Bradda Head Lithium jumps 28% on insider dealings - this might be too much

Bradda Head Lithium (LON: BHL) is ahead 28% on Friday morning on the announcement of insider purchases. Now, that the executives and current shareholders of a company top up their holdings is indeed a good sign. Those in the know are confident that the share price will rise from where it is today - that's why they buy in at the current market price, they think it's going to go higher. Given the information asymmetry between insiders and us out here we should indeed take this as a sign of real confidence.

It is however possible to take this too far because we have some fairly strict rules to deal with that information asymmetry. One of those rules being that insiders can't trade - either way - when there is some important yet unrevealed piece of information out there. So, we are therefore able to take this as being proof that there is no unrevealed piece of information out there - because an insider has traded. So, yes, we know that the insider has confidence. But we also - by definition, the trade being allowed - know that there's nothing specific which we don't know.

Bradda Head share price from London Stock Exchange

The two recent pieces of information are that Bradda is buying up inlier claims around the Santo Domingo prospect. Interesting but hardly transformative. Then this announcement that Jim Mellon, through his Galloway vehicle, picked up a little over 2% of the company recently, taking the stake to 18.7%. Yes, clearly, that's a vote of confidence.

But this really is still very early days for Bradda Head Lithium. Exploration stage and we're not going to see a move to production and revenue in the immediate future. This means there's still substantial risk, most importantly the price risk of the lithium market itself.

But the important point for us to learn about director and insider dealings. Yes, obviously enough, someone putting their own money down is a vote of confidence. But given the rules that surround that asymmetric access to information we have a pretty definitional piece of information here ourselves. There is no unannounced and material information as yet undisclosed - because the insider purchase could not have been made if there were.