Three small-cap gambles for 2010

By Tom Bulford Dec 21, 2009

Tom Bulford

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The hunt is on for next year’s 'big winners' in penny shares. Yes, this is the time of year when business reporters, City editors and financial advisers start to chew the top of their pencils, run their eyes down the list of stock market prices and come up with some likely tips for the next calendar year.

The beginning of a new year is a time to look back, to celebrate the good things that have happened and write off the bad. And this applies as much to share portfolios as anything else.

It is also a time for some crystal-ball gazing, a time to think about what the next 12 months have in store, and to place a few bets accordingly.

My in-tray is now filling up with suggestions for 2010 flyers, sent in by ever-attentive corporate PR advisers. Three of the names that come up are Nyota Minerals (LSE: NYO), Biofutures International (LSE: BIP) and Minoan (LSE: MIN). Let’s have a look at these three in turn.

Three hot penny shares to keep a close eye on

Nyota Minerals has the rare distinction in the macho world of mining of being led by a woman – Melissa Sturgess. The company used to be known as Dwyka Resources. It reckons it struck a bargain last June by acquiring Minerva Resources.

Minerva’s principal asset was its Tulu Kapu licence in Ethiopia, where an inferred gold resource of 690,000oz has been established. Since Nyota paid just £1.8m for Minerva, it gained control of this resource at a price of just $4 per inferred ounce of gold. This is a far below the $30-$40 per ounce at which inferred gold resources are valued elsewhere.

The target for 2010 is to extend this resource to over 1m oz, to upgrade its status from inferred to measured and get ready for production in 2011. If it achieves this and, of course, if the gold price stays above $1,000 per oz, then the shares should certainly do well. You can rest assured that I will be watching closely…

Biofutures International came onto AIM with the intention of building a plant in Sabah, Malaysia, to derive biodiesel from palm oil. However, when the rising price of palm oil rendered this uneconomic it changed tack. It is now planning to build a palm oil refinery at a cost of about £7m.

Last week it was boosted by the appointment of WS Bioengineering as the plant contractor, and by arranging finance with Bank Kerjasama Rakyat Malaysia.

An obstacle remains in the shape of a £5m dispute with Lurgi, the firm originally appointed to build the biodiesel plant. All being well, the plant should be up and running by this time next year. Although profitability of refining operations is notoriously hard to predict, the plant will be supplying a growing market of Chinese, Indians and others warming to the health benefits of cholesterol-free palm oil.

The 3p share price of Biofutures seems to be more of a reflection of its rocky past than its future.

The same could be said of Minoan. The travel and leisure sector developer has tested even the most hardened optimist – including its founder and chairman Christopher Egleton, whom I met last week.  

Egleton dreams of retirement on the island of Crete, in a luxury home on the Cavo Sidero peninsular. This is a site owned by the Holy Monastery of Toplou and the Holy Metropolis of Sitia and Ierapetra.

First though, Minoan has got to build this holiday complex, which could have as many as 900 properties as well as golf courses, spas and other obligatory luxuries.

The plans are all set to be put into operation, but planning permission must first be obtained. If that can sometimes be a struggle in this country, it seems to be nothing compared with Greece.

For years, Egleton has been battling against political prejudice, entrenched business interests and environmentalists. But he is now hoping that Greece’s new government, which has promised to encourage foreign investment, will match words with action and give the project the green light.

If that happens, Minoan’s current market value of £12m will seem very low in relation to the £150m projected value of this new holiday complex

Why penny shares profits will excel yet again next year

I will be watching all of these penny share hopefuls. And while success for all of them is in no way guaranteed, one thing is for sure. All of them offer potential gains that bigger companies just cannot match.

Sure there are risks involved. But my crystal ball tells me that 2010 is going to be another tough year for the economy. This will make life a struggle for the blue chips.

But what matters for these penny share companies are their own projects. If they bring them to fruition then shareholders could make money regardless of what is going on elsewhere.

• This article was written by Tom Bulford, and is taken from his free twice-weekly email The Penny Sleuth

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