The Top Canadian Lithium Stocks to Buy in May 2022

Posted on May 13, 2022 by Mathieu Litalien

The demand for lithium and as such the interest in the top Canadian 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.

However, a very common misconception with investors and lithium is they believe the EV industry is its only use case. And while EV batteries are a main driver of the volume today, lithium has many other uses.

So what exactly is lithium and how is it used?

Lithium is a light metal. In fact, it is both the metal and solid element with the least density. It was discovered in the late 1700s and is quickly being adopted for many uses cases.

Many of the devices you use today including your mobile phone, laptop, digital camera, electric vehicle, and even things like pacemakers and clocks utilize lithium. Now for most all of these, the use case will be through rechargeable batteries. However, lithium oxide and chloride are used in things like glass, ceramics, and even air conditioning.

As of right now Australia, Chile, and China are the world's top 3 producers of lithium and Chile currently holds the world's largest lithium reserves. In terms of Canada, we're fairly low on the scale, coming in with only 2.5% of the world's total lithium reserves.

However, many of the Canadian stocks on this list, although headquartered here, produce and explore for lithium internationally. So, low reserves here really aren't an issue if you're considering investing in lithium stocks.

Why electric vehicles have sent lithium's demand soaring

Lithium-ion batteries are the most-used type of batteries for EVs and stationary energy storage facilities. The estimates vary wildly, but it is expected by 2025 we will need anywhere from 502,000 to 1,300,000 million tons of lithium.

With more and more people adopting electric vehicles and other electronics post-pandemic, I'd be betting on the larger end of estimates. And with that, lithium prices are no doubt set to rise. In fact, they are already.

Because of this, the stocks in the industry are becoming heavily sought after. Whether it is an established Canadian lithium miner, a pure-play exploration company, or even a lithium ETF, investors want exposure to this industry, and for good reason.

Although the demand for electric vehicles has taken center stage, Lithium use in energy storage is expected to surpass EV use by 2030.

What about a lithium ETF?

If you're looking for a top lithium ETF, you are in luck. In early 2021, Horizons developed its Global Lithium Producers Index ETF, trading under the ticker HLIT.

At the time of writing, the fund has assets under management of just over $28M, and a few of the Canadian lithium stocks below are featured in the top 4 holdings.

Buying individual lithium companies, especially when they are at their early stages of production or exploration, brings on significant risk. So, it may make sense for investors to "buy the whole industry" with a producer ETF. If one company struggles, it likely won't impact the fund as much as if an investor held the individual equity.

The demand for lithium at the current time could push lithium companies

There is a specific subset of companies that many investors don't think of that are going to benefit from the increase in battery demand due to EV adoption. Sure, a company like Tesla and the inevitable follow up of many other major auto producers will churn out more revenue from EV sales. But ultimately, we need to get this stuff out of the ground first.

And with that, lithium mining, particularly companies that deal with the exploration of lithium properties, lithium extraction, and the sale of lithium, are expected to benefit significantly from the increase in lithium's demand. And, most of these companies look to the stock market to raise funding and continue exploration efforts.

So, let's go over some of the top Canadian lithium stocks to take advantage of the inevitable industry boom today.

A caveat to this list, however, is the fact that you need a high risk tolerance to invest in these companies. Even the most stable lithium miners will have significant volatility, and you have to be prepared for large drawdowns and runups in price and have to be able to handle them emotionally. If you're prone to panic selling, it's likely the sector isn't for you.

So what are the top lithium stocks to buy in Canada?

  • Lithium Americas Corp (TSE:LAC)
  • Standard Lithium (TSE:SLI.V)
  • Allkem Ltd (TSE:AKE)
  • Sigma Lithium (TSEV:SGML)
  • Frontier Lithium (TSEV:FL.V)

Lithium Americas Corp (TSE:LAC)

TSE:LAC Lithium Americas

Lithium Americas Corp is a mid-cap Canadian lithium stock that is primarily focused on exploration at this point. The company has no revenue generation at the time of writing and is instead focusing on the road to production across 3 primary facilities, being its Cauchari-Olaroz and Pastos Grandes mines in Argentina, and Thacker Pass in the United States.

