The demand for lithium and the interest in lithium stocks has exploded. As a result, the industry has been on the receiving end of significant cash inflows as the automotive industry races to meet electric vehicle (EV) demand.
Lithium Batteries are the most used type of batteries for EVs and stationary energy storage facilities. According to Bloomberg, lithium demand is expected to reach more than 500,000 tonnes by 2025, up from 163,000 tonnes in 2015. That is a compound annual growth rate (CAGR) of approximately 21%.
This is notably the low-end of estimates as well. Canaccord estimates demand can hit 920,000 by 2025. This would imply a CAGR of 47% over the next 10 years. As you can see, there is a wide-range of estimates, but most of them make the situation for lithium stocks very profitable.
Although the demand for electric vehicles has taken center-stage, Lithium use in energy storage is expected to surpass EV use by 2030.
Lithium stocks haven’t performed well in 2018
However, it hasn’t been all roses as of late. Once one of the hottest industries, the lithium industry has crashed and burned thus far in 2018. The Global X Lithium & Battery Tech ETF (LIT) is largely considered the industry’s performance barometer. Year to date, LIT has lost approximately 20% of its value.
At the heart of the issue, the world’s second largest lithium producer Sociedad Quimica y Minera de Chile (SQM) received permission to triple production at its Chilean properties. The general fear was that it can quickly ramp up production, which would have a negative impact on current prices and could lead to oversupply.
The demand for lithium at the current time could push lithium stocks
The important fact to note, is that SQM cannot turn this production on overnight. In the meantime, there is tight supply. Lithium supply in 2017 was 236,000 tonnes while demand was 228,000 tonnes. At the rate demand is growing, current producers will have a hard time keeping up.
China has also entered the lithium market in a big way. In 2017, it sold 700,000 EVs, a 40% increase over 2016. According to the International Energy Agency (IEA), China represents over a quarter of the EV market and will own 40% of the market by 2040. As a result, it is making big investments and signing lithium offtake agreements at a rapid pace.
The recent downward pressure on lithium stocks has provided investors with a better entry point. With this in mind, here are the Top 5 Canadian Lithium stocks. The lithium market is tiny and there are not many producers. As a result, these are stocks that are listed on either the TSX or TSX Venture and have market capitalization greater than $100 million.
Of note, this is a highly speculative industry and investors should be prepared for significant volatility!
5) Neo Lithium Corp.
Neo Lithium is listed on the TSX Venture Exchange and is an early-stage lithium exploration and development company. It’s flagship property, the 3Q Lithium Brine Project is in the province of Catamarca, Argentina.
The 3Q mine is touted as being the lowest critical impurity brine project in the world. The plant is fully permitted and is expected to produce its first lithium carbonate in the fourth quarter of 2018. It is the fifth largest brine project in the world.
The company expects to begin construction in 2019 and anticipates the ramp-up time to be approximately three years. Full-production is not expected to commence until 2023. Make no mistake, this one would be a long-term play.
4) Millennial Lithium Corp.
Millennial Lithium is an exploration stage company and is also listed on the TSX Venture Exchange. The company’s flagship properties, the Pastos Grandes Project and the Cauchari East Project are located in Argentina.
As we move through this list, you’ll notice that most flagship properties are in this South American Country.
Both of its flagship properties are 100% owned by Millenial Lithium. Pastos Grades is considered to be an advanced stage project with an expected mine life of 25 years. Construction is expected to start in the third quarter of 2019.
As mentioned above, China has been making significant investments in the sector. Millennial Lithium has been on the receiving end of these fund inflows through China’s GCL group. As such, it is well capitalized to build out existing projects.
3) Lithium Americas Corp.
Lithium Americas is a mid-stage exploration and development mining company. It’s currently developing two flagship properties; the Cauchari-Olaroz, located in Argentina, and the Thacker Pass Project, located in Nevada.
The company formed a 50/50 joint venture (JV) with the world’s second largest lithium producer, Sociedad Quimica y Minera de Chile (SQM). The joint venture will help build and operate the Cauchari-Olaroz Project. This partnership increases the likelihood of the project’s success.
Initial production from Cauchari-Olaroz is expected by 2020 and the mine is projected to have a 40-year mine life.
Thacker Pass is not expected to enter production until 2022 and is projected to have a 46-year mine life.
2) Nemaska Lithium Inc.
Nemaska Lithium is an exploration and evaluation company with the bulk of its properties located in the Province of Quebec. Its flagship property is the Whabouchi mine, one of North America’s largest lithium deposits.
The Whabouchi mine is vertically integrated with the Electrochemical Plant in Shawinigan. As a result, it is expected to become one of the lowest cost lithium producing mines in the world. It is fully funded for the next year and is expected to enter commercial production of spodumene concentrate in the third quarter of 2019.
The company operates in Canada, which is a safe mining jurisdiction. This alone increases its attractiveness. Nemaska is backed by the Government of Quebec which owns 12.5% of the company. The Feds have also supported Nemaska’s projects and both levels of government have a vested interest in ensuring the company is successful.
1) Orocobre Limited
One of the largest Lithium companies on the TSX, Orocobre Limited is a late-stage development and one of the only true production companies on this list.
It has a market capitalization of $1.07 billion and the company’s flagship property, the Salar de Olaroz in Argentina, is a low-cost and high-margin mine. Orocobre also intends to complete its Olaroz expansion in 2019.
What is particularly exciting about the company is that one of the world’s leading automotive companies has taken an interest. Toyota Tsusho (TTC), the strategic arm of Toyata Motors recently took a 15% stake in the company.
Orocobre also has another exciting funded project in Japan in which it is partners with TTC. The company expects that the new 10,000 tpa lithium hydroxide plant is expected to go into operation by the end of 2019.