My biggest investing success of the last few years has been Anglo Asian Mining (LON:AAZ) - a gold miner based in Azerbaijan. The combination of steady income, significantly reducing (then vanishing) debt, and the start of dividend payments has led to a complete revaluation of the share by the market over the last three years. I thought it would be worthwhile to try and quantitatively identify the numbers that drove the share price increases, and see if I can find other companies awaiting their own revaluations to invest in. I was also driven by seeing two companies at Mello who presented the same story of debt turnaround. If one can open a position, then have the share price rise significantly, and then the company starting to pay a good dividend, then that's a very good place indeed.

Whenever I reflect on it, I'm always disappointed by the lack of coverage of resource stocks here at Stockopedia. I'd love to see some serious coverage of them in the manner of the SCVRs, looking over the figures and analysing their prospects. 

For example, I've always found that mining companies, are much easier to understand that software, fincap or pharma stocks. The basic model is simple - you A) spend years and years spending money and getting nothing back exploring, getting permits, drilling holes in the ground, drawing up a mine plan and getting licenses. Then B) find a lot more money to actually dig a big hole in the ground and buy processing equipment C) actually start producing the stuff and selling it, gradually optimise all your processes, and start to pay back all the money you borrowed, and finally D) once that is stable, go back to exploring at the same time to extend your mine or find a new one before you get to the bottom of your first one. There's plenty of listed companies in each of these phases. I've learnt by experience that the first two phases make for exciting, but very risky investments -  much nearer gambling! There are too many risks of complete failure - not getting one vital permit can scupper the whole thing. 

Once the finance has been raised and you're into phase C, the risk reduces considerably. There's still the obvious risk of the fluctuating price of whatever it is you're producing…

Unlock the rest of this Article in 15 seconds

or Unlock with your email

Already have an account?
Login here