Hamak Gold has become the third UK-listed miner to start buying bitcoin, spending nearly £1.8million on the cryptocurrency.
A number of bitcoin treasury companies (BTCs) have quickly emerged on the London Stock Exchange, with firms listing or overhauling their entire business in order to focus on the new strategy.
BTCs accumulate more and more bitcoin, attracting waves of investors looking for exposure to a ‘bitcoin yield’, which is a return denominated not in fiat currencies like sterling but in units of the cryptocurrency.
The trend, pioneered by US-based MicroStrategy, has led to these London-listed firms racking up enormous share price gains over the last couple of months.
But small, listed gold miners are now getting in on the action.
Hamak told investors on Wednesday it had bought 20 bitcoin at an average price of £88,569 each, marking its ‘first foray into digital asset investment’.
The firm, which is otherwise focused on a Liberian gold mine, said the move ‘reflects a proactive approach to value creation and balance sheet optimisation’.
Hamak launched the strategy earlier this year after a leadership shake-up, with the promise of offering investors ‘exposure to both gold and bitcoin under a single, transparent structure’.
Companies embracing bitcoin say it can preserve value and mitigate against inflation and geopolitical risks
More recently it saw shares soar after appointing well-known US economist Dr Arthur B. Laffer a founding member of its advisory board.
Laffer said in a comment on Wednesday: ‘I am extremely excited by the direction Hamak Gold is heading, and I’m proud to have been invited to join the company’s first-rate team and to be actively involved in helping facilitate Hamak’s growth in any way that I can.’
It follows similar moves from Zinc miner Panther Metals, which is investing up to £4million in bitcoin as collateral to fund mining acquisitions, and Bluebird Mining Ventures.
Victoria Scholar, head of investments at Interactive Investor, highlighted ‘gloomy’ financial results posted by all three firms.
She said: ‘Panther Metals and Hamak both reported full-year losses in April while just this week Bluebird Mining announced a first half loss of $2.6million, a sharp increase year-on-year.
‘It looks like the companies have decided to take a gamble on the burgeoning cryptocurrency as they haven’t got much to lose.
‘All three, as you would expect of small mining companies, are losing money.
‘Raising fresh capital is essential so perhaps a sexy bitcoin strategy makes it easier to raise cash. And investors appear to be enjoying the bitcoin strategy, as shares in these companies have been performing much better lately.’
What does it mean for investors?
Bluebird has seen its share price soar nearly 400 per cent since it launched the strategy, reviving the business after struggling with financial losses, while Panther says it is ‘redefining what a modern resource company can be’.
Hamak shares soared 13.6 per cent to 6.7p by midday on Wednesday having added nearly 980 per cent since the start of the year.
The company listed in March 2022 and has never generated revenues, as it is still at the exploration stage.
Stockopedia’s Stock Rank gives Hamak a 19/100 score overall, with a 14 for quality and just an 8 for value.
Dan Coatsworth, investment analyst at AJ Bell, says BTCs argue owning bitcoin is a way to ‘preserve value and mitigate against inflation and geopolitical risks’.
However, he warns, ‘investors need to take care in these situations’.
Coatsworth said: ‘The reality is that many small cap companies are typically cash-poor, constantly raising new funds on the market to keep the lights on.
‘They rarely have cash lying around for a rainy day and anything in the bank is needed to support the business.
‘Prices can often move fast – both up and down – and valuations have moved out of kilter with the underlying fundamentals of the company.’
Sign of the top for bitcoin?
Crypto expert Glen Goodman told This is Money earlier in July he has an ‘early inkling’ that the emergence of bitcoin treasury companies ‘may be a sign of the top’ for the cryptocurrency’s recent run.
Bitcoin is up by around 25 per cent since the start of the year at $117,619.10, having hit yet another all-time high of $122,979.87 earlier this month.
Goodman said: ‘Because it’s been successful for those companies. More companies are jumping on the band wagon
‘As their shares go up they issue more equity, so they dilute the share price of the existing shares, to buy more bitcoin for their treasury.
‘And then that bitcoin attracts new investors who push the share price higher – and then they issue more equity.
‘You can see where this is heading.’
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