The Company changed its accounting reference date from 31 December to 30 June on 26 April 2006.

 

 

 

 

 

 

 

June 2011

The brilliance of the Sunshine in the latter days of September, sending swimmers scurrying to the Serpentine and fruit pickers harvesting Nature’s Bonanza, encourage one to the view, along with the above results, that ‘this is as good as it gets’; certainly the stomach-wrenching falls in World Markets and the wild swings in the price of Gold, have erased much of the gains enjoyed by the main indices since the start of the year. The storm clouds gathering from Greece to Southern Spain, across North Africa and over the Atlantic Ocean, make one wonder whether we are in the eye of the hurricane, whose full effect is yet to be felt. Even some of the plant stalls at the Autumn Flower show have been forsaken in favour of a Wild Food Foraging Course. Primark appear to be the only carrier bags now visible in Oxford Street, and branded bags in Bond Street have replaced bows for those of the lineage of Genghis Khan, who now replicate their ancestor or conqueror in sweeping aside all they survey, albeit only with shoes from Prada or scents from Chanel.

The stocks which constitute the larger echelons of the portfolio have in most part resisted the more recent falls: by the end of June, Troy Resources was still struggling to meet its targeted production, an effort not helped by the coldest winter in 50 years in Argentina. Offsetting its shortfall was the sudden surge in Gold into the ether to reach $1,940 briefly in early August. Happily production from its Brazilian mine at Andorinhas was able to take advantage of these historic highs; more recently Casposo in Argentina has increased production to its design level, at the same time as announcing significant and exciting additional reserves.

Young and Co. continue to improve and expand their pub estate, with the vigorous combination of Geronimo and its fast-cycling management; somewhat questionable however, particularly to die-hard Ale enthusiasts is the decision to dispose of its share of the Wells and Young’s joint venture in brewing, especially given the almost legendary status of Young’s Bitter within London.

James Halstead thrive as ever, and have recently impressed with yet another profit and dividend increase, and MP Evans appear strongly positioned to benefit substantially in years to come from their increased planting of Palm Oil trees. Archipelago have confounded the pessimists in commencing production from their Toka Tindung mine in Sulawesi, and give good indications of expanding their reserves. Fuller, Smith and Turner have shown themselves less surefooted than normal, with their abortive bid for Capital Pub Group, although their excellent pub estate will stand them in good stead.

Patagonia Resources has proved up a reasonable reserve and Extorre, whilst slipping back from the exalted price it reached in August, would seem to have a world-class mine and deposit in Southern Patagonia.

Amongst the more recent additions to the Portfolio, we were privileged to visit Banro’s new Twangiza Mine at Bukavu in the Congo in early September. The stature of its recently constructed mill and enthusiasm and ability of its team and Chief Executive Simon Village, were impressive, and one has to hope that the quality of the carvings we collected will be replicated in the mine’s output, and that of its other deposits. Certainly, given political stability it has every likelihood of being a signal success, and a tribute to the perseverance of its progenitors. Readers of a historical bent might be interested to learn that the silk fabric for the curtains close to where this is being written were collected by my father in Elizabethville, during an enforced stop in what was the Belgian Congo some 50 years ago, and are as good today. We wish the Banro team every success and await news of their first Gold pour.

Many more of the minnows may yet prove profitable in due course, and we are happy to have received a take-over offer for Anvil Mining from Huanlong in recent weeks, also in the Congo, and also for Sundance, an Australian listed iron-ore company. Even our holding in Earthport, an inter-bank-payments software company, is beginning to show renewed signs of life, and is winning orders. The results of Hurricane Exploration’s new drilling programme are awaited with growing excitement, and perhaps Amerisur’s Colombian oil will at long last lead to a maintainable lift in the share price.

Beyond the pages of our own stocks, we cannot, however, discern a glimmer of light or honesty over the gravity of the situation confronting the World, and Britain.

In the UK we are led by a Prime Minister who would rather spit blood than adopt a single policy favoured by a majority of the Conservative Party; instead he favours a louche Lothario as Deputy Prime Minister and the Ballroom Boulevardier, also masquerading as the anti-Business Secretary: his goal seems to consist of ever more frivolous and futile taxation tribulations with which to mutilate the British wealthproducing classes. The PM’s main concerns in recent days have been to introduce a ban on plastic bags, and legalise gay marriage, this in the week that we are warned that the economic crisis perhaps exceeds that of the 1930’s. Our Armed Forces have been decimated and demoralised in a way that not even the fall of Singapore or Dunkirk could achieve, and alongside the cuts imposed the Defence industry itself is shrinking, perhaps beyond repair, as evident from BAE’s most recent closures.

It is quite insane to be reducing our Defence capabilities at a time of such uncertainties, and an increased likelihood of civil unrest; not to mention obscene in sacking officers and men who have been risking their lives so recently at the behest of their political masters.

The threatened destruction of Bombardier and the handing of the Thameslink contract to Siemens could well eliminate Train manufacture in Britain after 150 years, and have the effect of carrying foreign workers in foreign-made trains, owned by foreign companies to their probably foreign-owned employers. Surely the government of Britain should be making every effort to promote and increase the manufacture of goods and equipment within the boundaries of Britain, rather than grovelling in obeisance to strictures from a foreign, albeit European, power? Throwing the sop of the proposed High Speed Rail line to big business, against all local and economic opinion; is a poor substitute for abandoning such a core element of British industry.

Leaders of the Airline industry repeatedly warn of the effects of the Air Passenger Duty, and suggest up to 7.4m tourists may have by-passed Britain as a result of its imposition. This is exacerbated by the failure to expand Heathrow, or an alternative venue, putting Britain into the second rank of transport destinations, from its previous Ascendancy.

Heavy users of Energy, such as aluminium and Cement manufacture, face the prospect of relocating abroad, to escape the punitive ‘Carbon’ charges imposed by the EU and enhanced by its henchman Mr Huhne, maniacally destroying Britain‘s landscape by cocooning the hills in Wind Pylons, and electrical transmission cables, to produce power that will NEVER be either economic nor sufficient. Meanwhile the scope for production from Nuclear becomes more uncertain, as SSE, once Scottish and Southern Electricity, withdraw from Nuclear development, to concentrate on ‘Renewables’, as does RWE. Even the existing coal plants are to have their closure brought forward, whilst those of Eastern Europe are to be expanded, perhaps even with the assistance of money sequestrated from the British tax-payer. New technologies, for shale extraction and to utilise Britain’s almost limitless supply of coal sitting under our feet, are given scant credence or support, and instead the consumer is crushed under ever-higher ‘Climate change levies’ and the cost of the wind-imbroglio.

Not content with taking the wrecking-ball to the British Armed Forces and Industry generally, the abiding beauty of Britain now faces the threat of changes to the planning regulations, so that yet more rabbithutches can be constructed, when it is perfectly apparent that it is almost impossible to sell a house more than 60 miles from London at the present time. Any opponents are branded Nimbies or Luddites, just as critics of Foreign Aid, including Mr. Imran Khan, are decried as uncaring or immoral when they point out the damage it does by enhancing and feeding corruption.

Which brings us to Balaam’s Ass: Numbers XX11, vv 28-30: ‘Balaam smote the ass with a staff. And the Lord opened the mouth of the ass, and she said unto Balaam, What have I done unto thee, that thou hast smitten me these three times? Am I not thine ass, upon which thou hast ridden ever since I was thine unto this day? Was I ever wont to do so unto thee? And he said Nay’.

Substitute for Balaam, Mrs Merkel and the EU, and for the Ass, Greece, and the tragedy unfolding in the Aegean becomes apparent, but sadly neither have seen the Angel of the Lord standing in a narrow place where there was no way to turn. It is perfectly apparent to any sane being that a Greek default is inevitable, and withdrawal from the Euro preferable, before the suffering and impoverishment of Greece becomes a running sore throughout that Southern section, quite possibly embroiling and dragging in Spain, Portugal and Italy. The myopia, vanity and obduracy of Europe’s leaders may well bring to pass that violence and war they have so arrogantly believed themselves to be preventing. Meanwhile in Britain, renegotiation or outright withdrawal becomes insistently attractive, although once again blocked by Prime and Foreign Ministers, who claim the economy might be damaged by a vote: it is hard to see how any more pain could occur from challenging this venal, extravagant and obsessive concoction of academic socialists.

The seemingly limitless stream of regulations spewed out of its foaming jaws, in the realm of Health and Safety, Human Rights, Working Time Directives, Financial Solvency and a raft of other areas make Krakatoa seem positively miniscule. All are swallowed by our ever-compliant masters, with barely a murmur or even perhaps being noticed. The time has come to question its whole edifice rigorously and ruthlessly; and release the trading and technological skills so abundant in Britain to forge our own way in the World.

The Regulate and Tax world personified by the EU is replicated in the United States, where the obsession with additional taxation has been espoused so vocally by Mr Buffett, to the delight of Mr Obama. In reality for the United Kingdom and the United States, taxation is not the solution; the over-riding issue is Excess Expenditure, against which none of the tax increases suggested will make the slightest difference.

The ever-expanding role of the State, and the embedded rewards given to its employees, have relentlessly squeezed the Private Sector. The Municipalities of the United States, such as California, are essentially bust, as it is no longer possible to run the state infrastructure, at the same time as paying its index-linked Pensions; similar to the Church of England, which is shrinking the numbers of or not replacing its clergy, in order to be able to pay the Pensions of those who have already retired.

These are the realities of the Western World, where the burden of Public Healthcare, grandiose and crippling foreign wars, and the intrusion of the State into every nook and cranny of civilian life, have unleashed the monstrous Mr Jekyll, whose appetite can only be assuaged by consuming every last penny from the Private purse.

In these circumstances of QE or whatever moniker, the destruction of the saving classes is inevitable along with a rise in inflation and the penury for all those on fixed incomes.

Whilst the public seek safety in Government Bonds, its income collapses, and the private sector is unable to increase employment due to the penal levels of taxation.

Given this predicament, the denial of those in authority to confront the truth, the refusal to abandon perverse regulation and confiscatory taxation, the attempt to solve a crisis of indebtedness by increased borrowing, we can only foresee a long and grinding adjustment to much lower levels of living and wealth. It is now suggested that a figure of 3 TRILLION Euros will be required to re-capitalise the well-nigh bankrupt Banks of Europe and its States: figures well beyond the balance sheet of the IMF or any other Fund in existence.

This is terrifically sad, as it is so unnecessary, but the hard choices required, of cutting the State, and freeing the Private Sector to invest and innovate and create employment whilst retaining a reasonable return on its investment, are all perfectly feasible and achievable.

Those of a botanical bent, or even moderately observant, may have noticed the vigorous recuperative powers of Nature, where the casualties of the recent harsh Winter, seemingly dead and cut to the ground are now flourishing once more and even flowering, such as Lady Hillingdon’s Rose and Bay trees. The harsh solution of cutting the dead wood to allow re-growth is far too simple for the hordes of Quantitative Economists advising most Western economies.

How sad that the ruthless and exacting and creative and dynamic example of the late-lamented Steve Jobs, who did just that on an epic scale at Apple, transforming it from near death into the second-most powerful company on the planet, could not be used as the template for National revival.

We will not give up hope, but retain our Gold and its miners, our brilliant pub businesses, basic resources, oil wells and technology leaders into this era of uncertainty and wide-spread economic folly and ignorance.

The Ass survived, Balaam saw the error of his ways, England conquers at Cricket, our oarsmen retain their rhythm; Shropshire retains its epic beauty despite attacks from bio-mass and Pylons; only in Rugby do we see a team let down by individual indiscretion and a lack of creative thinking.

The team at Cheval Place thrive and fortify the bounty of your Company; our profound thanks to Steven, Abbie, Nick, Vicky and Melwin for their unstinting effort and contribution. Dexion have proved more than capable successors to Capita, and are congenial and competent Company Secretaries; my directors and advisers also deserve our appreciation and thanks for much sage and astute advice.

The outlook is anything but easy, but we share an increased dividend with our loyal shareholders, along with a distribution from reserves and retain our belief that the range and quality of investments will uphold the company through a multitude of tribulations, should they occur.

C Robin Woodbine Parish
Chairman

June 2010

The El Oro Group’s profit before tax for the year-ended 30 June 2010 was £23,397,408 (year-ended 30 June 2009 was a loss of £30,381,174). The Group’s net assets at 30 June 2010 were £70,355,851 or 652.9 pence per share (2009: £51,810,400 or 480.8 pence per share).

The Board paid on 31 March 2010 a first interim dividend of 12.0 pence per Share for the full year ended 30 June 2010, a final dividend of 5 pence has been proposed for payment on 10 December 2010 to Members registered on the books of the Company at the close of business on 8 December 2010, representing a full year’s YIELD on the mid-price at 30 September 2010 of 4.0%.

The Group’s net asset value per Share (“NAV”) showed an increase over the year of 35.8% while the FTSE All Share Index was up by 17.1%.

For when they shall say, Peace and Safety, then sudden destruction cometh upon them as travail upon a woman with child and they shall not escape. (1. Thessalonians V.3)

The warmth of summer fades along with memories of dreamy days in June, gloriously hot despite the gloom of long range forecasters; the Autumn tints tickle the trees and whilst we can still bask in the glow of a substantial recovery in our main markets, a more chilling expectation confronts us.

These figures reflect the huge turnaround in our favoured areas of Precious Metals and Resources, along with many areas of British industry. Whilst the Brewers have moved marginally ahead, the mines have stormed forward on their carbon-crusted diet of soaring metal prices. It would be hard to choose between the successes of the portfolio, despite a subsequent pull-back post the year-end which shows some profit taking.

A few of the portfolio securities held for the Growth portfolio (Guernsey) including Troy, Archipelago Resources, Exeter, Shanta, & Medusa, are described below, and have excelled.

Within the UK Growth and Income portfolio, exposure to Maudore Minerals, along with trading in Bullion and Mining Shares via CFDs has brought rewards. Many have loped ahead and in some cases shown a substantial second wind in recent weeks.

Troy’s Casposo mine in San Juan Province approaches production driven by the inestimable Ken Nilsson’s superb construction achievement following the mill’s arrival from South Australia; we are hopeful that new Reserves will in due course be delineated once further drilling takes place; the project has been hugely enhanced by recent rises in the price of both Gold and Silver, and many obstacles surmounted under the capable leadership of its CEO Paul Benson.
Archipelago Resources, now half owned by PT Rajawali, anticipates reaching production early in 2011. One would normally resent a project coming in some 5 years behind schedule, but at a price difference in Gold Bullion of nearly $1000 we will not complain.

Exeter is now split between Extorre with its Argentine project in Santa Cruz, where Goldcorp is purchasing Andean Resources for a mammoth sum, and Exeter in Chile high in the Andes with its huge but low grade Caspiche project, containing both Gold and Copper.

Shanta, whose Tanzanian deposits show every sign of becoming significant gold producers earns the mining veteran Walton Imry a new paean of praise and perhaps the pursuit of more big game; Medusa – whose production in the Philippines has been nothing short of phenomenal and Maudore, in the UK portfolio, appears to be assembling a significant gold resource in Quebec.

Not to be outdone, James Halstead (UK portfolio) continues to provide a solid footing, whilst MP Evans’ (Guernsey portfolio) hopes are not to be palmed off. The effervescent Cliff Richards’ youthful profile is reflected in the performance of Young’s; Fuller, Smith and Turner’s exemplary dividend and profits’ record gladdens the heart of its shareholders and those full of London Pride, two of the UK portfolio’s Stars.

The paste jewels amongst this glittering galaxy have somewhat spoilt the party; in our UK portfolio Infrastrata’s delay in finding finance for its Portland Gas storage has resulted in a substantial fall in its price; Amerisur developing oil fields in Columbia, hampered by opaque management, has yet to deliver the results of which it must be deemed worthy, and Sovereign Reversions fell out of its Shelter into the grasp of Grainger (which we hold in our Guernsey portfolio) at a price that perhaps ultimately reflects the catatonic stupor of the housing market.

Unfortunately our dividend from BP was sacrificed on the altar of political opportunism and $20 billion of shareholders’ money set aside to assuage the appetite of American lawyers, although the damage to the environment would appear to be far less than predicted by the ‘experts’. Sadly neither BP’s reputation nor that of its leadership will be so swiftly re-established.

The malevolent mutterings of Mr Malema about mine nationalisation are a continuing cause of concern in South Africa, as are the actions of the government of the Democratic Republic of the Congo, in seizing and selling the assets of First Quantum at Kolwezi and Frontier, abetted by ENRC in allegedly buying stolen goods.

In happier climes, the Guernsey portfolio has also benefited from its holdings in Kalahari which has marked time on its price progress as development of its Namibian Uranium resource run by Extract Resources (also in the Guernsey portfolio), hones its financial structure; we remain hopeful of further progress and a recovery in the price of Uranium as a new generation of power stations come into production.

We have rewarded shareholders with a second dividend paid in March and now propose a dividend of 5 pence bringing the total for the last year to 17 pence.

“I place economy among the first and most important virtues and Public Debt as the great danger to be feared.  To preserve our independence, we must not let our leaders load us with perpetual debt. We must make our choice between Economy and Liberty, or profusion and servitude.” Thomas Jefferson.

Charlie Munger: ‘Basically, it’s over’ 21 February 2010.

Shareholders of long or even recent standing will not be surprised to sense a certain excitement in scanning the daily prices to see the ascendant price of gold, followed, or in some cases fed by the prices of other Precious Metals such as Silver, Platinum, Palladium, Copper and even the humble Cotton thread attaching our buttons to our shirt. Whilst your portfolio has been constructed to benefit from the ownership and production of such assets, we find it hard to exult in the asinine idiocy that lead to this exuberance.

Delightful as it is to have shaken off, albeit incompletely the incompetent, wanton, greedy, blind and obtuse acolytes of the previous administration, along with their insouciant savants who have wreaked such deep and disastrous damage on Britain and its prospects for years to come; and refreshing as it is to hear the confident and clear voice of our new Prime Minister, we cannot help feel that their sortie, however necessary the cuts with which they intend to scythe down the State sector, will stumble if they heed the siren call of Quantitative Easing; or even the wild comments of the Bank of England’s Deputy Governor Bean, calling for more Spending from the Consumer, an elementary and inherent part of the present problem. Perhaps he should have paused for longer in BP’s Wild Bean cafes before stating his preference for such a policy. The pressures from their coalition allies and mumblings of discontent emerging from within the nation are likely to rise to a crescendo of disgust as the long overdue adjustment in the structure of our economy takes place.

We are disappointed that an area of Excellence, namely our Armed Forces, and the superb training they receive and impart into civilian life after serving their country, is to be cut further. We feel an essential and productive part of the Nation’s fabric is being diminished, whilst the Foreign Aid Budget remains sacrosanct, sloshing resources into areas where little evidence exists of its productivity or longevity, when undertaken by Government.

The same has to be said many times over about the ‘ring-fenced’ NHS, whose Gargantuan appetite could surely be tempered by the application of a tourniquet or gastric band. The advantages of an education in discipline and practical training would seem to us to outweigh those of employing huge numbers of mainly overseas people in short term activities within the Health Service. We now contemplate a Navy consisting of Bath-Tub Battleships, and the loss of the Dartmouth Naval Academy, joining the ranks of famous British buildings consigned to the ‘Luxury Apartment’ Sector. Where Nelson once walked, Interior Designers will now ply their craft. We cannot pretend to be reassured by this sea-change.

The abuse of the Sub-Prime mortgage sector by the Investment Bank hooligans, so forcefully illustrated in Michael Lewis’ book; ‘The Big Short’, led to the downfall of Lehman’s, Bear Sterns, AIG, Citibank, Washington Mutual, Freddie Mac, Fannie Mae, Countrywide, Household, Century Financial and a myriad of others, and yet the response of the Federal Reserve has been to refinance the surviving banks, continue funding the mortgage institutions and offer preferential treatment on repayments and repossessions to the recipients of mortgages who are unable to meet their payments.

The result is that a tide of effluence has been sloshed over the Taxpayer and Saver, while the miscreants both in the US & UK have departed clutching substantial and often obscene pay-offs; asset prices have been boosted, the dollar has weakened and the dollar price of Gold is at a new high. London restaurants are full of the new Rich, many from far-off lands of which few have heard, and a new Babel of languages is heard on the streets of London. The environs of Cheval Place now resemble Arabian Knightsbridge, especially in summer.

Into this toxic mix a new Tsunami of ‘Quantitative Easing’ is proposed which will achieve the same as the last one: no material change in the basic economy but an exacerbated impoverishment and indebtedness of the tax payer. The policy is quite simply insane: the legacy of a dead economist from a far-away era, dealing in a world where the West was the only economic power of consequence, and who regularly warned against debasement of the Currency.

The policy resembles the instruction issued by the Captain of the Titanic after the first impact with the iceberg occurred ‘Full Steam Ahead’. The result as we know, was irrevocable damage and the death of so many from the speedy sinking.

Capitalism relies on allowing weak businesses to fail and overvalued assets to decline to a price at which someone thinks them worth buying. The Dance of Death between the Irish Leprechaun and the Dwarf Nemesis, or Greek Goddess, has now moved to the Ballroom of the Berkeley Hotel, the ownership of which, which along with that of its venerable partners, Claridges and the Connaught is perhaps the most egregious examples of the collapse of a magnificent mirage, pumped to the full by the front runner of the Irish property boom, the Anglo-Irish Bank. All those sipping champagne or chewing cucumber sandwiches in those hallowed halls can muse on the madness of the European monetary system and its progeny the Euro, whose ‘one size fits all’ interest’ rates has brought Ireland to the edge of oblivion and will probably succeed in the same way in destroying one or all of the finances of Spain, Italy, Greece and possibly Portugal.

The culprits should perhaps be forced to stand in the ruins of Battersea Power Station on a wet day in November, or even a wet month in January, to reflect on their folly, or in the forlorn court-yard of another failed property empire, the In and Out Club, where in more prosperous times Lord Palmerston reputedly expired on the Billiard Table.

Somewhere on a plinth the Ozymandian inscription can be carved: Look on my Works, ye Mighty, and despair! Nothing beside remains. Round the decay of that Colossal Wreck, Boundless and bare the lone and level sands stretch far away.

The great and glorious transformation of Britain achieved following Margaret (Lady) Thatcher’s accession to power in 1979 provided the renascence of the British economy. A combination of stripping away exchange controls, lowering taxes, liberating the State sector into private hands and selling off council houses gave the average Briton a significant capital investment into which he could commit his energy and capital without it reverting to the State. All these measures were opposed at the time by the cognoscenti and those wonderfully erudite economists who poured scorn on Geoffrey Howe’s programme of public expenditure cuts.

We have today reached a critical juncture in the future of Britain where the State is reputedly regarded as an equal partner and even revered with an element of awe. Taxation levels of 50% and even lower are regarded not only as equitable but almost de rigueur. Every conceivable item of evidence indicates that this belief is both false, futile and counterproductive, just as those false prophets of the early 80’s were so grievously mistaken. Just as the Chilean National Pension scheme when transferred to and transferrable by the individual, has proved to be a resounding success and amongst the best funded in the World, so Britain’s future rests on a return to the incentive of market forces and low taxation and throwing out the failed theories of other worldly-economists and their Fabian ideals of fairness.

Re-establishing a Private Pension scheme with full tax relief from the wreckage left by Mr Brown could well provide the financial incentive needed to inspire a new generation of investors; whose funds can be used to rebuild Britain as well as restoring the vitality and confidence of an earlier capitalist age. Only by ceasing the obscene assault on private wealth and income will the trickle, soon to become a flood, of emigrating individuals and companies be reversed and Britain once again be able to thrive and flourish.

Sadly far too few, if any, of those in authority today recall the full horror of taxation at 103% nor the exhilaration and relief when those barbarous shackles such as investment income surcharge, super tax and exchange controls were hewn away and consigned to the furnace.

