Investing in lithium: what are the top lithium stocks to watch
Lithium stocks have been under the spotlight lately, thanks to growing demand for the product and the discovery of new mining opportunities. The CEO of Cornish Lithium talks about the prospects for the asset class, and we highlight some investment opportunities.
In the video IG’s Jeremy Naylor speaks to Jeremy Wrathall, CEO of Cornish Lithium, a privately owned Lithium mining company about the prospects for extracting and processing lithium in the UK.
Cornish Lithium is not investable at present, but may look to raise capital through crowdfunding in the future. To get exposure to this niche asset in the meantime, please read on to find out about some of the listed companies that investors may want to consider.
Why invest in lithium?
Lithium has to be one of the most flexible chemicals on earth. It is most commonly known as an effective medication for bipolar disorder, as well as being a key ingredient in batteries. However, it has a number of different uses, from aircraft parts, to telescope lenses, to smartphone chargers and even vacuum cleaners. More recently, lithium—ion batteries have become one of the most vital components of the rapidly growing electric vehicle market.
In fact, our reliance on lithium is becoming so pronounced that one report has estimated that the global lithium market will grow at a common annual growth rate (CAGR) of 12.93% between 2018 and 2022.
But while this figure alone is enough to get investors buying up lithium stocks, there is more to the story.
Lithium also happens to be one of the most readily available minerals on Earth, occurring naturally in countries such as Chile, Australia, China and the US. The recent discovery of new lithium stores has led many analysts to predict a sharp devaluation in the lithium market over time — Morgan Stanley analysts have predicted that rising supply will lead to a price drop of 45% by 2021.
The potential asymmetry between supply and demand has — unsurprisingly — created some volatility in the global lithium market. However, lithium stocks are still very much a target for future thinking investors. But how do you invest in lithium stocks from the UK?
Top five lithium shares
There are a number of ways to invest in lithium stocks directly and indirectly. However, the vast majority of dedicated lithium stocks are listed on stock markets outside the UK. This means that — depending on your investment budget and location — it may be cheaper to invest in lithium indirectly via UK—based stocks and exchange traded funds (ETFs) which are closely tied to the global lithium market. If you are looking for direct exposure, these are the top lithium stocks to consider.
Albemarle is the world’s biggest producer of lithium, and the largest lithium listing on the S&P 500. The firm does everything from raw material extraction to product manufacturing and has recently invested in the growth of its production facilities
How to invest: Albemarle is listed on the New York Stock Exchange (NYSE), but the stock is also one of the top holdings of the London—listed Global X Lithium & Battery Tech ETF.
Up until recently, FMC Corp was made up of two businesses: FMC Agriculture and FMC Lithium. This made it one of the more stable lithium—based stocks as the agricultural arm was able to shield investors slightly from any downward turns in the global lithium market. However, recently FMC spun off its lithium manufacturing arm to create a new firm: Livent.
After its launch on the NYSE in early October, Livent instantly became the largest ‘pure’ lithium play on the market.
How to invest: FMC Corp still maintains an active position in Livent, so it is possible to invest in Livent indirectly through FMC Corp shares, or via the Global X Lithium & Battery Tech ETF which is significantly weighted towards the firm. Alternatively, Livent is now trading on the NYSE.
3. Sociedad Quimica y Minera de Chile (SQM)
This Chile—based, US—listed firm specialises in a new form of lithium production, where the chemical is extracted from brine pools in the Atacama Desert. Earlier this year, the firm was given permission to extend its mining operations in the Atacama, however it has since been accused of overdrawing brine from the lithium—rich Salar area.
How to invest: SQM is traded on the NYSE and can also be accessed via the Global X Lithium & Battery Tech ETF. It also appears as a minor entity on a number of mining—focused ETFs.
4. Ganfeng Lithium
Ganfeng is one of the ‘big three’ global lithium producers, along with Albemarle and SQM. The Chinese firm is listed on the Shenzhen Stock Exchange, where its share price has grown significantly since its launch in 2010.
How to invest: it is notoriously difficult for foreigners to invest in Chinese stocks, although some brokers have been approved to trade in A—shares. Two ETFs — VanEck Vectors ChinaAMC SME—ChiNext and iShares MSCI China A — offer access to Ganfeng, but the exposure is minimal at best.
5. Lithium Americas Corp
This North American firm is one of the up—and—coming players in the global lithium market. It uses its own patented process to extract lithium from hectorite clay cheaply and quickly and has just partnered with SQM to begin mining operations in Chile.
How to invest: Lithium Americas Corp is listed on the Toronto Stock Exchange and the NYSE, so it is possible for UK investors to access the stock directly, but any investments will be subject to broker fees, conversion rate, and taxation.
More ways to invest in lithium stocks
If you are unable to invest in international stocks, there are a few other ways to invest in lithium from the UK.
Most big mining firms hold interests in lithium mines, with Rio Tinto and Anglo American owning a particularly large stake in the market.
The AIM—listed mining firms Bacanora and Rare Earth Minerals have recently partnered up to launch an exploratory drilling project in northern Mexico, where billions of dollars’ worth of lithium is believed to lie.
Samsung is one of the biggest producers of lithium—ion batteries — the same technology that is used to power electric cars and a range of electronics. The South Korean firm has London listings, but can also be accessed via tech—based or Asia Pacific—themed ETFs such as the Vanguard FTSE Asia Pacific ex Japan ETF.
Tesla is another high—profile lithium battery manufacturer. Last year, the firm installed the world’s largest ever lithium—ion battery in Australia, and it has opened a series of gigafactories where it will streamline the production of lithium batteries and parts.
Although it is a US—based firm, a number of UK—based ETFs are heavily weighted towards the firm. As well as the ubiquitous Global X Lithium & Battery Tech ETF, Tesla stock features prominently in the ARK Innovation ETF, and the VanEck Vectors Global Alternative Energy ETF.
There is just one lithium—focused ETF available in the UK at present. The Global X Lithium & Battery Tech ETF has holdings in all the major global lithium—linked firms, from FMC Corp and Albemarle, to Samsung and Tesla. Its aim is to track the performance of the Solactive Global Lithium Index before fees and expenses.
In the three years ending on 30 September 2018, the ETF had delivered 22.97% in average annualised net asset value (NAV). However, its one—year NAV was down 8.62%, highlighting the significant short—term volatility of the market.