The world of penny stocks is notoriously volatile, but it opens the door to explosive returns. These tiny companies have enormous room for growth. And investors who can spot the diamonds in the rough can see their wealth expand, sometimes in a matter of a few months.
That’s certainly been the case for Aminex (LSE:AEX) shares, which have shot up by almost 60% in the last six months. And this gain was closer to 100% when ignoring the recent October slide.
This perfectly demonstrates the volatile nature of penny stocks. But at a market-cap of just £74m and a share price of 1.7p, the company is still small enough to deliver further tremendous gains if it can continue to execute.
So the question now becomes, should investors be considering this business for their own portfolio?
A new player in natural gas
As a quick crash course, Aminex is a young and upcoming exploration enterprise operating in Tanzania. It owns a 25% stake in the Ruvuma production sharing agreement, which governs the development of the Ntorya gas field.
The objective of this project is to supply natural gas via a new pipeline to a nearby processing plant. It’s currently in the construction phase with first gas expected to be delivered in the second half of 2026. Assuming there are no delays, this points to imminent and substantial cash flows for Aminex.
Initial production forecasts for this project are expected to be 60 million standard cubic feet per day (MMscf/d). At recent local prices, that roughly translates into $87.6m a year, 25% of which, or $21.9m, would be heading in Aminex’s direction.
This is a very rough calculation. And in reality, there are additional costs that need to be paid, reducing the firm’s net take. But nevertheless, it still represents an incoming surge of cash flow for the business. And with a planned production ramp-up to 140 MMscf/d, the group could enjoy further organic growth in the following years.
What to watch
With Aminex approaching its transition from exploration to production, the group’s risk profile is significantly lower compared to other similar businesses. However, there are still substantial risk factors that investors must consider.
Commodity prices have a habit of fluctuating. And since production incurs mostly fixed costs, sudden drops in natural gas prices both globally and domestically could harm margins. There’s also the risk that the actual resource reserves don’t contain the expected gas volumes or pressure, leading to downward revisions in project lifetime and production output.
But even if the geological surveys prove accurate, the firm’s cash supplies are limited. In fact, the group has recently completed a new equity issue to raise $4m (before expenses) to shore up the balance sheet while construction continues. Any unexpected delays could mean further equity dilution.
The bottom line
There’s a lot to be excited about. Successful execution could see this business thrive and expand into new projects beyond 2026. However, with most of this growth potentially already baked into the share price, any stumble could trigger a steep sell-off.
Right now, the risk’s simply too high requiring flawless execution. But, given a bit more time, that could change potentially paving the way for massive growth. That’s why I’m adding this penny stock to my watchlist.
