Using cordless power tools at the weekend, I was musing on how good lithium-ion batteries are. And with demand soaring as electric vehicle (EV) sales grow, it led me to thinking about investing in lithium shares.
I’m never early when it comes to technology stock booms though. That’s mainly because I always keep billionaire super-investor Warren Buffett’s thought in my mind to remain within my circle of competence.
And by the time I think I understand something well enough, everyone else is ahead of me and share prices have soared, a bit like Atlantic Lithium.
Atlantic Lithium is up around 160% over the past 12 months. But it had been sliding for a few years before that and has only gained 35% over five years. So maybe I haven’t missed its long-term prospects after all.
Or am a being a little cynical when I note that Atlantic Lithium shares started to take off right after the company changed its name from IronRidge Resources in November 2021? I take that as a caution that we might be in the midst of people buying anything that’s got anything to do with lithium.
New buying opportunities?
Not all lithium stocks are flying, mind. Zinnwald Lithium is down 50% since IPO in 2017. It’s now in penny share territory with a market-cap of just £36m. Zinnwald, incidentally, changed its name from Erris Resources in October 2020 after moving into lithium. Its share price did then pick up, but has since fallen back.
Alpha Lithium Corporation reached a peak in December 2021, but has declined since. It’s up a modest 16% over the past 12 months. Has the initial growth boom in lithium shares settled, and could we be in for a second wind?
I have to remind myself of Sirius Minerals. Sirius had a high-quality potash deposit, in great demand. It had plans to bring it to market and had a list of potential customers. But it wasn’t profitable. Sirius ran out of cash and was taken over. And I lost my investment.
The whole situation of in-demand commodity but no profits yet, does fit in today’s small-cap lithium diggers. So although I will steer clear of buying specific lithium shares directly, there are two other ways I can think for me to get involved.
Not just direct lithium shares
One is to buy shares in the big EV makers, Tesla and NIO. They will be making heavier investments in lithium to ensure their own supplies. Tesla has already said it’s interested in expanding into mining the metal. So shareholders should benefit from demand-led rises in lithium prices.
That would involve getting the valuation of those two right, which come with their own risks, of course.
The other way is to invest in more generalised miners that include lithium in their portfolios, like Rio Tinto. The lithium effect however would be significantly diluted. And some investors fear the commodities sector could be near a cyclical peak.
But these are the ways I’d look to invest in lithium shares. I just find miners with a single commodity and no profits too risky.