Interactive Investor

Kodal Minerals chief remains bullish

1st March 2017 12:18

by Lee Wild from interactive investor

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Just before Christmas you could have picked up shares in little-known West African miner Kodal Minerals for less than one-tenth of a penny. In January, they nudged 0.6p, a 642% gain in just four weeks.

They've come back to earth since then, but the £12 million company's lithium projects in Mali - Bougouni and Diendio were bought from local operators last year - are promising, and management is racing to complete another round of drilling and release a maiden resource by the summer.

Much of the recent excitement around Kodal, which still bears the name of its original phosphate and iron deposit in southern Norway, was created by bid interest in neighbouring prospects in Mali owned by Aussie-listed Birimian.

A Chinese buyer, keen to secure supply of lithium for new energy-efficient batteries used in electric cars, wireless devices and Internet of Things applications, was willing to pay $107 million for an asset which, admittedly, is further down the road than Kodal.

Timing - deal-making around New Year celebrations both in Europe and China is never easy - and Chinese government restrictions on currency movements caused the deal to fail. But Kodal chief executive Bernard Aylward - a seed investor in Birimian - thinks those buyers will be back.

"It is part of my rationale for pushing hard as there's interest in our project and what we've done," the Aussie miner told me in a Borough Market eatery this week. "The Chinese have not solved their supply issue."

"I want to turn this from speculation about our potential size, and maximise the value of this project."

To do that, he'll begin another drilling programme this month targeting three veins along substantial strike length. Aylward has already reported better-than-expected assay results at Bougouni's Ngoualana prospect, including 21 metres at 1.7% Lithium oxide (Li2O).

That first, better quality JORC resource should be announced before Mali's wet season which begins in July.

Cash hungry

Junior miners are typically cash-hungry and regularly tap shareholders for more money. But Kodal has £1.4 million in the bank, enough to keep it going for a year. It's likely we'll hear more on this after the resource news in a few months.

Selling by major shareholder David Steinepreis and his Pelamis Investments vehicle also scared off speculative investors in recent weeks. Pelamis recently sold down its stake from 14% to 9%, although Steinepreis has promised not to offload anymore.

So, there are a few possibilities here. Starting with actions within management's control, a successful drilling programme proving up high-grade lithium deposits is a clear winner. It may not be enough to trigger a share price spike like the last one, however.

Mining projects take time to progress, and markets are notoriously impatient when newsflow dries up. That there is demand for Kodal's potential production is not in doubt, so signing offtake agreements with buyers will be crucial.

Clearly, most retail investors will take greater interest in the takeover angle. If Aylward gets a first resource in on time, potential acquirers might instead look at Kodal rather than Birimian.

That's a high-risk strategy for investors, however, and many fingers have been burned in the City playing this game.

Without bid interest, but with drilling progress, Kodal might have the option of working out potential savings with Birimian. Aylward knows the guys there, so pooling resources might make good sense.

A range of different outcomes certainly makes Kodal interesting, and projects have clear potential. And there'll be excitement if the Chinese return. Until then, it's down to Aylward and his team to keep investors glued to the story with drilling results and progress on exploration.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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