A brief rundown of Charles Archer’s Top 15 small-cap shares to consider for 2023.
It’s no secret that 2022 has not been a particularly pleasant experience for UK small-cap investors; the FTSE AIM has lost almost a third of its value over the past twelve months, and the tightening monetary environment means further falls among growth stocks are almost baked into market expectations.
For context, London IPO activity fell by 90% in the year, with promising start-ups across almost every sector choosing to postpone public listings for a lack of investor appetite or available liquidity.
This isn’t particularly surprising when you consider the UK’s macroeconomic environment: CPI inflation at 10.7%, the base rate at 3.5% and rising, a likely two-year-long recession ahead, rising energy bills in April, the pandemic hangover, the Ukraine War, the supply chain crisis, the political crisis, the strikes crisis, the labour shortage…
The list goes on and on.
However, my investment philosophy is to buy small caps at times of maximum fear when share prices represent exceptional value and then wait circa five years for extraordinary capital gains. Currently, I focus on hard commodity explorers and producers which I consider helping to maximise potential returns, despite the elevated associated risks.
As a disclaimer, a decent chunk of my excess income goes into a SIPP S&P 500 index tracker, which has recorded circa 8% average annual returns since 1952.
But FTSE small caps can still be the road to exceptional returns (in specific accounts, inheritance-tax free) — and 2023 just requires more research and perhaps a little more patience. Of course, this article remains a subjective opinion and not financial advice.
We have put links in each company description, that Share Talk has published in the past for a more in-depth look at each company and why they may be worth putting on your watch list.
In no particular order (and apologies to those who did not make my personal cut):
Top 15 small-cap shares to watch in Q1 2023
Greatland Gold (LON: GGP)
Catalyst to watch: World-class joint venture on the Haverion Project in Western Australia, where GGP owns a 30% interest and titan Newcrest 70%. Resource estimate currently at 6.5 million ounces of gold equivalent and 218 kilotons of copper, with 86% conversion of resource to reserve.
Key risk: Results of the waited-for feasibility study could throw up some curveballs — not uncommon with exploratory mining — and history of share placements.
Hellenic Dynamics (LON: HELD)
Catalyst to watch: Development of specific cannabis strains to treat chronic pain issues in the primary target market Germany, and the secondary target market, the UK. HELD operates a circa 200,000 sqm facility in Greece and plans to become a key exporter to the European medical cannabis market, which could be worth €43.3 billion by 2027.
Key risk: Few cast-iron financial details, a moving regulatory scene, and the usual volatility associated with a recent IPO launch.
Great Western Mining (LON: GWMO)
Catalyst to watch: Owns rights to a gigantic tract of acreage in Mineral County, Nevada, US, sited within the Walker Lane Structural Belt, the largest metallogenic belt in the county. Its eight claim groups offer the potential for short-term gold and silver exploits, and in the longer-term potentially world-class copper mining. No debt, well-financed, and a JORC in place with a contract signed with a local mining contractor.
Key risk: History of promising jam tomorrow, leaving a frustrated investor base.
Baron Oil (BOIL)
Catalyst to watch: Two hydrocarbon assets for sale — UK-based Dunrobin and East Timor-based Chuditch. Both absolutely massive reserves when compared to BOIL’s sub-£30 million market cap, and a sale could see a huge share price spike.
Key risk: Dunrobin field becoming unattractive as UK continues to increase windfall taxes on production. Meanwhile, Chuditch will require serious infrastructure investment to be fully developed. However, there has been interest from Woodside in developing the neighbouring project Greater Sunrise.
Angus Energy (ANGS)
Catalyst to watch: ANGS owns interests in multiple UK onshore oil and gas projects, but its focus is on developing its historic Saltfleetby site to profitability. Investors are waiting for news on multiple possible developments. The company recently issued a share placement which has left shares under the placement price and left some frustrated who believed the company was already fully funded. However, this cash could be used to develop its other assets.
Key risk: Negative news from Saltfleetby, though unlikely, could see a sell-off.
Harland and Wolff (HARL)
Catalyst to watch: HARL investors are expecting to benefit from a sizeable share of a £1.6 billion shipbuilding defence contract and the company is also developing gas storage at Islandmagee. PM Rishi Sunak recently visited the company’s shipbuilding facility, and the contract appears set in stone.
Key risk: The exact defence contract details have not been decided, and it has not been officially signed yet. Moreover, the UK government does not currently enjoy a solid reputation for reliability.
Premier African Minerals (LON: PREM)
Catalyst to watch: First production at PREM’s Zulu lithium claims in Zimbabwe, which could be one of the largest lithium deposits in the world. Offtake agreements are in place with strategic investor Suzhou, and there is a reasonable chance of a buyout once production has started.
