Rare Earth Minerals (LSE: REM) currently trades at 1.21p and is up 30% this year — but most of the gains have come in the last 10 days.
The stock is essentially flat over the last six-month period, but has risen 171% since April 2014.
If you are a risk taker, you may well decide to add this penny stock to your diversified portfolio. Here’s why.
What You Are Going To Buy
A lithium-focused exploration business, Rare Earth Minerals is more than that, also based on the composition of its board: it looks a lot like an investment company that will aim to build relationships and acquire stakes in several fields.
At present, it doesn’t generate any revenues and doesn’t pay any dividends.
It has reported a yearly economic loss of about £1m in recent years, which is essentially the cost of running the business — and is in line with the amount of cash that it burns from operations. Its most recent public balance sheet shows current assets at about £3m and total assets at £5m — yet its market cap stands at £83m. Of course, you are paying a big premium for the promise of big discoveries in future, and that’s why you should invest a tiny amount of your hard-earned capital.
As it says, the company aims to acquire “a diverse portfolio of direct and indirect interests in exploration and producing rare earth minerals and/or metals projects and assets,” but will also retain “a residual interest in its former business activity of music production and publishing, and record label management.“
I assume debt capital is hardly a financing option at this stage of maturity for the business.
So, it’s likely that several ventures and projects in which Rare Earth Minerals is involved will require some sort of equity capital raising in future, which would mean dilution for shareholders, but that’s not necessarily bad news.
If managers can prove that some of their outstanding projects are set to yield dividends, a cash injection would just help them achieve their goals.
Of course, you must have faith in the management team — on this front, I need more evidence that it can deliver before considering a meaningful investment in a stock that has become less liquid than in the past few years.
Get Used To This Kind Of “News”
“Rare Earth Mineral advises that Hastings Rare Metals Limited, REM’s 70% joint venture partner in the Yangibana Rare Earths Elements joint venture in Western Australia, has made an announcement on ASX,” Rare Earth Minerals said today, adding that Hastings had selected a team of world-class consultants to develop the pre-feasibility study for the Yangibana Rare Earths Project.
The study is expected to be completed by the end of the year, it concluded.
The stock was down almost 3% on Wednesday, and it’s likely you’ll have to get used to many similar updates in future if you decide to invest in Rare Earth Minerals.
But the right update could really make a big difference to your returns!
Incidentally, the balance sheet, profit and loss and cash flow statements of Hastings Rare Metals are very similar to those of Rare Earth Minerals — there’s very little value in them.
So, you’d end up betting on long-term trends for lithium, and its use in batteries that power mobile phones as well as hybrid and electric cars.
I wouldn't mind investing a very tiny portion of my savings in this speculative trade, although I'd rather consider a meaningful investment in a business whose shares have doubled since 2013 and whose performance has been even more impressive than that all the way since the credit crunch.
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