Penny shares have the potential to offer investors excellent returns, but they demand a high risk tolerance. These are small companies with market capitalisations under £100m and share prices below £1. Given their volatile nature, I wouldn’t hold too many in my portfolio. However, I am looking to allocate a modest percentage of my positions to stock market minnows.
In particular, I’ve been searching for penny stocks in the lithium sector. Many analysts have a bullish outlook on demand for the alkali metal due to its industrial applications in electric vehicle (EV) batteries and energy storage facilities.
Let’s take a closer look at two lithium shares I’d buy today.
Kodal Minerals
The first penny stock on my watchlist is Kodal Minerals (LSE:KOD). This AIM-listed company’s primary focus is on the development of lithium mining opportunities in southern Mali.
Since the beginning of the year, the Kodal Minerals share price has rocketed 56%. It was boosted by news that the firm secured a conditional funding package worth $118m in January to kickstart the development of its Bougouni Lithium Project.
The financing is being provided by Chinese commodities giant, Hainan Mining. I think the strategic partnership is a positive development for Kodal. It’s a vote of confidence in the new project’s quality considering Hainan Mining undertook extensive due diligence before committing funds.
In addition to its flagship lithium site, Kodal also owns prospective gold projects in Mali and Côte d’Ivoire. The company’s potential exposure to gold mining in its portfolio points to diversified sources of future income. I view this as another positive feature.
However, Kodal is pre-revenue with a largely unproven business model. The company operates in a country with very high political risk. An ongoing armed conflict in Mali and multiple coups d’état in the past decade make this penny stock a highly speculative investment in my view.
If I had spare cash, I’d buy a small number of Kodal shares for their significant growth potential. However, I’m conscious that the downside risks are considerable.
CleanTech Lithium
CleanTech Lithium (LSE:CTL) is another AIM-listed penny share on my radar. This business owns three extraction projects in Chile, with a significant presence in the heart of the ‘Lithium Triangle’ that also spans Argentina and Bolivia. I view Chile as a more stable jurisdiction than Mali.
The CleanTech Lithium share price has surged 63% in 2023 to date and it’s up 79% since the company’s IPO just under a year ago. In that time, the company’s market cap ballooned from £27.3m to over £65m today.
CleanTech Lithium prioritises sustainability. Harnessing Chile’s extensive renewable energy resources, the company aims to secure a 100% renewable power purchase agreement for its operations. In addition, there are no competing lithium projects in its key locations and no indigenous communities.
This company is also pre-revenue, which carries big risks. In the last half-year report, the firm’s loss totalled £1.4m. That said, the balance sheet looks sufficiently robust with £7.58m in net assets, but the company will need to start generating revenue to sustain the rapid share price growth.
Trading at 62p, CleanTech Lithium shares look attractive to me. If I had cash available, I’d invest a small amount in this company today.
