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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

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 assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Young black colleagues high-fiving each other at work
Investing Articles

Is Legal & General Group one of the FTSE 100’s greatest value shares?

Legal & General shares boast low P/E ratios and massive dividend yields. Could they be one of the London stock…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

I’m looking for the best FTSE 100 value stocks to buy now. Have I found them?

Barclays, NatWest, and Imperial Brands shares are recovering strongly. But these FTSE 100 stocks still trade on rock-bottom earnings multiples.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Where on earth will Nio stock be in 1 year?

Nio stock has demonstrated extraordinary volatility over the past 12 months, but where will it be in a year's time?…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

6.9% dividend yield! 2 cheap stocks to consider for a £1,380 passive income

Looking for a market-beating passive income? These FTSE 100 and FTSE 250 dividend stocks could provide a healthy second income…

Read more »

Mature black couple enjoying shopping together in UK high street
Investing Articles

Potentially 34% undervalued, should I be watching the boohoo share price?

The boohoo share price has seen a rocky few years, but with signs that the economy is improving, could this…

Read more »

Investing Articles

Is the Amazon share price primed for a drop?

The Amazon share price has been on a tear for the last year, but can this trend continue? Gordon Best…

Read more »

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »