Will Esoteric Metals Mean Riches For Rare Earth Minerals PLC?

Rare Earth Minerals (LSE: REM) is a bit of an enigma for investors, but they’ll have been cheered by the latest news from its joint venture project at Yangibana in Western Australia.

The firm’s 70% joint-venture partner Hastings Rare Metals has announced that a pre-feasibility study at its Yangibana Rare Earths Project is to go ahead, following the successful raising of AU$6.5m through a share issue, with a possible extra AU$2m to come.

David Lenigas, chairman of Rare Earth Minerals (REM), said “REM is 30% free carried to Bankable Feasibility Study on the Yangibana Joint Venture. We strongly believe in the quality of the resource and the underlying economic viability of the project.

Buy shares?

Should you invest in a company like this in these dark days for the mining  business?

Well, rare earth metals aren’t like iron and copper. The clue is in the name, and they really don’t exist in great quantity — in fact, some of them are in critically short supply. Possibly REM’s best known target is lithium, which is in great demand for batteries, but the list includes gadolinium, ytterbium, dysprosium, yttrium and a host of others that would get you great low scores on Pointless.

But that doesn’t make an investment in the company an automatic winner. No, the fact that REM is not profitable and has very little cash makes it pretty risky — at the end of the first half in August, there was only £4.1m in cash and equivalents on the books, and the company has to rely on continuing share placements to keep it going.

Whence profits?

Although REM does keep finding valuable paydirt and is sitting on some impressive resources, it isn’t yet producing anything. Some of its ventures are investing in production capacity, but they’re still at relatively early stages.

As eventual costs of production aren’t known, profitability really cannot be quantified at this stage. But on the optimistic side, Mr Lenigas did say talk of “…excellent progress with each of its principal investments in Mexico, Greenland and Australia, all of which demonstrate much potential for rapid growth“.

Possibly the best hope for the outing of its potential value is that a bigger mining company will like what it sees and make an irresistible takeover offer.

Volatile price

In the meantime, shareholders will have to be content with a wildly fluctuating penny-share price. As I write, at 1.01p the shares are up 48% over 12 months — but they’ve been a lot higher, and we’ve actually seen a fall of 51% since a July peak of 2.07p. Still, at least the buy/sell spread is a relatively low 3%, which minimizes that common aspect of risk with penny stocks — but it could widen if daily volumes were to fall.

Could an investment in Rare Earth Minerals help power you to millionaire status? With a sensible long-term approach, you could do it!

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK 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.