But on the plus side, they can also deliver juicy long-term capital gains as earnings take off and share prices increase.

These two former penny stocks have enjoyed impressive share price gains more recently. I’m optimistic too, that they could continue rising in 2025 and potentially beyond.

The gold miner

Gold prices continue to rise sharply and are now within a whisker of the critical $3,000 per ounce marker. With worries over the broader political landscape mounting, analysts are continuing to hike their short-term price forecasts.

UBS, for instance, now predicts bullion to hit $3,200 in the next year.

Propelled by the recent price surge, gold digger Metals Exploration‘s (LSE:MTL) more than doubled in value over the last year, to 5.9p per share.

The business owns the Runruro gold mine in The Philippines, from where it produced 83,897 ounces of the yellow metal in 2024 (beating upper guidance forecast of 82,500 ounces). It also owns exploration assets in the country, as well as in Nicaragua following its takeover of Condor Gold last month.

The Condor deal saw it snap up the La India gold project, from where it’s targeted annual production is 145,000 ounces.

This is all pretty exciting. But it’s important to remember that investing here also involves a high degree of risk. Mining operations don’t always go to plan, and cost and production issues can tear up earnings forecasts. There’s also no guarantee that gold prices will continue their impressive ascent.

Yet the cheapness of Metals Exploration shares suggest it’s worth serious consideration. For 2025, they trade on a forward price-to-earnings (P/E) ratio of 3.7 times.

This — along with the small-cap’s strong operational momentum and the bright outlook for gold prices — could facilitate more impressive share price gains.

The brick maker

Improving housing market conditions have helped Michelmersh Brick (LSE:MBH) burst back out of penny stock territory in recent weeks. It’s up 11% in the year to date, at 110p per share.

As the name implies, this small-cap provides a staple product for the construction of new homes. It manufactures more than 122m clay bricks and pavers a year, and things are looking up as housebuilders (including Barratt Redrow, the UK’s biggest builder) start discussing production increases again.

Confidence is improving following recent Bank of England interest rate cuts. Encouragingly in September, Michelmersh’s order book was at its highest since 2022.

Given this backdrop, could Michelmersh shares continue rising in the near term? I’m on the fence, to be honest.

A meaty forward P/E ratio of 13.4 times may limit further upside. There’s also the danger that rising inflation, and its impact in interest rates, could draw the momentum out of the housing sector.

Yet despite this, I still think the penny stock’s still worth serious consideration. Over the long term, I believe earnings could shoot higher as the government executes its plan to build 300,000 new homes each year.

Michelmersh’s also has financial scope for more acquisitions (like that of FabSpeed in 2022) to supercharge profits.

The post Could these former penny stocks continue soaring in March? appeared first on The Motley Fool UK.

As a highly risk-averse investor, I tend to avoid penny stocks for that reason, but I also recognise the opportunity. After all, even today’s mega-cap stocks were penny stocks at some point. 

So for investors looking to get in early and aim for life-changing wealth, the attraction is clear. 

With that in mind, I’ve identified two micro-cap stocks that I think could benefit from the recent uptick in gold interest following US inflation data. 

Serabi Gold

Headquartered in Cobham, Serabi Gold (LSE:SRB) explores and excavates for gold and copper in northern Brazil. 

Even more than gold, Serabi has been on a tear this year, up over 120%. In fact, a recent price surge took it just outside of penny stock territory to 108p. But with an £80m market cap, it’s still very much a micro-cap stock.

Even more impressive than the price surge is earnings, up 339% in the past year. Clearly, it struck gold! This also means it has a low price-to-earnings (P/E) ratio of around five, well below the industry average of 9.9. 

That suggests there could be more room for growth.

With an expectation of strong future cash flows, it’s now estimated to be undervalued by 87%. What’s more, earnings are forecast to continue growing at a rate of 37.8% per year.

My core concern is that it’s coming close to a five-year price high. That could lead to significant selling pressure if investors look to take profit. Plus, it’s closely tied to the gold price so any drop there is likely to hurt the share price.

