From hedging inflation to diversifying a portfolio, there are plenty of reasons to invest in commodities and the companies that produce them. The price of entry, however, is being willing to deal with volatility.
A case in point is lithium, a key metal used in electric vehicle batteries.
In 2022, a benchmark lithium chemical hit a record above $80,000 per metric ton in China amid expectations of strong demand from a burgeoning electric vehicle (EV) market. Now, that chemical, lithium carbonate, is around $10,000 per metric ton as automakers have pared their EV expectations.
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“I think the lithium market will be in a supply surplus for the foreseeable future,” says John Berman, founder and chief investment officer at natural resources investment management company Berman Capital Group. “The industry expanded too much based on faulty assumptions about how fast the energy transition would occur.”
To be sure, experts are still predicting long-term growth in the EV market; it’s just not coming as fast as previously thought. That means some lithium mining companies could be bargains at the moment, but investors will need to choose strong companies that will be able to weather the downtrend in lithium prices.
Globally, lithium producers generally need an average of $20,000 per metric ton to be profitable. So, a spot market price of roughly half that doesn’t bode well for miners.
However, producers will often sell product based on long-term contracts that can differ from spot prices. And companies that are actually producing lithium and have flexibility to idle higher-cost mines will stand in better stead than exploration- or development-stage companies. Identifying potential merger-and-acquisition targets can also prove profitable, as the acquiring company generally pays a premium to undisturbed share prices.
“I think it will take some time for market demand to catch up to supply, for high-cost production to be shuttered and for some consolidation by the larger players before we see any lasting uplift in lithium prices,” Berman said.
With that in mind, here are five lithium mining companies that may be able to weather the storm, as well as two lithium exchange-traded funds (ETFs) for investors who don’t want to take a chance picking individual producers:
| Stock/ETF | Year-to-date return as of Aug. 29 |
| Albemarle Corp. (ticker: ALB) | -36.1% |
| Mineral Resources Ltd. (OTC: MALRY) | -40.6% |
| Sociedad Química y Minera de Chile SA (SQM) | -35.3% |
| Arcadium Lithium PLC (ALTM) | -64.3% |
| Ganfeng Lithium Group Co. Ltd. (OTC: GNENF) | -35.9% |
| Global X Lithium & Battery Tech ETF (LIT) | -26.1% |
| Global X Lithium Producers Index ETF (HLIT.TO) | -43.1% |
Albemarle Corp. (ALB)
Albemarle is one of the largest producers of lithium in the world, in addition to being one of the most vertically integrated, with mining, extraction and purification operations.
Late last month, the company began a review of its cost and operating structure in light of the lithium market slump. It said it would stop construction at part of its Kemerton lithium hydroxide conversion site in Australia, idle production at another unit at the facility, place that unit in care and maintenance, and focus manufacturing efforts on a different portion of the operation.
Another advantage for Albemarle is that it’s not a pure play, as it also sells bromine and catalysts, which gives it other revenue streams aside from lithium.
Mineral Resources Ltd. (OTC: MALRY)
This proven lithium producer is based in Australia, a generally mining-friendly jurisdiction that is the world’s biggest producer of lithium.
The company has a 50-50 joint venture with Albemarle at the Wodgina mine in Australia, with Mineral Resources serving as the operator. The mine is one of the largest known hard-rock lithium deposits in the world and has an estimated mine life of 30 years or more.
Mineral Resources also owns half of the Mt. Marion lithium operation in Western Australia along with China-based Ganfeng Lithium Group Co. Ltd. (OTC: GNENF), one of the largest lithium mining companies in the world. This offers some risk mitigation, along with the Australian company’s partnership with Albemarle.
Sociedad Química y Minera de Chile SA (SQM)
Behind Australia, Chile comes in as the world’s No. 2 lithium producer, but it holds the world’s largest reserves of the metal.
This Chilean company is one of the largest lithium miners in the world. In addition to its lithium business line, the company is also involved in the specialty plant nutrition, iodine and potassium businesses.
