2 top penny stocks I’ll be looking to buy in February

I don’t have unlimited cash reserves that I can use to buy UK stocks. But here are the top two stocks that I would like to invest in when I have the money.

Follow the rainbow

Investing in small mining companies can be a risky business. Problems in the exploration, development, and production phases can be common. And this can extend the operator’s modest balance sheet to the limit.

But, I still believe Rare Earths Rainbow (LSE:RBW) is now worth paying attention to. This is because the demand for rare metals that are mined will increase. These materials are used in large quantities in electric cars and wind turbines, to name a few applications.

These rare metals include neodymium, praseodymium, dysprosium, and terbium. And analysts at Adamas Intelligence expect consumption to increase at an annual rate of 8.6% between 2022 and 2030.

At the same time, the lack of new rare earth supply means the market is experiencing a huge shortage. Adamas estimates that production growth will increase by just 5.4% over the same eight-year period. So Rainbow Rare Earths can expect premium prices for their products.

I like this penny stock mainly because of its asset quality. Metal grades at the Phalaborwa project in South Africa are impressive and cash costs tend to be very low. The company also owns the Gakara project in Burundi, a site described as one of the richest rare earth deposits on the planet.

Another mining star

Economists believe we are in the early stages of a fresh commodity supercycle. I think Rainbow Rare Earths can be a great way for investors to make big profits. And it can be Copper Phoenix (LSE: PXC).

Expected for the red metal is also tipped to take higher over the long term. Its high conductivity means it will play an important role in the green revolution. Meanwhile, heavy use in construction means consumption should rise due to the level of urbanization in emerging markets.

Analysts at mining advisory firm RFC Ambrian expect copper demand to reach 33.6m tonnes in 2030, representing an annual growth rate of 3.1%. And just like the rare earths sector, only increasing supply is low, which could lead to a large copper market deficit.

Phoenix Copper owns the Empire mine in Idaho. It is an asset that contains 129,641 tons of copper as well as significant amounts of zinc, silver, and gold. Drilling work continues and first production is scheduled to begin later this year.

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 businesses an extra way to harness the energy transition.

Commodity prices can be volatile. And as a result, the company’s earnings may be unstable. But as a long-term investor, I still find Phoenix Copper an attractive investment. I hope it can soar next year.