Gensource Potash

The global population is increasing rapidly. Yet there is a finite amount of land to grow crops to feed it. So demand for fertilisers is tipped to surge in a bid to boost yields.

The outlook is especially strong for potash too, a key ingredient in the yield-boosting material. This is why I’m considering adding Gensource Potash (LSE:GSP) shares to my portfolio.

The business is developing the Tugaske mining project in Canada, from which the business hopes to begin extracting material in 2024. It has plans to produce 500,000 tonnes of potash a year, a target it hiked from 250,000 last year, owing to the market’s favourable outlook.

As well as boosting yields, potash has allows farmers to use water more efficiently. The latter is especially important as climate change creates drier landscapes.

Investing in Gensource presents higher risk than buying shares in larger miners. Development issues at Tugaske could create large, unexpected costs that add extra stress to its balance sheet. And this penny stock doesn’t have the financial might of say a Rio Tinto to help it overcome any problems.

Yet I still believe this stock is an attractive buy today. The quality of its Canadian asset, allied with bright forecasts for the potash market, could lead to explosive profits growth here. BHP has predicted that global potash demand could double between the late 2010s and late 2040s.

Aura Energy

A fast-growing world population — allied with strong economic growth in emerging regions — means that energy consumption is also set to rocket. Yet fossil fuels are unlikely to plug the supply and demand gap as governments accelerate green policy.

This provides a huge opportunity for UK shares that provide renewable energy or alternative fuels. It’s why Aura Energy (LSE:AURA) is also on my shopping list today.

The company’s flagship asset is the Tiris uranium project in Mauritania where it hopes to start production next year. The site has been subject to recent resource upgrades and is now said to contain 29.6m pounds of the radioactive material. This was up 52% from prior estimates.

Nuclear energy remains a controversial topic. And so the building of a new global fleet of reactors to meet growing power demand is by no means certain.

Yet as countries try to cut oil and gas use — in response to the climate crisis and to reduce their reliance on Russian imports — there appears to be little choice but to increase nuclear output. This is one reason why the International Atomic Energy Agency reckons nuclear energy will account for 14% of total electricity by 2050. That’s up from 10% today.

And Aura, with its uranium-producing assets in Africa and Scandinavia, could be well placed to meet this growing demand. If Sweden lifts a uranium mining ban there — a position that lawmakers are edging closer towards — this penny stock could soar in value.

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When economic conditions get tougher, the growth potential of younger, smaller companies can come under severe scrutiny. This can, in turn, lead to painful share price slumps. Slighter businesses can also be more vulnerable to failure during tough times because of their weaker balance sheets.

Yet buying certain early-stage companies can also fire up an investor’s long-term returns. Profits can grow much faster than those over at more mature shares, leading to market-beating capital appreciation.

With some careful research it’s still possible to find top small-cap shares to buy despite the uncertain near-term economic outlook. Here are three I think are great investments today.

Aura Energy

Mining for raw materials is a complex and often expensive business. For Aura Energy (LSE:AURA), earnings could suffer if it encounters problem developing its Tiris uranium-vanadium resource in Mauritania.

Yet I believe the potential benefits of buying this Alternative Investment Market (AIM) share make it an attractive investment. As countries switch away from fossil fuels, demand for nuclear power is tipped to grow strongly, meaning increased demand for radioactive uranium.

Rising energy demand from rapidly-expanding emerging markets also means consumption of the yellow commodity could soar. This is why the International Atomic Energy Agency thinks nuclear capacity will more than double over the next 27 years, to 873 gigawatts electric (GWe).

Demand for Aura Energy’s product could also rise as the building of nuclear submarines ramps up. Saxo Bank said last week that “we expect nuclear and uranium demand to increase” as Australia announced plans to build a fleet of new subs under the AUKUS programme.

Finally, I like Aura Energy because of encouraging drilling work at Tiris. In February, it announced a “major resource upgrade” at the asset, with measured and indicated resources rising by an impressive 52%.

With the business also developing the Häggån uranium project in Sweden I think it could have a bright future.

Iomart Group

IT companies like Iomart Group (LSE:IOM) could endure some earnings turbulence in the near term. Even in our increasingly digitalised world, spending on technology could slip if the global economy remains weak for longer.

Yet as a long-term investor, I believe this small-cap share remains highly attractive. As remote working grows in popularity, I expect demand for its services to steadily rise.

Iomart provides cloud computing platforms that allow workers to perform their daily tasks from anywhere. It is also an expert in cyber security, connectivity and data management, and provides IT consultancy services to businesses.

This broad range of services gives it ample opportunities to generate profits as workplace digitalisation clicks through the gears. Telecoms giant AT&T predicts that the hybrid work model will almost double from 42% of workplaces in 2021 to 81% by next year.

