SGML:CC - Is it Too Late to Invest in Battery Materials?

2023-08-24 15:15:00 ET

The world has come a long way towards understanding and tackling the climate crisis. We have seen several major shifts in policy-making and corporate practices when it comes to green initiatives, and the fact that people have started “voting” with their wallets has been a significant contributor to these positive shifts.

But ESG (environmental, social, and governance) investing is more than just about investing in environmentally and socially responsible companies. Many environmentally oriented stocks have offered amazing returns over the years.

However, the initial and somewhat “aggressive” optimism surrounding green stocks representing renewables, electric vehicles (EVs), and battery metals businesses propelled much of these returns.

Now that the initial hype has died down, it’s natural to wonder whether it’s worth buying these stocks purely for financial gains. A look into two green stocks from a specific market niche, i.e., battery metals, might help you find an answer to this question.

Sigma Lithium stock

Sigma Lithium ( TSXV:SGML ), as the name suggests, is focused on the mining of the primary battery metal Lithium, which makes up about 7% of each lithium-ion battery by weight.

Lithium-ion batteries are currently the primary source of power storage for EVs and will remain so until a better battery technology replaces it. But so far, there aren’t any viable contenders. Hence, the value of lithium keeps rising steadily in the global market.

Sigma aims to distinguish itself from other lithium producers by focusing on sustainability. The company is mining something that is expected to help reduce carbon emissions by replacing conventional vehicles with EVs, and it’s also planning to do it as responsibly as possible.

This includes utilizing 100% renewable energy to power its plants and various operations and using recycled water for its processes. It’s also aiming for net zero by 2025.

It’s difficult to determine whether these promised strengths have been the sole propellers of this stock so far. Since the company has yet to enter the production stage at this point, it’s merely a prospect.

It has grown at an incredible pace (and to an incredible height) in the last few years on speculation alone, i.e., 2,200% since Jan. 2020. However, if the company manages to achieve its projected 2024 production goals, the revenues may set all its financials straight.

Patriot Battery Metals stock

Patriot Battery Metals ( ASX:PMT ) is also a lithium mining stock operating primarily in Quebec. It has 100% ownership of one of the largest lithium reserves in North America, based on the inferred numbers. However, even on the “speculation” scale, the Patriot Battery Metals is a prospect that may take several years to pay off. Its first mine is expected to become operational by 2028.

One strength that distinguishes Patriot Battery Metals from Sigma Lithium is that it’s not as debt-heavy right now. But we can’t be sure about the future. It will have to fund its mining operations, and debt and share dilution might be its two primary sources of funding. This may undermine the potential of the stock.

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Foolish takeaway

Now that the initial hype around battery metal stocks that even pushed speculative investments like Sigma up to incredible heights has died down, investors might start evaluating these companies on their operational merits.

That would require these companies to meet their projections to show investors that they are indeed on track to achieve what they have promised to achieve.

So, it might not be too late to invest in these stocks, though you may have to shift your focus from environmentally oriented market sentiment to company performances and milestones.

The post Is it Too Late to Invest in Battery Materials? appeared first on The Motley Fool Canada .

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

2023