Then some investors took a step back, and started thinking a bit more seriously about the valuations of these shares. The enthusiasm subsided. Share prices fell back. But if a growth sector really does have potential, we often eventually see more sustainable gains setting in.

Looking at the way some UK lithium share prices have started to pick up again, I can’t help wondering if that’s happening right now. After a volatile spell, are we heading for serious growth?

Atlantic Lithium is a good example of the phenomenon. It’s share price climbed as high as 68p in April. Approaching the end of July, it had lost more than half that value and stood at just 30p. Since then, we’ve had a bit of a resurgence. And it’s gained 30% since that recent low, to 39p.

No profit yet

One of the difficulties is that Atlantic Lithium is not profitable. And that means the most common valuation metrics, which are based on profit, can’t apply.

All investors can really go on is news of progress at its Ewooya lithium project in Ghana. The company has upgraded its resource estimates, and is working on drilling plans and feasibility studies.

I think that’s promising, but I can’t quantify it financially. I have no idea how much it will cost for the company to get to profit.

Zinnwald Lithium has also been a favourite with investors. The shares peaked in August 2021, but have fallen in 2022. And despite a modest recovery in recent weeks, the price is still down 67% over the past 12 months. It’s a very small company, this one, with a market cap of just £27m.

Another new rise

European Metals Holdings is another interesting one. Its share price is now down 45% over the past 12 months, at 45.5p. At its 52-week peak, it even reached as high as 110p.

Like Atlantic Lithium, the share price has also been gaining since its low point, in June. But unlike Atlantic, European Metals Holdings is profitable.

The company is only small, with a market cap of £84m. But its Cinovec project in the Czech Republic seems well positioned to serve the motor manufacturing markets of Germany and Eastern Europe.

Asset valuation?

We’re looking at a trailing price-to-earnings (P/E) ratio of around 23, which might be very good value. The trouble is, the stock’s valuation is also based on hopes for the size of its lithium deposits. And that, right now, is a big unknown. It could be potentially huge. But there’s no guarantee.

So are we looking forward to a new surge in the prices of lithium stocks? Well, I’m convinced the lithium market will expand considerably in the coming decades. But I don’t know if recent gains will turn into a sustainable new surge just yet. We’ll have to wait and see.

A project in the heart of Europe

The first company that excites me is European Metal Holdings (LSE:EMH). It’s a small-cap stock with a market value of £84.4m.

The business is a mineral exploration and development company, with a focus on lithium. To this end, hope is being pinned on the Cinovec project in the Czech Republic. Progress is ongoing, with Covid-19 providing delays last year. In the latest update, the company was positive about the outlook to make it commercially successful.

I think there’s large upside here due to the location of the project. It’s in Europe, with easy distribution networks available to ship resources. This could be to major car manufacturers in Germany or electronic companies based in Eastern Europe.

The share price has halved in value over the past year. I put some of this down to a retracement from the middle of 2020 when the price soared on rumours around the project. With the net present value of the project estimated to be $1.94bn but the European Metal Holdings shares valued at a fraction of that, the potential here is large.

One risk here is the unknown. Even though things look promising, until lithium is successfully on the way to end users, there’s always the fear that the project never materialises.

A top lithium stock with upside

The second stock I’m thinking about buying now is Trident Royalties (LSE:TRR). The business is a streaming and royalty firm in the commodity space. It’s not solely focused on lithium, but does have an interest in it via the Thacker Pass project.

The Thacker Pass is operated by an American company. But Trident has a 1.75% gross revenue royalty from any lithium proceeds, as well as a 60% interest in the project. The Thacker Pass is one of the largest known lithium resources in North America. Trident has recorded the stage of the project as advanced.

Clearly, even with what seems to be a small percentage of the revenue, this could offer significant benefits given the size of the project. It has an estimated 3.1m tonnes of lithium carbonate equivalent, with the average price of carbonate last year being $17,000. The potential revenue output here is in the billions!

The share price is up 28% over the past year, with gains in July due to a positive trading update.

My concern here remains the same as European Metal Holdings, in that production hasn’t started. However, I have to accept that in order to potentially have serious returns, I do need to accept that there will be a higher level of risk involved.

The push to develop and manufacture electronic vehicles (EVs) could help cut down our usage of combustion engines and replace power sources with cleaner alternatives. And lithium has taken centre stage as the main driver behind this EV revolution. 

