A lot of investors have been talking about Kodal Minerals (LSE: KOD) shares lately, and it doesn’t take long to see why. They’ve rocketed this year.
The buzz around Kodal grew following its acquisition of the Bougouni Lithium Project in Southern Mali last year, which can potentially produce 220,000 tonnes of the mineral spodumene. That’s a major source of lithium, a key element in mobiles, computers and battery storage.
An exciting growth prospect
In December, Kodal said it would accelerate Bougani’s development to take advantage of high near-term lithium prices, using a dense media separation (DMS) process to extract the mineral. It said this required capital of $65m but should generate net present value of $557m with a short payback time of two months. In less than four years, revenues could exceed $1bn, based on consensus pricing of US$2,080 per tonne of spodumene.
On 18 January, the Kodal Minerals share price stood at just 0.24p. Next day, management announced it had secured a $100m funding package from China’s Hainan Mining Co and issued a $17.57m subscription for ordinary shares in Kodal. The stock spiked 50% in a day to 0.36p and even more people started talking about it.
The share price held steady while investors awaited further news, and stood at 0.39p by the end of March. Anyone who’d invested £10,000 in Kodal at that point would be sitting pretty today.
In early April, it issued a positive update saying latest drilling highlighted “the potential for expansion of the existing defined resource base as well as additional prospects to be advanced”. CEO Bernard Aylward called this a “great opportunity” to expand the life of the project.
Hainan’s money is expected to come through by 30 April and Kodal is waiting for approval from the relevant Mali administrations. These positive updates have pushed the Kodal share price to 0.77p as I write. It now has a market cap of over £130m.
It’s too risky for me
That would have turned £10,000 into a meaty £18,970 in just three weeks, and I’d be hugely satisfied if I’d actually bought the stock. Yet I didn’t, and I still won’t, despite Kodal’s attractive prospects and swift progress towards its goals.
There’s a type of investor who loves buying rapid growth stocks like this one, but I’m not one of them. Or rather, I’m no longer one, having got my fingers burnt on Sirius Minerals.
I learned a hard lesson from getting dragged into the hype about the Yorkshire-based potash miner, later snapped up by FTSE 100 giant Anglo American but only after private investors made huge losses.
The rewards are huge, and in a way that’s the problem. Backing plucky miners feels too much like gambling, and I’ve never been a lucky gambler. I can’t see any way of getting an edge, all I can do is put my faith the company’s progress updates.
The potential rewards are great, but that’s also part of the problem. A get-rich-quick opportunity like this one skews judgement and disturbs sleep patterns. Kodal Minerals is an exciting prospect but I’m sticking to my happy hunting ground of FTSE 100 dividend stocks. It’s a personal thing. Others may embrace Kodal for the same reason that I’m shunning it.
