Last week, Atlantic Lithium (LSE:ALL) caught my eye due to a sharp 37% drop following the release of a negative news report about it. After taking a more detailed look at the penny stock over the past few days, I think it’s company that could be a great addition to my portfolio. Granted, as a small-cap stock, it’s a higher risk play than others, but it could have large long-term potential.
Spotting an opportunity
The news that triggered the sharp fall was a report released by Blue Orca Capital. This money manager made allegations against Atlantic Lithium and its partner, Piedmont Lithium, including that licenses in Ghana were obtained via corruption and bribery.
Atlantic Lithium has come out and refuted the claims and points out that Blue Orca is short the stock. This means that Blue Orca stands to profit if the Atlantic Lithium share price falls. As such, the claims could be biased, with the aim of scaring investors.
The share price has rallied since hitting lows around 20p, but is still close to 52-week lows at 26p. I think that this knee-jerk reaction lower allows me the opportunity to buy on the cheap.
Why I like the stock
As a lithium-focused exploration and development company, Atlantic Lithium is in the right sector for the future. Demand for lithium, particularly in electric vehicle batteries, is only going one way. I’m not just talking about popularity this year or next year. I think that in decades to come, we will all be driving electric vehicles.
What I find even more interesting is that Atlantic Lithium have their flagship project as Ghana’s first lithium-producing mine. A recent pre-feasibility study said the project has “significant profitability potential”. This included details such as a 12.5 year mine life and revenue potential of $4.84bn.
Granted, the proof is in the pudding. But given the uniqueness of this location in Ghana, if this potential is to be tapped commercially, Atlantic Lithium is in the best place to take advantage of it.
Risk but also potential reward
I think I’m going to invest a small amount in the penny stock in coming days. Should this take off and my multi-decade forecast of electric car usage is correct, my long-term gains could be so large my grandkids will be thanking me.
Yet I do need to keep my feet on the ground. As I often flag up with exploration companies, there’s little or no revenue coming through the door. Yet the exploration expenditures for 2022 were almost $9m. It does have support from Piedmont Lithium. But the finances need to be carefully watched to avoid cash flow problems.
The share price is down 34% over the past year. As an opportunistic buy for long-term value, I think it makes sense for me to dip my toe in the water.