The example of progress accomplished without re-imposed Socialist ideals is to be seen today in those parts of the world that we forsook in favour of our allegiance to a sclerotic European union, its ever-expanding raft of rules and regulations and obsession with worker rights, working time directives and other measures inimical to profitable business growth; the latest being Safety controls on Oil exploration in the North Sea, and Mr Barnier’s Financial Regulations. These Countries include Australia with its superb resources base, admirably led for so long by Mr Howard: Its citizens now have the pleasure of perusing English Contemporary Art Shows, an example of discretionary spending last provided during the wool boom during the Korean War in 1954; New Zealand which made a bonfire of its own subsidies more than 15 years ago; and a land so bountiful and blessed that the destroyer New Zealand emerged unscathed from the battle of Jutland whilst its captain wore the grass skirt given by the Maoris, having been promised protection as long as he wore it. Malaysia, now home of Dyson production; Singapore with its authoritarian yet safe society and ever expanding financial sector; and now India whose technical skills, educational breadth and burgeoning population will one day propel it to surpass China as the world’s greatest economic power as it was in the era of the Mughal ‘Akbar the Great’ in 1511 join this refulgent retinue.

A classic example for those who doubt the importance of a Capitalist economy allied to sound government has to be the contrast between the drive from Buenos Aires to Aeropuerto Ministro Pistarini, sometimes an hour-long journey, during which it is rare to see a car of less than 20 years old. This in a country, which at the turn of the last century ranked amongst the wealthiest three on the planet. A similar journey from Perth Airport to the City reveals hardly a car of more than 2 years old and a road network in the prime of health: this for two countries blessed with a very similar range of natural resources but the former being cursed by Peron and his successors who have pillaged the possessions of a great swathe of the population in the pursuit, it would appear of a better deal for the ‘descamisados’.  The reality is that the entire nation has been impoverished, pensions and the national reserves have been seized and its citizens pushed into penury when they should all be rejoicing in the returns on its resources. The ultimate irony is to see the Chinese being invited to rebuild the once wonderful railways wrecked by a previous administration. Only a few still live like Lords on the back of assets beyond the reach of the grasping hand of government.

The moment of truth now approaches for Britain and many parts of the Western World: will the Irish prefer to honour the promises provided by their government, and bail out the Bank bonds of Billionaire Russian football club-owners, or do as the Icelanders and allow all to be swept away, foregoing the folly of a government guaranteeing bonds beyond its ability to pay? Similarly in the United States where the tax payer has taken on the liability for Detroit tenements, Las Vegas condominiums and AIG Bond Holders to the pent-up fury of the Tea Party and a huge swathe of American society.

This huge raft of dead or dying assets should be allowed to float on its funeral pyre far out to sea, whilst the survivors can swim to the shore and Robinson Crusoe-like rebuild their lives. The present and proposed policies will otherwise prolong the pain, impeding and perverting any proper recovery. Private enterprise, with its progenitors retaining the vast proportion of its profits, must be unleashed to rebuild our economies. We stand at this significant and perhaps terminal crossroads, and face stark choices: to go with the subsidies such as for Electric cars, to enhance sales of Teslas, the increased cost of power from the Windmill fantasy, inflicting all power-users; workers’ rights and working time directive and all its constraints from the European Union; or the way of the market, with its tremendous improvements in fuel economy in every-day cars achieved by the simple profit motive, and other innovations reflected across a great swathe of our industry. The growth of Apple by a factor of 30 in less than 10 years shows what can be achieved when technological innovation is allied to design brilliance. Happy them to have avoided the curse of Government assistance.

Ultimately, if Money is allowed to ‘Fructify in the pockets of the people’ all will be well. If not, we will happily bumble along on Boris’ Brilliant Bicycles, their use noticeably absent in the environs of oligarch land in Knightsbridge; wonder at the Wealth of London and its Ancient architectural glories, and try to ensure and enhance our exposure to Gold, Precious Metals and its miners in lands safe from Government assault, along with the Gems of British industry and those of the emerging economies of the World, which will undoubtedly keep on growing whatever setbacks they suffer on the way.

We look for stability at the head of our Investee Companies, and the traumatic changes within HSBC were for a while echoed at Manchester United: now we hope, happily resolved.  Likewise in America, mid-term elections threaten the Obama hegemony, and suggest the ingress of a new slate of legislators, though change on change could perhaps prove beneficial.

The situation is indeed hopeless, but not serious.

Your company is in strong heart, ‘in a good place’ and remains excellent value amidst so much dross. As the saying goes, “if you like the Service, tell a Friend, if you do not like it, tell us’.

We take comfort and joy at the release of the Chilean Miners, and salute the achievement of their rescuers and Country.

I would also like to thank the many managers and teams amongst our investments, who have assisted in making 2010 such a successful year: a look down the list of our top holdings will indicate whom you should acknowledge. We see no reason why such progress should not continue, in the absence of malign bureaucratic or political intervention (evident sadly in so many countries, not least Australia with its albeit-watered down Resources Tax).

As always, my thanks go especially to our own team at Cheval Place, who have admirably coped with an ever expanding range of investments and the complications of a Guernsey listing. We are making inroads on these challenges: the increasing dividend is amongst the measures the Board hopes will assist in reducing the discount to NAV whilst exploring other alternatives. The more timely release of our NAV has been our goal for some time, whilst liquidity issues on share dealing remain under review. Whether a dual listing would improve the price visibility and ease of trading is difficult to determine, but shareholders should be reassured to learn that your Board is very conscious of the need to significantly reduce the discount. We are also intent on growing the value of your Company‘s Assets as our prime objective, which if successful should in due course create an irresistible bargain for savvy investors.

Steven, Abbie, Vicky, Nick and Melwin have all done Sterling Silver Service. Jonathan Persent has taken up the reins at Capita, for which we are grateful.

I would also like to thank my Fellow Directors for more travelling and more Wisdom and Caution, as the strategic planning and decision making for the El Oro Group is now conducted in the more placid climes of St Peter Port, with brain cells sharpened by a swim in the bracing waters of Fermain Bay, and hunger pangs assuaged at the Beach Cafe.

None of which would be possible without the support of my long-suffering wife Lucinda, who somehow manages to juggle the care of 4 children, a large home and various Operatic, Parochial and School duties whilst still retaining a smile.

Our various Brokers and advisers around the World have also performed admirably and deserve a large round of applause.

C Robin Woodbine Parish
Chairman

June 2009

The El Oro Group’s loss before tax for the year ended 30 June 2009 was £30,381,174 (year ended 30 June 2008 was restated as a loss of £543,872). The Group’s net assets at 30 June 2009 were £51,810,400 or 480.8 pence per share (2008: £74,638,810 or 692.6 pence per share).

The Board has declared a first and only interim dividend of 14.0 pence per Share for the full year ended 30 June 2009, with the dividend to be paid on 23 December 2009 to Members registered on the books of the Company at the close of business on 4 December 2009, representing a 3.7% return on the mid-price at 30 September 2009.

The Group’s net asset value per Share (“NAV”) showed a decline over the year of 30.6% while the FTSE All Share Index was down by 23.9%.

The sight of surfacing submarines was hardly apparent in this set of figures, but has since dominated the skyline, and indeed the recovery of some stocks has replicated perhaps the only sighting ever of the launch of a Trident missile.

To repeat the name of those stocks has in the past been a recipe for sudden and almost immediate swoons, so we will follow the current trend for Redaction, other than to say several holdings are now very significantly ahead of the position at the end of June.

Following the Migration to Guernsey on April Fools’ Day, we have seen several stocks show increases in the underlying asset values, restoring some of the losses experienced during the turbulence of the second and third quarters.

The Hoovering of scrap metal from China has succumbed to the realities of the Global bust, and been replaced by the opened Spigot of Western largesse under the moniker of Quantitative Easing: this has accomplished the remarkable achievement of restoring the fecundity of those few Banks to have won the eye of the benevolent Mr. Bernanke, and the bonuses of their managers along with the seeming stability of the Western world. The Deadly sin of Envy, epitomised in Mr. Darling’s Budget review on 9 December, threatens to send those UK Bankers scurrying off-shore or off balance sheet; the Laffer Curve would be a more potent and worthwhile guide.

The pouches beneath the pelican beaks of the Banking and Automobile sectors have been filled to bursting with the largesse of governments, in Germany, the United States and Britain especially, and in consequence share prices have responded along with commodity prices.

Whilst car companies crush vehicles capable of millions of more miles, depriving the poorer sectors of society of the ‘trickle-down’ acquisition of a conveyance with their own cash rather than a company’s, real industries ignored in other areas struggle to survive; Iceland’s agreement to refund depositors of its failed Banks has a sinister resemblance to reparations after the defeat of Kaiser Bill; the British Government maintains its blithe insouciance towards any sort of fiscal or spending rectitude or restraint; at the same time as ostensibly having led the World out of its economic abyss.

Sadly very little cash has filtered through to industry beyond the bounds of City Finance houses and before long the reality that this exercise has been a process of delaying and obstructing, rather than implementing recovery, will become apparent.

The recent decision of the Scottish legal system to display its contempt for justice for mass murderers, has shattered the credibility of that small but vocal element of Scottish society seeking to break the 300 year old Act of Union, and all the benefits it has brought to both nations. This has generated condemnation to its morose progenitor and comrade, and more devastatingly, on the head of Britain. As we were told apropos our Garden, by a delightful and frank German visitor: ‘It has all gone haywire’; sadly that is the state of Britain today. There is no sign of an end to this systematic and also deliberate destruction wreaked on our noble and once eminent land.

The Glades, Groves and Glens of the Lot Valley and Scottish Highlands are resounding to the cry of the chain saw as blue-clad woodsmen cleave and cut supplies for the forthcoming winter; snow sprinkles the hill-tops surrounding Fort William, giving an early indication of the need for preparation and foresight; the corridors of Whitehall, however, remain silent or rather echo to the tread of myriad feet, and the empire emanating beyond its walls remains untouched and untroubled by the silent and increasing throttle of excess: most private businesses have pared their expenses and reduced employee numbers and costs by as much as 20% or more. Working for no or delayed pay, prevalent after the break-up of the Soviet Union, may not be so far from happening in Britain today, in anywhere other than the public sector. Sadly, the Minimum Wage will remain as an impassable ceiling for a huge swathe of today’s youth, and many check-out tills are now manned by graduates with impressive degrees.

The Brownian woolly Mammoth remains impervious to the reality of recession and the imperative urgency of cutting a bloated and life-sapping public sector. Though inching towards reality, the Conservatives also claim that no drastic cuts of the Maggie genre are intended. The hoped-for reclamation and rebuilding of the Euston Arch after its recovery from a hole in the River Lee (whither the River Lee?) may well serve, if accomplished in time, as the epitaph for the impending departure of calamity Brown.

The Saxon Gold discovery makes a very modest recompense for the amount sold 10 years ago from Britain’s Reserves, and proves the enduring value of that metal, though illustrating the difficulty of stopping it falling into the wrong hands (such as those of the former Chancellor, whom one suspects will not be seen clad in woad and rushes, clutching a metal detector, seeking to regain his lost loot).

The sight of Bankers’ Bonuses and London House Prices once again on the rebound is a cause for alarm and despondency, not encouragement and exhilaration. We have no gripe with rewards for money earned, but we would rather see it from our industrial sector, and across the broad base of British industry, than once again concentrated at the pinnacle of the Finance sector.

We do not however, share Lord Turner’s sentiments, fluttering from his redundant citadel atop the Financial Services Authority, and his attempts to hobble and emasculate the city’s innovative and creative talent, rather than devising means of protecting the Retail Banks, their depositors and the tax payer. The memory of the demise of Barings, with its minimal effect on the economy other than its own shareholders, is obviously too distant to trouble the conscience of our new breed of regulators. Instead the Synecdochical sledgehammer is applied to the entire Banking system, to crack a problem created by a few uncontrolled innovators whose complex creations imploded long after their bonuses had been banked.

‘He who goes borrowing goes sorrowing’: Mr. Cheng, (head of China’s Green Energy drive), quoting Benjamin Franklin apropos fears of excessive US money printing. The abasement by our Government to the Green lobby and Europe, with the resultant closure of carbon fuelled power stations, without the simultaneous or prior construction of new Nuclear ones, jeopardises our own security and makes us hostage to the madman Gaddafi and his terrorist crew along with the truly ‘Socially Useless: regulators, bureaucrats and the State sector’, instead of being allied to wealth creators and innovators.

Happily for your portfolio, the Pub sector has to some extent stabilized, despite the obscene assaults on it by this pernicious Government, and stories and sights of an ever-increasing rate of closures. The swathe of boarded-up premises, and ‘For Sale’ signs sprinkled across the length and breadth of our fair land, on buildings both humble and distinguished, is truly appalling, being so very much wantonly inflicted by a Government with no concept of enterprise and devoid of wealth-creators and business builders. Yet another inquiry into the tie has achieved nothing and cost much, but the underlying strength of well-located pubs should uphold our holdings in the future. Happily several, especially Fullers and Youngs, show formidable strength.

Commercial Property has also appeared to stabilize, and risen from its lows since our year-end, and several perceptive investors have begun to reinvest in the sector. We would not expect gains from here to be rapid or substantial. The demise of Dubai, blindingly obvious in its excess to any other than those with sand in their eyes, is likely to further delay the recovery, if not accelerate an additional downturn.

Regrettably Kensington and Chelsea council have seen fit to approve a monstrous carbuncle adjacent to Cheval Place, whose views towards the Brompton Oratory and Natural History Museum are one of the sublime sights in London: this alongside an application for an all-night M Gentleman’s Club, an oxymoron if there ever was one.

The mining sector, decried amongst many investors as providing poor returns or a means of digging an item out of the ground only to store it there again with a guard at the top, has been for us the star performer. Whether or not the Chinese recovery is sustainable, or the World economy genuinely recovering, metal prices have recovered almost across the board to levels thought to be almost unachievable only a few months earlier. The Lodestone for us has been Gold, even though its performance has been exceeded by several other metals in its price such as Silver.

This comes as little surprise to those who have always believed that printed currencies have a life-cycle akin to that of a caterpillar, and reach a brief moment of glory as a butterfly before disappearing without trace. The Zimbabwean dollar is a case in point, where the introduction of a Rand/Dollar linked exchange has seen inflation fall to 6% from trillions, and the Zimbabwean dollar eliminated.

Gold at its present level above $1,000 per ounce makes a similar forecast for the future of the US$, not immediately, but inexorably and progressively. At some point the massive printing press unleashed by the Fed and its head, Mr. Bernanke, is likely to lead to a Dollar Demise, and even if current street protests against excessive spending by the Fed do not precipitate that day immediately, the continuing and accelerating loss of its purchasing power is inexorable.

We therefore take solace in our Gold positions, both physical and through our variety of companies located around the World.

It is pleasing to see the progress of Centamin in Egypt, and it is to be hoped the changes at Troy including the addition of your Chairman to the board, bode well for its future, and the development of its Argentine Gold Mine.

A retreat from current exalted heights in the gold price is only to be expected at some stage, but this would not give us cause for despair, and whilst ‘this time it is different’ will not pass our lips, we firmly believe that the long Gold Bear market has ended, and the trajectory is now firmly upwards.

The cynics and sceptics can sneer but our new Cupolas will be gilded in Gold bought at a price 4 times higher than ten years earlier, which will still prove to be cheap in years to come.

As Margaret Thatcher memorably remarked: ‘the problem with Socialism is that sooner or later you run out of other people’s money’.

The Uxoricide committed by the Prime Minister on his previous wife, Prudence, after a long period of persecution, has brought that day perilously close in Britain, and the death-wish by politicians and postmen is dragging Britain ever closer to the precipice of National Bankruptcy, highlighted in a speech by the current head of the London School of Economics warning that Britain is living in a Fool’s Paradise. Far be it for us to demur from such a sagacious, acute and well-informed observer.

The disappearance of lavatory paper and mattresses from the shops of Cuba shows the power of Centrally planned economies to self-destruct, and perhaps light-bulbs of any wattage will soon share the same fate in England, on instructions from the former Communist Latvian apparatchik whose campaign has led to their being banned from sale in Europe. Lighting was never a strong point in Russian hotels, if our experience was anything to go by. That edict, together with the impending black-outs that will occur as a result of the British government’s agreed compliance with an EU instruction to close a large part of our Energy Generating capacity, will thus impair the ability of the subjugated citizens of the United Kingdom from reading yet more reams of regulations; a pertinent prelude to total darkness, whilst their houses are encased in ugliness to prevent heat escaping, and their views and improvements are taxed in case they have the temerity to enjoy the fruits of their endeavours.

Meanwhile Britain’s unelected leader continues leading Britain on the road to perdition aided by his Machiavellian master flitting from Russian yacht to the hospitality of hedge fund managers.

We noticed that the memoirs of Ronald Reagan, who brought Freedom to the Communist World, were on sale in Cazals, in the Lot valley, whilst President Obama’s memoirs are written before he becomes President, just as he wins the Nobel Peace Prize when in the midst of an unwinnable war he has endorsed. His only known achievement to date is to have swatted a fly. Not content with running the US car industry, he wishes to replicate the glories of the NHS and add health-care to the list of sectors under Government control in the United States.

Our scepticism of the ability of governments of any complexion to run a whelk store, let alone businesses of greater complexity, is profound and enduring: the example of Britain today, where businesses in our ken are replacing 2 receptionists with a screen monitor, yet the public sector is seen as sacrosanct from any sackings, is evidence of the dichotomy between people who pay and statists who receive.

We must extract ourselves from the European vipers’ nest of graft, grant and bureaucratic obstruction, especially at a time when the Irish have abandoned their hard-won independence for a mess of Soviet-style potage administered by the Brussels bureaucrats; thereby becoming indentured serfs in exchange for a promise of a miraculous recovery from the bust created by the Irish adherence to an absurdly inappropriate exchange and interest rate regime; thankfully they have avoided begging at the feet of the Emperor and Empress Blair, the perpetrator, in conjunction with his former accomplice in crime masquerading as Prime Minister, so deeply complicit in the humbling of Britain and woeful destruction of the British economy, not to mention its entire identity.

We rejoice not to see the prospect of this man strutting the European stage after enriching himself on the payroll of Banks and Government agencies, which together with ill-judged lending laws imposed by successive US governments sowed the seeds of the sub-prime collapse and the near-as-nothing bankrupting of the US and UK financial systems. The Blairs should withdraw from public life and enjoy their new status amongst the mega-rich, and leave the cauterising and shrinking of their state sector monoliths to a new generation. The Belgian puppet will perform the further emasculation of Britain with notable anonymity, alongside his ex-CND colleague.

The semantic sophistry of the socialists and their suave sidekicks has finally proved as shallow and empty as the cynics always expected.

Meanwhile the new ‘Nattering Nabobs of Negativism,’ (apologies to the late William Safire) opine from their European or Shadow Ministerial positions that the Lisbon Treaty is now a fait accompli and for the UK to vote on it would be an absurdity: no more absurd than their constant support for this corrupt venal bloated unresponsive and deeply undemocratic organisation which has done so much damage to Britain over the years, and cost her so much.

It is to be fervently hoped that the Cameroon will put the interests of the people of Britain above those of the polyglot European elite, and remove the shackles that have throttled the fishing industry, decimated our agriculture, hastened the collapse of the postal service, and now threaten our Financial Services sector, amongst other follies. Indeed the Alternative Investment Fund Managers Directive poses a very real threat to our continued existence, along with that of other closed–end Funds, managed in-house; an assault directed from Europe by those with envious eyes on our long-established and mostly blameless and beneficial Investment Trust and similar sector. It is very much to be hoped that Boris Johnson’s defence of the hedge Fund Sector will extend to this less-strident and fee-sapping sector. Where the supposed benefit bestowed by the EU resides is beyond the comprehension of ourselves and one suspects many others.

Rowan berries are striking in Scarlet abundance, perhaps presaging a Cold winter, yet the UK’s coffers are bare, nothing having been put aside for harder times: the giving of foreign aid (endorsed by both parties, and encouraged by the incessantly implausible Bono is ‘a transfer of assets from poor people in rich countries to rich people in poor countries’); even the more erudite and observant Africans now question its efficacy, whilst a casual glance at any of the main beneficiaries would confirm that it achieves the very opposite of that intended, spawning a vast industry of conferences and well-equipped cars and offices, whilst individual and private efforts, carefully administered, do infinitely more good. Today’s snow in Southern England coincides with yet more largesse to the warmer and less productive parts of the world from the two countries with the largest deficits.

Outlook
Impending disaster may well have been averted for now, in which case our wide spread of investments will benefit; should all hell break loose, Gold will come to our rescue, and proven assets which underlie many of our holdings will be our mainstay.

My thanks are due to the effervescent team at Cheval Place, rising to the challenge during a period of significant change and turbulent times; now assisted with an eye on potential new areas by Melwin Mehta from the Indian sub-continent; our new secretaries in Guernsey, Capita and especially Julian Lane; our advisers with their regular and valued reassurance and advice, and my fellow directors, in all their wisdom and insight.

C Robin Woodbine Parish
Chairman

June 2008

The Group profit before tax for the year-ended 30 June 2008 was £6,699,292 (year-ended 30 June 2007 was £5,427,232) under IFRS. The Group’s net assets at 30 June 2008 under IFRS were £74,638,810 or 692.6 pence per stock unit (2007: £85,511,984 or 793.5 pence per stock unit).

The Board has declared a first and only interim dividend of 14.0 pence per stock unit for the full year ended 30 June 2008, with the dividend paid on 24 October 2008 to Members registered on the books of the Company at the close of business on 3 October 2008.

The attempt by scientists supervising the Large Hadron Collider, to replicate the conditions leading to Big Bang has been overshadowed by the implosion occurring in the world’s Financial markets: the gruesome truth has emerged that Bankers and their hired-hand Magicians, intoxicated by greed and dancing with the devilry of Derivatives, far from fostering a Golden Goose, have succeeded in producing Solfataric emissions so toxic to have nearly extinguished the Western Financial system.

Those of us who retain that deluded belief in Gold, that Barbarous Relic, fortified by its mystique and durability over thousands of years, can only wonder at the swift acceptance of the ultimately insane trust in Swaps and Derivatives, incomprehensible to all but their progenitors, and very likely including them: sadly one of the oldest Human vices pervaded the ranks of the financial sector, and suborned the politicians, who saw their electorate and themselves suddenly enriched by unbelievable asset growth.

The warnings of the wise against ‘Financial Weapons of Mass Destruction’ went unheeded and the downward spiral of the United States into a humiliated entity led by a former Master of the Universe, and teetering on the edge of Bankruptcy, threatens to bring down the Banking system as it has evolved over centuries. The Emperor has been discovered to have no clothes, and his cohorts have been found to be swimming naked.

In scenes reminiscent of the retreat of the Romans from Britain, the banking battalions have relinquished the ramparts, with no ‘cohorts gleaming in purple and gold’, but surreptitiously and swiftly; the Satraps have been abandoned, and their toys and trivia will clutter the auction catalogues for years to come.

The Financial tornado that has torn apart the core of Capitalism has destroyed value more quickly than in any preceding period, and leaves the world in a position markedly similar in its differences to the World pre-1914 to that pertaining at the conclusion of the Great War. The sweeping aside of Emperors, Kaisers, Kings and Sultans has been replicated over the last few weeks as the upper echelons of the Banking community have been eradicated or belittled; power has shifted irresistibly Eastwards and into the hands of Regulators. Whether either of those groups have the talent or ability to resurrect an effective alternative, remains to be seen.

Seldom can the predictions and forebodings of the pessimists have been so suddenly realised, even though their denouement has been deferred for so long: sadly, the consequences of that deferral now threaten impoverishment on a scale and breadth far beyond what more cautious and restrictive management of the economy could have achieved: this applies as much to the United States and Britain, as it does to the Southern perimeter of the European Union, where the housing bust is now engulfing Ireland and Spain, not to mention parts of Scandinavia and Iceland, due to wrong but equal levels of interest rates.

James V. vv 1,2:
Go to now, ye rich men, weep and howl for your miseries that shall come upon you. Your riches are corrupted, and your garments are moth-eaten. Your gold and silver is cankered; and the rust of them shall be a witness against you ...

Sadly for your portfolio the good times have come to a grinding halt, and our layers of protection prepared for these latter days have yet to fully justify their potential, steadfast as we remain in believing in the ultimate sanctuary of Gold.

