Shares in Bacanora Minerals (LSE: BCN) are up by 9% today even though the company recently reported a widening of losses in its first half results. In fact, the Mexican-focused lithium and borate company reported a net loss of 625,000 versus 340,000 for the same period in the prior year, as it continues to transition from the exploration phase into the development phase.
Risk Profile
Clearly, Bacanora Minerals is a very different proposition to the likes of Rio Tinto (LSE: RIO) (NYSE: RIO.US) and BHP Billiton (LSE: BLT) (NYSE: BBL.US), with the latter two companies offering a size, scale and financial stability that Bacanora Minerals simply cannot match.
For example, both Rio Tinto and BHP Billiton have endured highly challenging periods in recent months, with the falling iron ore price hurting their top and bottom lines. However, they have remained highly profitable in spite of tough trading conditions, which is a very different experience to that of Bacanora Minerals which, as mentioned, has seen its losses widen in its most recent results.
As such, Bacanora Minerals clearly remains a much higher-risk investment than either Rio Tinto or BHP Billiton, with its financial standing, scale and diversification being far less appealing than its larger peers.
Strategy
With Bacanora Minerals not having a CEO at the present time, its strategy is, to a certain extent, rather uncertain. Certainly, it is making encouraging progress in terms of its ongoing (and fully funded) pre-feasibility studies at both the Sonora lithium project and the Magdalena borate project. However, investing in the company now poses a risk in terms of strategy change, with a new CEO having the potential to make significant adjustments to the future plans of the business. While this could prove to be a positive, it means that Bacanora Minerals future is even more uncertain than it otherwise would be.
On the other hand, BHP Billiton and Rio Tinto have relatively stable management teams that have a clear strategy: to cut costs and rationalise their businesses. Furthermore, both Rio Tinto and BHP Billiton are seeking to increase market share through maintaining high levels of production. In the long run, this tactic could prove to be a winning one and may lead to higher profitability for both stocks.
Looking Ahead
While riskier, Bacanora Minerals clearly has considerable future growth potential. For example, its planned production facility in Mexico could produce up to 50,000 tonnes of lithium hydroxide and, while its financing is yet to be confirmed for the long run, it could prove to be a very appealing growth prospect. And, while risky, pairing it up with the likes of Rio Tinto and BHP Billiton could be a sound move, as you would still have strong growth potential, but also benefit from the more stable performance of Bacanora Minerals larger peers.
However, with no CEO in place at the present time, it may be worth waiting until its future strategy and outlook is somewhat clearer. As such, and even though investor sentiment is improving, now may not prove to be the perfect time to partner up Bacanora Minerals with BHP Billiton and Rio Tinto, although it certainly could be one for your watchlist.
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Peter Stephens owns shares of BHP Billiton and Rio Tinto. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
