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Increases interest in Signet Petroleum. Speculative Buy at 3.34p with a 6.2p target price

Polo Resources is a natural resources investment company that has paid out a total of 5p per share in dividends over the two years. This level of cash has been generated by the management team consistently making substantial gains in backing juniors as they climb the value curve and move from exploration into project development ahead of production. Last year the portfolio was given some additional sparkle by taking Polo into the oil and gas arena for the first time in making an investment in Signet Petroleum, an unquoted African oil and gas exploration company. Market trends over the past twelve months have clearly demonstrated that valuation gains are being achieved a lot faster in the oil and gas than in the mining sector. Polo provides a pooled investment that is managed by an expert team of specialist resource investors who have a good deal flow of both quoted and unquoted opportunities. The team is not looking to back many situations as they know that they can really only actively manage between 6-12 investments to give them the attention necessary to make returns like the 70% made on a handful of uranium stocks between 2009 and 2010. Today, Polo is sitting on over £40 million of cash which is available to make the most of the current buyers’ market.

Polo has now announced that it has further increased its stake in Signet Petroleum. Signet Petroleum – an independent oil exploration company which focuses on acquiring and developing high impact exploration assets in Africa. Signet was incorporated in June 2010 and since that time has acquired highly prospective oil and gas exploration rights in Tanzania, Burundi, Benin and Namibia as well as actively pursuing additional assets elsewhere in Africa. Last summer, Polo invested $7 million into Signet to take a then 7% stake. With a follow-on investment of $5 million, Polo has just upped its stake to 12.2% (on a fully diluted basis) and has the option to invest up to a further $10 million at the same value per share. Signet will use to proceeds to fund the acquisition of 3D seismic in Tanzania and the purchase of seismic data in Burundi.

There is little doubt that Signet represents a highly prospective hydrocarbons play. The firm has two exploration licences that are immediately adjacent to impressive blocks where Tullow Oil and British Gas have enjoyed success. Confirmation of the continuity of the geology from one block to the next would suggest that a substantially significantly higher valuation which could lead to a nice quick trade sale for the company.

Elsewhere, Polo now has a 100% interest in Nimini Holdings Limited, a gold project in Sierra Leone which has scope for substantial resource upside potential; and looks to be another project where the team is about to add significant value. In December 2011, Polo agreed to acquire TSX-V listed AXMIN’s 49% stake in Nimini for $9 million cash, after buying a 51% stake in September 2011. From now on, Polo will be managing the development of the Nimini East and West and Matotoka Exploration licences which are located within the central-west Kono region in the country. Within the Nimini Hills West Licence is the Komahun Gold Project which has an Indicated Mineral Resource of 370,000 tonnes at a grade of 9.1g/t gold (110,000 ounces) and an Inferred Mineral Resource of 3.21 million tonnes at 4.3g/t (435,000 ounces).

In early February 2012, Polo announced exceptional results from the Q4 2011 diamond drill programme which reaches 3,332 metres in 13 holes at the Nimini West Licence. The drilling was aimed at a continued investigation of the extension of the main mineralised zone in the Main Zone and in the newly discovered Eastern Extension, Western Extension and Sendekor structures. The Main Zone was investigated with ten core holes totaling 2,608 metres, drilled to both tighten the spacing between some of the previous intersections and to continue exploring the eastern strike and down dip extensions of the deposit. Three deep holes, NWKD 216, 217 and 218 revealed the deepest intersection yet found at Komahun and showed that the deposit is still open at depth. Some of the best intersections observed include 19.60 metres of 7.08 g/t Au from 366.55 metres in hole NWKD216 and 14.00 metres of 4.70 g/t Au from 347.4 metres in hole NWKD217. In NWKD218, an interval of 9.05 metres of 11.47 g/t Au from 347.35 metres. Infill drilling holes (including NWKD 213 to 215 and 219 to 222) were drilled to improve the drilling density and some of the Inferred Resources into the Measured and Indicated category. Near-surface results include hole NWKD 213, which intersected 7.65 metres of 1.94 g/t Au from 95.8 metres and 17.45 metres of 2.56 g/t Au from 131.90 metres, and showed that strong mineralisation is to be found near the surface.

These latest drilling results from Nimini have revealed good gold grades were recovered coupled with decent widths which seem to really show the project’s potential to host large scale gold mineralization at commercial values not just at the Main Zone, but also in the recently discovered Eastern extension, Western Extension and Sendekor Structures. There are more results to be announced. Moving ahead, 2,000 to 3,000 metres of drilling is planned on the Sendekor area once the results of a VTEM survey have been interpreted. There are also plans for Nimini to undertake an exploration drilling programme at its 100% owned Matotoka Licence where previous exploration yielded promising results from soil sampling, pitting and trenching, and where a number of combined geophysical and geochemical anomalies have been identified. Matotoka is located in central Sierra Leone on the northern border of Cluff Gold’s 1.5 million ounce Baomahun gold deposit where mine construction is expected to begin later this year.

Currently, the portfolio consists of a limited number of investments in companies that are developing coal, iron ore, gold and oil projects. What all these investments have in common is that they are in undervalued companies and projects which are supported by strong underlying fundamentals and also offer good potential for growth. The team is searching for value opportunities where some exploration has been done and there is a sign of a significant resource. Polo normally takes a 10-20% stake and then actively manages these investments so that the project is driven through pre-feasibility and feasibility studies and then sold. Whether investments are made in quoted or unquoted companies is largely dependent on market conditions and where the best value can be found. In the first half of 2011, Polo was investing in largely unlisted companies which were mainly exploration plays as quoted companies were enjoying buoyant stock prices. Now that economic woes have resurfaced and there has been a flight from risk which has left many small caps at bargain prices, the team is likely to focus on taking stakes in quoted resources companies that have been deserted by investors.

Valuation

The real value of the company’s investments is masked in the Net Asset Value as so much of the portfolio is invested in unquoted companies which are shown at cost and which could be re-valued at a value event. The company is not a long term holder and the only value event really seems to be Polo selling. The team has a good track record of turning a decent profit on anything that has been bought. For these reasons we believe that Polo should not be trading at discount to its Net Asset Value of 4.16p, but should actually be trading at a premium. At 3.34p we maintain a stance of speculative buy and a 6.2p price target.

Financial records & forecast table

Year to 30th June	Sales ($m)	Pre-Tax Profit ($m)	Earnings per share (c)	Price Earnings Ratio	Dividend (p)	Yield (%)
2009A	0	(62.73)	(3.2)	NA	0.0	0
2010A	0	28.84	1.23	4.3	3.0	90
2011A	0	66.92	2.75	1.9	2.0	60
2012E	0	30.00	1.2	4.4	1.0	30

Key Data
EPIC	POL
Share Price	3.34p
Spread	3.3p – 3.38p
Total no of Shares	2,294,086,098
Market Cap	£76.62 million
12 Month Range	2.6p – 6p
Market	AIM & TSX
Website	www.poloresources.com
Sector	Mining
Contact	Neil Herbert +27 82 404 3637