Bought at 3p on 04/01/21

Company website

Background

One of my aims for the new year was to find some new companies to invest in with the remaining cash in my portfolio. This is certainly not a low risk strategy. Many advocate for leaving a decent percentage holding of cash in your portfolio. This helps to mitigate against the possibility of an economic downturn, as well as providing a useful safety net in your portfolio.

That said, my investing strategy is high risk – so to hell with holding cash for the sake of it! Idle cash is not only unproductive, but is a guaranteed loss to inflation. I’m looking to hold winners – and cash is not a winner.

That said, I’m still looking to keep my portfolio relatively diverse. Power Metal Resources (the first of the 3 new positions I’ve opened) achieves this.

POW is a ‘metal exploration and development company’. Currently, my only other mining position is Bushveld Minerals. This is a long term play on a vertically integrated vandium producer. I’ve invested in Bushveld because I have conviction in the industrial use of vanadium, and more importantly, the company’s key position in the market.

POW is in fact a very different mining play; relying instead on the finding and excavating of metals. This is a market I’ve been very keen to get into, as the upsides – if the company (literally) strikes gold – are enormous. I recall the stories of Eurasia Mining, which rose from 3p to 30p last year, and Greatland Gold, which rose from 1.8p to 33p.

Investment Rationale

The main reason I’m bullish on POW is their diverse range of exploration projects. When it comes to resources, there is always a large risk on any individual project that the resource may not be found. By having 9 current projects, POW is effectively hedging against this risk. Not only that but the more exploration the company conducts, the higher the chance of successfully finding large-scale metal deposits. The current projects can be found in the summary below, found here. As you can see, further diversification can also be seen by the different metals the projects are focused on.

Key to my investment in POW is the active communication between the company and shareholders. POW publishes some of the most frequent business updates of any AIM company. This is not only helpful for current investors, but is incredibly beneficial for attracting new, potential investors. As CEO Paul Johnson points out in this interview back at the start of 2020, a constant news flow should help attract volume of interest into the company which should reflect on the share price. His prediction has proven to be correct so far, with the share price rising 10x last year.

Despite this rise in the share price though, I expect it to continue. The company still only has a market cap of 30m. For reference, when Greatland Gold rose by 1700% last year (after announcing positive results from their drilling), they were already worth about 80m. The potential for further multi-bags is therefore definitely possible for POW if positive news-flow continues.

It’s difficult to have any particular valuations in mind as all the projects are still currently in the green field stage. That said, given the value is currently on sentiment alone, I would expect the continued quantity of news updates to push the SP higher and higher.

Key as well, is that POW is fully funded for the time being. This is crucial as a major reason exploration companies go bankrupt is by running out of funds. At the moment this is not a problem. Paul Johnson has stated that if they need to raise further capital in the future, this will be done by issuing new shares at the current market value.

Indeed the CEO Paul Johnson is a major reason I’m invested. He has had considerable experience both as an investor and on the boards of other mining companies – including ACP which I’ve just bought (research notes to follow shortly). His message has been consistent across all the interviews I’ve seen him on – the aim is to deliver maximum value for shareholders. He currently owns about 6% of the shares.

Summary

• Fully funded at the moment
• 9 current green-field projects ongoing
• Experienced CEO with skin in the game
• Enormous potential upsides on the discovery of metal deposits
• Frequent news-flow