This article is for those investors wanting to invest in the lithium miners, but who cannot find a suitable ETF. Given the current lithium ETF is not ideal if you are targeting "lithium miners", I decided to write an article to help investors create their own lithium ETF by selecting 12 lithium stocks.
Global X Lithium ETF (NYSEARCA:LIT)
The current Global X Lithium ETF top ten holdings can be viewed below. As you can see the ETF has electric vehicle (EV) companies (Tesla (NASDAQ:TSLA)), battery companies (Samsung SDI (OTC:SSDIY), LG Chem (OTC:LGCLF), Panasonic (OTCPK:PCRFY)), and not one pure play lithium miner in the top ten holdings. The ETF is really more a play on the whole EV supply chain, rather than just the lithium miners. This is fine, however many of my readers have asked for a "lithium miner" ETF.
LIT ETF top ten holdings
My lithium ETF and top twelve lithium stocks
There are many ways investors can create their own lithium ETF. It can be weighted according to market cap, or just equal dollar amounts in each. I leave these decisions to you the investor. Personally, I see some sense in having equal amounts spread across your top twelve, then just being patient, and giving time for them to rise. It also removes the risk of betting on the wrong horse and missing the boom.
Below is a table with my top twelve lithium miners. I have put them in order of market cap, not my preference. For those interested in reading further, you can read my top 5 lithium miners here. It is mostly still applicable, despite some valuation changes.
My top twelve lithium miners to form a "lithium miner" ETF - arranged by market cap
|Stock||Current price||Stage||Market cap (US$)|
|Pilbara Minerals||AU$0.535||Near term producer (~late 2017)||507m|
|Nemaska Lithium||CA$1.28|| |
Near term producer (~2018/2019)
|Lithium Americas||CA$0.79||Near term producer (~2019)||179m|
|Altura Mining||AU$0.135||Near term producer (~late 2017)||125m|
|Lithium X||CA$2.30||Near term producer (~2019)|| |
|Critical Elements||CA$0.485|| |
Near term producer (~2019)
|Neo Lithium||CA$1.08|| |
Explorer, ~2020/2021 producer
NB: I left out the two large Chinese players (Tianqi Lithium (SHE:002466), Jiangxi Gangfeng Lithium (SHE:002460)), only because most Western investors cannot access them. One way to counter this can be to hold Neometals (NYSE:NMT) as it partners (13.8% share) with Gangfeng at the Mt Marion lithium mine. Also Albermarle partners (49% share) with Tianqi (51%) at the large Greenbushes mine.
NB: Market caps have not allowed for diluted number of shares.
The Big 3, is now really a Big 7
The so called big 3 (ALB, SQM, FMC) is no longer applicable as their share of global lithium production has dropped from 85% share in 2004 to 53% by 2014, and I expect it will decline further. The two Chinese lithium miners Tianqi and Gangfeng have joined the big 3, as have Orocobre and Galaxy Resources, making a big 7 for now. I expect by 2019 we may have a big 10 or 12, especially if lithium demand remains strong, as I expect.
Albemarle currently earn 17.7% of their revenues (and 27% of profits) from lithium, and they are growing this segment quickly. They own a 50% interest in the Salar de Atacama in Chile (with SQM), a 49% interest in Greenbushes in Western Australia (with Tianqi 51%), a 100% interest in Clayton Valley Nevada USA, and they have a large interest in Antofalla, Argentina. Albermarle is known in the lithium industry as a superpower. Their other revenues come from a wide variety of other chemicals (e.g.:bromine), petroleum refining, packaging, transportation, pharmaceuticals, and crop production. They recently sold their Chemetall surface treatment business. Whilst not a pure play lithium miner, they are the global leading lithium producer, and a must have in any lithium miner ETF.
Sociedad Quimica y Minera S.A. (NYSE:SQM)
SQM currently earn 53% of their profits from lithium. They partner (50% share) with Albermarle in the world's best lithium project, the Salar de Atacama, in Chile. SQM are still having some issues with the Chilean Government backed CORFO, but production is continuing, and slightly expanding. They are also developing the proposed 50ktpa Cauchari deposit in Argentina with 50% partner Lithium Americas. Outside of their lithium business, SQM has significant revenues from iodine and potash. Not as big as Albermarle in the lithium space but definitely a rising production profile, and hopefully their Chilean Government issues are soon finally put behind them.
