Buying shares in small-cap companies can be hugely rewarding for risk-tolerant investors, particularly if game-changing news is just around the corner. Here are two examples from my own portfolio that I think could be set for a transformative 2018.
Positive developments
I last looked at AIM-listed fertiliser play Harvest Minerals (LSE: HMI) almost a year ago. Back then, the company had only just received the trial permit for its Arapua resource in Brazil.
Despite making nothing but solid progress, Harvest’s shares fell out of favour with investors for most of 2017. Recent developments suggest all this could be about to change.
In November, Harvest announced hugely encouraging test results relating to its direct application natural fertiliser and remineraliser product — KPfrtil. In contrast to traditional sources, it was found that only a very small amount of potassium from KPfrtil was lost from leaching before it could be used by plants. As a result, Harvest’s product will only need to be applied in a single dose — a massive draw for potential customers.
In addition to this, Harvest stated that its pre-certification sales drive for KPfrtil was “progressing well” with the company expecting demand to increase once it is officially certified by the Brazilian Ministry of Agriculture, Livestock and Supply (MAPA). Approval on this is likely to come early in the new year.
In a further positive development, Harvest informed shareholders that the Brazilian Government had approved a bill that would see a reduction in royalty rates of fertiliser projects from 3% to just 0.2% as part of an effort to boost the country’s mining sector and the general economy. Thanks to its low production costs and potentially huge margin, Harvest is expected to “benefit significantly” from this decision. Indeed, assumed royalty costs of $1.58/t based on sales of $60/t of product have now been slashed to just $0.12/t.
With Brazil determined to become self-sufficient in fertilisers by 2020, I’m quietly confident that Harvest could easily test previous share price highs in 2018.Â
Multi-asset company
Horizonte Minerals (LSE: HZM) is another Brazilian-based company I’ve taken a liking to, albeit more recently. As discussed previously, the £47m cap miner owns the potentially-very-lucrative Araguaia nickel resource. Given that the Feasibility Study on this is both imminent (due to land early next year) and highly anticipated, it’s perhaps not surprising that the business has doubled in value over the last five months.
However, it was last week’s news that I think could convince even more investors to take a position in the company.
In a move that appeared to surprise the market, Horizonte revealed a deal to acquire the advanced stage Vermelho project from mining giant Vale and, in doing so, become a multi-asset company. For just $8m ($2m of which will be paid upfront with the balance due on the first commercial sale of product), Horizonte has purchased an asset which offers annual production capacity of 46,000 tonnes of nickel and 2,500 tonnes of cobalt.Â
With Vermelho now under its belt, Horizonte has quickly become one of the largest nickel development companies in the world. This fact, when combined with the huge surge of interest in electric vehicles (which require roughly 11kg of the metal per battery), leads me to suspect that investor sentiment towards the company will continue to steadily grow over the next 12 months.