LETTER TO THE SHAREHOLDERS

Transcription

1 SEMI-ANNUAL REPORT 2015

2 LETTER TO THE SHAREHOLDERS DEAR SHAREHOLDERS OF DEUTSCHE ROHSTOFF AG, LADIES AND GENTLEMEN, Prices for most commodities continued their decline during the first half of Whilst the WTI (Western Texas Intermediate) oil price could moderately increase from just under USD 54 to around USD 59 per barrel during the reporting period, it tested a new multi year low of USD 38 per barrel on 24 August. Industrial metals also recorded significant losses over the past months. Copper lost approximately 19 % by 31 August compared to the beginning of the year, nickel lost 34 %. Wolfram APT traded almost 40 % lower in Europe. Only the gold price remained relatively stable at USD 1,140 per ounce compared to USD 1,193 at the beginning of the year. DR. THOMAS GUTSCHLAG, CEO DEUTSCHE ROHSTOFF AG WHERE WILL COMMODITY PRICES GO? The slump in industrial metals has already lasted over four years. The prices of many metals have halved during that time. The oil price suffered similar reductions during a significantly shorter period of time. This led to production capacity being withdrawn from the market, investments being massively scaled back, exploration projects being abandoned, people being laid off and write-downs of balance sheets. This is an expected reaction of the market to the new prices environment. At the same time, the lower prices lead to rising demand. For the world oil market, the IEA (International Energy Agency) expects an additional demand of 1.6 million barrels per day in 2015 and for 2016 an additional increase of 1.4 million barrels, reaching 96 million barrels per day for the first time in history. The growth for 2015 will be the strongest in 5 years. A remarkably quick and strong reaction to the price decline. It is only a matter of time before the price pendulum swings in the other direction again. The same development can also be observed for the metals markets, where the adjustment tends to be longer on the supply side as a result of longer development cycles. From our point of view the price decline therefore remains a buying opportunity. Many good projects in the oil and gas sector likewise the mining sector have lost a significant amount of value. In the United States the Cub Creek team was successful in acquiring over 2,000 acres of prospective tenements at very favourable terms at the beginning of the year. With our investment in Hammer Metals we also invested in a very promising copper exploration play, located in the well known Mount Isa region, Queensland, Australia. Together with the holding in Almonty and Ceritech we have a whole range of extremely high-quality projects. The foundation of Salt Creek Energy together with the previous Tekton founders will help increase the quality of our company portfolio. However, the current market situation requires patience. Our investments might not multiply as rapidly in value as in a boom cycle, but the focus is on advancing the projects with limited capital spending and cost, so that they can operate successfully in the current environment. Our projects stand out because they all can be profitable even at today s prices. That s because of their quality. With the recovery of prices, we can expect an additional sharp uplift in profitability. Many projects of lower quality will not survive the current market phase,their development will be suspended or not even be started. Consequently future supply will be reduced paving the way for rising commodity prices. Our share price reflects this market situation. Investors currently hold back with commitments in the commodity sector. The quality of our projects might be difficult to assess for investors without in-depth industry expertise. Ultimately this will be the case until our projects reach production and their true value becomes obvious. Therefore it was an important step that our US subsidiary Elster Oil & Gas has reached production status again in mid September. We expect high flow rates and good profitability despite the low oil prices for the five horizontal wells in the Magpie area. This way we can show the profitability of our business approach step by step. As the oil price recovers and investors come back, our share price will ultimately react accordingly. Exchange rates also play an important role in commodity investments. All the raw materials that are important to us, are sold in US Dollars. In addition, we keep large 2

3 amounts of our capital in US Dollars or US Dollar assets. As we report our financials in Euros, any variation to the EUR/USD exchange rate has an immediate impact on our balance sheet and the profit and loss statement. In the first half of the year, the US Dollar continued to strengthen against the Euro. This directly results in mostly unrealised currency gains for us. These totalled around EUR 5.8 million for both, the group as well as the separate financial statement of Deutsche Rohstoff. Producers who are active in countries whose currencies devalue against the Dollar have the advantage that the price decline for the raw materials produced in domestic currency is expected to drop less strongly. The gold price in Australian Dollars even has increased from to since 1 January while it fell in US Dollar terms during the same period. The Australian gold producers benefit from this trend because their major expenditures are paid in Australian Dollars. The price decline in copper and tungsten therefore impacted our shareholdings in Hammer Metals and Almonty to a lesser extent than it did to US producers. DIVIDEND AND SHARE BUY-BACK PROGRAM The dividend of 50 Cents per share was transferred to shareholders one day after the annual general meeting. It was the second dividend payment after a 10 cent dividend in We intend to pay regular dividends in the coming years as well. purchased shares worth EUR 5 million in 2014, which will be cancelled within the next business days. The share capital reduces from 5,322 million to 5,063 million shares. At the beginning of August, we launched another share buy-back program. This time, 2 million Euros worth of shares can be bought. By the end of August, we acquired approximately 26,800 shares at an average price of EUR The consolidated financial statement for the group reports no revenues for the first half of the year. This is not a surprise due to the sale of all producing assets in However, we expect our US-activities to contribute significant revenue again in the second half of Nevertheless, the group has still achieved a result before taxes, interest and depreciation and amortization (EBITDA) of EUR 2.7 million until the end of June. The reason is mainly the already mentioned currency gain of EUR 5.7 million. The Group result was slightly positive at 70 thousand Euros. We expect a significantly improved result for the whole year as compared to the forecast in the last management report. EBITDA will be positive for the group s earnings given the current state and we only expect a loss in the low-single-digit millions. In the individual financial statements of Deutsche Rohstoff, we expect a low seven-figure profit for the year. Of course, this forecast is subject to the provison that there will not be a drastic appreciation of the Euro in the next few months. DR. JÖRG REICHERT, CTO DEUTSCHE ROHSTOFF AG may announce its first acquisitions. Almonty will further expand its position as a leading tungsten producer outside China. Hammer Metals and Ceritech will sign important contracts and therefore significantly increase in value. Commodity prices and currencies will continue to be volatile making business certainly not easier. However, we are convinced that patience and dedication in developing our portfolio will be rewarded in the end. COMMODITIES ARE THE FUTURE. COME WITH US. Glückauf as the German miner s good luck call goes from Heidelberg, Share buy-back programs are another tool to enable shareholders to participate from a successful business. We already We want to significantly advance our portfolio in the coming months. The first wells are being planned by Cub Creek. Salt Creek Dr. Thomas Gutschlag Board of Directors CEO Dr. Jörg Reichert Board of Directors CTO SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 3

