LAC - Top 10 Lithium Companies To Consider As We Potentially Approach A Lithium Price Bottom

2024-01-16 13:34:42 ET

Summary

• The China lithium carbonate spot prices look to be approaching a bottom after falling 80% from its high.
• Several higher cost lithium mines are shutting down or reducing production. This typically leads to less supply, price stabilization and potentially some price recovery as demand grows.
• Consider buying quality lithium stocks as many are near their 52-week lows and well below analyst's price targets as summarized in the article.
• Be sure to read the risks section.

China lithium carbonate spot prices look to be approaching a bottom

The lithium sector has been hit severely the past year, with the lithium spot price down ~80% . As a result, most lithium stocks are now badly beaten down, albeit after a huge rise in 2021 and 2022 as lithium prices surged.

5-year China lithium carbonate spot price chart ( source )

CITIC Futures forecasts China lithium carbonate prices to average CNY 100,000 in 2024, with Jiangxi lepidolite costs of production in the CNY 80-120,000 range ( source )

Next steps - Mines shut down or reduce production, prices stabilize then usually recover as supply slows and demand grows

Given we are now in the marginal cost of lithium production price zone, the next steps should be more mines reduce or stop production (already happening with lepidolite mines in China, Core Lithium [ASX:CXO] in Australia ), prices stabilize (see chart above), and some recovery begins.

GFEX futures are at CNY 97,900 (or higher) slightly above the current SMM price of CNY 96,200 ( source )

Warren Buffett says: "Be fearful when others are greedy and be greedy when others are fearful"

We know that history shows us it is generally better to buy miners when their commodity price hits a cyclical low and to sell them when their commodity price hits a cyclical high.

Given all of the above, it looks like a reasonable time in the cycle to start considering buying back into the quality lithium stocks . Those are the stocks that have larger scale and lower costs of production, that can survive the current downturn and prosper during a recovery.

Note: The exact bottom is very hard to pick, so buying over time can help mitigate the risk of catching a falling knife. Alternatively, investors could monitor the China lithium carbonate spot price and the GFEX lithium futures price , looking for when the market recovers. Note also that upcoming earnings season for lithium miners will be rather negative as they report lower revenues due to the dramatic Q4, 2023 fall in lithium spot prices.

The world's most famous investor Warren Buffett says ( source )

Top 10 Lithium Companies To Consider

Below, we give some 5-year price charts to get a feel for the various lithium stocks. Most are >50% from their all-time highs and near their 52-week lows.

For more details on each company, feel free to read some of our company specific articles.

Top 5 lithium producers to consider

1. Albemarle Corporation ( ALB ) - Price = USD $126.05

Albemarle's two lithium flagship JV mines (Atacama in Chile, Greenbushes in Australia) are the two best global lithium projects in terms of size/grade/costs. Albemarle plan to grow their lithium production capacity from ~200-225ktpa LCE in 2022 to 400-650ktpa LCE in 2030.

You can view the latest company presentation here .

2. Jiangxi Ganfeng Lithium Group Co., Ltd. ( GNENF ) [SHE:002460] - Price = CNY 42.29

Ganfeng Lithium's primary business is converting spodumene to lithium in China, but they have 19 lithium mining projects (several are JV's) and other business units (recycling, li-ion batteries etc.) and plan to expand their lithium mining production dramatically this decade. Ganfeng targets lithium production capacity of 600ktpa LCE by 2030, up from ~83,000 in 2024.

You can view the latest company report here or the June 2023 Trend Investing article here .

3. Pilbara Minerals [ASX:PLS] ( PILBF ) - Price = AUD 3.58

Pilbara Minerals 100% owned Pilgangoora lithium mine is a huge low-cost spodumene operation with plans to grow towards ~680ktpa spodumene in 2024 and then to ramp to 1mtpa spodumene from ~Q3, 2025. Unit operating costs are running at US$658/t spodumene as of end Sept. 2023. The Company also has a share in the POSCO JV chemical plant in South Korea. As of end September 2023, the Company had ~A$3b in cash.

You can view the latest company Quarterly report here .

4. Arcadium Lithium ( ALTM ) - Price = USD $ 5.82

Note: Arcadium was formed by the Jan. 2024 merger between Allkem and Livent.

Arcadium has several low cost lithium projects globally including their Fenix Hombre Muerto Mine/Olaroz Mine, Sal de Vida Project in Argentina, Mt Catlin Mine in Australia, and the James Bay and Nemaska Projects in Canada. Total current lithium production capacity sits at ~90ktpa LCE with plans to expand that to 270ktpa LCE in 2027.

You can view the latest company presentation here .

5. Lithium Americas Argentina [TSX:LAAC] ( LAAC ) - Price = CAD 7.53, USD $5.45

Note: Lithium Americas Argentina was formed by the recent split up of Lithium Americas ( LAC ) into two companies. LAAC holds the Argentina assets.

Lithium Americas Argentina flagship asset is the Cauchari-Olaroz JV Project ( 44.8% owned by LAAC, 46.7% by Ganfeng, 8.5% by JEMSE) in Argentina that is currently ramping production towards 40ktpa LCE targeted to be at that run rate by mid-2024 . A further expansion of at least 20ktpa is planned next. A very large, high grade, Resource means there is very significant potential for production expansion in future years.

LAAC's Cauchari-Olaroz is a huge new lithium brine JV Mine in Argentina ( source )

You can view the latest company presentation here .

Top 5 lithium juniors to consider

1. Patriot Battery Metals Inc. [TSXV:PMET] [ASX:PMT] ( PMETF ) - Price = CAD 7.98, AUD 0.83

Patriot's Corvette Project in Quebec Canada has a CV5 maiden mineral Resource of 109.2 Mt @ 1.42% Li2O Inferred, the largest lithium pegmatite in the Americas, and 8th largest globally. Large exploration upside potential. Potential 2026+ large scale producer.

