Over the long run, shareholders in Kodal Minerals (LSE: KOD) have done very well. The Kodal Minerals share price has jumped 143% this year — and more than quadrupled on a five-year timeframe.
Lately, though, it has been falling. It is down by over a quarter since its April high.
So, does the renewable energy share now offer investors a potential bargain?
Exciting times
This year has been exciting for the company. Kodal has continued to drill at its key project site, with promising results. It also announced plans for a sizeable funding package from a Chinese mining company.
That suggests the Chinese mining company likes the look of Kodal’s projects, and it also opened up the prospect of a stronger financial basis to develop Kodal’s assets.
Slow progress
For now, though, those plans remain no more on that.
Indeed, I reckon the main reason the Kodal share price has been falling lately is because the deal has not yet been finalised.
Last month, Kodal’s chief executive said that, “it is disappointing that we have not yet finalised this process and require a further extension of the long stop date”. But he added that “the parties remain committed to the transaction and are working together on the preliminary engineering and development processes”.
What does the delay signify?
It sounds as if the Chinese investors remain committed to the plan. They have already made an initial payment and received the required regulatory clearances from Chinese authorities.
The delay seems to be in meeting some of the conditions for the deal, such as restructuring the ownership of certain assets. That is work in progress and the completion deadline has now been pushed back to the end of this month.
In principle I see no reason why both sides could not extend that deadline if necessary. The fact that the Chinese side have already stumped up some cash suggests they are serious about the deal.
Still, the delay makes me nervous. A key reason for the Kodal share price surge was the prospect of a large cash injection. If the proposed deal comes crashing down for any reason, I expect the share price to follow.
No rush
The flip side is that the shares could jump again if the deal is indeed completed in coming days as planned.
On top of that, Kodal’s assets could support further share price rises in future. Its flagship lithium project seems promising. The potential funding injection could help it develop not only that project but also other mines in its portfolio, moving closer to commercial production.
On paper, then, the current Kodal share price could be a bargain.
But there are too many unknowns for my personal risk tolerance. Will the financing deal come through? Will the flagship mine move into commercial production profitably? How successful will loss-making Kodal’s other opportunities turn out to be?
For now, we do not know. Given such risks, I will not be investing.