The Pub sector in particular has seen substantial falls, precipitated by the decline in property prices, but more disturbingly driven by dismally disastrous Government interference: this has been catalogued in far greater detail by many chief executives, outlining the devastating effects of the smoking ban, allied to the plethora of asinine and ridiculous regulations and outrageous increases in beer duty: the survival of a sector historically at the heart of many communities and villages has been undermined and its existence threatened, often by unelected officials and at the behest of the cappuccino classes from Islington and Edinburgh.

We hear from Shropshire of the imposition of new fire Regulations, and the requirement to spend huge sums to be able to resume and continue a business that has traded satisfactorily and safely to the enjoyment of many, for nigh on 30 years. In the opinion of the Gauleiters, this was deserving of instant closure, posing an ‘imminent threat to life’. We read of many similar stories, and doubt whether many of the smaller businesses will be able to survive this assault of recent and largely irrelevant regulation. No doubt the officials of this caustic new order are fulfilling their obligations to the letter; as with the demise of the Douglas Dakota, and the QE2, whether at the diktat of the UK or EU, we are uncertain: what is sure is that the costs for some, at a time when the economy is predicted to cool rapidly, if not fall off a cliff, may be terminal.

Amongst the endless absurdities of the Health and Safety Executive and its minions, we learn that Champagne bottles may no longer be opened in the offices of a leading firm of accountants (presumably only the insolvency side would be considering such an action); The estimable Ian from Burton on Trent Civic Society, reports that on advising the Council where they would be planting bulbs as had been their practice for many years, he was told a Risk Assessment would be required, and submitted to 5 different departments. In consequence: No Bulbs for Burton.

Our property holdings have suffered with the drought in commercial lending, and downward revisions to Asset Values, exacerbated amongst AIM listed trading companies, such as Adnams and Young’s by the 80% increase in Capital Gains applicable to that sector. If ever there was a case of Government action being timed to perfection to make a bad situation worse, this is a fine example. Several deals within our own portfolio, promising at the time of their announcement, now appear in jeopardy due to the dearth of liquidity.

The pressure has been particularly severe in the mining sector: commodity prices have declined precipitously, in some cases by more than 50%, accentuated by the cessation of production in parts of China during the Olympics, thereby perhaps helping our Oarsmen, women and cyclists to gain more Silver, Gold and Glory during that refreshing interlude to summer squalls and financial mayhem.

Mining share prices have declined by an even greater extent, and such earlier stalwarts as Albidon and International Ferro Metals that were until recently riding the crest of the Resources wave, have been dumped onto the reef. Doubtless there has been distress selling as funds dispose of their profitable positions in the quest for liquidity or facing redemptions; this, combined with the belief by many that the Bubble has burst for Resources, has greatly reduced values across the board, whilst the Platinum price has halved, faced by reduced demand for cars, the travails of the United States’ motor industry, and consequent lower demand for Catalytic converters.

We are not convinced that China’s slowdown justifies such dramatic and persistent falls, though we can be rebuked for failing to follow Warren Buffet’s maxim of trying to be ‘fearful when others are greedy’, despite some modest reductions in our profitable positions. Perhaps the counterpoint to that quote is now applicable: ‘to be greedy when others are fearful’.

The rapid retreat of the price of Gold after surpassing $1,000 in March has also been double-echoed by the falls in the prices of our Gold mining shares, and in some cases, such as recently announced by Serabi Mining, their impending closure. Troy has at least paid a dividend, albeit reduced, and we are heartened by the fortuitous timing of its sale of the Comaplex holding, and the development of its Iron ore project in conjunction with its Andorinhas Gold Mine. Two new mines, 50,000 ounces of gold per annum, and half the share price underpinned by cash, would indicate to us some sort of bottom; how wrong we have been so far.

We do believe that Troy is well poised to benefit from a change in sentiment or an increase in the price of Gold and that applies to many cash or ounce-rich Companies, and the Promised Land remains on the horizon, even if just out of reach: we think of Archipelago with production now in sight after such a fraught wait, and many other projects hit by the double-whammy of a falling price and restricted credit.

We congratulate the directors of Sunshine Gas on brightening our bedraggled summer with their proposed merger with Queensland Gas, and a sizeable uplift on our own position: another win for Rhodesian refugees from the monster Mugabe.

We are now confronted by the nationalisation of the United States’ Financial system and the priming of the printing presses by the combination of one of the Investment Banks’ foremost beneficiaries, with an academic who declared he was prepared to drop money from helicopters to avoid deflation: thereby bringing us closer to the abyss than ever before. Anyone who can seriously regard the United States as a going concern, confronted by One, or even Three trillion Dollar liability to bail out the Banks and housing sector, is more sanguine and optimistic than befits these pages.

The refusal of the National Audit Office to sign off the United Kingdom’s accounts due to the uncertainty surrounding Northern Rock indicates the possible insolvency of the United Kingdom; all this before HBOS and Bradford and Bingley hit the buffers. Lord Healey will no doubt be watching with wry amusement the impending arrival of the IMF, with a rescue package and obligatory spending cuts, not so long ago the preserve of Asia during their crisis in 1998.

The death throes of this magnificently and boundlessly incompetent administration and its enormous client state, constructed with such guardianista glee for the past 11 years, will inflict pain and suffering across a huge swathe of British society. So much so that those Gurkhas awarded the Victoria Cross for Gallantry fighting for Britain, and yet, until recently denied entry by junior bureaucrats as having ‘insufficient connection with Britain’, may well think twice about re-applying; whilst perhaps some of the 10,500 Afghans already granted citizenship will look elsewhere. Perhaps.

Almost every Government initiative has made a bad situation worse, and raised costs at a time of rising prices due to food and energy increases: closing excellent and viable schools, whilst offering to provide nursery places for 2 year olds; the Climate change levy, Congestion charges, Rubbish charges, HIPS inflicted on an already dying housing market, the Energy Efficiency Survey on let property; the Power of Attorney has not escaped the grasp of these mad meddlers, so that a brief visit to a solicitor has been replaced by up to three-month's wait and a bill for as much as £1,000.

Perhaps most ominous and catastrophic of all, the compliance with the European Directive on Renewable Energy threatens to precipitate the closure of most of our Nuclear Power Stations, and rely on the fantasy of some grossly ineffective windmills and ‘renewables’ providing power to Britain: thus risking running rapidly out of energy and greatly inflating the price of power to the populace and industry; mainly undertaken as a sop to the increasingly strident and economically naive-Green lobby so that even former civil servants in the Power sector are now warning of the ‘Energy Poverty Trap’. Our Government, in selling British Energy, has decided to depend on the French for our future nuclear power, with all its ominous connotations for the British Civil Engineering sector, thereby abnegating its role as provider of last resort, to concentrate no doubt, on expanding the Civil Service.

Surely the final ignominy is the proposal by the Ministry of Defence to investigate the sale of H.M.S. Victory, due to the cost of its upkeep: having so disgracefully underfunded our serving soldiers and services, it now proposes disposing of one of the greatest of all emblems of Britain’s Power and Glory, which gave us mastery of the Oceans for the nearly 150 years.

The sale of Damien Hirst’s Golden Calf summarises succinctly the excess and folly of these final days of heaven: occurring as it did at the same moment that the US financial system was being sacrificed on the altar of State intervention. We do not think its purchasers will fare any better than those who worshipped Aaron’s original. We do not share the sentiment of the following quote, recently received from the successors to the late and lamented Ian Notley:

“Gold is not necessary. I have no interest in gold. We’ll build a solid state without an ounce of gold behind it.” Adolf Hitler.

Echoed in the U.S.A.: by the order of President Roosevelt, anyone found hoarding over $100 in gold or gold certificates was made subject to two years imprisonment and $10,000 fine.

Perhaps the days of confiscation are already at hand, just as short-selling has been stopped on financial stocks: it is possible that the price is already indicating the death of confidence in those great edifices constructed by man’s ingenuity and cunning.

As we see the demise of Britain’s once solid economy, destroyed by vacuousness and vapidity, we hear of scions of British industry in tears as workers are laid off from empires carefully constructed after years of endeavour, great estates put up for sale, and most tragic of all, the death of those unable to cope with the humiliation of losing their homes or businesses.

We recall the words of Joel:
That which the palmerworm hath left hath the locust eaten; that which the locust hath left hath the cankerworm eaten; and that which the cankerworm hath left hath the caterpillar eaten. (Joel 1.v 4).

We cannot pretend to any pleasure in seeing such wanton destruction wreaked over our country, and over your portfolio, even though we remain convinced, however unappealing the reasons will prove, that Gold will underpin our own recovery. We also own a wide spread of stocks in excellent companies, that will thrive again in due course once this leaden weight of lunatic interference is removed. Now that growth has dissolved into the ether perhaps even the Conservatives will think about cutting the monstrous excess of state spending, and release the people from the tyranny of Government interference on all fronts. It is even possible that the British financial sector will emerge in a stronger position, if that of the United States is regulated to extinction, under its new hair-shirt regime of salving the sensibilities of Main Street.

The United States has eschewed the advice of its finest statesmen, such as Paul Volcker, Warren Buffet and Charlie Munger; and is paying a heavy price for such denial. It does however, have vitality powerfully visible in the singing of the incomparable Boss, Bruce Springsteen, when performing at Manchester not long after the triumph over Russian money of the United team in Moscow. To perform for two and a half hours non-stop with such gusto cannot but help restore one’s confidence in the endurance and ability of America’s finest.

To encounter San Franciscan Marjorie on the train from Omaha to Sacramento was another serendipitous occasion and restorer of faith: she survived fraud at her night-clubs in an early business venture; unabashed set up in succession a telephone answering- service, a language school, and two newspapers; whilst travelling between 8 different houses; and at the age of 83 still made time before boarding the train in Chicago to visit Pastor Wright’s Church, to gain first-hand experience of Prospective President Barack Obama’s place of worship: these are the people whose tenacity and vigour and curiosity and resilience have made America great, and whose spirit will do so again.

Whatever the effortless accumulation of wealth amongst overweight Russians, quaffing champagne and ogling scantily dressed ladies at St. Tropez, or the emergence of a country whose entrepreneurs are prepared to poison its own people for a little extra profit margin, the model of the United States economy remains supreme, and is molested at the peril of the entire world. The cancellation or removal of the Credit Default Swaps, presently sucking the lifeblood out of the Western World’s financial system, holds the key to our survival. Cauterising this fetid wound will require radical and prolonged treatment, and will inevitably involve vast write-downs and considerable suffering, but is now imperative and unavoidable.

Outlook
The outlook is hugely gloomy, but filled with promise:

It only remains for me to thank my co-directors for their resilience and support in a year which began with so many high hopes, and also to our loyal staff, Steven, Abbie and Vicky, coping gallantly and cheerfully with the slings and arrows of outrageous fortune.

C Robin Woodbine Parish
Chairman

June 2007

The Group profit before tax for the year ended 30 June 2007 was £5,427,232 (eighteen months to 30 June 2006 was £12,018,986). The Group’s net assets at 30 June 2007 under IFRS were £85,511,984 or 793.5 pence per stock unit (2006: £71,970,463 or 668.0 pence per stock unit).

The Board has declared a first and only interim dividend of 13.2p per stock unit for the full year ended 30 June 2007, with the dividend paid on 25 October 2007 to Members registered on the books of the Company at the close of business on 5 October 2007.

“Rock of Ages, cleft for me, let me hide myself in thee”.

Sadly, neither the spiritual solace once so confidently proclaimed from Britain’s pulpits in Cathedrals and Chapels, nor the solidity and security of the Banking system, seem sufficient today to provide shelter from the financial storms confronting Western economies. Weighed down by the leaden lump of unrestrained government spending, individual indebtedness and excess consumption, personal and governmental profligacy threaten the very foundations of our financial system: an assault ameliorated and deferred, but not deterred, by easing of interest rates, initially in the United States.

The sale to Liggett Group by Jesse Boot of the company he had built with such prescience and persistence over the previous 40 years, hugely enhancing and endowing Nottingham in the process even if unrecognised by its Castle museum, preceded the 1929 stock market crash. It remained for his son Lord Trent to re-purchase it with the help of British financiers. There are disturbing similarities to be seen in its recent sale to its deputy chairman and KKR, where the banks have been unable to offload the bonds issued to finance the deal; more recently we have witnessed the collapse of the Qatari-backed bid for Sainsbury’s, where the pension fund was thankfully defended by the eponymous and formerly executive-family: these are potent portents that a Rubicon may have been crossed in the ability to finance substantial deals on one hand, and the more mundane buy-to-let housing deals on the other. Stories of very substantial write-downs on recently built new apartments abound, echoing those of abandoned houses and streets within the United States: all bodes badly for property prices and the banks that have provided finance.

The first 12 months of results following the transition to AIM (as opposed to the preceding 18 month period), whilst not reaching the heady heights ascended previously, mingled with markets reaching their pinnacle in June and early July. This was before the iceberg of sub-prime, promulgated by the purveyors of mortgages to the NINJA market (No Income No Job), holed the supposedly impregnable ship of the financial sector. Property stocks had already begun to buckle under the weight of potential over-supply and increased borrowing costs: hence holdings such as Daejan fell from the inflated level reached on admittance to the FTSE 250 heights to a price at which they, amongst others, sell at a deep discount to assets.

We took the opportunity of converting some of our Greene King loan notes, issued on the takeover of Hardys and Hanson, into Lowland Investment Trust and British Portfolio Trust eschewing the certainty of fixed interest and repayable loan notes for the vagaries of the equity market: a sector that, whatever the short-term doubts, has hugely out-performed the fixed interest sector.

The accounts refer in more detail to the IFRS and UK GAAP treatments of appreciation. Credit is due to Steven McKeane for dealing with the thorny problem of ‘impaired value’ and the complex calculations required for valuing stocks that have fallen in price for a sustained period of time: we use six months as a guide.

This is also symptomatic of the complexities of modern accounting standards, of which ‘mark to market’ or ‘mark to model’ are perhaps the most seditious and dangerous. The caution that once prevailed within the portfolio of marking at lower of ‘market or cost’ has been supplanted by marking at market; thus exposing portfolio values to the greater volatility seemingly establishing itself today. More dangerous still is a practice utilised by some hedge funds for their portfolio valuations, which is termed ‘mark to model’ where a potentially self-administered theoretical valuation is applied, especially in the U.S. to funds whose value may be highly questionable, not to mention negligible. The removal of ‘pre-emption’ is now proposed, transferring power from current to future shareholders; over and above that, MIFID with its ‘Day of the Triffids’ connotation is another bureaucratic imposition spreading despair and frustration in the Financial community, with no apparent gain.
Another questionable requirement is the need to account for dividends on declaration as opposed to receipt – a measure whose wisdom has been challenged by Northern Rock’s cancellation of its previously declared dividend. This recalls the catastrophic collapse of Burmah Oil in 1974, and its bailout by the Government. At least there the embedded value of its holding in BP shares provided significant salve for the taxpayers’ wounds. No such Aladdin’s Cave is apparent in Northern Rock: perhaps only Pandora’s Box.

We are reminded of events 40 years ago, when dissuaded by wiser and more experienced counsel, from seeking a higher yield from an advertised deposit taker by the adage that, ‘higher interest implies higher risk’; sadly a neighbour’s dividend cash was swallowed when the firm in question went bust; just as the Hebrides Council, years later and not privy to the City gossip which might have forewarned it, lost its rate payers’ money in BCCI. That lesson is still being learnt as First Quantum, which excels in its mining of copper and coping with the intricacies of Africa, placed funds on advice from its bankers’ HSBC, with Coventree in Canada, along with other mining firms, only to find its ability to repay called into question in the sub-prime debacle. The dire results from Merrill Lynch show how far the mighty have fallen, in the pursuit of those extra points of interest: a folly perpetuated by our present Prime Minister and his Treasury cohorts when selling our Gold at US $ 250 per ounce, partly because it had no yield.

The preservation of capital in the face of the grotesque imbalance in the financial sector, both government and private, has now become the principal challenge confronting us: this at a time when government spending is running amok, disarray over levels of depositor protection is every day apparent and the Governor of the Bank of England considers himself restrained from covert action by a European directive, which is subsequently attributed to an imposition by the Treasury. The folly of the division of supervisory and regulatory roles is now fully exposed. As we watch the Lifeboat tossing amongst the tumultuous waves, we realise that the Chancellor is no Grace, nor is he the Special One. We are not heartened by the prospect of being led by politicians from either main party lacking evident practical experience in business or finance.

In the case of Europe, the refusal of our current Prime Minister to consider a referendum of a new (or old) Treaty means the EC will continue with its increasingly confrontational and Statist policies, devoid of entrepreneurial inspiration, such as the malign attack on Microsoft, which almost single-handedly has transformed the way in which world business operates. The imbedded deficits in France, the debt levels of Spain, the fractured society of government-less Belgium, dubious financial practices and levels of local subsidy, combined with the soaring level of the Euro, not to mention dismal demographics and a declining birth rate amongst the original population, threaten the very structure of the European Union and as such, are symptoms and part of a quagmire best avoided.

Meanwhile our own Government threatens the stability of the United Kingdom by its unannounced, uninvited and unapproved-by- the-electorate level of immigration: indiscriminate between the cognoscenti and contributors from riff-raff from sundry sections of the globe, many with no historical allegiance or connection to Britain. Their entry seems to be expedited or ignored, whilst the departure of British citizens from its airports is subjected to almost unbearable intrusion and inconvenience, with its adverse effects on business. The threat to stability has been highlighted in areas such as Cambridge; age-old balances and checks within our indigenous population are undone, and the faith and self-assurance of our society is assailed, whilst the Health Service and Housing are burdened with its insatiable demands, and an exorbitant level of tax is exacted on those citizens too compliant or too immobile to avoid its clutches. Housing, education, health and our landscape are increasingly confronted with dereliction and their provision denied to British tax-payers; the Armed Forces, already cut to the bone, under-equipped and stretched to breaking point, are to be reduced further, if reports regarding the Navy are to be believed; even centuries’ old Village Schools, such as Lydbury North’s, face closure by a Shropshire Council hell-bent on cutting its peripheries, ignoring excellence and creating ever larger and more inaccessible monolithic structures; those great pinnacles of education, Oxford and Cambridge are accused of elitism, the crime to which they should be most assiduously aspiring.

The release of Foot and Mouth virus from a government-owned laboratory is a consequence of the chronic malaise and incompetence that has permeated the hitherto sound structures of the British Government where the diversion or reduction of resources often for political ends is increasingly visible: especially in the immigration service, where the absence of any checks at most airports is only too apparent, and has left our society open to corruption, disease and criminality. Seldom since the time of Moses has a government perpetrated pestilence on its own land and people on such a scale: animals slaughtered either from infection or the consequent export ban, and individuals falling in their thousands as a result of hospital-acquired infection. Piling Ossa on Pelion, our by-ways are festooned with speed cameras, the tarmac coruscated with humps, and an ever-dafter array of requirements under Health and Safety imposed, such as the absurd HIPS, 150 Year Flood Test for Reservoirs, No Smoking Notices in Churches. All point to the extension of Government beyond Representation and Protection. All these measures, however laughable and absurd in themselves, involve an ever-rising cost of compliance, whilst the vibrant economies pursue production, profit and development with astonishing speed, as evident by the predominantly overseas-purchasers of prime London property.

Perhaps one of the few benefits of a slowing economy may be that the newly-resurgent St. Paul’s, recently unwrapped to reveal and revel in its gleaming glory, and the City skyline itself, may at least temporarily be saved from Shards of Glass and other inappropriate intrusions: the ruin of Wren averted by a Northern Wreck.

The guff of responsibility for Global-warming and other Malthusian-like scares move us inexorably into a fully-compliant, eco- friendly, fully-insulated, multi-cultural, sexually uncertain, smoke-free, carbon-neutral cocoon; blinded to the economic, competitive and cultural destruction of our Society. The Classical simplicity and Georgian serenity, so evident in cities such as Liverpool and Edinburgh, is replaced by ugliness and pretence, such as plastic windows, and the soul of the nation left scarred as it panders to a phantasmagoria of practices and faiths.

Confronted by immediate financial uncertainty, the growth of the Brazilian, Russian, Indian and Chinese (BRIC) economies remains crucial to the continuing strength of metal markets. Whilst the shambles of the sell off in August led to substantial declines in mining shares the underlying metals themselves only fell modestly. At the time of writing most shares have more than made up for those falls, underpinned by new highs in Gold and the upward ascent of Copper, Lead, Oil and Wheat. Troy Resources’ new CEO has been greeted by the return of the share price towards its old highs, amidst promising developments at its new Brazilian gold mine. Smelter problems at International Ferro Metals reduced its share price from its recent highs, and the continuing impasse with its gold mining permit in Sulawesi has restrained Archipelago.

Nighthawk has excelled with its United States’ exploration successes, and Egdon’s Portland Gas storage scheme awaits the planners’ decision. Whilst British sportsmen in Rowing and Rugby have relinquished their titles, we retain our faith for future triumphs in these and many others in our mining portfolio whilst continually monitoring new mines and regions. We believe that along with Gold, the mining market will take up and compensate for the reduced growth we anticipate in the British market although such favourites as James Halstead continue to astound and exceed expectations. Many others remain and thrive at the core of the portfolio, such as Young’s with their impressive array of attractive pubs, Fullers and Wadworths, even if the near term outlook is significantly less favourable than a year ago.

Outlook
We are soundly positioned for an uncertain future accompanied by siren voices predicting a slow-down; the housing imbroglio in the United States and the unknown identity of the next President of the United States promise extra interest in 2008 and 2009; as does the leadership and attitude of Russia and the belligerence of Iran. The profligacy of a spendthrift nation allied to the power of the printing press has inundated the emerging economies with prodigious quantities of dollars; supplying Sovereign Wealth Funds with almost limitless firepower, and reasserting the Sage of Omaha’s warning two years ago about the threat of Foreigners buying the Farm, and its political implications: the only assets able to absorb them are the purchase of major U.S. corporations, or just possibly and eventually, Gold itself.

Our Gold holdings we believe will come to the fore, along with many ships in the mining sector, whilst we would expect our high quality portfolio of leading small capitalisation companies to continue to flourish.

We are as always grateful to the team at Cheval Place where Steven McKeane quietly transforms into figures an array of questions thrown at him; Abbie calmly copes with a plethora of trades and Vicky grapples with the latest mobile and computer technologies with good grace and a smile.

I am equally indebted to my co-Directors, brokers and advisers, whose sage advice collectively places your Company in such a powerful position for all new challenges.

C Robin Woodbine Parish
Chairman

June 2006

The Group profit before tax for the eighteen month period ended 30 June 2006 was £12,018,986 (twelve months to 31 December 2004: £3,005,700 - restated). Group net assets at 30 June 2006 under IFRS, taking all assets at fair value were £72,214,062 (equal to 666p per stock unit) as compared with £67,905,581 under UK GAAP at 31 December 2004 (equal to 573p per stock unit).

The principal difference between the IFRS and UK GAAP measurement of the fair value of net assets is that under UK GAAP at 31 December 2004 the figure took no account of the £11,294,608 potential corporation tax due on the excess of market values of net investments over net book cost at that date, which is recognised in the IFRS figures at 30 June 2006.

We have declared a first and final dividend of 12p per stock unit for the eighteen month period ended 30 June 2006. The dividend was paid on 26 October 2006 to members registered on the books of the Company at the close of business on 22 September 2006.
“Praise the Lord and pass the ammunition”, Hallelujah and Deo Gracias for this munificent and unlikely to be repeated outcome of the past eighteen months.

Foremost amongst the contributors to the increase in profit and assets has been the stellar performance of the Brewery sector, led by the takeover, completed in September, of Hardys and Hansons by Greene King. We cannot conceal a heavy tinge of regret, both for the passing of a long established and hugely successful regional brewer, combined with the closure of its Nottingham brewery; and not being offered Greene King shares to carry forward our involvement. The other leaders in the brewery sector such as Fullers and Wolverhampton & Dudley have also demonstrated their prowess in providing services approved by their customers and bolstered by their property portfolios and have been similarly rewarded in the appreciation of their share prices.

