One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful“. Or, in other words, sell when others are buying and buy when they’re selling.
But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.
So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.
Not your usual company
Not every company that features in the top ten trades on The Motley Fool ShareDealing Service is a well-known big-name blue-chip corporation — the one currently occupying the number 2 spot in the Top Ten buys list* certainly isn’t.
This company is an AIM-listed minnow, with a market capitalisation of under £50m. And aside from its main business operations, which it describes as acquiring “a diverse portfolio of direct and indirect interests in exploration and producing rare earth minerals and or metals projects and assets“, the company also retains a “residual interest” in its former commercial activities — music production & publishing and record label management — which date from before it changed its name from “Zest” in 2010. It’s not exactly the usual laser-like focussed business model we might expect Fools to demand from an investment opportunity.
So what might have made people decide to invest their money in Rare Earth Minerals (LSE: REM) last week?
A 1,900% gain — in one year
Perhaps it’s the hope that the company’s recent share price performance will be repeated. Since this time last year it’s up almost 1,900% (yes, you did read that correctly — it’s risen from 0.05p to 0.99p), compared with a gain of just 4% for the FTSE 100.
The first big surge in Rare Earth Minerals’ value came in August 2013, when it announced that there was “firm evidence” that its Fleur-El Sauz project in northern Mexico had the potential to be part of a major high grade Lithium discovery. Over the next few days its share price rocketed, hitting 1.25p at one point. But it then fell back steadily over the rest of the year, settling at around 0.4p–0.5p for the next few months.
Then last Wednesday (28 May) the company announced that exploratory drilling had started at the Yangibana North prospect — in which it has a 30% free-carry interest until it reaches a bankable feasibility study — where geological sampling and drilling has already identified elevated levels of both neodymium and europium oxides. Rare Earth Minerals’ share price started rising again, almost hitting 1p, before falling back to around 0.8p.
High reward — high risk
Anyone who bought at that level has already been rewarded with a rise of around 20%. Rare Earth Minerals’ share price currently stands at 0.995p, with the gain all having come today, following an announcement by the company this morning that the mineral resource for its Sonora Lithium Project in northern Mexico — which includes the Fleur-El Sauz joint venture lands and the La Ventana deposit — has increased by 37% to a new total of 3.28m tonnes of lithium carbonate equivalent, and that the resource has been upgraded from ‘inferred’ to ‘indicated’ (one step down from ‘measured’, which is the highest level of confidence for a mineral resource).
Commenting on today’s announcement, David Lenigas, Chairman of Rare Earth Minerals, said:
“These results combined with the previous announcements on the achievement of 99.5% battery grade product, the production of lithium carbonate samples for potential buyers and the commissioning of a scoping study for a 35,000 to 50,000 tonne per year lithium carbonate plant shows that the development of the Sonora Lithium Project is progressing well and has the potential to become a significant global lithium producer.”
Of course, mining is a high-risk business, and there’s a long (and expensive) way to go from just finding what you think might be a valuable resource to actually getting it out of the ground and selling it at a profit.
Only you can decide if the potential future reward that may be offered by Rare Earth Minerals justifies taking that risk.
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Jon doesn't owns shares in Rare Earth Minerals.
* based on aggregate data from The Motley Fool ShareDealing Service.