Will lithium project lift Kodal Minerals’ share price?

Despite Kodal Minerals [KOD] share price struggling so far this year, the UK-based lithium and gold-focused stock is still up an impressive 70% since sinking to its 52-week low recorded in May last year.

While the company has yet to make a profit, mining companies continue to be in the spotlight with a number of factors at play, including Anglo-Russian miner Polymetal’s [POLY] collapse, the growing focus on lithium, and gold price swings in the face of soaring inflation and rising interest rates.

Following the company’s recent announcement that it had secured $3m of additional funding for its flagship lithium project in Mali, Kodal Minerals will be attempting to take advantage of these potential tailwinds. And with minerals giant Russia now off the table, Kodal’s move into Mali and elsewhere in sub-Saharan Africa could see it come out as a top pick among emerging mining stocks.

There are potential challenges though: the company is competing in an environment where markets continue to stall and could face further slowdowns, which may mean Kodal faces a period of slowing growth and flexibility as it seeks to generate its first revenue.

What’s happening with the Kodal Minerals share price?

The Kodal Minerals share price has fallen 13.96% year-to-date after losing 7.02% last week to close at 0.265p on Friday 13 May. However, shares are up 70.97% versus the 52-week low of 0.155p set on 25 May 2021, but 47% weaker than the 52-week high of 0.5p on 1 July 2021. If we look over a two-year basis, when the shares were priced at just 0.03p, the price has leapt 783.33%.

Oversubscribed share raising boosts miner’s prospects

The £3m Kodal Minerals has raised through an oversubscribed discounted placing, which will see 1.07 billion new ordinary shares issued, will enable the company to develop its Malian lithium project and continue exploring gold assets.

CEO Bernard Aylward said: “This oversubscribed placing demonstrates the ongoing support of our Bougouni Lithium project and the opportunity to move into the development and construction phase.” A statement from the firm elaborated: “The company is focused on moving the Bougouni Lithium project to production as soon as possible to take advantage of this supply deficit and maximise value of the project. These placing [of] funds ensure the company’s work can continue at pace.”

There’s little doubt that the progress of this key lithium project will play a significant role in Kodal Minerals’ future.

Lithium surge creates opportunity for Kodal

Lithium prices have leapt higher thanks to the rising demand for electric vehicles, as the metal is an important component in EV batteries. Prices have been boosted further by the impact of the pandemic, which saw output falter. The situation has been exacerbated as a result of Russia’s invasion of Ukraine at the end of February, with the besieged nation thought to have one of the largest natural reserves of lithium in the world.

Investors are also looking at precious metals and other commodities as a safe haven amid the current heightened geopolitical uncertainty. According to Benchmark Mineral Intelligence, lithium prices are up in excess of 440% compared with last year.

Cash burn a concern for investors

While Kodal Minerals’ lack of revenue shows the company is still developing its business, its cash burn — the amount of money a company spends each year to fund its growth — rose 57% over the past 12 months. While this spending increase is intended to drive growth, there is a risk that “if the trend continues the company’s cash runway will shrink quickly”.

In September 2021, Kodal Minerals was debt-free with £3.1m in cash. After spending £1.8m in the past year, the company had roughly 21 months of cash reserves assuming spending at the same rate, which is not a worrying amount.

Meanwhile, gold prices continue to fall for the fourth consecutive week, reaching a three-month low on Friday 13 May as interest rates and bond yields rise. As CMC Markets analyst Michael Hewson explained: “the stronger US dollar continues to dim the appeal of the precious metal”, as gold struggles to live up to its traditional safe-haven status. The negative trend could act as a handbrake on Kodal Minerals’ short-term share price prospects.

What’s next for Kodal Minerals shares?

Although there are no analysts currently covering the stock, technical analysis site walletinvestor.com offers a bullish appraisal on Kodal Minerals’ long-term prospects. Based on its forecasts, the platform anticipates the shares climbing to 0.454p in a year’s time, suggesting a potential upside of 71.32%. And over five years, it forecasts the share price reaching 1.138p, which is a potential gain of 329.43%.