An even sadder departure has been that of John Young, doyen of the Brewing industry, passionate advocate of draught beer and guardian of his wonderful inheritance, whose passing gift to his shareholders was to announce the sale of the Ram Brewery; thus enhancing the asset value of Young’s and enabling it to face the future with renewed vigour. John Young lived for his Brewery and the brewing industry. We join in the tributes to a great personality and best of people and wish his successors and the team he leaves in place good fortune in the future.

The stellar performance of the property sector, has seen Daejan, McKays and Mountview thrive amongst our holdings, and has been complemented by the spectacular results of James Halstead; these businesses, along with the utilities where AWG now follow Bristol Water and East Surrey into private equity, have underpinned the strength of your portfolio. We remain exposed to the water sector via Dee Valley and see no reason we should not continue to reap rewards in this area.

The mining sector which has enjoyed such heady rises boiled over in June: renewed doubts over the durability of the Chinese economic miracle led to significant downgrading in the leaders of the sector, such as BHP, Xstrata and especially Rio Tinto. Some of our investments in the small-cap sector such as Consolidated Minerals and Monterrico, have suffered large falls, as the economics, or politics of their projects have been tested, and found wanting; more recently Avocet sank , warning of increased costs and lower output. Happily, at the time of writing, many of these miners have clawed their way upwards, heartened by the ever-growing slew of takeovers, such as that by Xstrata of Falconbridge, and hints of approaches throughout the sector. Amongst the casualties, Croesus, the new guise of Central Norseman, managed to over-turn 90 years of successful gold mining by an ill-judged foray into the hedging market. Whilst these losses are painful, we do not believe the storm will be prolonged. Our Australian portfolio has several projects that will soon be in production such as Archipelago in Gold and Universal Resources in Copper; mines such as these are sound at metal prices substantially below those prevailing today.

As for Gold, the dollar’s demise never quite occurs, and the glimmer of an escalating price is stifled yet again – we retain our optimism; and our gold interests continue to flourish, with Troy Resources recently surpassing the production of 10 tonnes of gold from the Sandstone deposit. The more recently-visited Kazakhs have proven that old mines never die, and that there is still space for Yurts and Velvet cloaks, and their inimitable brand of hospitality, amongst the infinite horizon of that bountiful land.

We remain confident that the ultimate highs for Gold and Gold shares remain ahead, though how far we do not attempt to predict. Constant vigilance is required in the search for secure deposits of the precious metals, with avaricious governments and needy electorates ever on the look out for easy targets.

The economic outlook at present appears benign, whilst the world floats on a seemingly inexhaustible tide of liquidity, sending even the Dow Jones to an all time high, and the venerable Berkshire Hathaway past the $100,000 mark; the Sage himself holding significant stakes in the only 2 stocks in the Dow Jones Index to have actually exceeded their old highs. The Earth may appear to belong to Google, with their bid ‘to control the supply of knowledge to the World’ or momentarily to the Oligarchs, with their bidding hands held high, or busy destroying the classical harmony and beauty of St. Petersburg’s Palaces: for lesser mortals, the travails of the US Housing industry, indebtedness of the US citizen and increase in Individual Voluntary Arrangements within the United Kingdom allied to rising interest rates, are disturbing portents. The escalating intrusion of the State into the lives of its citizens, backed by an ever more onerous tax regime, threatens stability far more than its alternative. Furthermore, the take-off in cheap air travel is now seen as the prime polluter and source of all the ills of the world; needless to say, another tax is seen as the solution, especially by the Conservatives, who consign to a distant filing-cabinet the eminently sensible report on taxation produced by Lord Forsyth. The carbon output from the Engines of Asia: India and China, remains sacrosanct and beyond amendment despite making the pollution from our own service-based economy pale into insignificance. Peter, Paul and Mary will not be leaving on their Jet Plane without a heavy gulp of guilt, and concomitant tax levy.

I would like to express some personal views:

Some may query the sanity of those fund equity managers who eschew the assets of ‘this sceptred isle, this precious stone set in a silver sea’, taking in exchange British or other bonds, issued by countries hopelessly indebted and with chronic budget deficits whilst P & O, AB Ports and others disappear into the maw of Private Equity or overseas traders. The Pension Funds reduce their exposure to UK equities – despite that being the only area that can sustain their clients over the longer term; a process accelerated by the present Chancellor and his predecessor’s reduction followed by removal of the Tax Credit; destroying possibly £150 billion from the Pensions of all but parliamentarians and Civil servants, whilst simultaneously proclaiming success at bringing ‘stability’ to the British economy. That stability is mainly apparent in the client list of West End Restaurants. Those citizens foolish or patriotic enough to believe their government’s promises, have been impoverished and the exposure of the British fund industry to its own economy has been diminished.

The 45,000 ‘Ghost’ workers in the Cameroons, costing that country £5 million per month, are sadly replicated many times over in Britain. The soft-sell Conservatives dare not whisper the Spending-cut word, even when the evidence of appalling profligacy and woeful underachievement is everywhere to be seen. Defra has become a byword for incompetence and overstaffing; the National Health, whilst admirable in its operatives, is sliding ever deeper into catastrophic insolvency, dragged down by a Computer system of unbelievable ineptitude and budget overrun; the public education system has proven itself incapable of providing literate and numerate graduates to stand on a par with overseas students. The Armed Forces, one of the few organisations retaining a smidgeon of efficiency and authority, is starved of resources and is now so small within the State sector as to be almost invisible; its Barracks and Hospitals, amongst the finest and historic Georgian buildings in the Land, like the similarly dispersed asylums, have been sold off for a pittance to form bijou apartments for the upwardly mobile and enrich a new generation of developers; the injured must take their chance in the lottery of the NHS.

For the tax-payers of our country to be told they must continue coughing up to bolster this profligate government is truly grotesque. Meanwhile, the ordinary Englishman, paying nearly 50% of his income in tax, is excluded from the London housing market, by the impossibility of competing with non-Domiciled purchasers paying an average of 5%. The citizens of the North-East may well be content with this state of affairs: it is unlikely that those of the South East will tolerate it indefinitely, especially when a Bank of the stature of HSBC admits to be reviewing the domicile of its Headquarters.

It is enough to drive one to drink, but not to cigarettes: that avenue now to be excluded from pubs and Restaurants: an aim but not an achievement of Adolf Hitler in the 1930’s, unlike General Pershing who regarded tobacco ‘as important as bullets.’ The effect on our pub investments is yet to be discovered, but unlikely to be good, as is the removal of soft drinks from schools, whilst simultaneously selling off their playing fields. The urge to intrude and restrain freedom is almost irresistible and infinite to any politician, where even Anthony Gormley’s Merseyside sculptures at Crosby are not deemed safe on the seashore; shame on you, pseudo-Conservatives.

We all now know that Regulations will not be reduced by any of the present or potential incumbents, that tax will get worse and the public finances more dissolute. We have no idea when the nettle-grasping will occur, as happen it must; in the meantime, our assets, spread through this proud land and amongst the more fecund and energetic areas of the world, will provide the wherewithal for the wait.

My thanks, as always, to my patient and wise fellow directors, our excellent and shrewd advisers and our observant and discerning auditors; and especially to Douglas Eaton for so many years of selfless service and worldwide telephone conversations delving into the deeper recesses of the markets.

The humorous team at Cheval Place, reinforced by the return of Rosanna with the assistance of Jackie and Steve, bolstered by Abbie’s endless energy, prepare for the farewell to Chris Burman and a new era, with the Accounts and Company in good heart.

C Robin Woodbine Parish
Chairman

December 2004

The Group profit before tax was £3,025,205 (2003: £3,938,278) after £628,962 expenses relating to the sale of Danby Registrars Limited which was completed on 14 January 2005 (2003: £795,810 merger expenses) and interest payable. Group net assets, taking investments at market value, were £67,905,581 (equal to 573p per stock unit) against £64,963,076 (revised) (equal to 544p per stock unit) an increase of 4.53% compared with a rise of 9.21% for the FTSE All Share index over the same period.

Total net assets at market value or Directors' valuation show an increase of £2,942,505 compared to last year.

A first and final dividend is proposed for the year ended 31 December 2004 of 11.50p (2003: 11.0p) per stock unit, which, subject to approval at the Annual General Meeting, will be paid on the 26 October 2005 to members registered in the books of the Company at the close of business on 17 June 2005.

The power of the portfolio, like this year’s exceptional Oxford crew, became apparent in the middle of last year’s course, with outstanding contributions from the ever-consistent J. Halstead, Hardy & Hanson, Daejan, Mountview, Young & Co. and East Surrey, amongst others. Their solid performance at the heart of the portfolio was accentuated by the takeovers of Glenmorangie and Peel Holdings, and mingled amongst these UK Nationals were strong performances from the overseas contingent, with particular thanks to Troy Resources, Uruguay Minerals and WMC Resources. The holding in the latter, headed by a former winning Oxford stroke, and first purchased by my father for the company in May 1964, has recently agreed to a merger with BHP Billiton, after gradually slipping from its status as the premier Australian mining house. Against these stellar gains must be set reduced share prices for some of our South African mines, as a result of the strength of the Rand and its government’s peculiar policies.

Towards the end of the year, non-family shareholders approved the transfer of the company’s Walcot Hall property to myself in exchange for the cancellation of an equivalent value in shares: this realised one of the company’s most successful investments of all time, at a price almost 200 times book cost, and removes an asset which like many similar properties, has been loss-making for a number of years. Simultaneously, the number of shares in issue has been reduced, at a price substantially below asset value. The subsequent performance of the share price, now comfortably ahead of the cancellation level agreed in September, would appear to confirm the benefits achieved by the company, notwithstanding the costs of undertaking the exercise. My thanks are due to my non-executives and advisers for undertaking this, at times tortuous, process so skilfully. Final court sanction was granted in mid-January.

The wondrous wave of wealth that has washed around the Western World may well have raised most ships, creating the anomalous situation where mobile telephone handsets have become a commodity in massive surplus, and ubiquitous and ever-abundant copper the metal in short supply; its price, along with that of coal and many other metals, escalated beyond the hopes and expectations of most miners, as indeed have freight rates, to the surprise and delight of freighters. The magic wand of China and its transformation into a modern manufacturing nation, has mesmerised the mining world and opened an Aladdin’s cave of potential riches, despite the world averting its gaze from China’s grotesque human rights record.

Our long-established mines have been beneficiaries of improved metal prices and we have high hopes of our newer investments, although undoubtedly there will be failures along the route. We are encouraged by those mines and prospects we have visited, especially in the benign and hospitable economic climate of Botswana; although we remain more circumspect of South Africa, where investment is not only encumbered by a strong rand, but by an ultimate intent to redistribute wealth according to colour, and where former Archbishop Tutu’s criticism of a small coterie being enriched instead of a more even re-distribution, is met with abuse.

The compassion or convenience with which some Western leaders, not to mention sparring partners for the leadership of the Labour party, have espoused the cause of Africa, brandishing the panacea of debt relief, is sadly oblivious to the phenomenal failings of every previous effort to bring succour to that continent, not to say somewhat obscene in their refusal to deal decisively with the perpetrators of the destruction of Zimbabwe and murderers of Darfur.

Paul Theroux, traveller and former teacher’s theory that some governments in Africa depend on underdevelopment to survive: ‘they needed poverty to obtain foreign aid, they needed ignorance and uneducated and passive people to keep themselves in office for decades’ (Dark Star Safari) seems uncomfortably close to the truth, and something no amount of debt relief will amend. As Patrick Marnham opines, in ‘Fantastic Invasion’: ‘The purpose of African resistance to the North is to reject the alien uniformity which the North strives to impose on the unnerving variety of African life. This variety... challenges the necessity for the progress, control, authority and research with which we order our lives. We fear Africa because, when we leave it alone, it works’.

The Twin Peaks of the present leadership of Britain have promised £2bn of taxpayers’ money to sink into this morass. More pertinently for your company, the prospect of cancelling debt for gold both threatens the livelihood of many African gold- producers and also promises no alteration to the suspended state of misery of a continent whose leaders prefer the largesse of BMWs and shopping sprees for their wives to the welfare of their people. A preferable solution would seem to be a revaluation of the IMF gold reserves to the prevailing market price. Meanwhile, the mining boom has created more jobs North of South Africa than in any other industry, the converse occurring in South Africa itself.

Sadly, there are some similarities with that analogy in the United Kingdom itself, where the number of jobs lost in manufacturing almost matches those created in the civil service. The benefits of this realignment are only apparent to the occupants of those jobs and the advertising income of the Guardian. Farming faces an uncertain future, accentuated by the complexity of the single payment scheme, the transfer of resources from the United Kingdom, via the sticky hands of Brussels bureaucrats, to the emerging economies of Eastern Europe, and the refusal of DEFRA to countenance a cull of TB- infected badgers.

The Deputy Prime Minister, fresh from his triumph on regional assemblies, now ignores the mentor of his Oxford college, John Ruskin ‘when we build, let us think we build for ever’, and the writer of Proverbs XX11,v28: ‘remove not the ancient landmark, which thy fathers have set’; sending his ‘Pathfinder’ teams to search those areas of Toxteth, Oldham and Newcastle left unscathed by the savagery of the 60’s and bombing raids of the Luftwaffe, to destroy the remaining and restorable Victorian and Georgian terraces and villas of those often-renascent areas. Older shareholders will recall that the earlier Pathfinders, including my uncle, led the British bombers on their sorties over occupied Europe. All this, whilst paying lip-service to the ‘environment’ and insisting on the blight of triple-glazed windows to save heating costs.

From the mundane to the marvelous, the quirky and the hidden, Britain’s best built and familiar buildings, such as the Woolwich Arsenal, are under threat from the helter-skelter onslaught into owner-equity, based on the dubious premise of ever ascending house prices. The impecunity of the Strategic Rail Authority allied to the absence of aesthetic sense within the South Shropshire District Council has provoked the sudden despatch into rubble of Craven Arms’s century-old Railway sheds, with their fluted columns and superb tiles, making way for a conical bio-digester, and a mile up the A49 a horrendous multi-storey eyesore, funded by more euro-shuffle money, hides the view of Shropshire’s Secret Hills from the A49 and the recently-erected building designed to promote them. Rumours persist that this replacement of the old cattle market, once graced by the moniker ‘Gateway to the Marches’, is to house yet more civil servants.

The removal of the words ‘Crown’ and ‘Royal’ further this erosion of Britain’s landmarks and legacy. The taxpayers and savers of Britain are at the same time excluded from Britain’s top universities by ‘Offa’ insisting on a class rather than academic qualification: ‘The more superstitious restrictions in the land, the poorer the people. The more legislation there is, the more thieves and robbers increase. Therefore, when the government is meddlesome, the people are in want. This has bewildered men from time immemorial’. Lao-Tse, 660BC.

Whilst the face of our beloved Britain remains under threat, not least from windmills mentioned in previous reports, our own accountancy standards become ever more onerous. The implementation of IFRS, in particular IAS39, is referred to elsewhere in this report. IFRS is described by the Chief Executive of AXA as ‘neither improving the transparency of accounts nor making them more comparable, and stifling European growth.’ For your own company, their introduction will involve yet more work, and hence cost, and moreover IAS39 will create, where a profit is achieved but not realised, a requirement for additional funding in order to pay the ensuing tax liability. We do not think there is any evidence that standards of accounting and protection of shareholders will thereby be enhanced. These are additional obstacles to the successful administration of the portfolio, although none are themselves insurmountable.

More disturbing is the fragility of Europe: the cracks long ago discerned by the sceptics are now, with the demise of the stability pact, economic malaise of Germany and disenchantment within France, beginning to gape ominously. Winston Churchill’s comment on Admiral Graf Von Spee's fleet “like a flower in a vase, fair to see but doomed to die” is starting to look applicable to the Euro and even the EU itself. The dollar's vulnerability, as a result of the trade deficit, and stuttering US stock markets in conjunction with a rising interest rate bias, herald caution for the medium-term. It is only a few years since the US removed its 30 year bond, yet France has now issued a 50 year bond, and Britain plans the same.

Part of their attraction, or raison d’etre for their purchase, lies in the regulatory regime that requires certain insurance and pension funds to keep a higher percentage of their assets in fixed interest and government bonds, rather than equities. Having seen the fate of War Loan and Consols issued by previous governments, we would rather run with the elephants, who headed for the hills before the Tsunami, than join that particular bandwagon. Nevertheless, should those rates on offer prove ultimately attractive, the outlook for their issuing economies is grim indeed.

Riding with a possible ‘Bond Bubble’ is the old chestnut of a housing bubble, which with an increasing percentage of properties in the ‘buy-to-let’ category, and rising interest rates, both here and in the United States, combined with the travails of Fannie Mae and other loan organisations, no longer seems merely a remote possibility. Unfortunately determined or panicking sellers could make this a reality.

In conclusion and looking ahead, we see no reason to disagree with Billy the Kid: “I got to the time that I don't do nothing unless there is a piece of gold attached to it”. Whilst showing a tiny uplift on the price at the same time last year, we continue to regard Gold as our safe-haven through a multitude of uncertainties, particularly in the light of earlier comments about the Euro and the US$. The development of both China and India and their emergence as mega-economies and possibly powers, will underpin our exposure to minerals. Latin America, where we also have significant interests, will also benefit from its mineral and agricultural wealth, if it can avoid the maladroit and malign blandishments of Srs. Castro and Chavez.

There will certainly be upsets on the way, particularly in the present frenzy of new issues in the mining area, many of which will never come to production, like their recent forebears in the dot-com sector. There will also, inevitably, be hiccups in the speed of development of China, whose leaders are under no obligation to foster the economic well-being of the West. It would be naive to believe in a repeat of such a fortunate accumulation of factors as occurred in 2004. Nevertheless, our spread and depth of investments within the United Kingdom, and around the World, lend protection from a somewhat cloudy and threatening peep over the horizon of 2005. We will monitor the level of gearing, whose increase has stood us in good stead for the past few years by enabling us to build on and retain our core holdings. The more uncertain outlook for stock-markets over the next 18 months may tempt us to draw in our horns to some extent.

As always, our thanks are due to the crew at Cheval Place: Abbie’s magnificent mastery of the settlement side; newly- married Rosanna's concise command of communications, and Chris’s deft direction, assimilation and production of figures amongst a raft of new regulations and requirements. I would also like to thank my co-directors and advisers for their assistance and advice through an eventful and successful year.

C Robin Woodbine Parish
Chairman

December 2003

The Group profit before tax was £3,938,278 (2002: £2,321,415) after £795,810 (2002: £nil) merger expenses and interest payable. Group net assets, taking investments at market value, were £66,669,970 (equal to 558p per stock unit) against £54,049,692 (equal to 453p per stock unit) an increase of 23.35% compared with a rise of 16.56% for the FTSE All Share index over the same period.

Total net assets at market value or Directors' valuation show an increase of £12,620,278 compared to last year.

A first and final dividend is proposed for the year ended 31 December 2003 of 11.00p (2002: 10.5p) per stock unit, which, subject to approval at the Annual General Meeting, will be paid on the 25 October 2004 to members registered in the books of the Company at the close of business on 30 July 2004.

The figures set a standard for the commencement of our second Century that we will undoubtedly find it hard to emulate. We have been the beneficiaries of an uplift in precious and base metals unprecedented for 30 years and also of the spigot of liquidity released by Western governments which has flooded the Western world with cheap money, floating assets, particularly houses, to a level that implies untold riches for an age to come. Share prices likewise, have responded in the manner intended, so that an aura of well-being has reinvaded the world, following the disastrous declines experienced up until March 2003.
Happily, your Company's portfolio was not immune to this tendency, despite your Chairman's sceptical approach, and the old favourites such as Hardys and Hanson, James Halstead, Wolverhampton and Dudley, Daejan and Mountview, amongst others, have continued to show the benefits of good management and clear vision. These successes have been amplified by the spectacular rise of some lesser-known lights, such as Uruguay Mineral Exploration, whose discoveries have set fire to the share price, and repaid patience and perseverance. Against these winners, there have been miscreants such as Minorplanet, a vehicle management system supplier, and the demise of Gympie Gold after a fire at its Queensland mine; reasserting the awareness of risk in mining ventures, which with a rising price for its Gold and Coal had promised prosperity.

Fortunately, our success elsewhere in the mining field, assisted by the huge rise in price for most metals, especially Nickel and Copper, has counteracted these and other trading mishaps.

The merger of the Exploration Company with the El Oro Mining and Exploration Company was successfully implemented on the 4 September 2003, and I reiterate my gratitude to our advisers and staff who helped ensure a successful transition. The merged Company now has a substantial interest in property, mining, oil and pub companies, as well as numerous interests in developing markets such as China, India and Latin America. We pass the Centenary of the founding of the original El Oro company with confidence but watchfulness, searching for value at home and abroad, reinforcing strength and attempting to avoid the seduction of fashionable areas.

Our concern for the future is to discern the pin that pricks the bubble of complacency cradling the economies of the Western world. On both sides of the Atlantic, the rumble of rising interest rates reverberates, threatening Scylla to the Charybdis of debt in the Anglo-Saxon economies. The recovery in the States displays diminished job creation, and the impending election holds an inherent threat to sound money. In China, we are told of over-stocking due to supply shortages and the ever- increasing price of raw materials, compounded by huge increases in freight rates. More recently, these have begun to turn down. Meanwhile the farmyards of England are being denuded of scrap iron, symbolic, perhaps of the end days of this particular frenzy.

The landscape itself is sadly not immune to fads, with the calamity of Kyoto reflecting John Betjeman's words ‘Encase your legs in nylons, bestride your hills in pylons, O age without a soul’. The windmills that will bedeck our hills will consume huge quantities of energy in their edifices of steel and concrete and return but a trickle, whilst the impairment imparted will endure for generations.

In Britain, the Budget's main motivation is to extract cash from all levels of business, and remove or reduce whatever incentives were most recently introduced to encourage saving. The level of household debt, both here and in the States, approaches alarming levels, but the Cassandras are mocked for their predictions of impending or eventual doom. We cannot see to whose ultimate advantage an ever escalating house price can be, other than to the credit card and loan companies who use that asset as security. The number of chairs may not be decreasing, as in the game, but when the music stops, the players may discover they belong to someone else.

In the meantime, the heavy hand of government, not content with attempting to resurrect the glories of British Rail, is now attempting to regulate and control the housing and mortgage market, just as its counterpart in Brussels is trying to prevent private arrangements between local airports and Ryanair. We believe the result will be the same in both areas: reduced supply at higher prices, and restricted benefit to the consumer. The grasping hand of socialism is demonstrated by the ever-widening grip of the ubiquitous housing associations, assuming precedence over all other areas of house-building. Their restrictions and controls fly in the face of the market and individual's ability, proven over generations, to provide unfettered housing at reasonable prices.

We hear of Leopold Joseph being sold as it could no longer cope with the new raft of regulations, and even Formula 1 being under threat due to the stringency of Europe's safety regulations and the ban on tobacco advertising.

Britain's farmers face an uncertain future, whilst their funds are diverted to antiquated areas of Eastern Europe. Vast sums are at risk over the upsurge in Bovine TB, and the verse from Proverbs 14 'where no oxen are, the crib is clean, but much increase is by the strength of the ox' is sadly neglected.

Meanwhile the London Mayor's bendy buses abet congestion, catch fire with increased frequency and will soon cost the taxpayers of London over £1billion. Despite the massive expenditure on Docklands' infrastructure and transport, it remains unattractive to the private sector except at bargain basement prices and sweetened with tax incentives, whilst sucking money from more deserving and widely-used areas of London's rail system; the crazy Cross Rail scheme which is hastily removing the nineteenth century arches of St. Pancras, replacing brick and iron with tubular steel, is another development where the taxpayer is paying for something of dubious benefit, whilst the borrowing requirement accelerates, even without many off- balance sheet items.

This borrowing, guaranteed by government but invisible to open audit now makes Enron seem decidedly amateur. Parmalat's collapse has sounded a warning about creating a financial pack of cards with debts concealed in nooks and crannies. We heartily hope the edifice created by the present Chancellor is not treading down the same path.

