Best ASX Lithium Stocks to Watch in 2020

We examine five ASX-listed companies with exposure to lithium assets.

Investing in lithium in Australia: what you need to know

The 2018 battery boom coincided with the stratospheric run up in the share prices of a number of ASX-listed lithium stocks.

That boom – as with many others in the history of financial markets, was met with a bust in 2019 – as oversupply issues saw lithium prices collapse, instilling doubts in a market that rested its hopes on an electric vehicle revolution that has yet to truly arrive.

Looking at the fundamentals of this market, while recent reports from S&P Global Market Intelligence forecast that electric vehicle (EV) sales are set to surge to 6.2 million by 2024, representing a three-fold increase, lithium ion supply is also set to rapidly increase, expected to triple by 2025, according to S&P Global Platts.

Importantly, although lithium-ion has many uses outside the production of EVs – including the production of batteries for smartphones, laptops and other digital devices, armour plating and glasses as well as certain pharmaceuticals – the consensus is that its long-term viability will be ‘directionally proportional’ to the adoption of electric vehicles, according to S&P Global Platts.

Despite these headwinds, Asa Bridle, Commercial Officer/Business Development Manager at Savannah Resources, in 2019 told S&P Global Platts that the current market dynamics are likely to be a short-term phenomenon.

‘The key is to recognize this as a short-term imbalance in the market and not necessarily an indication of longer term trends,’ Mr Bridle said.

Whether these longer-term trends materialise into longer-term returns for investors however remains to be seen. The uncertainty, and other issues highlighted above, is well-reflected in the share prices of many of Australia’s key lithium stocks, with the likes of Pilbara Minerals, Galaxy Resources and Mineral Resources all trading well off the highs recorded in 2018.

Other things to consider

Lithium is mined from three types of deposits: brine deposits and Pegmatite lithium and sedimentary (hard rock) deposits, with Australia accounting for the majority of lithium hard rock mines on a global scale.

This, according to S&P Global Platts, puts Australian lithium miners and producers in an interesting position, with it being noted that ‘This has seen wider argument that Australian hard rock mining could find itself in the role of swing production, with projects coming on and offline as the price dictates.’

How to buy or invest in lithium stocks on the ASX

You can gain exposure to ASX-listed lithium stocks or companies with exposure to lithium-ion in two ways: either through share trading or derivatives trading. Share trading means that you take direct ownership of the stock, meaning you could potentially profit if the share price increases in value or if the company decides to pay a dividend.

By comparison to owning shares outright, derivatives trading – such as CFD trading – allows you to speculate on the price movement of a company’s shares without actually taking ownership of them. CFD trading may prove attractive to some investors for a number of reasons, including the flexibility to trade stocks long and short, the ease of which it allows to hedge, as well as the ability to gain larger exposure to an asset through leverage.

Follow the simple steps below to start investing or trading lithium stocks:

Investing in lithium stocks

  1. Create or log in to your share trading account and go to our trading platform
  2. Search for the company you wish to invest in
  3. Select ‘buy’ in the deal ticket to open your investment position
  4. Choose the number of shares you want to buy
  5. Confirm your purchase and monitor your investment

Trading lithium shares

  1. Create or log in to your trading account and go to our trading platform
  2. Decide whether CFD trading is right for you
  3. Search for the company you wish to trade
  4. Choose your position size and select ‘buy’
  5. Confirm your trade and monitor your position

Top 5 lithium stocks on the ASX

Having examined some of the key issues surrounding the lithium market, below we look at five high profile lithium stocks – or companies with material exposure to lithium assets – listed on the Australian Stock Exchange.

  1. Galaxy Resources (GXY)
  2. Mineral Resources (MIN)
  3. Pilbara Minerals (PLS)
  4. Lithium Australia (LIT)
  5. Wesfarmers (WES)

Company

Ticker

Share price*

Year-to-date performance

Galaxy Resources

GXY

$1.44

43.28%

Mineral Resources

MIN

$29.740

80.02%

Pilbara Minerals

PLS

$0.365

19.67%

Orocobre

ORE

$2.83

0.71%

Wesfarmers

WES

$48.550

17.59%

*Share price data taken from the market close, 3 September.

Galaxy Resources (GXY)

Company

Ticker

Share price

Year-to-date performance

Galaxy Resources

GXY

$1.44

43.28%

Galaxy Resources' lithium assets include hard rock mines and brine deposits across Australia, Canada and Argentina. In response to the coronavirus pandemic, the company said it has 'adapted to soft conditions in the lithium market by lowering plans for 2020, prioritising the processing of stockpiled ore and reducing final product inventory levels.'

