Follow the rainbow

Investing in small-cap mining companies can be risky business. Problems at the exploration, development, and production phases can be common. And these can stretch the balance sheets of modest operators to the limit.

However, I still believe Rainbow Rare Earths (LSE:RBW) is worth close attention right now. This is because demand for the uncommon metals it digs for is expected to soar. These materials are used in vast quantities in electric cars and wind turbines, to name just a couple of their applications.

These rare metals include neodymium, praseodymium, dysprosium, and terbium. And analysts at Adamas Intelligence expect consumption of them to rise at an annualised rate of around 8.6% between 2022 and 2030.

At the same time, a lack of new rare earths supply means the market faces a colossal shortfall. Adamas thinks production growth will rise just 5.4% over the same eight-year period. So Rainbow Rare Earths can expect to command a premium price for its product.

I like this penny stock in particular because of the quality of its assets. Metal grades at the Phalaborwa project in South Africa are impressive and cash costs are likely to be extremely low. The company also owns the Gakara project in Burundi, a site that’s been described as one of the planet’s richest rare earths deposits.

Another mining star

Economists believe we are at the early stages of a fresh commodity supercycle. I think Rainbow Rare Earths could be a great way for investors to make huge returns from it. And so might Phoenix Copper (LSE:PXC).

Demand for red metal is also tipped to shoot higher over the long term. Its high conductivity means it will have an important role to play in the green revolution. Meanwhile, its wide use in construction means consumption should surge as urbanisation rates in emerging markets increase.

Analysts at mining advisory firm RFC Ambrian expect copper demand to reach 33.6m tonnes in 2030, representing an annualised growth rate of 3.1%. And like the rare earths sector, only weak supply increases are predicted, which could leave copper with a large market deficit.

Phoenix Copper owns the Empire mine in Idaho. It’s an asset which contains 129,641 tonnes of copper as well as substantial amounts of zinc, silver, and gold.

The penny stock also owns two cobalt projects in the same US state. The material is a key component in electric vehicle batteries and gives the business an extra way to capitalise on the energy transition.

Commodity prices can be volatile. And as a consequence, company earnings can also be choppy. But as a long-term investor I still find Phoenix Copper an attractive investment. I think profits could soar in the years ahead.

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The brickmaking behemoth

Grabbing exposure to the UK’s strong homes market is a great idea right now. And I think investing in building materials supplier Brickability Group (LSE: BRCK) is an excellent way for me to do this.

There’s a risk that homes demand will suffer when the Help to Buy equity loan scheme ends next spring. This has the potential to derail many first-time buyers getting on the property ladder.

But I’m not expecting government to stop supporting first-time buyers. Solving the housing crisis is a key issue with voters, after all. So Britain will need to keep building to solve the issue, meaning brick sales at Brickability should remain strong.

Hot homes demand

Indeed, cabinet minister Michael Gove this week touted introducing default protection insurance to help buyers without large deposits secure a mortgage. There are other levers that the government could pull to help first-time buyers from next spring too.

There simply aren’t enough homes to go around. Low interest rates, growing competition among mortgage providers, and (in all likelihood) ongoing government support should keep the industry well supported long into the future.

Expanding for growth

Pleasingly, Brickability remains active on the acquisition stage to make the most of what are likely to remain fertile trading conditions too. It bought timber specialist Taylor Maxwell and roofing giant Leadcraft last summer to boot its product ranges and geographic footprint.

And signalling more potential action on this front Brickability commented last month that its “acquisition pipeline remains strong”. The firm added that it is “assessing a number of potential opportunities”.

At 88p per share, Brickability today trades on a forward P/E ratio of just 11 times. Meanwhile, its dividend yield of 3.1% provides a bonus. I think this represents very good all-round value.

Another penny stock to buy

Copper consumption is also likely to balloon as global construction rates ramp up. In particular, demand for the red metal is tipped to soar as urbanisation rates in emerging regions accelerate.

This is why I’m thinking of investing in Phoenix Copper (LSE: PXC) right now. This penny stock (which trades at 48p) is developing the Empire mine in Idaho with a view to producing first material in H1 next year. The asset contains some 129,641 tonnes of copper.

There’s still some way to go before Empire is up and running. Any setbacks on this front could scupper analysts expectations that Phoenix will start making profits from 2023.

Still, I think the long-term outlook for copper demand still makes this penny stock a top buy today. Phoenix can expect soaring electric vehicle sales to bolster consumption of its product alongside booming construction activity.

Australia’s government also thinks refined copper demand will surge 31% between 2020 and 2030.

