Penny stocks aren’t for everyone. These tiny enterprises almost always end in complete failure, making them exceptionally risky endeavours. But every once in a while, a diamond in the rough appears, and patient investors can end up very wealthy. That’s why they remain so popular.
Looking at the world of micro-cap companies listed on the London Stock Exchange, there are a lot of promising enterprises. Among them, Anglo Asian Mining (LSE:AAZ) is getting attention from opportunistic investors thinking long term. Specifically, this business could be perfectly positioned to ride the tailwinds of the electric vehicle (EV) revolution.
As this presents an exciting opportunity, let’s take a closer look at this enterprise and explore why today’s share price might be a bargain.
The rising importance of copper
As its name suggests, Anglo Asian Mining is an extractor of valuable resources. Its sites are located in Azerbaijan and is one of the sector’s leading companies in the region, specialising in gold, silver and, most excitingly, copper extraction.
Copper’s quite a versatile material with a lot of advantageous properties when it comes to electronics. So it’s unsurprising it’s a critical ingredient for manufacturing EVs. On average, an estimated 83kg of copper’s needed for a single EV, about four times the amount needed for a traditional combustion engine vehicle.
And with governments aiming to steadily phase out the latter within the next two decades, demand for copper’s expected to skyrocket.
So it’s no surprise Anglo Asian management’s investing heavily in developing new copper projects. In fact, across its prospective sites, an estimated 585,373 tonnes of the metal is awaiting extraction, with the bulk concentrated in its Garadag project.
To put this in perspective, at current prices, that’s worth roughly £4.6bn – about 80 times the penny stock’s current market capitalisation!
Time to invest?
Despite this huge opportunity and the fact that copper prices have already risen by double-digits so far this year, shares of Anglo Asian are actually down 40% over the last 12 months. This could signal a buying opportunity. But digging a little deeper reveals a few challenges the firm’s encountering.
For staters, production’s hit a snag since some operations were forced to shut down, awaiting regulatory approvals. Subsequently, production in the first quarter of 2024 collapsed from 847 tonnes to just 54. Meanwhile, gold and silver production experienced similar levels of disruptions. This meant a 46% drop in revenue and pre-tax profits tumbling into the red by $32m (£25.1m).
Production disruptions are a risk that all mining companies must face. But given its relatively small scope of projects compared to an industry giant like Rio Tinto, delays are especially problematic for Anglo Asian.
The good news is that management remains confident its production timelines for its new prospective sites remain undisturbed. Gilar is expected to start producing later this year, with Xarxar coming on-line as early as 2026. Meanwhile, its all-important Garadag project is scheduled to start in 2028. That’s seven years ahead of the UK government’s expected ban on new petrol and diesel car sales.
Providing there are no further hiccups, the penny stock seems to be offering a lucrative opportunity for long-term investors. But we’ve already seen the volatility that follows even a short-term hiccup. And investors need to be comfortable with this level of risk before allocating any capital.
