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When we see a penny stock come close to six-bagging in a month, we’ve lost the chance to get in cheap, right? But what if the shares are still priced at not many pennies?
That’s the way GCM Resources (LSE: GCM) is looking right now. It’s price is just 17.7p, at the time of writing, and we’re looking at a market-cap of only £66.5m. So what’s been happening, and what might be next?
What does it do?
GCM’s big project is its Phulbari Coal and Power Project in Bangladesh. And it’s what’s behind the big August price spike. The company’s been waiting for the green light from the government for years now, and it sounds like it might be on the verge of getting it.
Bangladesh has around 8,000MW of coal-fired generating capacity, though it’s mostly fuelled by imported coal. And GCM says Phulbari could supply around 60% of domestic demand.
Then on 17 August, Bangladesh’s finance minister made an announcement. The country is finalising its energy mix plans and it’s actively considering coal and gas along with renewables — including further coal-fired power.
Coal tomorrow?
For exploratory mining companies, a move like that would be very welcome. But for many, it might signal only the start of moving its mines from exploration to producing actual deliverables.
GCN however, reports Phulbari is already development-ready, with extensive feasibility studies, environmental assessments and technical planning completed. So it’s already a significant way along the path.
But there’s a major milestone still to be achieved. GCM isn’t profitable. And it’s led debt to build to a net figure of £4.9m by the end of 2025. Looking at the firm’s debt-to-equity ratio of 15.9% though, that’s actually not too bad. I don’t see it as a major balance sheet threat.
We have no forecasts to go on at the moment. And even if we had, they’d have been thrown up in the air by this latest political development.
So what’s next?
GCM reckons it has around 472m tonnes potentially recoverable from Phulbari. That’s a lot of coal! If Bangladesh’s energy plans go in its favour, this could potentially be the start of something good that could last for years.
The problem is, nothing’s been finalised yet. And GCM’s hopes and dreams hinge on the ‘p’ word… politicians. I hate it when a company’s fortunes depend pretty much entirely on what politicians want to happen — and that’s in any country.
It’s against a background of political risk facing any UK company operating in the developing world.
Typical growth decision
If any company right now shows those classic signs of a typical penny stock risk/reward balance, it has to be GCM Resources. In my younger days, I’d almost certainly go for this one. And I think growth stock investors who don’t mind the risk should treat it as one for consideration.
And you know what? I’m actually toying with the idea of a very small investment. Perhaps alongside a hot dividend stock I have my eye on…
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Alan Oscroft does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
