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While American air taxi companies like job and Goalkeeper make headlines, I'm looking for a related industry that could deliver the UK's next biggest growth stock.
In recent years, sustainability initiatives have become a top priority for the world's leading nations. To meet the demand for the rare elements needed in renewable energy production, new forms of mineral extraction have emerged.
I am referring to rare earth elements (REE).
Increased demand
REEs such as neodymium and praseodymium are essential for the manufacture of 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 dependence on Chinese suppliers. As China is the world's largest producer of REE, the move increased demand for REE mining in Western nations.
Subsequently, I am considering the prospects of two London Stock Exchange-listed REE companies that I believe have growth potential.
Rainbow Rare Earths
Today (January 18) Rainbow Rare Earths (LSE:RBW) announced the welcome of a US Congressional staff delegation to its Phalaborwa REE development project in South Africa. The project could generate significant profits for the company, leading analysts to forecast 60% annual profit growth for Rainbow.
With a market capitalization of £80m, Rainbow Rare Earths is comparatively small globally, but is the REE industry leader in the UK. The company enjoyed a £7.9m rise in its market capitalization last week, with retail investors now owning more than 50% of the shares.
RBW shares are currently trading at just 13p, making it an easy penny stock to get into while I'm down. However, it's worth noting that revenue has been declining at around 55% annually, 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 reward can be rewarding. I think Rainbow Rare Earths stock has decent growth potential, so I will definitely consider it as a good addition to my portfolio in 2024.
Pensana Metals (LSE:PRE) is an even smaller penny stock than Rainbow Rare Earths, with a market capitalization of £55m and a share price of 20p. The last 12 months have not been good for the company, with the share price falling 66% since January last year. What's more, profits have declined 27% annually over the past five years.
Still, I think the growing demand for REE has the potential to change Pensana's fortunes.
The company is building a REE refinery in the UK and is 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 $10 million from a major UK investment firm. M&G and the sovereign fund of Angola (FSDEA). This contributed to the share price briefly rising at the time, but growth has since largely slowed.
With less than a year of free cash flow remaining, Pensana may need to become profitable soon if it hopes to survive. I have a lot of faith in renewable energy and I hope that Pensana does well. For now, however, I will continue to investigate this sector and keep an eye on the development of Pensana.
