Investing in Lithium Mining Stocks
Most lithium stocks are speculative, but there’s a lot of optimism surrounding this emerging industry.
The electric car—whether battery- or hydrogen cell-powered—is on pace to replace the internal-combustion engine. In a decade or so, electric rather than gas-powered cars will be the norm.
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Once Tesla Inc (NASDAQ:TSLA) has led this charge. Once the car marker gets its battery “Gigafactory” up and running at full capacity, it will need to establish a regular supply of lithium in huge quantities. This has created an a lot of buzz for investors investing in lithium mining stocks.
The price of lithium, and other raw materials related to batteries, should rise quickly in the next few years. The electric car might free us from oil, but it will be a short-lived consolation. Far from the environmental paradise the electric car is supposed to provide, drivers will simply stop paying for gasoline and start paying for some raw materials.
Indeed, in the next few years, the world risks confronting another price emergency. That emergency involves the raw materials needed to make batteries. Lithium is merely the most famous. It’s also the most essential from the technical point of view. But other materials such as cobalt, graphite, and some rare earths will also be needed. These will also reach a critical market condition.
We can attribute this new surge of demand for lithium and other battery materials to the “Tesla effect.” Tesla plans to launch a more accessibly priced model—the “Model 3″—on the market before the end of 2017. Unlike the other cars made by the famous California-based company, the Model 3 will cost—after subsidies and rebates—some $37,000 or thereabouts.
Suffice it to say, Tesla plans to boost production from 50,000 to 500,000 cars a year by 2020. While many should take that target with several teaspoons of salt—Tesla has missed important deadlines by months, if not years—there’s no doubting the production boost. That will considerably increase demand for lithium.
Tesla will also be making the very lithium batteries that will power its cars. They will even power some homes thanks to Tesla’s “Powerwall” battery product. Tesla could also sell its batteries to other electric car manufacturers, given the size and capacity of its Gigafactory in the Nevada desert. Lithium is literally the “fuel” that batteries use.
It’s as if Ford, in 1911, were to have sold the car, the fuel to run it (at the time, even a bottle of whiskey would have worked), and the network through which to refuel it. In that sense, Tesla Motors might not be, strictly speaking, one of the lithium mining stocks to watch. But, it most certainly qualifies as a lithium stock.
Nickel, aluminum, manganese, and copper (the latter for electric circuits) could also benefit from the Tesla effect. Yet, these metals have a much wider and diversified market, so the additional consumption resulting from the diffusion of battery-powered vehicles will not produce quite the same impact as on lithium.
Lithium, before the invention of the lithium-ion (Li-ion) battery, was better known for applications involving ceramics and as flux additives to produce aluminum and steel alloys. Lithium also occurs in many vegetables. Lithium, in the form of lithium salts, was especially prized in psychiatry to treat mood disorders and depression.
Li-ion batteries are now used to power cell phones, among other products. Its increasing use in cars and airplanes, however, will cause an exponential rise in demand. The essence of its potential is there. It’s a material that will experience a sudden—relatively speaking, in industrial terms—surge of demand.
List of Lithium Mining Stocks
| COMPANY | SYMBOL | EXCHANGE |
| Lithium X Energy Corp | LIX.V | Toronto Venture |
| Albemarle Corporation | ALB | NYSE |
| FMC Corp | FMC | NYSE |
| Sociedad Quimica y Minera de Chile | SQM | NYSE |
| Galaxy Resources Limited | GXY | Australia |
| Orocobre Ltd | ORL | Toronto Venture |
| Lithium Americas Corp. | LAC | Toronto Venture |
| Altura Mining Ltd | AJM | Australia |
| Bacanora Minerals Ltd | BCN | Toronto Venture |
| Red River Resources Limited | RVR | Australia |
| Pure Energy Minerals | PSV | Toronto Venture |
| Sirios Resources Inc | SOI | Toronto Venture |
| Rock Tech Lithium Inc | RCK | Toronto Venture |
| First Lithium Resources Inc. | MCI | Toronto Venture |
| Dajin Resources Corp | DJI | Toronto Venture |
Large Upside for Lithium Prices
To get a better idea of lithium’s potential, the lithium battery market could be worth about $46.0 billion in less than a decade. That’s a conservative estimate, because should Tesla deliver its Model 3 in time, there’s no telling how far demand for lithium could rise. That said, lithium generates some $4.0 billion annually now worldwide. Thus, the lithium market is looking at a growth rate of close to 11.0% per year, and new projects are emerging worldwide.
