The Bluejay Mining (LSE:JAY) share price exploded by more than 55% this week. This recent surge has pushed the British mining stock to more than double in the last 12-months. But what’s behind this upward momentum? And should I be considering this business for my portfolio? Let’s take a closer look.
What exactly does the business do?
Bluejay Mining is a young exploration company on the prowl for battery-essential metals. The firm has various projects across Greenland and Finland that contain nickel, copper, cobalt, and platinum. All of these metals are in exceptionally high demand today, largely due to the automotive industry.
After all, with petrol and diesel vehicles now being slowly phased out in favour of electric alternatives, the supply of these precious metals is struggling to keep up. That undoubtedly creates an exciting opportunity for Bluejay Mining and its share price.
Having said that, the company has yet to start extracting anything from the ground. Meaning this is a pre-revenue business. Needless to say, this lack of cash flow creates a pretty big problem. Namely, how does the firm intend to afford the cost of developing a mining site after confirming a discovery?
The exploding Bluejay Mining (JAY) share price
This isn’t an uncommon problem for young exploration companies. But there’s a solution – sell an equity stake in a project to a larger mining company with more funding. And that’s exactly what sent the Bluejay Mining share price skyrocketing this week.
The management team signed a joint venture agreement with KoBold Metals for its Disko-Nuussuaq project in Greenland. KoBold might be one of the first tech mining companies around. It uses artificial intelligence and machine learning to make significantly more effective mining exploration decisions. And it’s garnered the attention of key investors, including Microsoft founder Bill Gates and Amazon founder Jeff Bezos.
Under the agreement, KoBold gains a 51% equity stake in the Disko-Nuussuaq project. In exchange, they’ll cover the cost of the project’s geological study and initial drilling activities. With funding secured, and a mountain of battery metals to be extracted, I can see why the Bluejay Mining share price has erupted.
Taking a step back
As exciting as this joint venture is, investors may have become over-excited. Based on the share price today, the market capitalisation of Bluejay Mining is currently around £140m. That’s quite a lofty valuation for a company that doesn’t even make money yet. And it could be a while before Disko-Nuussuaq becomes a source of income.
Based on the published timeline, the extraction process may not start until as late as 2024. Bluejay does have partnerships established with companies like Rio Tinto for its other projects. But these are also in a similar state of development.
Needless to say, this adds quite a substantial amount of risk. So while the Bluejay Mining share price might have the potential to continue exploding, it’s not a stock I’ll be adding to my portfolio today.
