In a sign of the strong fundamentals of lithium, a key electric vehicle (EV) battery metal, oil service giant Schlumberger Limited (NYSE: SLB) announced on March 18 that it plans to build a lithium extraction plant in Nevada. More specifically, the company plans to extract lithium from brine at its proposed Clayton Valley project site. Schlumberger hopes its plant can begin operating by the end of 2021.
The key read-through from this decision is that extremely well capitalized companies may be seeking to enter this space, potentially making junior miners like Lithium Americas Corp. (TSX: LAC) and American Lithium Corp. (TSXV: LI) acquisition candidates, particularly as they near the start of commercial production.
Stocks of Lithium Miners Have Dramatically Underperformed Over the Last Two Months
As investors have rotated to cyclical, “economy re-opening” stocks over the last two months, lithium junior mining stocks have performed extremely poorly over that period. For example, Lithium Americas and American Lithium have declined 39% and 31%, respectively, since February 8, 2021. Perhaps this underperformance, coupled with the Schlumberger announcement, creates attractive entry points for these stocks.
In the graph below, Lithium Americas, American Lithium, large-cap lithium miner Albemarle Corporation (NYSE: ALB), and the S&P 500 Index are presented in index form and in terms of common currency, where 100 is the uniform starting point. The S&P is essentially unchanged and Albemarle has declined about 11%. Both have significantly outpaced the smaller junior lithium miners.
Lithium Miners Seem Well Protected Regardless of Electric Vehicle Battery Chemistry
Per a recent tweet from CEO Elon Musk citing concerns about sourcing nickel, Tesla is shifting its standard-range car batteries to lithium iron phosphate (LFP) batteries from lithium-ion batteries. Lithium is a key component of both LFP and Li-ion cells, while nickel is used in the latter but not the former. As a result, lithium miners may in some sense be considered “more protected” from EV market conditions than nickel miners.
While the stock prices of lithium miners have corrected, the price of the underlying lithium commodity continues to increase. Battery-grade lithium-carbonate prices have more than doubled since the early fall of 2020.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.