27th Feb 2019 09:55
(Correcting that Phronimos Capital was writing on behalf of clients and other concerned shareholders totalling 14%, not that its clients own 14%, of Polo Resources.)
LONDON (Alliance News) - Phronimos Capital LLC on Wednesday said it wrote to Polo Resources Ltd in January requesting a tender offer to return 10 to 12 pence per share to shareholders.
Shares in resources investor Polo were 16% higher on Wednesday at a price of 4.76 pence each. In early 2014, they stood much higher, at 20.63p.
Polo has stakes in gold, oil and gas, coal, iron ore, and phosphate projects across five continents.
The investment advisory firm wrote on January 28 to Polo on behalf of some of its clients who are Polo shareholders, as well as other Polo shareholders not clients of Phronimos, who combined own 14% of Polo.
"The persistently large discount of Polo's stock price to net asset value precludes shareholders from realizing anything remotely close to its fair value through open-market transactions," said Phronimos.
"Consequently, we believe the next logical step to protect and unlock shareholder value entails a tender offer at 12 pence per share."
Phronimos said funds could be sourced from a sale of some or all of Polo's "successful" investment in Hibiscus Petroleum, with the entire stake double Polo's market capitalisation.
Selling one-third of the Hibiscus stake, the advisor continued, could allow Polo to buyback 20% of its shares at 12p, a significant premium to its current share price. It believes there would be widespread shareholder support for the move.
Phronimos does not dispute Polo's right to "generously" pay its leadership when they help create shareholder wealth, but it noted Polo's share price has fallen 80% over the past five years with no returns whatsoever.
Chair Michael Tang, it continued, has received around USD1 million a year, and his compensation through 2018 to 2020 is estimated to be 35% of Polo's market cap.
Phronimos lastly urged Polo to stop making new investments into resources explorers who cannot fund their capital expenditure needs.
"Phronimos has studied the returns of publicly traded natural resource companies across the globe from 2005 to 2018 and the results indicate shareholder returns from resource companies with assets producing free cash flow were more than quadruple their free-cash-flow-negative
counterparts," Phronimos said.
"This empirical study, combined with the anecdotal evidence from Polo's investments in the junior resource exploration companies that resulted in the aforementioned two-thirds decline in NAV since May 2013, leads us to conclude there are better alternatives to deploying capital in resource companies that lack the balance sheet wherewithal and near-term free-cash-flow generation to fund their capital expenditure needs."
A spokesperson for Polo Resources contacted by Alliance News didn't have an immediate response from the company.
Related Shares:
POL.L