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Why AVZ Minerals Ltd (ASX:AVZ) shares rocketed 20% higher today

One of the best performers on the Australian share market on Wednesday was the AVZ Minerals Ltd (ASX: AVZ) share price.

It finished the day with a stunning gain of over 20% to 10 cents.

Why did AVZ Minerals’ shares rocket higher?

This morning the lithium-focused mineral exploration company announced that it has engaged Perth-based independent engineering group CPC Engineering to undertake a scoping study of its Manono lithium project in the Democratic Republic of Congo.

According to the release, the study aims to prepare initial capital and operating cost estimates based on a typical hard rock spodumene concentrate process flowsheet.

Furthermore, a high-level review of options to upgrade the spodumene concentrate has been planned by management. The aim of this review will be to minimise transportation costs.

Which is far more important than you might think. The Manono project is located in-land in a dangerous country with substandard or non-existent infrastructure and a significant distance from any ports.

Getting its product to a port is no easy feat and has led many, myself included, to suggest that Manono may not be a viable operation due to transportation costs. Which would be a big shame because the company is undoubtedly sitting atop a lucrative lithium asset.

In addition to this, management advised that a second high-level review will investigate opportunities to produce a cassiterite (SnO2) concentrate as a secondary product stream.

Should you invest?

While this is a potentially positive development, just because the study is underway doesn’t mean that it will come back with favourable results.

In fact, the company has warned that there’s no guarantee that Manono will ever operate.

In the release AVZ’s Managing Director, Nigel Ferguson, said that “…over the next 6-9 months as we move Manono to a position where a final investment decision can be made to progress to production.”

Because of this, I would suggest investors continue to stay away from the company’s shares and wait for the results of the studies and for management to decide whether to progress to production.

In the meantime I would look to gain exposure to lithium through producers such as Galaxy Resources Limited (ASX: GXY) or Orocobre Limited (ASX: ORE). Though both are still high risk investment themselves.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. 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 Scott Phillips.

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