Lithium has turn into some of the in-demand commodities within the final decade. It was already helpful for lithium-ion batteries for electronics, however it’s actually EVs (Electrical autos) that boosted the demand.
One other rising sector is stationary storage, storing electrical energy in giant batteries for houses, business, and even the entire electrical grid.
China is the most important market as a consequence of its deal with EVs, which symbolize 1 in 4 vehicles offered there. However an bold plan to ban ICE (Inside Combustion Engines) autos by 2035 within the EU and a few US states ought to increase demand within the West as nicely.
This could improve lithium demand by 3x to 6x by 2030. Lithium costs have been extraordinarily unstable lately, going from a low of $7/kg in 2020 to a excessive of $80/kg on the finish of 2022, to the present $25/kg after a precipitous fall.
Finest Lithium Shares
Most fashionable batteries use lithium in a single kind or one other. Whereas we are able to talk about if cobalt or different battery metals will nonetheless be wanted in newer generations (strong state, iron phosphate batteries), it’s seemingly that each lithium and copper will likely be required in large quantities for batteries.
So let’s have a look at the perfect lithium shares.
These are designed as introductions, and if one thing catches your eye, you’ll need to do extra analysis!
1. Sociedad Química y Minera S.A (SQM)
| Market Cap | $18.1B |
| P/E | 4.65 |
| Dividend Yield | 16.63% |
SQM is the world’s largest lithium producer whereas additionally being energetic in just a few different sectors.
It’s an more and more environment friendly enterprise, planning to scale back lithium brine extraction by 50% by 2030, and water utilization by 50% by 2025.
Most of its manufacturing comes from Chilean mines, with enlargement plans in China and Australia.
The corporate seems to be optically low-cost however has been within the highlight as a consequence of the latest proposal in April 2023 of Chile to nationalize the lithium business, an alarming concept for any mining enterprise. The present licensing contract for SQM may expire by 2030, and lithium miners must settle for private-public partnerships.
So this can be a inventory for worth traders prepared to take a big leap of religion that the subsequent 6 years of absolutely owned manufacturing, and no matter comes after, is justified by the present valuation.
2. Albemarle (ALB)
| Market Cap | $20.6B |
| P/E | 7.71 |
| Dividend Yield | 0.92% |
Abermale is the opposite giant Chilean lithium producer. On account of its lithium licensing contract operating as much as 2043, it’s much less affected by the nationalization plans. The corporate has even declared to be open to an early renegotiation.
The corporate additionally has slightly extra room for change because it produces lithium in North America and Australia as nicely. Chilean manufacturing was 10,000 tons in 2022 versus 22,000 tons in Australia and a pair of,000 tons within the USA.
Abermale additionally refines lithium, with conversion capability anticipated to triple by 2027.
Its $3.2B debt at a median of 4% rate of interest could be seen as a safety in opposition to inflation and rising charges.
3. Ganfeng Lithium Group Co., Ltd. (GNENF)
| Market Cap | $17.8B |
| P/E | 4.36 |
| Dividend Yield | 0.66% |
It is a Chinese language firm based in 2000 that has massively benefited from the demand for lithium in China. It’s the largest lithium producer in China and the third largest on this planet. It’s also the second-largest refiner of lithium on this planet.
Most of its income comes from lithium, even when the battery enterprise represents 1/3 of yearly revenues in 2022 (down in percentages from 2021 as a consequence of exceptionally excessive lithium costs).
1/3 of the corporate’s revenues are made abroad, with the remaining in China.
It’s also creating a recycling exercise that’s poised to continue to grow over the subsequent years, with extra EVs reaching the top of their life cycle.
Its management in China and the Chinese language lithium business is a energy because of the nation’s significance within the lithium market. It’s also a weak point, with rising tensions and accusations thrown at Chinese language corporations, just like the latest declaration of Justin Trudeau that “China makes use of slave labor in lithium manufacturing”. So the corporate carries important geopolitical danger, completely different from the nationalization danger of Chilean miners.
4. Piedmont Lithium Inc. (PLL)
| Market Cap | $1.01B |
| P/E | – N/A |
| Dividend Yield | – N/A |
With jurisdiction (Chile) or geopolitical danger (China), some traders will choose to maintain their lithium investing at house. This additionally goes alongside the development of eager to “convey again house” key industries, just like the EV provide chain.
