Lithium is an essential ingredient in the batteries that power today’s generation of electric vehicles (EVs). And as they increasingly replace those outdated gas-guzzling monsters, investors in lithium shares will surely do well, won’t they?
Ever stricter environmental regulations are raising the impetus for the sector. So while I’d invest with a long-term horizon, the profit potential could be tantalisingly close.
Today, I’m looking at a few lithium stocks, and thinking about how they’re performing and what their potential might be.
Share price reversal
Shares in Atlantic Lithium (LSE: ALL) soared in the early part of 2022. But since a peak in April, they’ve been sliding.
The company boasts impressive assets at its Ewooya lithium project in Ghana. In the company’s latest update on 19 July, interim CEO Lennard Kolff said: “We are pleased to report ongoing and significant high-grade pegmatite intervals over broad widths … giving us confidence to deliver future resource upgrades for the project.”
The big risk I see is the time it will take to generate profits. And, as with any company at this exploratory stage, we don’t yet know how much funding it will need to get all the way to profitability.
But the company appears to have reasonable cash-in-hand at the moment. And it’s currently seeking a listing on the ASX market in Australia.
No profits yet
As an example of how lithium shares can fall out of favour with investors, the Zinnwald Lithium share price has fallen more than 50% over the past 12 months. Zinnwald owns a lithium project in Germany, and is working “to deliver a bankable feasibility study“, according to CEO Anton du Plessis.
There’s a handful of other small lithium explorers all working towards profitability, including Bradda Head Lithium, which has assets in North America. These are mainly very small-cap companies though.
Is biggest best?
With any new expanding industry, these pioneering companies face significant risk. If I wanted in, I think I’d be more tempted to go for a major established miner, like Rio Tinto (LSE: RIO).
Its share price has been volatile too, losing 18% over the past 12 months. Rio Tinto doesn’t actually produce any lithium yet. But it’s working on a major project in Argentina, which should apparently produce long-term supplies of battery-grade lithium carbonate.
Yes, it’s another project that is not yet producing. But Rio has the financial muscle to see it through, and I reckon that reduces the risk significantly.
Oh, and the group makes nice profits. And it’s forecast to deliver a dividend yield of more than 10% in 2022.
What would I do?
I have little doubt that some lithium shares are likely to generate good returns for today’s investors. But at the same time, I have no idea which ones they’ll be. I much prefer established companies paying sustainable dividends, so I’ll stay out of speculative lithium explorers.
I do though still expect to see profitable progress in the sector over the next few years.