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An attractive dip buy

I think buying BATM Advanced Communications (LSE: BVC) could be a shrewd move following recent extreme share price weakness. The business — which manufactures coronavirus-testing equipment — has slumped as fears over the pandemic have receded. However, as soaring cases in China show, the battle against the pandemic is far from over. Indeed, Infection numbers in the country have just hit two-year highs.

In a recent article in The Lancet, scientist Christopher Murray claimed that “Covid-19 will continue but the end of the pandemic is near”. This suggests that demand for BATM’s products could continue ticking along even if a fresh full-blown upturn in the pandemic is avoided.

But I wouldn’t just buy this penny stock for its Covid-19 testing kits. The business also generates a sizeable chunk of revenues from manufacturing networking and cyber security products. These are two areas that could grow significantly as the digital revolution clicks through the gears. Revenues from BATM’s cyber security division, for example, leapt 111% year-on-year in 2021.

A high-profile failure of BATM’s systems could prove catastrophic for future revenues. But it’s still my belief that the advantages of owning this particular cheap UK share outweigh the risks.

Another great penny stock

Copper values are flying as the market frets over shortages of the essential commodity. Disappointing red metal production in Chile has shaken nerves in recent days, and concerns over supply due to the Russia-Ukraine dispute have added fuel to the fire. Red metal stockpiles in London Metal Exchange (LME) warehouses have fallen to their lowest level since the early 2000s.

Three-month copper prices have just hit fresh all-time highs of around $10,800 per tonne on the LME as a result. Many analysts suggest the market could experience a serious deficit of material in 2022 and beyond too, meaning that metal values could remain white hot. This bodes well for Phoenix Copper (LSE: PHC), a miner which looks on course to begin producing the metal late this year.

I’ve long talked about copper stocks as a great investment as the green revolution takes off. The highly-conductive commodity they dig for is an essential material in the manufacture of electric cars and charging infrastructure. It is also used in massive amounts to build renewable energy technology like wind turbines. Thus there’s a good chance copper prices — and by extension profits at companies like Phoenix Copper — will be strong over the next decade at least.

Phoenix Copper isn’t a guaranteed winner, of course. In particular, any difficulties in getting its Empire metal mine in Idaho up and running in H1 2023 would have significant consequences for profits forecasts. That said, I still think this penny stock remains a highly-attractive investment as investment in low-carbon technologies rockets.

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That said, I think the long-term outlook for Ediston is highly attractive. And I’d use a 13% decline in its share price during the past month as a chance to buy it at a discount.

This property stock specialises in operating shopping parks, a part of the retail market which is performing strongly as e-commerce takes off. More specifically, Ediston’s properties have enough warehouse space and surrounding land to enable the business to ride soaring demand for ‘click & collect’ services from online shoppers.

Ediston’s share price is, despite heavy weakness more recently, up 12% over the past year. I expect the business to start to head higher again sooner rather than later.

Too cheap to miss?

Motor retailer Pendragon (LSE: PDH) could also suffer if shopper budgets continue to fall. It also faces some near-term peril as supply chain problems hit auto production and the prospect of stock shortages loom.

However, following recent share price weakness — Pendragon has just fallen to its cheapest since December — I think this penny stock could be too cheap for me to miss. Today, Pendragon trades on a rock-bottom price-to-earnings (P/E) ratio of just 6.8 times for 2022.

As a long-term investor, I think the car retailer has plenty of appeal. And I think it’s a great way to exploit rocketing demand for electric vehicles (EVs) in particular. Latest Society of Motor Manufacturers and Traders data shows sales of battery and hybrid vehicles leap 92.5% year-on-year in January. It’s a trend I expect to continue as fears over the climate crisis steadily increase.

Pendragon’s share price is up 46% during the past 12 months. I expect more robust increases over the long term as well.

Another top penny stock for the EV boom

I’d also snap up Phoenix Copper (LSE: PXC) shares to ride the EV revolution.

The red metal is a critical component in these low-emission vehicles, due its high connectivity. This is why analysts at ING Bank think copper loadings in cars and buses will likely leap to 3.2m tonnes a year from 440,000 tonnes in late 2021. They also believe copper demand in charging infrastructure will rise almost fivefold over the period, to 47 tonnes per annum.

Phoenix Copper, which owns the Empire metal mine in Idaho, should be well-placed to capitalise on rising copper consumption. That’s notwithstanding any revenues-hitting problems the business may encounter in developing its US asset.

Phoenix Copper’s share price has dropped 14% in the past week. This has eradicated all gains it has made over the prior 12 months. And, in my opinion, this makes the penny stock a highly attractive dip buy for me.

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Riding the copper demand boom!

