In the past year, the price of lithium carbonate soared over 500%. Meanwhile, lithium hydroxide prices climbed 254% in 2021.
Demand is being propelled by the push for electric vehicles (EVs) in the battle to combat climate change. In turn, lithium battery manufacturers are boosting their output as they anticipate higher EV sales and attempt to raise their supplies that the rampant demand has depleted.
Global EV sales are thought to have increased by 160% in 2021. And China's deliveries are projected to double to over five million sales in 2022. Indeed, lithium miners are struggling to keep pace with this rapid rise in EV orders.
Furthermore, automotive original equipment manufacturers (OEMs) and battery manufacturers are on a time-sensitive mission to reduce battery pack costs.
Lithium-ion batteries are being widely adopted due to their compact size and high-density energy output. They are also easily recharged and recycled.
Hot stocks related to this boom include Foremost Lithium Resource & Technology Ltd. (CSE: FAT) (OTC: FRRSF), Lithium Americas Corp. (NYSE: LAC), Snow Lake Resources Ltd. (NASDAQ: LITM), Li Auto Inc. (NASDAQ: LI) and Standard Lithium Ltd. (NYSE: SLI).
Europe is ramping up its lithium mining and refining capacity to reduce its reliance on imports and retain control. Australia is currently the world's biggest lithium producer, while China is the leader at lithium refining.
Two of the world's biggest lithium companies are based in China. Ganfeng Lithium Company (OTCMKTS: GNENF) is worth around $27bn, while Tianqi Lithium (SHE: 002466) is worth around $22bn. Tianqi is the world's largest hard-rock lithium producer.
Finally, at the core of all of this is sustainability. The world's largest lithium producers are on a mission to create shareholder value and improve sustainability outcomes.
Here are some lithium-related investment ideas.
Lithium Americas Corp. (NYSE: LAC)
Lithium Americas is a resource company engaging in lithium development projects. Its projects include Thacker Pass and Caucharí-Olaroz. It recently announced it's acquiring Millennial Lithium Corp. (TSXV: ML).
As the lithium price has soared, so has Lithium America's share price. Therefore, it may be considered expensive. Nevertheless, it appears to have scope for continued growth.
A couple of catalysts could keep its share price elevated this year. Some analysts believe the company will begin mining at Thacker Pass in Nevada in Q1 2022. Meanwhile, Lithium Americas is projected to start production at its Cauchari-Olaroz asset in Argentina later this year.
It's important to remember Lithium Americas is still a speculative play. It's not yet producing. Therefore it's yet to generate revenue and profits.
Nevertheless, 80% of FactSet analysts currently rate Lithium Americas a Buy and 20% say hold.
Albemarle Corporation (NYSE: ALB)
Albemarle develops, manufactures and markets chemicals for a broad spectrum of industries. Its segments include Lithium, Bromine Specialties, and Catalysts. The Lithium segment develops and manufactures basic lithium compounds, including lithium carbonate, lithium hydroxide, lithium chloride, and value-added lithium specialties and reagents.
Albemarle is raising its prices for Catalysts global business unit customers to keep up with the rising energy and raw material costs.
The company enjoyed a solid Q3 with net sales of $831m and adjusted EBITDA of $218m. Sales improved by 11% year-over-year. Full-year 2021 average margins are expected to remain below 35% due to higher costs related to the project start-ups and tolling, partially offset by productivity improvements.
In 2021 Albemarle began the acquisition of Guangxi Tianyuan New Energy Materials, which owns a recently built conversion plant near the port of Qinzhou. Here it hopes to produce up to 25,000 metric tons of lithium per year, with the potential to double this capacity.
The company also recently signed two recent agreements for investments in China to support two greenfield lithium projects, each initially targeting 50,000 metric tons per year. The company projects it will achieve added conversion capacity of up to 150,000 metric tons of lithium hydroxide annually as its new plants get up and running.
It also has a joint venture at the Wodgina Lithium Mine in Western Australia.
Indeed, the company has made significant progress on its lithium growth projects and is poised for growth at a reasonable time.
52% of FactSet analysts currently rate Albemarle a Buy, 32% hold and 16% sell.
