Investing in high-risk, high-reward FTSE AIM plays means trading without fear, and understanding that the occasional hazard is part of the game.
Over the past year or so on Investing Strategy and FxExplained, I have covered many of the most promising FTSE AIM small cap mining shares. And I have always tried to make two things clear:
- I invest a sizeable chunk of my excess income into low risk blue chip stocks
- I then invest the rest in high-risk, high-reward AIM shares
One of the most common complaints about these companies is the ‘unexpected delays,’ which usually end up with a share placing, share price drop or similar. However, the nature of getting a mining operation up and running is that there will always be delays — it’s a feature, not a bug.
Investors sitting comfortable on an office chair at home often simply don’t understand what it takes to go from digging up samples with a literal shovel to producing thousands of tons of metal. Instead of worrying about an unanticipated delay, it’s far better to take a step back and question whether it affects the wider investment picture.
If not, the resulting dip can be attractive.
Let’s count them down.
Exploratory mining delays
1. Botswana Diamonds — delay in early March when it announced that diamond production at Marsfontein which had been expected to start in February would actually commence in March. First diamonds are now being produced.
2. Contango Holdings — had expected at the start of February to start first production and sales by the end of Q1, but recently released an RNS on 9 May saying that this would now occur in mid-May. No follow-up RNS has happened as yet.
3. Blencowe — despite very promising funding talks, BRES was still forced to raise £635,000 on 18 May to ‘maintain momentum on the DFS’ for its Orom-Cross project. Most investors had hoped for an inked deal with strategic investors by now.
4. Kodal Minerals — after announcing the company-making funding package with Hainan, KOD was forced to extend the dealing for completion of the package from 30 April to 31 May to accommodate the proper legal allocation of the Bougouni asset. While both parties remain fully committed, this uncertainty has had an outsized effect on the share price.
5. Premier African Minerals — a condition of the $34.6 million funding package with Canmax was that PREM would supply product by 31 March 2023. Having missed this deadline, it now has until 30 May to deliver, after which Canmax can terminate the agreement and request full repayment plus interest. The share price is reacting accordingly, but the likelihood of Canmax actually walking away at this late stage is slim. Optimising the plant and getting product to sell is not a certain process, and the working relationship remains solid.
6. Caracal Gold — on 10 January, OCIM exited its $10.5 million pre-paid gold agreement with the company, sending the share price cratering. However, the gold remains in site and will eventually be mined for profit.
7. Marula Mining — no delays yet. This is partially due to the fanatical efforts of the CEO, but sooner or later one will come and bring a solid buying opportunity.
8. Greatland Gold — Havieron is due to start production in Q3, but investors are now waiting for how the outcome of the Newmont-Newcrest tie-up will affect the company. Its plan to list on the ASX suggests that it may be considering a huge equity raise to buy the remaining 70% of the mine and also access to the Telfer processing plant.
9. Atlantic Lithium — perhaps not a delay, but the Blue Orca short-selling attack crashed the company’s shares and the Ghanian government has still not refuted the allegations in full. A second Blue Orca follow-up could be a problem if ever released.
10. GreenRoc Mining — investors are now waiting for the results of the long-awaited Preliminary Economic Assessment Study concerning the flagship Amitsoq mine, which began this month and will report back in September. Success will likely see a JV agreement shortly thereafter.
11. Tirupati Graphite — production commenced at its newly built 18,000 tons per annum flake graphite facilities at its Sahamamy project in Madagascar in mid-February, though this was a little later than management had implied. TGR now looks de-risked at the current share price, targeting 80,000tpa total capacity for 2024.
12. Mkango Resources — on 26 January, MKA announced that it had passed the Environmental Social Health Impact Assessment requirements, a ‘fundamental requirement for the Company to be granted a mining licence.’ Given that subsidiary Maginto is now upping its ownership of HyProMag from 42% to 100%, investors now need that mining licence granted to see the next movement up.
13. Vast Resources — on 2 February, VAST advised that ‘the High Court of Zimbabwe granted a default Order against the Minister of Mines & Mining Development relating to the release of the historic parcel of 129,400 carats of rough diamonds held in safe custody at the Reserve Bank of Zimbabwe.’ With these diamonds yet to be handed over, investors are both excited and nervous, reflected by the share price volatility.
I haven’t mentioned First Class Metals, Power Metal Resources, Tertiary Minerals, or Arc Minerals as all four are in the exploration stage for most if not all of their projects. Investors tend to accept that these simply take the time that they take, and the share prices should stay within a range until news — either positive or negative — comes back. For what it’s worth, all four seem cheap to me compared to their fundamentals.
Buy and hold mentality
The key thing to understand is that ‘unexpected’ delays are actually to be expected. The problem is that it’s hard to know exactly what might cause they delay — so investors call every holdup unexpected, rather than noting that delaying headwinds will likely pop up in one area or another.
The solution is to buy shares on the dip, and then hold them rather than panicking about every little setback. High-risk, high-reward investing means you get to enjoy serious volatility on the rollercoaster up the share price mountain.
Selling the dip, and then buying back into the rise is the classic mistake made by those investing with fear. If you’re scared to lose capital in exploratory mining stocks — and there is no shame in this — then it’s far better to stay far away and stick to a diversified dividend ETF.
And make no mistake, there’s a good chance that at least some names on the above list won’t deliver. 100% returns in a year does not come risk-free, but the successes (hopefully) will outweigh the failures.
Not advice.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.