• This article will look at two of the weekly TheBull.com.au stock picks.
  • This week it’s two Australian mining investments at opposite ends of the risk spectrum.
  • One is a dedicated royalty structure, the other a risky lithium play.

Deterra Royalties ASX:DRR (DRR) and Lightning Minerals ASX:L1M (L1M) are two Australian listed mining investments centred on operations in the northwest of Australia, but that is where the similarity ends.

L1M is in the early stages of development and bears the risk of non-yielding exploration, while DRR is already producing reserves yet will yield only an annuity and little capital appreciation.

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Deterra Royalties ASX:DRR (DRR)

DRR may be a good investment due to its exposure to BHP Group’s Mining Area C (MAC) in Western Australia through a 1.232% royalty. The MAC is a world-class asset with significant reserves of high-grade iron ore, and DRR’s royalty provides price and volume exposure to this asset without incurring mining risks.

DRR’s recent first-half result showed production growth at BHP’s flagship asset, indicating that the company benefits from the strength of MAC’s operations.

Despite the quality of the asset and DRR’s royalty, TheBull.com.au believe the stock is currently undervalued compared to its peers. That provides an opportunity for investors to acquire a stake in a promising investment at a discount.

 

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DRR is expected to offer a forecast fully franked dividend yield of 6.6%, providing investors with a reliable income stream. This yield is particularly attractive in a low-interest-rate environment, where finding decent returns can be challenging.

DRR’s exposure to MAC and its undervaluation, combined with a high dividend yield, makes it a compelling investment opportunity for investors seeking exposure to the mining sector at reduced risk.

Balancing Risk and Reward

 

Source: Yahoo! Finance

 

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Lightning Minerals ASX:L1M (L1M)

 Lightning Minerals (L1M) has the potential to be a good investment due to its tenements near Liontown Resources (LTR) and Essential Metals (ESS), which are both highly regarded in the lithium sector. This indicates that L1 M’s tenements may have similar mineralization potential, which could bode well for the company’s exploration efforts.

Iron ore giant Fortescue Metals Group ASX:FMG (FMG) has invested in L1M, demonstrating that the company has gained the attention of a significant player in the mining industry. This investment could provide L1M with additional resources and expertise to develop its assets.

L1 M’s upcoming comprehensive drilling campaign could provide crucial insights into the potential of its tenements, which could significantly impact the company’s valuation.

While L1M is a speculative stock and comes with higher risks, the potential for high rewards cannot be overlooked, especially given the current demand for lithium in the market.

As of April 20, L1M was priced at 16.5c AUD, indicating significant potential for capital gains if the company’s exploration efforts are successful.

TheBull.com.au consider L1M to be a high-risk, high-reward play that may be worth considering for investors looking for exposure to the lithium sector.

Balancing Risk and Reward

Source: Yahoo! Finance

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