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Are AIM Darlings Churchill Mining Plc, Tern PLC And San Leon Energy Plc Worth The Risk?

Investing is all about balancing risk and reward. There is no point risking 100% of your capital if you only stand to make 10% in the best case scenario.

That’s why investing in highly speculative companies can be a risky business. The returns on offer often fail to compensate investors appropriately for the risk taken on.

If everything goes to plan, AIM darlings could become multi-baggers, generating impressive returns for those who are willing to take the risk. However, if things don’t go to plan investors could lose 100% of their capital.

High risk, high reward 

Churchill Mining (LSE: CHL) is currently fighting the Republic of Indonesia for damages associated with the unlawful revocation of the East Kutai Coal Project. Churchill and its partner, Planet Mining, 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 £910m). At the time of writing, Churchill’s market cap is only £29m. 

Now, Churchill still has a long way to go before it can claim to have won against Indonesia, and even if the company does win in the courts getting the cash is another matter altogether. That said if Churchill does win and Indonesia pays up, investors stand to make more than 20 times their money.

Huge market 

Tern (LSE: TERN) invests in established, private software companies and its largest investment is Cryptosoft, the only supplier with a market-proven software security product, for Machine-to-Machine (M2M) applications. 

According to Beecham Research, security is now the leading concern for users of M2M devices and the size of the market for security products is exploding. Based on the current rate of growth, the M2M security market will be worth $700m by 2018, according to M2M Magazine. Tern’s market cap is only £9m at the time of writing, so even if Cryptosoft can grab only a tiny share of the M2M market, Tern could be set for the big time. 

This year, Cryptosoft has already announced that it will provide authentication and encryption services for the Internet of Things with Symantec Corp, one of the world’s largest software and information technology companies. And today, Cryptosoft announced that it had signed a merger agreement with Device Authority, a device authentication software specialist. The two companies already work together so integration should be relatively simple. 

Production surge 

Shares in San Leon Energy (LSE: SLE) are currently suspended after the company dumped its NOMAD but where the business’s shares return to the market, is likely there will be a sudden rush by investors to buy into the firm’s growth story.

At the beginning of March, San Leon secured funds from its investors totaling C$89.3m plus an additional $4.5m in transaction costs to fund the acquisition of Canada’s Mart, an exploration and production company. As part of this deal, San Leon will secure a 9.72% indirect economic interest in the OML 18 block, onshore Nigeria.

The company has also negotiated a deal to acquire another of Martwestern Energy’s shareholders, SunTrust Oil Co Ltd. In a restructuring deal, San Leon is paying $117.4m to acquire SunTrust’s stake in Martwestern. Gross OML 18 block production was 31,600 barrels of oil per day in September 2015. Most of the production is hedged at $95 a barrel until December 2017. This deal could transform San Leon into a major oil producer. 

Your own research 

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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.