FMC Corp (NYSE:FMC)
FMC currently earn 10.7% of their profits from lithium. FMC forecast their lithium segment earnings to grow by 40% in 2017, with a focus on downstream markets and lithium hydroxide (with a 4kt increase in hydroxide production). They forecast lithium earnings to grow from around US$65-69m (2016) to over US$ 90m in 2017. You can read here about FMCs agricultural, health, and nutrition business segments. I have included FMC as it appears their lithium profits will ramp up as a percentage of their total profits in the next few years; however I would also understand if some investors chose to leave them out. To me they are borderline if I am to include them or not.
Galaxy Resources (ASX:GXY) (OTCPK:GALXF)
Galaxy Resources earns 100% of its profits from lithium and is now the world's largest pure play lithium producer. They are a new producer, having re-started the Mt Cattlin lithium spodumene mine late in 2016. They also have the Sal de Vida lithium brine project in Argentina, and a lithium spodumene project in James Bay Canada. They are currently ramping up production at Mt Cattlin, and plan to produce from Sal De Vida by about 2019. Clearly a must have in any lithium miner ETF. You can read more on my latest article on Galaxy Resources here.
Orocobre (OTCPK:OROCF, ASX:ORE, TSX:ORL)
Orocobre earns 100% of its profits from lithium, and they became a new producer in 2015. Orocobre earns a 66.5% interest in their Olaroz brine lithium mine in Argentina. They are currently ramping up to 17,500 tpa, with a further 17,500 tpa expansion expected by 2019. They are also looking at building a hydroxide plant, as well as partnering with Advantage Lithium (NASDAQ:AAL) (OTCQB:AVLIF) to explore and develop their lithium exploration portfolio, including exploration in the Cauchari basin. You can read more on my latest article on Orocobre here.
Pilbara Minerals (ASX:PLS) (OTC:PILBF)
Pilbara Minerals own 100% of the huge Pilgangoora lithium spodumene project in Western Australia. They have completed their Definitive Feasibility Study (DFS), and most of their mine permitting. They are quite well funded, and are starting their Pilgangoora spodumene lithium mine construction in 2017, with a goal to be producing by late 2017. Their Pilgangoora project is now greatly de-risked as "over 100% of the projected lithium oxide production from Pilgangoora is already subject to either binding off-take agreements or Memorandums of Understanding with major off-take partners in China, Japan, the Americas and Europe. Pilbara plans to produce and sell 330kt pa spodumene starting early 2018, with a low cost of production estimated at US$ 205/t. You can read more on my latest article on Pilbara Minerals here.
Nemaska Lithium own 100% of the Whabouchi lithium spodumene project at James Bay, Quebec, Canada. They have completed some pilot pond and lithium production studies. They are working on an updated Feasibility Study and off-take partners (Johnson Matthey have some off-take) and mine financing. Nemaska is rare in that they have a proprietary process to produce lithium hydroxide and lithium carbonate using electrolysis with hydro-electricity as a low cost source. They forecast they will be producing around 30,000 tpa of lithium carbonate equivalent (LCE) by 2018 or 2019. You can read more on my latest article on Nemaska Lithium here.
Lithium Americas (TSX:LAC) (OTCQX:LACDF)
Lithium Americas own 50% of the their Cauchari-Olaroz lithium brine project in Argentina, with 50% partner SQM. They are currently working on their FS, financing, and some construction of long lead items. They plan to be in production by 2019 with the first stage of 25,000 tpa, expanding after about 2 years to 50ktpa. They are also advancing their Nevada lithium project and working on a PFS. You can read more on my latest article on Lithium Americas here.
Altura Mining (ASX:AJM) (OTC:ALTAF)
Altura Mining own 100% of their large Pilgangoora lithium spodumene project in Western Australia. They are at a similar stage (completed DFS, most permits completed) as Pilbara Minerals, and have a smaller yet still large project in the same Pilgangoora area of Western Australia. They have an equity partner in Shaanxi J&R Optimum Energy (one of China's leading battery producers), and off take agreements in place. They have AU$50m in cash and plan to start mine construction in 2017, with a goal to be finished by late 2017. They plan to produce around 150,000 tpa of spodumene in 2018, and will have a fairly low cost of production estimated at US$ 238/t. You can read more on my recent article on Altura Mining here.
