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Just added a small position – (c3% portfolio) in Polo Resources.

This is an investment trust investing in small cap miners / oil exploration companies.

Not my usual cup of tea but I have decided to take a punt on this as I think there is value which will reveal itself reasonably soon.

Smallcap miners have had a rather poor run over the past 2/3 years – as have largecap miners. The natural resource boom between 2008 – 2012 led to a lot of investment much of which doesn’t seem to be earning much of a return in the lower price environment of 2014. The big listed companies are now putting their efforts into increasing returns on existing assets rather than building reserves. This puts the small cap companies in a bad position as they need investment to actually develop their discoveries. Such conditions are not going to go on forever and I hope that over the next few years the cycle will turn – hopefully to my benefit.

POL’s market Cap is £30.1m
Main assets are
42% Signet Petroleum – (Private) My Value 0
90% Nimini Holdings – (Private) My Value 0
88.32% Regalis Petroleum (Private) My Value 0
1.95% Equus Petroleum – (Private) My value 0
27.8% GCM Resources – (Listed) based on current MCAP £5m
15.16% Ironstone Resources – (Private) My value 0
11.85% Blakham resources – (Listed) based on current MCAP £1.25m (ex options POL owns)
12.75% Celamin Holdings £0.44

There is also £22.91m in cash.

This gets us to approximately the market cap.

The real asset seems to be Signet which Polo says holds assets which are “highly prospective”. Signet have distributed via a buy back £22.8m of their own shares back to Polo £14m. Signet holds a block of proven gas right next to some owned by BG. Plus assets elsewhere – which they are looking to sell. Given past returns I think they will be sold eventually. They are currently not on the balance sheet – therefore they are not in the NAV.

I have no idea what the upside of any of this could be – which is why this is a bit of a punt. I would hazard a very good guess it would be significant in relation to the market cap, but it is only a guess….

Costs seem to be reasonable(ish).

The former manager a Mr Stephen Dattels – who had done phenomenally well with Polo retired in 2013 – to some degree explaining the fall in the valuation since 2013.

One additional point – in mid 2013 Mettiz capital ( became the largest shareholder – buying in at 40p, well above the market price of 25p. Interestingly when their owner Mr Tang took control he got options for 5 years at 25p. There are 21.5m options in existence with exercise prices between 25-40p. It all suggests value here.

This will go one of two ways – a RNS followed by potentially a doubling or tripling, or a slow grind to zero as all the portfolio holdings pay their grossly overpaid management whilst wasting my money digging empty holes.

Time will tell – not for the widows and orphans amongst you.

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