Key risk: Having promised that production will start by circa the end of Q1, any delay could see some investors seek the exit. The volatile political environment in Zimbabwe, which cannot be externally controlled.
Avacta (LON: AVCT)
Catalyst to watch: Avacta’s flagship treatment is AVA6000, a novel form of chemotherapy drug doxorubicin which has been modified with Avacta’s pre|CISION™ FAP-activated delivery platform. Investors believe Q1 will see Avacta reveal that the treatment is effective, with proof that it can both boost the performance of chemo while also eliminating the side effects. If so, it would be one of the most revolutionary advances in cancer treatment ever created.
Key risk: AVA6000 doesn’t work as expected, or further research is required to demonstrate its effectiveness; the recently announced Science Day is actually a request for funding in disguise.
Marula Mining (LON: MARU)
Catalyst to watch: Owns interests in rare earths, copper, and graphite projects, but key asset to watch is the 100%-owned Blesberg Lithium and Tantalum Mine in South Africa. MARU has entered into an agreement with Southern Jade Resources for the advance of $5 million against sales of lithium ore of existing stockpiles at the project. The first tranche has been advanced, covering all capex costs required to start production and first sales should begin in January.
Key risk: FTSE AIM IPO set to be launch in Q1, and while these usually bring significant volatility, there is also a risk that investors will stay away given the wider recessionary environment.
Alkemy Capital (LON: ALK)
Catalyst to watch: ALK has received full planning approval to build a Lithium Hydroxide Monohydrate plant at the Wilton International chemical engineering park in Teesside, the UK’s largest freeport. It expects to produce 24,000 tonnes per annum on its first processing train and is confident it can ramp up to four processing trains to 96,000 tonnes per annum, equivalent to 15% of projected European demand.
Key risk: Financing the construction of the site shouldn’t be too difficult given its location and potential strategic importance. However, the terms of any deal will certainly be a compromise.
Caracal Gold (LON: GCAT)
Catalyst to watch: GCAT is a gold developer with two operations in East Africa comprising more than 1.4 million oz of JORC-compliant gold reserves and is targeting 74,000 oz of gold production per annum. Its flagship is the Kilimapesa 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. Caracal;’ recently entered into an encouraging pre-paid gold purchase agreement with a contract price totalling $10.5 million with OCIM Metals & Mining SA.
Key risk: GCAT shares have risen substantially recently but are now retracing back to lower levels. A further correction in the new year is possible, but the long-term investment case remains strong.
Kodal Minerals (LON: KOD)
Catalyst to watch: KOD operates the Bougouni Lithium Project in Mali, which is expected to produce 238,000 tonnes a year when fully online. It’s now considering a $65 million dense media separation processing plant to be completed by CYQ4 2023, which would pay for itself within two months at current lithium prices. Possible buyout by Ganfeng, given its purchase of the neighbouring Goulamina Project in 2021.
Key risk: A year from production giving time for serious share price volatility. Traders will dip in, and out, and long-term investors will tank an opportunity cost by tying up cash for a longer period before production begins.
Corcel (LON: CRCL)
Catalyst to watch: Corcel owns interests in two nickel-cobalt deposits in Papua New Guinea, a vanadium deposit in Canada, and a Rare Earths project in Australia. All four sites are high-quality projects. It also owns Burwell Battery Storage, a 50MW Cambridgeshire project with an additional 50MW grid connection at the site. Encouragingly, the company was recently able to issue a share placement to raise £466,000 at a whopping 95% premium from AUSPECT Investment PTY Ltd, despite its historically poor share price performance.
Key risk: CRCL has a weak financial position, so will need to either find a strategic partner or sell an asset to bring its projects to profitability.
Atlantic Lithium (LON: ALL)
Catalyst to watch: ALL owns interests in a variety of projects within Ghana and the Ivory Coast. However, its crown jewel is the Ghanaian Ewoyaa Project, a large lithium pegmatite site which in all likelihood will become West Africa’s first lithium-producing mine. The $1.5 billion project is fully funded up to production by titan and strategic investor Piedmont Lithium to the tune of $102 million, and ALL has recently awarded the FEED contract to Primero.
Key risk: Insider ownership remains low, the stock is volatile, and while Piedmont’s involvement means a share placing is unlikely, investors have been diluted in the past.
First Class Metals (FCM)
Catalyst to watch: FCM holds 100% ownership in seven claim blocks covering some 180 square kilometres in the world-famous Hemlo-Schreiber-Harte greenstone belt in Ontario, Canada. Its flagship North Hemlo project is geographically close to a similar mine operated by titan Barrick Gold, and success could lead to partial buyouts of assets. FCM is the only UK-listed miner to have received a grant from the Canadian government to date.
Key risk: FCM is very much in the exploration phase of development, and while it operates in a world-class mining area, there is a long road between now and production.
By Charles Archer
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.
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