Are you ready to take big risks in order to make an even bigger return on your money? If the answer is no, then you are reading the wrong article. Skip to the end, where we will point you towards a slower but surer way of making a million from stocks and shares.
For those happy to take a chance, Zanaga Iron Ore Company Ltd (LSE: ZIOC) could be the stock of your dreams. Alternatively, your nightmares. This one really could go either way.
It is an iron ore exploration and development company, incorporated in the British Virgin Islands, which listed on AIM in November 2010. The firm’s flagship asset is its 50% (less one share) interest in the Zanaga Iron Ore Project in the Republic of Congo, or Congo-Brazzaville. Mining giant Glencore owns the other 50% interest (plus one share) giving it effective control. Its market cap is just £43m.
Iron in your soul
After a blistering start on AIM, which saw Zanaga’s stock peak at 213p in January 2011, the excitement quickly dwindled. In September, its share price dipped below 4p, having lost more than 98% of its value. That’s how risky this company is.
Then it suddenly became a five-bagger, flying to 25p on 14 November. So why did it explode? My Foolish colleague Rupert Hargreaves explains why here but basically, in September it unveiled a new early production start-up project that would transform the business from an exploration company into a fully functioning iron ore miner. In November, it was awarded an environmental permit by the Ministry of Environment of the Republic of Congo and really flew.
The excitement has since calmed, the stock has trailed away to trade at 16.45p at time of writing. However, that is mostly due to profit-taking and lack of news flow, than any reversal. Investors are just waiting to see what the company says and does next. We will know more in February.
This puts Zanaga in a similar position to another mining favourite, Sirius Minerals. This also has massive long-term potential but will not generate revenues until 2022 at the earliest, and faces a lot of work and expense in the interim developing the project. With both stocks, you may need the patience of a saint. Short-term investors will drift away, share price growth will come in fits and starts. You need to dig in for the long term.
The fortunes of investors in Zanaga will depend on how well its production plans progress. They certainly look positive at the moment but are also at the mercy of wider events, such as commodity prices, which require a buoyant world economy and thriving China. Things also look good on that score right now, with the iron ore price climbing from $32 a tonne to today’s $74, a rise of 131% over the past 12 months.
The problem is that Zanaga might have to ride out this commodity cycle as it pushes on with its plans, which will be developed in stages in a bid to cut costs, reduce risk, and maximise capital returns. If you have read this far, we know you are brave. But are you also patient?
Harvey Jones has no position in any of the shares mentioned. 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.