If you get the investment advice: “Consider investing in metals,” lithium isn’t going to be the first name that pops up in your head. It might not even be the fourth one.
Precious metals are the first that come to mind, primarily gold and silver (sometimes platinum). Steel is another conclusion you might jump to before thinking of lithium.
But even if it’s not your first choice, lithium should be considered, and not just to gain exposure to metals. The best lithium stocks in Canada can be a great way to diversify your portfolio.
Lithium As An Investment
The most common use of lithium is in rechargeable batteries, which has made it one of the most coveted metals in today’s electronics-focused world. Almost all the batteries used in electronic devices, like cellphones, laptops, tablets, etc., are lithium-ion.
And since they are lightweight and offer the best energy density, most electric vehicles (EVs) around the globe use lithium-ion batteries. And the final and even more impressive presence of EVs is in the power grid.
Renewable energy sources like solar and wind need to use batteries to ensure that steady power is delivered to the end-user. The grid was about 85.6% lithium-ion batteries in 2015, which grew to about 90% in 2019.
The latest numbers aren’t in yet, but it’s expected that over 90% of the global grid batter market is controlled by lithium-ion batteries.
From an investment perspective, lithium is a metal-based commodity, and its price grew about 323% between 2020 and 2021. And since both the EV market and the renewable market are far away from saturation, lithium’s demand might keep growing.
Best Lithium Stocks In Canada
There are a decent number of lithium stocks in Canada, and the pool gets even bigger if you start adding US-based securities into the mix as well, which I’ve done below:
1. Allkem Limited
Allkem Limited was formed from the merger of Galaxy Resources and Orocobre Ltd. With the new merger in place, expansion of market share and growth is expected as well.
Allkem has lithium operations in Argentina, Australia, and Japan. There is also active development underway in both Argentina and Canada.
2. Lithium Americas Stock (TSX)
Lithium Americas focuses on Argentina and the US, two of the most lithium-rich countries in the world. The company prides itself on its low-cost production, about $4,000 per ton. At the most recent price, that’s less than one-sixth of the current lithium price.
Both of the company’s mining projects have decent reserves and relatively long lives (40 and 46 years, respectively), and its US-based project is significantly larger compared to the Argentina project.
This makes it an ideal supplier to secure lithium contracts from a company like Tesla, which is expected to become one of the largest buyers of this metal (apart from China).
3. Standard Lithium Stock (TSXV)
Standard Lithium is a purely US-focused company. It has two operations, one in the state of California, other in Arkansas.
The company has a competitive edge (despite its relatively smaller size) when it comes to lithium production in the US. It includes its chrematistic Direct Lithium Extraction (DLE) technology, which allows it to tap into the power of lithium-rich brine.
For its California location, the company doesn’t extract the brine (to refine for lithium extraction) itself but has options contract with the two companies operating in the region, which gives it access to plenty of raw material.
The process cycle of producing battery-grade lithium is surprisingly short (eight hours).
4. Sigma Lithium Stock (TSXV)
Sigma Lithium is a relatively new player. It’s headquartered in Vancouver and has operations in Brazil. It owns the right to mine from the largest hard rock lithium deposits in the Americas, and despite its focus on the ESG profile of its mining operations, the company is a very low-cost lithium producer.
All of the electricity used in its mining operations comes from hydropower, and it has its eyes set on net zero emissions by 2023.
It offers highly competitive FOB and CIF costs to China, which is by far the largest global buyer of lithium right now, making it an attractive company for future and long-term contracts. This might reflect in revenues and in increased investor attraction.
5. Critical Elements Lithium Stock (TSXV)
This small venture capital stock potentially made its investors quite rich two times in the last seven years. The stock rose by over 1,100% between Jan 2016 and Oct 2017. And again, over 640% between May 2020 and Nov 2021.
It’s well-tuned to demand spikes of the metal, and the stock is moving almost in conjunction with them. It has about eight projects in Quebec, making it a home-based lithium producer.
There are two international lithium companies (listed in the US) that you should also consider investing in.
6. Albemarle Corporation Stock (NYSE:ALB)
- Ticker: ALB
- Forward Dividend Yield: 0.59%
- Dividend Payout Ratio: 11.94%
- Dividend Yield (12-Month Trailing): 0.57%
- Upcoming Dividend Date: Jan 03, 2023
- Market Cap: $33.00 Billion
- Forward P/E Ratio: 9.93
- Average Analyst Rating: 2.4 - Buy
It’s one of the five largest lithium-producing companies around the globe, though it’s relatively small compared to its Chinese counterparts. The company has been around for over a century, and it’s technically a chemical company.
