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Metals Exploration (LSE:MTL) is a barely-known penny inventory that I believe has potential to ship my finest ever positive aspects.
The AIM-listed gold explorer trades for two.7p per share as of 21 February 2024 — that’s tiny.
However having executed the digging, I see document income in its monetary statements. And one in every of my most popular worth metrics is flashing a purchase.
Any price-to-sales (P/S) ratio of lower than one is taken into account good worth. Metals Exploration is buying and selling on a P/S ratio of 0.46.
Mining for gold
The enterprise is the only proprietor of the Runruno gold mine within the Philippines. And the corporate is increasing.
CEO Darren Bowden introduced in January 2024 the corporate is taking a 72.5% stake in YCM. It owns the rights to the Abra tenement, a 62 sq. mile gold improvement 130 miles north of Runruno.
Traditionally the area has produced over 40m ounces of gold.
Revenue with objective
This 12 months Metals Exploration forecasts income 5 occasions larger than any 12 months since 2017, at $58.5m (£46.4m).
When the FTSE 100-obsessed market wakes as much as this reality, it might ship the corporate share value hovering.
The opposite factor I actually like is a very excessive return on capital employed (ROCE). This can be a measure of how a lot cash the corporate produces from what it spends. Within the final 12 months the miner has produced an 86% ROCE.
Its fourth-quarter outcomes to 31 December 2023 additionally present document annual optimistic free money move of $72.3m (£57.3m). And earnings per share are slated to leap from 0.45 cents to 2.40 cents.
Ensuing details
The latest Metals Exploration half-year outcomes to 30 June 2023 present:
- File working revenue, up 231%
- File gold manufacturing, up 45%
- Debt lowered by 47%
After I final checked out Metals Exploration, I discovered web debt of $92.9m too excessive to think about an funding. Paying that right down to $48.8m feels a wise transfer.
Issue the dangers
At this finish of the market, there’s decrease liquidity — fewer patrons and sellers. There’s some foreign money threat right here too: the corporate additionally stories its earnings in US {dollars}. And web debt is definitely an element.
However including new licenses to its secure of mining operations appears like a stable transfer to me. And a price-to-earnings ratio of simply two suggests both:
- The market has low confidence within the inventory
- The market is dramatically mispricing the inventory
I’m leaning in the direction of the latter. Its annual income of £125m is greater than double its £55m market cap.
And from lower than £1,000/ouncesin 2017, gold is now promoting for over £1,600/oz. So the excessive present market value of gold will enhance every thing from income to the power to pay down debt.
Smaller is healthier
Investor James O’Shaughnessy famously touted “large returns” from tiny shares. This technique is larger threat, however produced an annual compound return of 20.05% over 40 years.
The FTSE 100 has returned a mean of 6.9% a 12 months over the identical interval.
I do know from expertise that penny shares can massively outperform. However provided that I decide on the idea of booming income and robust administration.
