Gold star

The fate of commodities stocks is naturally tied closely to the prices of the raw materials they produce. In the case of penny stock Condor Gold (LSE: CNR) I think there’s plenty to get excited about. It’s not just the prospect of a long and bumpy battle against Covid-19 that could keep gold prices strong. Low central bank rates are likely to remain in place to keep the recovery going, in turn driving fears over runaway inflation.

There’s also the prospect of a sharp decline in the US dollar over the short-to-medium term. This boosts commodity prices as it effectively becomes cheaper to buy dollar-denominated assets.

I’d buy this UK mining share despite the possibility that efforts to get its La India project in Nicaragua to production in the near future could hit trouble. Condor Gold is seeking to produce 100,000 ounces of the yellow metal a year when output eventually commences, with material production increases targeted thereafter.

Bang on the money?

Small loans provider Morses Club (LSE: MCL) might not be everybody’s cup of tea. In fact, with ethical investing becoming more and more popular, the doorstep lender could see demand for its shares steadily sink over the long-term. There’s also the fact that the hostile regulatory environment that has pushed many of its competitors into extinction could eventually bite this penny stock too.

For the time being though, trade is flourishing and from an investment perspective this makes Morses Club worthy of serious attention. Not only is the business benefiting from the demise of its rivals, its huge investment in its digital operations is also paying off handsomely.

The number of customers on its Digital division’s books leapt 80% year-on-year in the five months to July. Moreover, the UK share is also taking steps to ready its traditional home collections business for the digital age. Consequently, 65% of lending in the five-month period was cashless.

A top retail penny stock

The value retail sector is tipped to continue growing strongly over the next decade. And so I think Card Factory (LSE: CARD) — a seller of greetings cards, balloons, wrapping paper and other paraphernalia wheeled out on special occasions — should thrive.

The business sells its products at a vast discount to other cards retailers like WH Smith and Clinton Cards. And this could help it thrive too if the UK economy experiences a tough economic ride following Covid-19 and Brexit.

I also think steps to improve its e-commerce proposition should lift earnings considerably. Indeed, I’m encouraged by the 135%-plus jump in online revenues during the 12 months to January. Remember though, the penny stock faces extreme competition from online bespoke cardmakers Moonpig and Thortful.

Given this uncertain outlook and the potential for higher inflation, these two gold stocks could be worth a closer look.

Growth potential

Condor Gold (LSE: CNR) is a gold exploration company based in Nicaragua and El Salvador. It recently raised £4.9m in a placing and this is set to help it proceed with its current strategy. This is focused on seeking to fully permit Mina La India in Nicaragua for a 2,800tpd processing plant with capacity to produce around 100,000 oz of gold per annum. It will also seek to secure the surface rights for the rural land that hosts and surrounds the planned future mine infrastructure. Furthermore, it will seek to continue to demonstrate the significant exploration upside of the gold resource at the La India Project.

Clearly, Condor Gold is a relatively small exploration company. It remains lossmaking and is expected to have a red bottom line for the next couple of years. As such, it is a riskier proposition than a number of its larger sector peers. However, with its shares still being 30% lower than they were five years ago and having the potential to rise should the gold price move upwards in future months, it could be worthy of consideration by long-term investors.

Improving performance

Also worth a look within the gold mining sector could be Petropavlovsk (LSE: POG). Its performance in 2016 was relatively impressive, with the company increasing its annual gold production from 228,900 oz to 416,000 oz. Since its total cash costs for the year were around $700 per ounce and it has an all-in sustaining cash cost of around $800 per ounce, the company looks set to deliver improving profitability in future years given the rising gold price.

The deleveraging of the company’s balance sheet puts it in a stronger position to deliver sustainable growth in future. Its capital expenditure plans for the coming year appear to be sensible, with $30m due to be spent. With gold production set to rise further this year to between 420,000 oz and 460,000 oz and a similar cash cost to last year, its financial performance could improve even if gold fails to match its recent price rise in future.

