Is Rare Earth Minerals PLC The Perfect Partner For Rio Tinto plc In You Portfolio?

Could a combination of Rare Earth Minerals PLC (LON: REM) and Rio Tinto plc (LON: RIO) prove to be a potent one?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

opencast.mining

Despite falling by 32% over the last month, 2014 has still been a superb year for investors in Rare Earth Minerals (LSE: REM). That’s because shares in the mining exploration company are up by around 59% year-to-date, which is an astonishing performance given the disappointing returns of the wider index.

Indeed, sector peer, Rio Tinto (LSE: RIO) (NYSE: RIO.US), has endured a tough year alongside the FTSE 100, with shares in the Australia-focused mining company being down by 7.5% year-to-date. However, with the company having considerable potential, could it be worth buying a slice of? Furthermore, could a combination of REM and Rio Tinto prove to be a highly profitable mix moving forward?

Rio Tinto

Clearly, Rio Tinto is a far bigger company than REM and, as a result, has stronger finances and operates over a wider and more diversified geographic area. However, even Rio Tinto is still a relatively high-risk play and, for such a large company, relies very heavily on the price of (and demand for) just one commodity.

Indeed, over 90% of Rio Tinto’s profits from last year were derived from the sale of iron ore. Although the company has the lowest cost curve in the iron ore industry, an iron ore price that is at a five-year low means that its bottom line will inevitably be hit very hard. As a result, its share price has performed poorly – as mentioned.

REM

On the other hand, REM has less diversity when it comes to the number of mines it operates, but it has benefited from strong news flow at times during 2014. The most recent example was just this week when it reported that results taken from samples in Greenland had exceeded expectations. As a result, shares in the company have risen by 15% on the day at the time of writing.

This seems to be the key for REM moving forward, since the company has no revenues at present. So, while exploration updates and the results of tests such as those conducted in Greenland are nigh on impossible to predict, it seems to have the potential to deliver yet more upbeat news flow from its four 100% owned licenses, as well as the prospects in which it owns a stake.

Looking Ahead

So, while the short term progress of REM may be highly volatile and difficult to predict, it seems to be a stock to watch over the long term. Indeed, that seems to be the case for Rio Tinto, too. While the price of iron ore is difficult to predict over the short run, long term growth appears to be on the cards, with vast swathes of emerging markets yet to fully industrialise. Furthermore, trading on a price to earnings (P/E) ratio of just 10, it seems to offer great value for money.

With both companies, therefore, having considerable long-term potential, but likely to remain volatile in the short run, a combination of the two could prove to be a highly worthwhile investment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens 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.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »