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Posted by trinityroadrunner2 elsewhere...... --------------------------------------------------------------------------------------- ......."Liberum View
Polo Resources (PRL, 4.4p, Buy) Polo Resources (Polo) is a mining investment company focused in uranium and coal assets. We wrote on Polo in September, highlighting the value in the price post the rally in the companys two main holdings Extract (EXT AU) and Caledon (CDN LN). While both have given back some of these gains, the key point to note is Polo is still at a significant 44% discount to our eNAV. In fact, with a holding of c. 112m in Extract and a 104m market cap for Polo, not only is Polo a discounted way into Extract but you are getting the remainder of the portfolio for free. Given the wide discount to NAV has been a long-standing feature in Polo, the obvious question is what is going to close this discount? We believe the announcement this week of a conditional listing on the Toronto Stock Exchange potentially can act as the catalyst for tightening.
Polos portfolio is dominated by one holding Extract Resources, accounting for c. 61% of assets. Extract is a Namibian focused uranium miner which is currently drilling the Rossing South deposit - this is adjacent to Rio Tinto's producing Rossing uranium mine.
We believe Rossing South could prove to be a world class deposit, that is potentially attractive to Rio, but we have heard that the ore is different to Rio's Rossing mine. This implies that Rio would have to double up on processing equipment if they wanted to develop it, thus not obtaining the synergies from running it through their current mill.
Caledon Resources (c. 17.32% of NAV) is a coking coal producer situated in Queensland, Australia. It acquired the mothballed Cook Mine in late 2006 and has since recommissioned the operation. The company had been soliciting interest for bids in early 2009, however the Board since decided in December 2009 that it was no longer going to pursue a sale, given the positive outlook for coal and opportunities at hand. Price suffered initially but has since rebounded. GCM Resources (c. 11% of NAV) develops coal mines and power plants in Africa and Asia. Its main asset is the Phulbari coal project which has an estimated 572 Mt of export quality thermal and metallurgical coal. The company has been waiting since 2005 for governmental approval to develop the project, and rumour in January was that the company was on the verge of being awarded this licence. Share price has rallied strongly since this announcement. Polo also has stakes in other small listed holdings in A-Cap Resource (ACB AU) and Impact Resources (IPT AU) accounting for c. 2% of NAV. In the unlisted portfolio Polo has a producing Mongolian coal JV with Peabody accounting for c. 7% of NAV. We like the Mongolian coal assets in terms of the coal quality and the very cheap operating costs. Some investment in transport infrastructure by the Mongolian government could transform the value of these assets given the asset is land locked but we acknowledge this is a slow-burner. Valuation At a discount of c. 44% to eNAV, Polo currently trades significantly below the estimated value of their listed portfolio.
Effectively we see it as a cheap access point to Extract with a number of other promising assets thrown in for free. While Extract and Caledon have sold off since our last note, this has been balanced with the sharp rise in AUD in the period. We expect 31st December results to be released at the end of this month which should give more clarity to exact portfolio values"............
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