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Lithium carbonate is the essential rare earth mineral that technology companies and automakers alike leverage to develop batteries. The major tailwind that pushed lithium prices to all-time highs in 2022 was a surge in demand for electric vehicles (EVs) as well as intense competition in that space. Unfortunately, overproduction coupled with an EV market amidst a slump have caused lithium prices to plummet to lows not seen since the latter half of 2021. However, there are still some undervalued lithium stocks to consider.
Like I have said numerous times in the past, investing into lithium stocks requires a long-term investment horizon, even more so nowadays. The publicly listed lithium businesses that have continued, in one way or another, to expand operations are a good place to start one’s search for good long-term lithium stock investment. If a lithium miner is placing more capital to improve capacity, then there is conviction in management’s mind that prices will eventually recover, and, of course, more production capabilities will better position a miner when prices do rebound.
With that said, below are three of the most undervalued lithium stocks.
Ganfeng Lithium (GNENF)
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Ganfeng Lithium (OTCMKTS:GNENF) is a China-based rare earth minerals miner that has heavily invested in lithium mining processes. The miner claims to be the largest producer of lithium in China and the third largest in the world. Moreover, Ganfeng Lithium operates three key business segments around the lucrative rare earth mineral: Lithium Metal and Compound, Lithium Battery and Lithium Ore Resource and Others. Lithium hydroxide and lithium carbonate are both battery grade forms of the rare earth mineral, and Ganfeng Lithium has decent exposure to both compositions. Outside of the “upstream” part of the business, Ganfeng Lithium has also invested heavily in lithium-ion battery research and development over the years, including development of solid-state batteries as well as new lithium iron phosphate battery technologies.
Despite a slowing lithium market, Ganfeng has continued to expand its lithium production capabilities. In May, the lithium miner and processor agreed to buy a 40% stake in Mali Lithium, which wholly owns the Goulamina project in the West African nation of Mali. This lithium project, in particular, is one of the largest in the world and will seriously increase Ganfeng’s future production capacity.
Trading at a valuation of just 18.1x forward earnings, Ganfeng Lithium looks like a good pick among undervalued lithium stocks. Especially as the company increases its position in the space, while other lithium producers have cut investments.
Sigma Lithium (SGML)
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Sigma Lithium (NASDAQ:SGML) is another player in the upstream portion of the lithium space. In particular, Sigma Lithium owns a 100% controlling stake in the Grota do Cirilo, Genipapo, Santa Clara, and São José mining projects. The Grota do Cirilo mine is the company’s largest project and most significant in terms of production capacity potential. According to the miner’s website, Phase 1 of the Grota do Cirilo project should produce 270,000 tons of 5.5% “green” lithium concentrate per year over the eight-year lifespan of the mine. Phases 2 and 3 will triple the miner’s production rate to 766,000 tons of the concentrate per year.
In early May, Sigma Lithium issued a press release wherein the miner stated the proven reserves of the Grota do Cirilo mine had boosted 40%, extending the overall mine life to 25 years. Another positive aspect about Sigma Lithium, the company has already begun shipping lithium and is generating a significant amount of revenue. Most recently, in the first quarter of fiscal year 2024, Sigma Lithium reported $32.2 million in revenue. During this period, the miner had produced 54,168 tons of lithium and shipped 52,857 tons.
SGML’s stock is trading at around 18.5x forward earnings. As production capacity increases and the lithium market rebounds, Sigma Lithium should be well-positioned to occupy a viable position in the market.
Lithium Americas (Argentina) (LAAC)
Source: Olivier Le Moal/ShutterStock.com
Lithium Americas (Argentina) (NYSE:LAAC) or simply “Lithium Argentina” was the Argentina-based business of Lithium Americas (NYSE:LAC). However, in October 2023, the miner decided to split up its North American and Argentine business in order to facilitate better investments and efficiencies for the respective assets in those regions. The Argentina business owns interests in the Cauchari-Olaroz project located in Jujuy province of Argentina. The lithium project is a joint venture with Ganfeng Lithium, which owns a 46.7% stake, while Lithium Argentina owns a slightly smaller 44.8% interest in the mine. On Lithium Argentina’s website, the Cauchari-Olaroz mining project is projected to have a capacity of 40,000 tons per annum in stage 1 and more than 60,000 tons per annum in stage 2.
Lithium Argentina has a couple of other projects that will expand its lithium production capacity in the next few years. There is another joint venture with Ganfeng Lithium called the “Sal de la Puna” project in which Lithium Argentina will own a majority 65% stake. This particular project is still in its “development plan” stage. The other project is wholly owned and is called “Pastos Grandes,” and Lithium Argentina expects to produce lithium chloride
While Lithium Argentina has not begun shipping yet, the Caucharí-Olaroz produced 4,500 tons of lithium carbonate in the first quarter of 2024. As these projects expand, LAAC could make a decent long-term investment.
On the date of publication, Tyrik Torres did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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