The demand for lithium and, as such, the interest in it has exploded. As a result, the industry has been receiving significant cash inflows as the automotive industry races to meet electric vehicle (EV) demand and automotive producers look to capture market share.
However, a widespread misconception among investors and lithium is they believe the EV industry is the only use case for the commodity. And while EV batteries are the main driver of the volume today, the use of lithium goes far beyond just batteries.
So what exactly is lithium, and how is it used?
Lithium is a light metal. 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 use cases.
Many devices you use today, including your mobile phone, laptop, digital camera, electric vehicle, and even pacemakers and clocks, utilize lithium. For most of these, the use case will be through rechargeable batteries. However, glass, ceramics, and air conditioning use lithium oxide and chloride.
Australia, Chile, and China are the world's top 3 producers, and Chile presently holds the world's largest lithium reserves. In Canada, we're low on the scale, with only 2.5% of the world's total lithium reserves.
However, although headquartered here, many of the Canadian stocks on this list produce and explore lithium internationally. Low reserves here 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 by 2025, we will need anywhere from 502,000 to 1,300,000 million metric 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. They have already, although prices have been weaker over the last year.
Because of this, the stocks in the industry are becoming heavily sought after. Investors want exposure to this industry for a good reason, whether it is an established Canadian lithium miner, a pure-play exploration company, or even a lithium ETF.
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 Canadian investors seek 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 $27M. A few Canadian lithium stocks below are featured in the top 4 holdings.
Buying individual lithium companies, especially in 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 exchange-traded fund. 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 (TSLA) 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, 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 review some of the top Canadian lithium stocks on the Toronto Stock Exchange and the TSX Venture to take advantage of today's inevitable industry boom.
However, a caveat to this list is that you need a high-risk tolerance to invest in these companies. Even the most stable lithium miners will have significant volatility. You have to be prepared for large drawdowns and runups in price and be able to handle them emotionally. If you're prone to panic selling, the sector isn't for you.
A few notes with a recent update of this post. We've removed Millennial Lithium and Neo Lithium due to their recent acquisitions. Also, suppose you're looking for a US alternative. In that case, Albemarle (NYSE:ALB) is the world's largest lithium producer and operates the only active lithium mine in the United States.
So, what are the best 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)
Lithium Americas Corp is a mid-cap Canadian lithium stock primarily focused on exploration. As it stands today, the company owns three mines in Argentina -- a 45% stake in Cauchari-Olaroz, a 65% stake in Sal de la Puna, and complete ownership of Pastos Grandes. It also owns 100% of Thacker Pass, a mine located in the United States.
Prospective investors should note the company plans to separate its American and Argentinian assets into two different companies, with the split projected to be official sometime in October.
Let's look at the Argentinian assets first.
Cauchari-Olaroz achieved its first lithium production in June 2023 and is expected to be fully operational in mid-2024.
Its stage 1 production capacity should come in at 40,000 TPA (tonnes per annum), and costs are expected at under $3600 per ton. Additionally, the mine is expected to have a 40+ year lifecycle, and there is also potential to expand the mine, which the company is considering.
The mine has undergone some cost increases and is expected to cost more than initially planned. However, this is not unexpected for a company like Lithium Americas, mainly due to the COVID-19 pandemic. When this mine inevitably starts production, it is expected to generate significant cash flow.
Stage 2 production is expected to commence in 2023, which will only add to the production capacity of the mine.
Pastos Grandes and Sal de la Puna are still projects with solid growth potential. Still, investors shouldn't expect them to start producing anytime soon.
Turning to the American asset, the company's Thacker Pass mine, located in Nevada, is being developed in a safer mining jurisdiction and has large-scale potential. Thacker Pass is expected to enter production sometime around 2025 and is one of the most advanced lithium projects currently known to be in development in the USA.
Analysts estimate Lithium Americas will finally generate revenue in Fiscal 2023, with expectations of approximately $157M. In 2024, the company is expected to generate nearly $950M 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 history. So, take estimates with a grain of salt. However, if LAC can hit this guidance, its share price likely has a large upside.
Standard Lithium (TSE:SLI.V)
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. It is one of the largest lithium projects in the United States, with 4.335 million tonnes of lithium carbon equivalent, and because it is in a safe, low-cost mining jurisdiction.
