Are these lithium penny stocks worth buying?

The price of lithium is soaring. Are penny stocks Bacanora Lithium (LSE:BCN) and Savannah Resources (LSE:SAV) good long-term investments?

| More on:

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.

Bacanora Lithium (LSE:BCN) is a London-listed company exploring for lithium carbonates in Mexico and Germany. The penny stock has been a favourite of speculative mining traders over the past year. And the BCN share price took a jump last week when China’s Ganfeng Lithium Company offered to buy it out for £190m. This acquisition values Bacanora at up to £267m. Supply chain disruption caused by the pandemic has led many commodity prices to rise in the past year and lithium is one of them. This is encouraging a wave in M&A activity across the sector. I’m interested in investing in sought-after commodity stocks, but would penny stocks in exploration be too risky an addition to my Stocks and Shares ISA?

London-listed lithium stocks

Ganfeng already has a 17.41% stake in BCN. In February, the companies agreed to raise this to 28.88% and this should complete shortly. The BCN share price is currently around 57.6p and to make a full acquisition, Ganfeng would acquire the rest of its stake in BCN at 67.5p a share. But this arrangement is still at the proposal stage, and as yet no formal offer has been made. Therefore, I think it would be speculative to buy the shares today.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Meanwhile, Savannah Resources (LSE:SAV) is another FTSE-AIM-listed lithium stock with a rising share price. Savannah is a much smaller company than Bacanora, with a £60m market cap. But it has big ambitions to be Europe’s first major lithium producer. The Savannah Resources share price has risen 104% in the past year but is down 35% from its 52-week high.

Savannah has two projects on the go. A 90% stake in a lithium project in Portugal and a 20% stake in a heavy mineral sands project in Mozambique. The Mozambique project is in partnership with FTSE 100 stock Rio Tinto.

Savannah’s target is to create a premium, carbon-neutral lithium concentrate in the EU.

A rocketing lithium price

The price of lithium has risen over 106% in the past year. And a recent International Energy Agency (IEA) clean energy transition report notes lithium demand could increase 40-fold by 2040. That’s because meeting the Paris Agreement goals will massively raise demand for lithium-ion batteries for use in electric cars.

And according to the South China Morning Post, there are now over 500 electric car companies in China alone vying for market dominance. So this helps explain the soaring lithium price.

China is currently by far the biggest lithium processing country, which the IEA says presents a potential ‘energy security’ issue. With this in mind, investors and governments may be disheartened to see Bacanora acquired by a Chinese firm.

Investing in penny stocks

Penny stocks are highly speculative and junior exploration stocks even more so. While the soaring price of lithium could well bring a share price rise to each of these companies, they also carry significant risk. Projects often cost more than expected and multiple share placings are par for the course. Savannah completed a share placing only last month at 4p a share, raising £10.3m towards its Portugal project.

With all that in mind, I’m not tempted to invest in Bacanora Lithium or Savannah Resources today.

But here is another growth stock worth your attention...

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Kirsteen has no position in any of the shares mentioned. 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.

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.

More on Investing Articles

Woman looking at a jar of pennies
Investing Articles

I think the JD Sports share price is a bargain. Here’s why

Our writer explains why the JD Sports share price has led him to buy more for his portfolio.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is this tech stock one of the best shares to buy now?

Jabran Khan is on the hunt for the best shares to buy now for his holdings and takes a closer…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

3 top FTSE 250 shares to buy right now

I think the FTSE 250 is offering some great dividend and growth shares at the moment. And there are plenty…

Read more »

Happy retired couple on a yacht
Investing Articles

This growth stock has seen its shares pull back! Should I buy now?

When a growth stock sees its share price drop, I look carefully to see if I could pick up a…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How to identify the best income shares like this one

Income shares vary in quality but this approach keeps me from making some of the worst howlers with dividend investing.

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

If I’d invested £1k in Tesla shares a year ago, here’s how much I’d have now

If Jon Smith had bought Tesla shares a year ago, he'd be in profit. But he has some concerns for…

Read more »

Twenty pound notes in back pocket of jeans
Investing Articles

Should I buy tobacco shares now for big dividends?

After a possible setback for electronic cigarettes, our writer explains why he would still buy tobacco shares for his income…

Read more »

a couple embrace in front of their new home
Investing Articles

3 FTSE shares I’m buying with the Help to Build scheme!

Last week, the government launched a new, Help to Build scheme. So, here are three FTSE shares that could benefit…

Read more »