Last time I checked out Rare Earth Minerals (LSE: REM), I said that investing in this stock was like buying thin air.
Although this mining minnow had a good track record of finding rare earth deposits like the highly-prized lithium, it has been slow to mine the goods and bring the market.
That means no revenues, no profits, no dividend, just an annual £1m cash burn, and the promise of good times to come.
If you want something more down-to-earth, you had better look elsewhere.
Penny Dreadful
If you do that, however, you will miss out on a lot of excitement. This London-listed investment company is up 33% over the last month alone, and an earth-shattering 1865% over the past two years.
It is amazing how much money investors can make from a company that doesn’t make any money itself. You can lose real money, too.
At today’s 1.1p, the stock is still way below its 12-month high of 2.06p.
Hey Good Looking
The latest share price surge has been driven by news that recent drilling conducted with mineral developer Bacanora Minerals at the Sonora project in Mexico had sliced into what looks to be a mineral source.
I like that phrase “looks to be”. But if the intersection is as good as it looks, it points to expansion of the 3.28m tonnes lithium project.
Pre-feasibility work at another co-project, with Hastings Rare Metals in Yangibana, Australia, also delivered positive prospects.
Blind Faith
Investing in the stock remains an act of faith, however. We won’t know more about Yangibana, in which REM has a 30% stake, until that pre-visibility study is completed towards the end of the year. So investors are blind gambling on a positive outcome, and should treat any investment as a flutter.
You are also betting on continuing market demand for lithium, which REM’s management forecast is set to grow by around 10% a year.
Your Big Fat Gigabet
The more towards electric cars should drive demand, with Tesla Motors now planning the world’s largest lithium-ion battery factory, the 10m square foot so-called Gigafactory. Goldman Sachs calculates that that could soak up 17% of global supply on its own.
Demand for smartphones and tablets also shows no sign of waning.
Whether REM benefits depends on the outcome of its explorations, naturally, and how much lithium its competitors unearth.
As markets wait for the outcome of the pre-feasibility study, there is little need to rush into this stock, even at today’s 1.1p. If investors get bored and drift away over the summer, you might find an even cheaper buying opportunity.
If that happens, I will be tempted to dig in. Rare Earth Minerals may be like investing in thin air, but the sky really is the limit.