Commissioning on its Cauchari-Olarz mine is expected to start in the second quarter of 2022 and its stage 1 production capacity should come in at 40,000 TPA (tonnes per annum) and costs are expected to come in at under $3600 per ton. To add to this, the mine is expected to have a 40+ year lifecycle.

The mine has underwent some cost increases and is expected to cost more than originally planned, but this is not unexpected when it comes to a company like Lithium Americas, especially due to the COVID-19 pandemic. When this mine inevitably starts production, it is expected to generate a significant amount of cash flow.

Stage 2 production is expected to commence in late 2022/early 2023, which will only add to the production capacity of the mine.

The company's Thacker Pass mine located in Nevada is not only being developed in a safer mining jurisdiction but has large-scale potential as well. Early-stage construction on Thacker Pass is expected to start in late 2022 and is one of the most advanced lithium projects currently known to be in development in the USA.

Analysts estimate Lithium Americas will finally start generating revenue in Fiscal 2022, with expectations of $78.68M. In 2023, the company is expected to generate nearly $400M in revenue and post a profitable year. This is some large scale growth, and lofty expectations.

Keep in mind, with exploration and new production companies, analysts don't have much to go off of in terms of past history. So, take estimates with a grain of salt. However, if LAC can hit this guidance, there is likely some large upside in its share price.

Standard Lithium (TSE:SLI.V)

Standard Lithium Stock

Standard Lithium is a small-cap Canadian lithium stock that is still in the pre-revenue phases of a typical exploration company. The company's main target is the continued exploration and development of its Arkansas Lithium Project. Which, as you can probably tell by the name, is located in Arkansas.

The company does have some other projects on the go, however, including the Lanxess, Tetra, and Bristol Dry Lake projects. The company's exposure in Arkansas is critical, not only as it is one of the largest lithium projects in the United States with 4.335 million tonnes of lithium carbon equivalent, but because it is in a safe, low-cost mining jurisdiction.

It is key to note that Arkansas also exposes the company to more robust infrastructure development, as there is already roadways, rail systems, and more in place. Its Lanxess project is expected to have over 20,900 tonnes a year of production and a project life of 25 years. Its Southwest Arkensas project, although expected to have a shorter lifecycle of 20 years, should be able to produce over 30,000 tonnes a year.

This is a company that is very much in the early development stages. Analysts have no expectations for revenue for the foreseeable future, and this company will no doubt need to partner with strategic companies as it has done so with LANXESS, along with shareholder dilution. In fact, it has increased its total shares outstanding from just 53M in 2017 to over 122M in 2022.

Standard Lithium is very much an investment for those who have an appetite for risk, as there are a lot of things that can go wrong. However, there is also large-scale potential in this company if it does hit its strategic targets.

Allkem Ltd (TSE:AKE)

Allkem Stock TSE:AKE

In late 2021, Orocobre and Galaxy, two popular Australian miners, merged and started trading under the ticker AKE on the Australian stock exchange.

The company is different than most on this list for a few reasons. For one, it is not a pure-play lithium company. The company actually explores for and develops potash, salar minerals, and lithium.

Of its flagship assets, the company has 100% ownership in its Mt Cattlin mine which is located in Western Australia, and 66.5% ownership in its Olaroz mine which is located in the Jujuy Province of Argentina.

Its Mt Cattlin mine is used to mine Spodumene concentrate, while its Olaroz mine produces Lithium Carbonate. The company is currently undergoing an expansion project at its Olaroz mine and first production is expected to come in the back half of 2022. The company is expecting 25 kilotons per annum to be generated from this phase 2 development.

In 2021, the company generated $192.3M in revenue. This is up significantly from the $35.9M generated in Fiscal 2020 as a result of the merger and Allkem actually managed to turn a profit in Fiscal 2021. So as mentioned, this company is in a very different stage than many of the top Canadian lithium stocks on this list.

The company has a strong cash balance of $449.8M USD at the time of writing and it continues to strengthen its balance sheet which should bode well considering the booming price of lithium and inevitable expansion.

In terms of estimates, there is not much data on Allkem right now on the North American exchanges. This is very likely due to it being a relatively new ticker and a recent merger, and we'll be sure to provide estimates when they are issued.

