Penny stocks are a volatile part of the market. Many of these businesses, which trade in pennies, have small market caps for good reason, but occasionally I can find a diamond in the rough.
Today I’m looking at two penny stocks that I think have considerable potential, owing primarily to the changed resource environment that we’re living in.
Amid greater competition for resources, I believe that we’re entering a period of scarcity characterised by higher commodity prices. As such, I think these two innovative mining companies could be good long-term additions to my portfolio. And I think the current prices could be solid entry points.
Premier African Minerals
Premier African Minerals (LSE:PREM) shares soared in January, but the early-stage exploration company isn’t currently producing.
That not to say it hasn’t produced before. A few years ago it had active tungsten mines, but they’re no longer active.
However, the period of inactivity is soon to be over. Earlier this year, the firm moved forward with its Zulu project, located 80km from Bulawayo in Zimbabwe. Premier African Minerals has confirmed the presence of lithium at relatively shallow depth of 68 metres.
And in June, the company said it had entered a marketing and prepayment agreement with Suzhou TA&A, which would allow it to commence construction activities at the site immediately.
Premier African Minerals now expects to see first shipment before March 31, and says it will steadily build up production to around 48,000 tons of spodumene concentrate per annum.
Prices for this concentrate have been going from strength to strength since the pandemic — Spodumene is a pyroxene mineral consisting of lithium aluminium inosilicate. Lithium is increasingly demanded for products like electric car batteries.
However, it’s worth noting that mining is a cyclical industry. Commodity prices could well fall this year if we see a global economic downturn.
At 31p, I’d buy this stock for my portfolio. Although it’s worth noting the sizeable spread between the buying and selling price.
Kropz
Kropz (LSE:KRPZ) is another Africa-focused mining company that isn’t producing yet. The company mines for rock phosphate — the raw material used in phosphate fertilisers. It may play an important role in the food industry in future decades.
With fertiliser prices going sky-high, it looks like a good business to be in right now. But there’s more behind the business model. Kropz recognised that population growth in Sub-Saharan Africa was contributing to rising food demand, while fertiliser use in farming remains low on the continent.
Around 85% of rock phosphate is used in fertiliser production.
In 2010, Kropz took control of the Elandsfontein phosphate project, in South Africa’s Western Cape province.
Shares in the innovative mining company tanked in April after the group said it would push back its first bulk sale. But it hopes to make its first such sale this year.
Kropz also owns the Hinda rock phosphate asset in Republic of Congo. The asset could be “one of the world’s largest undeveloped sedimentary-hosted phosphate reserves,” the group said in a statement.
Getting production going will ease investor sentiment here. Some investors may have been concerned about the volatility of Congo and its impact on assets there.
I’d buy this stock now before production comes on-line. Once again, the sizeable spread is a concern, but I’m in this for the long run.
