CleanTech Lithium

Electric vehicle (EV) makers like Tesla and NIO remains extremely popular shares today. But as competition among US and Chinese manufacturers intensifies the risk to investors’ capital is also rising.

For this reason I’d rather find other ways to ride the EV boom, like investing in companies that make parts for these cleaner vehicles. Opening a position in producers of key commodities like copper, nickel, and cobalt is another option for me.

With this in mind I’m giving CleanTech Lithium (LSE:CTL) a close look. Buying mining shares comes with a high degree of operational risks. But I believe the potential rewards of investing in this penny share make it an attractive place to spend my cash.

The business owns several lithium assets in Chile, and recent drilling work at its Laguna Verde mine has got me especially excited. Last month the Alternative Investment Market (AIM) stock lifted its JORC* resource estimate there to 1.8m tonnes of lithium carbonate equivalent. This would support annual production of 20,000 tonnes over a 30-year mine life.

The business also expects to release updated JORC resource numbers from its Francisco Basin project in the current quarter. Analysts at broker Fox Davies Capital believe CleanTech has the potential to produce 40,000 tonnes of lithium across its assets within a decade.

Getting through the exploration and development phases is highly expensive. And any setbacks can put huge strain on miners that aren’t generating revenues. But most recent financials suggest the company has the financial headroom to get its projects off the ground (it had cash of £12.4m on the balance sheet at the end of 2022).

* The Joint Ore Reserve Committee (JORC) code is an established framework for reporting mining exploration results.

Surface Transforms

Brake manufacturer Surface Transforms (LSE:SCE) is another penny stock I’d buy to get exposure to the auto market. In this case, revenues could soar as sports car sales balloon. Analysts at Statista expect sales of fast cars to rise 11% globally between now and 2030, to $70.7bn.

The business is rapidly hiking production capacity to meet growing demand from carmakers. By next month it expects its production lines to support £50m worth of annual sales.

But this is just the beginning: it is making progress on opening a new factory that will take yearly sales to £150m by 2026.

Sales of Surface Transforms’ carbon-ceramic disc brakes rose by 14% between January and June, with volumes rocketing 80% due to those capacity increases. The company’s patented products have significant advantages over iron brakes like reduced wear and weight and better vehicle handling. So demand from major automobile OEMs should remain strong.

Profits here could disappoint in 2023 and 2024 as the global economy splutters. But as a long-term investor, I still believe the AIM company is a top stock to buy.

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I only buy a share when I think it’s good value, and I won’t buy if I think the value has passed and I’m too late. And the nature of penny stocks often means the good-value window can be short.

Now, prices can move down just as quickly as they can move up. And that’s one of the risks we take if we buy penny stocks. I’ve known far more people lose money on penny stocks than big companies.

With that in mind, these are three where I think I see good value that might not last long.

Old tech

First up is Michelmersh Brick Holdings (LSE: MBH). You know, that old technology that’s fallen out of investing fashion.

Everyone’s looking for the next big thing. Electric cars, AI, biotech… Oh, and the property market is in a slump.

Meanwhile, Michelmersh makes bricks and tiles. And I really can’t see anything other than strong long-term demand for walls and roofs.

The share price has been flat overall in five years. But that hides a climb in 2021 before the interest rate crisis hit. Then things turned bad again.

I can see further pressure in the short term, so there’s a risk the shares could fall back further.

But forecasts suggest a price-to-earnings (P/E) ratio of under 10, with a well-covered dividend yield of 4.8%. And I think that could be good for long-term investors.

New tech

Talking about electric cars, CleanTech Lithium (LSE: CTL) is on a bit of a downer now. The shares are still up 50% since thecompany’s IPO, but they’re well below the peaks of early 2023.

The move towards electric propulsion needs batteries, and they need lots of lithium.

The difficulty, and risk, is that CleanTech isn’t profitable yet, and analysts expect cash outflow for the next few years.

That makes it a tricky one to value.

On the upside, the company does seem to be sitting on some impressive lithium assets. Some are in areas of the world with less than complete economic freedom, though, like Chile. So with potential, comes risk.

But it does suggest one possible way to profit. Small metals and mineral prospectors are often bought out by the big players.

Emerging market

How about an emerging economy, and a long-term staple produce. I’m talking about Kazakhstan and cement. And that can only mean Steppe Cement (LSE: STCM).

Cement isn’t the most exciting thing on the planet. But I think there’s already enough excitement in a penny stock in an ex-Soviet state.

