Investing in Lithium in Australia

Investing in lithium in Australia: Market overview

Lithium is found globally in hard-rock deposits, evaporated brines and clay deposits. Australia is known for its hard-rock, pegmatite-hosted lithium resources, which are largely located in Western Australia.

Hard-rock ore containing lithium is extracted at open-pit or underground mines using conventional mining techniques. The ore is then processed and concentrated using a variety of methods prior to direct use or further processing into lithium compounds.

Australia produced 55,000 tonnes of lithium in 2021. The country hosts the Greenbushes lithium asset, which is operated by Talison Lithium, a subsidiary jointly owned by Tianqi Lithium (SZSE:002466)-IGO (ASX:IGO) and Albemarle (NYSE:ALB). Greenbushes is the world’s largest hard-rock lithium mine.

Other operations in the country include the Mount Cattlin, Early Grey, Mount Marion and Bald Hill deposits, as well as other deposits with significant lithium resources.

In terms of reserves, Australia holds over 5.7 million tonnes of identified lithium reserves, according to the US Geological Survey, which puts it well behind Chile (9.2 million tonnes). It’s worth noting that most of the country’s lithium supply is exported to China as spodumene.

Lithium prices have increased significantly in recent years, with investor sentiment for lithium stocks picking up as well. Many analysts and market participants agree that the long-term fundamentals for lithium remain strong, with the EV revolution leading the way.

Benchmark Mineral Intelligence forecasts that lithium demand will reach 2.2 million tonnes by 2030, driven by growing EV adoption through the next decade.

Investing in lithium in Australia: Stocks on the ASX

With the lithium forecast looking bright, investing in lithium in Australia could lead to portfolio gains.

Investors interested in lithium stocks should keep an eye on companies listed on the Australian Securities Exchange (ASX). The Sydney-based stock exchange, which has a total market capitalization of about AU$1.6 trillion, has more than 2,000 stock listings.

When looking at investing in lithium in Australia, companies listed on the ASX are a good place to start learning about players in the space. Here’s a quick look at the five top lithium stocks on the ASX by market cap. Data for this list was gathered using TradingView on July 7, 2022.

1. Mineral Resources

Market cap: AU$8.7 billion

Mineral Resources (ASX:MIN) is a leading mining services provider, with a particular focus on the iron ore and hard-rock lithium sectors in Western Australia. Its current lithium projects include Mount Marion and Wodgina.

The Mount Marion lithium project, which is located in Kalgoorlie, Western Australia, is jointly owned by mining companies Mineral Resources and top lithium producer Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460). The asset was initially expected to produce 206,000 tonnes of spodumene concentrate per year, but an upgrade project completed in 2019 increased production to 450,000 tonnes of all-in 6 percent spodumene concentrate per year.

Thanks to the strength of the lithium market, Mineral Resources and its venture partner Albemarle (NYSE:ALB) are working to recommence production at Wodgina. The first spodumene concentrate is expected this month.

2. Pilbara Minerals

Market cap: AU$7 billion

Pilbara Minerals (ASX:PLS) owns 100 percent of the world-class Pilgangoora lithium-tantalum project, which the company says is one of the biggest new lithium ore (spodumene) deposits in the world, with a globally significant hard-rock spodumene resource.

The current mineral resource estimate for the asset comprises 157.5 million tonnes grading 1.19 percent lithium oxide, 120 parts per million tantalum pentoxide (tantalite) and 1.03 percent iron oxide.

In June 2022, the company announced a AU$297.5 million plan to increase production at the Pilgangoora project from around 580,000 to 680,000 tonnes per year.

Pilbara also owns 70 percent of the Mount Francisco joint venture, along with Atlas Iron.

3. Allkem

Market cap: AU$6.67 billion

Brisbane-based Allkem (ASX:ALK) is a global lithium chemicals company that was previously named Orocobre until November of 2021 when it merged with Galaxy Resources. The company currently owns seven projects across the world in Argentina, Australia, Canada and Japan.

During the company’s growth strategy presentation in April of this year, it announced its plans to triple production by 2026 and has a goal to maintain 10 percent of the global lithium production over the next decade.

4. AVZ Minerals

Market cap: AU$2.75 billion

AVZ Minerals (ASX:AVZ) is a mineral exploration company primarily focused on developing its Manono project in the Democratic Republic of Congo. Manono is located on potentially one of the largest deposits of lithium, cesium and tantalum pegmatite in the world.

A definitive feasibility study published in 2020 shows a 20 year mine life with an output rate of 700,000 tonnes per year of high-grade spodumene concentrate, and 45,375 tonnes per annum of primary lithium sulphate.

The company currently owns 75 percent of the project, while the remaining 25 percent was originally owned by Cominiere. However, recently, Cominiere sold 15 percent of its stake to Chinese mining company Zijin Mining's (HKEX:2899) subsidiary Jin Cheng Mining; AVZ asserts that it should have had the first choice to purchase that stake. Because of this, the two companies are currently in arbitration proceedings to argue whether or not the sale was valid.

5. Liontown Resources

Market cap: AU$2.24 billion

Liontown Resources (ASX:LTR) holds two lithium projects in Western Australia. The advanced-stage Kathleen Valley spodumene lithium project, expected to begin development in Q2 2024, has a 2021 mineral resource estimate of 156 million tonnes grading 1.4 percent lithium oxide and 130 parts per million tantalum pentoxide, with 80 percent of the resource in the measured and indicated category. In November of 2021, the company completed a definitive feasibility study on Kathleen Valley.

Liontown’s Buldania project has an initial mineral resource estimate of 15 million tonnes grading 1 percent lithium oxide.

In February of this year, Liontown entered a five-year agreement with Tesla (NASDAQ:TSLA) to supply the carmaker with lithium spodumene concentrate. The agreement is expected to commence in 2024. In the first year, Tesla will buy 100,000 tonnes, increasing to 150,000 tonnes in the following years.