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.

The post Is The Risk Worth The Reward At Oxus Gold plc And Churchill Mining Plc? appeared first on The Motley Fool UK.

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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.

Dreamland?

Castleton Technology (LSE: CTE) is less likely to deliver that kind of performance than Churchill Mining (LSE: CHL), in my view, but its stock price could surely double, although a rally from 3p to 6p would put its valuation in the danger zone, based on fundamentals. 

I would probably stick with Sirius Minerals (LSE: SXX) at 18p a share if I were to bet on any company worth less than £500m right now. The downside, of course, is that you may end up being disappointed at the end of the process, particularly if you chose Churchill. 

Intangibles

Castleton’s stock price ranged between 0.92p and 3.61p over the last 52 weeks, and its stock currently trades at 3p (+42% year to date), which implies a market cap of £45m. 

Last week it reported a trading update for the year ended 31 March, which showed revenue at £6m and widening economic losses due to one-off charges. The market is pleased with its aggressive strategy — Castleton is mopping up assets — but the value of intangibles on its balance sheet is significant (at 73% of its total assets), while its stock is very expensive based on its price-to-tangible book value. 

Formerly Redstone, this software support services group could be a decent bet, but I’d not underestimate the risks associated to its strategy. Furthermore, stiff competition in the sector could limit short-term upside. 

Arbitration 

We know that Churchill’s equity value hinges on the outcome of the international arbitration cases that Churchill and its Australian subsidiary Planet Mining are pursuing against the Republic of Indonesia. The arbitration arises from the unlawful revocation of the mining licenses relating to the East Kutai Coal Project in East Kalimantan, in which Churchill and Planet held a 75% interest, Churchill insisted in its latest update. Its stock has halved since a record high in June, and its market cap now stands at £34m.

Churchill estimates that the damage can be quantified at about $1.3bn; consider that capital appreciation in the region of 1,000% from its current stock price of about 22p would yield a market cap of £320, or about $500m. That’s less than 50% of the value that Churchill claims it could fetch!

That said, the government of Indonesia is well known in the international community for playing hard ball in these situations, and I am not sure that we might still have an investment case if it simply decided not to pay or if proceeds were much lower than expected. 

Financing

Sirius is fairly priced right now, at least based on several elements that can hardly be quantified!

The biggest event that should emerge over the next six months should be the arrangement of a comprehensive financing package backing the development of its flagship York Potash project in York. 

There has not been big news to report recently, but latest signs are encouraging and point to an investment that could be properly priced right now — and one that could still be a bargain at over 40p a share if all pieces of its York project fall into place. 

The post Are Castleton Technology PLC & Churchill Mining Plc More Likely To Double In Value Than Sirius Minerals PLC? appeared first on The Motley Fool UK.

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Alessandro Pasetti 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.

The update concerned the recent document authenticity hearing, which was held between the 3rd and 10th August. The hearing included a number of expert witnesses and oral presentations. All of the witnesses for Churchill and related parties whom Indonesia requested for cross-examination attended the hearing.

However, not all of the witnesses for Indonesia whom Churchill requested attend the meeting showed up. One of Indonesia’s key witnesses, Isran Noor, declined to attend the proceedings, and as a result, the Tribunal ordered that Mr Noor’s witness statement be struck out and disregarded.

Now the Tribunal hearing has been completed, there will be the presentation of post-hearing briefs by both sides and the Tribunal will deliver its decision in due course. There is no set date for the Tribunal to deliver its decision on Indonesia’s dismissal application, although the decision is unlikely to be handed down for some months. 

Key development 

The decision by Isran Noor not to attend the hearing is a surprising development. Mr Noor held the office of Bupati (the head of local government) of East Kutai before his recent resignation. As a result, Mr Noor was considered to be one of Indonesia’s key witnesses — his non-attendance could help sway the Tribunal. 

Next steps 

This month’s document authenticity hearing is a key stage of Churchill’s battle against the Indonesian government. 

Churchill is fighting the Government of Indonesia over the unlawful revocation of the East Kutai Coal Project in East Kalimantan Indonesia, in which Churchill and its partner, Planet Mining Pty Ltd. held a 75% interest.

The Government of Indonesia has been trying to throw out Churchill’s claims against the mine on the grounds of document authenticity. When the results of the document authenticity hearing are finally released, they should settle the debate and allow Churchill’s claims against the government progress further. 

