London’s AIM market has a reputation for being a risky place to invest, and for good reason — you have to be extremely careful where you invest in this highly speculative market. AIM is designed for small companies in the early stages of their lives, and most of these businesses are highly speculative as a result.
Nonetheless, there are some bargains on AIM that could yield lucrative returns for investors, although singling out these opportunities is tough. W Resources (LSE: WRES), Xtract Resources (LSE: XTR) and Victoria Oil & Gas (LSE: VOG) all look as if they have bright futures, but if you had to pick just one, which should you choose?
W Resources is a tungsten production, exploration and development company that owns four mines in Spain and Portugal, two of which are being fast-tracked to begin production within the next two years. W Resources is targeting production from the La Parrilla Mine in Spain during 2016, and production from the Régua mine in Portugal during 2017. The company received development approval for its La Parrilla mine earlier this week, so management is confident of hitting the target for initial production next year. When in production, La Parrilla and Régua are expected to have some of the lowest production costs for tungsten in the world. Furthermore, W Resources is targeting revenue of $90m per annum by 2018.
Xtract Resources has the potential to become one of the world’s premier small-cap gold producers. The company has made staggering progress over the past year improving its prospects, and during September the company acquired the Fair Bride gold project, jacking up Xtract’s resource base to over 1m ounces of gold. However, Xtract’s key advantage is the fact that the company’s cost of production is around $650 per ounce of gold, making it one of the world’s lowest cost gold producers. Gold production is expected to double over the next year and the company recently received a boost from its Chepica Gold and Copper Mine in Chile, which reported revenue growth of 153% to $448k and profit growth of 186% to $150k for the third quarter.
Victoria Oil & Gas has made solid progress on its strategic goals this year. The company’s gas sales nearly tripled year-on-year over the nine months to the end of September, and gas production doubled during the third quarter. Also, Victoria is planning more drilling activity during 2016, which should see gas production and sales increase further. During the third quarter, group gas production reached an all-time high of 15.2m standard cubic feet per day. And Victoria is cash-rich, which is rare for such a small player in the world of oil and gas. At the end of the third quarter the company had $12.8m of cash, down from $14.2m as reported at the end of the second quarter, but the company reduced debt by $2.4m during the period. In other words, cash generated for the three months to the end of September was around $1m.
Overall, as Victoria is the only company in this piece that’s cash-rich and generating cash, it looks as if Victoria is the AIM champion that should take a place in your portfolio.