4 PROJECT PORTFOLIO AND RESOURCE OVERVIEW PROJECT PORTFOLIO AS OF 31 AUGUST 2015 The investments of Deutsche Rohstoff as well as the associated reported resource estimates of the portfolio companies are as follows: Elster Oil & Gas (93.04 % DRAG) holds the remaining acreage of Tekton Energy, which was not sold in A reserve estimate is planned for 2016 for these areas. Cub Creek Energy (74.00 % DRAG) plans to produce a reserve estimate for the acquired tenements in Salt Creek Oil & Gas (60.00 % DRAG) is the latest addition to the company s portfolio. So far, no areas have been acquired yet. Almonty Industries (23.53 % DRAG) has carried out extensive exploration work in all projects, with disclosure of resource estimates pending at the time of writing. NI estimates of the Sangdong mine are shown in this summary, as the merger with Woulfe was only completed after the reporting deadline. Ceritech AG (72.91 % DRAG) carried out a capital reduction with a subsequent capital increase, whereby DRAG`s share in the company increased. Due to the focus on stockpile projects no resources are currently shown. Hammer Metals was recently included in the portfolio. Together with its subsidiary, SRD, Deutsche Rohstoff holds % of Hammer Metals. The company has two deposits with a copper resource estimate. The estimate for the Overlander property was updated in August. There were no changes at Tin International (60.33 % DRAG). There were no changes at Devonian Metals either (47.00 % DRAG). Rhein Petroleum (10.00 % DRAG) intends to provide a reserve report in

5 RESOURCE OVERVIEW AS OF 31 AUGUST 2015 PROJECT COMPANY COMMODITY QUANTITY RESOURCE CLASSIFICATION DATE OF RELEASE OIL AND GAS Rhine Valley and Bavaria Greater Wattenberg Project Northern Wattenberg Project Rhein Petroleum Oil and Gas expected 2016 Cub Creek Energy Oil and Gas expected 2016 Cub Creek Energy Oil and Gas expected 2016 Magpie Elster Oil & Gas Oil and Gas expected 2016 METALS Gottesberg Tin International Tin Copper Geyer Tin International Tin Zinc 114,000 t 38,000 t 44,000 t 51,000 t Indicated Inferred Resources, JORC 1 Inferred Resources, JORC 1 Sept Indicated Resources, JORC 1 Indicated Resources, JORC 1 Aug Sadisdorf Tin International Tin 15,000 t Inferred Resources, JORC 1 Sept Wolfram Camp Almonty Industries Tungsten Molybenum 445 t WO t WO 3 2,200 t WO 3 89 t MoS t MoS t MoS 2 Proven Probable Reserves, NI Indicated Resources, NI Inferred Resources, NI Proven Probable Reserves, NI Indicated Resources, NI Inferred Resources, NI June 2014 Los Santos Almonty Industries Tungsten 7,409 t WO 3 8,874 t WO 3 3,648 t WO 3 Proven Probable Reserves, NI Measured Indicated Resources, NI Inferred Resources, NI Oct Valtreixal Almonty Industries Tungsten Tin Wrigley Devonian Metals Zinc / Lead Zinc / Lead 14,820 t WO 3 8,892 t 91,337 t 477,120 t Inferred Resources, NI Sept Inferred Resources, NI Indicated Resources, NI Inferred Resources, NI June 2012 Kalman Hammer Metals Copper 162,000 t Inferred Resources, JORC 1 Mar Overlander Hammer Metals Copper 21,112 t Indicated Inferred Resources, JORC 1 Aug Australian standard for the classification of resources Joint Ore Reserves Committee (JORC) 2 Canadian standard for the classification of resources National Instrument SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 5

6 6 OIL AND GAS

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8 OIL AND GAS CUB CREEK ENERGY % DRAG (AS OF 31 AUGUST 2015) Cub Creek Energy (CCE), founded in 2014 and headquartered in Denver, was already able to announce the acquisition of two tenements in the Wattenberg Field in Colorado, USA in the first half of Both projects, the Northern Wattenberg and the Greater Wattenberg project, will be developed in the next 2 3 years with up to 100 horizontal wells. Cub Creek s interest in these wells will be well above 50 % (Working Interest) and the company will plan and operate the wells. The management of Cub Creek expects the wells to break even at an oil price of approx. USD 40 per barrel WTI (Western Texas intermediate). The wells are expected to deliver economic results despite the recent sharp drop of oil prices. In addition drilling costs in the Wattenberg Field in Colorado have also fallen significantly in the past few months as has been the case in all other regions of the United States. Drilling cost reported by competitors have reduced from USD 4.5 million in early 2014 to USD 3 million recently. Consequently the breakeven price is expected to continue to fall further. Cub Creek plans to drill the first twelve horizontal wells in the first quarter of As CCE s stake amounts to approximately 50 %, this is equivalent to 6 net wells that belong 100 % to Cub Creek. At a price of USD 45, the expected cash flow over the life of a well after capex, opex, taxes and charges to land owners is in the region of approximately USD 3 million. Furthermore the company has evaluated many other projects during the reporting period as acquisition targets. The strategy is to secure areas that can be developed economically even at low oil prices and where acquisition requires minimal upfront capital. With this approach risks can be minimised even in the event of further falling prices or a long term environment of low prices. The focus is on the States of Colorado (in particular in the Wattenberg Field), Utah and North Dakota, where the management team has already worked in the past and has extensive experience. 8