Metals Exploration

Metals Exploration (LSE: MTL) is another micro-cap mining outfit that benefited from this year’s gold price growth. It’s up 76% year to date and 344% over five years.

The business is headquartered in London but operates in the Philippines. It excavates for gold and precious metals from mines north of the capital, Manila. Despite a higher £88m market cap, the shares, at only 5p, are much cheaper than Serabi.

And not due to poor performance — earnings increased 213% in the past year with revenue close behind. Cash has also been growing steadily since the company became profitable in 2020.

Consequently, it’s estimated to be trading at 90% below fair value using a discounted cash flow model. It also has a squeaky clean balance sheet, with no debt and $191m in equity.

There is a big ‘but’ though, and unlike Sir Mixalot, I don’t like big buts. 

Earnings are forecast to decline by an average of 60.3% per year for the next three years. That’s not entirely surprising — considering the recent growth — but it won’t look good in the interim results. It could spook shareholders and lead to a fall in price. And the price is already very volatile, rising 117% earlier this year only to crash 35% straight after. 

So it’s not for faint-hearted investors like me!

As mentioned above, I don’t have the risk appetite for volatile penny stocks so I won’t be buying either stock. But for brave investors looking to gain exposure to gold, these two exhibit better growth potential than similar competitors I’ve researched and are worth a look.

The post 2 precious penny stocks that could offer a golden opportunity! appeared first on The Motley Fool UK.

Two picks I’m looking to buy and hold for as long as possible when I next have the investable cash are Metals Exploration (LSE: MET), and Michelmersh Brick Holdings (LSE: MBH).

Here’s why!

Metals Exploration

As the name alludes to, the business looks to identify and extract precious metals. Its operations are in the Philippines.

The business has seen its shares skyrocket in the past 12 months, up 160%. At this time last year, the shares were trading for just under 2p, and now trade for just under 5p.

It’s worth noting that small-cap stocks can fluctuate up and down rapidly. In some cases, their respective gain or loss can seem mammoth, compared to more established stocks.

From a bullish view, the business recently announced a new share purchase agreement. The agreement gives it control of the gold-rich Cordillera area of the Philippines. Mining is expected to begin in the second half of this year. Investor sentiment has continued to rise since the news broke in January. This additional revenue stream could boost the fledgling business.

Based on current financials, the shares look good value for money too, on a forward price-to-earnings ratio of just above two.

Moving to the bear case, my biggest concern is geopolitical instability in the region, which could harm operations and output. Plus, the huge pile of debt the firm is working hard to pay down. Both aspects are credible threats to performance, growth, and potential returns.

Overall, based on the current valuation, as well as recent developments, Metals shares look like an exciting opportunity to me.

Michelmersh Brick Holdings

Similar to Metals Exploration, Michelmersh’s name gives away the game. The firm manufactures brick, tile, and other building materials out of its own landfill site in Telford, UK.

The shares are up 6% over a 12-month period, from 93p at this time last year, to current levels of 99p.

Growth potential for the firm is what excites me the most. This is linked to a couple of factors. Firstly, the housing imbalance in the UK means many bricks, tiles, and building materials will be needed. This could be a long-term boost for the firm’s performance. Linked to this, infrastructure growth required for the growing population in the UK could also be a potential money spinner.

At present, a dividend yield of 4.5% is attractive. However, it’s worth noting that dividends are never guaranteed. Plus, the shares look decent value for money on a price-to-earnings ratio of just over nine.

The obvious risks involve continued macroeconomic turbulence. As the property market, linked to higher interest and mortgage rates, has struggled, demand for bricks has cooled. If this continues for some time, there could be performance issues, as well as returns being impacted.

Generally speaking, demand for bricks, and Michelmersh’s access to diverse end markets, make it a no-brainer for me. The passive income opportunity, as well as attractive valuation help my investment case.

The post 2 penny stocks I’d love to buy and hold until 2034! appeared first on The Motley Fool UK.

The £85m mining company identifies and extracts precious metals and base metal deposits in the Philippines. Headquartered in London and operating since 2004, the company has been struggling to reach the highs it enjoyed in the early days.