We see little encouragement to savers and investors, rather a rapacious desire to remove an individual's money and redistribute it in the manner most appealing to bureaucrats and politicians, by grants, subsidies and a proliferation of form- filling. We even see the elderly house-owner and art-collector threatened by taxation of their residence or assets, revoking any arrangements in force post-1986: the harbinger of a surreptitious wealth tax.

For your Company in particular, The International Accounting Standard IAS39, which the European accounting system proposed for 2005, threatens to tax your unrealised gains, turning on its head the guiding principle of this company to let profits accumulate. If adopted, we may find the need to finance the tax on gains for which no funds have been received further restricting our room for manoeuvre. Such measures strike us as acts of desperation by a government looking every which way for cash for its coffers. It is neither a pretty nor an encouraging sight and bodes ill for the outlook.

Credit must be given to England's cricketers demonstrating that even the most lost of causes can be salvaged. The glorious victory of the English Rugby team demands our plaudits, although the rebuilding now required demonstrates how quickly pre-eminence can be lost. Likewise the fast-starting Oxford crew's attempt to take their opponents' water lead to conflict and calamity, transferring the honours to the Light Blues.

We do not see the economic well-being in Britain as sustainable, despite the good start and lead established over her competitors. We are hobbled by regulation, Brussels and an array of ministers devoid of any sense of responsibility and who see their role as a heavy hand rather than a light touch, exemplified by the overseer of the disastrous Dome transferring his skills to the assault on the House of Lords and the British Constitution.

The United States presents an even more frightening spectacle of government and individual profligacy. Perhaps the music slows instead of stopping, but we believe caution is required in case there is an additional and severe jolt to the economic system, at a time least anticipated.

Returning to an earlier theme of Bruce Chatwin, we quote him afresh: ‘the nomad child's earliest experience is of a swaying nipple and shower of gold’. We continue to believe, despite the derision of the Financial Times, that our exposure to gold shares and the metal, and indeed that of its counterparts in silver, will act as a sheet-anchor in time of trouble; meanwhile we see no reason why our spread of holdings will not continue to build on its past successes. We are heartened by Lance Armstrong's Tour de France victories, partly powered by platinum used in his chemotherapy, and continue to hold high hopes for our investments in this wonder metal, which looks good, tastes good, keeps engines clean and provides emission- free power.

We are particularly excited to learn recently of another significant gold-strike in Australia by Troy Resources, and congratulate its team on its tenacity and triumph, wishing them every success in their exploration programme.

We would like to conclude with our thanks to the energetic and encouraging Abbie, calm and collected Rosanna and number-crunching Chris at Cheval Place working well together, and our advisers, who have both surmounted the demands of the merger in style and continue to enhance the growth of your venerable company.

We consider the foundations sufficiently sound to stand fast in storm and sunshine.

C Robin Woodbine Parish
Chairman

December 2002

Total net assets at market value or Directors valuation show a decrease of £3,599,207 compared to last year.

The Group profit before tax, including £292,090 (£1,255,901 for 2001) share of profit, after interest payable, applicable to Associated Undertakings, was £2,049,125 for 2002 against a loss of £75,552 for 2001. Group net assets, taking investments at market value, were £37,353,176 (equal to 310p per stock unit) against £40,924,033 for 2001 (340p per stock unit) a decrease of 8.73%, compared to a fall of 25.03% for the FTSE All Share Index over the same period.

A first and final dividend is proposed for the year ended 31 December 2002 of 10.5p (2001: 10.5p) per stock unit, which, subject to approval at the Annual General Meeting, will be paid on the 25 October 2003 to members registered in the books of the Company at the close of business on 31 July 2003.

Evasive action was taken in the first half of last year, which avoided some of the severe declines that occurred through to the lows of early October, on both sides of the Atlantic. This has been coupled with redemptions of several of our Loan notes received in exchange for takeovers in earlier years. Christmas also came early in the form of the sale, at a most attractive price, of a long-held commercial property, significantly in excess of its most-recent valuation. It would be unrealistic to expect such largesse to be repeated, although low equity valuations in the U.K. are beginning to attract predators at the present time. Our goal, in the unappealing environment that confronts us, is to garner income from safe sources, even at seemingly unattractive fixed rates as bonds appear to present, whilst protecting ourselves from an expected decline in Sterling. Preservation of capital remains top priority, as we are not believers in the Second Coming of a Financial Saviour, or anything similar to the absurdities seen at the start of this Millennium. Our sound Smaller Company stocks will, we believe, improve our profitability over the medium term.

Last year's Corporate horrors, typified by Enron’s accounting shenanigans abetted by their auditors, helped precipitate the decline in markets which continued until early in October, after which a rally ensued until early December. Much comment has been made about the rewards for failure, and little seems to have changed in this regard. We cannot help feeling, nonetheless, that the Higgs report will do little to enhance the efficacy of boards and the performance of the companies which comply, especially where the executive management has embarked on a policy which destroys shareholder value. The former mainstays of many portfolios, including our own, such as Invensys (what price another foolish name, oh for British Tyre and Rubber), ICI, Cable and Wireless, have left the loyalists in despair. Fortunately the Bonds of countries such as Switzerland, New Zealand and Australia, and perversely for ourselves, German Bunds, are lining up with comfortable yields of the Hardy and Hansons and James Halsteads of this world to help tide us over whatever discomfort the Bear market may bring. We have, in addition to our overseas Bond portfolio, established an exposure to the underwriting cycle, with its substantial rises in premium income, over a range of Lloyd’s vehicles, and are looking for an improved risk/reward ratio in this area.

As the drums of war fade into the distance, leaving the detritus of weaponry, edifices, and reputations, it would be churlish indeed not to salute our own Prime Minister for his forthright and consistent stand in pursuing the overthrow of the Iraqi leader, and more importantly maintaining the tradition of alliance with the United States, so sadly spurned by the French and Germans, not to mention many of his own party. We have hoped in the past for a more forthright pursuit of British interests, and reiterate our concern and disappointment that the murderous Mugabe escapes unscathed whilst retaining his knighthood, and enjoying the distasteful obsequiousness of President Chirac, eager to assert French influence in Central Africa and lay claim to the diamond wealth sequestrated by the Zimbabwean dictator and his henchmen.

We are hugely heartened and in awe of the quality and bravery of our own soldiers, as exemplified by the words of Lt. Col Tim Collins to his 1st Battalion of the Royal Irish: "If you are ferocious in battle, remember to be magnanimous in victory. Iraq is steeped in history. It is the site of the Garden of Eden, of the Great Flood and the birthplace of Abraham. Tread lightly there. You will see things that no man could pay to see and you will have to go a long way to find a more decent, generous and upright people than the Iraqis. You will be embarrassed by their hospitality even though they have nothing. Don't treat them as refugees for they are in their own country. Their children will be poor, in years to come they will know that the light of liberation in their lives was brought by you.... As for ourselves, let's bring everyone home and leave Iraq a better place for us having been there."

We must sincerely hope that the sacrifice many have made can achieve for Iraq what liberation of the Falklands brought to Argentina with the demise of the junta, but also that co-operation with the new government can start immediately, to the mutual advantage of both nations.

The events in the Middle East have, needless to say, overshadowed and perhaps masked the gravity of the economic downturn affecting Western economies. It is important to realise, as it would appear few European politicians are capable of seeing, that the alliance with the United States has formed the bedrock of stability and peace in the world for the last 50 years. In a similar way, the United States economy has become the mainstay of worldwide prosperity.

It is possible that as the fog of fear lifts, and the worst possibilities of renewed war with unknown weapons dissolve, that a new sense of confidence and encouragement will emerge, that will help lead the United States and subsequently the Western world out of recession, or at least prevent the decline into a "double dip". We do not discount this possibility. We do not however, consider it the likely outcome, much as we would wish it to be. As Dr. Richebacher has so succinctly summarised "when consumption is boosted by an increase in asset values, at the expense of investment and the foreign trade balance, the net result from a macro perspective is overall impoverishment".

The myth, comforting British and American economists, that rising house prices and continuing consumer expenditure has benefitted and will further enhance the well being of their economies is sadly far from the truth. We are firmly of the opinion that deflation of exalted asset values and earnings ratios has still, particularly in the United States, far further to go. It has, to date been a drawn-out decline, and we would consider it likely to continue to be so, with moments when it would appear that it has at last changed for the better. We intend, therefore, to keep our powder dry and restrain ourselves, as far as possible, from over exposure to the market, except where we see convincing value, either through the cushion of an asset value substantially in excess of the share price, or, and preferably in conjunction with, a high and maintainable dividend yield.

The British economy, whilst apparently more reasonably priced than that of the States, faces the disagreeable prospect of rapidly rising State spending, led by a Chancellor showing scant regard for the travails of industry or the wealth creators. His attempt to raise tax from the expatriate community of foreigners living and plying their trade in Britain is likely to lead to their departure. The egregious ‘You need a relationship with the workplace’ Mr. Clarke decries erudition and contemplation, whilst attempting to impose on our universities the debasement of talent by mediocrity. The raft of regulations is already leading to the demise of many smaller companies, which were and whose survivors remain, the backbone of the British economy. The suzerainty of Brussels, and its stifling diktats, are more suited to thequasi-state structures prevailing in its mainstays, France and Germany. Even our artistic triumphs succumb to this nihilistic regime, such as the cast iron lampposts adorning the Embankment, and St. Pancras’s fine windows, on the absurd premise that their heat retention does not comply with newly imposed standards.

The successful British entrepreneur, who stands stalwartly at the base of British industry, is in many cases unable to cope with the compliance costs of conforming with the increasingly complex regimes. Farming is a case in point; Defra, led by the incomparably incompatible Mrs. Beckett, with her extraordinary and naive reliance on, and obsequious deference to, any scientific mumbo-jumbo emanating from Brussels, is, at its behest, introducing a new regime which will undoubtedly lead to the demise of Farming as we now know it. Subsidies will be paid on the basis of acreage, rather than production. An industry once at the forefront of scientific advances, animal husbandry and innovation, will atrophy and die, with incalculable consequences for the countryside and those who have laboured in it over the generations: all this to help a few Polish peasants, but primarily the farmers of France and Germany.

We are equally disheartened by the Chancellor's insatiable appetite for our cash to fund his NHS coffers, an impossible and unending task, that is at present only achieving inflation in the wages of the many staff there employed. The success in alienating British business achieved by Gordon Brown is only matched by that of Ken Livingstone, with his enormously costly-to-collect congestion charge, which however agreeable for the cyclist in its consequences, is surely eliminating the sparkle from Central London, so essential for a capital City depending on confidence and je ne sais quoi. It took a long time for Carnaby Street and its environs to recover its vibrancy once the Beatles broke up. Already a considerable body of evidence shows how badly West End shops are suffering.

On the sporting front, we have the absurd spectacle of the destruction of Wembley’s Twin Towers in order to spend £750m on a stadium to serve the pinnacle of a game whose grass-roots are being so badly starved that our finest footballers are made to look pedestrian by the thoroughbreds of Real Madrid. Perhaps the Irish breeders will rectify the situation.

The Pensions Crisis, which is devastating the prospects of a whole generation of imminent retirees, received its greatest impetus from the Chancellor’s removal of the tax credit to pension funds. The collapse of equity prices has magnified this malicious and ill- conceived act. The Commons Pension Committee, with its head firmly rooted in the sand, speaking from the security of its index- linked citadel, dismisses use of the term ‘crisis’, whilst the Government initiates additional measures to exacerbate the situation, like most earlier amendments. The medicine, however unpalatable, is that the retirement age will have to be raised. Fortunately, Britain’s position is less unappealing than that of Europe, with its huge quasi-state-controlled infrastructure and the needs of its former employees. That will be of little solace to us, if we are dragged into the single currency.

All these factors could, perhaps, be sustained, in the middle of a conventional economic cycle. We ourselves are convinced that we are in the.early stages of a substantial downward economic adjustment, and the “Heavy Pounding” we predicted last year still has much further to go. We have not removed our flak jackets, nor our helmets, although like the British Army, we seem to have a mixture of attire, between khaki and green. We are holding on to our gold stocks and bullion, even though the highs in the shares attained last June have yet to be surpassed.

I am indeed grateful that we have a board that has given the executive every assistance in attempting to benefit shareholders at large. I hope that assets will continue to be enhanced, within the constraints of the gloomy prognosis I have outlined above. Over the coming years we hope that our cautious stance will protect the asset base of your company.

The immediate future is cloudy indeed, and a 4th down year for Western markets is a distinct possibility. The scintillating victory of the Oxford crew, matched stroke for stroke by Cambridge, has shown how tenacity, dedication and determination can triumph over shortcomings in size. We offer our congratulations to both crews, and coaches, on a devastating display of courage and endeavour. The newly elected Chancellor of Oxford, fresh from his robust role in dismantling the Royal Ulster Constabulary, and asserting Europe's influence on the world stage in its relations with America, may like to observe that size does not count for everything, even though that has consistently been the assertion of the Europhiles. Perhaps even he could conclude that a more buoyant Britain can continue to thrive without the stranglehold of the Brussels genre of socialism.

My thanks go to our staff: the enthusiastic and able Abbie, preparing to introduce more Blondes in to England, for which we wish her well; the impeccable Rosanna and adroit Chris Burman, as well as the various advisers and brokers who have served us well over the past year.

C Robin Woodbine Parish
Chairman

December 2001

Total net assets at market value or Directors valuation show a decrease of £6,409,329 compared to last year.

The Group loss before tax, including £1,255,901 (£802,424 for 2000) share of profits, after interest payable, applicable to Associated Undertakings was £75,552 for 2001 against a profit of £1,690,006 for 2000. Group net assets, taking investments at market value, were £40,924,033 (equal to 340p per stock unit) against £47,333,362 (393p per stock unit) a decrease of 13.5%, compared to a fall of 15.3% for the FTSE All Share Index over the same period.

The reduction in assets and dividend, whilst in line with the FTSE All Share Index, will come as a disappointment to all shareholders. As alluded to in the Interim Statement, the heady days of the late '90s are now being replaced by heavy pounding and hard tack or, as Richard Russell describes it: "In a Bear Market everyone loses but the one who loses least is the winner".

The events of last autumn caused us to take a defensive posture which resulted in crystallising losses on some holdings.

The huge infusion of liquidity generated by the Federal Reserve and the Bank of England precipitated a significant recovery on stock markets to an extent that we had failed to anticipate. Regrettably we also laboured under a forlorn and futile fantasy that some of the miscreants of the portfolio had fallen sufficiently. The old adage that the first loss is the smallest proved painfully true.

The ultimately unobtainable expectations that were priced into the new technology area, such as RTS Networks, Parametric Technology and Applied Optical, have been the main factor in the decline in asset values. This has been exacerbated by the decline in more traditional holdings, such as Devro, Low & Bonar and Invensys. It is galling to confess that one's success in avoiding some of the more spectacular declines both here and in the States, such as Marconi and Enron, has been contradicted by involvement in a group of equally unsavoury investments.

The successes of the portfolio and stellar performers have almost all come from the more traditional old economy areas and the smaller company sector and I would here mention the excellent performance of Wolverhampton & Dudley Breweries, William Morrison, Mountview Estates, Hardys and Hanson, and British American Tobacco.

Whilst not turning our back on the possibility of a revival and modest involvement in the technology sector, the catchword for your company over the coming year will be increased caution; bolstering the holdings where the share price is at a discount to assets, supplemented by a steady income stream.

The share price of your sister company, El Oro Mining and Exploration Company p.l.c., declined from the 665p at the end of 2000 to 603p in December 2001, fueling the decline in assets. Shareholders of El Oro Mining and Exploration Company p.l.c. will be aware that the asset value has shown far greater stability due to its extra emphasis on gold and energy resources and given the continuing attractive outlook for those sectors this should help to underpin the Exploration Company's asset value.

Shareholders will have noticed the changes to the Board that occurred in December 2001 and will be asked to confirm the appointment of the new members at the forthcoming annual general meeting. I would like to thank both David Thompson, who was appointed in 1994, and Theodore Agnew for their contribution and assistance to me and to the management of the company during their period of office. The new members of the Board have decided that a review of the entire corporate structure would be appropriate to try to achieve enhanced value for all shareholders. This process is currently being undertaken. There is no guarantee that either an economical or an acceptable solution can be found that would overcome both the latent tax liability and the lack of liquidity in the company's shares which was largely responsible for their erratic movements last year. Nevertheless, it is the Board's intention that all avenues are explored and shareholders will, I hope, forgive the expenditure on some additional professional advice to achieve that effect. I am very glad to welcome the new Board members who amongst them have a wealth of experience in fund management, accountancy, oil services and investment monitoring.

Whilst we remain convinced that current values, particularly in the United States, are unsustainably high, the dramatic collapse or consistent decline in markets we were beginning to expect has yet to materialise and there is a plausible argument that the liquidity already referred to will enable both the United States and the United Kingdom to move forward for at least another year or two.

There are, however, ominously leaden clouds gathering overhead. The IRA applauds its "heroes" for their triumph over the forces of Her Majesty's Government and the Prime Minister is determined to confront terrorism in every other area of the world except those, where British interests may genuinely be involved, such as Zimbabwe, at the same time as selling out the citizens of Gibraltar, a British dependency since 1713. We are therefore confronted with an attack on Iraq of some type and at some stage, at the same time as the battle for Afghanistan remains unfinished and as the Muslim fanatics blow themselves apart in their determination to achieve the destruction of Israel.

In Britain the Chancellor has decided, it would appear, to eschew all other methods of reforming the National Health Service other than that already proved to be inadequate, namely taxation and the provision of yet more funds, principally by the raising of that most unattractive of all taxes, National Insurance. The raising of the old Socialist sails of 'tax and spend', once apparently abandoned but now re-espoused as the only enduring dogma, sounds the death-knell for the hopes of those who wanted the provision of choice in the allocation of their own resources. That has also been denied in the pension arena, where the devastation caused by the removal of tax credits, and the requirement to purchase an annuity at pitiful rates, is beginning to become apparent in the stock market. Similarly the retention of stamp duty on share dealing and new measures to tax foreign banks, continues to threaten the supremacy of the City. Manufacturing is likewise at risk, not least by the absurdity of the ban on exports of recycled fridges, destroying at a stroke more employment and foreign revenue. This is to be followed by the spectre of far-eastern gentlemen doing the rubbish rounds, when the obligation of the manufacturer to recycle electrical items is enforced by that paragon of parsimony and inventiveness, the E.U..
The grime beneath the fingernails of the Government's acceptance of the cash of a steel maker whose interests are utterly at odds with those of Britain, amongst their other dubious deeds, is compounded by their assault on the farming sector where the complexity and constant changing of regulations displays their contempt for those actually attempting to grow or make something. These structural deficiencies are now being compounded by Ken Livingstone's assault on the City and people of London, abetted by the bumbling and devious Transport Secretary.

The restriction and delays in transport across the Capital that are now occurring with regularity will impede the recruitment of able personnel and strangle the City which is the star of the British financial system, extinguishing the vitality of the world's premier capital. As Fred Dibnah has so graphically described, the construction of canals in 18th Century Britain halved the cost of transport, with a similar reduction in the price of goods. The achievement of our present leaders will be the opposite. It is time a concerted effort was undertaken to halt the wreckers before this process can go much further.

The current price-earnings ratios, especially in the States, are still far too high to form a base from which a recovery can be perpetuated. The reapplication of tariffs on steel by the United States has disturbing similarities to the Smoot-Hawley act, which ushered in the depression of the 1930’s. In the United Kingdom the absence of a transport policy and the stultifying effect of increased taxation reduce the likelihood of congenial conditions for an improving economy. We will therefore keep our heads down; conserve cash, search for secure dividends and establish stronger positions in assets and resources including gold.

We would like to add our voice of thanks to the late Queen Mother for her exemplary life of service to her nation, and pay tribute to the organisers of her funeral and the memorable and moving spectacle and insight into British History that it provided.

We would also like to thank all the staff at Cheval Place, and the company's advisers, for their contribution during the past year. We wish David Fleming success in new pastures, and welcome Christopher Burman as our Financial Controller and Company Secretary.

C Robin Woodbine Parish
Chairman

December 2000

Total assets at market value or Directors valuation show a decrease of £4,317,635 compared to last year.

The Group profits before tax, including £802,424 (£842,033 for 1999) share of profits, after interest payable, applicable to Associated Undertakings was £1,690,006 for 2000 against £5,621,549 for 1999. Group Assets, taking investments at market value, were £47,333,362 (equal to 393p per stock unit) against £51,650,997 (429p per stock unit) a decrease of 8.36%, compared to a fall of 7.97% for the FTSE All Share Index over the same period.

Stockholders will recall the Company’s goal of not allowing management costs to exceed 0.75% of total assets. I must report that over the last year the costs are equivalent to 0.98% (1999: 0.90%), although in sterling terms the costs are broadly similar for both years. Efforts are continuing to reduce the ongoing expenses to the stated target in the current year.

Overall borrowings have declined by £2,048,932. The number of stocks held at the end of the year declined to 231 (1999: 274) compared with our target of 220. The share price of your sister company The El Oro Mining and Exploration Company depreciated from the level of 705p at the end of 1999 to a level of 655p at 31 December 2000. This decrease has disguised what has otherwise been a very satisfactory rise in the value of the underlying assets. We are exploring ways of rationalising our property investments.
The decline in World markets, whose swansong was signalled by the termination of the brief rally in early September, accelerated in December, accentuated by uncertainty as to the leadership of the United States. Since the year-end, it has become apparent that Dr. Greenspan, whose hope, as de Gaulle, may have been ‘Apres moi le Deluge’ is now confronted with a change from ‘apres' to 'avec’. The reality is that the Bear market has arrived with a vengeance, from which no stock and no country will be sacrosanct.

Whilst the sector and geographic spread of your Company’s investments will grant a modicum of protection from falling asset values, the general downgrading of price-earning ratios has been and will continue to be unremitting. The insouciance with which ratings of over 40 and indeed up to 400 were regarded during the heady days of last year’s insanity, is now a distant memory, and is unlikely to be repeated for a considerable number of years. The danger for the general market, and in particular U.S. investors and hence your Company’s stocks, is that to cover open positions in stocks such as Cisco which have fallen by over 70% to date, other stocks on more modest ratings will be sold, thus depressing their price. Thus although your Company has greatly benefited from its unfashionable positions in Philip Morris and BAT, their prices have, in recent days, begun to decline with the broader indices. We do not see any evidence of this trend reversing for some time, apart from the occasional rally. We will therefore be positioning ourselves as safely as possible for what promises to be a most uncomfortable ride.

On the domestic front, the nation lies shrouded in smoke from the funeral pyres of, mainly healthy animals, in blatant disregard of the 1969 report recommending against burning; perhaps as a result of it being titled after a Duke, whose expertise along with his colleagues, has been so clinically eliminated by the inestimable Baroness Jay. The sorrowful spectacle of the Chancellor seeking permission to grant relief from VAT on church repairs from Brussels would have been a source of amusement, if we did not now see the same charade being repeated with the need for permission from the E.U. on every new preventative measure. Meanwhile the livelihoods of the rural sector and entire British tourist industry are under threat of extinction. Measures designed by a Brussels bureaucrat with no knowledge of individual British conditions take precedence over even the wisdom of vets involved in the 1967 outbreak. At the same time, confronted with the gravest economic situation since 1929, as a result of the vast credit explosion in the United States, watched over benignly by the Good Doctor, the E.C.B. so far declines to reduce interest rates.

The idiocy of the one-cap-fits-all policy, in interest rates, animal welfare and every other realm of economic and human activity, becomes ever more plainly apparent. Our glorious government’s members reveal an unbroken thread back to the great pretender and fraudster Robert Maxwell. Its crowning achievement after four years’ of unfulfilled promises has been to abolish mink-farming, and destroy more profitable jobs, whilst preserving or attempting to preserve the unprofitable ones in coal, steel and cars. They mistakenly believe that they have inured us from the boom to bust scenario. Britain, where London has established itself as the financial hub of the world, is more vulnerable to such a downturn than most other countries. The catastrophic effects of the foot and mouth disease will only exacerbate a disaster that has lain hidden within Chancellor Brown’s scathing smirk.