The shares are up over five years. But they’ve fallen back a bit in the past two.

There’s not a lot in the way of forecasts to go on. But in the past few years, Steppe has been recording strong earnings and paying decent dividends.

In the first half of 2023, sales dropped 11% and the cement price fell a little. But I see the long-term outlook as attractive.

With a trailing P/E of under five, Steppe could be good value now. But we do need to watch that that risk from emerging markets penny stocks.

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Here are two I’m aiming to buy for my portfolio soon.

CleanTech Lithium

Soaring electric vehicle sales paint a bright picture for lithium demand in the years ahead. Chile-focused miner CleanTech Lithium (LSE:CTL) could prove a great way to profit from this theme.

Indeed, the penny stock leapt on Monday after significantly upgrading resource estimates for its gigantic Laguna Verde asset. The flagship mine is now said to contain 1.8m tonnes of the battery metal, while measured and indicated resources were lifted by 39% to 1.1m tonnes.

Chief executive Aldo Boitano has said that the upgrade “[provides] more confidence in the resource potential and further de-risking of the project after an extensive work programme this year”. The pre-feasibility study is now underway, with CleanTech seeking annual production of 20,000 tonnes at the project.

The AIM company is also working on two other assets, one of which — Francisco Basin — is also expected to yield resource upgrades this quarter.

Purchasing early-stage miners is always risky. Buying lithium specialists in Chile adds another layer of peril for investors, too. Earlier this year the country’s government vowed to nationalise important assets on economic and environmental grounds.

But CleanTech’s mission to produce ‘green’ lithium from brine projects reduces the nationalisation risk. Its Direct Lithium Extraction method negates the need for evaporation, thus cutting the impact on local environment. The projects will also be completely powered by renewable energy.

Gaming Realms

Online gambling is big business and has much more scope for growth, and especially so in North America. Mobile games developer Gaming Realms (LSE:GMR) is a penny stock I’d buy to capitalise on this opportunity.

The business creates, licences, and distributes entertainment software to some of the biggest names in the gambling sector like DraftKings, Entain, and 888 Holdings. Pre-tax profits here surged 224% in 2022 as the firm launched in six new markets in North America and Europe.

Gaming Realms’ most lucrative title is Slingo, which, as the name implies, combines elements of slots and bingo. It’s been a massive money spinner since its launch in 1996, and the company is launching new titles in the franchise to keep the revenues streaming it (it rolled out three more last year alone).

I especially like Gaming Realms because of its plans for rapid expansion in the US. Loosening regulations there mean the market is growing strongly, and analysts at Researchandmarkets.com expect it to expand at an annualised rate of 11.8% through to 2028.

That’s not to say that the regulatory environment will remain friendly for operators, of course. Any changes could have a significant impact on the company’s profits. But on balance I believe this looks like a good penny stock to own.

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So for long-term buy-and-hold investors like we Fools, which penny shares might one day be household names? Here’s what some of our contributors think!

CleanTech Lithium

What it does: CleanTech Lithium is an AIM-listed lithium exploration company that owns three strategic projects in Chile.

By Charlie Carman. There’s a strong case to be made that lithium will be the 21st century’s indispensable commodity due to the metal’s industrial applications in electric vehicle batteries. CleanTech Lithium (LSE:CTL) is well positioned to benefit from growing demand.

The company plans to use Direct Lithium Extraction technology (a process involving an absorbent to extract lithium from a brine solution) in conjunction with Chile’s renewable energy grid to ensure its production is carbon-neutral.

However, the business faces notable risks. First, it’s at a pre-revenue stage. In addition, President Boric’s recent announcement that private companies will be required to partner with the government in exploiting Chile’s lithium is a cause for concern.

Nonetheless, CEO Aldo Boitano has assured investors that CleanTech Lithium continues to have “very positive discussions” with state entities.

Overall, the company’s solid ESG credentials and the absence of competing projects in its key locations suggest it could have a bright future.

Charlie Carman does not own shares in CleanTech Lithium. 

Epwin Group

What it does: Epwin Group sells building products, including energy-efficient windows, doors, and conservatories.

By Dr James Fox. Epwin Group (LSE:EPWN) produces energy-efficient and low-maintenance building products. And given the downward pressure in the housing market, it’s no surprise the stock is trading far below its 2021 peak. At the time of writing, the market cap was just below £100m.