9 ELSTER OIL & GAS % DRAG Elster Oil & Gas (EOG) holds the remaining properties following the sale of the main project of Tekton Energy in the Wattenberg Field in Colorado. Currently, EOG has a stake of 560 acres (2.3 km 2 ) within the so-called Magpie area, which is considered to be very prospective. Elster Oil & Gas assumes the role of the so-called non-operator. The company has an average interest in all wells of just below 50 %. As non-operator, Elster bears a proportional share in the costs and receives the same proportion of the sales from production. The operating partner informed Elster in the first half of 2015 that drilling of up to 60 horizontal wells on the joint tenements is planned for the coming years. Drilling of the first five wells already started in March All of them were completed in August and were connected to production facilities by mid September. Elster holds an interest of 39 % in the production. The economic assumptions for cost and returns of the wells correspond to those of Cub Creek Energy, as the acreage of both companies is located in the same region of the Wattenberg Field. Therefore also for Elster Oil & Gas a breakeven WTI price of approx. USD 40 is targeted. Furthermore, Elster is still the owner of the Mineral Rights (Entitlement to revenue shares in oil and gas production) of an area near the former tenements of Tekton Energy. Without any additional investments Elster will receive a share in the revenue from the wells, which other companies develop in this area. Depending on the oil price the management of Elster Oil & Gas estimates the value of the mineral rights to be USD 2 5 million. OIL PRODUCTION IN THE WATTENBERG FIELD SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 9

10 OIL AND GAS RHEIN PETROLEUM % DRAG In March 2015 Rhein Petroleum announced that the test well Schwarzbach 1 in Riedstadt-Goddelau produced a positive result and that oil has been found. After the successful well, test production is now scheduled for November. Most of the production infrastructure construction work is already completed. In addition the Bedernau and Lauben wells that were drilled by Wintershall GmbH in Bavaria, Rhein Petroleum s partner, in autumn of 2014, will also undergo test production in the coming months. The purpose of the test production is to obtain information about the long-term well results. Rhein Petroleum carried out comprehensive 3D seismic exploration in 2011 and 2012 on their licensed areas and identified many drill targets by doing so. Further drilling is currently planned and scheduled for Deutsche Rohstoff holds a 10 % share in the company, which it co-founded in The remaining shares are held by Tulip Oil ( the Hague, Netherlands. On the basis of an agreement dated September 2012 between Tulip Oil and Deutsche Rohstoff, DRAG only needs to finance 2.5 % of Rhein Petroleum s investments despite holding a 10 % share in the company. EXPLORATION WELL SCHWARZBACH 10

11 SALT CREEK OIL & GAS % DRAG In June 2015, Deutsche Rohstoff founded a new company together with the founders of Tekton Energy, Jerry Sommer and Earl Norris, with a focus on oil & gas in the United States. The operational business of the company is headed by Tim Sulser, who has worked as a petroleum engineer in the United States for 15 years. Most recently he worked at the Investment Bank Tudor, Pickering, Holt & Co., which specializes in oil & gas. Numerous potential transactions are being evaluated at present. Gas projects are also taken into consideration in addition to oil because management believes that after years of stagnant and declining prices there may be an upswing in gas prices. JUTLAND PETROLEUM % DRAG Deutsche Rohstoff has now acquired 100 % of the shares in Jutland Petroleum. Jutland was granted a license for conventional oil and gas exploration in Denmark along the German-Danish border at the end of May Jutland holds an 80 % share of this licence, the remainder is held by the Danish state-owned Nordseefonden. The company has acquired and evaluated historical drilling and seismic exploration data from the Danish authorities. The next steps are currently being evaluated along with seeking possible cooperations with partners, with whom the geological theories for the licensed area can be tested. SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 11

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13 METALS

14 METALS ALMONTY INDUSTRIES % DRAG Deutsche Rohstoff continues to be engaged in the tungsten market with its holding in Almonty Industries. With the sale of Wolfram Camp in 2014 DRAG acquired a % share in Almonty and also received a convertible note of CAD 6.0 million maturing in March The note has an interest rate of 4 % and can be converted into shares at a share price of CAD The initial bond amount of CAD 7.5 million stated in the sales agreement in June 2014 was reduced by CAD 1.5 million after mutual agreement. This reduction in favour of Almonty was necessary because changes in the Wolfram Camp balance sheet had occurred at the time the contract finally came into effect on 22 September For this case the purchase contract included a provision for adjusting the purchase price. In July, Almonty announced its intent to merge with Woulfe Mining. The subsequent offer was accepted by the majority of the Woulfe shareholders and the merger was completed in September. It involved the exchange of all Woulfe shares with Almonty shares at an exchange ratio of Almonty shares for each Woulfe share. A total of 34,806,205 new shares were issued for this purpose. The same exchange ratio applied to options. Liabilities and convertible bonds remained the same under their previous conditions. At the same time Almonty agreed to a financing deal of CAD 7.78 million, to which Deutsche Rohstoff contributed CAD 4.0 million by means of another convertible bond. The bond has a two-year term, a 5 % p.a. interest rate and a conversion price of CAD Furthermore it is secured with shares in Woulfe Mining. In addition Deutsche Rohstoff obtained a seat in Almonty board. The issue of new shares in the wake of the merger, as well as the subsequent round of financing reduced the stake held by DRAG in Almonty to %. The merger gives Almonty access to the South Korean Sangdong project, which is one of the world s largest and richest tungsten deposits. After Los Santos, Wolfram Camp and Valtreixal, Sangdong is the fourth project in the company s portfolio. The aim is to start production in Valtreixal and Sangdong by the beginning of Upon reaching name plate capacity at all four projects Almonty expects to produce 14