Foremost Lithium Resource & Tech (CNSX: FAT)
Foremost Lithium Resource & Technology Ltd (previously FAR Resources) is a mineral resource company based in Canada. Its project portfolio includes Winston Gold & Silver, Zoro Lithium and Hidden Lake.
The company recently received a permit to extract a bulk sample from its Zoro lithium project. This is an exciting milestone for Foremost Lithium because it’s the first step towards producing 6% battery-grade lithium hydroxide.
Foremost Lithium plans to extract a 500-kilogram bulk sample of spodumene-bearing pegmatite from Dyke 1 on its Zoro Lithium Project. The bulk sample will be shipped to a reputable third party for metallurgical testing and process development.
This energy tech company is one of the first North American Companies committed to producing high quality battery-grade lithium hydroxide domestically to fuel the electric vehicle battery market.
FAT stock is a highly speculative investment. The company is not yet producing and therefore not profitable. It is also subject to ongoing costs. Direct expenditures include materials used, surveying costs, drilling costs, payments to contractors, plus depreciation on plant and equipment during the exploration phase.
Argosy Minerals (ASX: AGY)
Argosy Minerals is an Australian micro-cap and speculative lithium play. The AGY share price soared over 100% in 2021. The company has a 77.5% (and ultimate 90%) interest in the Rincon Lithium Project in Salta Province, Argentina and a 100% interest in the Tonopah Lithium Project in Nevada, USA.
Argosy is making progress at the Rincon Lithium Project. Its plant and equipment manufacturing, procurement, and delivery works are proceeding to develop the 2,000tpa lithium carbonate production operation.
The company's current goal is to build a sustainable lithium production company, highly leveraged to the forecast growth in the lithium-ion battery sector.
Argosy's executives have an accomplished mix of resources experience.
Is there a lithium ETF?
There are several lithium ETFs. LIT and BATT are two of them. There are also many electric vehicle-linked ETFs that invest in lithium-related companies. For instance, DRIV, IDRV and REMX are just a few of them.
Global X Lithium & Battery Tech ETF (LIT-USA)
The LIT ETF had $5.3bn in assets under management (AUM) at the end of 2021. LIT tracks a market-cap-weighted index of global lithium miners and battery producers. Its top five holdings include Tesla (NASDAQ: TSLA), TDK Corp. Panasonic, LG Chemical and Guangzhou Tinci Materials Technology (a chemical materials and lithium-ion battery materials company).
Amplify Lithium & Battery Technology ETF (BATT-USA)
BATT tracks a market-cap-weighted index that invests in global advanced battery material companies such as those that mine or produce lithium, cobalt, nickel, manganese, and graphite.
As of 31 December 2021, BATT's top five holdings include BHP Group (NYSE: BHP), Lucid Group (NASDAQ: LCID), Shanghai Putailai New Energy Tech Company (SHA: 603659), Ecopro BM Company, SK IE technology Company.
The BATT ETF has $238m AUM.
VanEck Rare Earth/Strategic Metals ETF (REMX-US)
REMX tracks an index of global companies that mine, refine, or recycle rare earths and strategic metals. The fund invests in the largest and most liquid companies that generate at least 50% of their revenues from the global rare earth and strategic metals segment. The REMX ETF has significant exposure to small- and micro-caps and emerging-market issuers. These include the firms you typically find producing cerium, manganese, titanium, and tungsten.
The fund's largest holdings at the end of 2021 include AVZ Minerals (ASX: AVZ), AMG Advanced Metallurgical Group (AMS: AMG), Liontown Resources (ASX: LTR), Ioneer (ASX: INR) and Australian Strategic Materials (ASX: ASM).
Risks to investing in lithium
Lithium is undoubtedly in high demand, and the global push to electrification, combined with constrained supplies, is likely to keep demand heightened in the near term. Nevertheless, lithium stocks come with considerable risk, and many are highly speculative.
The supply squeeze could be temporary, meaning the price may tumble once COVID is brought under control and lithium plants resume normal function.
Additional headwinds facing lithium mining companies and stocks include reduced battery pack costs, technological breakthroughs moving the focus away from lithium-ion batteries to an alternative, geopolitical tensions, geological conditions, operational and technical challenges, industrial and environmental accidents, government regulations, weather, illegal mining, and much more.
Therefore, investors should carefully weigh the pros and cons before jumping in.