Picture supply: Getty Photos
Penny shares aren’t for everybody. These tiny enterprises virtually all the time finish in full failure, making them exceptionally dangerous endeavours. However each infrequently, a diamond within the tough seems, and affected person traders can find yourself very rich. That’s why they continue to be so widespread.
Wanting on the world of micro-cap firms listed on the London Inventory Trade, there are quite a lot of promising enterprises. Amongst them, Anglo Asian Mining (LSE:AAZ) is getting consideration from opportunistic traders pondering long run. Particularly, this enterprise may very well be completely positioned to experience the tailwinds of the electrical car (EV) revolution.
As this presents an thrilling alternative, let’s take a more in-depth take a look at this enterprise and discover why at the moment’s share worth is perhaps a discount.
The rising significance of copper
As its identify suggests, Anglo Asian Mining is an extractor of helpful sources. Its websites are positioned in Azerbaijan and is likely one of the sector’s main firms within the area, specialising in gold, silver and, most excitingly, copper extraction.
Copper’s fairly a flexible materials with quite a lot of advantageous properties in relation to electronics. So it’s unsurprising it’s a crucial ingredient for manufacturing EVs. On common, an estimated 83kg of copper’s wanted for a single EV, about 4 instances the quantity wanted for a conventional combustion engine car.
And with governments aiming to steadily part out the latter throughout the subsequent twenty years, demand for copper’s anticipated to skyrocket.
So it’s no shock Anglo Asian administration’s investing closely in growing new copper tasks. In truth, throughout its potential websites, an estimated 585,373 tonnes of the steel is awaiting extraction, with the majority concentrated in its Garadag venture.
To place this in perspective, at present costs, that’s value roughly £4.6bn – about 80 instances the penny inventory’s present market capitalisation!
Time to speculate?
Regardless of this large alternative and the truth that copper costs have already risen by double-digits thus far this 12 months, shares of Anglo Asian are literally down 40% during the last 12 months. This might sign a shopping for alternative. However digging a bit deeper reveals a couple of challenges the agency’s encountering.
For staters, manufacturing’s hit a snag since some operations have been pressured to close down, awaiting regulatory approvals. Subsequently, manufacturing within the first quarter of 2024 collapsed from 847 tonnes to simply 54. In the meantime, gold and silver manufacturing skilled related ranges of disruptions. This meant a 46% drop in income and pre-tax earnings tumbling into the crimson by $32m (£25.1m).
Manufacturing disruptions are a threat that every one mining firms should face. However given its comparatively small scope of tasks in comparison with an trade large like Rio Tinto, delays are particularly problematic for Anglo Asian.
The excellent news is that administration stays assured its manufacturing timelines for its new potential websites stay undisturbed. Gilar is anticipated to begin producing later this 12 months, with Xarxar coming on-line as early as 2026. In the meantime, its all-important Garadag venture is scheduled to begin in 2028. That’s seven years forward of the UK authorities’s anticipated ban on new petrol and diesel automotive gross sales.
Offering there aren’t any additional hiccups, the penny inventory appears to be providing a profitable alternative for long-term traders. However we’ve already seen the volatility that follows even a short-term hiccup. And traders must be snug with this stage of threat earlier than allocating any capital.
