Mining companies often operate in parts of the world that you definitely wouldn’t consider to be safe or politically stable, but despite that many of them operate fairly smoothly and rarely have major issues when it comes to their mines. Of course, investors in such companies need to be aware of all that is going on, and decide whether or not they are prepared to take on this type of risk, but the flipside of that is that often the rewards can be significant if the company is successful and continues to be over a period of time, despite the instability in its chosen country of operation. That would seem to be the case with Hummingbird Resources (HUM) currently, which not only has suffered set backs to its production via Covid and adverse weather conditions, but also has the added problem of a military coup and fighting in Mali, where its producing Yanfolila mine is located. On top of that we also saw a sharp pullback in gold prices at the end of last week, so you might be thinking that all of this combined is a very good reason to completely avoid this company. But I would argue completely the opposite for those who have more tolerance for risk and are prepared to take speculative positions with potentially high rewards if they are proven correct, and would view the current level of around 32p as a buying opportunity, with a view to the share price being significantly higher at some point this year...
So far this company hasn’t really lived up to its potential and has had its fair share of problems, plus concerns about the remaining life of operations at Yanfolila, based on current reserves. A lot also depends on whether or not you view this drop in gold price as a temporary blip or the start of a more significant retrace in the commodity price. Personally I see it as a temporary drop as I see enough macro-economic factors to ensure that gold remains strong in at least the near term, plus I suspect that we will see nations such as China continuing to increase their reserves of the metal. The company is also actively drilling to move some of its existing resources into reserves, as well as expanding that resource base – prior to 2020 it had 676,000 ounces of reserves remaining, with most of that having been exhausted by 2024 via annual production in the 100,000 to 120,000 range. The issues it has faced this year - including having to mine softer ore to preserve its milling equipment at a time when getting parts for the machines has been difficult due to Covid restrictions and border closures, plus extreme bad weather - has meant that it won’t hit its guidance range of 110,000 to 125,000 ounces, and by the end of November it had produced around 93,000oz. That obviously isn’t ideal, but that gold will still be produced over the next few years so the loss of production was temporary rather than permanent. The company has also had some recent exploration and appraisal drilling success at Yanfolila, including discovering a new zone of mineralisation not included within the current resources. Drilling is ongoing and the company expects to release an updated resources model by the end of this quarter. Aside from the new discovery, the drilling at Yanfolila is designed to bring as much as possible of the current 1 million ounces of resources into the reserves category.
The company has decent levels of cash for this drilling, with $9 million in the bank as at the end of September, as well as having significantly reduced its bank debt the previous quarter $7 million to $19 million. That net debt of $10 million also doesn’t take into account the 4,600oz of inventory it had at the time which was valued at circa $9 million. So I see no cause for concern on that front – even more so when you consider that the production issue, particularly the weather, had increased AISC costs to $1,238/oz for the quarter, and well above annual guidance of $995/oz for the year, and with an average gold sale price of $1,919/oz. So as long as gold prices remain strong and AISC can be reduced back down to predicted levels, the cash generation potential increases dramatically – during that quarter, if AISC had been in line with annual expectations the company would have generated an additional $6 million odd in operating profits for the three month period. The company also diversified its operations via the addition of the Kouroussa gold project in the Republic of Guinea, via the payment of £10 million in shares (once the licence has been reassigned to Hummingbird) priced at 28.4p. Further drilling will be carried out at Kouroussa and a development plan will be made to fast-track the building of a mine targeting annual production of 100,000oz at an AISC of around $800/oz over an initial five year period, with potential to expand and tap into the full 1.18Moz of high grade (over 3g/t) resources already identified at the project. At an earlier stage but still with potential, Hummingbird also has the option to earn up to a 49% stake in the Dugbe gold project in Liberia, where 4.2Moz of resources have been identified, and over the next couple of years the company will earn its share via exploration drilling plus completion of a definitive feasibility study.
Overall, I certainly see enough potential here to make things interesting if gold prices remain high, and which offer enough potential upside from a market cap of around £116 million to make things interesting. You do of course have to consider the risk in Mali and the impact that would have on the company if there was any sort of significant disruption to its operations, but it is also worth bearing in mind that gold mining makes a significant contribution to the economy of Mali. On that basis, I view Hummingbird as a speculative leveraged play on future gold price strength. There is also enough news flow to come that it is also worth considering the shares as a shorter term trade as well over the coming months and they could easily go back up above the 40p level again.