Despite the lithium downturn, SQM is still spending money on developing its business. This year, it’s planning $1.6 billion in capital expenditures, which includes the acquisition of a lithium project via a joint venture in Australia, the acquisition of a plant in China, lithium carbonate and lithium hydroxide capacity expansions in Chile, and nitrates and iodine capacity expansions.
Arcadium Lithium PLC (ALTM)
Arcadium Lithium was formed via a merger between lithium heavyweights Livent Corp. and Allkem Ltd. The multinational company has lithium brine operations in Argentina and a hard-rock lithium operation in Australia, in addition to a lithium hydroxide conversion facility in Japan.
It produces lithium hydroxide, lithium carbonate and lithium chloride and has supply agreements with General Motors Co. (GM) and Ford Motor Co. (F).
Andrey Litvin, energy and resources analyst at Edison Group, noted in an April report: “Alongside Albemarle and SQM, Arcadium Lithium is the third-largest producer of downstream lithium chemicals outside China, capturing the full value chain from lithium resource to battery-grade lithium chemicals … Thanks to its established low-cost asset base and cash-flow-generative business, Arcadium should be one of the main beneficiaries of the current cyclical lithium market downturn.”
Ganfeng Lithium Group Co. Ltd. (OTC: GNENF)
While China is the world’s third-largest producer of lithium behind Australia and Chile, the Asian nation controls more than half of battery-grade lithium refining.
China’s Ganfeng Lithium is one of those producers that has the flexibility to cut back on production when prices slump. It’s a vertically integrated battery minerals company, with lithium mining in addition to refining and processing. It’s also involved in battery manufacturing and recycling. Beyond China, the company has operations in Argentina, Australia, Mali, Mongolia, Ireland and Mexico.
On Aug. 28, the company said it would prioritize funds for projects that can generate short-term benefits and postpone some capex on medium- and long-term projects amid the lithium market downturn.
“To cope with the cyclical fluctuations and risks of the lithium industry, the company will strictly control the capital expenditure on the development of future resource projects and step up efforts in organizing and evaluating new investment projects,” Ganfeng said.
Global X Lithium & Battery Tech ETF (LIT)
One way to hedge against risks in a market like lithium is to own multiple companies packaged in an ETF. These funds trade under a single ticker symbol, offering diversification between individual companies with their various fundamentals and geographic concentrations.
This ETF, as well as competitor Amplify Lithium & Battery Technology ETF (BATT), offer further diversification by including battery and electric vehicle exposure along with pure-play lithium stocks. LIT tracks the Solactive Global Lithium Index and includes Albermarle, along with EV players like Tesla Inc. (TSLA) and BYD Co. Ltd. (1211.HK). Note that it charges a relatively high 0.75% expense ratio.
Global X Lithium Producers Index ETF (HLIT.TO)
Investors looking for more concentrated exposure to lithium producers can consider this ETF, which is traded on the Toronto Stock Exchange. It invests in companies involved in the mining and production of lithium, lithium compounds or lithium-related components.
The fund’s biggest holding is Pilbara Minerals Ltd. (OTC: PILBF), which owns all of the Pilgangoora lithium project in Australia. The company says it’s the biggest independent hard-rock lithium operation in the world.
To be sure, neither of these ETFs has done very well so far this year, with LIT down 26% and HLIT down more than 40%.
To invest in the lithium space right now, investors will need patience and conviction that the market will eventually turn around.
“If (EV) demand growth continues to stall, which I believe it will, I can’t see the current lithium surplus ending any time soon,” Berman says. “There are a lot of projects still in development that were underwritten at much higher lithium prices, and I think that some of these developers will go bankrupt before lithium prices turn around. I think the pain is far from over in the lithium market.”
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7 Best Lithium Stocks and ETFs to Buy in 2024 originally appeared on usnews.com
Update 08/30/24: This story was previously published at an earlier date and has been updated with new information.