Certainly, Petropavlovsk remains a relatively risky and potentially volatile stock to hold. However, with improving business performance and the scope for a higher gold price, it could prove to be a rewarding stock in 2017 and beyond. And with its shares trading on a price-to-earnings (P/E) ratio of 17.8, it seems to offer relatively enticing value for money for the long term.

The price of gold for immediately delivery was up 1.3% at $1,238 per ounce on Friday morning.

As a result, physical gold ETFs have also made gains, and according to a Bloomberg report, nearly $1bn has been added to the value exchange-traded funds backed by gold over the last month.

The $30bn SPDR Gold Trust (NYSE: GLD.US) ETF has risen by 1.5% to $119.22 since last Friday, taking it back into positive territory for the year with a gain of 2.7% so far in 2014. Over the same period, London-listed Gold Bullion Securities (LSE: GBS) has climbed 3.7% to $119.00, leaving it up by 2.9% on the year to date.

Gold miners

Shares in Condor Gold (LSE: CNR) gained 10% to 79p on Friday morning, making the firm one of the day’s strongest performers in the gold mining sector. The firm recently released an update on its planned pre-feasibility study, which was due by the end of September 2014 is now expected by 31 October, as the scope of the report has been expanded to include two additional, larger-scale mining scenarios for the company’s La India project in Nicaragua.

Other big gainers over the last week include Petropavlovsk (LSE: POG), which has climbed 14% to 23p from a low of 19p over the last five days, despite the grim outlook for shareholders, thanks to Wednesday’s sharp rise in the price of gold. The firm’s third-quarter update is due next week, on 22 October.

At the other end of the table, former 2014 favourite SolGold (LSE: SOLG) has sunk: the firm’s shares were up 65% by the end of February this year, but have since given up those gains and more, falling by 18% this week and by 49% so far in 2014, as investors appear to have lost interest in the firm’s highly prospective Cascabel project in Ecuador.

These numbers make it clear that the gold sector remains seriously out of favour with the market, thanks the poor financial performance of many miners, and to ongoing weakness in the price of gold. 

As a result, physical gold ETFs have drifted lower over the last week. The $33bn SPDR Gold Trust (NYSE: GLD.US) ETF has fallen by 2.4% to $120.86 since last Wednesday, cutting its gains for the year to date to just 4.1%.

Over the same period, London-listed Gold Bullion Securities (LSE: GBS) has slipped 2.7% to $120.20, leaving the fund’s shares just 3.9% higher than they were at the start of 2014.

Gold mining update

One of the world’s largest gold miners, South Africa-based AngloGold Ashanti (LSE: AGD), announced this morning that it would split its mining business into two, by transferring its mining assets outside South Africa into a new, London-listed holding company.

At the same time, the firm, which has struggled to make a profit in recent years and has net debt of more than $3bn, said that it would seek to raise $2.1bn in a rights issue, aimed at leaving the firm debt-free after the restructuring was completed, with certain limited exceptions.

Given that AngloGold’s market capitalisation is only $6.3bn, a rights issue of this size represents considerable dilution, and the firm’s shares were down by more than 11% in London trade today.

Elsewhere, small cap explorer SolGold (LSE: SOLG) rose by 7.5% to 6.5p this morning, after announcing a strong set of drilling results from its Cascabel project in Ecuador.

The firm said that hole 8 of its drilling programme had found visible mineralisation from 378.2m down to its current depth of 606.5m, while preliminary modelling from its IP survey supported its geological model and would be followed by the mobilisation of a second drill rig by mid-October.

Finally, Condor Gold (LSE: CNR) fell by more than 5% to 94p today. The company, which is working on producing a pre-feasibility study (PFS) for its 2.37 million gold equivalent ounce La India gold project in Nicaragua, published its interim results today.

However, today’s report contained little new information, ahead of the expected completion of the PFS at the end of September 2014, and investors may also be discouraged by the ongoing mining ban in El Salvador, where Condor owns 90% of a 1.1 million gold equivalent ounce resource.

