By now everyone would know that I actively trade (buy and sell) penny stocks. But not all of you would be aware that sometimes when I have spare investment funds, I like to invest in them for the longer term rather than trade them based on technical analysis.
Why I Invest in Penny Stocks?
In short – the reasons why I like to invest in penny stocks is because:
- They provide massive returns on investment. In some instances I have been able to make returns of over 500% per year.
- They don’t respond to what the greater market is doing and respond solely on news and technicals.
- Any losses that I incur are just deducted from my future gains.
- Bank interest is only 3.5% per year. Most penny stocks will return that within 1 to 5 days.
My Penny Investments and Predictions
Here I will go through the 4 latest mining penny stocks that I bought and why. Hopefully this will give you an insight into the type of things I like about these penny stocks and why I bought into them. Note I have stuck to mining stocks for this post as that is what I am most familiar with and because there are SO MANY to choose from on the ASX.
Stock 1: SEGUE RESOURCES LIMITED
What I like:
The original reason that I bought into this stock was because it came up on my weekly scans as having a good chance of breaking upwards in a hurry. The chart tells me that it should go to 2 – 2.5 cents in the near future.
After I did some research though I decided that this is a good candidate for a longer term hold / investment opportunity. You see this company has very large land holdings (over 3,500km) on a prospective bit of land known as the Fraser Range (see red and black outlined areas below – the black dots are significant deposits).
They are looking for Nickel in an area where another company recently discovered not 1 but 2 world class Nickel deposits, which sent that company’s share price from 5c to $5 in less than 1 year. Anyway this company picked up all this land for a paltry sum of $200,000 in cash, and $1.1 million in SEG shares, plus a large part of the area has had high-resolution aero magnetic data completed, so they know exactly where to dig.
Another thing that I like about this company is that the share registry is tight, with the top 20 shareholders own 75% of the company. That means that if it takes off, it should take off quickly.
The company is scheduled to do drilling sometime midway throughout the year on these newly acquired land holdings, and I suspect that leading up to that drilling there will be a substantial share price rise as people eagerly anticipate the results.
The company has very little money and will likely need to do a capital raising either by asking existing investors, or by issuing shares to a institutional investor before the end of the year.
I expect that the share price will rise right up until the drilling is started and then again until the results are released. If they hit something then expect it to go further, if they hit nothing then expect it to tank back down to below current levels. My plan of action is to wait until drilling is almost complete and then sell some of my shares to lock in profit and leave the rest on the table in case they find something of worth on their tenements.
Stock 2: RED MOUNTAIN MINING LIMITED
Note that with this stock I actually purchased options rather than the ordinary shares. The reason for this is that I can maximise my returns by buying the options as they are priced cheaper than the ordinary shares, but should more in lockstep with them.
A quick example with RMX and RMXOA. At the time of writing RMX is available at $0.023 and RMXOA is available at $0.011. If the share price increases by $0.001 then the RMX shares make a return on investment (ROI) of 4.35% whereas the RMXOA makes a ROI of 9.09%. Over time if the price goes up substantially then I should get rewarded with about double the returns by selecting RMXOA options instead of the RMX shares. I just have to either sell them before the expire (in 2016) or convert them into ordinary shares by paying 3c per option.
What I like:
This company has been finding really good gold grades over the last few weeks and is in the middle of a re-rating. They are going to be releasing an updated resource estimate soon which I expect will beat market expectations. If they continue to find good amounts of gold, then there is no reason why this company can’t zoom to a market cap of at least $30-40 million, which is double what it is now.
The resource estimate is not what the market expects and the share price tanks. This is a moderate risk, but if the company continues to make these better than expected gold finds, and the price of gold increases then there should be limited risk.
I expect the share price of RMX will move up to 5 to 6 cents and so RMXOA should move up towards 2.5 to 3 cents if the report to be released soon is good which would give me a good 100-150% profit. If the report is bad or indifferent and drill results fail to deliver then this will go back down very quickly.
Stock 3: MOZAMBI COAL LIMITED
What I like: I like a lot about this stock. First is that it has some coal tenements in a Queensland coal hot spot called the Bowen Basin. It picked up this land from Rio Tinto recently when they divested of non core assets (they are primarily a iron ore, copper and gold company) for just $375,000.
The land has been drilled by Rio and they found coal multiple times over, so we know there is something on the land. Plus this land is surrounded by plenty of other big players, rail and power.
Coal is out of favour at the moment, but it won’t be forever. Considering the fact that there is coal in the ground, they are in the middle of the big boys and they 100% definitely have coal – this is a no brainer.
They don’t have much cash in the bank, but I suspect they will easily get funding for such a prospective piece of land.
MOZ is undertaking drilling towards the middle of this year and so I expect they will be targeting areas with a good chance of success to help raise the share price. If they find enough coal they will do a resource estimate and I suspect one of the bigger companies in the area will make a takeover bid for MOZ. At the very least I expect this company to move towards a market cap of 40 million if they find more coal, and even 10-20 million leading up to the drilling.
Stock 4: CORE EXPLORATION LIMITED
What I like: This company recently acquired land right next door to Olympic Dam – possibly the most profitable mine in Australia, if not the world. It is HUGE and almost the entire amount of land around it has proven to be equally resource rich. This company has also been fortunate enough that the government spent money doing surveys of the land, which means that CXO now knows exactly where to drill to get the best chance of success.
This company also has other tenements with proven silver resources. At a $4 million market cap – it is very cheap when considering all the potential.
They only have a small amount of land, but if they find what they are looking for it shouldn’t matter at all.
I suspect that if they find something then either BHP or OZ Minerals will buy them out, as they are right in the middle of both of these giant companies. A market cap of 4 million is stupid low considering both land holdings they have. I was going to buy some of these on Friday last week, but the share price jumped 25%, so I am waiting to see if there is a retrace before entering.