15 OPEN PIT LOS SANTOS, SPAIN 7,100 t WO 3 per year which represents approximately 40 % of the non-chinese supply of tungsten. During the reporting period the two operationally active mines held by Almonty developed as follows: Despite the drop in tungsten prices the Los Santos mine in Spain generated an operating profit of CAD 5.5 million in the first half of 2015, of which CAD 3.3 million are attributed to the second quarter. Operating costs decreased from USD 161 per mtu in the first quarter to USD 143 per mtu in the second quarter. According to the Argus Tungsten Outlook (August 2015), Los Santos is therefore the third-lowest cost tungsten producer in the world which is still competitive even at the current tungsten prices around USD 210 per mtu. The Wolfram Camp Mine in Australia is in the process of continuous restructuring since the acquisition by Almonty. An intense exploration program obtained positive results and will not only significantly improve the tonnage of surface resources but also the tungsten grades. A new NI resource estimate is expected to be issued within the next months. Due to these good results management has deferred the plans for the transition underground mining for the time being and is continuing cheaper surface mining. However, management sees the key to success of Wolfram Camp in the modification of the processing plant and the associated increased tungsten recovery. Almonty can rely on extensive team experience from the previously operated Panasqueira mine in Portugal. The first major reconfiguration work of the processing plant took place in July which will lead to much needed unit cost improvements in the short to medium term. Wolfram Camp reported an operating loss of almost CAD 4.0 million in the first six months, of which CAD 1.4 million were attributed to the second quarter. Operating costs per mtu fell from USD 329 in the first quarter to USD 276 in the second quarter. SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 15

16 METALS HAMMER METALS % DRAG Deutsche Rohstoff saw an opportunity in the generally weak market environment in the commodities sector in February 2015 and, along with its Australian subsidiary SRD, invested in the Australian exploration company Hammer Metals as part of a capital raise of AUD 1.25 million. In March, DRAG acquired further shares amounting to AUD 0.20 million through an off-market deal. Overall, the combined interest in Hammer held by Deutsche Rohstoff and SRD is % of which 80 % are attributable to Deutsche Rohstoff and 20 % to SRD. Hammer Metals has approximately 2,000 km² of exploration ground in the region of Mount Isa, Australia, located in the vicinity of mines operated by large mining companies such as Glencore, BHP Billiton or Chinova. The company explores for so called Iron-Oxide-Copper-Gold (IOCG) deposits. Due to the high ore tonnages this type of deposit can host they are extremely cost-effective to extract and therefore economically very lucrative. Examples are the world class deposits of Olympic Dam and Ernest Henry in Australia or la Candelaria in Chile. The drilling program funded with the capital raise in February yielded promising results during the reporting period. Particularly noteworthy are the following: In the area of Overlander North, a hole intersected a 97.3 m long section with a copper content of 0.54 %. This included a section of 21 m in length with a copper content of 1.7 % and a 6 m long section with a copper content of 3.3 %. The mineralization style shows indications of IOCG style deposits. In the Overlander Central area, a hole intersected a 71 m interval grading 0.31 % copper. Both, similar thicknesses and copper grades have been identified in two additional holes. These were 0.34 % copper over 116 m and 0.31 % copper over 110 m. Two holes drilled on the Hammertime and Andy s Hill licenses also revealed encouraging results. One showed increased metal contents over a 216 m interval, indicating extensive IOCG mineralization. EXPLORATION CORE DRILLING 16

17 HAMMER TENEMENT AREA, MOUNT ISA In July, Hammer Metals raised an additional AUD 1.0 million. Deutsche Rohstoff provided a significant portion of AUD 650,000 by means of a convertible bond. The remaining AUD 350,000 was contributed by other investors and the management of Hammer Metals through issuance of shares in two stages until September. In this context, the share of DRAG and SRD in Hammer Metals fell to % in July and to % in September. The convertible bond has an interest rate of 10 %, for a period of 24 months. It can be converted by Deutsche Rohstoff or Hammer Metals at any time at a price of 6 cents per Hammer Metals share, however, regardless of the timing of the conversion an interest payment for at least 12 months has been contractually guaranteed. The interest can be paid either in cash or in shares, also at a price of 6 cents per share by Hammer Metals. After full conversion of the convertible note including accrued interest the share in Hammer Metals held by DRAG and SRD will total %. In August a new JORC resource estimate for Overlander was released, which increased the known in-situ copper metal content by 53 %. Thereafter the resource, rated in the categories inferred and indicated, contains a total tonnage of 1.77 million tonnes ore grading 1.2 % Cu. For the calculations, a cutoff grade of 0.7 % Cu was applied. The new resource estimate was a direct result of the drilling campaign outlined above. The deposit is open to depth and along strike and therefore has very good potential for further resource expansion. Deutsche Rohstoff obtained a seat in the Hammer Metals Board in September. For the remainder of the year Hammer Metals plans further exploration activities. Geophysical surveys and geological modelling work to identify promising drill targets are at an advanced stage. SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 17

18 METALLE CERITECH % DRAG The annual general meeting on 8 April retrospectively approved a capital reduction and a subsequent capital raise. Through this process, the balance sheet of Ceritech was adjusted as of 31 December At this date, the company had equity capital of EUR 1.05 million. In May and June, the shareholders were offered to apply for 939,178 new shares at a ratio of 2:1. Together with a premium of EUR 0.50 per share, approximately EUR 1.4 million were raised. Shares of shareholders, who did not exercise or only partially exercised their subscription rights were proportionately issued to shareholders that had registered for an over-subscription. As a consequence, Deutsche Rohstoff increased its share from % to %. The processing work with rare earth containing gypsum continued as planned. In June four tonnes of gypsum from a large Brazilian mining company arrived in Germany. The processing tests on this material are currently ongoing. At the end of September another four tonnes of samples are expected from another Brazilian producer. This material will be tested with the identical aforementioned methodology developed by Ceritech. The aim of the preparatory work is to produce a rare earth pre-concentrate, which can then be taken through final processing steps to extract rare earth elements. The generated pre-concentrates produced to date show a high level of quality that has not been achieved previously. Overall Ceritech remains committed to the plan, completing the basic test work by the end of the year, and being able to develop corresponding business plans. On that basis the company intends to reach agreements with the Brazilian partners that grants Ceritech exclusive access to the gypsum. As soon as contractual security is established, design and construction of a pilot plant in Brazil will start. ORE PROCESSING SPIRALS 18

