ReNeuron, Angus Energy, Caracal Gold, Bidstack, and Atlantic Lithium have not performed as hoped. Where next?
By: Charles Archer
As an avid investor in high-risk FTSE small-cap stocks, I always seek to write balanced articles that consider the various potential catalysts, dangers, and unpredictability of AIM shares. I don’t offer advice but seek to highlight opportunities — while also advocating for a fair bit of boring pension index investing and diversification of risk in growth stocks across various sectors and geographies.
But one aspect of high-risk investing over the long term is that some stock picks — usually the speculative plays — are going to fail. Note, my largest holdings — PREM, AVCT, BOIL, and HARL — have done superlatively over the past year. But these top stocks were once speculative plays, where I have built up positions over time. And they are all still high risk, despite the potentially exceptional rewards on offer.
But what about those stock tips which haven’t done so well? As a long term investor, there’s times to exit, times to hold, and also times to double down.
1. ReNeuron (LON: RENE)
Published on 22 December 2022,
RENE shares were worth 9.6p at the time of this article and have now risen to 10.4p. However, much of my investment case hinged on then-CEO Catherine Isted. I said at the time that ‘a candidate of Isted’s calibre would not accept a promotion to CEO in order to tie her flag to a sinking ship.’
For context, Isted was a key part of the finance leadership team at Oxford Biomedica during the company’s share price boom up to October 2021 and was previously a partner at both Peel Hunt and Nomura Code. At Oxford Biomedica, she was instrumental in raising more than £110 million for the company, was there as it grew in value by 800%, and saw it enter the FTSE 250 as a key producer of the AstraZeneca vaccine.
However, Isted announced her departure on 3 January, and I exited my RENE position slightly down later that day. While I am a long-term investor, I have no qualms in exiting if there’s a fundamental change in my original investment case.
2. Angus Energy (LON: ANGS)
Published on 8 November 2022, I initially covered ANGS shares when they were trading at 1.9p. I indicated that its history of share placements and at-the-time weak financial position meant that ‘further immediate losses may need to be subsidised by additional capital raises.’
Despite the standard social media pile-on, the inevitable share placement RNS came on 19 December, where ANGS issued circa 115 million new shares to raise £7 million to cover ongoing operations. I bought the dip later in the month and continued to average down as the Twitterati moved on to the next big thing.
Having fallen to a low of 1p on 16 February, and then recovering to 1.3p today, I am now in the green on ANGS. The chances of a successful side-track at Saltfleetby makes the risk-reward profile favourable in my opinion, but a poor update could see this investment sink.
3. Caracal Gold (LON: GCAT)
Published on 8 December 2022, GCAT shares were trading for 0.65p, before rocketing to over 1p by mid-December. GCAT operates the Kilimapesa Gold Mine in Kenya, where work is underway to increase production to 24,000oz of gold per year and to build the JORC resource to more than 2 million ounces.
A week prior to my article, Caracal had entered into a pre-paid gold purchase agreement with a contract price totalling $10.5 million with OCIM Metals & Mining SA. This would have left the miner fully funded to reach the promised 24,000oz/pa by the end of Q1 2023. Some of the capital would also be used to complete phase II exploration at secondary project Nyakafura.
However, on 10 January OCIM withdrew this funding, with GCAT citing ‘an unfulfilled condition precedent that would have provided OCIM security over the Mining Licence for our flagship Kilimapesa Gold Mine.’ While CEO Robbie McCrae argued that the ‘robust fundamentals’ remain the same, the share price did not agree — and GCAT has since collapsed to 0.23p.
Ironically, I had noted that OCIM ‘does not invest its money lightly.’ In hindsight, there were warning signs, including a temporary trading halt on 1 November after GCAT had not ‘not been able to complete its audited financial statements within the 4-month period required.’
But I’m averaging down at this price point, and not exiting. The gold in the ground remains in place, and McCrae has promised to ‘move quickly to replace the OCIM funds.’ I’ve experienced similar share price falls with PREM and KOD — but accept this is a very high-risk move.
4. Bidstack (LON: BIDS)
Published on 16 December 2022, Bidstack shares were trading for 3.18p, fell as low as 1.6p on 10 February, and have since recovered to 2.10p. The company exists to win a slice of the global video gaming pie, with the segment’s global revenue expected to grow by a CAGR of 7.67% until 2027, and to extend to a market volume of $285 billion reaching 2.8 billion users.
After a recent $11 million raise, the company is sticking to its target to generate $100 million in annual revenue in the US within three years, which it insists is ‘starting to become visible.’ On 5 December, BIDS announced it was partnering with a global AAA game publisher on two games, and it remains the only in-game adverting market solution available to UK investors.
I have averaged down from my initial position and will continue to top up over time. Bidstack remains undervalued in my view, and despite a legal battle with former partner Azerion, demand for its solution will only increase with time.
5. Atlantic Lithium (LON: ALL)
First published on 14 November 2022, ALL shares were changing hands for 49.5p but have now fallen to 37.2p. While I have been covering Atlantic Lithium for several years, anyone who bought in at that recent high would be down considerably, but volatility is a hallmark of ALL shares, and the company is now significantly undervalued in my view.
In recent weeks, its Ghanaian Ewoyaa project has seen a huge resource increase to 35.3Mt at 1.25% Li2O, Primero has been awarded the FEED contract for the project, and the Minerals Income Investment Fund of Ghana has expressed an interest in investing up to $30 million in the company. Moreover, ALL remains funded by billion-dollar titan Piedmont Lithium to the tune of $102 million, which currently holds a strategic position in the company.
ALL also holds a 560 square kilometre tenure across Ghana and 774 square kilometre tenure across the Ivory Coast, and had a cash position of AU$19.1 million at 31 December 2022.
The share price will re-rate eventually in my view, but this recent fall serves as a good reminder to would-be small-cap investors; the value of pound-cost averaging, the inability of the UK small cap sector to accurately price companies, and the high risk associated with exploratory lithium stocks.
I’m holding my shares that I have bought over time, but will not be increasing my position.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
If anyone reads this article found it useful, helpful? Then please subscribe www.share-talk.com or follow SHARE TALK on our Twitter page for future updates.
Terms of Website Use
All information is provided on an as-is basis. Where we allow Bloggers to publish articles on our platform please note these are not our opinions or views and we have no affiliation with the companies mentioned