Back in 2006, the share price climbed as high as 47p. The following years were very volatile but by 2013 it had fallen below 10p and by 2019 it was under 1p.

A turning tide

The company recently finalised a share purchase agreement that could turn its fortunes around. The purchase would give it a controlling share of Yamang Mineral Corporation (YMC), a firm that holds prospecting rights to the 16,000ha gold-rich Cordillera area of the Philippines.

Mining is expected to begin in the second half of 2024 pending agreements with local communities and initial exploration efforts.

“If we have the exploration success we are targeting, we aim to focus on developing a high-grade, smaller-scale gold production-ready project as soon as possible,” said interim chairman Steven Smith.

The share price has been rising steadily since news of the agreement first surfaced in late January. It’s now at its highest level in seven years and is predicted to continue climbing.

Financials

Independent analysts estimate Metal Exploration shares to be undervalued by as much as 76%. This is likely based on the company’s impressive performance so far, with earnings growing at an annual rate of 68% — seven times the industry average.

That’s helped push its profit margins to 28.7%,  up from 4.9% last year. Using a discounted cash flow model, we can see that the undervaluation thesis is supported by a forward-looking price-to-earnings (P/E) ratio of 2.4 times.

But growth like that comes at a price.

Metals Exploration has spent the past few years climbing out of a deep debt hole. Only recently did its debt-to-equity (D/E) ratio drop below 1, putting it in a stable position.

Back in June 2021, the company was drowning in debt 33.6 times higher than its equity. It now holds £54.2m in equity and only £49.3m in debt. That’s an impressive turnaround — although still risky as it’s a fairly high level of debt for an £85m company.

Gold demand

To evaluate a business’s future prospects we need to consider demand for its products. Looking at the broader gold mining industry, demand has remained relatively stable over the past 10 years, barring a minor dip in 2020 during Covid.

Gold is one of the most precious metals in the world – thought to be the first metal discovered by humans. With such a long history, it’s unlikely demand will reduce in the near future. Should Metals Exploration continue to secure valuable gold deposits, it will be in a good position to benefit from this industry.

Current forecasts still expect revenue and earnings to decline by 11.4% and 23.6% per year, respectively. However, if the new Cordillera mine proves profitable, I expect these figures to turn positive.

For now, I’m putting Metals Exploration on my penny stock watchlist with the intent to buy if the forecast improves.

The post Up 154% in a year! Is this the best UK penny stock to buy? appeared first on The Motley Fool UK.

But the rewards of snapping up these small-cap shares can also be life-changing. Just ask those investors who bought shares in Apple, Monster Beverages, and Amazon.

Here at The Motley Fool, we believe a company must meet two criteria to be considered a penny stock. It must trade below £1, but it must also have a sub-£100 market cap.

Here are two top UK shares I don’t think will be penny stocks for much longer.

Metals Exploration

Share price: 4.1p; market cap: £86m

Purchasing junior mining stocks can be a high-risk strategy. Problems at the exploration and mine development stages can be commonplace. And smaller operators like this rarely have the financial strength to weather such problems, or at least without significant intervention like tapping shareholders for cash.

But I believe gold miner Metals Exploration (LSE:MTL) may be worth the risk. This AIM share owns the Runruno yellow metal project in the Philippines. And it is on a roll right now: it recorded record annual revenues and gold sales in 2023.

It has also been adding exploration licences in the country’s Cordillera region to drive future growth. The company has described the territory as a “prolific gold belt” that has produced 40m ounces of the precious metal over the years.

Now could be a brilliant time to buy the mining stock, too. Gold prices recently hit record peaks just shy of $2,200 per ounce in recent sessions. The challenging macroeconomic and geopolitical backcloth means demand for the safe-haven metal could keep charging higher.

Finally, I’m encouraged by the huge reduction in Metal Exploration’s debt over the past year. This fell 35% year on year to $19.9m as of December.

DP Poland

Share price: 11.5p; market cap: £80.2m

Competition in the food delivery industry is famously fierce. On top of this, rising labour and ingredient costs pose a threat to operators’ margins.

