Churchill Mining(LSE: CHL) and Xtract Resources(LSE: XTR) have issued ordinary trading updates today: little news on this front to report, but there are no signs that the time to cash in may have come, either.
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. Heres why.
The miner announced todaywhat is commonly known as a block admission of up to 4,350,000new 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 beon parwith the companys existing ordinary stock essentially, they have thesame seniority.
Its very unlikely that the drop in Churchills 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. Theres no visibility on financials, and I think that investors may be underestimating the threat posed by Indonesia, a country where political risk isseldom easy to gaugeand could leaveWestern 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 itsEast 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 thosewho 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.
Elsewhere, Xtractissued an updateon 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, buthas been rising for some timeand I would expect more solid operational updates in the second half of the year.S0, should you buy before then?
Thats 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 portfoliodeliver an outstanding performance in 2015 and beyond.
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