Lithium-ion batteries have been around for a while but the sudden surge in demand has made it a hot commodity. For the investment-savvy, this is an exciting time to explore lithium stocks. The soft metal holds the potential to become a strong, future-focused commodity.

What are lithium stocks?

Lithium stocks are listed companies that mine, refine, trade, or supply lithium to various industries. Although several tech-based firms are working on creating better battery technology, they cannot be classified as lithium shares as they do not produce or sell the soft metal. 

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Top UK lithium stocks

Here we will look at some of the biggest lithium shares listed on the London Stock Exchange (LSE). These companies hold huge reserves of the metal or refine ore to produce battery-grade lithium. 

Although there are many small, promising projects listed in the UK, we will focus on the largest companies. These shares will serve as an introduction to the industry and help investors understand if it’s right for their portfolio. 

Rio Tinto 

The largest and most diversified miner on this list has some promising lithium projects in the pipeline. Rio Tinto (LSE:RIO) is very optimistic about the potential of the EV industry. It has acquired lithium-rich mines in Europe and South America over the last two years.

The company recently purchased the Rincon lithium project in Argentina for $825m. This move came after the Serbian government revoked Rio’s licence to run the Jadar mining project, citing environmental concerns. However, Rio remains optimistic that amendments can be made to make the project viable again. The Serbian mine has the capacity to produce 2.3m tonnes of lithium carbonate by 2040. This would make Rio one of the largest lithium producers in the world. 

Given the company’s financial strength, the mining projects could start producing battery-grade lithium by 2024, making Rio a major supplier to European car factories. The company is also extracting lithium from century-old mining waste, which is much more sustainable than regular mining methods.

And Rio Tinto could effectively cut down European reliance on China and Australia for battery-grade lithium, making it a very important project for the near future. 

Atlantic Lithium

Atlantic Lithium (LSE:ALL) is a lithium-focussed miner with huge holdings in West Africa, a region known for its rich mines. The company owns the Ewoyaa Lithium Project, which is projected to produce over 27m tonnes of high-quality lithium ore. The company expects to produce 1.4m-1.8m tonnes per annum over the next 8-10 years. 

United States-based Piedmont Lithium invested US$102m into the project, which is expected to speed up production activity. With analysts expecting lithium prices to remain high over the next decade, this project could gain a lot of momentum.

The company’s 1,334 sq. km portfolio is strategically located in the Ivory Coast and Ghana, with established routes of trade to Europe. Although the project is new, the company is now well connected to American markets as well. This is a huge positive as most important electric vehicle developments originate there. 

Although this penny lithium share is still pre-revenue in 2022, the company is making some solid moves to secure trade lines in promising regions. This has made it one of the largest listed lithium-focused shares in the UK right now. 

European Metals Holdings

European Metals Holdings (LSE:EMH) is a Europe-focused exploration company with ambitions of establishing direct supply routes with European automobile giants. The Cinovec project that European Metal Holdings owns is the largest lithium resource in the region. The mine is located close to Germany’s automobile belt and other major battery manufacturers in Austria and Czech Republic. 

According to a pre-feasibility study, the Cinovec site has the capacity to produce 25,267 tonnes per year of battery-grade lithium, and a mine life of 21 years. The total value of lithium reserves here is estimated at US$1.1bn. 

Reports show that Europe is the second-biggest battery market in the world behind China. And demand in the region is set to increase at an annualised rate of 40% from 2020 to 2025. These are promising conditions for the company, which is planning to establish its first plant in late 2022 or early 2023.

Kodal Minerals

Kodal Minerals (LSE:KOD) owns and operates the promising Bougouni Lithium Project in Southern Mali. The company also owns the licence to six gold mines in West Africa, all in the exploration phase. It has the potential to become a diversified mining share, much like Rio Tinto.

The Bougouni Lithium Project has already attracted the attention of investors due to its long-term potential. The mine life of the project is estimated at 8.5 years.

The lithium penny stock’s share price has shown there is significant investor interest in the project. The project has received environmental clearance and could begin operations as early as 2024.

The UK’s lithium market

The supply and demand balance for this soft metal right now is very skewed. The rise in EV demand has forced European nations to look for lithium deposits in the region to sustain the industry. And the pioneer behind the popularity of EVs, Tesla CEO Elon Musk, has stated that lithium’s scarcity is one of the biggest roadblocks the automobile industry is facing. 

