Until recently, I thought Rare Earth Minerals (LSE: REM) was all about discovering rare earth elements such as lanthanum, terbium, neptunium, fermium and others from the lanthanide and actinide series of elements.
How wrong I was! It turns out that most of the value in the firm’s market capitalisation relates to joint venture holdings with other firms that have discoveries of lithium. That situation makes the investment case even more exciting.
Here are my three top reasons for buying some of Rare Earth Mineral’s shares now:
1) Lithium interests
Lithium is in great demand and that demand is rising. Some people reckon that demand is set to outpace supply, thanks to a fixed amount of lithium coming from South America and limited proven resources. People in the industry think lithium prices will go up a lot, as new uses for the soft element are discovered.
Most people probably know lithium best as the key component of the lithium-ion (Li-ion) batteries that power mobile phones, laptops, tablets, and, increasingly, larger items, such as power tools, that are switching from nickel cadmium (NiCad) cells.
But in addition to those uses of lithium, another one is getting the directors at Rare Earth Minerals excited — the use of lithium-based batteries used to power hybrid and all-electric cars. In some projections, commentators predict exponential growth in the electric car market in the coming years and decades, and that demand seems set to bump into a lithium bottleneck.
Rare Earth Minerals has positioned itself well with a roughly 30% interest in a Mexican lithium project and a 3% interest in a US project that’s much closer to carrying out a feasibility study or in-depth examination of the project’s potential for success — an esssential step before investing in infrastructure for production.
2) Investments across the development curve
Rare Earth Minerals doesn’t yet own a stake in any producing assets and the firm’s current investments seem set to take many months or years to reach the point of production. However, the company’s portfolio does cover most points on the development curve and that is an attractive situation.
For example, in Greenland the firm owns a 100% stake in four green field exploration licences covering an area of 458 square km. So far, the firm has only taken samples from the area, but the results are encouraging. The company has identified areas that may contain rare earth elements, plus zinc, tungsten, silver and gold.
This is very early-stage exploration and progress depends on Rare Earth Mineral’s own actions as explorer. The chief executive reckons that operations on the Greenland licences could drain most cash from the firm’s balance sheet in the coming months, perhaps at the rate of around £250 thousand or so every six months. The firm’s other interests around the world are already funded for immediate progress, all the way to the feasibility stage in some cases. That said, Rare Earth Minerals does keep adding to its investments in other areas, which also uses the firm’s cash.
At the other end of the development curve Rare Earth Minerals 3% interest in Western Lithium Corporation gives the firm a share of reserves estimated at 11m tonnes of lithium carbonate equivalent, located in Nevada, USA. The deposit is potentially one of the world’s largest strategic, scalable and reliable sources of high quality lithium carbonate. Western Lithium has already completed a positive pre-feasibility study, suggesting a more advanced operation than elsewhere in Rare Earth Mineral’s asset base.
Meanwhile, the firm’s Australian and Mexican interests have progressed with early-stage scoping studies and on-going exploratory drilling. In Mexico, Rare Earth Minerals is partnered with a firm called Bacanora Minerals. The directors see good value in the Mexican lithium assets and keep buying additional shares in Bacanora from the market.
3) High retail share ownership
My final reason for buying into Rare Earth Minerals is the high number of retail investors on the firm’s share roll. Large institutions don’t own major slugs of the shares, so the share price is retail driven. That situation nets out to high liquidity and large share price swings.
If we want to get rich (or poor) quickly on a story share, high, sentiment-driven retail ownership provides perfect conditions for us to operate. All we need from Rare Earth Minerals after that is a constant supply of positive-sounding news flow and we are off to the races. That’s one of several things that the firm seems good at!
