Why does Everyone Want Lithium, and How Do Investors Profit from It?

As we move further toward renewable energy and the dream of a clean energy future, lithium is fast becoming one of our most vital resources.

Several mining companies have poured money into lithium on the back of global demand.

Traditionally, lithium has been used in everything from the manufacture of glass, ceramics and electronics to the treatment of psychiatric disorders. More recently, the lithium compound is in demand for its use as material in batteries, storage systems and electric cars.

Lithium demand is also increasing from the solar power industry as governments and industry look to benefit from cleaner sources of energy and production. This can be seen in the late-2017 deal between Tesla and the South Australian government to establish Australia’s largest lithium-ion battery, to meet the state’s power needs.

As University of Western Australia research associate Tristan Clemons told the ABC:

If we think about the house and trying to charge using solar panels, you need to have good battery capabilities to be able to store that power when the sun is not shining. So that’s the real application for lithium going forward.’

The real shift in demand comes from lithium’s application in rechargeable batteries used in everyday electronics (such as smartphones and laptops) and in electric cars. And although Australia is currently leading in lithium production, production is taking off as China looks to reduce emissions and drive the market.

The lithium market is forecasted to annually grow in demand by 33% by 2023.

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How to invest in lithium

There has been a resurgence in the amount of lithium stocks available, partially as a result of new interest into the uses of lithium in green energy and renewables.

The price of lithium has soared from 2016–2019, with companies like the Chilean Sociedad Química y Minera and Albemarle in the US seeing a huge increase in their share price, profiting off forecasts of a jump in electric car production.

However, many lithium stocks are proving to be a difficult sell. There is continuing concern that supply will far outreach demand in the coming years.

Lithium stocks such as Pilbara Minerals and Orocobre remain a high-risk investment thanks in large part to an oversupply in the market. But our dedication to renewables and hybrid cars makes lithium a viable commodity in the long-term.


Leading lithium stocks on the ASX

Please note that the following is informational, and none of these stocks should be considered recommendations. Instead, use them as a starting point for your own research.

That said, let’s look at some of the leading lithium companies available to investors today.

Orocobre Ltd [ASX:ORE]: Orocobre is weathering the recent fall in lithium prices with their determination to increase production and keep costs low. The miner has made inroads with several lithium projects and have seen their share price remain steady, despite an unstable start to the year. 

First-time investors in lithium stocks should keep an eye on Orocobre, which is backed in a Joint Venture with Toyota Motors as part of their growing commitment to electric car production. This backing from a multinational car company, as well as recent expansions, has led to a record full-year profit of $148.9 million.

As CEO Seville said, ‘Management of costs, along with strong prices resulted in record gross cash margins for our products and fuelled a 33% increase in our operating cash flow from Olaroz.’

Galaxy Resources Limited [ASX:GXY] is one of Australia’s most successful lithium miners, with three projects globally. This includes their Mt Cattlin and James Bay spodumene mines.

After the completed sale of their northern tenements at the Sal de Vida site in Argentina to Korean company POSCO , expected in fourth quarter 2018, Galaxy still stand to profit from their existing operations. Their current projects, along with the remaining space at Sal de Vida, are expected to earn a combined EBITDA of $500 million per annum.

Pilbara Minerals Limited [ASX:PLS] has pushed its way forward as a leading producer of lithium in Australia, with the Pilgangoora Lithium project placed to provide lithium product to the lithium battery industry in China.

After a sharp rise in the company’s share price in late August, recent slides in demand from China have pushed fears from an oversupply in the commodity.

Despite the current concerns, Pilbura’s managing director Ken Brinsden has been quick to downplay the worries of global oversupply of lithium and any subsequent price falls:

Whether it’s a car maker or a big battery materials company, there is insatiable demand [for lithium].’

Kidman Resources Ltd [ASX:KDR]: Kidman Resources is continuing to find success after signing a three-year deal with Tesla Inc. in their production of battery-grade lithium. The small-cap, which is a co-owned venture with SQM, has recently expanded its exploration production in Western Australia.

Although Kidman resources have not yet started production at their Earl Grey deposit site, they are on track to begin production by 2021 after an upgraded mineral resource estimate.

The lithium boom is NOT over. Here’s are some stocks riding the next lithium frenzy

Following lithium’s ever-changing story

Lithium stocks have had a thrilling couple of years, and netted major gains for savvy investors. Its ongoing story will continue to be driven by the rise of electric vehicles, solar power, our obsession with devices, and by supply levels.

To keep up the lithium story, and all the latest on resource investing, be sure to check back here for all of our articles on the topic.

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