Here’s why these 3 small caps could be odds-on winners

If you’re looking at small and micro-cap stocks, you’re taking on extra risk in return for extra reward potential.

If you’re doing it right, you’re finding out as much information as you possibly can before making a decision, and then you’re looking continuously for news which could prove or disprove your initial investing thesis.

All three companies in today’s article have recently released very important market-sensitive announcements, which means it’s time for a quick run through to see if your investment thesis still holds.

ABM Resources NL (ASX: ABU) revealed today that it has signed an option with Ord River Resources Ltd (ASX: ORD) over its Suplejack Project which is just 25km north-west of ABM’s existing Hyperion field.

An initial Inferred Resource assessment (conducted by Ord and unverified by ABM) estimates the field contains roughly 202,000 ounces of gold at an average grade of 2.11g/t.

In return for an initial $100,000 option fee and $200,000 on expenditure over the next 18 months, ABM gains the right to farm-in and joint-venture the field with Ord River Resources. Should ABM decide to participate in a joint venture, $300,000 further expenditure on exploration over the next two years will gain ABM a 70% interest in the project.

Given that the field is right next door to ABM’s existing Hyperion resource and within close trucking distance to the company’s Coyote crushing operations, the agreement is an excellent investment in ABM’s future for a very low cost.

Initial rich drilling results also provide substantial promise for expanding the resource in time.

Australian Bauxite Ltd (ASX: ABX)

Australian Bauxite recently signed a funding agreement with Noble Resources that was met with mixed reaction from the market, initially sending the shares up to 52-week highs of 35c before settling at $0.29c per share.

The agreement sees Australian Bauxite granted a total of $8 million in finance at 8.75% interest by Noble with ABX’s Tasmanian assets held as security.

Approximately $6 million will be used to commence mining in Tasmania, with $2 million available for future expansion if necessary.

In addition, Noble will purchase 50% of the Tasmanian product at an unspecified fixed price, and be entitled to a 2.5% royalty on the 50% it doesn’t purchase for the first four years.

It’s a pretty tough agreement in the circumstances, with Australian Bauxite perhaps disadvantaged in the negotiations by its explorer status. However the ‘purchase offtake agreement’ with Noble also provides some price certainty should the market move adversely.

Thankfully for nervous shareholders the agreement only covers the company’s Tasmanian assets, although Noble also has a right of first refusal to fund future financing agreements with ABX.

In summary, Australian Bauxite still looks to be a buy at its current price, and in fact I added more to my holdings after the announcement last week.

Kip McGrath Education Centres Limited (ASX: KME)

Met with surprisingly little fanfare, today’s announcement regarding the successful completion of a 12-month trial of KipOnline is great news for investors.

Online increasingly looks to be the future of everything, including education, and approximately 180 Kip McGrath centres will be offering the company’s new online initiative as of this month.

CEO Storm McGrath believes that the online program will increase student engagement and motivation, while also engaging parents better through ‘live’ real-time feedback after class.

Parents want the best for their children, and improved engagement, focus, and motivation are big plusses to continued spending on a child’s education.

The ability to involve parents further through feedback should not be underestimated either, as it is likely to lead to better outcomes for parents, students, teachers, and ultimately shareholders.

There’s a lot more to investing in your future than just a good education…

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Motley Fool contributor Sean O'Neill owns shares in ABM Resources NL and Australian Bauxite Ltd.

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