And there is a lot at stake here. Churchill spent $67m on exploration and feasibility studies at the East Kutai Coal Project, arriving at a potential resource estimate of 3.1bt. The company’s damages have been independently assessed at $1.3bn, around £833m. At time of writing, Churchill’s market cap is only £44m. 

Binary bet

As I’ve said before, Churchill’s shares are a binary bet right now. City analysts believe that if the company reaches a settlement with the Indonesian government, it could receive a cash lump sum of around $9.70 per share. Or, in sterling terms, approximately 670p per share. 

Nevertheless, it could take years for Churchill to reach a settlement, and the company’s cash balance is running out. Churchill’s cash balance has dwindled over the past four years to only £3m, down from £22m four years ago as the drawn out legal battle has sapped resources. 

The post What’s Next For Churchill Mining Plc? appeared first on The Motley Fool UK.

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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.

Nonetheless, the shares of both companies are down about 4% in early trade — as you might know, you must be patient if you are invested in them. Here’s why. 

Churchill Mining

The miner announced today what is commonly known as a block admission of up to 4,350,000 new shares, which “may be issued pursuant to the exercise of warrants granted in connection with the issue of equity notified on 14 May 2015“. In these situations, the ranking of the shares in the capital structure tends to be on par with the company’s existing ordinary stock — essentially, they have the same seniority. 

It’s very unlikely that the drop in Churchill’s share price is to be attributed to its latest announcement. Rather, investors seem to be taking profit after a performance that reads +254% since 21 May. There’s no visibility on financials, and I think that investors may be underestimating the threat posed by Indonesia, a country where political risk is seldom easy to gauge and could leave Western investors with a bitter taste in their mouth. 

The allure is obvious, though.

Pre-tax capital gains could be between 200% and 300% if a base-case scenario plays out, even assuming that its East Kalimantan coal project is valued only between £150m and £300m. While investors should err on the side of caution, if their bets are properly hedged I reckon that those who are adamant to hold long positions in the stock at between 20p and 40p a share could be proved right.

We are in high-risk territory, of course. 

Xtract Resources

Elsewhere, Xtract issued an update on its Chepica gold and copper project in Chile, “which returned to profitability in May 2015“, the group pointed out.

That came only a couple of weeks after it released its 2014 annual results, which showed: 

• First revenue received from concentrate £1.14m (2013: nil)
• Net loss of £2.95m (2013: £0.13m loss)
• Administrative and operating expenses of £2.34m (2013: £0.80m) 
• Project costs of £0.21m (2013: £0.35m)
• Cash of £0.16m (2013: £0.16m)

The stock is down 6% since its annual results were released, but has been rising for some time and I would expect more solid operational updates in the second half of the year. S0, should you buy before then? 

That’s your call,  but if your portfolio is properly diversified, I doubt the losses associated to Xtract will be substantial. Similarly to Churchill, however, Xtract remans a highly speculative trade at present, but one that could help your portfolio deliver an outstanding performance in 2015 and beyond. 

The post Are The Stars Aligned For Penny Stocks Churchill Mining Plc & Xtract Resources PLC? appeared first on The Motley Fool UK.

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Alessandro Pasetti 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.

Does that signal upside?

If so, bear in mind that its current valuation also signals the likelihood of high volatility in weeks ahead. 

Just A Fraction Of $1.5bn Would Do!

Unfortunately, its fair value is hard to gauge because its trailing income statements, cash flow statements and balance sheets provide little information with regard to its track record, while estimates for future revenues and profitability should be regarded as highly uncertain at present time. 

So, we are almost blind on financials: not only any possible guidance is premature, but it hinges merely on external factors. We know now that the biggest threat associated to the investment case is political risk in Indonesia, a country that historically hasn’t been kind with institutional investors and foreign firms. 

What’s encouraging is that Churchill managed to raise £850,000 through a placing of 8.5m new ordinary shares at a price of 10p per share less than a month ago, proceeds of which will be used to reach a settlement with the government of Indonesia. The matter is pretty serious, and concerns one of the world’s biggest coal reserves — the “East Kalimantan coal project”, which is valued by Churchill at $1.5bn.

Assuming Churchill fetches half of that amount, its current asset base would sky-rocket to half a billion pounds, and its stock price will most likely go through the roof — its market cap currently stands at £48m, which says a lot about the risk involved. 

