The Motley Fool

This UK lithium stock could jump. Here’s why

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.

Image source: Tesla

Lithium has been a popular investment theme in recent months. Many investors see potential in the growing electric vehicle battery market to drive demand for lithium. That helps explain the renewed interest in UK lithium shares.

One UK lithium share leapt last week. I still think its share price could jump further. But I won’t be buying the shares for my investment portfolio. I explain why below.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Bacanora Lithium investment case 

Bacanora Lithium (LSE: BCN) is a mining company. Its key asset is its part of a lithium mining development in Sonora, Mexico.

Sonora’s high mineral grade and scaleable nature form part of the project’s appeal. I have previously discussed the company and what I saw as the pros and cons of its investment case.

But the mine is not yet in production. That makes it hard for me as an investor to assess its long-term production potential with confidence. Unless I feel quite confident assessing a company’s long-term prospects, it won’t meet the investment criteria for my portfolio.

Why the Bacanora Lithium share price jumped

The largest shareholder in Bacanora is Chinese lithium giant Ganfeng Lithium. Last week it was announced that Ganfeng may make a bid for the shares of Bacanora it does not own.

The indicative price was 67.5p per share. But in Monday trading these UK lithium shares are around 57p. That suggests that even now there is the chance to generate an 18% return in a matter of months if the Ganfeng bid goes ahead.

No bid yet for these UK lithium shares

A key point to note is that Ganfeng has not actually made a bid yet.

It plans to do so if certain conditions are met. For example, the Chinese company needs to get the right approvals from regulators in its home market. That process could take months.

At the moment there is no particular reason to expect that the bid won’t materialise. After all, Ganfeng already effectively owns almost 30% of Bacanora. Clearly it sees value in the company.

However, that is not a guarantee a bid will emerge. There could be regulatory hurdles, for example. The Bacanora board could reject an approach. So there is a risk that no successful bid will emerge.

Impact for the Bacanora share price

The Bacanora Lithium share price today is around a third higher than it was early last week. But a sizeable gap remains between the current price and prospective bid level.

However, I see risks to buying now in anticipation of a takeover. I think Sonora is an attractive asset due to its projected lithium output and cost basis. But the current share price clearly factors in expectation of a bid. Last week’s jump makes me think the current Bacanora Lithium share price is not solely related to its underlying fundamentals.

What if a bid doesn’t arrive, or is rejected? I think the price of these UK lithium shares could fall again.

My next step for these UK lithium shares

Previously I was waiting to see how the Sonora development proceeded. Until then I felt the Bacanora Lithium share price was too speculative to meet my investment criteria.

The possible bid caught my attention. But it hasn’t shifted me from my original analytical perspective as an investor.

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.

christopherruane 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.