When you invest in smaller company stocks you can end up jumping onto any odd scrap of news that appears from one month to the next.
This is particularly true for stocks such as Rare Earth Minerals (LSE: REM) and Sirius Minerals (LSE: SXX), neither of which are actually earning any revenues at the moment. Instead, they have a large planning and investment programme ahead of them, and investors can only cross their fingers, keep the faith and hope it all works out in the end.
Silent storms
The lack of major news or announcements, aside from the odd semi-conclusive drilling update, ought to leave the share price becalmed but often the opposite happens. The merest scrap of information sends investors into a whirl and blows the share price violently in all sorts of directions. Also, stocks like these risk getting damaged by commodity sector storms, even if they have little bearing on their own performance.
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REM’s share price is down 20% year-to-date, from around 80p to 67p, despite the lack of serious news. Stocks like this can really stretch your patience. While it got a major boost last year following its deal to supply Tesla Motors with lithium hydroxide, this has led nowhere as we wait to hear whether it meets Tesla’s stiff two-year performance milestones.
This year’s slide downwards was reversed when European Metals Holdings, in which it has an 11.9% stake, released an optimistic update on drilling results from its Cinovec project in the Czech Republic. If you believe in the long-term case for lithium, rare earth elements and clean battery power, then you might want to take advantage of the disconcerting effect of the lack of news flow from Rare Earth Minerals. Just make sure that you have the patience to stick around while very little happens, and the courage to keep your nerve when a lot happens all at once.
Fertile ground
AIM-listed potash miner Sirius Minerals has also been sunk by the wider storms afflicting the commodities sector, as well as one or two squalls of its own. Sentiment took a knock in January after management announced a two-month delay of the definitive feasibility study on its York Potash Project, which it claims is the world’s largest and highest grade deposit of polyhalite. One concern is that it will struggle to raise the £2bn it needs to fund a deep mine beneath the North York Moors national park and develop export facilities at Teesside, given the troubled commodities climate.
Another worry is that fertiliser costs have fallen along with economic sentiment, hitting the potential future value of potash and further deterring investors. Yet nobody can say what will happen to the price of potash (or anything else in the notoriously cyclical agricultural sector) by the time Sirius finally starts shipping, assuming it ever does. It’s merely idle talk that serves to plug the gap while investors wait for something more substantial.
Investors have rallied to the cause, forcing up the share price by 8% over the last week, although at today’s 13p it’s still less than half its 52-week high of 29p. Like REM, I would rather invest in SXX on no news than following a share price spike after a burst of good news. But you will still need courage and patience to see it through to the end.
