These UK lithium shares have jumped over 50% already in 2023! Time to buy?

A common investment theme for the coming years is likely to be alternative energy sources. With the demand for battery materials increasing as the use of electric vehicles increases, lithium stocks will remain in the spotlight.

One UK listed stock that could give me exposure to lithium is Code Mineral (LSE: CODE). The stock is up more than 50% year to date in 2023 as I write this on Thursday. That explosive price growth looks exciting. Could this be a smart buy for my portfolio?

Shares rise in price

A quick look at the chart shows that the company’s stock price has changed quite a bit.

Although it has jumped in 2023, in the last 12 months, it has increased by 25%. That’s still humbling, although it’s interesting to me. On a five-year basis, the shares will more than double my money. But it’s still less than half of what it was in 2014.

The reason for the increase

The main driver for the recent share price increase was the funding package announced last month.

Kodal has received a conditional package of $118m which the company said “will provide full funding for the development and start-up of production at the Bougouni Lithium Project in Mali”, also supporting major exploration and development programs.

That can be transformative for business. The Bougouni project in west Africa is Kodal’s flagship asset. This is a deal with a Chinese company Hainan Mining will help Kodal recover the costs it has incurred in developing the project and allow it to expand its portfolio of potential projects. This could be very profitable for the shareholders in the future.

Digging into the deal

Hainan Mining is a subsidiary of the Chinese giant Fosun. Chinese industry has a high demand for lithium.

This deal is reminiscent of the situation with some other UK lithium stocks in 2021. At that time, Ganfeng Lithium built stock in London-listed Bacanora Lithium Kab. It then successfully made a full takeover bid, at a premium to the existing share price.

There is no guarantee that the same will happen with Kodal. But I can.

In a recently announced agreement, Hainan acquired a 51% stake in a new Kodal subsidiary focused on developing Bougouni. If they like what they see when it happens, Hainan can decide they want the whole cake.

Should I buy it?

Despite that, I would not invest in this penny stock.

I am a long-term investor. So I don’t buy in anticipation of an event like a takeover, but try to identify a brilliant business trading at an attractive price.

Bougouni looks like a promising development and the Hainan deal could be good news for Kodal. But the latter does not have a wide variety and has not yet produced a profit. Early stage mine development can be fraught with disappointment and costly setbacks.

Too high risk for my taste. I will continue to hunt for lithium shares that I can add to my portfolio. But I won’t buy Kodal now.