If your timing was good, backing entrepreneur David Lenigass two most high-profile current projects could have made you a fortune over the last year.
These are incredible returns but I believe both firms are now reaching a critical point, meaning that now could be a good time to consider locking in some of your gains.
Both companies own stakes in potentially valuable assets; they now need to deliver solid evidence that these assets could be commercially viable, in order to justify further appraisal and development.
For UK Oil & Gas, the next big news will be the results of the Horse Hill flow test, which needs to deliver a decent flow rate without fracking, in order to back up the firms claims for the find.
This flow test is being planned for a secret date later this year, according to a tweet by David Lenigas on 28 April.
At Rare Earth Minerals, the next big step forward will be the completion of a pre-feasibility study for the Sonora Project. This will be used to demonstrate the commercial viability of the proposed mine in discussions with potential funding partners.
Size + cash
Although UK Oil & Gas and Rare Earth Mineralsboth have stakes in potentially large assets, they dont have any cash to develop them.
UK Oil & Gass most recent reported cash balance was just short of1m, with an additional $10m debt facility. Since then, the firm has raised a further 423,196 by issuing new shares.
Rare Earth Minerals raised 2.5m in a share placing in January and reported a 7m in an equity swap fundraising deal in December. Prior to that, the firm reported cash of 4m at the end of June 2014.
These cash levels will keep the companies going and fund small-scale activities, but thats all.
For example, Rare Earth Minerals has estimated that the cost of developing the Fleur-El Sauz asset would be around $666m, of which the firms 40% share would be $266m.
Profits could still be high
Im not suggesting that both companies will not go on to deliver further gains they may do.
However, there is a risk that Horse Hill and Sonora wont be as profitable or successful as investors are hoping. Even if they are, the timescales involved are likely to be much longer than weve seen until now.
The share prices of small cap resource stocks often peak well ahead of production starting. At this stage, theres no way of knowing whether UK Oil & Gas and Rare Earth Minerals will follow the upward path of Randgold Resources, or decline like Gulf Keystone Petroleum, whose share price has fallen steadily since peaking in 2012.
Thats why now might be a good time to sell enough of your shares to cover your original purchase costs so that the remainder of your holding is pure profit, and youre guaranteed not to lose any money.
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Roland Head has no position in any shares mentioned. 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.