But I believe DP Poland (LSE:DPP) is still a sound investment today. Demand for fast food is soaring in its home country along with fellow emerging market, Croatia. This is likely to remain the case for years to come as rising personal income levels drive market penetration from current low levels.

Latest financials in January illustrate the company’s terrific earnings potential. Like-for-like sales in Poland soared 19.7% during 2023 in its core Polish market. Corresponding revenues in its fledgling Croatian market, meanwhile, increased by 16.4%.

To illustrate the company’s improving momentum, like-for-like Polish sales rose 27.5% in the final quarter. This was the greatest quarter of sales in DP Poland’s history.

The AIM firm is expanding to capitalise on this fertile marketplace, too. It had 116 stores on its books as of December. Moves to drum up business by raising advertising spending have also proved highly successful.

The post 2 penny stocks this Fool thinks could deliver stunning returns! appeared first on The Motley Fool UK.

The AIM-listed gold explorer trades for 2.7p per share as of 21 February 2024 — that’s tiny.

But having done the digging, I see record profits in its financial statements. And one of my preferred value metrics is flashing a buy.

Any price-to-sales (P/S) ratio of less than one is considered good value. Metals Exploration is trading on a P/S ratio of 0.46.

Mining for gold

The business is the sole owner of the Runruno gold mine in the Philippines. And the company is expanding.

CEO Darren Bowden announced in January 2024 the company is taking a 72.5% stake in YCM. It owns the rights to the Abra tenement, a 62 square mile gold development 130 miles north of Runruno.

Historically the region has produced over 40m ounces of gold.

Profit with purpose

This year Metals Exploration forecasts profits five times higher than any year since 2017, at $58.5m (£46.4m).

When the FTSE 100-obsessed market wakes up to this fact, it could send the company share price soaring.

The other thing I really like is an extraordinarily high return on capital employed (ROCE). This is a measure of how much money the company produces from what it spends. In the last 12 months the miner has produced an 86% ROCE.

Its fourth-quarter results to 31 December 2023 also show record annual positive free cash flow of $72.3m (£57.3m). And earnings per share are slated to jump from 0.45 cents to 2.40 cents.

Resulting facts

The most recent Metals Exploration half-year results to 30 June 2023 show:

• Record operating profit, up 231%
• Record gold production, up 45%
• Debt reduced by 47%

When I last looked at Metals Exploration, I found net debt of $92.9m too high to consider an investment. Paying that down to $48.8m feels a sensible move.

Factor the risks

At this end of the market, there is lower liquidity — fewer buyers and sellers. There’s some currency risk here too: the company also reports its earnings in US dollars. And net debt is certainly a factor.

But adding new licenses to its stable of mining operations looks like a solid move to me. And a price-to-earnings ratio of just two suggests either:

• The market has low confidence in the stock
• The market is dramatically mispricing the stock

I’m leaning towards the latter. Its annual revenue of £125m is more than double its £55m market cap.

And from less than £1,000/oz in 2017, gold is now selling for over £1,600/oz. So the high current market price of gold will boost everything from profits to the ability to pay down debt.

Smaller is better

Investor James O’Shaughnessy famously touted “tremendous returns” from tiny stocks. This strategy is higher risk, but produced an annual compound return of 20.05% over 40 years.

The FTSE 100 has returned an average of 6.9% a year over the same period.

I know from experience that penny stocks can massively outperform. But only if I pick on the basis of booming profits and strong management.

The post Could this 2p UK penny stock be my biggest investing goldmine? appeared first on The Motley Fool UK.

However, beating the index remains a challenge. Uncertain prospects across a number of industries mean that investors may wish to focus on investments with growth and/or income potential which is significantly stronger than that of the wider index. With that in mind, here is one dividend stock and one growth share which could be worth a closer look.

Improving outlook

Reporting on Friday was natural resources exploration and development company Metals Exploration (LSE: MTL). Its quarterly performance has been relatively upbeat, with 10,593 ounces of gold poured during the quarter. It was able to sell 11,338 ounces of gold during the quarter at an average realised price of $1,328 per ounce.

The company also announced that in the last week it has achieved and maintained 100% design throughput at its BIOX circuit. This could prove to be a major achievement for the business, and maintaining this level of throughput could lead to higher gold recoveries.