As of November 15, 2023, the Company had C$133m in cash.

You can view the latest company presentation here .

2. Latin Resources [ASX:LRS] - Price = AUD 0.235

Latin Resources 100% own the Salinas Lithium Project in Brazil. It has a Total Resource of 70.3Mt @1.27% Li2O with significant exploration upside. Latin Resources targets first production in 2026 of 405ktpa spodumene. The Company had a cash balance of A$65m as of 30 Sept. 2023.

You can view the latest company presentation here .

3. Frontier Lithium Inc. [TSXV:FL] ( LITOF ) - Price = CAD 0.78

Frontier Lithium 100% owns the PAK Project in Ontario, Canada. The PAK Project has 26 mt (M&I) @ 1.6% Li2O and 32.5 mt (Inferred) @ 1.4% Li2O with large potential exploration upside. Potential H1, 2027+ large scale producer. As of Sept. 2023, the Company had C$18.6m in cash.

You can view the latest company presentation here .

4. Galan Lithium [ASX:GLN] - Price = AUD 0.595

Galan Lithium 100% owns their flagship Hombre Muerto West Lithium ("HMW") Project in Argentina. They are targeting first-phase HMW lithium concentrate production in H1, 2025, with plans to ramp to 60ktpa LCE. As of Sept. 30, 2023, the Company had A$33m in cash.

You can view the latest company presentation here .

5. Winsome Resources [ASX:WR1] - Price = AUD 0.72

Winsome's 100% owned flagship lithium project is the Adina Project in Quebec Canada which has a Maiden Resource of 59mt at 1.12% Li2O and significant exploration upside. Potential 2026+ large scale producer. Notably they also have A$60m in cash as of 11 Dec. 2023.

Winsome Resources has one of the largest lithium resources in North America ( source )

You can view the latest company presentation here .

Top 10 lithium stocks compared

Note: No PE ratios for the junior miners as not earning yet.

Other top quality lithium stocks to consider

• Critical Elements Lithium [TSXV:CRE] ( CRECF )
• Global Lithium Resources [ASX:GL1]
• Atlas Lithium ( ATLX )
• Lithium Ionic Corp. [TSXV:LTH] ( LTHCF )
• AMG Critical Materials N.V. [AMS:AMG] ( AMVMF )
• Piedmont Lithium [ASX:PLL] ( PLL )
• Sayona Mining [ASX:SYA] ( SYAXF )

Risks

• Lithium prices could fall further despite already being below the marginal cost of production. This could happen if marginal producers keep running at a loss or if lithium demand collapses (EV sales collapse).
• Lithium stocks may still fall further, especially with what will be a very negative upcoming earning season for the sector.
• Lithium companies that become unprofitable may need to raise capital or may go bankrupt if prices continue to stay very low.
• Technology change - Sodium-ion batteries (look unlikely to take >10% share from lithium-ion batteries this decade).
• The usual mining risks - Partner, exploration, permitting, funding , environmental, project delays or cost blowouts, and production risks.
• Supply chain risks and/or off-take risks.
• Business risks - Competition, management , debt, liquidity , and currency risks.
• Takeover risk - Oversold lithium juniors could be taken over at a lower price than what an investor may have paid.
• Sovereign risk - High in Africa, Asia, poor countries. Mostly moderate in South America. Low in USA, Canada, Australia, Western Europe.
• Stock market risks - Dilution, lack of liquidity, market sentiment.

Further reading (Investing Group articles, paywalled)

• Dec. 2023 - Who Are The Lowest Cost And Highest Cost Lithium Producers In 2023?
• Dec. 2023 - Exclusive: The Latest Electric Vehicle, Battery & EV Metal Miner Trends - December 2023
• Jan. 2024 - Exclusive: Lithium Demand V Supply Update - Jan. 2024
• Jan. 2024 - The 5 Biggest Investment Disruptions & Trends In 2024 And Potentially This Decade

Electric car sales continue to grow rapidly each year and are forecast to overtake ICE car sales between 2026 and 2028 ( source )

Albemarle has increased their forecast lithium demand this decade driven by booming EV sales. They forecast an 800ktpa deficit in 2030 (ex. recycling). ( source )

Conclusion

Timing the bottom of a falling market is not easy. It is possible that IF EV demand significantly weakens in 2024 that lithium prices could continue to fall deep into the cost curve. Goldman Sachs has that as their base case 2024 forecast (see here ), and they were correct in their 2023 lithium bear market price forecast.

Trend Investing takes a longer term view and believes that the lithium demand story remains very much intact supported by global electric car sales continuing to grow rapidly (up 108% in 2021, up 56% in 2022, up ~29% in 2023) and set to surge this decade (we forecast 25% growth in 2024 and 2025). Electrification of other transport and the energy stationary storage boom will also help lithium demand grow at our forecast 29% growth rate in 2024.

Trend Investing's view is that we are fast approaching the lithium price bottom or may have already reached it in Q1, 2024. This supports our thesis that it is time to start considering the lithium companies again for long term investors. Or as many top investors would say, it's time to go shopping now that the companies are on sale.

Please read the risks section. Note that lithium prices and stocks can potentially still fall further before stabilizing and a safer approach is to buy in stages. Investors in miners should take a 5-year plus time horizon. At this time, the focus should be on the higher quality and hence safer stocks.

As usual, all comments are welcome.

For further details see:

Top 10 Lithium Companies To Consider As We Potentially Approach A Lithium Price Bottom