No improvement has been accomplished in the provision of health, education or defence and the shambles of dealing with the foot and mouth disaster is plainly apparent. At the same time, the cutting edge of privatisation which has brought such enormous benefit to Britain and the world has been blunted by the bludgeon of bureaucracy and regulation, assisted by mealy-mouthed politicians anxious to reassert their say in the running of the world. The government's 3G licences have sucked vast sums out of telephony businesses, depriving them, as is now painfully evident, of desperately needed capital. The British example, once the by word for freeing the underlying business from the dead hand of government, is now followed elsewhere in the same dirigiste and destructive manner. Thus Railtrack and British Telecom, both of whom started with such promise, have become a byword for the inability to react to changing circumstances and the strangling embrace of government. It would be laughable if it were not so tragic to think that some support re-nationalisation of the railways when it was government ownership that destroyed that proud tradition in the first place. Unless the country reverses the downdraught of socialism, whether inspired from within or from Brussels, its business and infrastructure will continue to atrophy; the future of the London Underground, flunked by the Conservatives when in power, is particularly relevant; schemes of grandeur and folly such as the Chunnel link and the Jubilee line, abetting the Dome, only distract from the urgent need to promote an efficient way of managing and restoring the whole system.

Thank goodness George Bush, along with almost the entire Senate, has resisted the unsubstantiated and ill-advised effort of the Kyoto accord to hinder the US economy. In the face of all the hysterical snivelling from the socialist empire of Europe at least some economic sanity and hope for growth remains alive. All great technological inspiration and improvement in energy use have been developed as a result of United States hegemony, and her power will continue to be the dominant provider of jobs and improvements in living standards world-wide. Any attempt to limit US growth can, therefore, only have disastrous effects, which will quickly ripple around the world.

The outlook for World Markets, despite the extent of falls that have already taken place, remains extremely negative. Japan remains on the edge of the abyss. The Dow Jones probably has further to fall, to reach realistic price-earnings levels. London cannot be immune from further falls in the U.S. The socialist nirvana of the European Union, hell-bent on the destruction of NATO, and presuming to determine the future of General Electric as well as North Korea, is unable to see the impending disaster on its own door-step. A boom in Ireland will certainly not save the economy of Eastern Germany from further ravages as a result of excessive interest rates. The investment in Microsoft would appear to have fallen close to its bottom, and may well recover later in the year. In other areas, our spread of income-producing loan notes will sustain the cash-flow of the company, and the smaller companies, such as Hunting plc and Hardys and Hanson continue to show improved profits and dividends. For the market as a whole, and its concomitant effect on the portfolio, we would not expect any upturn, apart from brief rallies, until well into 2002. Nevertheless our spread and diversity will stand us in good stead.

Stockholders will by now know of the death in September of Mrs. Smith, whom I would at this moment otherwise be thanking for her stalwart service. She gave this graciously and without stinting up until her last day in the office, and I would like to place on record the enormous debt of gratitude owed to her, by my father, myself, my family and both companies. Her record of service, integrity, loyalty, and fortitude, particularly in the light of her frailty ensuing, from an attack of TB, is one that is worthy of emulation in any one of those qualities. She is enormously missed, as is evident from the numerous letters received, many from people who had never met her, affirming her particular brand of helpful telephone manner. Our sympathies go out to all her family and friends. To our remaining staff, advisers and colleagues, I would like to add my thanks for their help during a challenging year.

C Robin Woodbine Parish
Chairman

December 1999

Total assets at market value or Directors valuation show an increase of £7,522,217 compared to last year.

The Group profits before tax, including £842,033(£1,088,192 for 1998) share of profits, after interest payable, applicable to Associated Undertakings was £5,621,549 for 1999 against £5,406,542 for 1998. Group Assets, taking investments at market value, were £51,650,997 (equal to 429p per stock unit) against £44,128,780 (366p per stock unit) an increase of 17.21%, compared to a rise of 21.25% for the FTSE All Share Index.

1999 was characterised by the very substantial advances that occurred in the technology sector; advances that dramatically increased in the last quarter. The rush for technology stocks has continued into the current year and has refined itself more specifically into those areas that pertain to telecommunications and in particular mobile communications and areas related to the use of the Internet. Whilst your Company has benefited to a limited extent from its involvement in some of these areas it has also suffered to the extent that some of its stalwarts have seen their share prices substantially eroded whilst funds were drained away from more traditional areas into start-ups and fledgling industries where earnings in many cases are negligible. In some cases such as Railtrack and other utilities the price decline has been accentuated by adverse governmental or regulatory action. To take the example of Boots, with a strong High Street presence and a wide range of low-value items for everyday use, the share price is down from over £10 to just below £5; and in the case of Railtrack the high of £17 compares now with a level of just under £7. Both of these are substantial companies with proven business records providing essential services and compare with a prospective flotation price for Lastminute.com of £400 million which last year earned income from commissions of approximately £180,000.

The dramatic changes in technology that have occurred over the last few years have undoubtedly altered many facets in the way that business and everyday life is conducted. It would be remiss not to recognise and attempt to participate in this process and, indeed, we have been fortunate to have holdings in companies such as Intel that have shown very substantial appreciation over the years and others where we have taken advantage of substantial up-lifts in the course of last year. Nevertheless, the price earnings where applicable on many of the current favourites are by all traditional standards hugely over-inflated and whilst it is our intention to continue to hold such stocks as we deem to form the bedrock at the present or to become such in the future, our inclination at the present time is to take a more cautious stance and to begin to add to those positions where both yield and the earnings ratios seem unduly generous.

Stockholders will recall the Company’s goal of management costs not to exceed 0.75% of total assets and I am able to report that over the last year the costs are equivalent to 0.90% (1998: 1.30%). Efforts are continuing to reduce the ongoing expenses to the stated target in the current year.

The number of stocks at the end of the year was 274 compared with our target of 220. The share price of your sister company The El Oro Mining and Exploration Company appreciated from the depressed level of 660p at the end of 1998 to 705p. This modest increase has disguised what has otherwise been a very satisfactory rise in the value of the underlying assets. We are exploring ways of rationalising our property investments.

The onset of anarchy in Zimbabwe revealed by the butchery and eviction of white farmers and their workers, who have been the lifeblood of the Zimbabwean economy, bodes badly for investment in Southern Africa. At the same time, it reveals the distortion of government policy where British troops defend German and European interests in the former Yugoslavia whilst our own interests and relations in Zimbabwe are ignored; not to mention the threat of future starvation in a country being shorn of its farming expertise; the mythical foreign policy in action.

The benign scenario confronted by Chancellor Brown as he plots his course to the next General Election disguises the vacuity and ineptitude in almost every area that the current government has touched, with the possible exception of the management of the economy. At least for the moment the threat of the withholding tax has been stalled and the lunatic desire to be included in the single currency is losing its attraction. However, the bureaucratic barbarity and out-dated ideals of a European Socialist Superstate remain potent threats to Britain’s individual identity and economic prosperity as does the Stock Exchange’s supine capitulation to the Burgermeisters of Frankfurt. Art and agriculture must now be added to our fishing industry as casualties of the Icarian belief that this monolithic monster would both be able to fly and bring benefit to Britain. No quantifiable benefit has yet become apparent nor is it ever likely to do so. Britain’s best brains and businesses such as Autonomy, ARM, RTZ and Glaxo Wellcome have been able to and will continue to flourish as a result of their participation in a wider world market. Only by continuing a REDUCTION in government involvement, at the national and supra-national level, will these businesses and their fellows and you the shareholders, be able to fulfil their true potential. Eluding the grasp of Socialism and its lusty twins, Bureaucracy and Regulation, will be the defining struggle in the first years of this Millennium.

Future Prospects
The dramatic collapse of the Dow Jones that occurred on 14 April preceded by the deflating of the Nasdaq balloon has once again raised the spectre of a world wide collapse in equities. The set back that occurred in the autumn of 1998 and which commenced with the relapse in Russia followed by the Asian crisis was ameliorated and reversed by the prompt action of the Federal Reserve in lowering interest rates. In contrast, in recent weeks Dr. Greenspan has intimated his determination to take the wind out of the sails of the U.S. economy. Here in England, his acolyte, Professor Mervyn King, has echoed the same sentiments despite the lack of evidence of significant inflation in the U.K. economy. The threat of rising interest rates occurring at the same time as, and therefore accentuating a collapse in world equity markets, does therefore pose a very real risk to asset values.
In consequence, we have reduced exposure; with levels of the Dow Jones and the FTSE 100 now below those pertaining last year, we are far more sanguine about the outcome of the current year and in particular the first half than we were six weeks ago. In the longer term, we are confident that growth trends will resume albeit with a hiatus and that those investments we retain will underpin the strength of your Company whatever adversity occurs.

C Robin Woodbine Parish
Chairman

December 2010

The Group total profit before tax for the six month period ended 31 December 2010 was £41,868,366 (total profit before tax for six months to December 2009: £21,693,180) Group net assets at 31 December 2010 under IFRS, taking all assets at fair value were £108,786,226 (equal to 1009.48 pence per share) as compared with £69,656,561 at 31 December 2009 (equal to 646.37 pence per share).

The incoming tide of the Resources Boom lifted many ships towards the high-water mark at the year-end: some of these gains have been foregone in recent weeks, as wars, rumours of wars, earthquakes; flood and political conflagration erupt around the World.

Hard on the heels of Rio Tinto’s bid for Riversdale, in our Guernsey portfolio came a Chinese offer for Extract, seeking to consolidate supplies of Uranium feedstock in Rio’s back-yard: sadly, the Fukushima Nuclear Power was inundated within days of this announcement, and the resurgence of the Nuclear Power industry, so grievously neglected for over 30 years despite its almost spotless safety record, ground to a halt. The suspension of Nuclear Power stations within Germany, subject to an injunction requested by the power industry itself, and China’s announced review of its building programme, does not bode well for our Uranium investments, nor for that matter, for the economical, safe and clean production of power in this country or any other. The Deputy Prime Minister’s almost gleeful prediction that safety measures might make Nuclear Power uneconomic in the United Kingdom, without the subsidies he so glibly waves towards wind-power, and without which it is unsustainable, perhaps condemns Britain to a partially-powerless future.

The myopia of Public perception, when led by lightweights, is galling in the extreme, when the facts of the case, of siting a Nuclear facility on a fault line in a country notorious for catastrophic earthquakes, on the East rather than the less vulnerable West Coast should be proclaimed to be peculiar to that country and area, rather than symptomatic of a systemic failure.

The same futility is apparent at home, where the inducement via feed-in tariffs to installers of solar-powered electricity have had the blinds drawn on any substantial projects, reverting to hopelessly uneconomic individual units.

The see-saw fortunes of Nuclear Power are to some extent, counter-balanced by Coal, the bogey-man of the British liberal elite, yet once the bedrock of British industry, and certainly that of the industries of the United States and China, amongst many other Nations: whilst many of our investments in that area continue to thrive, Churchill Mining in Indonesia (held in our Guernsey portfolio), with its ambitious plans for a long-distance Get-Carter type conveyor belt, have been thrown into confusion by the cancellation of their permit.

It is too early to anticipate whether this will be overturned, but we have been here before with Archipelago, who we are pleased to report has now poured its first tranche of Dore Gold from its Tika Tondung Gold Mine, several years late, but at an excellent and rising price of Gold; way above the original assumption: a significant boost for the Guernsey portfolio.

Amongst our other Gold holdings Centamin has suffered from turmoil in Egypt, although situated well away from Cairo, and already half-owned by the Government; we remain confident that barring nationwide turmoil, it will exceed expectations implied by the recent share-price. Troy continues to build production at a rate somewhat lower than originally expected, but at an output price for Gold and especially Silver very substantially higher than predicted prior to construction of the mine. We continue to benefit from Mines and exploration prospects in West Africa, such as Cluff, Papillon, Ampella, Azumah and Avocet, which are thriving with growing production or reserves and a strong Gold Price; these will all enhance the Guernsey portfolio. The turmoil in Cote d’Ivoire may well resolve itself shortly, although the same cannot be said for Zimbabwe, where Mr Mugabe, immune from retribution for terrorising his own people, has announced an indigenisation policy, taking 51% of major mining and other industries, except for those that are Chinese owned. It would appear that not being an oil-producer provides sanctuary to tyrants, especially in that once favoured part of Southern Africa.

Sadly, Greystar in Colombia (in our Guernsey portfolio) has had to imbibe the bitter pill of losing its application for a mining permit at Angostura, at the same time as the UK Chancellor imposts tax on its location’s namesake. The power of the NGOs with their anti-mining bias, has percolated to the Colombian highlands, although overall it remains a positive place for business and Amerisur’s increasing oil discoveries have boosted the UK portfolio.

Amongst our other interests, primarily within the London portfolio, the Brewery sector has done well to survive the icyblasts around the turn of the year, and its London-centric elements may well benefit from next year’s Olympics, whilst invasion of the house-snatchers from oli-land to India, continues to boost central London prices. How much of this is real money remains to be seen, as unlit apartments around Knightsbridge testify to a non-resident population, but certainly for now the title-deeds appear to have passed into foreign fingers. MP Evans and Wynnstay continue to be boosted by Palm-oil and high Grain prices respectively, although their cost is apparent in falling faces amongst the old Guard in North Africa.

James Halstead in our UK portfolio remains in a class of its own, and we continue to watch with a blissful smile its unfailing repetition of fantastic results and gratefully-received dividend increases: Well done to all in Radcliffe, and take note those many mining companies so parsimonious with their new found profits.

‘A wise man is mightier than a strong man and a man of knowledge than he who has strength’: Proverbs XX1V.v 5.

Amongst the gathering clouds of calamity that confront several European economies, the recent Oxford Boat Race victory proved a triumph against the odds, hugely helped by the power and polish of the Number 6 who proved the antithesis of his Native antecedents: Greece and Ireland in contrast, far from surging forwards past their fancied rivals, sink deeper into the slough of irretrievable indebtedness and the boa-constrictor embrace of the single-currency, suffering slow strangulation and the extinction of their pride and high hopes which once revelled in low interest rates.

Along with Portugal, part of the pain of these countries would appear to be borne by Britain, under a guarantee given by Alastair Darling, and already underwritten in the case of Ireland by some £7bn. These liabilities and commitments, reinforced by the Coalition government’s obsession with Overseas Aid, have now been compounded by the imposition of a ‘No Fly Zone’ over Libya, with what remains of our rapidly-shrinking Airforce and Navy.

Proverbs XXVI v 17: ‘He that passeth by and meddleth with strife belonging not to him, is like one that taketh a dog by the ears’.

Certainly some dog in the case of Colonel Gaddafi, once courted so assiduously by the previous Government, despite presiding over the murder of PC Yvonne Fletcher, the Lockerbie 747 Flight, and provision of Semtex and its untold casualties within Northern Ireland and elsewhere: the time for intervention was under good King Idris, with whom we had a treaty and troops within the country, not 42 years on when our power has passed and been frittered away on questionable projects, our Navy’s wings clipped, our Harriers brought down, our Aircraft Carriers unbuilt and bereft of airplanes or support vessels.

We hear of the former pride of the Royal Navy, the Ark Royal, being hawked for scrap for a trifling £2m, whilst the un-built and plane-less replacements will cost upwards of £1billion each.

Through this miasma of fatigue and folly, our fearless politicians fling the flower of our forces across the fetid fields of Afghanistan and airways of Libya, clutching their P45s, whilst the Muslim Brotherhood consolidate their grip on Egypt, and who knows-what will emerge in Libya. The track record for the imposition of stable and sound governments by external force is so abysmal to defy credible expectation of success.

Far more important to the future of Britain, Lydbury North Church of England Primary School once again is threatened with closure, despite rising pupil numbers, along with several other schools in Rural Shropshire, and around Britain, 3 years after fighting off a previous assault; schools as far afield as Berwick-upon-Tweed face losing 10 years’ of hard-won progress, and the attempted ‘dumbing-down’ of our greatest Universities continues apace. £650 million is apparently being allocated to the education of Pakistan’s children, whilst the life-blood of our Nation, the education of our children from Primary School to University, is squeezed by the cost-cutters.

At the same time monstrously expensive, grandiose and wholly unnecessary projects such as the High Speed 2 link to Birmingham, are contemplated with equanimity: those travellers from the West who enjoyed the gracious and solicitous delights of the Wrexham and Shropshire train service to Marylebone, free of taxpayers’ largesse, appreciated the convenience and leisurely pace of the journey: ultimately private enterprise was unable to compete with Virgin’s bully-boy tactics from its subsidised fortress.

The discovery that Newport Station, in South Wales, has spent £22 million on building a new bridge and car-park, for a one-off Golf Tournament leaves a bitter taste, seeing so many necessary and vital services removed or reduced, whilst the town-hall or subsidised sector of the economy continues on its egregious spending spree. Thomas Hardy is no doubt frowning with disdain at plans for Dorchester’s new Town Hall, against which its citizens are now marching: the disease of dispersal of OPM (Other People’s Money) was less prevalent in those times, even if wives were occasionally auctioned to make ends meet.

The provision of Private Education to overseas students and a large swathe of ‘invisible earnings’ is under threat from Immigration controls, and the recruitment of Accountants and Sheep Shearers, amongst others, or admittance of anyone emanating from the Old Commonwealth, is now impeded or prevented by our glorious new masters in Europe, or by the obeisance paid to their laws by their political pawns in our own Westminster Parliament. It will be a sad day when an industry as old and older than Absalom can no longer entertain those robust sons of the soil from Australia and New Zealand.

The bashing of the Banks by a medley of commentators and politicians, the Basle Requirements and ban on bonuses remain a threat to our financial sector, largely ignored or given insufficient credence by our leaders, and the insurance sector faces a challenge from Solvency 11 requirements, perhaps making some firms vacate Britain. Rivals for the favours of our despised Banks include Mayor Bloomberg of New York courting Barclays, and Paris reputedly pursuing HSBC. We wonder whether our leaders have any concept at all of the vital importance of this sector to our economy and livelihood. A few repentant sheep returning to the fold such as WPP will not compensate for their departure.

On the Foreign front, the indebtedness of the United States, and possible breach of its borrowing limits, along with the questionable destination of Treasury Bonds, now that the Federal Reserve is the largest single holder, pose painful problems for the US $. China’s increase in rates put added pressure on the ECB to follow suit, and sends a chill shiver down the economic spine of those debt-junkie countries that appear to depend on their low-rate fix.

The outcome of ‘Regime Change’ across North Africa and further East is far from clear, but unlikely to be either benign nor favourable to the West. It is fascinating that with all the money spent on Security and Secret Services, no one seems to have anticipated the turmoil now occurring, except one or two shrewd observers of the trends in food prices, and their historic effect in creating unrest: perhaps body-scanning is all they are capable of. Even Internships are under threat from our calamitous coalition, the Deputy Prime Minister attempting to overthrow one of the tenets of family life, as described in the Book of Proverbs: Ch XIX v 14 ‘House and Wealth are inherited from fathers’. Surely the right of parents to leave no stone unturned on behalf of their progeny is inviolate?

The Unknown Unknowns appear to be on the increase: to borrow Niall Ferguson’s analogy and quotation from Sergio Leone’s’ the Good the Bad and the Ugly’: ‘There are two types of Men in this World, one has the spades, the other has the Guns’: it is China who holds the Guns and America that must do the digging.

A disturbing chink in the BRIC wall has emerged in Brazil, where Vale has seen its all-conquering Chief Executive, Sr. Agnelli, forced out by political disaffection, supposedly because of his reluctance to increase spending on infrastructure within Brazil. Vale has not become the Herculean Colossus it now is by adhering to a programme of social good works. This places a question mark over the ongoing success of Brazil, if a political agenda is to assume priority over red-blooded Capitalism. This could achieve results similar to the break-up of John D. Rockefeller’s Standard Oil under the Sherman Anti-Trust Act of 1911, which ultimately hugely enhanced his wealth: or more ominously a withdrawal and its aftermath comparable to that ordered by Emperor Yongle of China after 1411.

The crack-down on dissent within China does raise questions of the durability of a possible pressure-cooker, particularly if there is a slow-down in internal growth rates. This would put a lot of reliance on the R and I, along with their lesser cohorts.

We would appear to be in prime position to benefit from this trend, bolstered as we are by a wide range of mineral assets, and backed up by considerable Gold and Precious metal holdings, primarily within the Guernsey portfolio, which remain in demand as currencies face continuing pressure, both within Europe and in the United States. The rise in Food prices, and strength of Agriculture underpins our investments in those areas, and we retain a significant exposure to quality British businesses, particularly in the UK portfolio, which given even a modest reduction in Government interference should continue to thrive. There would appear to be an inkling of recovery in property prices, although some forecasters predict a further fall.

A reduction in Government spending, despite all the hyperbole of cuts, may be too much to hope for, or even a retreat from the insane level of taxation at the new rate of 50%; despite these obstacles, and their magnitude, which we by no means belittle, we continue to believe your Company has a healthy future, and moreover remains excellent value, despite the increase that has occurred in the past 6 months.

My thanks go as always to the strong team within Cheval Place, ably administered by Steven McKeane, bravely backed by Abbie, now assisted by the super-fit Nick Wells, ever-valiant Vicky and indispensable Melwin.

My fellow Directors have continued to play a vital and supportive role, as have our many brokers and advisers, and we are particularly appreciative towards Lloyds Bank, who have certainly given the lie to the current canard about unhelpful Banks as we have rolled our long-term debt, due to expire in 2012, into a new five year facility.

We look forward to the second half of the year with anticipation, tempered by caution.

C Robin Woodbine Parish
Chairman

December 2009

The Group total gains before tax for the six month period ended 31 December 2009 was £21,693,180 (total losses before tax for six months to December 2008: £41,581,520) Group net assets at 31 December 2009 under IFRS, taking all assets at fair value were £69,656,561 (equal to 646.37 pence per share) as compared with £42,478,227 at 31 December 2008 (equal to 394.17 pence per stock unit).

The more acceptable figures achieved to the half-year following the redress of the listing ship have been sustained by the effects of Quantitative Easing spreading its miraculous balm throughout the Financial Sector.

Stocks to have benefited include our Brewery Companies, which have reflected more positive Consumer sentiment, along with Mining shares, lifted by strength in metals, especially Platinum and Palladium; Gold remains reluctant to fall below the $1,100 mark, whilst Palm Oil has improved, benefiting our plantation shares.

We have decided to reward shareholders with a second interim, payable before the onset of the higher tax rate in April. We see no reason to endow the current regime ruining Britain, with our shareholders' hard earned cash.

Whilst the Private sector has shed staff by the truck-full, the Public sector has added some 160,000 employees. We see a strong resemblance between our current leader and Erysichthon: he paid little attention to what other people said or thought; he cut down the fine oak tree belonging to the goddess Demeter, became insatiably hungry and eventually consumed his own limbs.

The slaughter of the Pension Tree of Plenty by our noble leader has plunged a huge swathe of British industry and its pensioners into Pension Deficit or penury; that accomplished, the gargantuan appetite of the State is now swallowing much of what remains of our solvency and Sovereignty.

The diplomatic service has been impoverished and impaired, our military emasculated, our Judiciary subjugated to an authority beyond our boundaries; our borders breached by the denizens of alien lands; our Civil Service politicised; the pedigree of our Universities imperilled by social engineering and budgetary restrictions; our currency debauched and our Banking system almost destroyed and our Financial Sector under severe assault.
The medicine offered by any party is presently proving unpalatable to the electorate and with the risk of a hung parliament, a fiscal and credit crisis looms as a distinct possibility.
In the United States, the stratospheric level of deficit can only be compounded by the Obama Health reforms.

In Europe, the crisis confronting Greece and the coterie denominated PIIGS, Portugal, Italy, Ireland, Greece and Spain has not yet abated. Although Ireland is at least attempting to promote its tourism, giving bags away at Paddington, it is ultimately shackled by the curse of the Euro like its fellow participants in pain.

It would now appear that German Banks risk losing €38 billion in the event of a Greek default, before assessing the impact of liabilities in other areas.

