Why I'd consider buying Zanaga Iron Ore Co Ltd after three-bagging in a month
Alan Oscroft | Sunday, 26th November, 2017 | More on: CAML ZIOC
If you're investing in natural resources, like oil, gas and minerals, Zanaga Iron Ore (LSE: ZIOC) could look like a dream stock.
If you'd bought a month ago, you'd already be sitting on a nice three-bagger with the price at 17.5p — and it's been higher, peaking at over 25p on 15 November.
The game was afoot in September, when interim results from the iron ore prospector tantalisingly spoke of "assessing the opportunity for a small-scale early production start-up project."
That was followed by news of an environmental permit on 8 November, awarded "pursuant to its Mining Licence granted in August 2014," though the company made it clear that development is dependent on financing — and that it is still only at the study phase, with the outcome not expected to be known much before the end of the year.
A similar story?
Zanaga reminds me in some ways of Sirius Minerals, whose shares have climbed as progress with its North York Moors potash project has progressed, and I think there are lessons to be learned from the comparison.
Firstly, Sirius shares have spiked and fallen several times — up when news is released, and down again when nothing much is happening. Zanaga shares could very well do the same.
And like Sirius, Zanaga shareholders don't yet have any real visibility of the full financing required for the project or of the degree of dilution they could face — and those are the kinds of unknowns that markets really don't like.
I see volatile times ahead for Zanaga, and fully expect more price spikes and falls. It's not for those who can't face a bit of risk, but I could be tempted.
Cheap dividends
If you want a potentially safer miner which is already making healthy profits and paying attractive dividend yields, Central Asia Metals (LSE: CAML) is worth a look.
The company has, for years, been solely a copper producer with a very profitable project in Kazakhstan, which has enjoyed some of the lowest production costs in the business.
Earnings have been a little erratic in recent years, but dividends have been strong, progressive, and well covered — forecasts suggest yields of 5.3% this year followed by 5.9% next, and with strong EPS growth predicted, those would be covered 1.5 times and 1.9 times respectively.
The share price has climbed 30% in the past year to this week's 265p levels, yet we're still looking at forward P/E multiples of only 11.5 and 8.7 (with PEGs of 0.9 and 0.2, which look like strong growth indicators).
The recent resurgence in confidence has coincided with Central Asia's expansion, through a merger with Lynx Resources which owns the Sasa zinc-lead mine in Macedonia. The merger took the technical form of a reverse takeover, after which the shares in the combined company were readmitted to AIM under the original ticker.
That adds a nice bit of diversity, both in terms of resources and geography — investors might be a bit nervous buying into a company potentially at the mercy of the Kazakhstan government, and the expansion into Macedonia should bring some relief.
Executive chairman Nick Clarke spoke of the low production costs at Sasa complementing the firm's copper operations, suggesting that having "two long life and cash generative base metal operations in highly prospective jurisdictions" should enable the firm to continue providing attractive returns.
Less risky still
While Central Asia Metals might carry lower risk than Zanaga, it's still not for the faint-hearted. But there are plenty of small-cap shares out there that are less likely to keep you awake at night.
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Alan Oscroft owns shares in Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.