Filed under: Hummingbird Resources, Octagonal, John Gunn, Directa Plus, Nilesh Jagatia, InnovaDerma, Twitter
RISK WARNING & DISCLAIMER - FiveFreeShareTips.com tips are provided by independent authors via a common carrier platform and do not represent the opinions of FiveFreeShareTips.com. FiveFreeShareTips.com does not accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at FiveFreeShareTips.com and via emails you receive from [email protected] are for your general information and use and are not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by the tipsters or FiveFreeShareTips.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Trading shares involves the risk of loss. The tipsters and FiveFreeShareTips.com shall not be liable for any losses or other damages incurred. The value of investments can go up or down and the past is not necessarily a guide of future performance.
Well actually it will be six. One every week day and one on Sunday, each landing with you at 11 AM sharp.
Unlike other services (which may always have a vested interest) we pride ourselves on our impartiality and cover all small caps including AIM. the Standard List, The Wider Main Market and NEX.
We cover small caps, penny shares, FTSE 350 stocks and blue chips. We look for red hot penny shares, Warren Buffett style value investments with yield and growth stocks. There is no technical analysis in our work just solid fundamental analysis from a team of experts with decades of stockmarket experience.
You will not agree with all we publish but if you are interested in small caps you cannot afford to ignore it either. Yo'll never be charged for the free share tips from Five Free Share Tips and given the star writers involved you know that they will move share prices.
There's no telephone number or postal address required and there is no charge, ever, for your Five Free Share Tips membership. Just free shares tips every day apart from Saturday And each day's share tip will not just be a few thoughts cobbled together but will be detailed analysis from experts.
Our experts do not just earn their living from writing. All own shares. If they own shares in a stock they cover they will declare it and will not sell until after advising a sell to our readers. And why not our tips are so good that why shouldn't our readers put their money where their mouth is?
Don't just take our word for it! Judge us on the calibre of our free share tips and join today to start receiving them from September 1 2017. If you don't like what you get delivered to your inbox unsubscribe and you will never hear from us again. So why not give it a go? Sign Up Now
We've put together a panel of top tipsters, including:
Tom Winnifrith, in his 27th year writing about shares, noted fraudbuster & dubbed "The maverick Tipster"
Chris Bailey, City whizz kid turned financial guru, rated as one of the top 50 commentators on shares on twitter, founder of Financial Orbit
Steve Moore, has worked with Tom Winnifrith for all bar 3 weeks of his working life - a noted commentator on value stocks
Malcolm Stacey, The Grandfather of Share Blogging, the founder of ShareCrazy & a best selling autthor of stockmarket books
Lucian Miers, the Bard of the Boleyn, one of the UK's best known short sellers
Gary Newman, writes about value investing on AIM, speciality is in share tips on oil and mining companies
Nigel Somerville, The Deputy Sheriff of AIM, an expert in forensic analysis a skill used to bust frauds but also to tip true value investments
The team from HotStockRockets, specialising in AIM and small cap shares which will fly on a three month view
Remember to book your place at the UK Investor Show 2018. The UK’s top investment show taking place on Saturday 21 April 2018 at the Queen Elizabeth II Conference Centre in Westminster, London. The show will feature a unique line-up of top speakers including Nigel Wray, tech queen Vin Murria, Dave Lenigas, Mark Slater, Tom Winnifrith, Adam Reynolds, Ed, Croft, Nick Leslau Luke Johnson and Dr Johnny Hon as well as 135 exhibiting small cap companies.
The hot share tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the share tips contained here should seek independent advice from a Financial Conduct Authority authorised Stockbroker or Financial Adviser. We cannot be held liable if individuals suffer losses through following share tips contained on this site or emailed out as free share tips. The value of investments can go down as well as up. The past is not necessarily a guide to future performance. Investing in shares can lose you part or all of your capital although the potential returns are theoretically unlimited. The difference between the buy share price and the sell share price for smaller company shares (penny shares) can be significant. Profits from dealing in shares may be liable to tax - the level of tax and bases of relief from tax are subject to change. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Some of the shares recommended on this site will be smaller company shares. By their nature such investments can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares (or 'small caps'/'penny shares'). FiveFreeShareTips.com & its sister site ShareProphets.com defines a smaller company share as any stock traded on AIM or NEX or which has a market capitalisation of less than £300 million.