The main routes by which investors gain exposure to gold are exchange-traded gold funds such as the $33bn SPDR Gold Trust (NYSE: GLD.US) ETF, which has climbed 0.7% to $121.41 over the last week, leaving it up by 2.9% so far this year. Meanwhile, a London-listed alternative, Gold Bullion Securities (LSE: GBS), has climbed 0.5% to $121.01 over the last week, leaving it up by just 0.7% so far in 2014.

Gold equity news

In the equity markets, a number of small-cap gold miners have reported news that’s triggered strong gains this morning.

Liberian gold explorer Hummingbird Resources (LSE: HUM) is up more than 8% to 57p, at the time of writing, after announcing a $20m deal to acquire all of US miner Gold Fields‘ assets in Mali, which will give it ownership of the Yanfolila Project, which has a mineral inventory of 1.8 million ounces of gold at a grade of 2.8g/t.

Hummingbird plans to deliver first gold by the end of 2015, at an all-in sustaining cost of around $700/ounce, well below the current price of gold.

Elsewhere, Condor Gold (LSE: CNR) was up 6.5% to 88p in early trade today, after reporting trenching results from its La India project in Nicaragua. The firm said that the original 1,400m plan has been extended to 3,500m, following positive results from the first 2,100m. These have confirmed Newmont Mining’s 2001 findings, and uncovered new near-surface gold mineralisation in the same area, including a 4m wide section of quartz in a nearby artisan pit wall with a grading of 16.4g/t gold, within 45m of the original Newmont trench.

Finally, takeover target Bullabulling Gold (LSE: BGL) climbed nearly 4% in early trade, after reporting that metallurgical testing had indicated the potential to reduce the amount of cyanide and lime required for gold production by up to 87% (lime) and 28% (cyanide). The firm says that these findings have the “potential to significantly reduce gold production costs” from the project.

The only practical way for most private investors to invest in gold is through exchange-traded funds. The largest gold ETF, the $39bn SPDR Gold Trust (NYSE: GLD.US), ended last week 2.4% higher at $132.58, while London-listed Gold Bullion Securities (LSE: GBS) climbed 2.8% to end the week at $131.75. So far this year, shareholders of Gold Bullion Securities have seen the value of their holdings fall by 16%, while the value of SPDR Gold Trust shares has fallen by 18%.

Gold’s big movers

A sharp rise in gold prices usually triggers gains for gold miners, and last week was no different.

Petropavlovsk (LSE: POG) climbed 31% to 119p last week. The Russia-focused gold miner has fairly high cash costs and a substantial debt load, which mean that small gains in the gold price make a big difference to the firm’s potential profitability. Petropavlovsk reported a post-tax loss of $243m in 2012, with an average gold sale price of $1,670/oz. This may explain why the firm’s share price remains down by 67% this year, despite last week’s gains.

Condor Gold (LSE: CNR) gained 30% to 138p last week. Condor’s surging share price was helped by the price of gold, but may also have been boosted by news that a helicopter magnetic and radiometric survey of its 2.4Moz La India project in Nicaragua confirmed that “considerable exploration upside” exists for La India, according to the firm’s CEO, Mark Child.

Highland Gold Mining (LSE: HGM) rose 12.8% to 82p last week. In a trading statement published on Monday, the firm said that gold production had risen by 3.7% during the first half of the year, and that the group’s JORC compliant gold resources had risen by 25% to 16.5Moz, as a result of its purchase of the Kekura license and an independent resource audit update at Unkurtash.

Shares vs commodities

Shares in commodity companies have outperformed their underlying commodities many times over the last ten years, thanks to their ability to magnify their gains through successful development of new resources. This free report from the Fool, “Ten Steps To Making A Million From The Market“ contains some excellent tips on identifying and investing in potential multibagger shares, including resource shares like gold miners. I strongly recommend that you click here and download it now, as it will only be available for a limited time.

> Roland does not own shares in any of the companies mentioned in this article.