The Motley Fool

Rare Earth Minerals PLC Doubles Down On Lithium Bet

Rare Earth Minerals (LSE: REM) has spent another $1m to increase its stake in the Megalit Lithium Joint Venture, in Mexico.

What’s happened?

The payment was the final instalment of the $1.5m required for REM to exercise its option to increase its direct interest in the Megalit concessions from 10% to 30%.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The money was paid to Megalit owner Bacanora Minerals (LSE: BCN), which owns the remaining 70% of the concessions.

Is this good news?

This was a logical decision by REM, as the Megalit concessions surround those of Bacanora’s other joint venture with REM, the Sonora Lithium Project.

Recent exploration activity on the Sonora project has resulted in an indicated mineral resource of 3.28 million tonnes of Lithium Carbonate Equivalent, which is a key requirement for the fast-growing lithium-ion rechargeable battery market.

REM believes the Megalit concessions are highly prospective, and the new money will be used to fund exploration drilling.

The situation remains highly speculative, but REM chairman David Lenigas’ decision to invest now could multiply the potential returns available in the future, if Mr Lenigas achieves his goal of selling REM’s stakes in the Sonora and Megalit concessions to a larger trade buyer.

Are there any risks?

REM and Bacanora are both small companies, with limited financial firepower.

The biggest risk for REM shareholders, in my view, is that Mr Lenigas will fail to agree a trade sale that will lock in big profits on the cost of REM’s assets, ahead of the substantial cost of developing the mines.

Failure to do this could mean that REM would be forced to bring in substantial new investors to meet its share of the cost of developing the assets, which would result in significant dilution for existing REM shareholders, and a much longer timeframe for shareholder returns.

What does REM own?

REM’s interests in Bacanora’s Northern Mexico lithium assets fall into three categories:

1. c.12% shareholding in Bacanora Minerals

2. 30% direct interest in the Megalit concessions (San Gabriel, Buenavista and Megalit).

3. 30% direct interest in the Fleur-El Sauz lithium joint venture — Fleur and El Sauz account for around 60% of the lithium resources identified in the Sonora Lithium Project.

These numbers highlight the second risk for REM investors: Bacanora Minerals retains majority ownership and control of all of its Northern Mexico lithium concessions, so REM cannot control the pace or direction of Bacanora’s activities.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Roland Head has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.