Could the falling Kodal Minerals share price be a bargain?

Christopher Ruane sees a possible trigger for the Kodal Minerals share price to jump or fall in coming days. As a long-term investor, though, is he buying?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

White female supervisor working at an oil rig

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

C Ruane 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.

More on Investing Articles

Young woman holding up three fingers
Micro-Cap Shares

This is one of the hottest stocks in the market and it only costs 3p

The UK stock market is throwing up some amazing opportunities for investors at the moment. And one doesn’t need a…

Read more »

Investing Articles

All above 8%, which of the FTSE 250’s top 10 dividend stocks by yield is the ‘best’?

There are plenty of stocks on the FTSE 250 that have generous dividend yields. Our writer looks for those offering…

Read more »

Electric cars charging at a charging station
Investing Articles

Should I buy Tesla stock before 10 October?

Tesla stock investors are gearing up for one of the company's biggest and most anticipated product launches in its history.

Read more »

Investing Articles

Greggs shares have tumbled 10%. Is this now a wonderful opportunity to buy?

Through luck or skill, our writer managed to bank some juicy profit before Greggs shares fell. Is he considering buying…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Forget the FTSE 100. Small-cap dividend stocks may be better for passive income!

Looking to make an above-average income from UK dividend stocks? Buying small-cap shares could be the way to go, research…

Read more »

Investing Articles

6.7% yield! Here’s the dividend forecast for HSBC shares through to 2026

HSBC shares are currently a great passive income option. Let's see if this is likely to continue by looking at…

Read more »

Investing Articles

Is the THG share price a gift for contrarian investors?

The THG share price has cratered in four years and now stands in the pennies. Christopher Ruane thinks this could…

Read more »

Growth Shares

Here’s the growth forecast for Lloyds shares through to 2026

Jon Smith reviews the earnings per share forecast for the bank and outlines how this, along with other factors, could…

Read more »