Today’s update from Rare Earth Minerals (LSE: REM) shows that it’s making encouraging progress with the Sonora Lithium Project. It has an interest in the project through a 17.2% holding in Bacanora and with a pre-feasibility study now having been commenced, it appears to be moving in the right direction.

Regarding the pre-feasibility study, a drilling contractor has been mobilised to conduct infill reserve drilling, which is scheduled to start in the current quarter and is due to be completed in the third quarter of the current year. In addition, the Sonora mineral resource estimate has been amended to reflect the parameters within the pre-feasibility study.

Furthermore, today’s update from Rare Earth Minerals includes details of various discussions with strategic investors, banks, debt providers and offtake partners regarding the development of a project financing strategy. This is clearly a necessary step for the company to take and positive news flow in this regard could have a significant impact on its share price.

What’s the alternative?

Clearly, Rare Earth Minerals has a considerable amount of long term potential, with demand for lithium likely to rise in the coming years. As such, many investors may determine that it has brighter prospects than oil plays such as Genel (LSE: GENL) and Shell (LSE: RDSB). That may especially be the case since the price of oil has come under renewed pressure following the lack of agreement among OPEC members to freeze production.

However, with Shell being vastly larger, more financially stable and more profitable than Rare Earth Minerals, it remains a much more appealing buy based on its risk/reward ratio. Certainly, Shell may not have the same level of potential rewards as Rare Earth Minerals because it’s well-established and may not benefit from the same degree of positive news flow in future. However, its risks are also much lower due to its excellent balance sheet and diversified operations, while Shell’s price-to-earnings (P/E) ratio of just 13.4 indicates that upward rerating prospects are upbeat.

Meanwhile, Genel Energy may be a better established company than Rare Earth Minerals and is several times larger than its resources peer, but it too comes with great risks. For example, the geopolitical outlook for the Northern Iraq/Kurdistan region remains very uncertain and although Genel has done a good job of operating in spite of these conditions, they’re likely to continue to pose a risk to the business and could hold back its share price.

Genel is set to record major impairments this year due to a reduction in the size of reserves at its Taq Taq field. This is hugely disappointing for the company and could lead to reduced profitability in the long run. And with Genel’s financial position being uncertain as a result of slow payment from the Kurdistan Regional Government (KRG), there seem to be better options available elsewhere. In fact, with a number of larger resources plays offering favourable risk/reward ratios, the same could be said for Rare Earth Minerals, too.

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Peter Stephens owns shares of Royal Dutch Shell. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.