19 RARE EARTHS IN MINERAL DUMPS TIN INTERNATIONAL % DRAG Despite the rather negative sentiment in the tin market activities in all three projects continued, although at a reduced speed. At the beginning of the year reopening and rehabilitation work of old mine workings was carried out at the Sadisdorf tenement in order to ensure safe and reliable access to the underground part of the tin deposit. Subsequently extensive underground mapping and sampling activity was conducted. Part of the collected samples were dispatched for metallurgical testing to an Australian specialist laboratory. The results obtained in August were very encouraging and confirmed the relatively simple layout for processing of the ore as well as a good recovery. It is intended to continue geological mapping and modelling work until the end of the year and to develop initial technical concepts which aim to economically operate a mine even at comparatively low tin prices. A scoping study was prepared for the Gottesberg tenement with a generally positive outcome for this project. It further revealed potential prospective areas and exploration targets. The company is currently liaising with the Saxon Mining Authority with respect to the following work program. Because of the difficulties arising from the processing of skarn ores from the Geyer project, TIN has become a partner in the BMBF sponsored research project Aufbereitung feinkörniger Komplexerze (Processing of finegrained complex ore). The company does not receive funds as part of this project but it secures the right to use the technology improvements resulting from the research. Other then providing sample material from existing core no further cost arise for TIN. This is a very cost effective way to advance the Geyer project. SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 19

20 INVESTOR RELATIONS AND CREDITOR RELATIONS INVESTOR RELATIONS UND CREDITOR RELATIONS SHARES The share price of Deutsche Rohstoff fell 14 % over a 12 month period to EUR in June, but was able to recover by 7.5 % from its low at the beginning of the year. The average trading volume in the reporting period amounted to 5,050 shares per day. The market capitalization declined to around EUR million by the end of June. In August a new research report from M.M. Warburg in Hamburg was issued with a price target of EUR was the second dividend after the payment of 10 cents per share in In August, a second share buy-back programme was launched after shares with a volume of EUR 5 million had already been bought back in 2014, which reduced the outstanding equity from 5,322 million to 5,063 million shares. For the current programme, EUR 2 million are available. By the end of August, 26,800 shares had already been acquired at an average price of EUR is 8 % per annum. In January and February 2015, Deutsche Rohstoff AG repurchased nominal EUR 5.6 million of the bond from institutional investors. The entire outstanding volume amounted to around EUR 51 million at the end of February The bond, which is listed in the entry standard for bonds on the Frankfurt Stock Exchange, has traded between 100 % and 110 %, apart from short intervals, since September At the annual general meeting on 21 July, a dividend of 50 cents per share was approved by the shareholders and transferred to their accounts the following day. This BOND The bond issued in July 2013 has a term until July 2018 and may be terminated for the first time in July The interest rate In January and July 2015, interest payments were made on time. The rating grade BB+ was re-confirmed in June 2015 by Creditreform. ANNUAL GENERAL MEETING 2015 AT THE BEST WESTERN PLUS PALATIN KONGRESSHOTEL, WIESLOCH 20

21 SHARE AND BOND DATA SHARES BONDS ISIN DE000A0XYG76 DE000A1R07G4 WKN A0XYG7 A1R07G Stock exchange abbreviation DR0 DR01 Stock market segment/trading Entry Standard Entry Standard for medium-sized companies Indices Performance Index TOP30 Designated Sponsors / Specialist ICF Bank AG ICF Bank AG Number of shares ( ) 5,322,147 Maturity 10 July 2018 Next interest payment date 11 January 2016 Rating BB+ (Creditreform) Performance Share Bond Closing price: EUR EUR EUR EUR Trading turnover 5,050 (shares per day) 48,794 (nominal) Market capitalisation EUR million EUR million SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 21

22 CONSOLIDATED MANAGEMENT REPORT (IN ACCORDANCE WITH THE GERMAN COMMERCIAL CODE HGB, UNAUDITED) The following is an abridged management report, which mainly focuses on deviations in comparison to the consolidated financial statements for In this respect a comprehensive description can be found in the annual report for 2014 and the detailed consolidated management report contained therein. I. GROUP STRUCTURE BUSINESS MODEL There are no changes to the business model set out in the business report. Salt Creek Oil & Gas, a newly founded company was added to the portfolio. Deutsche Rohstoff has a 60 % holding in Salt Creek which focuses on the development of oil und gas projects in the US. Other new entries to the portfolio were the Australian company Hammer Metals (holding of %) and the US company Mountain States Reserve Company (holding of 100 %). The latter specializes on the acquisition of non-operating interests in oil and gas projects (for example royalties). The holdings in the following companies have changed compared to 31 December 2014: Heidelberg Germany Australia USA Canada CERITECH AG (formely Seltenerden Storkwitz AG) % Leipzig STRATEGIC RESOURCES DEVELOPMENT PTY LTD % Taringa DEUTSCHE ROHSTOFF USA INC % Wilmington DEVONIAN METALS INC % New Westminster RHEIN PETROLEUM GMBH % Heidelberg HAMMER METALS LTD % Perth ELSTER OIL & GAS (formely Tekton Energy LLC) % Denver ALMONTY INDUSTRIES INC % Toronto JUTLAND PETROLEUM GMBH % Heidelberg HAMMER METALS LTD 3.46 % Perth TEKTON WINDSOR LLC % Denver SACHSENZINN GMBH % Leipzig TIN INTERNATIONAL PTY LTD % Sydney DIAMOND VALLEY ENERGY PARK LLC % Denver CUB CREEK ENERGY LLC % Denver SALT CREEK OIL & GAS LLC % Denver MOUNTAIN STATES RESERVE COMPANY LLC STRUCTURE UNDER CORPORATE LAW % Denver 22

