Best Penny Stocks to Buy in the Commodity Space
All you out there in the Nation know, I love my penny stocks. This goes all the way back to my days as a venture capital analyst, finding these tiny companies with big potential. You also know, we’ve been following the commodities boom pretty closely. The price of copper has jumped 118% in the last year and estimates are that it could double again. Corn and other grain prices are up more than 50% this year and lumber prices have surged 280%…adding an additional $36,000 to the average home cost.
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Finding the Best Commodity Penny Stocks
Putting the two ideas together to find the best penny stocks to buy in that commodity space, among the miners and producers, could be your best opportunity of the year. In this video, I’ll show you why the commodities boom could become a super-cycle and how this translates into an undiscovered opportunity in penny stock miners. Then I’ll reveal seven penny stocks to watch that are front-and-center to benefit from not only the commodities boom but from the wave of acquisitions that could be coming.
Nation, the commodities boom is undeniable with double-digit price increases on everything from metals to lumber and agricultural prices. Record monetary stimulus and economic growth as high as 8% this year has Goldman Sachs predicting a super-cycle in materials, as much as five to ten years of surging prices.
The Rise of Commodities
The last super-cycle started in 2002 with booming economic growth in China and the BRIC countries, eventually pushing commodity prices up nearly 160% through 2012. The price of gold jumped 573% to a record over the decade. And this cycle looks to be developing faster with the global commodity price index up 50% already in the last nine months.
It’s this record stimulus, forcing trillions of dollars into the economy, the rebounding growth and devaluation of the dollar that is pushing commodity prices through the roof. But the problem is, and part of the reason for surging prices, is you can’t just flip a switch and produce more of this stuff.
It takes years to explore, test, get the permits and develop a new copper or gold mine. Total area farmed in the U.S. has decreased every year since 2000. There are now 48 million fewer acres in use, producing the corn, soybeans and wheat to feed the world.
This means, exploding demand and limited supply should support prices for years. It also means, because they aren’t able to boost production quickly to meet that demand, the major players in the space could set off an acquisition boom, buying up as many of the smaller penny stock companies as possible.
That’s why I’m watching these penny stock companies, the wildcat explorers and miners with the new projects already permitted and developing that could be targets for an acquisition.
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7 Penny Stocks to Buy Now for the Commodities Super-Cycle
First in our penny stock list is Gold Royalty Corp, ticker GROY, a $200 million royalty company out of Canada.
The company acquires royalty and stream rights and other interests in mines at different stages of the mining cycle for a balanced portfolio. It’s a different business model than the mining penny stocks we’ll look at but a great way to diversify a portfolio of miners. Royalty companies are excellent cash flow investments because they have rights to these mines but not the production costs, so they tend to pay out much higher yields.
The current portfolio includes 18 royalties between 0.5% to 2% ownership on 12 projects across the Americas and additional rights to acquire nine more royalties. On just the current portfolio, that’s more than 14.7 million ounces of gold on a measured and indicated basis and over 17 million inferred ounces.
And while I’m not as bullish on gold as I am some of the other commodities, gold miners can still do really well because the cost of bullion is so much higher than production costs. You can see here that even on fairly modest increases in bullion, shares of Gold Royalty have jumped 8.8% over the last month, about double the increase in the price of gold.
So even if interest rates keep the price of gold range-bound, miners will see cash flow continue to increase and royalty companies will send that cash straight on to investors. The company has a strong balance sheet with over $87 million in cash and equivalents against no debt so lots of financial flexibility to acquire more of those rights from companies and benefit on this trend.
Next here is $351 million Talga Group, ticker TLGRF on the OTC market, an integrated producer of lithium battery anode products out of Sweden.
The company is building a graphite anode facility to produce low emission coated anodes for lithium batteries. It also owns high grade graphite projects in Northern Sweden, close to battery megafactories. So Talga isn’t a pure-play miner but an integrated company with the resources and production in one of the hottest trends right now, lithium ion batteries.
