The greatest human minds are looking at ways to end our dependence on fossil fuels. And a crucial step to cut down on crude oil use is the switch to alternative fuels to power our automobile engines.
The push to develop and manufacture electronic vehicles (EVs) could help cut down our usage of combustion engines and replace power sources with cleaner alternatives. And lithium has taken centre stage as the main driver behind this EV revolution.
Lithium-ion batteries have been around for a while but the sudden surge in demand has made it a hot commodity. For the investment-savvy, this is an exciting time to explore lithium stocks. The soft metal holds the potential to become a strong, future-focused commodity.
What are lithium stocks?
Lithium stocks are listed companies that mine, refine, trade, or supply lithium to various industries. Although several tech-based firms are working on creating better battery technology, they cannot be classified as lithium shares as they do not produce or sell the soft metal.
Top UK lithium stocks
Here we will look at some of the biggest lithium shares listed on the London Stock Exchange (LSE). These companies hold huge reserves of the metal or refine ore to produce battery-grade lithium.
Although there are many small, promising projects listed in the UK, we will focus on the largest companies. These shares will serve as an introduction to the industry and help investors understand if it’s right for their portfolio.
| Company Name | Market Cap | Description |
|---|---|---|
| Rio Tinto (LSE:RIO) | £92.29bn | One of the largest mining companies in the world with a recent push towards lithium extraction. |
| Atlantic Lithium (LSE:ALL) | £323.59m | Has sizeable lithium resources in Africa and an indirect partnership with Tesla. |
| European Metals Holdings (LSE:EMH) | £129m | Company with a mission to supply lithium hydroxide to Europe’s EV battery gigafactories with ESG goals in mind. |
| Kodal Minerals (LSE:KOD) | £55m | Owns lithium reserves in Mali estimated at $1.4bn. |
Rio Tinto
The largest and most diversified miner on this list has some promising lithium projects in the pipeline. Rio Tinto (LSE:RIO) is very optimistic about the potential of the EV industry. It has acquired lithium-rich mines in Europe and South America over the last two years.
The company recently purchased the Rincon lithium project in Argentina for $825m. This move came after the Serbian government revoked Rio’s licence to run the Jadar mining project, citing environmental concerns. However, Rio remains optimistic that amendments can be made to make the project viable again. The Serbian mine has the capacity to produce 2.3m tonnes of lithium carbonate by 2040. This would make Rio one of the largest lithium producers in the world.
Given the company’s financial strength, the mining projects could start producing battery-grade lithium by 2024, making Rio a major supplier to European car factories. The company is also extracting lithium from century-old mining waste, which is much more sustainable than regular mining methods.
And Rio Tinto could effectively cut down European reliance on China and Australia for battery-grade lithium, making it a very important project for the near future.
Atlantic Lithium
Atlantic Lithium (LSE:ALL) is a lithium-focussed miner with huge holdings in West Africa, a region known for its rich mines. The company owns the Ewoyaa Lithium Project, which is projected to produce over 27m tonnes of high-quality lithium ore. The company expects to produce 1.4m-1.8m tonnes per annum over the next 8-10 years.
United States-based Piedmont Lithium invested US$102m into the project, which is expected to speed up production activity. With analysts expecting lithium prices to remain high over the next decade, this project could gain a lot of momentum.
The company’s 1,334 sq. km portfolio is strategically located in the Ivory Coast and Ghana, with established routes of trade to Europe. Although the project is new, the company is now well connected to American markets as well. This is a huge positive as most important electric vehicle developments originate there.
Although this penny lithium share is still pre-revenue in 2022, the company is making some solid moves to secure trade lines in promising regions. This has made it one of the largest listed lithium-focused shares in the UK right now.
European Metals Holdings
European Metals Holdings (LSE:EMH) is a Europe-focused exploration company with ambitions of establishing direct supply routes with European automobile giants. The Cinovec project that European Metal Holdings owns is the largest lithium resource in the region. The mine is located close to Germany’s automobile belt and other major battery manufacturers in Austria and Czech Republic.
According to a pre-feasibility study, the Cinovec site has the capacity to produce 25,267 tonnes per year of battery-grade lithium, and a mine life of 21 years. The total value of lithium reserves here is estimated at US$1.1bn.
Reports show that Europe is the second-biggest battery market in the world behind China. And demand in the region is set to increase at an annualised rate of 40% from 2020 to 2025. These are promising conditions for the company, which is planning to establish its first plant in late 2022 or early 2023.
Kodal Minerals
Kodal Minerals (LSE:KOD) owns and operates the promising Bougouni Lithium Project in Southern Mali. The company also owns the licence to six gold mines in West Africa, all in the exploration phase. It has the potential to become a diversified mining share, much like Rio Tinto.
The Bougouni Lithium Project has already attracted the attention of investors due to its long-term potential. The mine life of the project is estimated at 8.5 years.
The lithium penny stock’s share price has shown there is significant investor interest in the project. The project has received environmental clearance and could begin operations as early as 2024.
The UK’s lithium market
The supply and demand balance for this soft metal right now is very skewed. The rise in EV demand has forced European nations to look for lithium deposits in the region to sustain the industry. And the pioneer behind the popularity of EVs, Tesla CEO Elon Musk, has stated that lithium’s scarcity is one of the biggest roadblocks the automobile industry is facing.
In the automobile sector, the market share of EVs skyrocketed to 8.3% of all cars sold in 2021 from 2.5% in 2019. Current year-on-year sales growth is estimated at 108% and there are no signs of it slowing down. And the supply still has to increase at a compounded annual growth (CAGR) of 19% over the next six years to meet estimated lithium requirements in 2025.
Analysts from McKinsey & Company expect lithium carbonate demand to rise from 500,000 tonnes in 2021 to 4m tonnes in 2030. And an estimated 90% of lithium produced could go towards the manufacture of batteries by the end of this decade.
While miners scramble to secure existing reserves, there are promising mining companies listed in the UK that look like strong lithium shares to buy right now. While companies work to establish themselves in the supply chain, most lithium companies are still in their infancy. But, the potential of the industry is enormous. And even if the demand cools, it is undeniable that lithium-ion batteries will be a crucial component to meeting climate goals set during the COP 26 summit.
Are lithium stocks right for you?
The sudden jump in demand for lithium has shed light on several UK shares. However, most of them are still in their infancy and could take years to become profitable.
And the mining industry is fraught with difficulties. Any one of these projects could be hit with environmental sanctions or production difficulties that would strain share prices.
The EV market is here to stay and the high demand for lithium is expected to continue over the next decade. But investing in the budding lithium industry might not be for everyone. A lot of fundamental analysis should be done before any investment in lithium mining stocks today.
For more risk-averse investors, there are other areas within the electric vehicle market like battery manufacturers and R&D firms. Shares of automobile giants like Tesla and NIO give investors exposure to this rising industry and may be safer investments right now.
But given the demand for the soft metal, lithium shares might be worth exploring for future-focused portfolio builders looking for untapped and high-potential UK shares.