Whilst ferries remain trapped in ice in the Baltic, and 2 million animals lie dead in Mongolia due to the severity of the winter, we discover that the windmills which we subsidise and on which Lord Stern has instructed us to rely are producing in some cases only 8% of maximum capacity.

Happily our fecund land prepares to burst forth with renewed vigour after the arduous winter, and our lambs relish the emergent grass, careless of crisis and calamity threatening our bewildered and short-sighted satraps.

We therefore believe that Gold's next advance remains ahead; although as Proverbs XVI. V16 says' How much better to get Wisdom than gold, to choose understanding rather than silver'.

We would wish that a hundredfold on our current and future leaders.

My thanks to our staff, my fellow directors and advisers at Cheval Place.

I would also draw shareholders' attention to the Channel Islands Stock Exchange website, CISX.com where our shares trade under the symbol ELX, and would appear to be excellent value.

C Robin Woodbine Parish
Chairman

December 2008

The Board have noted the decision of the parent company’s board (El Oro Ltd.), following our recent move to Guernsey and listing on the Channel Islands Stock Exchange (“CISX”), relating to the declaration that the El Oro Group will utilise the Statement of Recommended Accounting Practice as issued by the Association of Investment Companies on 18 July 2008.

The key figures in the old accounting methodology would read as follows: The Group loss before tax for the six month period ended 31 December 2008 was £11,781,598 (six months to December 2007: profit before tax £4,810,071) Group net assets at 31 December 2008 under IFRS, taking all assets at fair value were £42,478,227 (equal to 394p per stock unit) as compared with £81,588,816 at 31 December 2007 (equal to 757p per stock unit).

The key figures in the new accounting methodology read as follows: The Group total losses before tax for the six month period ended 31 December 2008 was £41,581,520 (six months to December 2007: £3,397,455) Group net assets at 31 December 2008 under IFRS, taking all assets at fair value were £42,478,227 (equal to 394.17p per stock unit) as compared with £81,588,816 at 31 December 2007 (equal to 757.10p per stock unit).

The main change between these figures relate to the reduction in previously unrealised profits that moved from the AFS reserve to the Income Statement, providing the difference in income figures from the capital movements that would previously have been split between the income statement and the balance sheet’s reserve accounts. There is no change to the net asset value of the Company using either methodology, there is simply a reallocation between the old AFS Reserve (now included within the Retained Earnings Reserve and the current Retained Earnings Reserve).

Heroes and Villains
These woeful results reflect the consequences of the collapse in World Stock markets that was precipitated by the fall of the House of Lehman, and that all-excusing phrase ‘Global Credit Freeze’. Devastating declines occurred across all sectors of the market, not least in our Gold holdings, as investors from all echelons of Society scrambled to reduce debt and reverse the wondrous elixir of eternal growth, namely leverage.

Unlike the nefarious Mr. Madoff, we had not remained un-invested for the last 13 years, although that would now appear to have been the perfect recipe for investment success, or even better to have been asleep like Rip van Winkle. Hence we can only apologise for our failure to be sufficiently fleet of foot and nimble to sell soon enough and escape the swoon in stocks.

All our forebodings have been fulfilled at once to an extent greatly in excess of our worst nightmares. The security envisaged for Gold was reflected in the metal but not in the price of the shares, and hence prices fell precipitously across the portfolio, some of which will not be retrieved, where mines are closing or struggling to survive.

A rare beacon of light was the performance of Sunshine Gas, which in November was taken over by Queensland Gas, which itself succumbed to an offer from BG in rapid succession. We would like to offer our congratulations to the directors of those companies for achieving such a successful exit at a time so dire elsewhere.

We retain other interests in the coal bed methane market in Australia and New Zealand, and continuing activity in that area would seem to promise additional increases in asset values. The jostling for position between BG, Shell and Conoco, not to mention the smaller Australian companies, is proof that not all enterprises take a short term view of energy requirements and investment.

The vast resources of Australia, and the vital importance of a benign and upheld system of law, reinforces our predilection for the Anglo-Saxon ethos, whatever excitements emerge occasionally in more exotic areas.

Like a climber caught in a crevasse, we are slowly crawling back up the side, and are comforted to observe Troy commencing a similar ascent from its abysmal lows before Christmas, to a slightly more satisfactory level. This is also the pattern amongst other Gold shares, and even amongst the behemoths such as Black Rock Gold and General, AngloGold, Newcrest and others where the fundamentals of a high Gold price and steady or falling production costs are making themselves apparent.

Even our dearly-beloved breweries have lifted themselves off the floor and whilst their recovery in the face of absurd assaults by the Government, the turbulent priest in the form of the Chief Medical Officer and an assembly of barmy policemen, continues to deliver body-blows to their viability, we suspect or at least hope, we may have reached the nadir. Reversing the ever-increasing excise duty, and tide of onerous legislation is essential; Tim Martin succinctly described the effect on Wetherspoon of an additional 8 days public holidays per annum, along with the imposition of further Health and Safety and other legislation; this of course applies across the board in our serene society of insane laws, particularly the hospitality industry where merely complying with the clipboard-carriers’ fantastical regime is almost a full-time activity; this in the midst of a depression that will exceed anything for over 100 years.

Wherever we look, leadership today resembles that of the crew of the spoof movie ‘Airplane’, stumbling from one calamity to another, nowhere more so than in Great Britain today, where the experience of politicians of almost any hue in building real businesses, with a very few honourable exceptions, is almost totally absent.

The same applies with even greater gravity in the United States, where the newly- elected President has problems differentiating between price and profit. One can forgive a fresh-faced lawyer suddenly confronted by an economic collapse ranking amongst the worst of all time, but one does quail seeing the calibre of his lieutenants and the track-record of some of them (that is, those who have not already been disqualified from office.)

The dilemma is described by the largest creditor of the United States, China’s Premier Wen Jiabao:

‘We have lent a huge amount of money to the United States. I request the U.S. to maintain its good credit, to honour its promises and to guarantee the safety of China’s assets. Of course we are worried concerning the safety of our assets...’

The ‘selling of the farm’ to foreigners was the warning flagged by Warren Buffet some years ago, one of the greater guardians of his shareholders’ purse, yet who has himself now seen Berkshire’s credit rating reduced to AA.

This succinctly describes the plight of the Savers, upon whom an unrelenting assault has been unleashed by all debtor nations, led by the United States and bolstered by Great Britain, as it slides inexorably into bankruptcy. As former President of Federal Reserve of St. Louis, William Poole has said ‘The bail-out regime in which we find ourselves is an affront to the market and an affront to democracy’.

In Great Britain, the panacea to an over-borrowed government and populace is prescribed as millions more to be spent on megalithic monstrosities such as the Olympics and PFI projects; typical amongst these is refurbishment of secondary schools such as in Shrewsbury, and of hospitals, such as Walsgrave in Coventry, where all equipment is replaced, regardless of its efficacy. A generation or more will be saddled with the payments for these mostly unnecessary and superfluous projects, when ‘making-do’ has worked so well in the past, but provides less prominence and profit to politicians and construction companies. The rescue of the indigent and extravagant supersedes the reward for thrift and endeavour.

The practice of Japanese Gourmands in dicing with death by eating the testicles of the Blow Fish is now being aped by our own leaders following the path of ‘Quantitative Easing’. The stability and survival of our society rests upon the success of this untested and deeply flawed policy.

The obscene and ever-rising tide of public pay and pensions is obscured by the red- herring positioned on Sir Fred’s Pension platter. The Gideon Gono solution is utterly abhorrent for Great Britain, despite the messianic zeal with which it is now being promoted by the would-be Saviour of World Finance.

Sir Isaac Newton, prior to his role as Master of the Mint, discovered the Force of Gravity, yet practised Sound Money in his role at the helm of England’s financial system, whereas the current incumbent is hell–bent on the destruction of Great Britain’s solvency; moreover the Prime Minister, not content with recommending the architect of the financial collapse, Alan Greenspan, for a Knighthood, has now compounded such a grievous error, by recommending one for a Kennedy who even without his own personal failings, is a practising promoter of England’s enemies.

The time for the Prime Minister to quit the scene, with his head bowed in shame, has surely been reached. The possibility of more damage being inflicted on our nation would seem almost impossible, but his capacity for invention and self-delusion is almost infinite.

Savage spending and tax cuts are now imperative, and reward and salvation for the savers; such action may possibly reinvigorate the lending market, by encouraging savers to put cash back in the banks.

In the words of Jeremiah, XVII.v11: ‘As the partridge sitteth on eggs, and hatcheth them not; so he that getteth riches, and not by right, shall leave them in the midst of his days, and at his end shall be a fool.’

The humbling of Manchester United by their old rivals, Liverpool, may be salutary and ultimately beneficial; we suspect what has been done to this country will take years to heal. Their manager is an example of those resilient Scots who have successfully transformed businesses and society around the world, in contrast to their pusillanimous counterparts crowding the corridors of Whitehall, collecting their ‘entitlements’.

In the meantime, plans for defacing the environs of Offa’s Dyke with windmills at Reeves Hill, one of the truly sublime places on this planet, continue apace; the false gods of global warming claiming another scalp in their attack, bolstered by the E.U., on our ability to provide reasonably priced power for the people, from secure and viable resources, without injuring our landscape.

All the evidence sadly points to a depression of inordinate length and searing severity; the disappearance of the American banking sector, echoed in England, and Europe, and the impending disintegration of its Eastern satellites, and quite possibly of the European Union itself under these enormous strains, prompts the call for men of stature and vision.

If they do not emerge swiftly, the spectre of the 80% declines that some are anticipating, becomes ever more imminent.

We are scouring the investment universe for safe Gold mines, secure dividend flows, and businesses that will ride out a prolonged and painful slump. The collapse of the auto industry will continue to damage the demand for platinum and many other metals, as will the breakdown of the building industry. Sound companies, even with new factories now moth-balled, will struggle to survive; some, such as Ennstone, and Van Dieman Mines, have already foundered.

Our move to Guernsey will at least mean that success in that quest will see us on an equal footing with our peers, and rather less hard-won resources percolating to the improvident and profligate.

Whether we are successful in the search, time alone will tell, but the core of sound businesses remains in our portfolio, and with good fortune will begin the long journey through a bleak landscape, to future prosperity.

My thanks to all my hard-working and patient team at Cheval Place, admirable advisers and distinguished directors dispensing wise counsel, who have helped so patiently during this traumatic year of transition.

C Robin Woodbine Parish
Chairman

December 2007

The Group profit before tax for the six months to 31 December 2007 was £4,810,071 (six months to 31 December 2006: £3,049,025). Group net assets at 31 December 2007 under IFRS, taking all assets at fair value were £81,588,816 equal to 757p per stock unit, (31 December 2006: £77,167,354 equal to 712p per stock unit).

‘When them as wallers in sin thinks they’s getting by with it, she said, that’s when He strikes em in His holy wrath. He jest bides His time’. “Cormac McCarthy - The Orchard Keeper”.

The results for the half-year have since been overshadowed, by continuing turmoil in the financial markets; the collapse of funds such as Peloton, Focus and Carlyle Capital amongst others, and more significantly the rescue of Bear Stearns, underline the gravity of storms swirling through Western economies. An analysis of the indebtedness of some Baltic and East European nations, along with Iceland and Turkey, can only exacerbate this sense of foreboding.

Sadly, by no means is this the story of events unforetold: the consistent condemnation of derivatives from the hallowed halls of Omaha and Pasadena, warnings from the Governor of the Bank of England and the unremitting Cassandra-like criticism of the US credit boom by the late Dr. Richebacher amongst others, were all happily ignored in the Gadarene rush to amass ever more Gargantuan empires based, as it now appears, on foundations of sand.

The monstrous maelstrom mowing down the mighty and the minnows has made the proud and powerful into mendicant monks seeking salvage from the Federal Reserve or the Bank of England; meanwhile their erstwhile leaders set off into the sun clutching their Brobdingnagian booty, regardless of seeming success or apparent failure.

We have not been immune to declines in the price of property assets as the market anticipates a falling residential and commercial property market. With a wearyingly familiar sense of inevitability, where market conditions of themselves are challenging, Government action has or will exacerbate the situation: in the case of property by imposing rates on vacant property, along with the ridiculous HIPS on residential property; in the case of our Brewery Estate investments, by the malicious assault on smoking within the confines of the pubs, followed hard on its heels by the determination to banish the sale of cigarette vending machines; the decline in profits is beginning to become apparent, albeit in the dim light of dawn. This attack on the pub sector has been compounded by raising the tax on alcohol over and above inflation. Historically, well managed and monitored pubs have presented a secure and agreeable venue for moderate drinking and convivial encounter; wholly at variance with the effects of the Government’s 24-hour drinking and changes to the licensing laws; to which a Parliamentary committee has attributed the spread of lager louts in city centres, and other unattractive phenomena.

As if this madness was not enough, the eponymous Harman now proposes to ban repartee and terms of endearment from bars and stores, to give those litigious members of society another chance to sue for supposed or imagined slights. What a desperate state of affairs, to see our vocabulary monitored by the legal profession, under the guise of preventing ‘sex discrimination’ and our hostelries emasculated and age-old beverages consigned to history by ministers and civil-servants in their plush glass palaces drinking Lattes and Frappes, whilst imposing ever-more onerous taxes and restrictions on the traditional tipples and tittle-tattle of the British people.

This urge to interfere and ‘act’, rather than ‘sitting pretty, doing nothing’ is only too apparent, now that the Government has seen the light and embraced the birth of a new Nuclear Age: sadly, it sold Westinghouse, the leader in that field, to Toshiba, in the same futile fashion it flicked away Qinetiq to Carlyle, and our historic Gold reserves: all first-class National assets.

The British Government has paid obscene obeisance to the European Union, ignoring every promise and poll to align us with that unholy herd, and now assaults the Old Commonwealth and its rights of entry, despite the longevious and formidable ties of blood, trade, tradition and civilisation shared over so many years, with its huge contribution to trade and economy for all parties. Such a perverse policy reaches its nadir in the refusal of residence rights to the Gurkha soldiers who have fought so valiantly to defend us; whilst Post Offices and Village Schools fall to the same Statist or Stalinist philosophy; hill farms and the landscape are discarded, and non-doms are sacrificed for a mess of pottage; playing-fields, including those of Jersey, are pillaged, and even mince-meat, a staple of the beef industry, is confronted with a mad new EU directive; it is remarkable indeed, given the vast reduction in public swimming pools, despite an obligation for their provision, and almost complete destruction of diving-boards, that England can suddenly discover a European Diving Champion.

The attack on ‘Risk’ is now a central plank of national 'elf and safety policy, producing generations less and less able to cope with the every day and more substantial crises of life. It also engenders a vast infrastructure which, as the FSA has proved, is horrendously expensive and ultimately incapable of dealing with situations once resolved discreetly, or managed with a raised eyebrow in the confines of the old establishment, but mostly driven by common sense and discernment.

The necessity and obligation facing our economy to cut both taxes and spending significantly has been denied by all parties, particularly the Conservatives in their Cyclops-post-Odysseus blindness driven by the inchoate urging of their spineless strategists. The symbolism of Banana Republic’s arrival in Britain is perhaps apposite.

The deflation of domestic residences whose rise had created the credit boom both in Britain and the United States is now making its sombre black marks in the history books: quite possibly further wreckage may yet descend from the ether as the deflated balloon subsides across the Western world and beyond. This has profound and negative consequences for consumer spending which is no longer underpinned by an annual increase in the value of an underlying asset. For the first time since 1945 the share of equity held by the individual in homes in the United States has fallen below 50%.

Proverbs 11 v 13 state; ‘Happy is the man that findeth wisdom and the man that getteth understanding. For the merchandise of it is better than the merchandise of silver and the gain thereof than fine gold.’

Wisdom and vision have been sadly lacking amongst our political and business leaders and the day of Reckoning is upon them. Given this absence, our vision is for the continued accumulation of the alternative, both Silver and Gold and the shares thereof. We congratulate Colin Loosemore of Archipelago who has received one of the required permits to develop the exciting mine at Toka Tindung. We have visited other promising projects in Chile and Argentina whilst remaining wary of political interference in various parts of the world. The inability of South Africa to provide adequate power for its burgeoning population and industry has enhanced metal prices for both Gold and Platinum. We are also increasing our exposure to the production of food, fertilizer and agricultural products and are heartened by the continued rise in MP Evans, an outstanding performer in the portfolio.

In conclusion the outlook for retail and housing remains distinctly gloomy, whilst the continuing rise in inter-bank rates bodes ill for the entire financial sector. We would be surprised albeit happy at any pick up in property prices.

We are however well placed in our traditional areas of strength particularly Basic Resources, Energy and Precious Metals. We would expect the latter especially to thrive in the current climate, and will attempt to restrain our excitement.

My thanks are due to my peripatetic Directors, our numerous advisers around the world, and the increasingly formidable team in Cheval Place led by Steve McKeane, Abbie playing in Midfield, and Vicky solid in defence: the Rooney, Ronaldo, Vidic triumvirate. Onwards to Victory.

C Robin Woodbine Parish
Chairman

December 2006

The Group profit before tax for the six months to 31 December 2006 was £3,049,025 (six months to 31 December 2005: £7,180,828). Group net assets at 31 December 2006 under IFRS, taking all assets at fair value were £77,167,354 equal to 712p per stock unit, (31 December 2005: £65,517,760 equal to 605p per stock unit).

El Oro’s team of heavy hitters, has been boosted by the bane of Mr. Flintoff, and increased its score with the takeover of Hardys and Hanson by Greene King, assisted by the ever-increasing value of other Brewery holdings, such as Adnams, Fuller, Smith and Turner and Young’s.

The middle-order batsmen have been piling on the runs in the Property sector, with notable increases in the asset values of Daejan, Mountview and McKay Securities. MP Evans have also thrived with their transition from Malaysia to Indonesian Palm Oil production, whilst James Halstead continue to demonstrate their flawless ability to produce non-slip results.

Hard on their heels and not to be outdone, Egdon have flourished with its gas-storage project in the Isle of Wight. Amongst the precious metals, Troy’s reinforced team have expanded their reserves both in Brazil and Canada, and are beginning to achieve belated recognition in the market. Hunting have soared beyond the expectations of many, whilst the platinum producers and explorers continue to flourish, upheld by a rising price due to catalytic converter and fuel-cell demand.

The seemingly-insatiable demand from China and India for both metals and energy has underpinned most metal prices, with stratospheric levels now reached in nickel, and uranium, whilst copper continues to rise after a brief fall in recent months. Within the last week, Lionore, in which in its earlier guise as Francistown Mining and Exploration, El Oro was a founder shareholder, has agreed a takeover by Xstrata. This has precipitated further advances in the nickel sector, where the folly of Western Mining’s dispersal of its nickel interests in the Kambalda region has been the bounty of companies such as Mincor, Mirabella and Minara. Adding Iron Ore, Molybdenum and Natural Gas, it is little wonder that Perth property prices are now amongst the highest in Australia. Where Australians are not discovering new riches beneath their bountiful land, they are developing assets overseas. We were privileged to visit Albidon’s nickel mine in Zambia, and International Ferro Metals’ Chrome project in South Africa. We hold high expectations for both, despite South Africa’s determination to increase turnover of Porsche Cayenne Turbos amongst the new business elite.

In the longer term, as already criticised by Mr. de Klerk, the restrictive selection of personnel from a quota system and in particular from the ‘disadvantaged’ sector, can only damage a sophisticated economy such as South Africa’s. This is exacerbated by increasing corruption, incompetence and anti-business sentiment, alongside the ever-present violence, which makes us fearful for the future in that beautiful country, particularly given its support for the wanton and tragic destruction of its neighbour to the North. Sadly, however tempting the assets, we see little hope of anything other than venality persisting in Zimbabwe. Ian Smith’s hope, expressed to us recently to ’see that brigand driven out’ may be accomplished, but the return of the halcyon days as the Jewel in the Crown of Africa are perhaps gone for ever.

On the home front, the dismal days of this dreadful government draw slowly to a close, with tax reimposed on the lowest level of earnings; newly-qualified doctors denied jobs by a selection system of unbelievable stupidity totally unsuited to the calibre and qualifications of the applicant; a dental system in decay; an Hogarthian desire for Casinos bordering on depravity; the plaintiff cries of cows culled by Death-dealing Defra for paper- work discrepancies ringing in the ears of their uncompensated owners; the ongoing payments fiasco at that same department preceding the promotion of its perpetrator onto the world stage, where our sailors are seized and the means of redress has probably been reduced beyond repair; an education system, where money has been poured into the morass of the lowest 20%, whilst the leading academic institutions are starved of resources, and the need for intellectual capital becomes, against competition from China and India, ever more acute; the disgraceful and disastrous starving of resources for the defence sector; the theft from the Lottery of funds earmarked for Sport to finance the ever-escalating cost of the Olympics; and the relentless extension of the State across ever greater areas of society and employment, into every nook and cranny of human and spiritual existence, typified, on the mundane level by the sprouting of congestion charge cameras on their lofty poles, in the Brompton Road.

In the face of this accumulating crisis, the leaders of the opposition float ever upwards in their beautiful balloon, on a diet of Juniper berries: “ the world’s a nicer place in my beautiful balloon, it wears a nicer face in my beautiful balloon, we’ll search the clouds for a star to guide us”: their assault on the every-day expectations of ordinary citizens to fly to their own holidays or homes, on deeply dubious environmental grounds, whilst continuing to rule out tax or spending cuts, leaves little hope for any change of substance from the tidal wave of expenditure, tax and regulation suffered for the past 10 years.

Outlook
The gloom aforementioned is as nothing to the Sub-Prime crisis engulfing the United States housing market, which has every possibility of spreading to the Prime market itself. Indications that the French housing market is also beginning to suffer, and that Spain is seriously over-valued, are matched by remarks made by an increasing number that the UK Commercial property market is now in ‘a bubble’ fuelled by vast inflows from the Pension and Hedge Fund sectors. The trend of rising interest rates would not yet appear to have abated in the United Kingdom, and supposedly not in the United States. There are also indications that both the United States dollar as always, and the British pound sterling are overvalued and destined for significant and disturbing corrections.

At the same time, inflation is on an upwards trajectory: these factors, when taken together cause a degree of caution when looking beyond the immediate flood of funds fuelling takeovers for such venerable institutions as Sainsbury’s and Alliance Boots, not to mention Altadis and numerous other approaches occurring in world markets.

We will therefore continue to keep our gold exposure, which appears on a rising trend. Our other metals, whilst subject to squalls from the Chinese/Indian economies and their progress will in coming years boost our portfolio which remains underpinned by those stalwarts mentioned earlier. Whilst realised profit will be subject to the happenstance of corporate activity and takeover, our goal remains raising the asset value per share.

After 6 months on the AIM market, we have now said farewell, to Chris Burman, and welcome Steven McKeane from Scotland via Sydney, as his highly competent successor. We also regrettably, have lost Rosanna to the hallowed environs of Oxford, but greet Vicky Clutterbuck stepping nimbly into her shoes; all assisted cheerfully and authoritatively by Abbie. I would like to thank them and my fellow directors for their continued support and wise advice, along with that of our advisers, brokers and colleagues.

C Robin Woodbine Parish
Chairman

December 2005

The Group profit before tax for the twelve month period ended 31 December 2005 was £8,934,524 (2004: £3,005,700). Group net assets at 31 December 2005 under IFRS, taking all assets at fair value were £65,763,460 (equal to 607p per stock unit) as compared with £67,905,581 under UK GAAP at 31 December 2004 (equal to 573p per stock unit).

The difference between the IFRS and UK GAAP measurement of the fair value of net assets is that under UK GAAP at 31 December 2004 the figure took no account of the £11,294,608 potential corporation tax due on the excess of market values of net investments over net book cost at that date, which is recognized in the IFRS figures at 31 December 2005.

We are declaring an interim dividend for the twelve month period ended 31 December 2005 of 12p per stock unit. The dividend will be paid on 26 October 2006 to members registered on the books of the Company at the close of business on 20 September 2006.

Those were the days my friend, we thought they’d never end....