With Metals Exploration having the potential to deliver further operational progress, its future appears to be relatively bright. It may continue to benefit from a firmer gold price, with the prospect of higher inflation and volatility across global stock markets having the potential to increase demand for precious metals. As such, and while relatively risky, it could prove to be a sound long-term buy.

Dividend potential

Also offering strong total return potential over the medium term is fellow mining stock Anglo American (LSE: AAL). It has experienced a hugely challenging period in recent years, with commodity price falls causing its profitability to come under severe pressure. This caused dividends to be suspended in 2016, although they were reinstated in 2017 as the company’s financial outlook improved.

Contributing to a stronger financial performance has been the decision to restructure the business. It is now more streamlined following the disposal of a number of assets, and appears to have a more competitive position on costs versus sector peers.

With Anglo American forecast to yield as much as 4.9% in the current year, it appears to have a strong income outlook. Dividends are expected to be covered around three times by profit, which suggests that the company’s income prospects are sustainable. It also means that there is likely to be sufficient capital available to reinvest in the business for future growth.

While commodity prices could experience further volatility over the medium term, the prospects for the industry are generally bright. Since Anglo American trades on a price-to-earnings (P/E) ratio of around 11, it seems to offer a wide margin of safety at the present time.

The post One FTSE 100 dividend stock and one growth stock I’d buy with £1,000 today appeared first on The Motley Fool UK.

On the flip side, though, the potential rewards from buying out-of-favour stocks can be significant. They are often trading with wide margins of safety included in their price, and investor sentiment can quickly change should announcements become more positive. With that in mind, could this 15%+ share price faller be worth buying right now?

Disappointing update

The company in question is natural resources exploration and development company, Metals Exploration (LSE: MTL). It announced on Tuesday that the Runruno gold mining operation has continued to experience difficulties in the BIOX (bacterial oxidation) circuit ramp-up. The company has reported encouraging results when the BIOX circuit ramped-up strongly to around 50% throughput. However, it has once again passivated with currently limited material being processed through the BIOX circuit.

Initial test work has suggested the presence of algae in the return process water has interfered with the performance of the BIOX bacteria. Engineering solutions have been identified to manage the presence of the algae and are currently being implemented. Clearly, there is no guarantee that the issues experienced will be solved within the near term, and this could lead to further pressure on the company’s share price.

The company also reported that it is in advanced talks with its major shareholders to try to procure mezzanine finance which would be sufficient to repay the $12m bridging loans it currently has, as well as meet working capital requirements.

Given the wide range of stocks with bright futures in the resources sector, Metals Exploration may be a stock to watch, rather than buy, at the present time. It appears to have a highly uncertain future which could lead to a further decline in investor sentiment. Therefore, even though it is now much cheaper than it has been of late, it may be a stock to avoid for the time being.

Difficult trading conditions

Also falling heavily after releasing news on Tuesday was Action Hotels (LSE: AHCG). Its shares fell by as much as 10% after it released results for the first half of the year. They showed growth in revenue of 10%, while gross profit moved 6% higher. The company benefitted from having a 13% increase in operating rooms versus the same period of the prior year. Its occupancy rate at its mature hotels, however, fell by 2% to 72.7%.

Trading conditions remain tough in certain markets in the Middle East, although the company has confirmed that it is on track to meet market expectations for the full year. It has conducted a review of its pipeline and has decided to delay the openings of two of its leasehold hotels in Saudi Arabia. This is designed to efficiently manage its cash and debt position, and only minimally impacts on its 2017 forecasts.

With a sound growth strategy and strong performance in Australia and the Middle East, despite mixed conditions, Action Hotels could recover from its recent share price fall. It remains a relatively risky stock which may have an uncertain future. However, for less risk-averse investors it could be worth a closer look.

The post Is this value small-cap stock a falling knife to catch after dropping 15%+ today? appeared first on The Motley Fool UK.

Bank Bankruptcy 

Ferrexpo issued an update today on its “transactional bank in Ukraine, Bank Finance and Credit JSC, a related party ultimately controlled by Ferrexpo’s largest shareholder Kostyantin Zhevago“.