23 Ceritech: increase from % to %. Jutland Petroleum: increase from % to %. Almonty Industries: reduction from % to % OBJECTIVES AND STRATEGIES No changes RESEARCH AND DEVELOPMENT No changes II. ECONOMIC REPORT OVERALL ECONOMIC AND INDUSTRY-SPECIFIC FRAMEWORK CONDITIONS A statement on the development of prices of the Group s most relevant commodities can be found in the letter to the shareholders in this half-year report as well as the snapshot of the individual business areas. BUSINESS PERFORMANCE The 1st half of 2015 was marked by the acquisition of acreage in the United States, as well as selective investments in several holdings. Reference is made to other activities in the 2014 business report and the statements in this interim report. III. NET ASSETS, FINANCIAL POSITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Earnings in the first half of 2015 were substantially dominated by EUR/USD foreign exchange effects, which made a positive contribution of EUR 5.8 million. The previous year (30 June 2014) was characterised, by contrast, on the one hand by the sale of the two Australian companies, which operated the Wolfram Camp Mine, and on the other hand the divestment of the majority of the assets and liabilities of Tekton Energy. Due to the sale of these producing group companies in 2014, and the fact that new oil and gas production is not anticipated to start before the 2nd half of 2015, no revenues were generated in the first half of the year In connection with the preparations for this oil and gas production, activated payments were designated of around EUR 0.4 million on 30 June Personnel expenditure fell in the first half year from EUR 2.8 million to EUR 0.5, which is mainly due to the sale of the two Australian companies Wolfram Camp Mining and Tropical Metals in September Other operational expenditure rose, however, from EUR 1.9 million to EUR 2.6 million. This increase is essentially attributable to the cost for the bond buyback amounting to approximately EUR 0.3 million, as well as the allocation to the provision for contingent losses relating to the assessment of a cross-currency swap also of around EUR 0.3 million. Depreciation fell from EUR 18.2 million to EUR 0.4 million, as in the previous year the depreciation primarily consisted of the writedowns on the Wolfram Camp Mining book values amounting to EUR 14 million. On 30 June 2015, however, only scheduled depreciations of fixed assets were made. The result before interest, taxes and depreciation (EBITDA) amounted in the first half of the year to EUR 3.1 million. After adjustment for depreciation the result was EUR 2.7 million before interest and taxes (EBIT). Due to interest payments on the bond, the group achieved a negative financial result of EUR million. Profit before tax thus amounted to EUR 0.9 million. Group profit amounted on 30 June 2015 to EUR 0.2 million and the balance sheet profit to EUR 21.6 million. FINANCIAL POSITION The cash and cash equivalents (cash and securities in the fixed assets and current assets) amounted to EUR 92.4 million as of 30 June Compared to 31 December 2014 this represents a decline of around EUR 10.9 million. This is mainly due to the costs associated with the bond buyback (EUR 5.8 million) and interest on the bond (EUR 2.2 million). The financial resources of the group are still excellent. NET ASSETS The consolidated balance sheet total of EUR million consists 32 % of fixed assets and 64 % of current assets, of which the majority is cash balances and easily realizable securities. It is therefore at a similar level as on 31 December 2014 (EUR million). Equity rose slightly compared to 31 December 2014 from EUR 62.5 million to EUR 64.4 million. The equity ratio amounted to 49.5 % (31 December 2014: 46.4 %). The liabilities due to the bond and to banks amounted to EUR 58.0 million. In the first half of the year there was a further buyback of bonds amounting to EUR 5.5 million.ww SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 23

24 CONSOLIDATED MANAGEMENT REPORT (IN ACCORDANCE WITH THE GERMAN COMMERCIAL CODE HGB, UNAUDITED) OVERALL ASSESSMENT According to the Executive Board, nothing has changed in the overall assessment of the annual report that the economic and financial situation of the group is excellent. The EUR/USD exchange rate trend has again been very beneficial and brought a high monetary gain. Equity and equity ratio have risen further. For the second half of the year the Board expects revenue from oil and gas production in the United States, as well as operational progress in most other group companies and affiliates. IV. SUBSEQUENT EVENTS After the end of the business year the following events have significantly influenced the further course of the business up to the end of September 2015: On 22 July 2015, Deutsche Rohstoff AG distributed a dividend of 50 cents per share. V. FORECAST, OPPORTUNITIES AND RISK REPORT The Board expects a negative consolidated result in the low-single-digit million range for the full year and is therefore improving its forecast compared to the annual report. This is due to the major currency gains in the first half of the year. The precondition for achieving the forecast is the assumption of an exchange rate of EUR/USD of 1.11 at the end of the year, as well as the assumption that no large-scale impairment losses are required. A dividend payment is therefore intended again for We refer to the 2014 business report for the opportunity and risk report. Heidelberg, 29 September 2015 The Executive Board Dr. Thomas Gutschlag Dr. Jörg Reichert At the beginning of August, a further share buyback program was launched. A total of EUR 2.0 million is available for the program. The buyback will probably be completed by the end of the year. The affiliate Almonty Industries announced a merger agreement with the Canadian company Woulfe Mining in July The merger was completed on 11 September. At the same time Almonty Industries completed a financing of CAD 6.6 million. Deutsche Rohstoff AG participated in this financing through a convertible bond of CAD 4.0 million. In addition, it received a seat on the Board of Directors of Almonty Industries. At the end of July, Deutsche Rohstoff AG subscribed to a convertible bond of Hammer Metals for AUD 0.65 million. At the same time it received a seat on the Board of that company. The US subsidiary Elster Oil & Gas reached production status after the successful commissioning of five horizontal wells. Production rates of the first month in operation are planned to be published mid October. 24