So, what makes this company exciting? Well, its energy-efficient products remain popular due to medium and long-term drivers, including a shortage of affordable housing, concerns about existing housing quality, and efforts to improve the energy efficiency of British homes.

In a May trading update, Epwin said revenue was running 3% higher than last year – 2022 was a record year for revenue. Amid a testing environment for the housing market in 2023, this is an outstanding achievement, and a testament to the strength of its offering.

Naturally, even higher interest rates represent an unfortunate headwind, but one that should ease in 2023. Despite this, all the signs point towards a bright future ahead.

Dr James Fox does not own shares in Epwin Group.

Kodal Minerals 

What it does: Kodal Minerals is a lithium-focused miner, with its attention predominantly fixed on West Africa.  

By Charlie Keough. Investors in Kodal Minerals (LSE: KOD) will be ecstatic with the stock’s 150%+ rise in 2023. And I think it could be on its way to becoming a future stalwart.  

With a focus on lithium mining, the business is placed in a market that is set to grow massively in the years ahead. Lithium is a key component for products such as electric vehicles and phones. And as such the global lithium market is predicted to grow at a compound annual growth rate of over 15% between now and 2030.  

The business also owns the Bougouni mine in Mali, which at full capacity can produce 220,000 tonnes of spodumene (a lithium-rich mineral) every year. Moreover, the recent $100m investment into the Bougouni project by China’s Hainan Mining also highlights its potential. A recent positive drilling update, where Kodal spoke of Bougouni’s potential “additional prospects” reinforces this.  

The biggest risk with Kodal is geopolitical tensions. With China holding a strong grip on the market, the West may veer away from lithium. However, from a long-term view, I think Kodal could be a future stalwart.  

Charlie Keough does not own shares in Kodal Minerals or Hainan Mining.  

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Lithium

Cleantech Lithium (LSE: CTL) only went public a little over a year ago. Since then, the stock is up a very respectable 27%.

This is a pre-revenue company that holds licence rights over three lithium projects in Chile. Its mission is “to produce battery-grade, carbon-neutral lithium for the EV future“.

It aims to do this through extracting lithium from brine without the need for evaporation. This, the firm claims, should result in no harm to the local environment.

However, the stock is down 49% since the middle of February.

There are two big reasons for this drop. First, wholesale lithium prices have tanked recently. Second, Chile’s president last week unveiled plans to bring the nation’s lithium industry under state control. He said there would be stricter environmental rules.

So why am I interested? Well, the authorities in Chile have already signed off on its exploration licences. The company is to begin drilling shortly. Plus, it already has two other projects under development in the country.

After the nationalisation announcement, the lithium miner said: “the Board have been given reassurances that [our] assets will not require majority state participation“.

Given its cleaner extraction techniques, its projects may still be commercially viable. So, despite the obvious risks, I’m watching developments closely.

Clothing

Superdry (LSE: SDRY) clothes have been worn by the likes of David Beckham, Leonardo DiCaprio and Kate Winslet down the years. If only the share price had done as well as those A-list stars. It’s down 94% in five years!

Earlier in April, the retailer issued a profit warning, saying that its earnings would fall short of its previous guidance. It blamed the cost-of-living crisis and poor weather for its spring-summer collections performing poorly.

But this is part of a longer trend in declining sales now. Revenue was £610m last year, down from £872m in 2018. Profits and margins are also down over this time, and there’s a risk things could worsen.

However, I still find the company’s clothes (with the Japanese-style graphics) very distinctive. And the name Superdry remains well known to many in the UK. So I think there is major brand equity here.

The firm now has a market cap of just £74m. I think value could be unlocked in the company from here, potentially through an acquisition. So I’m keeping this one on my watchlist while I dig in a bit more.

Shipping

Braemar hasn’t fallen as much as the previous two stocks, but it’s still down 17% in just under six months.

This is a leading global shipbroker serving large industry players across different time zones. Its well-diversified operations include tankers, dry cargo, and renewables.

Owning this stock would give my portfolio exposure to growth in global shipping. That said, shipping markets are driven by freight rates, which are cyclical. So there’s a risk I could mistime my investment.

But the company is on track to double its profits by 2024. And there’s a well-covered dividend here too, with a forward yield of 4.3%. So I’m very interested.

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A fully-funded mine project

Kodal Minerals (LSE:KOD) is a lithium exploration and development company focused on projects in West Africa. The share price is up 34% over the past year.

