Polo Resources (POL) is a natural resources investment specialist with a track record of returning value to shareholders. Its bosses have switched their focus to the gold and oil and gas sectors over the past year in a bid to defend the portfolio value against global economic uncertainties. Such a defensive strategy is understandable, yet Polo's share price suggests investors are placing next to no value on the potential of the group's main investments. This throws up a buying opportunity, particularly if the recently completed drilling programme carried out at Polo's Komahun gold prospect in Sierra Leone leads to a material upgrade of resource estimates.
- Shares trade far below book value
- Excellent grades at Komahun gold project
- Further Komahun upgrades likely
- History of shareholder returns
- Rising costs hit gold miners
- Cash will get used up
Polo's exposure to the Komahun prospect is through its 90 per cent stake in Nimini Holdings. Last February, a study of Komahun conducted by SGS Canada identified a resource of 521,000 ounces of gold 'indicated' and 263,000 ounces 'inferred'. Since then, a drilling campaign completed last month could substantially bolster these figures. Although the project is in early-to-mid stage development, the average indicated ore grade at Komahun, at 4.59 grams per tonne, is usefully better than most other gold explorers in West Africa. There's every chance that this ratio could improve on the back of new data. Polo reports that the latest assays have produced "significant grade uplift". If formally confirmed, this would give Komahun a big advantage in the face of the rising cash costs confronting Africa's gold miners.
| POLO RESOURCES (POL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2.5p | MARKET VALUE: | £66m | |
| TOUCH: | 2.45-2.5p | 12-MONTH HIGH: | 3.85p | LOW: 2.25p |
| DIVIDEND YIELD: | nil | PE RATIO: | 13 | |
| NET ASSET VALUE: | 3.42p* | NET CASH: | $42m | |
| Year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | nil | 28.8 | 1.23 | nil |
| 2011 | nil | 66.9 | 2.75 | nil* |
| 2012 | nil | 7.3 | 0.31 | nil |
| % change | - | -89 | -89 | - |
Normal market size: 100,000 Matched bargain trading Beta: 0.8 *Excludes special dividend of 3p in 2009-10 and 2p in 2010-11 £1=$1.62 | ||||
In addition to Komahun, the big attraction of Polo is its interests in several unquoted minerals explorers (see 'Polo's plays' table). In aggregate, the book value of these holdings is higher than Polo's own market value. In other words, buy Polo's shares and you get Polo's cash - admittedly an asset that will get used up - for nothing. The chief of Polo's investments is Signet Petroleum, in which it raised its stake to 48 per cent via a share issue. Signet has exploration interests in Burundi, Benin and Namibia, but its most exciting prospect is in Tanzania - one of the globe's new energy hot spots. Signet's 80 per cent-owned Mnazi Bay North prospect is adjacent to BG and Ophir Energy's offshore Chaza 1 gas discovery well, which is currently being blitzed by a seven-well drilling campaign targeting 12 trillion cubic feet of gas. 2D seismic analysis suggests a possible extension of Chaza 1 through to Mnazi Bay North, so appraisal of the drill results will be keenly anticipated by Polo.
| Polo's plays | |||||
| Investment | Activity | Holding (%) | Book value (£m) | Value per Polo share (p) | |
| Signet Petroleum | Namibian oil and gas explorer | 48.2 | 27.53 | 1.02 | |
| Nimini | Gold project in Sierra Leone | 90 | 21.1 | 0.78 | |
| Ironstone Resources | Clear Hills iron ore/vanadium project Canada | 15.7 | 8 | 0.30 | |
| GCM Resources | Coal projects in Bangladesh | 29.8 | 4.95 | 0.18 | |
| Regalis Petroleum | Namibia oil and gas explorer | 8.32 | 4.79 | 0.18 | |
| Equus Petroleum | Kazakhstan energy and oil company | 1.95 | 2.6 | 0.10 | |
| Total | 68.97 | 2.73 | |||
| Cash and receivables | 33.4 | 1.24 | |||
| Net asset value | 102.37 | 3.97 | |||
