A brief examination of ASX lithium stocks, their advantages and drawbacks, and a rundown of the 10 best lithium stocks to watch in Australia this year.
ASX lithium stocks: what you need to know
Lithium is a silvery-white alkali metal, with special properties that make it extremely useful in the production of lithium-ion batteries that act as the power source for Electric Vehicles.
Because lithium is both the least dense metal and least dense solid element, it is highly unlikely to be replaced in modern EVs by alternatives such as nickel. While nickel has been used in the past, it has 40% lower energy density, meaning more of the metal is required to create an EV battery.
However, lithium’s chemical disadvantage is its inherent instability. Lithium is highly reactive and must be stored in an inert atmosphere or vacuum such as oil. This makes it expensive to produce, transport, and store.
As the Electric Vehicle revolution gathers pace, by dint of the increasingly scarce and costly oil, or because of environmental concerns, lithium mining is likely to become ever more profitable in the long term.
Of course, it does come with significant environmental concerns of its own, which the industry is taking steps to address.
Best 10 ASX lithium stocks to watch
1) Pilbara Minerals (ASX: PLS)
Pilbara Minerals is ‘ready for the global energy transformation,’ and well-positioned to be a low-cost, long-term sustainable lithium producer. It describes itself as the ‘leading ASX-listed pure-play lithium company, owning 100% of the world’s largest, independent hard-rock lithium operation.’
Its Pilgangoora mine in the Pilbara region produces both spodumene and tantalite concentrate, and it counts Ganfeng Lithium and General lithium as partners.
Its long-term strategy is to become an ‘integrated lithium raw materials and chemicals supplier in the years to come,’ in an attempt to be a major player in the lithium supply chain, underpinned by increasing demand for clean energy technologies.
2) Core Lithium (ASX: CXO)
Core Lithium is developing one of Australia’s most capital-efficient spodumene lithium projects, the Finniss Project in the Northern Territory. The prospector’s definitive feasibility study concluded that the mine has 173,000tpa of lithium concentrate, with a 10-year mine life.
Managing Director Stephen Biggins ‘prime directive is to deliver first production of high-quality lithium concentrate from the Finniss Project this year in the midst of a very high lithium price and high operating margin environment.’
A key advantage is that the mine has ‘arguably the best supporting infrastructure and logistics chain to Asia of any Australian lithium project.’ It’s only 88km from Darwin Port, the closest port to Asia.
3) Piedmont Lithium (ASX: PLL)
Piedmont Lithium aims to ‘develop a world-class integrated lithium business in the United States.’ It owns interests in the Carolina Tin Spodumene Belt in North Carolina, ‘the cradle of the lithium industry.’ The miner could become one of the lowest-cost producers of lithium hydroxide and is strategically placed to insert itself into the US electric vehicle supply chain.
Alongside its partner Sayona, it’s also developing interests in Quebec.
4) Sayona Mining (ASX: SYA)
Sayona Mining is an emerging lithium producer with projects in Quebec, Canada and Western Australia. It’s in a strategic partnership with Piedmont Lithium in Quebec, having acquired North American Lithium.
And it plans to integrate nearby Authier and Tansim projects, as well as its 60% ownership of the Moblan project, to create a world-scale hub.
The miner is ‘committed to downstream processing in Quebec to supply the fast-growing North American battery and EV market.’ And it also holds a large tenement portfolio in Western Australia for gold and lithium.
5) Ioneer (ASX: INR)
Ioneer is expected to be the first new lithium chemical producer in the US in over 60 years. The miner owns a 100% interest in the Rhyolite Ridge Lithium-Boron project in Nevada, the only known lithium-boron deposit in North America, and one of two in the world.
In its 2020 feasibility study, it confirmed the site as a world-class project with a globally significant deposit that could set it up as a major lithium supplier for decades.
It’s signed a deal to supply NexTech batteries from the mine and has been invited by the US Department of Energy to begin due diligence for a key loan programme.
6) Mineral Resources (ASX: MIN)
Mineral Resources operates a growing world-class portfolio of operations across multiple commodities but its core activities are iron ore and lithium mining throughout Western Australia and the Northern Territory.
Key sites include Wodgina Lithium, which as the largest hard-rock lithium deposit in the world is expected to have a 30-year mine life. It operates the project in partnership with US giant Albemarle, and despite a production pause, is set to resume mining in Q3. It also owns 50% of the Mount Marion lithium project in partnership with Ganfeng Lithium.
Its diversification into iron ore and partnerships with global players makes MIN a safer choice for risk-averse investors.
7) Liontown Resources (ASX: LTR)
Liontown Resources aims to ‘find, develop and supply battery minerals required by the rapidly growing Electric Vehicle and Energy Storage industries.’
It controls two lithium deposits in Western Australia and is expanding its portfolio through additional exploration, partnerships, and acquisitions. Its cornerstone is the Kathleen Valley project, one of the world’s largest and highest-grade hard rock lithium deposits.
The project is expected to supply 500,000 tonnes of 6% lithium oxide concentrate per year when production starts in 2024, with a mine life of 23 years. Its second project, Buldania, has over 15 million tonnes of 1% lithium oxide.
😎 Allkem (ASX: AKE)
Allkem was formed from the merger of two lithium giants, Orocobre and Galaxy Resources last year. It now controls a global portfolio of diverse, high-quality lithium chemicals. Headquartered in Buenos Aires, it operates lithium projects across Argentina, Australia and Japan, with development underway to meet significant expected market growth.
