This article first appeared in Capital, The Edge Malaysia Weekly, on September 28 - October 4, 2015.

BORNEO Oil Bhd, a company better known for operating a fast-food chain, is slowly making a name for itself as a gold miner. The company has said that it is poised to capitalise on the upswing in sentiment in gold, given the current weak global macroeconomic environment. Gold has always been touted as a safe haven asset for investors.

To do this, Borneo Oil is planning heavy investments to accelerate the growth of its mining business. Recently, regulators approved the company’s proposal to raise at least RM223.39 million to expand its mining operations through a rights issue and an issuance of warrants. It is a sizeable sum compared with the company’s market capitalisation of RM230.7 million.

The rights shares are to be issued on the basis of six shares for every one Borneo Oil share held, at an indicative price of 10 sen apiece. Also, one free warrant will be given for every two rights shares subscribed. The indicative issue represents a 33% discount to the theoretical ex-rights share price of 15 sen, based on its closing price of 61 sen on July 24.

According to the company, the expansion of the gold mining activities could raise its net profit by more than 25% in the future. As at the first half of its financial year ended Jan 21, 2015, Borneo Oil recorded revenue of RM65.81 million, up 140% from a year ago. Profit came in at RM3.4 million, compared with RM845,000 in the previous corresponding period.

Meanwhile, Borneo Oil’s warrants — Bornoil-WB — offer an attractive entry point for investors wanting to enjoy any upside in the price of the mother share. The company-issued call warrant has an exercise price of 10 sen and a one-to-one conversion ratio. When compared with the price of the mother share of 61.5 sen, Bornoil-WB is trading at a 3.25% discount.

Furthermore, the expiry date of Bornoil-WB — Feb 28, 2018 — offers investors more than enough time to capture the upside that Borneo Oil’s gold mining activity could offer to the value of the underlying share. As an American call warrant, Bornoil-WB can be exercised anytime.

Currently, Borneo Oil has contracts to explore, mine, extract and process minerals and precious metals in Mukim Batu Yon and Hutan Simpan Hulu Jelai in Pahang. At  last count, the company had mined 25,331.25 tonnes of ores and produced 154.82 oz of gold dore. It is understood that an extensive exploration is being planned for 1,200ha in Bukit Ibam.

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