Like most of our penny stocks on the list, Talga is very much a pre-production company but has the permitting and approvals underway to begin. Actual production is expected to start in 2023 but this company could become a takeover target before then on its low-cost battery anode production.
The company has a net cash position with $32 million on the balance sheet against just $157,000 in debt so it does appear they have the financing and cash needed to make the project a success.
Next here is a penny stock under $1, Great Panther Mining, ticker GPL, a $290 million gold and silver miner.
The company operates mines in Mexico, Brazil and Peru and actually grew production last year when most miners saw a drop due to pandemic closures.
Revenue was up 31% last year to $261 million and the company lowered its production costs to just $1,228 an ounce on an all-in-sustaining cost basis. Even on guidance for $1,400 AISC this year, that still leaves a lot of room for profit on the current price of gold.
Great Panther has $63 million in cash and equivalents against just $33 million in balance sheet debt, so more than 10% of the market cap of this company is net cash.
I highlighted Taseko Mines, ticker TGB, in a video mid-January when it was trading at $1.39 a share. It’s up 63% over the four months but could still have upside potential on that trend in copper prices.
Between the economic growth we’re already seeing come through and the potential for infrastructure spending, copper prices could continue to rush higher.
Taseko is also further along than some of the others on our penny stock list, already producing out of its Gibraltar mine. It’s got near-term development in Florence, Arizona and three longer-term projects in Canada. On top of 60,000 tons of production with a remaining mine life of 18 years at Gibraltar, the Florence and other projects could add another 125,000 tons of production and at cash costs as low as $1.13 per pound.
The company booked $343 million in revenue over the last year and should turn profitable this year. Now the balance sheet isn’t quite as healthy as I’d like with only $86 million in cash against $363 million in debt but it’s in that revenue generating phases and cash flow shouldn’t be a problem with the boom in copper prices.
Nevada Copper, ticker NEVDF, is the lowest stock price in the list though not the smallest company by market cap at over $430 million.
The company has one mine in production with expansion upside and another permitted, both in Western Nevada near the Reno Industrial Center.
With reserves of 4.4 billion pounds and an estimated additional 2.6 billion pounds of copper in exploration upside, the company is primed to benefit from the boom in copper prices.
It’s got just $22 million in cash versus $204 million in balance sheet debt, so quite a bit shakier here on the fundamentals but a strong leverage to copper prices. With copper now at $4.72 per pound, the project value is well over $3 billion on an NPV basis.
Uranium Royalty Corporation, ticker UROY, is another one I’ve highlighted on the channel back in mid-February at $2.33 a share. The shares have jumped 50% in the three months and are now trading on the Nasdaq under the new symbol.
URC is the first to apply the royalty model to uranium assets, so it has a partnership interest in uranium projects, receives the cash flows and passes that through to investors through a dividend distribution.
The company has a diversified portfolio across North America and in every stage of development from permitted projects, production and exploration. It’s partners include some of the largest uranium miners in the market like Cameco, RioTinto and UEC. And you can see how this is set up. For example, the company has a 9% interest and 1% gross overriding royalty in the McArthur River project run by Cameco in Canada. The project is licensed to produce 25 million pounds a year with proven and probable reserves of almost 392 million pounds.
The company has a strong balance sheet with $38 million in cash and securities for acquiring assets. And again, in that royalty business model, the company is like a fund of projects and benefits from the investor interest in assets without the operational mining costs. So URC has fixed operating costs, no development or capital costs, just a steady cash flow from that diversified portfolio of assets.
Another copper producer, Amerigo Resources, ticker ARREF, just popped over $1 per share and $212 million market cap.
The company owns the Minera Valle Central project in Chile in partnership with Codelco, the world’s largest copper producer. The project has ramped production from just 26 million pounds in 2003 to over 55 million pounds last year.
The company has a long-term power supply contract that locks in a big portion of costs and is highly leveraged to copper prices. At around $4.80 per pound, Amerigo is forecasting $79 million in EBITDA earnings. The company booked $159 million in revenue over the last year and 212% growth in the last quarter so definitely one to watch.