Charismatic Australian entrepreneur David Lenigas has a loyal following among small-cap investors — and with good reason. Shares in two of Mr Lenigas’s firms, Leni Gas & Oil (LSE: LGO) and Rare Earth Minerals (LSE: REM), have rocketed this year, rising by 265% and 240% respectively over the last six months.
In this article, I’ll be asking whether shareholders should take profits after such rapid gains, or whether this is more good news to come.
Rare Earth’s gains so far this year have been driven by the Sonora Lithium Project, in Mexico, which appears to have the potential to become a world-class lithium mine. However, Rare Earth has two other potentially interesting projects, too:
1. Early test results from Rare Earth’s Greenland exploration licences have promise. More results are due over the next few weeks, which should provide a clearer picture of the potential.
2. Rare Earth Minerals’ 30% interest in the Yangibana North rare earth project in Australia may be about to take centre stage: the project’s operator, Hastings Rare Metals, is expected to make announce a maiden resource estimate on Wednesday this week, which could give an indication of the commercial potential of the project.
My verdict? Rare Earth Minerals remains exciting, but there is a risk that in the absence of further blockbuster results or a takeover bid, the firm’s share price will slide as investors start to fear the costly dilution that will be required to bring the Mexican mine into production.
Changes to tax allowances for oil firms in Trinidad and Tobago helped to deliver a turnaround to Leni Gas & Oil’s fortunes, that has seen the firm’s share price rise by 350% so far in 2014.
The company is gradually increasing production from its Goudron field — which contains 7.2m barrels of proven and probable reserves — by reactivating old wells and drilling new wells, as part of a 30-well drilling plan.
Looking ahead, Leni recently acquired a second producing field with reactivation potential, and has exploration licences in neighbouring areas, both of which could drive future gains.
My verdict? Cash flow from rising production should help fund drilling activity, but profits and further exploration successes are probably a year or two away, and with Leni’s market cap approaching £100m, I suspect that most of the good news is already in the price.
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Roland Head has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.