Are these penny stock miners set to surge because of inflation?

Andy Ross looks at two mining companies that happen to be penny stocks, to see if inflation might make their share prices fly and make an investor like him happy.

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Inflation has reared its ugly head in recent months and this can have both bad and good effects on stocks. In theory, miners should do well as inflation soars. As asset manager, Pimco, pointed out:Because commodity prices usually rise when inflation is accelerating, investing in commodities may provide portfolios with a hedge against inflation.” With that in mind, could these mining companies, which also happen to be penny stocks, be positioned to benefit? And could they add growth, as well as income to an investment portfolio?

A high-growth penny stock miner

Miner Jubilee Metals (LSE: JLP) could well benefit significantly from a rise in commodities, especially from increased demand for copper as a result of an electric car boom. Electric cars use huge amounts of copper so there will be ongoing demand for this commodity. Jubilee has ambitions to process 25,000 tonnes of copper units per annum.

The biggest risk with this share is that its mines are in countries that face more political and social instability than many others. The mines are mostly in Southern African countries, including Zambia and South Africa.

But the miner has a number of treatment plants and operations so isn’t reliant on any one location, unlike some other listed miners. It also processes a number of different commodities so isn’t fully dependent on the price of any single commodity, which I think is positive for the investment case.

Overall with a P/E of just nine, the shares represent decent value given rapid revenue growth in recent years. But it should be borne in mind that it doesn’t pay a dividend.  

If I didn’t already own Sylvania Platinum, I’d be tempted to add Jubilee Metals to my own investment portfolio. I think it looks like a high growth miner with good operations and a lot of potential. With a share price of 16p, Jubilee is a penny stock I really like.

Panning for gold

Pan African Resources (LSE: PAF), the South African gold miner, released very positive results on 16 February. The results showed gold production was up in the first half, along with a rise in cash and profit after tax, while production costs declined. All in all a very pretty picture.

Again, like Jubilee, Pan African is at the mercy of South African politics, which may put some investors off buying it. It’s also clearly reliant on the gold price, which can fluctuate, so revenue and profits aren’t the most consistent. The share price has never tended to show any sustained growth.

All that aside, there are reasons to think that Pan African is a very decent growth and income share. Operating profit went from £15m in 2018 to £112m in 2021. The dividend yield is 4.2%, which is very good. When this is combined with a P/E of seven, giving it a very cheap valuation, there’s a lot to like, so I’m considering buying shares in this gold miner. Inflation might give the share price another boost.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andy Ross owns shares in Sylvania Platinum. 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.

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