Penny stocks: can the BMN share price climb higher?

The BMN share price has almost doubled in 12 months but is it too late to invest? Zaven Boyrazian takes a closer look at the vanadium producer.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

2020 was a challenging year for the Bushveld Minerals (LSE:BMN) share price. The disruptions from the pandemic caused it to plummet like many other penny stocks. But over the past 12 months, the BMN share price has nearly doubled, increasing from a low of 9.5p to 17.5p today.

What caused this 80% increase? And should I be adding it to my portfolio? Let’s take a look.

A mining stock for the future

The company is engaged in vanadium mining – a precious metal that is a critical ingredient for large electrical batteries. BMN can be broken down into two segments. The first oversees the extraction of vanadium from the ground in South Africa, which hosts the world’s largest high-grade primary deposits of the metal.

Once processed, its second division steps in. It focuses on manufacturing, developing, and promoting the role of vanadium flow batteries within the energy sector. As a result, this makes BMN a vertically integrated company with complete control over its own supply chain.

The pandemic has wreaked havoc on the mining industry worldwide. With many sites being shut down and plenty of expenses to pay, the BMN share price crashed in March last year, falling by nearly 50% since the start of 2020. However, following its Q3 results in November, the stock began to recover rapidly.

Why? Because its operations returned to nearly pre-pandemic levels, while overall production expanded significantly. Meanwhile, vanadium demand in China continues to rise, boosting the price of the metal. Overall, total vanadium sales for the first nine months increased by 74% compared to 2019. Needless to say, this sounds like a thriving business. But as always, there are some risks to consider.

Penny stocks can be risky

Due to the limited number of vanadium flow battery manufacturers currently in business, BMN has some pricing power when selling its products. However, because manufacturing costs are still dependent on fluctuating vanadium prices, the extent of this power is questionable.

Currently, the rising demand and limited supply of the metal are causing prices to increase. This is obviously fantastic news for the BMN share price. But with more vanadium mining companies expanding their production capabilities, the metal’s value may soon stabilise or even reverse if the market becomes saturated.

Another risk to consider is the fact that the firm operates in South Africa. This means expenses are paid using South African rand rather than the British pound. As a result, the company is exposed to fluctuating foreign exchange rates that can significantly impact the bottom line.

The BMN share price has its risks just like penny stocks

BMN share price: time to buy?

Vanadium flow batteries make up an interesting technology that currently appears to be the best energy storage solution for renewable electrical infrastructures. The UK has even begun implementing them into the national grid as it seeks to revamp its energy sector by 2030.

Yet despite this rising demand, the battery industry still has a relatively small number of active manufacturing businesses. To me, this makes the company look like an attractive opportunity to buy-in early. And with a P/E ratio of 10, the BMN share price looks undervalued to me, considering the growth potential that lies before it. 

Therefore it’s definitely a penny stock that I would consider adding to my portfolio today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Zaven Boyrazian does not own shares in Bushveld Minerals. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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