Shares in Atlantic Lithium (LSE: ALL) – which was previously known as IronRidge Resources – are having a great run at the moment. Over the last three months, the lithium miner’s share price has jumped from 18.5p to 34p.
Is this a growth stock I should consider for my own portfolio? Let’s take a look.
Why Atlantic Lithium’s share price is rising
I can see why Atlantic Lithium shares are outperforming at the moment. For starters, the lithium market is hot. Lithium is a key material in electric vehicle (EV) batteries and with the EV industry growing rapidly, demand for lithium is very high right now. This high level of demand has pushed prices up to record highs. In China – the biggest battery-producing country – the price of lithium carbonate is currently around CNY348,500. This time a year ago, it was near CNY58,000.
Looking ahead, analysts expect demand to remain high as a result of the EV boom. Indeed, the International Energy Agency (IEA) estimates that the growth in EVs could see lithium demand increase by up to 40 times by 2040. This should provide tailwinds for Atlantic Lithium.
It’s worth noting here that some of the world’s biggest mining companies have been making moves in the lithium space recently. Rio Tinto, for example, recently spent $825m on a lithium project in Argentina. This suggests that if Atlantic Lithium’s projects are successful, they could be of interest to the major miners.
As for Atlantic’s projects, they certainly look interesting. The company’s flagship is the Ewoyaa Lithium Project in Ghana. This has a potential producing mine life of around 11.4 years, and the potential to generate revenue of over $3.4bn, according to the company.
What stands out to me about the Ewoyaa project is that it has been fully funded to production under an agreement with Nasdaq-listed Piedmont Lithium (which has a relationship with Tesla) for $102m. This means that, in theory, Atlantic shouldn’t need to raise any money from shareholders to get the mine up and running.
Atlantic also owns an extensive portfolio of exploration and development assets that provide “significant exploration upside” across both Ghana and Côte d’Ivoire.
Overall, there appears to be plenty of potential here from an investment point of view.
This stock could be volatile
Having said that, at this stage, Atlantic Lithium shares are very much a high-risk speculative investment.
With these kinds of early-stage mining companies, there’s a lot that can go wrong. In my experience, it’s quite common for companies like this to experience setbacks. And these setbacks can result in delays, higher-than-expected costs, and lower-than-expected revenues and profits.
Another issue is that the price of lithium could decline if more supply becomes available. This could impact future revenues and profits, as well as the share price.
It’s also worth pointing out that stocks with no revenues or profits can be volatile. That’s because it’s hard to accurately value them.
Atlantic Lithium shares: my move now
Given the speculative nature of this stock, I’m going to keep it on my watchlist for now.
All things considered, I think there are better growth stocks to buy today.
Edward Sheldon 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.
