Because of their tiny size, penny stocks typically don’t get a lot of attention from institutional investors. So whenever a top-tier investment firm like Canaccord Genuity starts putting them on its Buy list, it’s hard not to notice.
In this case, the analysts recommended snapping up shares in Kodal Minerals (LSE:KOD) as early as November 2023. But as 2025 kicked off, they once again reiterated their Buy recommendation for this early-stage mining enterprise and even set a price target of 1p.
Considering the penny stock’s currently trading at around 0.35p today, that suggests a 186% potential gain’s on the horizon!
The thesis behind the recommendation
In February, Kodal announced that the processing plant and services construction at its flagship Bougouni lithium project. Apart from hitting this milestone without exceeding the $65m budget, Kodal also produced its first batch of spodumene concentrate – a form of lithium ore.
After testing the extracted material, Kodal was able to confirm an ore grade of 5.53%. That’s ahead of the typical industry benchmark of 5% for commercial production. That puts it in the same league as more established lithium producers like Pilbara Minerals and Liontown Resources. And while it’s not quite as high as industry leaders like Froniter Lithium and Albermale (both with grades closer to 7.2%), 5.53% is still a very promising result, especially for a young mining enterprise.
At this level of concentration, Bougouni should be able to produce the critical material at a competitive cost, paving the way to wider margins as lithium prices rise. And with management setting a production target for 10,000 tonnes per month, Kodal appears on the verge of gaining a substantial revenue stream. With that in mind, it’s not so surprising Canacoord’s bullish on this business.
What could go wrong?
As Kodal transitions from an exploration to a production mining enterprise, the risk profile surrounding the business has decreased substantially. However, that doesn’t mean investors are guaranteed spectacular returns moving forward. In fact, there’s still plenty that can go wrong.
The Bougouni project’s located in Mali, which isn’t exactly the most politically stable of nations. In 2020, there was a military takeover of the government, and then a year later, there was another coup. And subsequently, the country was kicked out of the Economic Community of West African States (ECOWAS).
This political turnover introduces a lot of regulatory uncertainty for mining projects in the region that could disrupt operations later down the line. But even if everything manages to run smoothly, Kodal’s still highly sensitive to lithium and spodumene concentrate prices. And lately, both have been falling as other suppliers ramp up production.
Should this trend continue, even at a 5.53% ore grade, the economic viability of its Bougouni project could be compromised.
The bottom line
Overall, Kodal Minerals undeniably has explosive growth potential. But even Canacoord acknowledges it’s a speculative investment at this stage in the game. That’s hardly uncommon for a penny stock. But with ample room for error, investors may want to consider keeping this business on their watchlists for now.