It is critical to note that Arkansas also exposes the company to more robust infrastructure development, as roadways, rail systems, and more are already in place. Its Lanxess project is expected to have over 20,900 tonnes a year of production and a project life of 25 years. Although expected to have a shorter lifecycle of 20 years, its Southwest Arkansas project 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. This company will no doubt need to partner with strategic companies as it has done so with LANXESS and, more recently, Koch Industries, along with shareholder dilution. It has increased its total outstanding shares from just 53M in 2017 to over 172M in 2023.
Standard Lithium is an investment for those with a risk appetite, as there are many things that can go wrong. However, this company also has large-scale potential if it does hit its strategic targets.
Allkem Ltd (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 explores for and develops potash, salar minerals, and lithium.
Of its flagship assets, the company has 100% ownership in its Mt Cattlin mine in Western Australia and 66.5% in its Olaroz mine 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 expects 25 kilotons per annum to be generated from this phase 2 development at Olaroz.
In 2021, the company generated $108M in revenue. In 2022 this bumped to $973M due to the acquisition/merger, and Allkem managed to profit in Fiscal 2022. The company just finished its fiscal 2023, which saw revenue exceed $1.2B. So, as mentioned, this company is in a very different stage than many of the top Canadian lithium stocks on this list.
The company is also on the brink of making another major change, proposing a merger with Livent (NYSE:LTHM). This merger will give the company greater diversification across key lithium regions and a collection of Lithium processing plants, largely located in China. The proposed acquisition will also create some $120M in possible synergies by 2027. However, we should note this isn't a done deal yet, with shareholders from both companies needing to vote on the proposed deal.
Although the company is profitable, it doesn't currently pay a dividend.
Sigma Lithium (TSEV:SGML)
Sigma Lithium is another small-cap lithium exploration on this list that hasn't generated any revenue. The company is currently working on developing lithium deposits in Brazil, primarily through its wholly-owned asset Grota do Cirilo Project, which contains some of the world's largest hard rock lithium deposits.
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. They'd like to get to net zero by 2024.
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. It is projected to begin production in fiscal 2023, with a projection of 130,000 tonnes.
Although the company is expected to finally produce revenue in 2023, it is likely a long way away from profitability as it is still very early in its lifecycle as a lithium miner.
Not only is Sigma a global leader in lithium miners and ESG, but it is also a low-cost producer. Not very often can you mix low environmental impact but costs as well.
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 the end of the year, even ahead of the major lithium producer we spoke about above in Allkem.
We must take these targets and estimates with a grain of salt, as many things can go wrong, and production targets can undoubtedly be missed. But, if the company can hit targets, it is an appealing "buy and tuck away" option.
Frontier Lithium (TSEV:FL)
Frontier Lithium is a pre-production business that is hoping to become a manufacturer of battery-quality lithium salts. The company's primary investment pitch is that it will become a leader on the electric vehicle and battery supply chain fronts due to its high-grade assets.
This company is the smallest on this list, with a market capitalization of $259M and is virtually uncovered by analysts.
Two analysts currently cover the company, with an average price target of $4.63 per share. That's a massive 306% upside target. However, the opinion of just two pundits should be looked at with caution.
This is arguably the most high-risk and speculative company on this list, so considering this is essential. The company is only beginning its economic and environmental assessments, and in 2023 will start to seek out final permitting, metallurgical test work and feasibility to construct a mine in 2023.
An investment in Frontier Lithium right now is very much an investment in the company's target to create a mine-to-lithium hydroxide chemical plant facility in the Great Lakes Region of North America.
The project is expected to have a 24-year life and produce a 24% post-tax internal rate of return. If all goes well, commercial production is expected in 2026-2028. Suppose 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. In that case, Frontier might be worth a look.
There is no question that Frontier will continue to dilute shareholders with share offerings. Because it has no revenue and no plans to generate any for the foreseeable future, equity offerings are something investors in Frontier will have to live with. It'll also take a lot of capital to get the mine up and going. Management's current estimate is phase one alone will require $468M to be up and running.
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 something for everyone. There are revenue-producing lithium companies on this list and those that aren't expected to produce revenue or earnings for a long time.
Investing in lithium stocks is unlike investing in an established sector like Canadian telecom. You have companies at very different stages of lifecycles, and conducting a significant amount of due diligence before investing is essential.
Two companies, both of which are lithium miners, can have significant differences regarding risk. If you're risk-averse, there is likely too much volatility in the industry.
There have been many large-scale drawdowns, and there likely will be in the future. Suppose you're going to buy Canadian lithium stocks. In that case, you need to deploy a long-term mindset, as short-term price movements can be significant.