3 Risky Micro-Caps with Multi-Bagger Potential

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3 Risky Micro-Caps with Multi-Bagger Potential

The content of this blog (or content associated with it) is not intended as investment advice. Please do you own research.

The companies below are very small, so they are high risk but also have the potential to be high reward.

I’ve put them in order of risk, from lowest to highest (in my opinion only).

As I mention on the weekend podcast, it’s doesn’t take a lot of good news to take a company with a market capitalisation of £5m to £10m and similarly, it takes a heck of a lot of good news for a £1 billion market cap company to become a £2 billon market cap.

In other words, as Jim Slater used to say, “Elephants don’t gallop”.

3 Risky Micro-Caps with Multi-Bagger Potential

ECR Minerals (ECR)
Share Price: 1.9p
Market Cap: £3.5m

ECR has 3 Assets:
It’s wholly owned Australian subsidiary Mercator Gold Australia (MGA) has agreed to acquire 100% ownership of the Avoca and Bailieston gold projects in Victoria, Australia.

ECR has the right to earn a 50% interest in the Danglay epithermal gold project in the Philippines.

ECR’s wholly owned subsidiary Ochre Mining has a 100% interest in the SLM gold project in La Rioja Province, Argentina.

The Story

On 1st September Craig Brown was appointed as CEO of ECR in attempt to turnaround, what has been, a serial dissappointer for investors, under it’s previous stewardship.

Craig has previous form of taking exploration companies through to production and seems intent on doing the same with ECR.

Since his appointment, Craig has brought Christian Dennis on board as a non-executive director. Christian is a highly experienced stockbroker and is currently the CEO and a major shareholder of Optiva Securities Ltd.

Craig has also appointed Ivor Jones, as an executive director of the Company who is a geologist with 30 years’ experience in the industry and is currently practising as an independent consultant based in Australia.

On 27th February ECR announced that it conditionally raised gross proceeds of £553,564 via subscription by the Shenyang Xinliaoan Machinery Co Ltd, based in the People’s Republic of China, for 55,356,391 new ordinary shares at a price of 1p.

This is 29.9% of ECR and it’s subject to 12-month lock-up. ECR have already received a £100,000 non-refundable deposit from Shenyang Xinliaoan Machinery Co, to be converted into ordinary shares at a price of 2p per share, in the event the conditions of the Subscription are not satisfied by 31 March 2017.

The proceeds to be used for drilling programmes in Australia and Argentina and working capital including review of potential new projects and business areas.

The Risk
ECR is a small company and are about to undertake a drilling programme at it’s assets in Australia and Argentina. If the results aren’t positive, then this will obviously have a negative impact on it’s share price. Even though it’s not a priority for them, they are currently in dispute with the majority owners their Phillipines asset, Tiger International, who presently refuse to acknowledge ECR’s 25% interest in the Danglay project.

The Reward
ECR have the cash to carry out their drilling program, on their priority targets in Australia and Agentina. If the results show decent grades, then ECR market cap could surpass £10m relatively effortlessly.

Summary
When I interviewed Craig, he came a across as a down to earth, no nonesense, man who has both the experience and capability of taking this project forward. He’s already made a number of positive moves in the first 6 months of his appointment and I am quietly confident he could replicate his previous successes, at ECR.

 


China Africa Resources (CAF) – Soon to be renamed Pembridge Resources.
Share Price: 3p
Market Cap: £2.46m

The Story
Paul Johnson, formerly of Metal Tiger, stepped down from the board on 17th February to make way for David Linsley, formerly the Executive Director of Behre Dolbear.  Behre Dolbear is one of the oldest mineral industry advisory firms in the world continuously operating since 1911.

This was a surprise move, as many believed Paul would attempt to replicate here, what he did at Metal Tiger, that is, take it from a sub £3m to a £30m cap.

This move was surprising for two reasons, the second being, the strength of the board and advisers CAF are now building:

David Linsley (CEO)
Previously of  Behre Dolbear and CEO of Cross Asset Management Ltd, a UK based hedge fund management company which managed $500 million in assets.

Mr Peter Bojtos (President)
Previous President & CEO of RFC Resource Finance Corp between 1990 to 1992 and was the President & CEO of Consolidated Nevada Goldfields Corp from 1992 to 1993. Mr. Bojtos was also Chairman & CEO of Greenstone Resources Ltd between 1993 to 1995.

Frank McAllister (Advisory Board)
Previous Chairman, CEO and a Director at Stillwater Mining Co, ($2.1bn) after which he became President of the National Mining Association.

Guy Le Bel (Advisory Board)
Until recently, he served as Vice President Evaluations for Capstone Mining Corp ($628.59M)

You can read about their backgrounds by clicking here.

These people have a huge amount of experience, way beyond the usual type of people who you’d expect to see at the helm of a micro-cap comany.

CAF has made 2 Investments to date:
1. US Lithium Ltd, a private Australian company, to acquire up to a 47.5% shareholding in USL. USL has interests in lithium exploration licences in Arizona and New Mexico held through a 100% owned subsidiary company registered in the United States of America.

2. Global Exploration Technologies Ltd, a private Australian company, to acquire a 48.88% shareholding in GET.

GET has five exploration licences in the Kalahari Copper Belt in Botswana held through three Botswanan subsidiary companies.

 

The Risk
China Africa Resources is an AIM listed natural resource exploration and development company but on 14 December China became a Rule 15 cash shell and is required to complete an acquisition or acquisitions that constitutes a reverse takeover by 14 June 2017 or it will face suspension from trading on AIM.

The Reward
You just have to look at the size and geological footprint of the companies the management have been involved with previously, to understand what may happen at CAF. They are no strangers to finding decent assets, arranging finance and getting mines into production. If the people involved in China African Resources leverage their experience and connections, then this company could have some serious potential.

Summary
As I said it’s a risky play, as they have to complete a reverse takeover by 14th June but why would they be building such a team, if they didn’t intend to do this?

 


Infrastra (INFA)
Share Price: 0.545p
Market Cap: £1.91m

The Story

InfraStrata is the only AIM-quoted company entirely focused on gas storage with its project at Islandmagee, County Antrim.

The Islandmagee gas storage project company, Islandmagee Storage Limited, is owned 90% by a wholly owned subsidiary of InfraStrata plc and 10% by a wholly owned subsidiary of Mutual Energy Limited.

The project is a proposed salt cavern gas storage facility located on Islandmagee in County Antrim, Northern Ireland.

Infrastra need £6m to complete their Front-End Engineering Design (FEED) for the above-ground facilities and the sub-surface elements of its Islandmagee gas storage project.

Aside from their EU grant funding and the contractor loans they have in place, they are currently £3m short, which the company is currently seeking.

The Risk

If the Infrastrata management don’t secure the £3m funding, which will allow them to access the £2m EU grant, then this project is, all but, dead in the water.

The Reward
Should the company secure this funding then the share price should experience a major re-rate as the Net Present Value of this project with assumed discount rates are:

NPV(8) = £67m
NPV(10) = £38m

Infrastra’s market cap is currently, sub £2m.

Summary

As I mentioned in the risk and reward section, it all depends on securing the funding, which they are currently discussing with potential funder. You could say it’s a binary bet, either they get it or they don’t.

The content of this blog (or content associated with it) is not intended as investment advice. Please do you own research.

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