Talks are ongoing, but Indonesia has shown in the past that such negotiations could drag for years. The government has so far dropped allegations of fraud against Churchill, but uncertainty remains as wrongdoings of Churchill’s partners in the project could reportedly weigh on the outcome.

One element I like a lot is that the miner also announced last month the “issuance of warrants over ordinary shares on the basis of one warrant for every two placing shares exercisable at a price of 15p per ordinary share and expiring on 30 June 2018“. This signals a certain degree of confidence in the outcome of the proceedings — confidence and nerves of steel are what you need to invest in it, of course.

Castleton Technology Grows

With a tiny £33m market cap, Castleton is a bet on how quickly the company will grow by snapping up certain assets that target the public and not-for-profit sectors. “Nearly a third of all the social housing associations in the UK are now Castleton customers,” chief executive Ian Smith pointed out in the wake of recent deals in the space. 

Its stock changes hands at 3.11p right now, which is close to its 52-week high.

Over the last 12 months, Castleton has made good progress. Its management team is building the company by seeking inorganic growth, which makes a lot of sense in the software support services world, particularly for listed companies. 

Last week, it announced to have acquired Impact Applications and Brixx Solutions for a total consideration of £10m, which isn’t small change for Castleton — which, however, seems to have financing options. 

This services firm, formerly known as Redstone, has changed a lot in recent years and is now managing expectations, drawing the attention of retail investors, while focusing on more profitable operations in its assets portfolio. If anything, it has a huge amount of shares outstanding, which may not be such a good thing if things do not go according to plan. 

The post Castleton Technology PLC Or Churchill Mining Plc: The Penny Stock Of The Century? appeared first on The Motley Fool UK.

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Alessandro Pasetti 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.

Churchill says the resource is worth around $1.5bn. The company has spent more than $10m on its legal bid against the Indonesian government, claiming that it had been unfairly stripped of its licences and accused of fraud. 

Legal issues 

Churchill spent $67m on exploration and feasibility studies for its East Kutai Coal Project, but during 2010 the project’s four development licences were cancelled.

The Indonesian government revoked the licences claiming that Churchill, along with its development partner, had forged documents and undertaken exploration activities without a licence. 

And since 2012, Churchill has been tied up in an international arbitration battle regarding this dispute. 

As Churchill claims that the East Kutai mine is worth around $1.5bn, this dispute is certainly worth the money. According to the available figures, East Kutai is one of the world’s largest coal prospects.

It is estimated that East Kutai contains 2.73bn tonnes of coal reserves — around 50% of Indonesia’s estimated coal reserves and enough to meets the country’s energy demands for seven years. 

Relations improving 

Over the past week, there have been signs that Churchill is moving closer towards a settlement with the Indonesian government. 

Indeed, last week the government retracted its allegations of fraud against the company and reports suggest that an “open channel” of talks has commenced between the two parties.

Previously, it was expected that a settlement wouldn’t come before the end of 2016 but now, one source has suggested that a settlement is just around the corner. 

Premature gains 

Churchill’s shares have gained around 200% year to date off the back of these rumours.  

By Churchill’s estimate, the value of the East Kutai is around $1.5bn. So, if the company does come to a settlement with the Indonesian government, the miner could be set for a big payoff. City analysts estimate that the payoff could be in the region of $1.3bn.

Binary bet

With a possible settlement payout of $1.3bn just around the corner, Churchill is a binary bet.

If the company reaches a settlement with the Indonesian government, it’s set to receive a cash lump sum, which, if City estimates are to be believed, could total around $9.70 per share. Or, in sterling terms, approximately 670p per share — 1,333% above present levels. 

However, if Churchill fails to reach an agreement, the company could be left high and dry. The company’s cash balance has dwindled over the past four years to only £3m, down from £22m four years ago as the drawn out legal battle has sapped resources. 

High risk, high reward 

All in all, Churchill is a high-risk/high-reward play.

Even after recent gains, if the company reaches a settlement with the Indonesian government, Churchill’s shares could rocket higher. Although if Churchill fails to negotiate a deal, there’s a chance the company could go out of business. 

The post Why Shares In Churchill Mining Plc Soared By A Third Today appeared first on The Motley Fool UK.

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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.