There is nothing real at all about a stock achieving the $1 price level, but it can have a psychological effect on investors as a sign that the stock has made it to a higher level; that there is some improved qualitative aspect to the company.
Here are three stocks selling for well under $1 that look to have excellent prospects of pushing past the $1 barrier in the near future.
- Paladin Energy (PDN, 73.5 cents)
Market capitalisation: $2.2 billion
12-month total return: 2.8%
Three-year total return: 75.1% a year
Analysts’ consensus price target: $1.113 (Stock Doctor/Thomson Reuters, seven analysts), $1.08 (FNArena, three analysts)
Paladin Energy operates the Langer Heinrich Mine in Namibia, which was mothballed in 2018, after 10 years of production, due to low uranium prices. In July 2022, Paladin announced the decision to return Langer Heinrich – in which it holds a 75% stake –to production, with first volumes targeted for the first quarter of calendar 2024. When releasing its fourth-quarter result in July, Paladin confirmed that the restart project was “approximately 60% complete,” and that it remained on track and on budget for first production in the March 2024 quarter. The mine is projected at this stage to have a mine-life of 17 years from first production.
Offtake agreements are in place with key customers – Paladin has closed the contract book for 2024 production – and Paladin expects to produce up to six million pounds of uranium oxide at peak production, which will represent 4% of annual global uranium production. Over the 17-year mine-life, Paladin expects to produce 77 million pounds of U3O8 at Langer Heinrich, at an all-in sustaining cost (AISC) – a figure that incorporates not only the “cash cost” of production, but all the costs that allow production to be sustained – of just over US$30 a pound, which compares very favourably against the current price of US$56.23 a pound.
The most pertinent aspect of Langer Heinrich is that it will be bringing supply into an under-suppled global uranium market – and there is plenty of upside risk to strengthening uranium prices. The company’s statements imply very strongly that power utilities will be very keen to strike long-term offtake agreements to give them certainty of supply; and that pricing will be firmly in the producers’ favour.
It must be pointed out that shareholders got a nasty shock in May, when the Namibian Minister of Mines and Energy made comments at a parliamentary event that were construed to mean that the government could consider taking stakes in mining and petroleum companies: the shares fell almost 20% on the back of that, but the government subsequently clarified that any changes it might consider would only apply to future mineral or petroleum licences, and the shares have recovered most of the lost ground.
With a world-class asset roaring back into production, in a booming uranium market, Paladin looks an excellent capital-growth prospect.
- Air New Zealand (AIZ, 73 cents)
Market capitalisation: $2.4 billion
12-month total return: 35.2%
Three-year total return: –0.8% a year
Analysts’ consensus target price: 88 cents, FN Arena (two analysts)
The airline industry has not been a happy long-term hunting ground for investors, who have seen some big external shocks batter the industry – none bigger than the COVID-19 pandemic, which actually shut it down. But as airlines come out of the pandemic and look to increase capacity to match the demand from a travel-starved public, the sector is offering some good near-term potential.
Air New Zealand – which has been listed on the Australian Securities Exchange (ASX) since 1997 – was badly hit by COVID-19, slumping as low as 51 cents in June 2022, on its way to its third consecutive annual loss. Air New Zealand suffered a NZ$725 million loss for FY22, after a NZ$444 million loss a year earlier. In those years, the company was relying on government subsidies to keep it afloat. Even on the first day of the 2022-23 financial year, the company anticipated making a small loss, but instead, the New Zealand flag carrier has announced six profit upgrades, and is now expected to pull off what will amount to the country’s biggest-ever profit turnaround within a financial year: in June, the company said it expected pre-tax earnings to be “no less than NZ$580 million” for the year.
Air New Zealand did not pay an interim dividend – it has not paid a dividend since June 2020 – but brokers now expect the company to resume paying a dividend in the full-year result.
I certainly would not say that airline stocks make good buy-and-hold investments, but at 73 cents, Air New Zealand looks to be good value in the short term – with the caveat that the exceptionally good environment for it won’t look this good forever.
Because AIZ is a dual-listed New Zealand stock, it is hard to find broker price targets on the stock: Ord Minnett has a price target of 88 cents, stock analysis site Wallmine has an analysts’ consensus price target of $1.00, and the freely available Yahoo Finance gives $1.17 (neither Wallmine nor Yahoo Finance tell you how many brokers’ work goes into their consensus figures).
- Centaurus Metals (CTM, 84.5 cents)
Market capitalisation: $362 million
12-month total return: –9.1%
Three-year total return: 22% a year
Analysts’ consensus target price: $1.575 (Stock Doctor/Refinitiv, four analysts)
Aspiring nickel producer Centaurus Metals picked up the Jaguar nickel project in Brazil for US$7 million ($10.3 million) in August 2019 from Brazilian iron ore giant Vale, with the latter keeping some of the offtake rights to future production from the operation. But last month, Centaurus struck an agreement with Vale to assume all offtake rights, giving it control of all future nickel sales from Jaguar, and much more flexibility in terms of bringing-in a partner to help it develop the project.
Vale agreed to part with the offtake rights in exchange for an additional royalty over Jaguar, with it being increased by 1.2 percentage points to 1.7% for nickel sulphide and by 1.25 percentage points to 2% for nickel concentrate and other products produced from Jaguar.
It is a great deal for Centaurus, which is close to pushing the green light on Jaguar. Located in the Carajás mineral province in Pará state in northern Brazil, the Jaguar project as it stands is a 109.2 million-tonne project, at a grade of 0.87% nickel, for 948,900 tonnes of contained nickel. More than two-thirds of the resource is within 200 metres of the surface.
Even better, the high-grade resource stands at 28.6 million tonnes at 1.51% nickel, yielding 431,800 tonnes of contained nickel, and 30% of that high-grade resource is within 100 metres of the surface. The mine is envisaged as a combination of open-pit and underground.
The mineral resource estimate (MRE) has increased by 165,000 tonnes of nickel metal per year over the last three years, and by the time the MRE is next upgraded, Centaurus expects to have pushed that past one million tonnes of nickel metal. The company is targeting production of more than 20,000 tonnes of battery-grade nickel sulphate a year, over a mine life of more than 20 years, with a range of by-products it can also sell, including copper cathode, zinc hydroxide, cobalt hydroxide and ammonium sulphate.
Centaurus expects to complete the definitive feasibility study (DFS) by the end of 2023, make a final investment decision (FID) by the end of the September 2024 quarter, and build the mine over 2025-2026: on that timeline, first production would be coming onto the market in the first quarter of 2027. And with 80% of Brazil’s power currently generated from renewable sources (dominated by hydroelectricity), Centaurus is billing its product as low emission “green” nickel.
It’s a compelling story, and analysts are bullish on the stock.
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