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Why the Kidman Resources Ltd share price has rocketed higher today

The Kidman Resources Ltd (ASX: KDR) share price has started the week strongly, rising a whopping 12.5% in morning trade after the lithium miner made a major announcement.

According to the release Kidman plans to acquire lithium rights through an earn-in agreement with Western Areas Ltd (ASX: WSA) on 19 tenements within the greenstone belt that hosts Kidman’s world-class Earl Grey lithium deposit.

As part of the agreement Kidman will issue Western Areas 6.3 million shares, which will be escrowed for six months. Should the agreement conclude, the leading nickel producer will hold a 5.2% stake in Kidman.

Kidman Managing Director Martin Donohue believes the agreement would create significant value for both sets of shareholders. He stated that: “by consolidating this world-class lithium belt, we can maximise the exploration and production potential while minimising costs, generating strong returns for both companies.”

I would have to agree with Mr Donohue on this one. The agreement makes a lot of sense and I would expect to see it go ahead.

Should you invest in Kidman?

I can’t say I’m surprised to see investors pile into the lithium miner today on the back of this news. The Earl Grey lithium deposit is already known as one of the biggest hard-rock lithium deposits in the world, so I believe there’s significant potential from the surrounding tenements.

Whilst my preference in the industry remains Galaxy Resources Limited (ASX: GXY), I do believe Kidman is worthy of a closer look.

If demand for lithium to be used in batteries for electric vehicles, smart phones, and renewable energy remains as strong as many predict, both Galaxy and Kidman could have extremely bright futures.

But like all mining shares, an investment in either is of course a high risk one. I would suggest investors limit any exposure to the industry to just a small part of their portfolio.

Alternatively, these hot growth shares could be even better options in my opinion. I'm tipping each of them to smash the market this year.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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