With gold’s price soaring 10% so far this year, I’ve been digging for a FTSE AIM stock that could make my portfolio shine.
Gold has been buoyant this year, coming within stroking distance of its all-time-record price of $2,075 – achieved in August 2020.
The yellow metal tends to rally during times of market uncertainty, because although it pays no yield it is free of ‘counterparty risk’.
That is, gold doesn’t represent an IOU that could be defaulted on, as is the case for most financial securities.
Prospecting for gold
Miners offer ‘leveraged’ exposure to the gold price.
That is, a small price increase in the precious metal’s price could produce a much bigger jump in the miner’s stock price. The same is true in reverse.
To start my search for the perfect FTSE AIM gold stock, I scanned through all of the companies with ‘gold’ in their name.
That returned 12 companies!
Next, I ruled out all of those that either had a market capitalisation under £50m or produced no revenue in the last financial year.
Micro-cap mining stocks are already an extremely high-risk asset class. Meanwhile, going down a rung into the ‘nano-cap’ segment (sub-£50m) would be turning up the dial a notch higher than my risk tolerance allows.
Moreover, companies with zero revenues are almost impossible to analyse using standard financial ratios.
After applying my filters, I was left with just one contender: Shanta Gold (LSE:SHG).
| Market cap over £50m? | Has revenues? | |
| Condor Gold | Yes | No |
| China Nonferrous Gold | No | |
| Conroy Gold & Natural Resources | No | |
| Cora Gold | No | |
| Galantas Gold | No | |
| Goldplat | No | |
| GoldStone Resources | No | |
| Greatland Gold | Yes | No |
| Scotgold Resources | No | |
| Serabi Gold | No | |
| Shanta Gold | Yes | Yes |
| Wishbone Gold | No |
Meet the contender
Shanta Gold is an East Africa-focused producer, developer, and explorer with mines in Tanzania and Kenya.
Its Tanzanian assets are called the New Luika Gold Mine and the Singida Gold Project. In West Kenya, Shanta has a project for which it has obtained prospecting licences. It claims to have “defined high-grade resources” on the site.
Running out of time
After a quick look at the financials, I quickly ruled out Shanta for my portfolio.
Quite simply, I have an ironclad rule that I won’t consider any company that has less than a couple years’ worth of cash in its coffers.
| Cash runway | Debt-to-equity ratio | |
| Shanta Gold | 5 months | 18 |
Shanta reported negative net cash flows of £9.4m in the year ending 31 December 2022, with only £3.8m left in the treasury.
If it continues burning through cash at that rate, it will be illiquid before Christmas. Of course, it can kick the can down the road by loading on more debt. However, with a debt-to-equity ratio of 18, the company is already leveraged up to the eyeballs. The other option to save its bacon would be stock issuances, although that would dilute existing shareholders.
What next?
Given my risk tolerance won’t permit me to invest in any of the FTSE AIM miners I found, I will next consider the larger, better capitalised miners. FTSE 100 juggernaut Fresnillo could be a safer way to play things, although I’d have to delve further into the company before deciding.
For now, I can only conclude that – at least for my portfolio – all that is gold does not glitter.
