Why the Australian Mines Limited share price jumped 500% this month

Prospective miner Australian Mines Limited (ASX:AUZ) has seen its share price surge. Is it too good to be true?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Australian Mines Limited (ASX: AUZ) share price has this month gone from 1.6 cents to close on Tuesday at 11 cents, representing a gain of more than 587%.

The staggering gains prompted the ASX to ask Australian Mines for answers.

But the company, which intends to mine cobalt, said it wasn't aware of any information that hasn't been released to market that could have fuelled the rapid rise.

However, Australian Mines Managing Director Benjamin Bell is currently in London for meetings with large institutional investment funds on the back of "successful meetings" in Hong Kong, according to the company.

He told the ASX that at the opening of trade on Monday that Australian Mines' market cap was $155 million, taking the company above the threshold of $100 million required by some London-based funds in order to invest in a company.

"As a result, these institutional funds, whom Australian Mines is meeting this week, are now able to invest directly in Australian Mines," Mr Bell said.

"It may be, therefore, that some of these large institutional investment funds sought to obtain an initial position in Australian Mines prior to the commencement of the company's UK road show in expectation that its share price may strengthen during the course of this week's meetings."

Mr Bell also said that Canadian broking and investment firm, Canaccord Genuity Group Inc, released a 'buy' recommendation on Clean TeQ Holdings Limited (ASX: CLQ) late this month.

The target price for the 'buy' recommendation was $2.00, which values the Syerston project (having a mineral resource tonnage of 101 million tonnes at an average grade of 0.13% cobalt and 0.59% nickel) at $1.1 billion, according to Mr Bell

"In comparison, Australian Mines, whose Sconi project has a mineral resource tonnage of 89 million tonnes at an average expected feed grade of 0.11% cobalt and 0.80% nickel, was valued at only $208 million," Mr Bell said.

"This market capitalisation of $208 million for Australian Mines overlooks the inherent value of the company's Flemington Cobalt-Scandium-Nickel Project in New South Wales, which is the immediate continuation of Clean TeQ Syerston project."

Cobalt and nickel are key ingredients for electric vehicles and many are expecting demand to surge.

All this sounds promising and I must admit I'm tempted to jump on board.

But, it must be remembered, this is a speculative stock.

Sure, it may gain another 500% this month or it could go the other way, like another company Mr Bell ran a few years back, Ausgold Ltd (ASX: AUC).

Mr Bell was appointed CEO of Ausgold in November 2009, according to Bloomberg.

Under his leadership, AusGold's share price underwent a rapid rise from mid-2010 to mid-2011, going from around 10 cents to more than $1.50.

But Ausgold's share price went down almost as fast as it went up, plunging to below $1 in November 2011 as Mr Bell departed from his position as CEO with the company.

On Tuesday, Ausgold's share price closed at 2.8 cents, a long way from the heady heights of mid-2011.

Hopefully for Australian Mines' shareholders history does not repeat and the company proves a success.

But I'm bound to urge TMF readers to take caution when dealing with speculative stock such as Australian Mines.

If you're looking for something that could prove safer, check this out…

Motley Fool contributor Steve Holland has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »