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Beaufort Securities Breakfast Today including Polo Resources

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The Markets

Market opening: Markets could open lower today. FTSE 100 futures were trading 10.5 points down at 7:00 am.

New York: Wall Street closed in the red, as investors continued the previous day’s sell-off trend. However, losses were capped due to a rise in treasury prices on positive comments from Minneapolis Fed President Narayana Kocherlakota and Dallas Fed head Richard Fisher downplaying market fears of an imminent end to the stimulus. The S&P 500 closed 1.2% lower.

Asia: Markets are trading lower. Japan’s export sector pushed the Nikkei higher initially, but gave up on investor worries of a credit crunch in China, which was further aggravated after a leading investment bank downgraded the country’s growth outlook for the current year. The Nikkei closed 0.7% lower, while Hang Seng was trading 0.2% down at 7:00 am.

Continental Europe: Markets closed in the red taking cues from Wall Street and Shanghai indices. The Bank for International Settlements (BIS)’s advice to central banks to cut back the monetary stimulus added to investors’ fears. Germany’s DAX and France’s CAC 40 closed 1.2% and 1.7% lower, respectively.

UK small caps: The FTSE AIM All-Share index ended 1.8% lower yesterday.

Today’s news

China’s credit crunch lingers for second week

China’s stock markets continued to slide for the fifth day, slumping to their lowest since early 2009, after the People’s Bank of China (PBOC) stated it will not be injecting funds into the markets to address the credit crunch among Chinese banks. The spike in inter-bank borrowing costs has raised concerns that tighter financial conditions could have a broader impact on the country’s already slowing economic growth. Separately, Goldman Sachs cut its estimate for China’s economic growth this year to 7.4% from 7.8% earlier. China’s overnight interbank rates reached a record-high of 13.44% last week.

Company News

Polo Resources (LON:POL)

Yesterday, Polo Resources released an investment update for Signet Petroleum, an independent oil exploration company based in Africa, where it has a 47.95% equity stake. As per the release, Signet has appointed FirstEnergy Capital to look for strategic alternatives for building its oil and gas portfolio in Africa which includes: 80% operating interest in the Mnazi Bay North license offshore Tanzania; 75% operated interest in Block 2914B offshore Namibia; 90% operated interest in Block 3 offshore Benin; 87.5% operating interest in Lake Tangayika Burundi; and 10% interest in Block SL-7A-10 offshore Sierra Leone in the Equatorial Atlantic Margin. The company also stated that the process has attracted participation from many high quality potential bidders. The decision of the process is likely to be announced during the third quarter of the year.

Our view: Polo reported encouraging updates regarding its independent company Signet, which is considering various alternatives for enhancing its oil and gas portfolio in Africa. The Signet portfolio has attracted a lot of interest and participation from the potential bidders, indicating the quality of assets held by the company. The Namibian interest, which is considered to be one of the most productive fields in the region, is attracting special attention. Apart from Signet, Polo also has interests in various gold, coal and iron ore exploration assets through Nimini Holdings Limited, GCM Resources plc, and Ironstone Resources Limited. Komahun Gold project, the flagship project of Nimini Holdings (90% owned by Polo), is progressing well. The Komahun Gold project has yielded positive drilling results, witnessing indicated resource increase by 374% to 521,000 oz of gold, with an estimated inferred resource of 263,000 oz. The other investments, GCM Resources and Ironstone Resources Limited have a coal resource of 572 million tonnes (JORC compliant) and ~203 million tonnes of iron ore at a grade of 33% iron (NI 43-101), respectively. Considering the above asset profile and the keen interest shown from bidders for Signet’s assets, we feel that the strategic alternatives suggested by FirstEnergy Capital are likely to unlock value and lead to commercial success in the future. We maintain a Speculative Buy for the stock.

Economic News

Germany Ifo

The business climate index for Germany rose to 105.9 in June from 105.7 in the previous month, the survey results from IFO institute revealed yesterday. The change was in line with the market expectations. Executives’ expectation index increased to 102.5 from 101.6 in the previous month, performing better than the expected reading of 102. The current assessment index dipped to 109.4 from 110, faring marginally below the expected reading of 109.6.


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