25 SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 25

26 CONSOLIDATED BALANCE SHEET (IN ACCORDANCE WITH THE GERMAN COMMERCIAL CODE HGB, UNAUDITED) ASSETS EUR EUR EUR A. FIXED ASSETS I. Intangible assets 1. Self-created industrial property rights and similar rights and values Purchased franchises, industrial and similar rights and assets, and licences in such rights and assets 13,918,102 9,615,902 10,676, Goodwill 1,667,830 1,113,805 1,601,871 15,585,932 10,729,707 12,278,615 II. Property, plant and equipment 1. Land, land rights and buildings, including buildings on third-party land 0 1,874, Petroleum extraction equipment and producing mines 0 5,270, Exploration and evaluation 2,852,646 3,580,026 1,646, Plant and machinery 3,352 3,233, , Other equipment, furniture and fixtures 104, ,270 94, Prepayments and construction in process 1,453, ,413,681 14,113,968 2,253,618 III. Financial assets 1. Equity investments 12,583,695 3,952,866 11,455, Securities classified as fixed assets 10,319,316 4,397,634 10,504,384 22,903,011 8,350,500 21,959,848 B. CURRENT ASSETS I. Inventories 1. Raw materials, consumables and supplies 0 2,950, Work in process 0 2,265, Finished goods and merchandise 71,190 32,979 37,557 71,190 5,248,757 37,557 II. Receivables and other assets 1. Trade receivables 69, , , Receivables from other investees and investors 0 366, Other assets 916,452 1,098, , ,549 1,628, ,310 III. Securities classified as current assets 25,871,487 5,035,043 18,731,270 IV. Bank balances 56,184, ,879,814 74,089,486 C. PREPAID EXPENSES 165, , ,044 D. DEFERRED TAX ASSETS 4,469,887 5,054,587 4,322,322 TOTAL ASSETS 130,650, ,296, ,696,070 26

27 EQUITY AND LIABILITIES EUR EUR EUR A. EQUITY I. Subscribed capital 5,322,147 5,322,147 5,322,147 less nominal value of treasury shares -259, ,075 Conditional capital EUR 2,000,000 (p.y. EUR 2,000,000) 5,063,072 5,322,147 5,063,072 II. Capital reserves 29,628,615 29,628,615 29,628,615 III. Equity differences arising from currency translation 5,538,628-5,169,529 4,213,459 IV. Consolidated net retained profit 21,579,293 35,592,830 21,252,162 V. Minority interests 2,800,442 3,277,627 2,331,158 64,610,050 68,651,690 62,488,466 B. PROVISIONS other provisions 2,161,393 2,009,891 1,540,304 2,161,393 2,009,891 1,540,304 C. LIABILITIES 1. Bonds, thereof convertible: EUR 0 51,555,000 62,241,000 57,111, Liabilities to banks 6,400,000 6,741,729 6,406, Prepayments received on account of orders 0 935, Trade payables 352,264 5,977, , Other liabilities 2,091,928 16,300,021 4,086,860 60,399,192 92,195,805 67,820,963 D. DEFERRED TAX LIABILITIES 3,479, ,869 2,846,337 TOTAL AND EQUITY LIABILITIES 130,650, ,296, ,696,070 SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 27

28 CONSOLIDATED INCOME STATEMENT (IN ACCORDANCE WITH THE GERMAN COMMERCIAL CODE HGB, UNAUDITED) EUR EUR 1. REVENUE 0 22,052, INCREASE IN FINISHED GOODS AND WORK PROCESS 4,094 1,203, OTHER OWN WORK CAPITALIZED 407, , OTHER OPERATING INCOME 5,831, ,734, COST OF MATERIALS 700 3,707,213 a) Cost of raw material, consumables and supplies and of purchased merchandise 0 367,093 b) Cost of purchased services 700 3,340, PERSONNEL EXPENSES 549,167 2,840,966 a) Wages and salaries 491,025 2,788,537 b) Social security, pensions and other benefit costs 58,142 52,429 thereof for old-age pensions: EUR 8,722 (prior year: EUR 4,831) 7. AMORTIZATION, DEPRECIATION AND WRITE-DOWNS 422,107 18,260,604 a) of intangible assets and property, plant and equipment 422,107 18,260, OTHER OPERATING EXPENSES 2,588,316 1,909, OTHER INTEREST AND SIMILAR INCOME 370, , INTEREST AND SIMILAR EXPENSES 2,159,403 2,590, RESULT FROM ORDINARY ACTIVITIES 893,284 96,040, INCOME TAXES 891,332 28,639,303 thereof expenses from change in recognized deferred taxes: EUR 633,542 (prior year income: EUR 777,935) 13. OTHER TAXES -148,641 1,972, CONSOLIDATED NET INCOME OF THE GROUP FOR THE YEAR (+) 150,593 65,428, LOSS (+) / PROFIT (-) ATTRIBUTABLE TO MINORITY INTERESTS 176,537-30,655, PROFIT CARRYFORWARD (+) 21,252, , CONSOLIDATED NET RETAINED PROFIT 21,579,293 35,592,830 28

