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A TRIPLE whammy of catalysts will send this penny share higher in 2018

by , 05 September 2018
A TRIPLE whammy of catalysts will send this penny share higher in 2018
I always look for a catalyst that'll send the price of a penny stock flying. Being a good business isn't enough if there isn't something big that'll attract the attention of investors to the stock.

But even better, every once in a while I find a stock that doesn't just have one catalyst but THREE catalysts that are behind it, which will push the share price up.

And today I'd like to share with you one of these companies that demonstrate three catalysts.

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Three catalysts behind this stock’s impending rise

The company I’m talking about is Wescoal (JSE:WSL).

Now you might think that a coal miner is out of fashion. And that renewable energy is the future.

But that doesn’t change the fact that SA still sits with the vast majority of its electricity in the form of coal plants.

And that for years, there’s been underinvestment in the sector – pushing demand to an all-time high.

But local demand isn’t the only thing backing Wescoal today. Three massive catalysts can unlock gains on the share right now!

Profit Catalyst #1 – The international coal price is soaring

At $115/t currently, the price of thermal coal is 21% higher year-on-year.
That means a company that mined 1 million tonnes in 2017 made around $95 million.

Mining the exact same amount in 2018 would net that company $115 million!

Glencore, one of the world’s largest coal producers announced that it received a 24% increase in the average price for its exported South African coal production in the six months ended June 30 with the fuel coming in at $98/t compared to $79/t in the period of the previous financial year.

The research firm Macquarie writes: “Many have written coal’s obituary in the belief that it has no place in a de-carbonising world, yet even with coal’s shrinking share of the global power mix – from 37% today to 26% by 2040 – the 2.3% compound average growth rate expected in global electricity generation through to 2040, and the enduring appeal of coal-fired power in developing regions, implies that coal generation could increase by 10% over that period,”

Simply put – coal demand will increase EVEN as the share of coal power decreases worldwide.

Profit Catalyst #2 – The rand is weaker – and will stay this way

Early 2018 saw the rand strengthen from “Ramaphoria”.

This was short lived and a combination of EWC and global trade wars have seen the rand crash to nearly R16 a dollar.

Right now, the rand is at R14.87 to the dollar, compared to R12.50 at the start of the year.

That means a coal price of $95 at the start of the year was R1,187.50 per ton. Today, at R14.87 and $115 it is equal to R1710 per ton.

That’s a massive increase of 44%.

And, because of the nature of mining production – this additional 44% a mine receives for its coal is nearly pure profit!

Now we might argue that political stability and what have you will strengthen the rand again… But the fact is – over the past two decades the rand has done one thing – it has consistently weakened.

And I’m counting on it that it’ll continue to do so going forward!

Profit Catalyst #3 – Wescoal is so cheap; it’s buying up its own shares!

Following two smart transactions raising the company more than R100 million in cash, Wescoal will return some of that money to shareholders.

The company announced that it would embark on a R20 million share repurchase.

At its current PE of only four, Wescoal shares are dirt-cheap.

By buying back shares at the right levels – a company strengthens its investment case.

You see, with less shares in issue but profits at the same level the profit per share figure increases.

It also means that when profits are divided between investors in the form of dividends – everyone receives a larger piece of the pie!

Wescoal’s interim financial period ends in September – with the results due in November.

I expect another great set of results – and more clarity from the company about the development of a new mine.

This is definitely a stock to keep your eyes on.

Here’s to unleashing real value
Francois Joubert
Editor, Red Hot Penny Shares

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A TRIPLE whammy of catalysts will send this penny share higher in 2018
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