Lithium is a soft metal that is silver-white in color, and is also the lightest known metal. In scientific nature, lithium is generally found in compounds (in substances where it is associated with other elements). You can often discover it in sea water, that’s why shared way to extract it is from brines. The metal also occurs naturally in plants, animals and the human body. The usage is not just limited to batteries but extends to applications that depend on alloys with aluminum, copper and cadmium to yield strong, lightweight resources for various industries like aircraft industry, and also in ceramics and mirrors.
The Lithium prices that doubled over the last two years as there was a surge in demand for the battery raw material because of the growth in electric cars, were lately seen to be on a downtrend since beginning of 2018. The technology on the lithium side has otherwise been on a revolution and Lithium stocks were on traction.
Let us look at key Lithium stocks:
Trading at around $ 3.135 as at June 18, 2018, Galaxy Resources Limited (ASX: GXY) witnessed a stock price rise of 584% in last five years (as at June 15, 2018) with positive lithium scenario; but in last six months, the stock plunged by 13% with a 5% rise seen in last one month while the lithium demand improved a bit. On June 18, 2018, the stock was seen to fall about 3.4% as Red 5 Limited (ASX: RED), which owns the right to receive a royalty of $1.50 per tonne of ore processed from the GXY owned and operated Mt Cattlin mine, entered into an agreement for the sale of the Company’s royalty entitlement from the Mt Cattlin mine in Western Australia to Canadian royalty company, Lithium Royalty Corporation (LRC). On the other hand, GXY bagged a deal to sell SDV northern tenements to POSCO for US$280M. With the developments in hand, the average operating costs have gone slightly up and the internal rate of return seems to have been reduced a bit with changing lithium demand scenario. Nonetheless, Galaxy is marching ahead on group’s overall movements on lithium project and is advancing plans to develop the Sal de Vida lithium and potash brine project in Argentina situated in the lithium triangle. At the moment, GXY stock has a very high P/E of 8,125.000.
Orocobre Limited (ASX: ORE) is another Minerals exploration and production company with focus on developing Lithium/Potash resources in Argentina. ORE currently trades at a market price of $5.15. The stock has seen a performance change of 46.60% over the past 12 months. The P/E of the stock is around 42.130 and the EPS is currently at 0.121 AUD. The group lately provided a decent Cauchari Resource Upgrade.
Pilbara Minerals Limited (ASX: PLS) is currently trading at a market price of $0.902 and has seen a price change of 1.4% as at June 18, 2018. The group lately reported for substantial increase in both tonnage and grade to the JORC 2012 mineral resource for Pilbara’s 100% owned Pilgangoora Tantalum-Lithium project in WA. The new mineral resource will underpin a new ore reserve for Pilgangoora, scheduled for completion during the September Q18. With the news of the first shipment of Direct Shipping Ore (DSO) from its Pilgangoora Lithium-Tantalum Project in Western Australia, the group is again under investors’ radar given the positive cash flow generation scenario. As per group’s agreement with Atlas Iron Limited (ASX: AGO), the DSO has been shipped by the latter.
ROE for GXY, ORE, PLS (Source: Thomson Reuters)
Looking at the returns from the above equities, ROE becomes an important factor as the stocks become quality investment with better returns on equity that measure profits generated from the investments received from shareholders. In other words, how effectively the firm turns shareholder investment into profits is what ROE helps in and also reflects on management and how well it is run at the executive level.
Given that Australia is the world’ prime producer of spodumene concentrate, as lithium is being sourced mainly from hard-rock mining of spodumene deposits, and with the demand that is following; ASX listed Lithium stocks can see the light of the day once again while volatility prevails.