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Atlantic Lithium (LSE: ALL) is a UK stock that has appeared on many investors’ radars recently. The share price has risen 26 per cent since last week, jumping from 34p to 42p. This follows news that it has closed a dual listing offering on the ASX last Monday (offering 22.8m shares at $0.58).
Mineral stock has had a very successful year. The share price has increased 100% in the last 12 months. And Atlantic said in its FY21 report that total assets rose from $42.5 million to $72 million. This is mainly due to the expansion in West Africa and the high demand of investors.
But with the shares now trading at 42p, some investors may think it’s too late to join the party. I don’t agree. Let’s take a look at why I’m buying this Lithium UK stock for the long haul.
As mentioned, Atlantic has moved forward with its Piedmont project in West Africa. Although I have concerns about the stability of the project, I am confident that it will bring strong returns to the business.
The project has acquired an area of 560 square kilometers in Ghana, which means that the company is now the pioneer of lithium mining in the area. It will be built on Ivory Coast’s 774 square kilometers of West African Atlantic property.
But I have concerns. Mining projects often last for decades – profits are long-term unknown. During development, market prices can change dramatically – or funding can fail altogether.
In fact, the project’s funding went into phase two with a $23m guarantee. But still more 70 million dollars are needed Piedmont Lithium To support the operation. If the funds are withdrawn, this could cause significant disruption to transatlantic activity.
I wasn’t too worried though. The company earned $28.8 million in shares in FY21. The latest ASX listing suggests similar generation is expected this quarter. Also, total cash rose from $7.3m to $19.1m. I am confident that management will ensure project completion in the next few years and deliver strong long-term returns on my investment.
Notice the market
Investing in lithium stocks has become increasingly popular as the metal’s market value continues to rise. With total EV production expected to double by 2021-22, demand for lithium for use in electric vehicle batteries has increased. This bodes well for Atlantic’s future.
Management plans to capitalize on this demand and market 50% of its Ghanaian production directly. The company is expected to further strengthen its profits through its indirect partnership with an EV manufacturer Tesla.
However, it will be a few years before investors see the estimated 30.1Mt of lithium ore turned into serious profits. Even if the company appears to be financially strong, a minor operational disruption can seriously derail growth. Without regular cash flow, the company must rely on its current financial capabilities to address development issues. However, Piedmont’s agreement to buy 50% of Iwoya’s annual lithium production will stabilize the company’s financial position over the next few years.
The Piedmont project is obviously heavily funded. As the price of the metal rises, the company may begin to acquire significant reserves of lithium. This leads me to believe that Atlantic will deliver strong profits after mining. In fact, I would like to add this UK stock to my portfolio for long term returns.