For the June half, the miner produced 45,248 dry metric tonnes of lithium concentrate at a 6.0% Li2O grade.

Even though sales volumes have increased in FY20, with the miner reporting that it had sold 58,541 dry metric tonnes of spodumene in H1 – up from 44,630 dry metric tonnes in 2019 – revenue fell to US$23.3 million, as weak market conditions plague lithium miners across the board.

Positively at least, the company said that it 'remains on track to meet key operating targets in mine and processing plan for 2020.'

Mineral Resources (MIN)

Company

Ticker

Share price

Year-to-date performance

Mineral Resources

MIN

$29.740

80.02%

Mineral Resources is a leading Perth-based mining services provider, with assets focussed between iron ore and lithium. Mining activity was strong at the company’s key lithium Mt Marion Lithium Project during FY20 – with the miner reporting sales volumes of 408,000 wet metric tonnes, representing a year-over-year increase of 8%.

Despite that, with achieved spodumene prices down some 43% year-over-year, MIN saw the earnings generated from its lithium operations come in significantly lower for the full year, with Mt Marion reporting earnings (EBITDA) of US$16 million, down 78%.

By comparison, MIN’s iron ore segment posted strong revenue and earnings growth in FY20 – as iron ore futures continue to trade around multi-year highs.

Pilbara Minerals (PLS)

Company

Ticker

Share price

Year-to-date performance

Pilbara Minerals

PLS

$0.365

19.67%

Pilbara Minerals is a lithium-tantalum producer, with the ambitious aim of becoming 'one of the biggest and lower cost lithium producers' in the world.

Across the full-year, Pilbara produced 90,768 dry metric tonnes of spodumene concentrate and shipped some 116,256 dry metric tonnes.

These production figures did little to boost the miner's underlying financial performance however. Attributed to soft market conditions in China and weak demand for raw materials, PLS posted total sales revenue of $84.1 million against a net loss after tax of $99.3 million – for the full-year.

Speaking of these results as well as the current market outlook, Pilbara's MD Ken Brinsden said:

'While our financial performance in FY2020 was clearly impacted by continued weak demand for lithium raw materials, our team responded to these challenges with the deployment of a production moderation strategy which has proven to be highly effective under the circumstances confronting the global lithium market.'

Orocobre (ORE)

Company

Ticker

Share price

Year-to-date performance

Orocobre

ORE

$2.83

0.71%

An industrial chemicals and minerals company, Orocobre holds a diversified portfolio of lithium, potash and boron assets across northern Argentina.

Overall, in FY20 Orocobre produced 11,922 tonnes of lithium carbonate – representing a year-over-year decrease of 5%. Though production came in lower, the miner reported success in winning new customer contracts in 2020, pointing out that ‘more than 50% of FY21 sales are contracted.'

Like Pilbara, Orocobre also saw its profitability fall sharply during the year, reporting a net loss of US$67.1 million. For reference, in FY19, the miner reported a profit of US$65.4 million.

Wesfarmers (WES)

Company

Ticker

Share price

Year-to-date performance

Wesfarmers

WES

$48.550

17.59%

Iconic Australian conglomerate Wesfarmers – through its $776 million, 2019 acquisition of Kidman Resources – has significant exposure to lithium assets, primarily through Kidman's 50% stake in the Mt Holland lithium project.

The Mt Holland project – comprised of an open pit lithium mine and processing plant – in late 2018 was estimated to have a projected annual average production of 45,254 tonnes of LiOH. The Earl Grey deposit at the Holland site was estimated to have a maiden ore reserve of 94.2 million tonnes.

At the time the acquisition, Wesfarmers’ Chief Executive Officer, Rob Scott, said:

'The acquisition and our planned future investment is an attractive opportunity to participate in the development of a large-scale, long-life and high grade lithium hydroxide project in Western Australia in partnership with a global leader in the lithium industry.'

Best ASX lithium stocks summed up

Though the lithium market is currently in a state of oversupply, many believe in its long-term potential. In saying that, traders and investors looking to gain exposure to this unique market should keep in mind that:

  • Australia accounts for the majority of hard rock lithium deposits in the world
  • Electric vehicle sales are forecast to rise three times, to 6.2 million, by 2024
  • Lithium-ion supply is expected to triple by 2024
  • The consensus is that the long-term viability of will be influenced by the adoption of electric vehicles
  • ASX-listed lithium stocks continue to trade well-off the highs they recorded in 2018

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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