Are These 3 Small-Cap Resources Stocks ‘Screaming Buys’? Rockhopper Exploration Plc, Sirius Minerals PLC And Rare Earth Minerals PLC

Are the prospects for these 3 resources companies exceptionally bright? Rockhopper Exploration Plc (LON: RKH), Sirius Minerals PLC (LON: SXX) and Rare Earth Minerals PLC (LON: REM).

| 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.

Investing in the resources sector is always a relatively risky endeavour. That’s because price fluctuations of commodities are exceptionally difficult to predict and since they have a major impact on the financial performance of a resources company, they can turbocharge or destroy share prices in a relatively short period of time.

For example, the falling oil price has had a negative impact on Rockhopper Exploration’s (LSE: RKH) valuation over the last year, with it falling by 47%. However, the company’s shares have become increasingly popular in recent weeks as the price of oil has risen and Rockhopper is now up by a whopping 17% in the last month.

Clearly, the price of oil will make a huge difference to Rockhopper’s performance, but putting that to one side, the company appears to be relatively appealing for a small-cap exploration business. That’s at least partly because it has a reasonably strong balance sheet. This includes a substantial amount of cash that should be able to fund its near-term drilling requirements. In addition, Rockhopper has a fairly well-diversified asset base, with it having considerable potential in the Falklands as well as assets in Europe.

Despite Rockhopper’s failure to be awarded a production concession in Italy recently, its tie-up with Falkland Oil & Gas should produce a stronger combined entity that’s better equipped to face a low oil price environment. As such, and while Rockhopper is a risky buy, it could continue to make gains over the medium term.

Share price soaring

Also rising in recent weeks has been Sirius Minerals (LSE: SXX), with the company’s shares recording capital gains of 38% in the last month. That’s despite there being no significant news flow released during the period. As such, it could be a response to a more positive outlook for the wider commodities sector, with Sirius’s share price having come under a degree of pressure prior to the last month, due in part to question marks surrounding the cost of the fertiliser it plans to produce.

Although Sirius Minerals recently announced a delay to the definitive feasibility report for the planned mine in York, such challenges are to be expected when such a major project is being delivered. But with finance still being rather uncertain due in part to the risk-off attitude of investors towards the commodity sector at the moment, Sirius could be a stock to watch rather than buy at the present time.

Think long term

Meanwhile, Rare Earth Minerals (LSE: REM) continues to offer excellent long-term potential due to the expected global increase in the use of lithium. Although its shares have fallen by 29% since the turn of the year and it has no revenue at the present time, it has an upbeat long-term outlook. That view is enforced by the potential for deals with major customers such as Tesla, as well as the upbeat update released by European Metals Holding earlier this year, in which Rare Earth Minerals has a 12% stake.

Despite this, it may be prudent to invest elsewhere right now since sentiment in commodities could easily worsen if commodity prices fall. Rare Earth Minerals may have a relatively well-diversified asset base that could deliver huge profitability in future years, but with other resources stocks being profitable and offering good value right now, the risk/reward ratio of Rare Earth Minerals may be trumped by a number of its peers.

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 owns shares of and has recommended Tesla Motors. 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

It’s up 70%, but the experts expect the IAG share price to climb still further

Why didn't I buy when I was convinced the IAG share price was likely to soar? And is there still…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

2 UK stocks with recovering profit margins

This writer considers a pair of UK stocks with very different share price trajectories following the pandemic. Would he buy…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Will Trump’s tariffs squeeze this FTSE 100 giant’s profits?

Our writer looks at how the latest news around US tariffs might impact FTSE 100 company Diageo. Should he be…

Read more »

Investing Articles

Up 95%, is this FTSE winner the best high-yield star for me to buy now?

Do we have to choose between share price growth and high-yield dividends? In this case, over the past year, it…

Read more »

Asian Indian male white collar worker on wheelchair having video conference with his business partners
Investing Articles

2 dividend-paying FTSE shares that could benefit from the AI revolution

Our writer examines two dividend-paying FTSE shares and explains some of the opportunities and risks he sees in their exposure…

Read more »

Investing Articles

Up 140% and rocketing out of the FTSE 250! Is it too late for me to buy this red-hot stock?

Miniature war games hero Games Workshop has outgrown the FTSE 250 and is hammering at the door of the UK's…

Read more »

Investing Articles

If I invest £10,000 in Taylor Wimpey shares, how much passive income will I receive?

Taylor Wimpey shares have fallen and are now paying a huge dividend. How much might I receive by investing a…

Read more »

Index Funds text carved in stone background
Investing Articles

Why I choose to invest in individual stocks rather than an index fund

Our writer examines the differences between stock picking and investing in index funds and why he feels there’s more to…

Read more »