While US air taxi companies like Joby and Archer make headlines, I’m looking at a related industry that could deliver the UK’s next biggest growth stocks.
In the past few years, sustainability initiatives have become a top priority for leading nations worldwide. To meet the demand for the rare elements required in renewable energy production, new forms of mineral mining have emerged.
I’m talking about rare earth elements (REEs).
Increased demand
REEs like neodymium and praseodymium are critical for manufacturing batteries, magnets, and microchips used in the production of offshore wind farms and electric vehicles. In late 2023, China enacted a ban on the export of technology used to make rare earth magnets in response to a US bill to reduce reliance on Chinese suppliers. China being the world’s largest producer of REEs, the move ramped up demand for REE mining in Western nations.
Subsequently, I’m considering the prospects of two REE companies listed on the London Stock Exchange that I think have growth potential.
Rainbow Rare Earths
Today (18 January) Rainbow Rare Earths (LSE:RBW) announced the welcome of a US Congressional staff delegation to their Phalaborwa REE development project in South Africa. The project could result in significant profits for the company, prompting analysts to forecast an earnings growth of 60% per year for Rainbow.
With an £80m market cap, Rainbow Rare Earths is comparatively small globally but is an REE industry leader in the UK. The company enjoyed a £7.9m boost to its market cap last week, with retail investors now owning over 50% of the stock.
RBW shares are currently trading at only 13p, making it an easily accessible penny stock for me to get into while low. However, it’s worth noting that revenue has been declining at around 55% per year and, with a negative return on equity (ROE), the company is not yet profitable.
As with any emerging market, getting in early is risky – but the payoff can be rewarding. I think Rainbow Rare Earths shares have decent growth potential so I’ll certainly be considering it as a good addition to my portfolio in 2024.
Pensana Metals
Pensana Metals (LSE:PRE) is an even smaller penny stock than Rainbow Rare Earths, with a £55m market cap and 20p share price. The past 12 months have not been kind to the company, with the share price down 66% since January last year. What’s more, earnings have declined 27% per year for the past five years.
Still, I think the growing demand for REEs has the potential to turn Pensana’s fortunes around.
The company is building an REE refinery in the UK and assessing the feasibility of further investment in the Longonjo NdPr mining project in Angola. In April last year, Pensana received a much-needed injection of $10m from major UK investment firm M&G and the sovereign wealth fund of Angola (FSDEA). This helped push the share price up briefly at the time but growth has mostly declined since.
With less than a year’s worth of free cash flow remaining, Pensana may need to turn profitable soon if it hopes to survive. I have a lot of faith in renewable energy and I hope to see Pensana do well. For now, however, I’ll continue researching this sector and keep an eye on Pensana’s development.
