Among UK lithium shares, one strong performer in recent years has been Kodal Minerals (LSE: KOD). The Kodal Minerals share price has increased by over 150% in five years. It is up 58% so far in 2023 alone.
Can it keep going – and does it make sense for me to add the stock to my portfolio?
Improving prospects
One reason why Kodal has had such a strong start to 2023 is a deal it announced with a Chinese mining group. That conditional funding package is set to boost Kodal’s coffers by around $118m, with a $7m deposit payment having been received already.
That is positive news, because it will help Kodal develop its flagship Bougouni project in West Africa. It should also help Kodal as it seeks to develop a wider range of projects.
Today, Kodal updated the market on progress. It said that it plans “to quickly move into a construction phase once the transaction is complete and all funds received”.
The company has continued to do preparatory engineering site works ahead of the full funding being received. Currently, that is expected to happen before the end of April. As usual in such a situation, however, finalising the deal is subject to necessary regulatory approvals being received.
Where next for Kodal
One thing about the announcement that would put me off investing in Kodal at this point is that it sounds as if the funding package is now central to the company’s plans.
That makes sense and explains why the Kodal Minerals share price jumped when the deal was first announced. But it also highlights the risks involved if, for any reason, the deal falls through. I have no particular reason to expect that to happen. But such an event is always a possibility until an agreement is finalised and the money is in the bank.
If the deal is finalised and development at Kodal’s key project moves ahead fast thanks to the funds, I think that could help boost the share price. Whether that happens will partly depend on how successful test drills are and what they indicate about the commercial prospects for the mine.
With lithium remaining in tight supply, I expect pricing to stay attractive in coming years. That could mean that, with positive test results and commercial-scale development, the Kodal Minerals share price rises further.
Risk factors
However, I have no plans to invest in Kodal at the moment.
The Chinese investment shows that Kodal is attracting smart money that understands the lithium sector. But as a private investor, my objectives may well differ from those of a strategic investor that wants to increase its access to lithium.
Kodal’s fortunes currently rest significantly on a single project in an area with high political risk. That is not a risk profile that suits my own appetite. So, although I think the price may climb higher, I will not be aboard for the ride.