Lithium X (TSXV:LIX) (ROCEF) (OTCQB:LIXXF)
Lithium X own 100% of the Sal de Los Angeles lithium brine project in Argentina. They are currently working on their PFS and pilot ponds, with plans to do their FS in Q1 2018, then full production of 15ktpa by Q2 2019. They also have their lithium brine Clayton Valley project in Nevada, USA, where they are still at the exploration and drilling stages. Paul Matysek is a director, ensuring Lithium X will progress. You can read more on my latest article on Lithium X here.
Two extras if you prefer your lithium ETF to stretch to 12
Critical Elements own 100% of the Rose tantalum-lithium spodumene project at James Bay, Quebec, Canada. They also have 10 other potential projects covering lithium, cobalt, nickel and copper. They are currently working on their FS, and pilot plant. Helm AG has agreed (subject to a positive FS) to take 100% off-take, and with an option to take a 25% equity stake. They plan to be in production by 2019 with 26,606 tpa of LCE. You can read more on my latest article on Critical Elements here.
Neo Lithium is a relatively newcomer having floated on July 20, 2016 at CAD 1.20 per share. They own 100% of the Tres Quebradas (the "3Q Project") lithium brine project in Argentina. They are in the advanced exploration stage, and according to the company they have "the highest lithium grades of any project in Argentina." Another plus is very low impurity levels, meaning they should have a very low cost of production. The company is currently still drilling and plans a 43-101 resource announcement in H1 2017, and a Preliminary Economic Assessment (PEA) in H1 2018. They are fully funded to lithium carbonate PEA report, with strong cash levels, and insider and institutional ownership. My estimate is they will be a producer by around 2020. You can read more on my latest article on Neo Lithium here.
Lithium road to production graph (not a complete list)
Source: Sayona Mining presentation page 6
Risks to the above lithium miner ETF
- Lithium price falls back sharply due to oversupply. Unlikely for some time as demand is rising faster than supply.
- Lithium replaced by other chemistries. Unlikely, as no other technology is as compelling as lithium. Plus, lithium itself is only 2-5% of the cost of manufacturing lithium batteries. You can view the battery cost breakup here.
- EV adoption to stop or slow considerably. Possible, but unlikely as lithium battery and EV prices are dropping.
- Sovereign risk - Some lithium mines are located in Chile and Argentina.
- Liquidity risk - Better to buy on local exchanges.
Creating a lithium miners ETF has several advantages. The largest is that it lessons risks such as stock selection risk, and many of the risks mentioned in the risk section above are lessoned. Equally as important, it removes the risk of missing out on the lithium boom, and makes sure that you can capture most of the upside. It can also suit investors that are not interested to spend the time researching the industry.
In creating a lithium miner ETF I have chosen to limit risk by choosing the major producers, and near term producers and limiting the explorers. No doubt companies such as Mineral Resources (ASX:MIN), Neometals, Bacanora Minerals (OTC:BCRMF) (TSXV:BCN), Pure Energy (OTCQB:PEMIF, CVE:PE), European Metals (OTCPK:MNTCF, ASX:EMH, AIM:EMH), Crystal Peak Minerals (TVXV:CPM) (OTCQX:CPMMF), Kidman Resources (ASX:KDR), International Lithium Corp (TSXV:ILC), Sayona Mining (NYSE:SYA), and many others are knocking at the door and may one day make the list.
I have included 5 current lithium producers (excluding Tianqi and Gangfeng), 6 near term (by 2019) producers, and one explorer. No doubt we can debate as to the perfect composition of such an ETF, but for those wanting a broad based lithium miner exposure I think it is a great way to get it, and certainly much more targeted than the existing LIT ETF.
Disclaimer: The information in this article is general in nature and should not be relied upon as personal financial advice.
Disclosure: I am/we are long ALB, OROCOBRE (ASX:ORE), GALAXY RESOURCES (ASX:GXY), PILBARA MINERALS (ASX:PLS), LITHIUM AMERICAS (TSX:LAC), LITHIUM X (TSXV:LIX), ALTURA MINING (ASX:AJM), CRITICAL ELEMENTS (TSXV:CRE), CRYSTAL PEAK MINERALS (TVXV:CPM) (OTCQX:CPMMF), INTERNATIONAL LITHIUM CORP (TSXV:ILC), SAYONA MINING (ASX:SYA), NEO LITHIUM CORP (TSXV:NLC), CRYSTAL PEAK MINERALS (TSX:CPM).
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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