In the automobile sector, the market share of EVs skyrocketed to 8.3% of all cars sold in 2021 from 2.5% in 2019. Current year-on-year sales growth is estimated at 108% and there are no signs of it slowing down. And the supply still has to increase at a compounded annual growth (CAGR) of 19% over the next six years to meet estimated lithium requirements in 2025. 

Analysts from McKinsey & Company expect lithium carbonate demand to rise from 500,000 tonnes in 2021 to 4m tonnes in 2030. And an estimated 90% of lithium produced could go towards the manufacture of batteries by the end of this decade. 

While miners scramble to secure existing reserves, there are promising mining companies listed in the UK that look like strong lithium shares to buy right now. While companies work to establish themselves in the supply chain, most lithium companies are still in their infancy. But, the potential of the industry is enormous. And even if the demand cools, it is undeniable that lithium-ion batteries will be a crucial component to meeting climate goals set during the COP 26 summit. 

Are lithium stocks right for you? 

The sudden jump in demand for lithium has shed light on several UK shares. However, most of them are still in their infancy and could take years to become profitable. 

And the mining industry is fraught with difficulties. Any one of these projects could be hit with environmental sanctions or production difficulties that would strain share prices. 

The EV market is here to stay and the high demand for lithium is expected to continue over the next decade. But investing in the budding lithium industry might not be for everyone. A lot of fundamental analysis should be done before any investment in lithium mining stocks today. 

For more risk-averse investors, there are other areas within the electric vehicle market like battery manufacturers and R&D firms. Shares of automobile giants like Tesla and NIO give investors exposure to this rising industry and may be safer investments right now.

But given the demand for the soft metal, lithium shares might be worth exploring for future-focused portfolio builders looking for untapped and high-potential UK shares.

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Woodbois Limited

Soaring demand for sustainable products means Woodbois Limited (LSE: WBI) could have a very bright future. This penny stock produces dozens of species of African hardwood from its assets in Gabon and Mozambique. And the company is ramping up capacity for its veneer and sawn timber lines to make the most of this massive growth opportunity.

Woodbois stands to gain from rising levels of urbanisation in emerging markets as well as that aforementioned switch to timber from other less environmentally-friendly materials. With housebuilding shortages also needing to be addressed, and tree planting an essential tool in helping lawmakers hit their net zero emissions targets, analysts at asset managers Gresham House think global timber demand will soar 170% over the next 30 years.

It’s true that the fragile economic recovery poses a threat to Woodbois. Demand for its hardwood could suffer badly if broader construction activity sinks in its markets. But as a long-term investor this low-cost UK share still has a lot to offer.

European Metals Holdings

Lithium business European Metals Holdings (LSE: EMH) has steadily lost ground over the past six months despite a steady stream of data showing how electric vehicle (EV) sales continue to boom. I see this as an opportunity to pick up a terrific EV-geared stock at a cut price.

You see, European Metals is developing the Cinovec lithium project in Czechia. The asset is Europe’s biggest lithium resource (as well as one of the world’s biggest tin deposits). In fact, the business recently hike its ore reserve estimates there from 34.5m tonnes to an even-more impressive 54.5m tonnes.

What I also like about European Metals is that Cinovec is located near many of the continent’s largest vehicle manufacturers. It therefore already has a potentially significant customer base on its doorstep.

Development problems at Cinovec could cause the penny stock’s share price to sink further. But, on balance, I think the possible rewards of owning European Metals outweighs the risks.

Science in Sport

Nutritional product manufacturer Science in Sport (LSE: SIS) isn’t without dangers of its own. Rising commodity prices pose a significant threat to the company’s bottom line in the short term and potentially beyond.

But, in my opinion, this danger is more than offset by the huge revenues potential of its winning sports supplement brands PhD Nutrition and Science in Sport. These hugely-popular labels cover a wide range of products for the get-fit obsessed, such as protein shakes, energy gels and vitamin supplements. Latest financials showed sales of these goods soar 25% in 2021, above the company’s own heady expectations.

I think Science in Sport could continue to print impressive revenues growth too as the market expands at breakneck pace. Industry experts at Mordor Intelligence think the sports nutrition sector will grow at a whopping compound annual growth rate of 12.5% between now and 2027.

Cairn recently reported that its revenues rocketed 61% in the six months to June, while its order book leapt to €655m from €214m at the start of 2021. Encouragingly, evidence shows that buyer demand has remained electrifying since then too. Average property prices in Ireland soared 12.4% in the 12 months to September, according to the country’s Central Statistics Office. This was also up from 10.9% in the previous month.

