The year since Covid-19 began in earnest, March, has seen the balance of the stock market swing from the useful blue chip and value plays, to the small and microcaps. In particular, penny stocks – literally a penny and below. After all, what is sweeter than buying a million shares of a company at 1p – or less and seeing your £10,000 investment heading for 6 figures?
Over the past 6 months we have seen several notable winners, with the action centred in the UK market around mining, pharma and tech. All three sectors have logical explanations for their surge; mining with soaring metals prices – helped by helicopter money, pharma in the search for a Covid-19 cure, and tech as we increasingly live and work online. However, it may be that it is mining which still offers the low hanging fruit, and where it is easiest to ensure what you are paying for in your potential penny stock multibagger is not a bubble price.
Enter Gunsynd (GUN) an AIM listed investor in natural resources. It currently has a £2m market cap, over £800,000 in the bank and trades around 0.85p. It is already a favourite amongst the Fintwit cognoscenti (professional investors), which is arguably half the battle these days for those stocks wanting to get noticed and get ahead. The explanation for Gunsynd being in focus in this way is that for 2020 to date it has already built up a sturdy portfolio of assets. Indeed, it is worth noting how this has attracted two recent TR1’s, with it being likely that the one from Sebastian Marr ( an UHNW UK investor) may attract other capital/high quality investor groups to the shareholder register.
Of course, even though we are in a rising tide for mining, the skill is in a company’s management to sift out the best opportunities without overpaying, especially with a limited budget. It also helps if a company’s share of those assets is significant, and perhaps most of all, could prove to be of a magnitude the larger players in its space would be proud of. Already in recent months, Gunsynd’s director Peter Ruse has proven himself to be both able to sniff out prime assets, and as a deal maker.
Gunsynd’s 28.4% share of Rincon Resources highlights the trajectory it is on. This was purchased for just £138,000 and the proximity to the assets of Newcrest Mining and multi-bagger hero Greatland Gold (GGP) in the same Western Australia province of Paterson make it a standout. The kicker here though is that Rincon Resources is in the run up to an IPO, something which should offer a meaningful uplift to Gunsynd’s investment, when this event happens in coming months.
Eagle Mountain, a copper / gold explorer, has an 80% stake in Oracle Ridge in Arizona. Gunsynd’s investment in Eagle Mountain was purchased in July for £110,000, with news out of the commencement of drilling last month. The shares were acquired at 13c on their ASX listing, versus 28c currently. Coming weeks should offer insight as to the magnitude of the asset, which consists of copper / gold and silver. But with such a low-cost entry the risk/reward on this project is attractive from the start.
Clearly, investment companies are not just about buying, they are about achieving a turn and releasing value for shareholders. Ironically, this is not always a message that management in these situations appreciate. But with Gunsynd at the end of last month its investee company Sunshine Minerals was sold for $850,000 in shares of Malachite Resources. The twist in the tail here was that Sunshine was previously included on the Gunsynd balance sheet at zero.
Over a relatively short period this summer Gunsynd has proven itself to be an active and successful mining minnow, with plenty of moving parts to over those looking for a company to scale up the scope and magnitude of its investments and returns. The run up to the Rincon Resources IPO provides an exciting catalyst for Gunsynd shares over the rest of 2020, especially given the way they remain within recent ranges. A return to the recent peak at 1.20p in August at the time of the Sunshine Minerals uplift news appears perfectly reasonable in the near term.
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