It caught my attention recently due to securing $117.5m in funding from a Chinese business. With $65m allocated to the flagship Bougouni lithium project, it means that costs are covered. This takes away a key risk for many exploration projects, which is that money can run out before it’s finished.

There’s still the obvious risk that lithium can’t be viably mined from the project for some unknown reason.

But I feel the stock is a bargain because the market cap is only £63m at present. The life-of-mine forecast revenue is £1.62bn!

A positive ESG contender

Another UK-listed lithium company is CleanTech Lithium (LSE:CTL). It’s a small business like Kodal, with a market cap of £62m. The share price has jumped by 52% over the past year.

It currently has three projects ongoing in Chile, which is seen as a good source of lithium for the future. It also attracts ESG investors, given that it states that it plans “to be the greenest lithium supplier to the EV market.”

Net zero commitments are great, but if the company can’t monetise the projects, it won’t count for much. Another concern I have is that the four largest shareholders alone hold almost 39% of the total shares.

I think there’s value here when comparing the current company size versus the net present value of some of the projects. For example, the Laguna Verde value is estimated to be in the billions alone. If one takes off, there’s clear room for the stock to outperform.

Taking advantage of a fall

Finally, a hot lithium stock getting attention right now is Atlantic Lithium (LSE:ALL). Some would say it’s a bargain, down 48% in the past year. Most of this fall came recently due to a negative short seller report, criticising the company.

I feel that there isn’t much basis for some of the accusations and that the share price should shake it off over coming months and years.

The business’s flagship project is Ghana’s first lithium-producing mine, which has good potential. A report I saw estimated the life-of-mine revenue at £3.9bn. Granted, there are plenty of hurdles to overcome before the cash comes rolling in, but it certainly has caught my eye.

Given the high-risk nature of these type of stocks, I’m keen to invest but will only do so with a small amount of money.

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Does that mean it a good time to buy penny shares now? With a bit of care, yes, I think it is.

I’m looking at three here with market caps between £50m and £100m, and share prices between 50p and 70p. They’re all listed on the Alternative Investment Market (AIM).

Investment

Ebiquity (LSE: EBQ) provides investment analysis and marketing analytics.

We’ve seen losses for the past couple of years. But forecasts show a profit for 2022, with results due on 30 March.

Revenue is reportedly up by 20%, with organic revenue up 9%. A 12% operating margin is four percentage points up on the prior year.

There’s £8.9m of net debt. But against a market cap of £63m, that looks fine to me.

Profit forecasts suggest a price-to-earnings (P/E) ratio of around 20. And that’s not obviously cheap. But if the outlook for the next couple of years is accurate, we could see it plunge to only around seven by 2024.

Ebiquity’s business must be vulnerable to any extended economic downturn, and I think that’s the biggest risk.

But if profits are sustainable now, I think it could be a long-term buy.

Lithium

CleanTech Lithium (LSE: CTL) floated on AIM in March 2022 at 30p. Since then, it’s up 66%.

The company has two lithium prospects in Chile. And any investment is a play on the future of demand from the battery business.

There are no profits on the table yet. Or, in fact, any revenue. So CleanTech has got to be the riskiest of the three. But I think it has a few things in its favour over rival lithium explorers.

Its operations in Chile appear stable and uncontroversial, and it has plentiful renewable energy resources at its disposal.

And thanks to its IPO and subsequent cash-raising activities, it looks to be sufficiently funded at the moment.

The success of an investment will depend on how long it takes CleanTech to reach profit. And forecasts don’t go that far yet. But I’m tempted to risk a small amount.

Property

Property shares seem like poison right now. And OnTheMarket (LSE: OTMP), which provides a residential property portal for potential buyers, sellers, landlords, and tenants, has suffered.

The company has had a couple of very tough years, and its shares have been on a long, slow slide.

And, well, the 2023 outlook for the property market isn’t exactly the brightest I’ve ever seen. But forecasts suggest it could be a turnaround year for the firm.

OnTheMarket’s year ended in January, and the latest trading update looks good. Operating profit should be between £4m and £4.5m (up from £2.7m).

And there’s £10.4m in cash on the books, with no borrowings.

Forecasts indicate a big rise in profits, which could drop the P/E to around nine by 2025. Even with today’s property risk, I think that’s cheap.

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In particular, I’ve been searching for penny stocks in the lithium sector. Many analysts have a bullish outlook on demand for the alkali metal due to its industrial applications in electric vehicle (EV) batteries and energy storage facilities.

