At the end of August, the Kodal Minerals (LSE: KOD) share price began to rise. And in so doing, it ended a declining trend that started in April, taking the stock down by around 50% to its nadir – ouch!
At 0.58p, the shares are now up by about 32% from the bottom – at least for the time being.
The company has a small market capitalisation of around £98m. And there are lots of zeros in the financial record where revenue, profits and cash flow should be. However, there is no debt and even a small net cash position on the balance sheet.
A business with a buzz
This is no cash-cow. However, there’s a buzz around the business in the investing community because of the firm’s involvement with lithium.
The soft, silvery metal is an investing theme of the day. Most all-electric vehicles (EVs) and plug-in hybrids run on lithium-ion batteries. And lithium also goes into rechargeable batteries for mobile phones, laptops, power tools and other applications.
It seems likely the market for lithium will be huge in the coming years. So any company producing the stuff may do well. And Kodal Minerals operates as a mining and exploration business focused on lithium and gold assets in West Africa.
However, the company is short of cash for developing its assets. But in January, the directors announced a conditional funding package worth $117.75m.
China-based Hainan Mining Co agreed to use the money to finance Kodal Mineral’s Bougouni Lithium Project in Mali. And the funds will likely be enough to develop the assets to production, and support a “major exploration and development programme”.
The Hainan Group employs “highly experienced mining and development professionals” and will work in partnership with Kodal on the Bougouni Lithium Project. Kodal will bring to the table the “Mali and project expertise”.
Funding delays
When that news broke at the start of the year, the share price soared. And in February, Kodal announced the receipt of a deposit of $7m relating to the funding package.
Then, in April, the company announced it had completed some exploratory drilling on the project pending receipt of the full funding from Hainan. Meanwhile, the share price topped out near 0.88p that month.
But four extensions have moved the completion date for the funding package from the original 30 April to 30 September. And the slippage took its toll on the share price causing the downtrend mentioned earlier – investors hate uncertainty.
However, along the way in August, Kodal did receive a good-faith prepayment of $3.5m from Hainan.
The two companies continue to engage. But the full funding announcement is yet to be made. If it is, the stock will likely rocket. If it isn’t, the shares will likely tumble further.
My personal preference is to invest in mining companies when infrastructure is almost complete and just prior to the commencement of production. Meanwhile, Kodal has yet to begin building its infrastructure and a lot may happen before the business lifts any lithium from the ground in commercial quantities.
I’d describe this situation as high risk and potentially high reward. In other words, it’s highly speculative.
