Lithium Miners: An Excellent Long-Term Buy Opportunity


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Skyrocketing demand

The price of lithium has skyrocketed over the past few years as demand has increased. As of February 3, here’s where prices stood in China (the world’s largest lithium market), with carbonate and hydroxide up nearly 10% over the past week:

Demand is expected to exceed supply over the next two years, a strong sign that lithium prices will only rise. I discussed lithium demand drivers in more detail in an article last fall which you can access here.

Lithium supply and demand projections

Lithium supply and demand projections (Lithium Americas Corp.)

Additionally, the type of lithium demand is expected to shift in favor of lithium hydroxide.

Projection graph of relative demand for lithium hydroxide and lithium carbonate

Projected relative demand for lithium hydroxide and lithium carbonate (Livent)

However, it should be noted that lithium hydroxide is often produced using carbonate as the feedstock and therefore will not be a zero-sum trade-off with carbonate demand.

Recent Market Liquidation

Lithium companies have seen their stocks fall, even more than the market, in recent months after experiencing an extraordinary run (several hundred percent) previously. Given the recent selloff, I think now may be the right time to invest long-term in lithium as a foundational mineral for the ongoing energy transition. These companies are mostly at the pre-production stage and several of them are facing legal and technical challenges (e.g. Rio Tinto (RIO) loses its license in Serbia) and as such are investments speculative and possibly high risk. Still, I think the payoff could be immense and it is worth comparing publicly listed lithium miners with each other based on their expected production if we want to decide which one might make the best investment.

Lithium Americas Corp. (LAKE)

Lithium Americas Corp. has one of the strongest lithium pipelines of any publicly traded company. The company is focused on lithium carbonate and currently has three projects underway. Lithium Americas Corp has a long way to go, like most companies, to its first production from Thacker Pass or Pastos Grandes, which are still under planning and construction. However, the company expects first production from Caucharí-Olaroz this year, through a 49% joint venture with Ganfeng Lithium (OTCPK: GNENY) (OTC: GNENF). Once all of their mines are operational, the company could be looking at an incredible amount of production.

Estimates of the annual production of lithium carbonate (tons of LCE): 83,600-133,400

  • Thacker Pass – 40,000
  • Pastos Grandes – 24,000
  • Caucharí-Olaroz – 40,000 (19,600 LAC share of 49% JV)
    • Step 2: 60,000 (share of 29.4 LAC)

Piedmont Lithium (PLL)

Piedmont Lithium takes a different approach than Lithium Americas, targeting lithium hydroxide production and owning stakes in several other companies with off-take contracts for their production. The Piedmont projects are also further away from production and contain less clear breakdowns as production viability assessments continue and ownership is complicated, particularly at its Abitibi site.

Estimated annual production of lithium hydroxide (tons of LiOH): 60,000

  • Carolina: 30,000
  • Potential additional US site: 30,000

Estimated annual production of spodumene (tonnes of SC6): 505,000

  • Carolina: 242,000
  • Atlantic Lithium: 300,000 (Piedmont has a removal contract for 50% of this volume – 150,000)
    • Piedmont holds a 9.9% stake in Atlantic Lithium
  • Abitibi Hub: 113,000 (or 50% of all production which is greater)
    • Piedmont holds a 16.5% interest in Sayona Mining and a 25% interest in this project.

Livent Company (LTHM)

Livent is a more established lithium producer with existing production and facilities to convert lithium carbonate to lithium hydroxide. The company’s existing production comes from several sites, including one near Piedmont Lithium, and expansions are underway for the production of lithium carbonate and lithium hydroxide.

Estimated annual production of lithium carbonate (tonnes of LCE): 60,000

  • Currently produces 20,000 per year, expected to grow to 40,000 by year end 2023 and 60,000 in the long term.

Estimated annual production of lithium hydroxide (tons of LiOH): 55,000

  • Currently produces 25,000 per year, expected to grow to 30,000 by Q3 2022 and 55,000 long term.

Sociedad Quimica y Minera de Chile (SQM)

SQM is a Chilean miner with significant current production of lithium, as well as other chemicals. The company is looking to significantly increase its production in the current year. About 30% of the company’s current gross profit comes from lithium; the rest comes from other chemicals.

Estimated annual production of lithium carbonate (tonnes of LCE): 180,000

  • Current production: 120,000
  • Planned capacity mid-2022: 180,000

Estimated annual production of lithium hydroxide (tons of LiOH): 55,000

  • Current production of Antofagasta: 21,500
    • Planned capacity mid-2022: 30,000
  • Mt. Holland JV: 50,000 (50% JV, SQM Share: 25,000)

Standard lithium (SLI)

I mention Standard Lithium but am not including it in the comparison due to the short report released today (to which you can read the company’s response here). Stocks cratered more than 25% on the news; this could be a great buying opportunity, but investors should carefully assess the validity of statements by the company and short sellers (there have been others) before making purchases.

Comparison

All of the companies mentioned in this article have varying levels of existing production and viability/certainty of future production. As such, the numbers below should be taken with a grain of salt and a healthy dose of skepticism. For the sake of comparison and evaluation for my readers, I have not applied a discount rate to these revenue projections, but application and re-evaluation with one in mind is strongly encouraged for anyone considering investing in a mentioned company. Furthermore, current lithium prices are not the same as the prices that will be when this production finally comes to market and some of these companies may have joint ventures or additional off-take agreements by then that will eliminate the production of thousands of tons.

Society

Production per year (estimated tons)

East. Annual turnover (USD)

Price/Est. Income

Lithium Americas

83,000-133,400 LCE

$4.9–7.9 billion

0.71/0.44

Piedmont Lithium

60,000 LiOH; 505,000 SC6

$4.14 billion

0.18

Livent Company

60,000 LCE, 55,000 LiOH

$6.18 billion

0.60

180,000 LCE; 55,000 LiOH

$13.26 billion

1.25

Conclusion

The future of lithium demand looks bright for the companies that mine it. After a massive sell-off of over 30% over the past two months, their stocks are starting to look attractive. Investors should recognize that these companies are still quite speculative in many respects – with years in production and still being explored in many cases – but this article aims to help compare the biggest players in the industry. . Piedmont Lithium is the least expensive relative to potential revenue, but its production is less certain than the other three that have current production (Livent and SQM) or seek to begin production within the year (Lithium Americas). There are also additional geopolitical risks to consider, as Rio Tinto just showed us when protests shut down their project before it even happened. With all of that in mind, I still think this could be a great buying opportunity for investors looking to take advantage of lithium’s long-term growth potential.

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