It’s true that Iomart doesn’t carry the financial clout or brand power of industry giants like Microsoft or IBM. But strong recent trading suggests it could still deliver excellent profits growth in spite of high competition.

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Here are two small-cap stocks I’m considering spending £2,000 on.

A high-energy share

Demand for nuclear power is tipped to soar over the coming decades. Energy consumption is rising sharply in fast-growing emerging markets. And governments are ramping up efforts to replace dirtier fossil fuels with low-carbon sources of energy.

This is why I’m considering buying shares in AIM-quoted Aura Energy (LSE:AURA). This UK share owns the Tiris uranium-vanadium resource in Mauritania along with the Häggån project in Sweden which contains uranium, vanadium and potash.

I’m most excited about Tiris where production is slated to begin in 2024. First production here is scheduled for next year and the business plans to rapidly scale up production to exploit soaring uranium demand.

Resource upgrades

I’m especially upbeat about Aura Energy following recent testing at Tiris. Last month, the miner said that measured and indicated resources had increased by a bumper 52%. This could lead to a hike in production targets.

Getting new mining projects off the ground can be problematic and expensive business. Therefore the road to first production at Tiris next year could be a bumpy one. But on balance, I think the benefits of buying this small-cap share are likely to outweigh the risks.

Uranium demand is forecast to soar to 206m pounds by 2030 and then to 292m pounds a decade later. That’s up from 162m pounds in 2021, according to the World Nuclear Association. Yet, over the same period, supply of the radioactive material is tipped to fall due to a lack of new mines.

In this scenario, the price Aura Energy charges for its product is likely to surge. This could make the business an impressive growth share for the coming decades.

Another top mining stock

Like uranium, copper is also expected to endure a price-supporting market deficit in the years ahead. This is why I’m tempted to buy shares in Anglo Asian Mining (LSE:AAZ) for my ISA too.

This small-cap UK stock produces the red metal — along with gold and silver — from its assets in Azerbaijan. And it plans to pivot its operations more closely to copper from this year as it supercharges output.

Anglo Asian Mining expects to produce 4,100-4,300 tonnes of the industrial commodity in 2023, up from 2,516 tonnes last year. I’m tempted to buy the AIM share even though copper prices could fall in the near term as the global economy cools.

Thanks to themes like rising urbanisation and the growth of green technologies, demand for copper is expected to balloon over the long term. This could power profits at copper stocks like Anglo Asian Mining through the roof.

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Aura Energy

Price: 10.3p per share
Market cap: £54.2m

Mining business Aura Energy (LSE: AURA) is evolving from a uranium explorer to a producer of the radioactive material. I think it could therefore be a great way for me to make money from rising nuclear energy demand.

This particular energy stock is focussed on developing the 800,000-pound-a-year Tiris uranium project in Mauritania. Fresh drilling work began in May to upgrade resources at the site which Aura hopes will produce first material in 2024. It believes the programme could lead to annual production of 3m and 5m pounds of uranium before 2029.

I think Aura has terrific earnings potential as the world moves towards low-carbon energy sources. Nuclear energy use is tipped to rise steadily as the burning of fossil fuels declines. Nuclear power will also be essential for helping the lights stay on when adverse weather conditions impact renewable energy generation.

This is why the International Atomic Energy Agency thinks nuclear energy capacity could reach 792 gigawatts (GW) by 2050. That’s more than double the 393 GW recorded in 2020.

Remember that Aura still has some way to go before Tiris starts producing. Any setbacks with mine development could derail profits forecasts and prompt Aura to embark on fresh fundraising. Shareholders could be tapped for cash or more debt added to the balance sheet.

Such risks are part-and-parcel of investing in small-cap mining stocks. And it’s my opinion that buying this penny stock today could be a good idea for me before its share price potentially explodes.

Inland Homes

Price: 41.5p per share
Market cap: £97.7m

Rising interest rates pose a threat to Britain’s housebuilders by putting homeowner affordability under even more pressure. But I’m still tempted to invest in penny stock Inland Homes (LSE: INL) right now.

Recent trading updates from across the industry show how resilient demand remains despite recent Bank of England action. On Tuesday, for instance, Bellway said that sales reservations per week were up 5.9% between 1 February and 5 June. Critically the firm said that “ongoing positive price momentum continues to offset build cost inflation” too.

Inland Homes is set to release its own set of financials in the coming days. I’m expecting another set of impressive numbers that could help its share price to rise strongly.

The company’s low valuation certainly gives plenty of room for a share price re-rating. The penny stock trades on a forward price-to-earnings (P/E) ratio of just 6.7 times. I think Inland Homes could prove an lucrative long-term investment as historically-low interest rates would appear here to stay. In my opinion, homes demand looks set to outpace supply for years to come.

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