It’s very bad. 

“Following the close of business on the 17^th of September 2015, the National Bank of Ukraine made an announcement on its website stating that it had adopted a decision to declare Bank F&C insolvent.”  

But just how bad is the situation? 

Cash

“As of the 16 September 2015, the group’s total cash balance was approximately $280m after the payment of the interim dividend. Of this cash balance, approximately $174m was held at Bank F&C with the remainder held offshore.”

Its operations “are not currently affected,” the miner added, and the board is assessing the situation and will update the market as necessary.

A supplier of iron ore pellets to the steel industry, Ferrexpo had a net debt position of $653m in the first half (1H) of the year ending 30 June, for a net leverage of 1.9x (1.2x on 31 December 2014). Revenues have plunged and operating cash flow have declined fast in recent months, and these trends are likely to persist, in my view.

Even if we assume that its level of adjusted operating cash flow (Ebitda) in the second half will be in line with 1H at $176m, then its net leverage could easily soar to between 2.4x and 2.8x, based on its cash balances, according to my calculations.

Also noteworthy is that the group’s net leverage must stay within “net debt to Ebitda covenant of 3x“, according to the agreement with its lenders, and this could be a real problem.

A dividend cut is a base-case scenario right now, in my view, yet more bad news could be around the corner. Incidentally, Citigroup raised its price target from 38p to 58p on Thursday, but the stock today plunged from 59p to 39p. The analysts, who have a sell recommendation, could not predict what was about to hit Ferrexpo, and I’d agree that its valuation wasn’t incredible high — yet its price-to-book value already testified to a very risky investment. 

Placing 

Elsewhere in the resources space, Metals Exploration announced today that it had “obtained commitments to raise US$5 million via the issue of a total of 108m new ordinary shares (…) at a price of 3 pence per new ordinary share, from certain existing shareholders.“

It stock traded around 3.3p around midday. 

A much smaller entity with a market cap of less than £50m, and whose stocks trade on thin volumes, it kindly reminds us what kind of risk we face investing in tiny explorers, and why diversification rules!

Moreover, the group said that “is in final discussions to receive commitments from certain shareholders to raise up to a further $5m for working capital and contingency purposes by way of the creation and issue of debt securities up to a maximum nominal amount of $5m.” 

The post Why Ferrexpo Plc & Metals Exploration Plc Are Plummeting Today appeared first on The Motley Fool UK.

It also said that it has suspended its exploratory drilling activities to concentrate on construction of the project.

So What: The company says that the project build programme is progressing well, and that construction of the gold recovery process plant is within budget. However, the late finalisation of detailed engineering drawings by the contracted design engineers will now push back the commencement of the commissioning of the processing plant to the second quarter of 2015.

But the company says that the delay is offset by the fact that the construction cost is still anticipated to remain within the budgeted cost of US $182.8 million.

What Now: Metals Exploration says that drawing down of its debt facility has begun, and that it’s confident it has sufficient financial resources to absorb any additional costs incurred due to the delay.

The company says that exploratory drilling will recommence at the earliest opportunity, with the aim of further testing  the Runruno FTAA for additional gold deposits, and for the discovery of new copper mineralisation. It also stated that 90,000 ounces of gold delivery hedge orders have been placed.

Commenting on the news, executive chairman Ian Holzberger said:

“For the period being reported upon the rate of change experienced in the company and at the Runruno project site has been quite remarkable and it is pleasing to report the infrastructure components which were established in advance of the main build have proven capable of supporting the demands of a fast moving construction project like ours.

“The advanced procurement of the high value and long lead time plant components, most of which are now on site or in storage close by, supports an orderly approach to the erection of the processing plant minimising construction risk.“

Despite today’s drop, the share price of Metals Exploration is still up 36% so far this year, a period during which the AIM All-Share index has fallen 10%. However, over the past five years Metals Exploration’s share price has tumbled 56%, compared with a 30% gain by the AIM All-Share.

The post Why Metals Exploration Plc Plunged Today appeared first on The Motley Fool UK.