The FSTE AIM index has collapsed, investors are panicking, and sentiment is at rock bottom. Everything can change in one quarter.
As a long-term FTSE AIM investor and analyst, I do try to stay optimistic when it comes to high risk shares. After all, anyone coming to the small cap market isn’t here for an LGEN-style dividend, S&P 500 capital gains, or the safety of physical gold.
Investors come to the small cap market for one of two reasons: to get outsized returns, or to avoid inheritance tax. As I’m not yet close to death (hopefully, my body keeps making a weird clicking noise when I run), I’m analysing these high risk shares for the outsized returns.
High risk, high reward.
Of course, it’s not been a fun couple of years for AIM investors. Everybody went through the pandemic flash crash in February-March 2020, and most indices also climbed to new highs thereafter. The AIM index struck 1,310 points on 3 September 2021 — but unlike the blue chips, the small cap index has pretty much been falling ever since to today’s miserable 698 points.
Is this an overcorrection? Arguably so — even with a base rate at 5.25% and rising, and with most analysts agreeing that further rises/higher for longer is incoming, the equity risk premium should not be that devastating. Today could be the bottom or close to it; AIM’s 20 March 2020 pandemic low only saw 623 points.
But where the markets sense despondency, I smell opportunity. Ten of the highest risk, highest reward stocks I’ve covered through 2023 are either about to rocket higher hailing the bull market of 2024 — or sink into obscurity and failure.
That’s the thing with high risk AIM shares:
You’re either buying a Lambo or walking to the bus stop. Unless you diversify (not advice, but you should), there’s no in-between.
FTSE AIM Endgame: 10 catalysts for Q4 2023
1. Premier African Minerals (LON: PREM)
Multiple delays, placings, technical problems, legal wranglings, a renewed contract…this FTSE AIM story has it all. Investors who have been in the company since the RHA Tungsten days, who swallowed the bitter disappointment then, even got to witness that mine’s mill come in to save the day — in a manner not dissimilar to a Hollywood film script.
While a brand new mill will be in place to get production up to 4ktpm and beyond from Q1 2024, the reality is that PREM needs to send a minimum of 900 tons of high quality spodumene concentrate, at the right grade, to Canmax by the end of November.
STARK COO Jaco Prinsloo is on site at Zulu as the finishing touches are put on the plant — success now will see the company’s future secured (until the inevitable buyout).
2. Avacta (LON: AVCT)
I have continued to characterise Avacta as high risk through 2023 to the chagrin of many loyal investors. Oncology biotechs promising advanced treatments always attract heightened emotions, and yet it’s always worth caveating that most clinical trials end in failure.
However, the true inflection point from a financial perspective (if not scientific) is Phase 1A data which will be released this quarter.
All talk of ‘chemotherapy without side effects,’ or patients being treated whose symptoms have not advanced is just words — if excellent words to hear. The big guns want numbers, and they’re coming soon — hence the recent share price action.
3. Kodal Minerals (LON: KOD)
I previously likened waiting for the KOD contract with Hainan Mining to be signed to Fry’s dog Seymour out of Futurama. I can almost hear the lyrics:
‘If it takes forever, I will wait for you…’
When the deal was agreed in January, delay after delay was to be expected. A similar deal next door regarding Goulamina, Ganfeng and a snazzy ASX outfit took over seven months so nobody should have been surprised to wait — but it’s not unreasonable to expect Kodal to benefit from >$100 million in funding within Q4.
Initial preparations, a $3.5 million advance, and continued positive words mean this deal is all but guaranteed, but in the unlikely event it gets called off then KOD will be in hot water.
4. Atlantic Lithium (LON: ALL)
It’s all about the mining licence — when this gets granted then ALL will become one of the most popular shares on AIM.
Most recently, the company received authorisation to commence the diversion of the transmission lines crossing the Mankessim Licence, in its own words ‘moving a step closer to shovel readiness at the Ewoyaa Lithium Project.’
Given the drilling, Piedmont Joint Venture, and continual Ghanian support, the mining licence seems inevitable — and could very well come before the new year.
5. Greatland Gold (LON: GGP)
Greatland Gold shares have slipped to 6p leaving the gold explorer with a £300 million valuation and on a fundamental basis this appears great value. For clarity, an independent review of flagship Havieron valued the asset at $1.2 billion in August 2022. GGP retains a 30% economic interest in the project, equivalent to $360 million (£293 million).
Forgetting the vast tenures elsewhere, the JV with Rio Tinto and also the Juri assets, the company now owns 30% of a world-class asset in a JV with the Newmont-Newcrest monster. With Wyloo involved and an incredibly supportive banking syndicate, there’s about a thousand different ways this could go.
But Q4 could finally see the puzzle resolved; the Grant Samuel assessment of Havieron (though not based on an updated MRE or a separately valued Havieron) could get the ball rolling — but the key catalyst will be the updated MRE, last updated in August 2022 and delayed in August 2023 — alongside the accompanying DFS.