It focuses on three business segments: Lithium, bromine, and catalyst solutions. About 40% of the company’s net sales come from lithium.
7. Sociedad Química Y Minera Stock (NYSE:SQM)
- Ticker: SQM
- 5-Year CAGR: 21.9%
- Forward Dividend Yield: 8.59%
- Dividend Payout Ratio: 57.04%
- Dividend Yield (12-Month Trailing): 5.04%
- Upcoming Dividend Date: Dec 27, 2022
- Market Cap: $27.02 Billion
- Forward P/E Ratio: 7.01
- Average Analyst Rating: 2.5 - Buy
This is another of the five largest lithium producers in the world. It’s a Chilean company that’s cross-listed in the US. It also has other focuses beyond Lithium (despite being from one of the most lithium-rich countries in the world), but its market value is more in accordance with the TSX lithium stocks.
8. Neo Lithium Stock (TSXV) – ACQUIRED
- Note that Neo has been acquired by Zijin Mining Group, so is no longer trading on the TSX
Neo Lithium’s Argentina-based 3Q project is considered one of the best lithium assets in the world based on a number of factors, including one of the lowest impurity counts (Sulfate and Magnesium) around the globe.
The identified reserves are 4 million metric tonnes, and inferred resources push the count even higher.
It’s the third-highest grade project worldwide, and that’s its chief selling point. But, considering the company is still developing its resources (including brine ponds), it might become a financial liability if lithium demand slumps.
9. Millennial Lithium Stock (TSXV) – ACQUIRED
- Note that Millennial Lithium Corp has been acquired by Lithium Americas Corp (which is above on the list) and is no longer trading on the TSX
Millennial Lithium is another Canadian Lithium company with operations in the so-called “Lithium Triangle” in Argentina, the same region Neo Lithium operates in.
The company controls a decent piece of land in the triangle (20,000 hectares). One of its projects is expected to come online and start producing lithium in two years, while the other one might take more time.
This makes the stock more at the mercy of demand declines (if there are any) and even demand-supply saturation.
That’s because investors are more likely to lean towards companies that are already producing lithium and have active contracts rather than prospects. It might still be a good investment if it becomes underpriced.
Micro-Cap and Nano-Cap Lithium Stocks to Consider
If you have an adequate risk tolerance, there are a few micro-cap and nano-cap stocks you might consider keeping an eye on.
|Argentina Lithium & Energy||TSXV||LIT|
|QMC Quantum Minerals||TSXV||QMC|
Is There Any Lithium In Canada?
Yes. A lot of it, actually. Canada is home to about 4% of the world’s known lithium reserves, and the country has cracked the top six. While many Canada-based lithium companies have mines in foreign countries, the home-based untapped reserves can give the country a major advantage in the still-growing EV market.
Is Lithium A Good Investment?
The answer is a bit more complicated than a simple surge in supply and Lithium’s potential importance in a “greener” world. According to SPB Global, companies around the world acquired (collectively) around 6.8 million tonnes of lithium in 2020.
This number is much higher than the demand projections (per year) for as far as 2020, but it’s a good baseline. Chinese companies alone acquired about 6.4 million tonnes in 2021 (so far). That’s about 7.4% of the total known reserves of lithium (about 86 million tonnes).
And that’s just the reserves. The developed mines and the total output is significantly lesser. That makes lithium a great investment with aggressively growing demand and relatively limited supply.
But there is a flip side to it as well. Some projections indicate that supply can outpace demand by as soon as 2025. And that’s with the known reserves.
If more dark horses like Afghanistan, which is rumoured to have enough lithium reserves to put it among the top-three most lithium-rich countries in the world, enter the race, the price of the metal might take a serious plunge before normalizing to match the demand.
A technological upheaval, like a breakthrough in lithium-ion alternatives, can also cause the global lithium demand to plunge. This can potentially have many disastrous consequences for lithium as an investment asset, then a supply glut.
In conclusion, lithium is potentially a good investment for now, but like many other investments, it has its risk.
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Lithium is a sought-after asset right now, and the chances of its demand going down anytime soon seem quite slim.
However, a market flooded with too much lithium or a better alternative emerging to capture the battery market can cause the lithium market to drop precipitously.
Keep the strengths and weaknesses of the underlying asset and the commodity market in mind before making an investment in any of the best lithium stocks in Canada.
Don’t want to pick your own lithium stocks? Consider buying lithium ETFs instead.