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Prosperity Minerals continuing to seek new sources of iron ore

Published: 05:22 28 May 2012 EDT

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Prosperity Minerals Holdings (LON:PMHL) is continuing to focus on securing and investing in additional sources of iron ore at competitive prices.

The company issued a trading statement ahead of reporting results for the full-year to March 31 2012, covering all its operations with its main focus in the People’s Republic of China: iron ore trading, real estate development and the investment in two cement factories.

During the fiscal year, Prosperity shipped 4.9 million tonnes of iron ore compared with 6.3 million tonnes for the prior year. The reduced number of shipments was due to a significant decrease in raw material prices between October 2011 and February 2012.

During this period the major producers withheld shipments from the spot market in anticipation of prices recovering, which they did.

The decrease in Prosperity's shipments also reflects the increasingly challenging environment for iron ore traders and underlines the importance of increasing the company's access to reliable medium to long term supplies of iron ore, it said.

Prosperity already holds an effective 35 per cent interest in United Goalink Ld (UGL), a joint venture company engaged in the exploration and production of iron ore in Brazil.

The UGL processing plant is expected to be operational by the end of 2012 and this will enhance the quality of the iron ore mined, increase production capacity and reduce average production cost. The plant will have an annual production capacity of 1 million tonnes of iron ore.

Regarding its real estate division, Prosperity said the government's efforts to control domestic inflation by restricting loan growth and placing constraints on the purchasing of residential property in major cities have brought about a reduction in the number of transactions and, in some areas, a decline in prices.

In Guangzhou City, Guangdong Province, Prosperity owns approximately 11,472 square metres of office and commercial space in SilverBay Plaza which had 100 per cent occupancy at the end of March.

It also holds a 55 per cent interest in a commercial and residential development project known as Oriental Landmark.  Presales for the first block of residential units started in December 2011, and for the second block in April 2012 .

Presale prices and results have exceeded the company's expectations. This is mitigated, in part, by higher than budgeted costs, including sales commission. The company believes that occupation permits will be issued in fiscal 2013-14, which is also when the first revenue and profit will be booked.

In Changzhou City, Fujian Province, Prosperity holds 50 per cent interest in a joint venture with a local party to develop a combined recreational, commercial and residential project offering luxury accommodation and hot spring resort facilities.

Regulation has impacted the original plan for this project, which will now comprise smaller, lower priced units in order to attract a larger number of buyers. Prosperity will therefore take a non-cash charge for this project in the full-year.

Prosperity holds a 50/50 joint venture with a local party to develop a commercial property comprising both office and retail space in Hangzhou City, the capital of Zhejiang Province, still awaits governmental approval.

The company also has a 33.06 per cent interest in Anhui Chaodong Cement Co Ltd (ACC) in Anhui Province, eastern PRC.

ACC has a designed saleable production capacity of 5.1 million tonnes per annum and performed well during the year.

The third 2 million tonnes per annum clinker production line at ACC is under construction and is expected to be operational by the end of 2012.

Prosperity expects pretax profit for the year ended 31 March 2012 to be substantially below market expectation as a consequence of the abovementioned factors.

The company will continue to focus on securing and investing in additional sources of iron ore as well as further measured investment in property development in the PRC in projects which offer good upside potential and manageable risk.

The group expects to release the results by the end of June 2012.

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