Big margins at Cairn Homes are also helping to drive profits right now (it expects a gross margin of 19% in 2021). However, I am aware that margins could start to recede if supply chain issues mean building material costs keep surging, hitting shareholder returns in the process.

Another housing hero

I think investing in Triple Point Social Housing REIT (LSE: SOHO) could be a good way to insulate myself against the danger posed by Omicron. After all, demand for the accommodation it provides (to people with special needs) remains stable during good times and bad. The business collected 100% of rents even as the Covid-19 crisis savaged the British economy.

Security isn’t the only reason I like Triple Point Social Housing. I also like the steps it’s taking to boost its property portfolio, the company adding a raft of new assets to its books for a shade under £30m last month. Such action will allow it to capitalise on the fast-growing specialised supported housing (SSH) sector to full effect.

Finally, I like Triple Point’s classification as a real estate investment trust (REIT). This ensures it has to pay a minimum of 90% annual profits out by way of shareholder dividends.  I’d buy the business despite the danger of overpaying for acquired assets which fail to deliver the desired rewards.

An electric vehicle penny stock

TI Fluid Systems is a UK share I bought last year to latch onto the electric vehicle revolution. And I’m thinking of investing in European Metals Holdings (LSE: EMH), which operates the massive Cinovec lithium project in Czechia. Most plug-in hybrid and battery-powered cars contain lithium-ion batteries, meaning European Metals can expect sales of its product to soar.

I’m also a fan of this company because it’s located slap bang in the middle of Europe’s carbuilding belt, making it simpler to sell its product to major manufacturers. Pleasingly, sales of low-carbon vehicles are booming in Europe. According to ING Bank, new registrations leapt 41% in the five years to 2020, beating the US and its figure of 28% by a wide margin.

The European Metals share price could suffer if development of Cinovec hits trouble, of course. However, all things considered, I think the reward-to-risk profile of this penny stock is highly attractive.

Housing hero

Cairn Homes (LSE: CRN) is a great way to play the chronic homes shortage in Ireland, in my opinion. Sure, profits at the business are in danger from strong and sustained cost inflation as supply chain issues persist. But to my mind, the probability that Irish house prices will continue to soar makes this penny stock a brilliant buy. I think low interest rates will continue to turbocharge buyer demand and by extension property values.

Latest financials showed Cairn’s sales soar 61% in the six months to June. Meanwhile its order book leapt from €214m at the start of 2021 to €655m by the midpoint. Pleasingly the business is hiking construction rates to capitalise on this fertile landscape, too. It aims to sell 1,450 home completions in 2022, up from a predicted 1,100 for this year. Cairn Homes trades just below the penny stock limit around 98p per share.

A top electric vehicle stock!

Encouraging operational updates from European Metals Holdings (LSE: EMH) is prompting me to give the penny stock serious consideration. This mining business operates the Cinovec lithium and tin project in north-west Czech Republic. It’s therefore in one of the prime places to capitalise on soaring demand for lithium-ion batteries as European electric vehicle sales grow.

As I say, news coming from European Metals has been extremely bright of late. In October’s most recent update the penny stock upgraded its resource estimate for Cinovec to 7.39m tonnes of lithium carbonate equivalent following fresh drilling work. That’s up from a prior prediction of 7.2m tonnes. European Metals has plenty of potential, then, though problems with the development of Cinovec could significantly hit profits projections and cause the share price to slide. Today European Metals trades at 80p per share.

A penny stock for the online shopping boom

I bought Tritax Big Box REIT and Clipper Logistics last year to make money from the e-commerce explosion during and after the Covid-19 crisis. These UK shares provide logistics and warehousing services to help businesses get their product direct to their customers. I also think DX Group (LSE: DX.) could be a great way to ride this theme.

Okay, DX might be a little fish compared to those other two. But it is expanding rapidly to exploit the fast-growing online shopping market, and has opened new depots in Dewsbury, Luton, Verwood, and Burnley in the last three months alone. I’m confident that the company’s solid cash generation should pave the way for sustained expansion too. DX Group trades at 29p per share, and I think it’s a top buy despite the threat posed by HGV driver shortages to its operations.

