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It’s not uncommon for a penny stock to swing wildly from one day to the next. With a smaller pool of active investors for these higher-risk investments, relatively small trades can have a big impact on a company’s share price in either direction. That’s why the recent stock market performance of GCM Resources (LSE:GCM) stands out.
From 14-24 August, its share price increased for seven consecutive trading days. Over this period, it soared 467%. Since then, it’s fallen slightly but it’s still (7 September) 377% higher than it was on 13 August. It means an investment of £5,000 made just over three weeks ago, would now be worth an amazing £23,881.
So what’s going on? More importantly, is it too late to consider investing? Let’s take a closer look.
What does it do?
GCM Resources owns a coal mine in Phulbari in North West Bangladesh. Immediately, this is likely to alarm some investors. After all, isn’t coal a thing of the past given the world’s move towards net zero?
However, around one third of global electricity is still generated from this particular fossil fuel. There’s clearly a big market for the 572m tonnes that’s estimated to lie beneath the ground.
Indeed, the company claims that the mine will “provide the basis for a step-change in the country’s electricity generating capacity”. Overall, it estimates that 1.5% ($3.4bn) will be added to Bangladesh’s GDP each year.
Why’s the stock soaring?
The recent share price rally coincided with comments made by the country’s minister of finance confirming that “active consideration” is being given to coal forming part of Bangladesh’s future fuel mix.
However, the government’s yet to give a green light to operations. Of concern, the company’s website says “…a Scheme of Development… was submitted to the Government… in 2005 and still awaits approval.”
How frustrating this must be to the group’s directors and owners.
Big risks
But until approval is received, GCM Resources will burn cash and continue to be loss-making. At 31 December 2025, its balance sheet disclosed £706,000 of cash and £6.49m of borrowings.
In February, the company completed an equity raise of £1.25m for working capital purposes. A month earlier, it asked shareholders for £1m. Given that the group doesn’t have any income, I suspect further funding rounds are inevitable.
How much is going to be needed before the mine is up and running? To be honest, it’s unclear. The waters are further muddied by the group’s intention to build three power stations to burn the coal produced. Of course, these won’t be cheap.
To compound matters, mining’s an incredibly challenging industry. There are numerous operational, financial, political, and environmental risks that have to be addressed.
For a start, there are no guarantees that the 572m tonnes are recoverable. Only 288m tonnes are classified as ‘measured’, the highest of three levels of confidence assigned to the mine’s reserves.
My view
GCM Resources isn’t the sort of stock I like to hold. It’s too risky for my liking. Any investment made today is likely to be diluted by further requests for money from shareholders. I reckon those that like the sector should look at a mining company that’s already up and running.
In my opinion, there’s a better buying opportunity to consider elsewhere…
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James Beard does not hold positions in any of the companies mentioned.
This story originally appeared on Motley Fool