The market for Li-ion batteries could generate some $46.2 billion worldwide over the next seven years. This implies an average 11% annual growth rate, given present production. The automotive sector will have the greatest growth in this period and high demand for hybrid and electric vehicles. (Source: “Lithium-Ion Battery Market is Expected to Reach $46.21 Billion, Worldwide, by 2022,” Allied Market Research, March 2016.)
But look for lithium mining companies to sprout. That’s because the market has been slow to respond to the surge in lithium demand. Traditional producers, mainly concentrated in Chile, Argentina, and Bolivia, were late to ramp up or expand their mines to satisfy the surge of consumption. Thus, prices of lithium carbonate rose sharply between 2015 and 2016, ranging from about $4.00 a pound to $12.00 a pound in April 2016 in the Chinese spot market.
The market has cooled off a bit in 2017 to about $9.00 or $10.00 a pound. But, that may have been a factor of the Trump effect. The U.S. president has made it clear that alternative energy is not one of his priorities. Still, if Tesla can manage to start Model 3 deliveries next July or August, it should give Tesla and lithium prices lift. Lithium resources have been limited only by demand.
There simply was no need to open up new lithium mines until now. So, over the next few years is when the investments to expand production, or open new sources, will increase. The projected sales of Tesla cars alone—half a million by 2020 or so—are enough to sound the alarm about future availability.
The risk is that, as happened with rare earth metals between 2008-2013, too many projects will spoil the soup. It will be difficult to discern the viable projects from the ones that have little chance to reach production stage.
There is another concern as well that could have a negative impact on lithium prices. Lithium is a metal; it doesn’t get burned in the battery. Thus, it is recyclable and reusable. In the rare earth metals market, the ‘recyclability’ of most rare earth metals played no small role in softening prices after the spike of 2010-2011. Thus, lithium stocks don’t quite have the empty runway to take off just yet.
The Top Lithium Stocks
So what are the top lithium producers, or better, the lithium mining stocks to watch? It is still unclear which stocks have the best prospects. Apart from Albemarle Corporation (NYSE:ALB), which I’ll talk about in more detail later, one such company might be FMC Corp (NYSE:FMC). Lithium is but one of FMC’s products, so it offers a hedge against the risk of a lithium debacle. In contrast, even if lithium surges, other metals FMC produces might not. Still, FMC is an established firm that trades in the NYSE.
The other companies tend to be smaller. There is Sociedad Quimica y Minera de Chile (ADR)(NYSE:SQM). It’s developing a lithium project in Argentina. It says it could deliver some 40,000 tonnes over a period of 30 years. (Source: “Chilean SQM’s Argentina joint venture project to cost up to $600 mln,” Reuters, May 5, 2016.)
Lithium projects in Nevada have the best chance of taking advantage of Tesla’s Gigafactory and battery production. Thus, Lithium Americas Corp (TSE:LAC) is a stock worth following as well. Similarly speculative lithium stocks might also be NEMASKA LITHIUM COM NPV (OTCMKTS:NMKEF) and US Lithium Corp (OTCMKTS:LITH).
Thus, we can surmise that any top lithium producers in Nevada have the best chance at securing what is now the top lithium contract in the world. It so happens that Albemarle fits the bill nicely.
In the U.S., new deposits were discovered in Nevada. Not by chance; that’s where Tesla’s battery Gigafactory is being built. Albemarle Corporation is the company with lithium operations in Nevada. Albemarle has other interests—chemicals—thus, the impact of lithium on its bottom line and stock price is diluted. But, there’s no telling lithium’s potential. Tesla is not the only electric car manufacturer.
General Motors Company (NYSE:GM) is already selling an affordable mid-sized electric car called the “Chevrolet Bolt.” Many more are coming. This is the kind of demand that prompted Albemarle to acquire Rockwood, the original proprietor of the Nevada lithium mine. Rockwood used to control about a third of all lithium production, generating revenues of 500.0 million.
But Rockwood—Albemarle—was extracting most of the lithium it sold from assets in Australia and Chile. Rockwood’s parent company, Albemarle, has the advantage over all others of having secured deposits within the United States. Thus, one of the “safer” lithium stocks to watch over the next few years would be Albemarle.