European Metals has been able to trounce the wider market as investors have rewarded the company after a year of solid progress at its 100% owned Cinovec Lithium/Tin Project in the Czech Republic. Over the past 12 months, European Metals has begun the development of this asset with multiple drilling plans and resource estimates, all of which have produced better results than expected.

And at the end of last week, the company published its completed preliminary feasibility study, which is the culmination of work to date at the Cinovec project.

Results reveal potential

European Metals’ preliminary feasibility study showed a 50% uplift in lithium indicated resource, to 3.9 Mt, an 11.8% in lithium total resource to 7 Mt and an increase in tin resource to 262,600 tonnes.

With such a large lithium resource sitting on the doorstep of European car manufacturers, management hopes that there will be robust demand for European Metals’ products when commercial mining begins. With lithium rapidly becoming one of the world’s most valuable resources, thanks to its chemical properties that allow construction of rechargeable batteries, it’s likely there will be no shortage of buyers if the firm can get production up and running.

Over half of the world’s current lithium reserves are located in Bolivia, and Chile is the world’s leading producer of the mineral. But as the electric car industry begins to take off, and the demand for batteries increases around the world, battery producers are now looking for sources of the mineral that are closer to home.

Plenty of work to do

European Metals’ Czech mine could be the answer to the continent’s battery manufacturers’ prayers. However, as of yet the project is still in the very early stages, and while last week’s updated resource estimate may look attractive, there’s an enormous amount of work to do before the company can claim to be a fully functioning lithium producer.

For example, at the end of January European Metals reported that its cash balance had declined to $2.9m Australian dollars at by the end of last year. During the final quarter of the year, the firm spent A$2.2m and received A$3.1m in cash from the issue of shares.

These figures show that the company is relying on the kindness of its investors to keep the lights on. This can only continue for as long as the enterprise is able to achieve results. Indeed, over the past 12 months, European Metals has been able to show investors that it is working towards something by putting together its preliminary feasibility study, and the market has rewarded this progress. For further share price gains, the company will have to continue to report positive updates to the market.

With cash levels dwindling, this might be a problem for the business. Management will have to issue more shares shortly to bolster cash revenues, and it’s unlikely this will be the last fundraising.

Put simply, European Metals’ outlook is uncertain, and as a result, I’d say the shares are only suitable for investors with the highest risk tolerance.

In fact, gold has recorded double-digit gains this year and while that may not sound so impressive, there were fears that 2016 could be a horrific year for the precious metal as rising US interest rates hurt demand for non-interest producing assets. However, with uncertainty surrounding the global economy pushing gold and other precious metals prices higher, Hochschild’s outlook has suddenly become a lot brighter.

Despite this, its shares still seem to offer a rather unappealing risk/reward ratio. For example, Hochschild may be forecast to return to profitability this year, but its recent share price rise appears to adequately price this in. It has a forward price-to-earnings (P/E) ratio of 44.8 and while its future profitability may rise at a brisk pace, there appear to be better options available elsewhere within the resources space.

Bright future… or not

Similarly, Sirius Minerals (LSE: SXX) could also have a very bright long-term future, but its risks seem to outweigh its potential rewards. Certainly, the potential to deliver one of the world’s biggest potash mines is present and the company’s recent definitive feasibility study provided a degree of confidence regarding its long-term profit potential.

Furthermore, the crop studies being undertaken and potential demand for the polyhalite fertiliser that Sirius Minerals aims to produce appear to offer further encouragement regarding the prospect of sizeable long-term profits.

However, with the resources sector being relatively depressed at the moment, the financing of such a major project could prove to be more difficult than previously thought. After all, a number of world-class assets are trading at low valuations and unlike Sirius Minerals, may be highly profitable even during a period of low commodity prices. As such, there seem to be better options available elsewhere within the resources space.

Too big a risk?

Meanwhile, European Metals Holdings (LSE: EMH) also has considerable long-term potential due to the prospect of rising demand for lithium in future years. With the world continually moving towards cleaner forms of energy, lithium power could have a bright future within a number of applications, including cars. Therefore, European Metals Holdings could benefit from an economic tailwind over the long run.

However, with European Metals Holdings having no revenue and being concentrated on one project in Europe (the Cinovec project), it appears to offer significant risks compared to a number of its peers. For example, other exploration stocks have a degree of geographic diversity and with highly profitable resources companies trading at discounts to book value, the appeal of companies such as European Metals Holdings may be somewhat limited among investors who remain generally risk-averse.