Hamak Gold (LON: HAMA) shares are a new listing in London. Hamak is also a tiddler, 20 million shares at 12 pence each means a market capitalisation of £2 million and change. This is very much a microcap play with all the risks that involves. The spread is vast (10 to 14 pence, so the price has to move 30 – 40% before a profit can be realised) and there’s not going to be much liquidity for some time, if it does ever arrive.
It’s also worth pointing out the risk of what is being done. At this size and stage of the company there’s really just the knowledge that there is some gold out there in their area of Liberia and that they’ve – Hamak – got the right to go and look for it. To be unfair about it we’re at the stage of blokes with hammers walking around hillsides looking for interesting rock.
On the other hand, we can be a little fairer than that. For there are two truisms here about mining. The first is that mining technology – both for exploration and for extraction – changes over time. This means that there are many deposits out there which were not valuable before but might be now. Possibly because we couldn’t find their true extent before, or couldn’t get them out even if we did. Modern techniques can entirely change this. But do note the “can” there, there’s no certainty in this.
The second truism here is that artisanal mines are often enough a pointer to the sorts of deposits that can then be exploited by those more modern techniques. Artisanal here means being dug by blokes with shovels. Perhaps up to the level of that standard Western movie cliche, the long wooden trough which washes the ore (or even that other cliche, panning by hand). If there’s gold there that can be extracted by such primitive methods then what might we be able to do with more modern ones?
This is not a certainty of course. It could be that there’s some gold or other metal there but not enough to merit the expense of the modern technologies.
If we put the two ideas together we can design a useful enough – not a certain, but a useful enough – prospecting technique. Find out where there are some of those artisanal mines using the old techniques and go look at them and the surrounding areas using the modern techniques. This being exactly what Hamak Gold is doing there in Liberia. There are artisanal gold extractions in their prospecting area, they do have access to update technology.
There is absolutely no certainty of any success here for God’s Engineer didn’t distribute mineral veins according to any nice theory we might have. But it is a strategy that has worked in the past in other regions and one that has proven profitable to at least some investors.
At this stage it would be hard to call it an investment opportunity as it’s all far too risky and small for that phrase. But as we say, it is a strategy that has worked for some, some times.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.