Rare Earth Minerals(LSE: REM)currently trades at 1.21p andis 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. Heres 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 aninvestment company that will aim to build relationships and acquire stakes inseveral fields.
At present, it doesnt generate any revenues and doesnt 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 thats why you should invest a tiny amount of your hard-earned capital.
As it says, the company aims toacquire 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, its likely that several ventures and projects in whichRare Earth Minerals is involved will require some sort of equity capital raising in future, which would mean dilution for shareholders, but thats 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, REMs 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 thatHastingshad 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 its likely youll 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 ofHastings Rare Metals are very similar to those ofRare Earth Minerals theres very little value in them.
So, youd end up betting on long-term trends forlithium, and its use in batteriesthatpower mobilephones as well as hybrid and electric cars.
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