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Is The Risk Worth The Reward At Oxus Gold plc And Churchill Mining Plc?

Oxus Gold (LSE: OXS) and Churchill Mining (LSE: CHL) are both unique situations. They’re also binary bets, which means that they’re not suitable for every investor. 

However, if everything goes to plan these companies could become multi-baggers, generating impressive returns for those who are willing to take the risk. 

Arbitration proceedings

For all intents and purposes, Oxus is a lottery ticket. As stated in the company’s half-year report, “other than the ongoing arbitration proceedings…there are no other operating activities currently being undertaken by the company and its subsidiaries“. So investors who take a position are betting on the company’s success or failure in courts. 

But there is value to be found in the arbitration process. 

Oxus is currently involved in arbitration proceedings and a compensation claim related to the loss of the Amantaytau Goldfields and Khandiza mining assets. The two fields are located within the Republic of Uzbekistan, and the company is pursuing arbitration proceedings against the regional government. 

Unfortunately, these arbitration proceedings are dragging on, but Oxus believes that it is entitled to damages of up to $400m. Management is confident that the arbitral tribunal will rule in its favour although, whether or not the company can remain solvent until a decision is announced is another matter.  

Oxus is facing a cash crunch. The group was forced to issue 83k new shares to pay its Nomad for three months work back in July and has since signed a convertible loan note deal with Darwin Strategic Ltd for a total of £1.2m

Still, even if Oxus is only awarded 25% of the compensation management believes the company deserves, (around £70m) Oxus’ shares could jump to 12p. 

Cash call

Like Oxus, Churchill Mining is also struggling to pay the bills but the group is set for a bumper payday if its international arbitration claim pays off. 

Churchill is fighting the Republic of Indonesia for damages associated with the unlawful revocation of East Kutai Coal Project. Churchill and its partner, Planet Mining Pty Ltd. held a 75% interest in East Kutai. 

An independent assessment has calculated that Churchill’s damages from the unlawful seizure of the mine could be $1.3bn, around £833m. At the time of writing, Churchill’s market cap is only £24m. 

Worth the wait

Churchill’s arbitration case is moving through the courts at a snail’s pace. At some point during the next few months, the company should hear the results of its recent document authenticity hearing, which was held between the 3rd and 10th August. There is no set date for the Tribunal to deliver its decision. 

Nevertheless, Churchill’s potential payoff is worth waiting for, I believe. City analysts believe that if the company reaches a settlement with the Indonesian government, it could receive a cash lump sum of $9.70 per share, approximately 670p per share. 

The bottom line 

Churchill and Oxus are both high-risk/high-reward plays. If either company reaches a settlement, they’re set for a bumper payday. However, there is a very real risk that both companies could fail to negotiate a deal, run out of cash and become insolvent. 

So, in my opinion, neither company is suitable for widows and orphans.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.