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03-Jun-2011
PAPILLON RESOURCES & PROGRAMMED MAINTENANCE SERVICES
Papillon Resources takes flight
ASX Code PIR, PRG
West African gold explorer Papillon Resources' shares have almost doubled in the past month and the stock is a good case study in how easily investors can be swayed by announcements at the speculative end of the market.

When this column first looked at Papillon (ASX: PIR) in mid-April, its shares were 43 cents and had almost halved in the prior week after announcing a worse-than-expected resource upgrade.

The company had taken over a prospect in Mali in West Africa in March 2010, had done some drilling, and came up with less prospective gold than the vendor had projected.

But in the world of gold exploring, four weeks can make all the difference. Now its stock price was 63.5 cents prior to today.

Its announcement in late May showed that a discovery made this year called “Fekola” (named after the nearby town) was showing signs of “multi-million ounce potential” – in the words of broker Martin Carolan who covers the stock and is with Foster Stockbroking.

The drilling samples from Fekola showed significant traces of gold. It was regularly hitting grades at wide intersections in excess of 3 grams of gold per tonne of rock (or ore as these mining types like to call it). To give you an idea, many gold miners in Australia get excited if they hit grades of between 1.5 and 2 grams.

Papillon's New Zealand chief executive Alan Campbell is careful to emphasise that the exploration is very early stage, and that it probably won't be until early next year that Papillon has a good idea of exactly how much gold it's sitting on.

But he is also as quick as many of his peers to talk up the exploration potential of West Africa. Papillon's operations are near some really big operators including AngloGold Ashanti. He also points out that Mali is the third biggest gold producer in Africa, behind South Africa and Ghana.

The recent buying could also be due to the “pied piper effect” of appointing Ian Middlemas as the new chairman – an accountant who has been heavily involved in some mining success stories, notably Normandy Mining and Mantra Resources (MRU).

Papillon should have enough cash for this year, having raised just over $4.7 million at 45 cents a share, the bulk of which was taken up by Middlemas.

All that remains is for the butterfly to keep hitting those big grades, allowing its shareholders to at least momentarily escape the vicissitudes of fate.

Sigma's Programmed success

One group that has recently popped its head above the parapet is Sigma Funds Management, which was handed about $100 million from fund research house van Eyke last month.

It must have been a tough couple of years for the six strong team that left Credit Suisse Asset Management to start Sigma. Until now, they have been virtually paper trading, managing only a couple of million dollars, since the fund kicked off as the financial crisis was ending in August 2009.

For van Eyke, its fund has 92 per cent invested in the top 100, 2 per cent in cash and 6 per cent in small caps. Its weighting in the latter can go as high as 25 per cent, which gives you a good idea of Sigma's sentiments towards the listed corporate minnows of this world (or at least Australia).

Which brings us to Sigma's small cap team of Issam Eid and Rajeev de Silva – both champing at the bit to pump some hard earned funds into small listed companies.

One of the few the duo have invested in recently is Programmed Maintenance Services (ASX: PRG), whose operations include hiring labourers to man boats used to support offshore drilling and painting schools.

It is a company whose shares have been showing signs of life after a year in which it suffered two profit downgrades partly due to cost blowouts on painting contracts.

Its full-year result showed signs that management is getting the problems sorted. At $2.08, Programmed's shares have climbed about 30 per cent this year but remain at less than half their $4.30 levels in late 2009.

Trading on a forecast PE of 8 times and a dividend yield of 6.5 per cent, the company still looks cheap. It's even cheaper if you believe that the company achieves another 10 per cent profit upgrade if the demand keeps coming through in its maritime services division, according to Eid.

Brokers are generally positive on the stock, for example UBS has a $2.50 price target. But if these upgrades come through, who knows? It might be the win Sigma needs to prove that van Eyke was right.

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