Escalating trouble in the Chinese property market poses a threat for many UK commodities shares. Profits could take a tumble if the problems faced by Evergrande spread and demand for metals, for example, slumps. Still, as someone who buys share with a long-term view I think copper shares like Phoenix Copper (LSE: PXC) remain ultra-attractive right now.

It looks as if copper demand is set to explode over the next decade. This isn’t just because rising concerns over climate change should supercharge electric vehicle sales and investment in renewable energy technology. It’s because demand for consumer electronics looks set to rocket in emerging markets as personal wealth levels increase.

Bank of America recently tipped copper to hit $20,000 a tonne by 2025 as copper shortages emerge. That’s up from just below $9,300 today. Phoenix Copper is due to restart production at the Empire Mine in Idaho in 2022 to capitalise on improving red metal consumption.

A word of warning: a swathe of new production capacity entering the market could harm the prices UK shares like this can ask for their metal. Analysts at ING Bank recently warned that “the expansion of some Chinese players such as Daye and some new projects in Indonesia and India” could keep refined supply high over the next few years.

Another top penny stock for commodity lovers

Phoenix Copper isn’t the only dirt-cheap commodities stock I’m considering buying today. An environment of soaring prices means I’m also thinking of investing in Scotgold Resources (LSE: SGZ). This is because I think inflationary pressures could increase at an alarming rate, in turn boosting classic safe-haven assets like gold.

The Bank of England decision last week to raise rates despite the worsening Omicron crisis illustrates how seriously the inflationary threat is becoming. Deutsche Bank analysts upgraded their inflation forecasts in recent hours (they now expect British CPI to exceed 6% next spring). This comes after UK inflation hit new 10-year highs in November and beat broker forecasts by around half a percentage point. Plenty of other economists are rethinking their global inflation targets following recent data.

It’s true that rate hikes by central banks could hit gold demand and by extension profits at Scotgold. This could be particularly damaging if the US Federal Reserve engages in regular rate hiking, a trend that would likely push the US dollar higher. This could damage investor interest in gold as it would make dollar-traded commodities like this less cost effective to buy.

But it’s my opinion that banks will be reluctant to raise rates too much as the pandemic rolls on, keeping the inflationary bubble going. Scotgold operates the Cononish gold mine in Scotland where production is steadily being ramped up.

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Copper colossus

Investing in early-stage mining companies can be a risky business. By the time a certain commodity is ready to be hauled out of the ground, the prices which it can command could be much lower than expected. There’s also the problem than smaller operators don’t tend to have the financial clout to weather significant setbacks. This leaves shareholders in peril of being tapped for cash.

So where does this leave Phoenix Copper (LSE: PXC)? Well, I say the risks of investing in firms like this are high. But I also think the possible rewards here could be explosive.

Let’s look at the outlook for copper demand first of all. Copper will be the “main beneficiary of the energy transition,” according to World Bank analysts, with consumption set to increase “for electric vehicles, charging, renewables generation, and grid storage.” This has the capacity to drive prices significantly higher over the latter half of the decade, in my opinion.

A top-quality mining resource

Then there’s the quality of Phoenix Copper’s Empire Mine, which is due to come online next year. As well as containing significant quantities of copper, the company’s Idaho asset also houses decent amounts of zinc and gold. It’s also been suggested that Phoenix Copper could have access to a high-grade copper sulphide resource below the open pit and a vast molybdenum and tungsten system.

Past performance is not always a reliable indicator of future success. However, I find the steady stream of positive exploration and development news coming out of Phoenix Copper highly encouraging. I’m also reassured by its strong balance sheet, one which sets it apart from many other early-stage mining plays and potentially lessens the chances of it tapping its investors for cash. It might be riskier than many other UK shares, but I’m still tempted to buy this penny stock today.

Another penny stock on my radar

Serabi Gold’s (LSE: SRB) another mining share on my radar today. It’s not just due to soaring precious metal output at its Palito mine rocketed 34% year-on-year between June and August. It’s also not because operations at its Coringa project have just got under way. It marks an important stage in the firm’s objective to produce 100,000 ounces of gold.

I also like the Brazil-focused business due to the bright outlook for gold prices. In particular, I think yellow metal prices will rise as global inflation shoots through the roof. Consumer price inflation in the US clocked in at 6.2% in October, the highest reading for 31 years. Inflation in China meanwhile, just shot to 13-month highs of 1.5%.

Gold prices can go down as well as up, of course. Progress in the fight against Covid-19, in tandem with severe central bank policy tightening, could well serve to drive precious metals prices much lower. Still, all things considered, I think Serabi Gold could still deliver terrific shareholder profits now and in the future.

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