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Why Lithium?
When it comes to expanding your investment portfolio beyond stock and bonds, a common asset class investors get involved in is precious metals.
Investing in precious metals, such as gold and silver, as a hedge, against currency inflation has always been a pragmatic investment strategy for many Canadian investors. Still, there’s an incredibly valuable and generally overlooked alternative, Lithium.
Lithium stocks are not an asset class that is commonly mentioned in investment circles, even in those that focus on precious metals, but it will soon enough, and here’s why:
Lithium is one of the most important resources on the planet. It’s used to manufacture lithium-ion batteries in most consumer electronics, such as cell phones, tablets, and laptops.
Lithium-ion rechargeable batteries also happen to be the standard batteries for electric vehicles.
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The reason for this is lithium batteries offer the best energy density while also being lightweight. As the production of electric vehicles ramps, so will the demand for lithium.
Over the past few years, the commodity price of Lithium has increased by a whopping 323% and is projected to increase even more as demand increases.
If you are an investor looking to buy lithium stocks for your investment portfolio, these are some of the top lithium stocks you should look into:
Top Canadian Lithium Stocks in Canada
Standard Lithium
Standard lithium is a relatively small lithium production company founded in 1998 based in Vancouver, Canada.
Although they are based in Canada, their operations are exclusively in the United States (Arkansas and California).
The company extracts the brine in Arkansas, but in California, they outsource their extraction through options contracts to two other companies.
This arrangement increases access to raw materials for the company.
The company uses Chrematistic Direct Lithium Extraction (DLE) technology to tap into lithium-rich brine. The use of this technology is what has given the small company a competitive advantage in the lithium production business.
The Company currently has a market cap of $691.91 million and is trading at CAD$5.46(as of Oct 31st, 2022).
The company doesn’t have a meaningful P/E due to the fact they’ve recorded negative earnings over the past 12 months.
This is because the company has been reinvesting its cashflows into expanding its base of operations, looking to ready itself for the projected demand for lithium in the future.
The company reported cash, exploration, and evaluation assets valued at $178 million in march 2022. Coupled with the company’s minimal liabilities, Standard Lithium appears to be a promising growth stock.
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Allkem Ltd
Allkem (AKE.TO) is a lithium chemicals company involved in a diverse portfolio of high-quality lithium chemicals.
The company was the result of the Galaxy Resources and Orocobre Ltd merger.
They are based in Buenos Aires, Argentina but are dual listed on the Toronto Stock Exchange and Australian Stock Exchange.
They have a lithium hydroxide conversion facility in japan, lithium brine operations in Argentina, and hard rock lithium operations in Australia.
The company currently has a market capitalization of 8.003 billion
Allkem stock is trading at CAD$12.55 (as of Oct 31st,2022).
As of June 2022, the company reported a revenue increase of 800% from 2021, generating US$770 million.
The company also generated a gross profit of $605 million ($337 million after Tax).
This performance was credited to comprehensive cost control measures, streamlined operational management, and improved product pricing.
With numbers like this is clear to see why Allkem Ltd is a very appealing Lithium stock.
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Lithium Americas Corp
Lithium Corporation of America (AKE.TO) is a mining company involved in mining pegmatite ore and lithium-bearing spodumene.
The company was founded in 2007 and is based in Vancouver, Canada, but its operations are focused primarily in the U.S and Argentina.
Lithium Americas corp is known for its comparatively low lithium production costs compared to the industry norm. It costs them $4000 a ton; this is 1/6 of the market Lithium price.
Their lithium projects are also known to have decent reserves with long lifespans averaging 46 -47 yrs.
The company currently has a market capitalization of 3.336 billion. Lithium Americas stock is currently trading at CAD$24.88 (as of Oct 31st,2022).
Despite a low P/E of -93.3, the company’s books are quite good, with $772 million in equity and $237million worth of debt.
This means the company has a sufficient cash flow runway for at least the next three years to invest in growth.
Lithium Americas Corp is poised to be a major supplier of lithium to the world’s largest buyers, such as China and Tesla Inc.
Sigma Lithium Stocks
Sigma lithium (TSXV: SGML) is a lithium mining company based in Vancouver, Canada, and was founded in 2011.
The company has stated its mission is to power the electric vehicle revolution with environmentally friendly and high-purity lithium.
The company owns the right to mine from the largest hard rock lithium deposits in the Americas and recently valued the underdeveloped project at $5.1 billion.
The company is currently producing 220,000 metric tons of lithium and is projected to have 270,000 metric tons.
The company currently has a market cap of 4.871 billion and a forward P/E ratio of -215.96%.
Sigma lithium stock currently trades at CAD$48.36 (as of Nov 1st,2022).
Like many lithium companies, Sigma lithium is far more concerned with expanding its operations at the expense of short-term profitability. This makes it a good long-term company to hold.
The company also sources all its mining electricity needs from hydropower, setting an example for green and environmentally friendly energy in the Lithium mining industry.
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Risks
Despite the positive outlook, there are some potential risks that lithium companies could face in the future. They Include:
Alternatives to Lithium Ion Batteries.
Lithium-ion batteries are the best solution to energy storage humanity has figured out, but technology and innovation are constantly revolutionizing the industry.
The industry would face a massive downturn if an alternative to lithium-ion batteries arose.
It is essential for investors to look out for potentially disruptive technologies, but so far, there are none we can see.
Excess Supply.
So far, the demand for lithium has steadily outpaced supply. This has kept the prices of lithium stable but should this change, lithium prices would see a significant hit, and consequently, the lithium company’s financial fortunes would change.
It’s important for investors to keep an eye out for potential dark horse events, e.g., the discovery of massive lithium reserves in Afghanistan.
Conclusion
Considering all the pros and cons, and as long as lithium’s demand it seems that investing in companies producing battery-grade lithium is a good long-term investment.
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