Were it appropriate to be exultant, now would indeed be the time on presenting the most exuberant results in your company’s history. However, in an era of excess in pay, profits and debt, pride comes before a fall. Whilst acknowledging progress, the successes of our portfolio are also tinged with sadness to have seen so many stalwarts depart to takeovers; WMC Resources, East Surrey Water, Gales Brewery, Burtonwood, following hard
on the heels of Glenmorangie. These once small stones became the rocks on which this great portfolio has been built, and will be hard to replace, at a time when we sniff a hint of euphoria in the air, particularly in the mining arena.

We have nevertheless meandered from the mountains of Mendoza to the desert dunes of Mauritania, via pubs of McMullens, not to mention the endless expanses of Australia, searching for value; hopefully some future gems are already ensconced within the selection of shares to replace and replicate the gains of those departed.

We remain well represented across the metals spectrum, with several prospects approaching the early stage of mine-construction. The strength of base metals has so far confounded the sceptics, and exceeded the wildest hopes of the optimists, especially copper, zinc and latterly nickel. Whilst we are advised that radical reforms are afoot in China that will change that country’s emphasis away from energy and resource-reliant sectors, we are inclined to believe that metal prices will not revert to the lower levels prevailing over the last decade.

The portfolio has already, in recent months, been boosted by offers for Bristol Water and further afield, for Tethyan Copper in Pakistan. We believe that the need to secure supplies will sustain good projects in the metals and energy sectors. We note the incipient unrest in Latin America, unleashed by Hugo Chavez and visible in Bolivia and Peru at present, also in Indonesia, where the heady mix of nationalism with whipped-up environmental concerns, threaten various projects and Mines. We notice that, Phoenix-like, there are suggestions that Bougainville, the great copper mine of the early 70’s, may reopen, proving the adage ‘what goes around, comes around’ (great mines, like Rockers, never die, even if the equipment does succumb to rust).

Our goal, in the light of such uncertainty, is to spread our assets so that the more secure areas can take up the slack, should exciting but vulnerable projects succumb to these types of threats, just as Bougainville did 20 years ago.

At the same time, our gold holdings, of shares and bullion, should counterbalance instability: in emerging markets, currently undergoing a shakeout, Europe, with its sclerotic and change-resistant populace, and the perennially-threatened dollar.

Whilst the latter remains the currency of choice, except perhaps in Iran, the waning stature of the United States, consequent on its financial and morale-sapping involvement in Iraq, combined with the US Budget and Trade deficits, has severe implications for the health both of the dollar and the security of the World. Whilst the two deficits have been present to a greater or lesser extent over the last 30 years, the figures have now ballooned beyond any semblance of control. Indeed Congress has now had to raise the permissible borrowing limit to nine trillion dollars. We feel the time approaches when as with Belshazzar, the unseen hand writes: “Mene, Mene, Tekel, uPharsin” we suspect the Dollar will be found wanting, and may well see vengeance exacted by the successors to the Medes and Persians.

However benign or perverse the progress of the world economy, at home we remain underpinned by our excellent array of Breweries, Pubs and Real Estate and Utilities. Few things could be more cheering than the sight of that fresh-faced enthusiast, the fearsome and fearless Freddie Flintoff clutching his pint of beer after his team’s signal success in Bombay. How sad that our Chancellor so misses the mood of the moment that duty on champagne is pegged, whilst that on beer is raised. The socialists have already wreaked their vengeance on this best of British drink, with their ridiculous and expensive new licensing laws, as well as their assault on the freedom to smoke in specific venues. These requirements have undoubtedly adversely affected the refreshment industry and our interests therein. The ferociously fighting Oxford crew’s notable triumph over Cambridge has dispersed at least some of that champagne.

The Gauleiters have even taking to rifling through our rubbish to see if we have inadvertently mixed business mail with the domestic collection, threatening fines: not only is there a succession of trucks removing different types of refuse, but civil servants taking on the role of Bombay street urchins, searching through the litter. No
wonder the State now needs one quarter of the population to spy on those few wistfully working, Satellites and Helicopters are used to monitor farmers’ land, and whether they have supplied correct information: given the complexity of the new forms, it would be something of a miracle if there were no errors. Despite this use of technology, it is beyond the power of Defra to process and pay the grants due to the working farmers of England. Needless to say no heads roll, however inadequate the implementation of government policy. The Government’s cruise amongst increasing shoals of calamitous overspending is compounded by almost inconceivable incompetence, threatening the stability of the Public Services and rule of Law. The reputation of Parliament has been thoroughly besmirched, amongst the greed for glory and degraded titles. As if that were insufficient, we are now faced with the spectacle of repeated private deceit, adding to public deception.

Sadly, in the midst of this mayhem, the new leader of the opposition is ensconced in his Japanese-made excuse for a solution to the impact of nature, whilst seeking the salve for the Conservative soul in the Samuel Smiles School of Self-Help; an exercise similar, we suspect to that engaged upon by the Church of England with its abandonment of the Book of Common Prayer in an ever more frantic and futile attempt to appeal to a new generation of believers. The Chancellor has decided to dispense with improving British education, and concentrates on that of Africa. It may hearten him to know that the children and adults of Akjouit in Mauritania are already flocking to school before his help arrives to destroy privately supplied education. Believing, as we do, that the provision of clean water is more important to the world than hybrid-engines, or the difference between private and state education, we would refer our leaders to the words of the prophet Isaiah, ch.41 vv17 – 19,written two and a half thousand years ago: ‘When the poor and needy seek water, and there is none, I the Lord will hear them,...I will open rivers in high places, and fountains in the midst of the valleys: I will make the wilderness a pool of water,...’ How much worthier a challenge, than gazing at Glaciers.

Somehow, we suspect that we will muddle through these and other assaults or neglects, as we have done since the foundation of the company in 1886, although it may be a forlorn hope to wish for a Government that helps rather than hinders in almost every area of life and business. We are at least grateful to the conductor on the Great Western, delayed at Maidenhead, who offered the passengers a chance to ‘stretch your legs and have a smoke’: something the great Anton Rupert of Remgro continued to do in moderation until his recent death at the age of 86, whilst spending his life building a broad and brilliant business.

We can hardly do better than quote, once again, the venerable and wise Richard Russell, of Dow Theory Letters: “In the new inflationary world, it makes sense to get in harmony with inflation. That means gold, oil, raw materials....you must take long-term positions. These are new bull markets that are just getting started. But as I’ve warned a thousand times, the hardest thing to do in the investment business is to assume the correct position - and then to STAY with that position through thick and thin, through vicious corrections, through all kinds of ignorant propaganda, through endless Government interference - until the bull market finally blows its top somewhere far down the line.” We will strive with every fibre to follow this maxim.

We are hugely grateful to all those executives who work so tirelessly for our investments, such as John Jones building mines and a new team at Troy; and Tim Bonham, who leaves such a good legacy at Hardys and Hanson; the teams at Youngs and M.P.Evans, and many other unsung heroes, both here and abroad.

Within our own, crumbling walls, Chris enters the final furlong with us, with the mammoth task of meeting new regulations and deadlines; even his legendary timeliness is tested to its limit. Abbie steadily shrinks whilst her workload increases, and is tackled with her inimitable enthusiasm and fortitude. Andrea has reinforced the blondes on the team, whilst Rosanna breeds bonny babies to entrance the aural chords of England.

My thanks to them all, my co-Directors, colleagues and advisers for sage advice and support.

C Robin Woodbine Parish
Chairman

June 2005

The Group profit before tax for the first half of 2005 was £2,844,532 (2004: £408,422). Group net assets under IFRS, taking all assets at fair value were £55,250,489 (equal to 509p per stock unit) as compared with £52,160,821 (as adjusted to be comparable) at 31 December 2004 (equal to 441p per stock unit).

The measure for Group net assets at fair value has been amended from previous reporting and the comparative figure now includes the full potential for tax.

Fuelled by oil, fortified by metal and nourished by beer and water, these results almost succeed in offsetting the miasma of obfuscation created by the recently-introduced IFRS. As we saunter into a September of sere and sunlit beauty, bolstered by the thrilling fortitude of Flintoff and the English Cricket team, and the conquests of the formidable and hirsute British coxless four, we can reflect with satisfaction on strength in many areas of the portfolio.

Frustratingly, the anticipated cash inflow from Terra Firma for our holding in East Surrey has been stymied by the Northern Ireland Gas Regulator, and sidelined into German Railway workers’ apartments. The Regulator’s review of last year’s award, and desire to recompense the gas consumer, flies in the face of economic reality, which has seen a surge in the value placed on assets offering a secure and longaevous cash return; the ever shrinking yield on long government bonds, despite expectations of inflation, reflects this paradox. We find it bewildering that consumers should not only be provided with gas, but also a gift-box to accompany it, like the bride at a Shower party: perhaps indicative of the socialist mentality still pervasive around former state sectors.

The income foregone from East Surrey has been exacerbated by the claw of the Chancellor, in the guise of the new tax regime under IAS. This requires tax to be paid on the uplift in assets, and anticipated profits, even when no disposals have been made: we regard this as pernicious; unrealised profits were previously used to compound the asset position of the company, whereas now we are entered into the sack race with the Inland Revenue, and we have had to sew the sack. Meanwhile shareholders continue to be taxed on their dividends, and have their accumulated savings assaulted by inheritance tax.

The nostrils of both the Chancellor and the Treasury remain insentient to the intoxicating aroma of the Flat Tax, drifting across Europe from Estonia to Greece and on across continents towards India: its possible introduction into Germany would further enhance that nation’s economic resurgence, reinforced by the seemingly irresistible urge of London’s Police, Ambulance and Bus Services to purchase German-made vehicles instead of rescuing its citizens with those made in Britain. We feel ever more fervour for W.S. Churchill’s remark “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”.

Whilst we have every confidence in the spread of our investments, as always we are conscious of clouds on the horizon. The spectacle of lassitude and inertia displayed in New Orleans by all levels of U.S. Government stands in sorry contrast to their speed of response after the Tsunami. We are concerned that the catastrophe may presage a shock to the ‘can-do’ American psyche, already shaken by the deepening quagmire and insane strife within Iraq.

At home, the decisive rejection of the European Dream has not prevented its old protectionist urge to impede the proper attire of the ladies of the Realm; furthermore, the slyly imposed European-centric procurement policy for the Armed Forces threatens the ability to operate the age-old alliance with the United States and hugely increases the cost of their equipment. Even soldering lead for micro-circuitry does not escape its reach and the continued supply of a huge range of microelectronics is thus threatened. Meanwhile the madness of subjugation to the European Convention on Human Rights impedes our ability to expel the guests that even Thidwick the Big Hearted Moose in Dr. Seuss found ultimately intolerable.

More disturbing, on the World scene, particularly with respect to the health of the Mining and Oil industries, is the potential for upheaval in the Chinese Banking system, as recently highlighted by Bedlam Asset Management, and the importance of Guangxi (connections). We are concerned to see the rush into China by U.K. and U.S. Banks amongst others, an anxiety increased by reports of the number of projects and businesses that have little chance of ever being viable. In the light of the unacceptability of Saddam Hussein’s policies, we observe continued unrest within China, flouting of democracy, and the alliances struck with those paragons of liberty, Messrs. Mugabe and Chavez. We wonder whether China will ever be, for overseas investors, the Pandora’s box of riches that seduce so many, and observe the withdrawal of PZ Cussons, after losses of nearly £12 million over a period of ten years, despite their prowess in extracting profit from their operations in Nigeria. At the same time, we see pressures on the Indonesian Rupiah and hope these do not presage another currency crisis.

The margin for error remains slim, given the indebtedness of the United States and renewed signs of the unravelling of the housing market, both in the U.K., where the supply of unsold properties appears to be increasing and substantial discounts now pertain, and in the U.S. where Freddie Mac and Fannie Mae are writhing in discomfort after the exposure of their accounting infractions. The demise in Shropshire of the long-established firms of Lloyd’s of Ludlow and E.W. Walters are perhaps earlier indicators of an oncoming colder climate.

We are grateful to John Jones for our recent visit to the opening of Troy’s happily named Lords Nelson and Henry goldmines in Western Australia; an auspicious occasion that demonstrated the Troy team’s ability to locate and develop new gold reserves rather like the Troy Chairman’s renowned racehorse winning from far back in the field in its recent races; also because we consider Gold’s slow, obscure but persistent progress to be the fail-safe should any of these less-attractive outcomes emerge beyond the Ashes.

We remain confident that our portfolio is well-positioned, despite the ravages of taxation and accountancy mayhem. We would like to express our thanks to all our team and advisers, and especially Christopher Burman as he steers through the shoals of regulation-infested waters, Abbie for her enthusiasm and ever-widening mastery of the settlement process, and Rosanna for invigorating good humour undoubtedly due to be inherited by her forthcoming and applauded offspring.

We are very much reminded of Helen Walton’s dictum to her children “It is not what you gather in life, but what you scatter, that determines the quality of your life”.

C Robin Woodbine Parish
Chairman

June 2004

The Group profit before tax for the first half of 2004 was £437,357 (2003: £801,684) after £nil (2003: £412,500) merger expenses and interest payable.

Group net assets, taking investments at market value, were £61,544,417 (equal to 516p per stock unit) against £64,963,076 at 31 December 2003 (equal to 544p per stock unit) a decrease of £3,418,659 and a decrease of 5.26% compared with a rise of 0.96% for the FTSE All Share index over the same period.

The euphoria that gripped mining markets over the New Year period, with an escalating gold price and heady rises in the prices of other metals, particularly nickel and copper, subsided during March, dragging down with it the prices of most mining companies, especially newly-quoted ones. We were unable to match the gains on gold achieved in the comparable period last year. Some of our larger holdings suffered from the fickle finger of fortune, in the shape of currency (Anglogold, Harmony, and Impala) or managerial problems (Shell and Gulf International). The silver lining, albeit above ground, has been in the continued appreciation in the property sector. The buyout of Peel Holdings of its minority shareholders ends a long and rewarding association with what was once the Manchester Ship Canal. Whilst one can always quibble over the take-out price, full marks and thanks go to John Whitaker for his tenacious pursuit of his prey and for his vision and persistence in overturning planning objections to make the Trafford Centre the stirring success it is today. Patience with planners has also paid off with Latham(J) and London and Associated, both of whom have seen substantial uplifts in their share prices. Our thanks are due to their management teams.

As we embark on the last quarter of the current year, we hope that we keep our noses in front, just as the British Four did so valiantly and memorably in the Athen’s final. We retain some potent positions in our portfolio, and are encouraged to learn that Glenmorangie's success in marketing may now attract the attention of a more powerful parent. We also note the recent strength of Lendu, following the sale of their cotton plantations in Australia. Our old favourite, Troy Resources, has substantially upgraded its reserves, and the share price has begun to respond to the good news. Uruguay Minerals has also regained much of its fortitude from the end of the year, and its discoveries should lead to further strength. We have even received, with not unalloyed pleasure, a cash injection from Hunting, in the form of repayment of their Convertible Stock. We cannot admit to approving this action, done at one pound after an extended period trading well above par, albeit to the benefit of the ordinary shareholders and hope it does not set a portent for other companies, reviewing historically high loan stock levels.

On the broader horizon we note the continued assault on the owners of capital, highlighted in the most recent proposals for an increase in the level of inheritance tax. The Common Agriculture Policy's Single Payment Scheme effectively transfers income from landowner to tenant, leaving the land at the whim and good nature of whoever farmed it 4 years earlier. Likewise the whole production of food, already rocked by rain, is now hemmed in by permits and regulations: little surprise that the Civil Service expanded by 69,000 last year, or not far short of the total size of our armed forces, who face further emasculation whilst being expected to perform an ever expanding array of tasks and in ever more diverse areas. Their contribution to our society, economy and security is now obscured by the need to show a return on assets, not something the Railways find a problem any longer.

The rise in benefit claimants and the compensation culture are two more unholy hags that bode badly for our economy in the months ahead. Their malicious allies are the looming iceberg of the private sector pension deficit and the rising cost of raw materials, especially oil. We learn that the price of West End property is being inflated by the demand from Hedge Funds and Government Agencies. Whilst it is reasonable for the investors in the former to pay for their proximity to Purdey’s and Wilton’s, it is baffling to the point of incomprehension why the Curriculum and Qualifications Agency or its ilk needs to occupy a prime position on Piccadilly; particularly if BSkyB can thrive in the obscurity of Isleworth; the gravy train of government contracts ultimately seeps out of the productive pockets of the tax payer.

The tepid improvement in the US economy, its escalating trade and pension deficits, combined with an American election campaign whose main issue would appear to be the geographic location of a boat 30 years ago are additional causes for concern. Russia, ‘a riddle wrapped in a mystery inside an enigma’ as Churchill so aptly described it, seems determined to punish its oil producers for evading taxation by circumventing the legislation governing the higher price of oil for export. Dual pricing structures inevitably lead to leakage or conflict and anyone, particularly BP, dealing in Russia would do well to look to the laurels of their lawyers. We meanwhile mourn the theft of our Sibir shares, part of whose proceeds are to be seen strutting the stage at Stamford Bridge. The dismissal of the editor of Izvestia indicates the absence of a Free Press and those checks and balances that could restrain the return to totalitarian government and the arbitrary action that entails. More concerning is the increasing dependence of Western economies on the gas and oil supplies of this unpredictable Colossus. The setback to the Indian economy as a result of the unexpected victory of the Congress Party may yet demonstrate that democracy and the rule of law will in the longer term underpin progress and unleash the potential of that other Asian powerhouse.

Summarising our fears, we return to the words of Cicero: 'If some lose their whole fortunes, they will drag many more down with them... believe me that the whole system of credit and finance which is carried on here at Rome in the Forum, is inextricably bound up with the revenue of the Asiatic province. If those provinces are destroyed our whole system of credit will come down with a crash’ (66BC). The symbiotic relationship between the United States and the Far East, particularly China, is portrayed in this quotation. Any disruption of this relationship, any unwinding of global consumption due to the rise in the world's main source of energy, carries the risk of major turbulence. Whilst no one will be immune, we remain wary and prepared for harsher climes ahead.

On the home front we salute Shrewsbury’s refurbishment and reinstatement of the statue of Clive of India, resplendent in reburnished bronze. We celebrate Rosanna’s recent marriage and the arrival of our fourth child.

The value of the portfolio has in the past few weeks shown an encouraging resurgence and we remain confident of its strength and breadth to surmount any storms.

C Robin Woodbine Parish
Chairman

June 2003

Group profit before tax and exceptional costs, including £84,142 (£80,148 for the first half of 2002) share of profit, applicable to Associated Undertakings, was £897,271 for the first half of 2003 against £476,147 for the first half of 2002. Total net assets at market value or Directors’ valuation show an increase of £3,204,224 compared to the end of 2002. Group net assets, taking investments at market value, were £40,557,400 (equal to 336p per stock unit) at 30 June 2003 against £37,353,176 (310p per stock unit) at 31 December 2002 an increase of 8.58%, compared to a rise of 4.08% for the FTSE All Share Index over the same period. The exceptional costs, amounting to £206,250 (£nil for the first half of 2002), for which no corporation tax allowance may be claimed, relate to the merger costs incurred to 30 June 2003.

The glorious sunshine in which Britain has basked from Berwick-on-Tweed to Bideford has bathed the countryside in a golden glow and filled its barns to bursting. The barmen and maids have smiled whilst pulling extra pints and in this thirsty climate brewery shares have ascended and house builders flourished. The recovery in stock markets since March has been reinforced by the reduction in interest rates on both sides of the Atlantic and a substantial, not to say enormous, increase in money supply. Our results have in consequence been enhanced despite our own misgivings, more by inaction and the existing strengths of the portfolio than any radical reallocation. As investors return from their beaches, trailing tar and sunburn, or clutching fish or fowl from more energetic forays, and the bare plough replaces the golden stubble, it may well be that a colder reality reasserts itself.

The pleasant prospect of an Olympic year, combined with a Presidential election, usually bodes well for stock markets. Nevertheless, the portents however flimsy their evidence, are less appealing. In the last few days the seemingly invincible Olympians, Pinsent and Cracknell, have seen their power humbled by the technical skill and fluency of the Australians, in a display as close to perfection as we are ever likely to witness. At the same time Teflon Tony's éminence grise, Clinical Campbell, has departed and after seven years the leader suddenly seems vulnerable.

On the broader front, the gargantuan appetite of Mr Grasso at the New York Stock Exchange shows there has been little amelioration in the ability of executives to enrich themselves with scant regard to the profitability of their businesses, and the returns to their shareholders, particularly on that side of the Atlantic. We regard this as an assault on the capitalist system, having seen off the attempted destruction by workers, whereby shareholders are increasingly deprived of their just desserts by executives eager to enrich themselves, or their peers, in a happy circle of convivial accumulation, whilst maintaining minimal ongoing participation in the equity of the companies by which they
are employed.

At the other end of the spectrum is the Pensions débâcle that threatens to turn major businesses into producers of pension payments for previous employees. Government insouciance in the face of this crisis remains breathtaking, particularly having precipitated the crisis in the first place. We find it increasingly difficult to analyse the effect of pension shortfalls, especially where forecast returns are substantially in excess of what we consider attainable, a situation now prevailing on both sides of the Atlantic.

At home, the pervasive and pernicious hand of the E.U. and Health and Safety Executive, to name but two bureaucracies, continues to spread destruction: the fishing industry belatedly is receiving some publicity as foreign fleets plunder our waters and tons of good fish are dumped overboard so as not to contravene measures designed to stop over-fishing; even our 192 directory Enquiries has succumbed to an European directive and the scions of American magnates and Bangalore helplines are enriched at the expense and irritation of the British public. Our own affection for free markets is confirmed in a quote from Bruce Chatwin's ‘Utz’: 'Everyone in the (Tabor) Market was laughing and haggling, giving, taking, proving beyond all doubt, whatever the zealots had to say, that the business of trade was one of life's most natural and enjoyable pleasures, no more to be abolished than the act of falling in love...'

Everywhere we see if not abolition, at least curtailment and controls that ultimately impoverish us all, as well as impairing the sheer fun and pleasure he so well describes. Whilst Deflation has been recently seen as a threat to our economies, the implied assumption that Inflation is somehow beneficial again undermines the vitality and strength of Capitalism whose triumph has been to produce greater choice and better goods at lower prices by innovation and successful management. Inflation is an attack on all bond-holders and the ally of profligate governments. As Cicero declared in 63 BC: 'The budget should be balanced, the treasury should be refilled and the public debt should be tempered and controlled, and the assistance to foreign lands should be curtailed lest we become bankrupt'; the obverse of what governments in Britain, the United States and Europe are undertaking, with predictions for the U.K. deficit to reach £40billion and that of the U.S., in excess of $400 billion, the latter compounded by the ever-increasing trade deficit. Whilst we may meander through the next 18 months in a recovery of sorts, we cannot believe that the ultimate outcome will be anything less than a salutary decline in values. The sale of twenty tons of gold by the Greek government, to help re-finance some of their baled-out state enterprises echoes that of our own astute Chancellor.

Your company has made increasing provision in the last few years to protect shareholders from the actions of people preoccupied with their own electoral prospects rather than the well-being of their economies; as George Bernard Shaw said: 'You have a choice between the natural stability of gold and the honesty and intelligence of members of the government. And with all due respect for those gentlemen, I advise you, as long as the capitalist system lasts, vote for gold.'

We have built our portfolio with a widespread of gold shares, precious metals, especially Platinum, and other essential ingredients for the world economy, particularly that of China, positioned in various countries and continents. We also have a bedrock of businesses that we believe will thrive in whatever turbulent times may occur.

The merger of the company in it’s former name The Exploration Company p.l.c. with El Oro Mining and Exploration p.l.c. was formally completed on 3 September 2003, and the combined entity, El Oro and Exploration Company p.l.c., commenced trading on 8 September 2003.

I would like to thank stockholders for their support for the scheme, and also my fellow directors and our staff at Cheval Place and our able advisers, for their assistance, patience and perseverance in putting the proposals into practice. Both companies, in their separate identities, have passed their centenaries, and El Oro and Exploration Company p.l.c. has had a continuous listing for over a hundred years.

I look forward with renewed enthusiasm in setting out on the next one hundred years with the combined group, and have no reason to believe that past progress cannot be improved upon.

C Robin Woodbine Parish
Chairman