Could a golden Christmas present be coming down the chimney?
6. Horizonte Minerals (LON: HZM)
Horizonte Minerals hit a little snag a few days ago when it decided to inform investors that capex costs at its flagship Araguaia nickel mine in South America would need to increase by at least 35%.
While I have some issues with the $250-300 million number being thrown around social media, the reality is that an independent review into the increased costs will only report back later this quarter — and until then, nobody can know the exact amount of extra cash needed.
The stock will likely bob along at circa 20p per share until then. I think the actual increased costs will be not too onerous, financing will get sorted through either further debt or offtake agreements, and the recovery will take the stock at least back above 50p.
Or it will collapse and take private investors with it, but I think this the less likely option.
7. Golden Metal Resources (LON: GMET)
Golden Metal boasts several attractive assets, but the flagship remains 100%-owned Pilot Mountain, the largest undeveloped Tungsten deposit on US soil — ideally situated for power, water, skilled Nevadan mining labour, transport, and pro-mining politics.
The US is currently entirely dependent on third countries for tungsten, and its largest import partner remains China, which controls 86% of global tungsten exports. From January 2026, the US Department of Defense is banning imports of the metal from China — so it’s not hard to see the investment case.
GMET has been pursuing non-dilutive US government funding for months, supported by an offtake Letter of Intent with US-based Global Tungsten & Powders LLC. Q4 could see a funding announcement drop, though no timelines have been given as yet.
8. Harland & Wolff (LON: HARL)
HARL has a ‘material portion’ of a £1.6 billion defence contract, a significant partner in Navantia, tens of millions going into refurbishing its shipyards — and yet the stock is drifting along at 11p per share. They key issue is spiralling costs and increasing debt on the ramp-up to profitability.
There are some answers to this problem coming in Q4:
The first is new UKEF financing on decent commercial terms. Given the political importance of HARL this is likely to go through, though the company is also likely waiting to sell Islandmagee to get more favourable terms.
As a reminder, HARL shares shot up when the Judicial Review into the gas and hydrogen storage project went in its favour, and CEO John Wood has previously speculated that the asset could sell for as much as £100 million.
Given that the company was planning either a trade sale, further government funding or a farm-out on 8 September, and the pressing need for funds, I speculate a sale could occur in Q4 2023, putting the titanic funding problems to bed once and for all.
9. Vast Resources (LON: VAST)
I know that investors care about Baita Plai and the other various assets, but my concern is the diamonds. You know, that 129,400-carats parcel of rough diamonds investors were promised in early February 2023 which are likely worth tens of millions of dollars?
On 18 September, the company noted that ‘due to the recent election process over the course of the past month, the Company has been unable to progress the settlement of the historic parcel as it had expected, however, the Company remains confident of finalising the process and it will report further progress to the market.’
Of course, A&T Investments and Mercuria Energy Trading SA are also waiting for payday — and have agreed to delay a repayment from the company to 30 November 2023. This suggests (hopefully) that the diamonds will be handed over this quarter.
I increased my speculative holding earlier this month, for three reasons. First, the diamonds could be handed over at any time, second, the company will likely sell them before making any announcement, and third, having raised £8.4 million since last September the stock has still fallen to around 0.2p.
This leaves room for a huge spike imminently — though for clarity, I’m not here for the long term.
10. Baron Oil (LON: BOIL)
Recent interim results highlighted that the company’s strategic priority remains preparing for the drilling and testing of an appraisal well at Chuditch-1 — supported by its six-month PSC extension from June 2023.
BOIL has also emphasised that ‘ongoing discussions with potential funding partners provide additional affirmation that the technical case is robust and there is alignment on the requirement for drilling an appraisal well on Chuditch, followed by additional exploration activities to delineate the total on block gas resources for this LNG scale project.’
The business now has a preferred appraisal drilling location, and significantly, this is 4.8km from the discovery well, demonstrating the potential size of the field.
But the key point is this: the decision on whether to pipe gas from the adjacent Greater Sunrise field to East Timor or to Australia is being made in November (at least in theory). To put pressure on Australia to agree that the gas will go to East Timor, East Timor just upgraded its bilateral relations with China in a formal joint statement covering military co-operation, and specifically the development of oil and gas.
East Timor’s last operational field dried up this year, so it NEEDS to get Greater Sunrise up and running asap — it’s the only major resource project it has left and without oil and gas revenue the country is coming close to bankruptcy. The state’s petroleum fund provides 85% of the government’s budget and will now run out by 2030.
Of course, it wants to get the gas and infrastructure built in East Timor, so is playing China and Australia off each other in a high risk poker game that makes my AIM heart swell with pride.
But the moment the Greater Sunrise decision is made in November, the clock will start ticking for the Chuditch sale.
Like VAST, I’m confident that this announcement will simply come out of nowhere.
PREM, AVCT, KOD, ALL, GGP, HZM, GMET, HARL, VAST & BOIL: take your positions.
We’re in the endgame now.
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.