Why Sigma Lithium Stock Ran Higher Today

Shares of Sigma Lithium (NASDAQ: SGML), the Brazilian hard-rock lithium miner, jumped 10.6% through 10:25 a.m. ET this morning -- and China is the reason.

The Bureau of Natural Resources in Yichun, Jiangxi Province, plans to cancel 27 mining permits in January. Lithium prices in China reacted sharply to the news, rising 7.6%, and the price bump is having knock-on effects among lithium stocks worldwide.

Big trouble (with lithium) in China

Mining.com explains that "all of the licences had already expired, some more than a decade ago, and most were registered for ceramic clay or limestone mining."

As such, you might not expect the licenses' cancellation to have much effect on lithium production rates or lithium supply. This seems more a matter of cleaning up old paperwork than a move with real economic impact. Indeed, one analyst is quoted as confirming that "the licence cancellations would have little impact on supply, as none of the revoked permits covered operating mines."

But the fact that the licenses remained active held the potential for mining to be resumed at any of the sites, legally. That can't happen now unless the licenses are officially renewed, and this could have an impact on lithium supply.

This is the reason lithium investors are getting excited: The potential for a future supply crunch to create a deficit of the white metal, which will lift prices in the future.

Is Sigma Lithium stock a buy?

That's a logical take, so far as it goes. Near term, however, it doesn't change the fact that Sigma Lithium is losing money and burning cash -- $33 million in net losses and $24 million in negative free cash flow over the last 12 months.

Until these numbers improve, it's hard for me to call Sigma Lithium stock a "buy."

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.