The corporate’s precedence is 2 mines in growth within the USA, in Tennessee and North Carolina, for a complete of 60,000 tons per yr of projected manufacturing. Piedmont additionally has a 50% participation in a mine in Ghana projected at 255,000 tons of manufacturing and a 25% in a Quebec mine projected at 190,000 tons of manufacturing.
The Quebec mine is predicted to start out manufacturing in 2024, and the opposite mines needs to be producing in 2025-2027. It should want additional financing to complete constructing the Tennessee mine.
The corporate expects to have the ability to make a revenue so long as lithium costs keep above their pre-2021 common.
Between mines nonetheless in growth and comparatively excessive manufacturing prices, Piedmont avoids geopolitical danger however will want excessive lithium costs to remain worthwhile. So that is for traders optimistic concerning the future want for lithium however afraid of worldwide dangers.
5. Pilbara Minerals Restricted (PILBF)
| Market Cap | $8.4B |
| P/E | 7.58 |
| Dividend Yield | 5.23% |
Pilbara is an Australian firm proudly owning the world’s largest hard-rock deposit of lithium (in opposition to the brines within the lithium triangle between Argentina-Chile-Bolivia).
The corporate has anticipated reserves of 25+ years. Present manufacturing is 580,000 tons per yr, with a progressive enlargement deliberate to achieve 1-1.3 Mtpa.
The corporate has been distributing a big a part of its 2022 windfall revenue, in addition to utilizing the cash to build up money that can be utilized to finance the deliberate extension. Whereas probably not worthwhile, operations had been cashflow constructive on the depressed costs of 2020.
The corporate can also be investing in a 43,000 tpa refining facility in South Korea.
6. Vulcan Vitality Assets Restricted (VUL.AX)
| Market Cap | $739M |
| P/E | – N/A |
| Dividend Yield | – N/A |
Most lithium corporations are required for the inexperienced transition. And they’re working arduous at lowering their environmental footprint from water and power consumption to carbon emissions. However few are as “inexperienced” because the idea behind German Vulcan Vitality.
The core concept is to supply power by geothermal whereas additionally extracting lithium from the geothermal brines. The warmth power created can be utilized to energy the lithium extraction carbon-free and/or be offered to the market, both as warmth (Germany has quite a lot of district heating amenities) or as energy. You possibly can learn concerning the technical particulars within the devoted presentation.
The mission is positioned within the Rhine Valley, north of Strasbourg. This could produce sufficient warmth/energy for 1 million folks and sufficient lithium for 1 million EVs per yr.
In 2022 the corporate secured $76M from Stellantis (Peugeot, Citroen, Opel,…) and $177M from chemical firm Nobian GmbH on April 2023. As well as, offtaking agreements have been signed with LG, Volkswagen, Renault, and Umicore.
The backing of European business leaders is making the possible lithium miner safer and will flip it right into a key a part of the EU plans to convey house the EVs provide chain. Manufacturing and ramping up ought to begin on the finish of 2025 or 2026.
It is a good match for traders on the lookout for a very inexperienced lithium producer whose prices are impartial of each world power costs and whose provide is safely positioned within the coronary heart of European business.
Finest Lithium ETFs
In a sector rising as shortly and as unstable as lithium (it barely mattered a decade in the past), diversification could be crucial. So that you may be thinking about ETFs concentrating on the sector as a complete.
1. International X Lithium & Battery Tech ETF (LIT)
This ETF invests in each lithium producers and the principle customers of lithium, battery producers. Its prime holdings embrace Albemarle, Panasonic, BYD, Telsa, Samsung, and so forth…, with publicity to China for 39% of the ETF and 22% to the USA.
2. VettaFi Amplify Lithium & Battery Know-how ETFF (BATT)
Extra centered on batteries, this ETF additionally contains lithium producers and miners of different battery metals like BHP, Glencore, and Albemarle. It may be enticing for traders on the lookout for publicity to the EV provide chain however wanting to scale back the volatility as a consequence of lithium worth fluctuations.
Conclusion
Battery demand is right here to remain, with even probably the most skeptical admitting that EVs, or on the very least hybrid autos, are seemingly the way forward for mobility in the long run. Lithium is on the core of each battery expertise as a consequence of its distinctive chemical properties, so it’s right here to remain as nicely.
So traders may be to get publicity to this key commodity with a powerful consideration to each valuations and jurisdiction/geopolitical danger.