Page 12 - Integrated Annual Report

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INTEGRATED ANNUAL REPORT 2021
HOSKEN CONSOLIDATED INVESTMENTS LIMITED
LETTER TO SHAREHOLDERS(CONTINUED)
abandoned our joint block in the Transkei and left it to us with sole responsibility to meet an expensive seismic obligation to enter the next phase. Notwithstanding the capital constraints imposed on us, we took the risk of IOG committing resources to this block and we advanced its exploration to the next phase on our own. IOG spent the year modeling the prospectivity of various parts of the block and attempting to attract a new supermajor to farm in. We are pleased to report we have succeeded in getting Shell Petroleum to join us as operator. We are currently in the process of jointly farming down to accommodate an additional partner. The net effect of these new arrangements will hopefully be that we are left with a 30-35% stake in the block, largely carried for both the seismic study and an exploration well, with partners committed to commissioning the seismic study at which previous partners baulked.
We have in addition acquired a 90% interest in the neighbouring block known as Area 2. We see this as being a block which is as prospective as the Transkei block and in many ways an extension of that opportunity.
Alphawave:
This is a far smaller business than the previous two growth opportunities mentioned and our 42% stake therein was acquired from Niveus.
It is a technology business which has developed both the software and hardware to track the flight of golf balls hit on a driving range. It has also designed various games for people to play which depend on such tracking. It has installations operating on eight such ranges, is currently installing the system on a further eight and has a pipeline of plans which should allow it to continue rolling out the product on more and more driving ranges in several different countries.
Since the company operates in the entertainment space it has of course been hard hit by COVID-19 which has variously closed ranges temporarily or restricted their use. Nevertheless, our hope is the company will emerge over the next year or two as a profitable growing entity with a world- wide customer base in a very popular sport. We have invested R70m in the venture to date and anticipate we are more than two thirds of the way to it becoming self-sustainable.
Foundation:
The budget of our Foundation was inevitably reduced to around R30m for the last year, given the dramatic collapse of the value of its shareholding in HPF. While it had been hoped holding into a REIT with strong pretax distributions would be an ideal asset class for a PBO, the pandemic put paid to any hopes it may have had to receiving such income. Fortunately, the rest of its balance sheet remained sufficiently robust to be able to continue its work despite the reduced cash at its disposal. Two senior members of staff retired which eased the pressure on the Foundation’s overhead. Those remaining have
Despite the optimism of our last report that the Venus exploration well in our Namibian block would be drilled by Total this was not done and was deferred to late winter this year. It remains a key determinant of our exploration efforts for the next few years.
Total did however drill a second well in block 11B/12B greatly extending the Brulpadda discovery the previous year. We have taken the opportunity to swap our loan structure funding a portion of this block for a 36,5% stake in a Stockholm listed company, African Energy (“AEC”) which holds an effective 9,5% economic interest in the block. Currently this trades at a value some 2.5 x the amount we invested in the block.
Platinum Group Metals (“PTM”):
As indicated last year we participated in a US$15m rights issue in this company to avoid being diluted at what we felt was a low value. The share subsequently more than doubled and we took the opportunity to dispose of some stock at that price, effectively minimising our dilution. We currently hold 21,3m PTM shares and have paid a net amount of US$1,25 a share for them.
The mining license for the Waterberg project was eventually issued in April 2021. An appeal has been lodged by three individuals purportedly on behalf of the community. We see little prospect of this unrepresentative group holding back progress of the mine for long and the company is hard at work trying to move the project towards final investment decision later in the year.
This remains an exciting opportunity that should still grow significantly in value and make a good contribution to creating skilled jobs in a very marginalized area of the country. HCI is positioned as the largest single shareholder of the company and currently holds 28,7% of its shares.
The company also has a 52% stake in a joint venture company with Anglo Platinum known as Lion Battery Technologies. It arises out of a collaboration with the Chemical Engineering Department of Florida International University in Miami who for some time has been developing research and expertise focused on enhancing battery technology and increasing its effectiveness through the introduction of PGMs as catalysts. Key targets in the project are to increase battery life by increasing the number of recharge cycles before the battery is ineffective and to decrease the battery weight per Watt hour and thereby the cost of the battery. This project remains at an early stage, but it has met milestones to date which include two U.S. patents with a third currently being applied for. It appears to the JV to have great potential to make a significant contribution both to enhancing battery technology and extending demand for palladium in electric car vehicles. It is being pursued more urgently through its next phase and to this end the JV has agreed to increase funding to enhance the speed of its research work over the next twelve months.