlook looks rosy.

    Shareholders will have seen in the Annual Report, a number of
    projects now in production, or preparing for production, and some
    with great production potential. These, as they are brought on
    stream, or are expanded in scope, will be the source of our future
    profits and dividends.

    It therefore gives me much pleasure to announce that the Lion Board
    met this morning, and resolved to declare a second dividend of 3
    cents per share. The dividend will be fully franked, and will be paid
    on 21 February next year to those shareholders on the register at the
    close of business on the 7th of February, 2003.

    While you should seek your own taxation advice, I remind you that, as
    a Pooled Development Fund shareholder, you can elect to treat the
    dividend as exempt income on which no tax is payable, or to include
    the dividend as income in order to utilise the franking credit. That
    decision will depend on your own taxing situation - and is the reason
    why you should seek your own tax advice.

    Shareholders will have noted that a new Management Contract was
    signed with the management team, and as I believe that "business is
    about people", this continuity of service, is paramount to the
    Company's future prosperity. They have shown that they can deliver
    the goods, and that they have the patience and the will to succeed.
    The Australian Resources Sector has not been, "flavour of the month"
    but the quality of our Investments is now starting to attract
    attention in the market place.

    We have a diversified portfolio, and although we have a predominance
    of gold, with a wide geographic spread, through MPI we have a notable
    investment in nickel, and through Indophil, and its investment in the
    Phillipines at Tampakan, a copper/gold interest in what is a world
    class deposit.

    Shareholders should also note that through Equinox Resources, we have
    our first investment in the Zambian Copperbelt at Lumwana. The
    Copperbelt, which I use to include the copper rich sedimentary series
    in both Zambia, and the Katangan part of the Democratic Republic of
    the Congo, is one of the world's richest copper provinces, which
    provided, prior to the troubles in Africa, probably half of the
    Western world's supply of copper. The Lumwana Project, now at
    Bankable Feasibility Study stage, could be a milestone in African
    development returning wealth to those mostly impoverished people.
    Through Copperbelt Selection we continue to monitor projects for
    acquisition, in this part of Africa.

    All the companies in which we have made investments, maintain active
    exploration programmes. Their ethos, along with the Board and
    Management of Lion, believes that, because mining is by its very
    nature, about the depletion of resources, the search for more ore
    must be relentlessly pursued. I would like, at this point, to pay
    tribute to Geoff Stewart and his team at East African Gold Mines,
    who, notwithstanding bringing the North Mara Gold Mine into
    production in Tanzania in August 2002, their exploration for more
    ore, was not allowed to lag. This persistence led to the discovery of
    the quite phenomenal gold intersections reported at Gokona, a
    concealed deposit beneath volcanic flows, about a kilometre from
    Nyabigena. We can anticipate substantial new resources from such

    Again, exploration at the Stawell Mine in Victoria, with the doubling
    of resources in the Golden Gift ore body to 434,000 ounces of gold at
    7 gms per tonne, is a noteworthy exploration success. In my view,
    this demonstrates the high prospectivity of the Stawell Field, and
    MPI's tenements to the north. Victoria is the Cinderella when it
    comes to exploration expenditure, but we should not forget that
    Victoria's gold was instrumental in the founding of our Nation.

    When I addressed you in 1999, I claimed that Lion had a little less
    than 1 million ounces of attributable gold in resources. In 2000, the
    figure had grown to 1.4 million, in 2001 to 1.8 million, and today
    about 4.4 million, including Tampakan. In anyone's language, this
    must be seen as steady growth, for Lion Shareholders. The resources
    are, by and large, unhedged, and in a market which shows increasing
    interest in gold bullion, this augurs well for the future.

    Shareholders may have noted a letter by our Managing Director
    published in the Australian Financial Review on 28th November. In my
    opinion, this was an important letter, discussing the "rapid decline
    of liquidity in the Australian resources sector". It is a concern of
    all of us, that so many of the well known mining names have
    disappeared by acquisition. There will soon be nothing left for the
    international investors to trade, and it must mean the end of
    Australia as a leading global mining finance centre. It is beyond
    belief that the Australian Stock Exchange, which has over the years,
    reaped a fortune from the listing and trading of gold stocks, should
    have elected to remove the Gold Index, but is indicates the extent of
    the decline, and almost total lack of interest on the part of fund
    managers, in the junior miners and explorers.

    How can this be? Over 5 years we have seen a world wide contraction
    of funds spent on exploration. In 1997, world wide, some US$5.2
    billion was spent. By 2001, this had contracted by 58% to US$2.2
    billion. Certainly the Bre-X affair, like the Poseidon affair some 25
    years earlier, damaged the explorers credibility, but there is, I
    suspect, another element to do with commodity prices, and the
    "Licence to Mine".

    The major miners, focussing on the long term decline in commodity
    prices in real terms, being concerned about over production as a
    cause, rather than a natural consequence of every increasing usage,
    and thereby lower costs, sought to slow down exploration. They did
    this by slashing their exploration staff, and their budgets, and
    becoming more and more risk averse.

    Initially it seemed as though they would use, what I used to call the
    "Teck Model", and help finance the juniors into exploration, by joint
    ventures or corporate investment. Then the "License to Mine" and
    "Sustainability" became an issue, prompted by our Industry's
    generally unfavourable image, and prodding by the NGO's.

    The creation of whole new departments to manage these important long
    term survival issues was another deduction from the bottom line, and
    as a consequence, and in my experience, it has been ever thus, the
    exploration budget is cut again. Funds for the "Treck Model" of
    junior support were slashed, and we now see the snowball effect, and
    the disappearance of Australia as a leading global mining finance

    How do we regain our position? I have said, and written this, in many
    forums. It is a national issue, and in my opinion, some Government
    initiative is called for. As a punishment for the Poseidon boom, we
    lost much of our tax deduction status, designed to promote now
    initiatives in exploration. Unlike a major producer, the small
    explorer has no income against which to claim a deduction for
    exploration. It is my considered opinion that either the
    re-establishment of Section 77D, granting the investor an immediate
    tax deduction for new subscribed capital, or something on the lines
    of the Canadian model of "Flow Through" funding is imperative if we
    are to stop the rot.

    For the moment, Lion stands to benefit, as Australian listed and
    unlisted explorers come to us looking for seed capital, and mezzanine
    finance, and for the moment the demand is great. If the rot should
    persist, and the entrepreneurial geologist decides it is all too
    hard, it could be a generation, before the Nation finally demands
    something to be done to restore our standard of living, and to
    rediscover that mineral exports mean foreign exchange and prosperity.

    Lion can play a key role by demonstrating, not only in Australia, but
    also in Toronto and London, that Australian companies can deliver the
    goods, and to the Government, that we need a junior sector to make
    our investment selection. It must never be forgotten that most
    exploration will fail, and the ability to select the winners is a
    technical skill possessed by Lion management.

    My colleagues on the Board have asked me to stand again for
    re-election. I am conscious of the fact that this is the third time
    of asking, pursuant to a Special Resolution. There is a growing view
    that experience, rather than age is a consideration in such matters,
    and I am reminded that Geoff Stewart and I are of a similar age. I am
    confident I still have a contribution to make.

    In conclusion, I must express our thanks to Robin Widdup and his
    colleagues. They have performed extremely well with what is now, a
    much more complex business to manage. The management team all sit on
    various boards of the investee companies, and as development
    proceeds, this brings them much greater responsibility. The job is
    being well done.

    Finally to my colleagues on the Board, and to you our Shareholders, I
    must say thank you for your support throughout the year.

    E W J Tyler

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