Are Rare Earth Minerals PLC & Bacanora Minerals Ltd A Screaming Buy At Today’s Prices?

Shares in Rare Earth Minerals PLC (LON:REM) and BACANORA MINERALS LTD ORD NPV (DI) (LON:BCN) have risen after their lithium assets were valued at more than $2bn.

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.

Shares in Rare Earth Minerals (LSE: REM) touched a high of 1.35p when markets opened this morning and have climbed more than 25% over the last week.

The reason? This morning, REM released a new report claiming that El Sauz and Fleur Lithium Project in northern Mexico, in which REM has a 38.4% stake alongside Bacanora Minerals, could be worth $2,023m.

This suggests that REM’s share of this potential value could be around $775m, a figure that dwarves the firm’s current market cap of around $100m.

Should you invest £1,000 in Barclays right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays made the list?

See the 6 stocks

Too good to be true?

There doesn’t seem to be much doubt that the lithium assets in which REM has a stake contain some good quality deposits.

However, today’s report is only a preliminary scoping study, not the kind of detailed feasibility study usually required to raise funds for a big project.

In my view, the net present value (the value of all expected future cash profits, in today’s money) of $2,023m provided in today’s report is quite optimistic.

Firstly, the current market price of lithium concentrate is $6,500 per tonne. This has risen strongly in recent years, but the NPV in today’s report assumes that the price will average $6,500 per tonne for the next twenty years.  

Secondly, the report uses a discount (interest) rate of 8% to calculate the NPV, rather than the more commonly used 10%. A lower rate has the effect of boosting the NPV.

Could REM be worth 3p/share?

Today’s report says that $422m would be required to build the mine and buy the necessary equipment, but the report says this is only an estimate, so let’s say that around $600m would be needed to get the mine up and running.

Of this, REM would have to provide $230m, based on its 38.4% interest. The company’s latest results showed cash of just $4m, so all of this would have to be borrowed or raised from shareholders, probably a combination of both.

Based on all of this, and the firm’s $775m share of today’s NPV projection, my rough calculations suggest that REM shares could be worth 3p, if things go to plan and the numbers in this report — which I feel are a bit optimistic — are proved to be correct when a more rigorous feasibility study is carried out.

Overall, I’d say REM still has the potential to deliver a 100% gain — but it’s a fairly risky and speculative buy, in my view.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

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.

More on Investing Articles

Close-up of British bank notes
Investing Articles

£20,000 in savings? Here’s how it could be used to target a £913 second income each month

Christopher Ruane walks through some practicalities of how an idle £20k could be the foundation for a sizeable long-term second…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

5 steps to building monthly passive income with a spare £10k

Christopher explains how an investor could aim to use some spare cash to start building regular passive income streams through…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Tesla’s struggling. Could NIO stock benefit?

NIO stock has moved up very slightly this year, while Tesla has crashed. Our writer considers whether it might be…

Read more »

Two employees sat at desk welcoming customer to a Tesla car showroom
Investing Articles

Could Tesla stock be a brilliant bargain in plain sight?

Christopher Ruane sees some things to like about Tesla, but as its vehicle revenues have gone into sharp decline, is…

Read more »

British coins and bank notes scattered on a surface
Investing Articles

3 cheap FTSE 250 stocks with big dividends to consider buying right now

The FTSE 250's loaded with so many big dividend yields it's hard to know where to start. These three have…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Up 585%, could Rolls-Royce shares still go higher?

Christopher Ruane likes the Rolls-Royce business but is not so convinced by the value its current share price offers him.…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

I reckon a bull market’s coming! Here’s what I’m buying for my Stocks and Shares ISA

Hoping to capitalise on what he believes is an undervalued UK stock market, our writer’s added more of this FTSE…

Read more »

piggy bank, searching with binoculars
Investing Articles

The UK stock market looks undervalued to me. Here’s 1 growth stock to consider for a SIPP

Our writer explains why he thinks the UK stock market’s currently in bargain territory, and identifies one share potentially worthy…

Read more »