Until recently, I thought Rare Earth Minerals (LSE: REM) was all about discovering rare earth elements such as lanthanum, terbium, neptunium, fermium and others from the lanthanide and actinide series of elements.
How wrong I was! It turns out that most of the value in the firms market capitalisation relates to joint venture holdings with other firms that have discoveries of lithium. That situation makes the investment case even more exciting.
Here are my three top reasons for buying some of Rare Earth Minerals shares now:
1) Lithium interests
Lithium is in great demand and that demand is rising. Somepeoplereckon that demand is set to outpace supply, thanks to a fixed amount of lithium coming from South America and limited proven resources. People in the industry think lithium prices will go up a lot, as new uses for the soft element are discovered.
Most people probably know lithium best as the key component of the lithium-ion (Li-ion)batteriesthatpower mobilephones, laptops, tablets, and, increasingly, larger items, such as power tools, that areswitching from nickel cadmium (NiCad) cells.
But in addition to those uses of lithium, another oneis getting the directors at Rare Earth Minerals excited the use of lithium-based batteries used to powerhybrid and all-electric cars. In some projections, commentators predict exponential growth in the electric car market in the coming years and decades, and that demand seems set to bump into a lithium bottleneck.
Rare Earth Minerals has positioned itself well with a roughly 30% interest in a Mexican lithium project and a 3% interest in a US project thats much closer to carrying out a feasibility study or in-depth examination of the projects potential for success an esssential step before investing in infrastructure for production.
2) Investments across the development curve
Rare Earth Minerals doesnt yet own a stake in any producing assets and the firms current investments seem set to take many months or years to reach the point of production. However, the companys portfolio does cover most points on the development curve and that is an attractive situation.
For example, in Greenland the firm owns a 100% stake in four green field exploration licences covering an area of 458 square km. So far, the firm has only taken samples from the area, but the results are encouraging. The company has identified areas that may containrare earth elements, plus zinc, tungsten, silver and gold.
This is very early-stage exploration and progress depends on Rare Earth Minerals own actions as explorer. The chief executive reckons that operations on the Greenland licences could drain most cash from the firms balance sheet in the coming months, perhaps at the rate of around 250 thousand or so every six months. The firms other interests around the world are already funded for immediate progress, all the way to the feasibility stage in some cases. That said, Rare Earth Minerals does keep adding to its investments in other areas, which also uses the firms cash.
At the other end of the development curve Rare Earth Minerals 3% interest in Western Lithium Corporation gives the firm a share of reserves estimated at 11m tonnes of lithium carbonate equivalent, located in Nevada, USA. The deposit is potentially one of the worlds largest strategic, scalable and reliable sources of high quality lithium carbonate. Western Lithium has already completed a positive pre-feasibility study, suggesting a more advanced operation than elsewhere in Rare Earth Minerals asset base.
Meanwhile, the firms Australian and Mexican interests have progressed with early-stage scoping studies and on-going exploratory drilling. In Mexico, Rare Earth Minerals is partnered with a firm called Bacanora Minerals. The directors see good value in the Mexican lithium assets and keep buying additional shares in Bacanora from the market.
3) High retail share ownership
My final reason for buying into Rare Earth Minerals is the high number of retail investors on the firms share roll. Large institutions dont own major slugs of the shares, so the share price is retail driven. That situation nets out to high liquidity and large share price swings.
If we want to get rich (or poor) quickly on a story share, high, sentiment-driven retail ownership provides perfect conditions for us to operate. All we need from Rare Earth Minerals after that is a constant supply of positive-sounding news flow and we are off to the races. Thats one of several things that the firm seems good at!
Taking on more risk with shares such as Rare Earth Minerals is one way to drive serious stock market gains, in fact it is step 5 in a special Motley Fool wealth report that sets out seven ways to build your fortune. However, risk is risky, so the report also signposts some other, arguably safer investment ideas available right now — the kinds of situations that regularly deliver investors returns of 50%, 100% or more within a relatively short time frame.
To get it now justclick here.
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.
By providing your email address, you consent to receiving further information on our goods and services and those of our business partners. To opt-out of receiving this information click here. All information provided is governed by our Privacy Statement.