Sigma Lithium (TSEV:SGML)

Sigma lithium

Sigma Lithium is another small-cap lithium exploration on this list that hasn't generated any revenue to date. The company is currently working on developing the largest hard rock lithium deposits in Brazil, primarily through its wholly-owned asset Grota do Cirilo Project. 

The project is expected to be fully powered by clean and renewable energy. So, for environmentally friendly investors, Sigma might be a company you want to look into.

The company is dual listed, trading on both the TSX Venture and the NASDAQ under the ticker SGML.

The company has lofty plans to produce the largest mine and lithium concentration project in the Americas, with 460,000 tonnes a year of battery-grade lithium concentrate mined.

With commissioning set on the project for the latter half of 2022, analysts finally expect Sigma to post revenue in this current fiscal year. However, this is a company that is very likely a long ways away from profitability as it is still very early in its lifecycle as a lithium miner.

Not only is Sigma a global leader when it comes to lithium miners and ESG, but it is also a low-cost producer. Not very often can you mix together low environmental impact, but costs as well.

As of right now, there isn't much to go off of in terms of valuation for Sigma, and we'd view it as a highly speculative play. However, the company has lofty expectations to become the fourth largest lithium producer in the world by 2023, even ahead of the major lithium producer we spoke about above in Allkem.

It's important we take these targets and estimates with a grain of salt, as many things can go wrong and production targets can certainly be missed. But, if the company can hit targets, it certainly makes it an appealing "buy and tuck away" option.

Frontier Lithium (TSEV:FL)

Frontier Lithium Stock

Frontier Lithium is a pre-production business that is hoping to become a manufacturer of battery-quality lithium salts. In fact, the company's main investment pitch is that it will become a leader on the electric vehicle and battery supply chain fronts.

This company is the smallest on this list, with a market cap of $670M and is virtually uncovered by analysts. There is one analyst which has placed a price target of $4 on the company, which would signal around 25% upside at the time of writing, however, the opinion of one pundit should be looked at with caution.

This is arguably the most high-risk and speculative company on this list, so it's important to take this into consideration. The company is only just beginning its economic and environmental assessments, and in 2023 will begin to seek out final permitting, metallurgical test work and feasibility to construct a mine in 2023.

So, an investment in Frontier Lithium right now is very much an investment in the company's targets to create a mine-to-lithium hydroxide chemical plant facility in the Great Lakes Region of North America. The project is expected to have 26-year life and produce $225M in annual EBITDA. If all goes well, commercial production is expected in 2026-2028. If you believe in management's ability to take one of the highest-grade, largest tonnage hard-rock lithium resources and turn it into a cash-producing asset, Frontier might be worth a look.

There is no question Frontier will continue to dilute shareholders with share offerings. Because it has no revenue and has no plans to generate any for the foreseeable future, equity offerings are something investors in Frontier will have to live with. And along with that, significant volatility.

An investment in Frontier is not for the faint of heart, and its asset base should be investigated and scrutinized extensively by any investor looking to take a position.

Overall, there is a variety of top lithium stocks on this list

When we made this list, we aimed to provide a little bit of something for everyone. There is revenue producing lithium companies on this list, along with those that aren't expected to produce revenue for a long time.

Investing in lithium stocks is not like investing in an established sector like the Canadian telecom sector. You have companies at very different stages of lifecycles, and it's very important to conduct a significant amount of due diligence prior to investing. 

Two companies, both of which are lithium miners, can have significant differences when it comes to risk. If you're risk-averse at all, there is likely too much volatility in the industry at this moment for you.

There have been many large-scale drawdowns in the past, and there likely will be in the future. If you're going to buy Canadian lithium stocks, you need to deploy a long-term mindset, as short term price movements can be significant.

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post.

Mathieu Litalien

About the author

Mathieu is an individual investor and has been investing part-time for the better part of the past 20 years. He is primarily interested in fundamental analysis, focusing on the long-term and his portfolio is composed primarily of dividend-paying equities. Mathieu has a moderate risk profile and also looks for growth and value. His passion for finance and the markets have led him to his MBA and writing for Seeking Alpha and Stocktrades. Mathieu also focuses primarily on stock research and content production for Stocktrades.ca Premium and the Stocktrades blog.