The company has partnerships with Toyota, the Jujuy provincial government and Prime Planet Energy & Solutions. And it plans to expand production 3-fold by 2026, mining 10% of the world’s lithium over the next decade.
9) Lake Resources (ASX: LKE)
Lake Resources is a lithium developer which uses proprietary clean extraction technology to create high-purity battery quality lithium carbonate. Its tech partner, Lilac Solutions has designed a ‘benign water treatment’ which returns all water (brine) to the source without changing its chemistry, making it far more environmentally friendly than conventional brine evaporation or hard rock mining. Lilac is backed by the Bill Gates-led Breakthrough Energy Fund.
LKE’s flagship Kachi project together with three other lithium brine projects in Argentina covers 2,200 square km in a prime location in the lithium triangle, where 40% of the world’s lithium is produced at the lowest cost.
10) AVZ Minerals (ASX: AVZ)
AVZ Minerals is entirely focused on developing its Manono project in the Democratic Republic of the Congo, potentially one of the world’s largest lithium-rich LCT pegmatite deposits. The miner’s objective is to leverage its DRC, financial and project development expertise to advance its 75% ownership of the project up the value curve.
However, it’s facing a legal battle. Chinese Zijin Mining, the country’s largest gold miner, is claiming a 15% share of the project, which AVZ has called ‘spurious and immaterial.’ This issue has been running for four months now, though AVZ is ‘confident of a positive outcome.’
How to trade or invest in ASX lithium stocks
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ASX lithium stocks: further important information
The best current alternative to lithium is nickel-based batteries. But lithium batteries charge quicker, and have no memory issues, meaning their maximum charging capacity isn’t affected by each charging cycle. And nickel batteries run hotter quicker, so usually require a cooling system.
On the other hand, lithium’s instability makes it around 50% more expensive to manufacture lithium batteries, which impacts the cost of an EV. Lithium batteries also usually have a shorter shelf life than nickel batteries before needing replacing. And because nickel is used more widely, the metal can already be recycled profitably.
But fundamentally, lithium is likely to be the metal that will power the EV revolution, unless there is a giant technological leap forward.
And to understand the potential the EV revolution has, market leader Tesla’s market cap, while volatile, currently hovers around $900 billion, comparable to the sum of every other auto manufacturer in the world combined. And it produced less than one million vehicles in 2021, while the OICA estimates 57 million passenger cars were produced in total.
Indeed, in the past CEO Elon Musk has likened lithium mining to ‘minting money,’ and has hinted plans to start his own lithium company to gain some control of the supply chain.
The global shortage is pushing lithium prices beyond record levels, threatening to arrest its so far rapid growth. Lithium carbonate stands at a record $71,315/tonne in China, tripling in a year, and more than 1,150% higher than pandemic lows.
And according to the IEA, the number of EVs produced more than doubled in 2021 to 6.6 million. Analysts expect lithium demand to increase tenfold by 2030, as legislation prohibiting the manufacture or sale of ICE cars in the future is being passed across vast swathes of the world, including in the EU, UK, USA, and even China.
Currently, China controls 80% of battery cell production and maintains a market-leading position in lithium refining. The war in Ukraine, combined with the Shanghai pandemic lockdown has forced companies worldwide to examine the strength of supply chains and perhaps pay more for higher security of supply.
Already, US President Biden has invoked emergency Presidential powers under the Cold-War era 1950 Defense Production Act. He aims to increase production of key metals including lithium, ‘to reduce our reliance on China and other countries for the minerals and materials that will power our clean energy future.’
Further demand is likely to be awoken by the recently passed Inflation Reduction Act, which offers $370 billion of investment into clean energy including extending the $7,500 consumer income tax credit for the purchase of a new EV, and eliminating the per-manufacturer limit on these tax credits.
One lithium concern is that it is relatively abundant worldwide. However, supply is restricted for two reasons. The first is that it needs to lithium needs to be concentrated enough to be worth mining and exploratory projects are often expensive with a high failure rate.
The second is that lithium is difficult and time-consuming to mine, with new mines taking up to ten years to begin extraction. While corporations worldwide are trying to set up their own mining and processing operations. the demand for lithium is likely to eclipse the supply ramp-up. The International Energy Agency (IEA) estimates that demand for lithium will rise by 900% by 2030, and by 4,000% by 2040.
Indeed, Rivian CEO R.J. Scaringe believes that ‘all the world’s cell production combined represents well under 10% of what we will need in 10 years…90% to 95% of the supply chain does not exist.’
Of course, lithium prices are as volatile as the metal itself. For example, a recent influencing factor is China’s ‘zero-covid’ strategy which is has seen lithium processing halt in some areas of the country, while EV manufacturers like Tesla have been forced to suspend factory production at times.
Finally, there are multiple ways to invest in ASX lithium stocks. It’s worth noting that lithium is mined from three types of deposits: brine, pegmatite lithium and sedimentary, with Australia accounting for most of the sedimentary lithium worldwide. Many lithium investors prefer to invest across all three types.
More widely, many investors choose to buy shares in a diversified miner like Rio Tinto to gain exposure to lithium while limiting overall risk. Of course, this cuts both ways, with diversified miners unlikely to feel the full benefit of any future price rise. And most of the stocks on this ‘top 10’ list are large-cap miners, with the potential for share price hikes in the long term with rights to exclusive projects. But small-cap lithium stocks can be more lucrative, despite carrying more risk.
And long term, pure-play ASX lithium stocks are exciting prospects for the adventurous investor.
Charles Archer | Financial Writer, London
28 September 2022