I don’t have unlimited reserves of cash I can use to buy UK shares. But here are two top penny stocks I’ll be looking to invest in when I have cash to spare.
Follow the rainbow
Investing in small-cap mining companies can be risky business. Problems at the exploration, development, and production phases can be common. And these can stretch the balance sheets of modest operators to the limit.
However, I still believe Rainbow Rare Earths (LSE:RBW) is worth close attention right now. This is because demand for the uncommon metals it digs for is expected to soar. These materials are used in vast quantities in electric cars and wind turbines, to name just a couple of their applications.
These rare metals include neodymium, praseodymium, dysprosium, and terbium. And analysts at Adamas Intelligence expect consumption of them to rise at an annualised rate of around 8.6% between 2022 and 2030.
At the same time, a lack of new rare earths supply means the market faces a colossal shortfall. Adamas thinks production growth will rise just 5.4% over the same eight-year period. So Rainbow Rare Earths can expect to command a premium price for its product.
I like this penny stock in particular because of the quality of its assets. Metal grades at the Phalaborwa project in South Africa are impressive and cash costs are likely to be extremely low. The company also owns the Gakara project in Burundi, a site that’s been described as one of the planet’s richest rare earths deposits.
Another mining star
Economists believe we are at the early stages of a fresh commodity supercycle. I think Rainbow Rare Earths could be a great way for investors to make huge returns from it. And so might Phoenix Copper (LSE:PXC).
Demand for red metal is also tipped to shoot higher over the long term. Its high conductivity means it will have an important role to play in the green revolution. Meanwhile, its wide use in construction means consumption should surge as urbanisation rates in emerging markets increase.
Analysts at mining advisory firm RFC Ambrian expect copper demand to reach 33.6m tonnes in 2030, representing an annualised growth rate of 3.1%. And like the rare earths sector, only weak supply increases are predicted, which could leave copper with a large market deficit.
Phoenix Copper owns the Empire mine in Idaho. It’s an asset which contains 129,641 tonnes of copper as well as substantial amounts of zinc, silver, and gold.
The penny stock also owns two cobalt projects in the same US state. The material is a key component in electric vehicle batteries and gives the business an extra way to capitalise on the energy transition.
Commodity prices can be volatile. And as a consequence, company earnings can also be choppy. But as a long-term investor I still find Phoenix Copper an attractive investment. I think profits could soar in the years ahead.
