Picture supply: Getty Pictures
This time final yr, Anglo Asian Mining (LSE: AAZ) was very firmly in penny share territory.
Since then nonetheless, the share has jumped a surprising 83% in worth. Can this efficiency assist present me with any classes for when I’m assessing potential penny shares to purchase for my portfolio in future?
Proper place, proper time
The corporate’s give attention to treasured metals and copper has positioned it effectively to learn from surging metallic costs. Final yr noticed copper costs carry out solidly, silver hit an 11-year excessive, and the yellow metallic hit a brand new all-time excessive.
So numerous Anglo Asian’s share worth efficiency displays the truth that it operates in markets which are driving excessive. Typically it’s straightforward to anticipate {that a} given market could do effectively and typically it’s not.
Ideally although, I want to not be too extremely uncovered to very cyclical markets until I’m assured I get in pretty near the underside. Even after the latest rise, Anglo Asian shares are 20% decrease than 5 years in the past.
Investing is concerning the future
Anglo Asian’s interim outcomes talked of its ramp-up to full manufacturing being underway. However suspension of some actions throughout the first six months of the yr meant that revenues fell by over 50% year-on-year.
A revenue within the prior yr interval was changed by a loss. Manufacturing of all three metals was down markedly.
In lots of firms, a dramatic minimize in manufacturing and revenues, accompanied by a loss, would see the share worth crash not rise.
However clearly, in latest months Anglo Asian shareholders have been trying on the future potential as soon as momentary setbacks have been a factor of historical past and the corporate might get again to a a lot greater degree of manufacturing once more.
On high of that, its giant copper reserves could possibly be extra absolutely exploited as the corporate develops extra infrastructure at a key website.
Focus threat
That’s attention-grabbing as numerous penny shares – particularly within the pure sources sector – are centered on an funding case about future manufacturing potential. One factor that helped set Anglo Asian aside, in my opinion, was the truth that it had already demonstrated it was in a position to mine and promote at quantity.
Certainly, the corporate introduced this week that, after resuming full processing at its key mine in the latest quarter, manufacturing greater than doubled in comparison with the prior quarter.
However — once more like many shares within the pure sources sector — the flipside of specializing in just some metals is that, if costs transfer down sharply, Anglo Asian’s profitability will seemingly comply with. Its heavy give attention to one mining territory (Azerbaijan) is constructive when it comes to making the enterprise much less advanced to function, however ties the agency’s fortunes extra carefully to geopolitical dangers there than if it had a extra diversified portfolio.
That — and cyclically excessive treasured metallic costs — places me off shopping for this one for my portfolio simply now.
However among the elements above that separate it from another penny shares –akin to a confirmed enterprise at scale – do give me meals for thought when assessing penny shares to purchase for my portfolio.
