It has been a rewarding few months to be a shareholder in Kodal Minerals (LSE: KOD). Since the start of 2023, the Kodal Minerals share price has increased by 122%. Over the past five years, the shares have moved up by 262%. That is the sort of return many investors dream about, including myself.
With strong momentum pushing the shares up this year, ought I to add them to my portfolio now?
Good news
That sort of share price jump in a matter of months rarely happens without a good reason.
So it is with Kodal. The company has seen a couple of distinct, strong upward movements this year. One followed the announcement in January that the company had agreed a significant funding deal with a Chinese miner. Investors welcomed that not only for the boost it offered Kodal’s balance sheet, but also as a vote of confidence in the business’s prospects from a strategic investor.
Secondly, the company announced last week that it had received an initial payment under the deal, and preparatory work is progressing at its flagship lithium mining project in western Africa.
Where now for the share price?
So far, so good. But what comes next? After all, lithium prices have been sliding lately. That is a risk to the long-term profit potential of Kodal’s key project.
For the share price to keep rising over the medium and long term, I think at least one of several things needs to happen. Its Chinese investor needs to put up the rest of the money agreed, or suggest an even deeper relationship; the company needs to release more positive news about its mining prospects, such as moving to commercial production or upgrading its estimates about the lifetime output of its key project; or investors need to continue to enthuse about lithium and other renewable energy shares.
All three of those things are possible – and I think any one of them could lead to a higher share price than we see today, even after the very strong performance so far in 2023.
Managing investment risks
But here is the issue. Those potential drivers for a higher share price are largely or wholly outside Kodal’s exclusive control. That makes it less attractive to me as a potential investment.
Not only that, but I see Kodal as having a more concentrated risk profile than I am comfortable with. Like a lot of early stage miners, its fortunes currently look as though they are largely dependent on a single project. It does have multiple projects in the pipeline and the funding announced this year could help it develop them. Nonetheless, a lot rides on the success or otherwise of the key west African project.
If I chose to invest in a lithium miner, I would rather buy into one that had a diversified portfolio of projects. That makes the success of any single project less critical for a business. So, although I think the Kodal Minerals share price could move up further from here, I will not be investing.
