Are Lithium Stocks Worth Considering in Your Portfolio?

Summary

  • UK government to fund Europe’s first geothermal lithium recovery pilot plant
  • The pilot project is about Lithium extraction with negligible impact on the environment
  • Government calling upon the country’s businesses to develop lithium reserves
  • The metal’s demand shooting up with the rising requirement of electric vehicles across the globe
  • New extraction techniques will also drive the production of the metal in the near future
  • Investors looking to add a different dimension to their portfolio could take a closer look at lithium stocks

Lithium is a chemical element which is mined from the earth just like other precious metals such as Gold & Silver. Lithium is extracted from hard rocks by various procedures consisting of wet or dry screening, electromagnetism, flotation along with heat and acid treatment. Lithium is mined in many countries around the world such as China, Argentina, Chile, and many others.

Given the trade war escalations between US and China, the global supply of Lithium is likely to be affected to a certain extent. However, most of the countries are looking forward to making a transition towards a low carbon emission target in the post pandemic era. The British government is likely to put sustainable development at the heart of the British economy in the post crisis era. Therefore, the UK government is likely to finance the construction of Europe’s first geothermal lithium recovery pilot plant, which could produce Lithium from geothermal waters with a net-zero carbon footprint.

This pilot project is about Lithium extraction with negligible impact on the environment. Moreover, if UK government is investing in European project, there is a higher probability that the project could be covered under a potential Free Trade Agreement (FTA) between Europe and the UK. The British government is calling upon the country’s businesses to develop Lithium reserves to reduce reliance on external supply for Lithium, which is used in electric vehicle (EV) battery technology.

Lithium, a metal which was not a very exciting commodity through much of its history with mankind, has seen a meteoric rise in its importance in the past thirty years like no other known material in human history. Its unique electrochemical and metallurgical properties make it suitable for high performance energy storage applications underpinning its high energy density to weigh ratio with assurances on high durability and nontoxic operations and disposal. The mining and production of lithium along with the production of batteries derived from it have also seen a meteoric rise during the period. A new era, however, is about to dawn on this metal as electric vehicles catch the fancy of the human race, as more and more governments around the world and companies increase their spending to promote the spread and use of this new technology.

According to data figures from Society of Motor Manufacturers and Traders (SMMT), the apex trade body of car manufacturers across Britain, the BEV (battery electric vehicle) market share in April 2020 rose to 31.8 per cent from 0.9 per cent in April 2019 despite the catastrophe caused by the coronavirus pandemic. The rising demand for electric vehicles is likely to drive growth in lithium-ion battery market.

Lithium as an asset class

Commodity investing is not for the faint-hearted. Not all people understand the nature of business. There has been a renewed interest among commodity investors and speculators on this element ever since the advent of the Li-ion battery, and substantial funds have been pouring into this commodity.

Though not a rare commodity, but lithium is difficult to extract. With new technologies coming up, its production and refining capacities are expected to move up within the next few years. Additionally, industrial recycling facilities will also come up subsequently which would go on to further address the supply side dynamics of this commodity.

Overall, this could be a good investment vehicle in the long term, with widespread emerging demand, especially from the electrical vehicle development perspective, which is set to revolutionize the transportation sector around the world.

The pollution hazards emanated by Lithium Ion batteries are far less compared to other forms of energy storage devices. This metal has an additional advantage of being recyclable, which in future will help address any future supply constraints of this material.

There are other power storage raw materials as well whose production and usage have a far worse environmental impact than Lithium. A relative analysis with other alternative resources would give a better picture about their relative environmental impacts and the suitability of Li-Ion batteries for future technological developments.

As the demand for Lithium is expected to rise in the future, the businesses involved in Lithium mining or production have a good amount of headroom to grow in the long run. Most of the time, the prices of Lithium stocks could tend to resonate with the base element, however, businesses could face some operational or technological risks individually. Moreover, the government support in form of subsidies is important in terms of protecting the niche sector. In this article, we would discuss some LSE listed Lithium producers in the UK.

  1. Bacanora Lithium Plc

Bacanora Lithium Plc (LON: BCN) is a London-headquartered, lithium mining and development company, which seeks to commercialize the Sonora Lithium Project in Mexico and develop the next major lithium project in the country. The group is one of the few pure-play lithium development groups listed on the London Stock Exchange.

The company released an update on Sonora Lithium Project and Covid-19 which stated that whilst the continuous spread of Covid-19 has impacted Bacanora and its partners, it continues to progress all feasible workstreams. Also, Bacanora has a strong cash position of USD 45 million and is well placed to withstand the ongoing market fluctuations and persistent effects of the pandemic. On 7 August 2020, at GMT 12:43 PM, BCN shares were trading at GBX 22.50, up by 1.53 per cent against the previous day closing price.

  1. Savannah Resources Plc

Savannah Resources Plc (LON: SAV) is a United Kingdom domiciled mineral development and production company with major interests in power metals like Lithium and Copper. The company has mining and production operations of Lithium in Portugal by the name Mina do Barroso, which are the largest lithium spodumene deposits discovered so far in Europe. The company aims to become a prominent player in Europe's expanding lithium ion battery industry and make significant strides towards bringing a revolution in this space. On 7 August 2020, at GMT 12:41 PM, SAV shares were trading at GBX 2.26, down by 1.74 per cent against the previous day closing price.

  1. Kodal Minerals Plc

Kodal Minerals Plc (LON: KOD) is a mining and mineral development company domiciled in the United Kingdom, with major interests in lithium. The company’s flagship project the Bougouni Lithium Project in Southern Mali in west Africa is a world class project and produces lithium spodumene. The company has recently gained Environmental permit on the flagship project. The company also deals in Gold projects and is likely to reap benefits as the precious metal recently crossed US$ 2000 per ounce. On 7 August 2020, at GMT 12:40 PM+1, KOD shares were trading at GBX 0.05, up by 4.74 per cent against the previous day closing price.

The stock prices of these businesses have undergone steep price corrections during the unprecedented crisis. Investors looking to add a different dimension to their portfolio can add these stocks to their watchlist. However, it is important to understand the nature of business and associated risks.

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