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.

The post Could European Metals Holdings Ltd double by the end of 2017? appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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.

The post Why I’m Still Avoiding Sirius Minerals PLC, Hochschild Mining Plc And European Metals Holdings Limited appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.