29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN ACCORDANCE WITH THE GERMAN COMMERCIAL CODE HGB, UNAUDITED) The consolidated financial statements for this half-year report for Deutsche Rohstoff AG as of 30 June 2015 have been prepared in accordance with the accounting provisions of Secs. 290 et seq. HGB [ Handelsgesetzbuch :,German Commercial Code ]. The consolidated financial statements of this half-year report do not include all of the notes and disclosures required in a consolidated financial statements and should therefore be read in conjunction with the consolidated financial statements of 31 December The consolidated income statement is classified using the nature of expense method. The accounting and valuating methods for the establishment of this half-year consolidated financial statements correspond to the ones that have been applied to the establishment of the consolidated financial statements for the fiscal year that ended on 31 December Please refer to the Notes to the Consolidated Financial Statements for the fiscal year from 1 January 2014 to 31 December 2014, published in the 2014 annual report, page 64 et seq. (noted below: annual report). The consolidated half-year financial statements are presented in Euros (EUR). Unless otherwise indicated, all figures are rounded up or down to the nearest Euro in accordance with commercial rounding practices. Please note that differences may result from the use of rounded amounts and percentages. These interim consolidated financial statements have not been audited or revised. BASIS OF CONSOLIDATION The group of consolidated companies changed as follows on 30 June 2015 relative to 31 December Through the acquisition of a 50 % stake in Jutland Petroleum in April 2015 the total shareholdings of Deutsche Rohstoff AG rose to 100 %. So far, this company has been managed as an equity investment because of its minor significance. As a result of the now 100 % ownership, the corresponding consolidation will start in April In June 2015, the newly formed US subsidiaries Salt Creek Oil & Gas with an ownership of 60 % and Mountain States Reserve Company with an ownership of 100 % were included in the group of consolidated companies. Due to the capital raise by the German subsidiary Ceritech carried out in June 2015 the share of Deutsche Rohstoff in the company rose from % to %. CURRENCY CONVERSION Foreign currency assets and liabilities were essentially converted using the average spot rate on the balance sheet date. In the event of residual terms of more than one year, the realisation principle and the historical cost principle were applied. Except for equity, assets and liabilities in the financial statements prepared foreign currency were converted into Euros at the average spot rate on the balance sheet date. Equity was converted using the historical rate. The items on the income statement are converted into Euros at the average exchange rate. The resulting conversion difference is recognised in consolidated equity under the item Equity differences from currency translation. NOTES TO THE CONSOLIDATED BALANCE SHEET The following only includes items that present considerable differences for the period from 1 January to 30 June 2015 compared to the previous year (30 June 2014). Otherwise, we will refer to the details provided in the annual report. FIXED ASSETS The purchased franchises, industrial and similar rights and assets, and licenses in such rights assets amounted on 30 June 2015 to EUR 13.9 million (31 December 2014: EUR 10.7 million). The increase results primarily from the acquisition of production rights in relation to the Magpie and Wattenberg Field as well as from currency conversion of this item as of 30 June The equity investments amounted on 30 June 2015 to EUR 12.6 million (31 December 2014: EUR 11.5 million). The change is based on the share purchase of % of the Australian company Hammer Metals that occurred in the first half of % of the shares were directly bought by Deutsche Rohstoff AG whereas 20 % where bought through the Australian subsidiary Strategic Resources Development. Due to the adjustment of the sales price in the first half of 2015 in connection with the divestment of Wolfram Camp Mine to Almonty Industries there was a reduction in the amount of the convertible bonds which Almonty Industries had issued to Deutsche Rohstoff AG by CAD 1.5 million from CAD 7.5 million to CAD 6.0 million (reference is made on this to the annual report, page 50). SEMI-ANNUAL REPORT 2015 DEUTSCHE ROHSTOFF GROUP 29

30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN ACCORDANCE WITH THE GERMAN COMMERCIAL CODE HGB, UNAUDITED) EQUITY At the balance sheet date the capital reserve of the group is EUR 3.6 million higher than the capital reserves of the parent company. The item Equity capital differences from currency translation consists mainly of the differences of currency conversion made as of the date of the asset and liability items of the financial statements in US dollars. The currency conversion took place at the average rate of the US dollar in the profit and loss accounts. Due to the higher US dollar position, compared to 31 December 2014 the item rose by another EUR 1.3 million, so that it is standing at EUR 5.5 million on 30 June LIABILITIES The item Non-convertible bond consists of liabilities arising from a corporate bond. Because the company repurchased further bonds at a nominal value of EUR 5.5 million in the first half of the year 2015 and withdrew them, the corporate bond as of 30 June 2015 has a value of EUR 51.5 million compared to EUR 57.1 million on 31 December NOTES TO THE CONSOLIDATED INCOME STATEMENT OTHER OPERATING INCOME The other operating income amounting to EUR 5.8 million is predominantly unrealised currency gains, incurred at the level of Deutsche Rohstoff AG. These gains arose mainly from the key date valuation of bank accounts in US dollars. Due to the stronger US dollar compared to 31 December 2014 further unrealized currency gains are disclosed. Please also refer to the annual report for Other notes. Heidelberg, 29 September 2015 The Executive Board Dr. Thomas Gutschlag Dr. Jörg Reichert The purchase price adjustment reported in Other liabilities on 31 December 2014 in connection with the sale of the Wolfram Camp Mine to Almonty Industries for CAD 1.5 million was fully booked out in February 2015 against the item Convertible bonds in financial fixed assets (we refer in this respect on the comments made on the assets). The item Other liabilities amounts on 30 June 2015 to EUR 2.0 million (previous year: EUR 16.3 million) and is mainly composed of the interest liabilities in connection with the corporate bond as of 30 June

31 CONTACT DETAILS Deutsche Rohstoff AG Friedrich-Ebert-Anlage Heidelberg Germany Telefon Telefax Mannheim District Court Commercial Register Number WKN A0XYG7 (Share) WKN A1R07G (Bond) LEGAL NOTICE STATEMENTS ON FUTURE DEVELOPMENTS This interim report contains forward-looking statements that reflect the management s current view in respect of future developments. Such statements are subject to certain risks and uncertainties that are beyond the ability of Deutsche Rohstoff (DRAG) to control or estimate precisely. Such statements may include future market conditions and economic environment, the behaviour of other market participants, the successful acquisition or sale of group companies or interests and the actions of government bodies. Should any of the above stated risks or other risks or uncertainties occur, or should the assumptions underlying any f these statements prove incorrect, then the actual results may differ significantly from those expressed or implied by such statements. DRAG neither intends nor assumes any obligation to update any forward-looking statements to reflect events or developments that take place after this report. DEVIATIONS FRO TECHNICAL REASONS For technical reasons (e.g resulting from the conversion of electronic formats) deviations may arise between the accounting documents contained in this interim report and those submitted to the electronic Federal Gazette in Germany. In this case the version submitted to the electronic Federal Gazette shall be considered the binding version. The English version of the interim report is a translation of the original German version. In the event of any deviation, the German version of the interim report shall take precedence over the English PUBLISHER Deutsche Rohstoff AG Friedrich-Ebert-Anlage Heidelberg Telefon Telefax info@rohstoff.de This interim report was published on 29 September 2015.

32 DEUTSCHE ROHSTOFF AG FRIEDRICH-EBERT-ANLAGE HEIDELBERG TELEFON TELEFAX