Up 26%! Why I’m buying this UK lithium stock for the long term

Atlantic Lithium’s share price has just soared. But I think this UK stock is still worth buying today as a long-term hold.

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Atlantic Lithium (LSE: ALL) is a UK stock that has appeared on many investors’ radars recently. Its share price skyrocketed 26% since last week, jumping from 34p to 42p. This resulted from news that it had closed a dual listing offering on the ASX (providing 22.8m shares at A$0.58) last Monday. 

The mining stock has had a very successful year. Its share price rose 100% over the last 12 months. And in its FY21 report, Atlantic said total assets have risen from $42.5m to $72m. This largely results from expanding operations in West Africa, which have generated strong investor interest. 

But with the stock now priced at 42p, some investors may think it’s too late to join the party. I don’t agree. Let’s look at why I’m buying this lithium UK stock now for the long term.

Piedmont project

As said, Atlantic has driven forward operations in West Africa through its Piedmont project. While I have concerns over the project’s stability, I have faith that it can generate robust returns for the business. 

The project has secured 560 sq km of land in Ghana, meaning the company now pioneers lithium mining in the area. This builds upon Atlantic’s overall holding in West Africa, with 774 sq km of land held in Ivory Coast. 

I have concerns however. Mining projects typically span decades — with profits not being realised for a long time. During development, market prices could change drastically — or funding could fall through entirely. 

Indeed, The project’s funding has only just entered stage two, with $23m secured. But a further $70m is still needed from Piedmont Lithium to fund the operation. If funding was withdrawn, this could cause huge disruption to Atlantic’s operation.

I’m not too worried though. The company generated $28.8m in issued shares in FY21. Its recent ASX listing suggests similar generation can be expected this quarter. Also, total cash rose from $7.3m to $19.1m. I’m confident management can ensure project completion over the next few years, and deliver strong long-term returns on my investment.

Mind the market

Investing in lithium stocks has become increasingly popular as the metal’s market price continues to rise. Its use in electric vehicle batteries has caused the demand for lithium to surge as total EV production doubled across 2021-22. This bodes well for Atlantic’s future prospects.

Management intends to capitalise on this demand — funnelling 50% of its Ghanian production straight into the market. Profits are expected to be further bolstered by the company’s indirect partnership with EV manufacturer Tesla

Yet it will be a few years until investors see the estimated 30.1Mt of lithium ore turned into hard profit. While the company seems financially strong, a minor operational disruption could considerably hinder progress. Without regular cash flow, the company will have to rely on current financing capabilities to resolve development issues. However, Piedmont’s agreement to purchase 50% of Ewoyaa’s annual lithium output will hopefully stabilise the company’s financial position within the next few years.

It’s clear the Piedmont project has considerable financial backing. The company can begin accessing huge lithium reserves while the metal’s price skyrockets. This leads me to believe that Atlantic is set to deliver strong profits once ore is pulled out. Indeed, I’ll be looking to add this UK stock to my portfolio for long-term returns.

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.

Hamish Cassidy 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.

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