Derek Pain: If you fancy a flutter, dig for resources...

No Pain, No Gain

Junior resource shares are probably the most active constituents of the stock market. Some have established operations; far too many are just hopeful aspirants, with an unfortunate habit of soaking up investors' cash.

I am aware of mining and oil companies that have been around for years, yet have nothing much to show for their endeavours. They merely emphasise that the resource sector is a risky place to be and anyone putting cash into some small players should enjoy something of a gamblers' instinct.

The no pain, no gain portfolio has had little difficulty avoiding the temptations of the mining community but has succumbed twice to the blandishments of oil explorers. Nighthawk Energy turned out to be a disastrous investment but I have high hopes of the current incumbent, Northern Petroleum, which seems to me to be fundamentally undervalued. It embraces both exploration and production.

Resource companies big and small seem to have an inexhaustible ability to indulge in stock market announcements. I suppose the very nature of their existence means they are involved in such activities as digging and capping or drilling and plugging – as well as bids and deals. To the casual observer the flow of information – and consequent sharp share price movements – must seem a little lunatic. Adding to the volatility is, perhaps, the not so strange happening that unsuccessful exploration comfortably exceeds worthwhile strikes.

Algy Cluff is one man who has avoided the pitfalls of the resource industry. He is something of a legend in his own lifetime. For more than four decades he has successfully conducted mining and oil companies. Now, at the age of 72, he has launched another venture and is looking for assets to acquire.

But it is just possible that even such an experienced operator is having difficulty fixing up deals. When Cluff Natural Resources (CNR) was floated at 5p a share in May he said he expected the first deal to be settled by July. Come September and CNR's cupboard is still empty. Talks, I gather, are ongoing but a deal is not imminent.

If such an entrepreneur is finding the going tough, it could be that worthwhile deals are now in short supply in the madcap scramble that represents the resource sector. After all, the veteran – his first names are John Gordon but he has been known as Algy throughout his long City career – has an impressive record. His first venture. Cluff Oil, a North Sea vehicle, was sold in the 1970s for £14m; next came Cluff Resources which departed courtesy of Ashanti Gold for £100m in 1996. Then it was the turn of Cluff Mining (later Ridge Mining) that went out to a £150m bid from Aquarius Platinum three years ago. Mr Cluff stepped down from Cluff Gold, capitalised at £140m and a likely takeover target, earlier this year. I suspect he is in no hurry with his new baby and wants the first CNR deal to be a profitable and significant one. Even so, those who backed CNR at the time of the flotation are still waiting for the Cluff magic to materialise; the shares are just 5.125p, pricing the company at £5.15m.

The Cluff record is inspiring and it is worth keeping an eye on the shares. Who knows, this start-up could eventually make an interesting addition to the portfolio.

I realise insurance is far removed from natural resources. But as the only portfolio constituent to report in the past week is an insurance broking and financial services group, I am forced to make the switch. Brightside, the most recent recruit, has performed outstandingly well. Interim pre-tax profits advanced 14 per cent to £8.2m from a 10 per cent revenue gain to £43.6m. A maiden dividend – 0.22p a share – is to be paid and the group makes it clear it plans to embark on a progressive dividend policy. There are also plans afoot for a share buyback. The chief executive, Martyn Holman, says the company views its prospects for the rest of the year "and beyond with confidence".

The shares were purchased a few weeks ago at 18.5p. They are, as I write, 22.25p. With year's profits likely to be in the region of £18m, the shares are still worth buying.