Spitfire Oil Limited ("the Company") and its wholly owned subsidiary, Spitfire Oil Pty Ltd ("Spitfire"), together ("the Group"), recorded a loss before tax for the year ended 30th June 2016 of A$623,614 (2015 A$596,094), after providing $275,194 (2015: $288,217) for diminution in value of the Salmon Gums tenements. The Group benefited from interest receivable of A$125,328 (2015 A$144,291). Operating costs of A$473,748 (2015 A$452,168) were incurred. A$275,194 (2015 A$288,217) was incurred and capitalised on licence fees and tenement management.
The auditors have opined that they have been unable to obtain sufficient evidence to support the directors’ assessment that the recoverable amount of the mineral resources asset is at least equal to its carrying value. As with any valuation an assessment of the carrying value / recoverable amount of a mineral deposit yet to be mined it is highly subjective issue. The directors, supported by independent advice, remain of the opinion that the recoverable amount of the Salmon Gums tenements is at least equal to the carrying value in the financial statements, being the same as that reported in the financial statements to 30th June 2015, upon which the auditors opinion was not qualified, and in light of increase in the oil price in 2016 of some $10 per barrel.
The Salmon Gums Lignite Project remains on hold and the Retention Licence on which it occurs has been renewed for a further year until September 2017.
The directors continue to pursue potential joint ventures for the development of facilities to process the Salmon Gums lignite.
Although a resource has been defined, and title to the Salmon Gums mineral tenements has been secured for the foreseeable future, with active exploration work now suspended and with due consideration to market prices for fuel products the directors are of the view that the carrying value of the Salmon Gums mineral tenements continues to be $4,340,000, in conformity with a review undertaken by independent consultants for the purposes of this report.
The Company has continued to keep its running costs to a minimum while reviewing possible new projects. A number have been considered during the year but have so far not met requirements.
To say the Oil & Gas industry continues to suffer would be an understatement and nowhere more so than in the junior listed market. The prolonged drop in oil and gas prices has had a profound effect on the junior exploration and production sector. With the world turning ever more to renewable energy sources, the implicit and explicit taxation of carbon by a larger number of governments and the over supply of oil from the income strapped nations of OPEC, Iran and fracked oil from the USA, there seems little hope of a recovery in the foreseeable future. Nevertheless, for the moment, we continue to retain our Salmon Gums project as a hedge against a possible rise in the oil price, however unlikely that seems.
The Company has been investigating acquisitions and projects in the oil and gas sector for some years now, with no success. The projects have generally been uneconomic or unfinanceable. Now is the time to be realistic, swallow our pride and focus the Company's attention to projects in the hard rock mining sector which have a looming supply side deficit or other compelling economic argument. Even this task will be difficult. Real projects providing real returns are extraordinarily difficult to find and even more difficult to acquire. Your board has extensive expertise in this area and will endeavour to focus all its efforts in finding a project worthy of the patience and loyalty the shareholders have shown over these many years. Hopefully, better news will be forthcoming in 2017.
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