Let’s take a closer look at two lithium shares I’d buy today.

Kodal Minerals

The first penny stock on my watchlist is Kodal Minerals (LSE:KOD). This AIM-listed company’s primary focus is on the development of lithium mining opportunities in southern Mali.

Since the beginning of the year, the Kodal Minerals share price has rocketed 56%. It was boosted by news that the firm secured a conditional funding package worth $118m in January to kickstart the development of its Bougouni Lithium Project.

The financing is being provided by Chinese commodities giant, Hainan Mining. I think the strategic partnership is a positive development for Kodal. It’s a vote of confidence in the new project’s quality considering Hainan Mining undertook extensive due diligence before committing funds.

In addition to its flagship lithium site, Kodal also owns prospective gold projects in Mali and Côte d’Ivoire. The company’s potential exposure to gold mining in its portfolio points to diversified sources of future income. I view this as another positive feature.

However, Kodal is pre-revenue with a largely unproven business model. The company operates in a country with very high political risk. An ongoing armed conflict in Mali and multiple coups d’état in the past decade make this penny stock a highly speculative investment in my view.

If I had spare cash, I’d buy a small number of Kodal shares for their significant growth potential. However, I’m conscious that the downside risks are considerable.

CleanTech Lithium

CleanTech Lithium (LSE:CTL) is another AIM-listed penny share on my radar. This business owns three extraction projects in Chile, with a significant presence in the heart of the ‘Lithium Triangle’ that also spans Argentina and Bolivia. I view Chile as a more stable jurisdiction than Mali.

The CleanTech Lithium share price has surged 63% in 2023 to date and it’s up 79% since the company’s IPO just under a year ago. In that time, the company’s market cap ballooned from £27.3m to over £65m today.

CleanTech Lithium prioritises sustainability. Harnessing Chile’s extensive renewable energy resources, the company aims to secure a 100% renewable power purchase agreement for its operations. In addition, there are no competing lithium projects in its key locations and no indigenous communities.

This company is also pre-revenue, which carries big risks. In the last half-year report, the firm’s loss totalled £1.4m. That said, the balance sheet looks sufficiently robust with £7.58m in net assets, but the company will need to start generating revenue to sustain the rapid share price growth.

Trading at 62p, CleanTech Lithium shares look attractive to me. If I had cash available, I’d invest a small amount in this company today.

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Yet if I buy a penny stock that starts to attract attention and outperforms, I can benefit from a rapid share price move higher. Here are two I think could hit 100p later this year.

Help at hand

Mind Gym (LSE:MIND) is a “human capital and business improvement specialist”. This sounds a bit woolly to me! In normal terms, it goes into a business and helps to improve efficiency by making workers feel valued. The company benefits from more productive staff, and the staff feel more important.

I feel this niche area could do really well this year and beyond. Businesses are becoming more and more conscious of retaining staff, especially those working from home. There’s also a lot of pressure to show that management do care about workers. By hiring Mind Gym, it helps to tick the box.

It already boasts about FTSE 100 companies it works with, ones that have big budgets.

The current share price is 80p, so I’d need to see a 25% uplift this year to hit 100p. Given that the stock is down 44% over the past year, it was trading at 100p last September. It’s not an unrealistic level to bounce back to, if finances continue to improve post-pandemic.

The pandemic is one reason why the stock is at depressed levels, as the business had to pivot to delivering sessions online. From looking at how the transition went, I don’t feel it was a great move. A risk going forward is that we see less in-person demand for Mind Gym if more companies transition to working from home.

A lithium hotshot

The second penny stock on my radar is CleanTech Lithium (LSE:CTL). Energy stocks related to lithium continue to be popular, and this is an example of an extraction supplier at the beginning of the production chain.

CleanTech says it “holds hold licences rights over three substantial lithium projects, located in the lithium triangle, the world’s centre for battery grade lithium production”.

As a result, there’s significant upside potential for the share price this year if we get some encouraging project updates on the commercial prospects. The current share price of 72p reflects a 97% jump since the IPO last March. On that trajectory, 100p is a very viable target price later this year.

The big risk I see here is that the share price could be inflated on speculation. The business has zero income. Combined with administrative costs, the last half-year report showed a loss of £1.4m. Granted, the firm isn’t going out of business tomorrow, but it does need to start getting revenue through the door soon before investors get concerned.

I think both penny stocks have solid potential. Due to the higher risk, I’m looking to allocate a small amount of money to each company.

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