Is Lithium Really The New White Gold? An Investment Perspective

Lithium has been dubbed the "new white gold" due to its increasing importance in the global economy and its potential to revolutionize various industries, particularly electric vehicles (EVs) and renewable energy. This nickname stems from the article's assertion that lithium is poised to become a vital resource in the shift towards clean energy and sustainable technologies. But is this a fair assumption or just irrational exuberance? 

As a firm believer against making investment assumptions based on old and outgoing trends, I believe it can be inaccurate and risky. That is because it may not account for the dynamic nature of markets and the emergence of new, more influential trends. Rapid advancements in technology, for example EV’s, shifting consumer preferences, and evolving global economic and geopolitical landscapes can render previous trends obsolete or less relevant, just as Biden and the EU decided together to call timeout on Americans driving around in V8 gas guzzling cars. 

In order to make well-informed investment decisions, it is crucial for investors to stay updated with the latest market trends, identify potential disruptions, and adapt their strategies to capitalize on new growth prospects, rather than solely depending on historical patterns and outdated trends.

I asked Darren Collins, the CEO of the U.S. Critical Metals Corporation (OTCMKTS: USCMF) about the main drivers for the Lithium exploration his company undertakes in the U.S. and he explained: “As much as Americans and Europeans love buying EV’s, India, China and Japan are economic giants in their own right with greater desperation for clean air than us. By the time they start to adopt EV’s at our pace, the competition for Lithium could be so fierce which is why we have to move now to secure our own Lithium both at home and abroad”. 

The outdated perspective:

Gold: Historically, gold has been considered a safe-haven asset during economic downturns and periods of uncertainty. Its value tends to be less correlated with the stock market and other assets, which can make it a desirable addition to a diversified investment portfolio. During recessions, investors often flock to gold as a store of value, which can lead to an increase in its price. However, it was always crucial to consider factors such as market timing, inflation, and the opportunity cost of holding gold compared to other investments. Believe it or not, there was actually a war fought over gold: the second Boer war between the U.K. and Dutch settlers out in Africa. 

Lithium: Lithium is a key component in rechargeable batteries, which are used in electric vehicles (EVs), smartphones, and other electronics. The demand for lithium is expected to grow as the adoption of EVs and renewable energy technologies continues to increase. Investing in lithium during a recession might be seen as a speculative move, as its performance is more closely tied to the health of the broader economy and technological advancements. If economic conditions cause a slowdown in the adoption of EVs and renewable energy technologies, lithium demand may be negatively impacted. A look back in history, and it is not so clear if people fought wars over lithium. 

The modern day futuristic perspective:

Now let's start with Lithium: Lithium's primary use is in the manufacturing of rechargeable lithium-ion batteries, which power EVs, smartphones, laptops, and energy storage systems for solar and wind power. As the world accelerates its transition to a more sustainable future, the demand for lithium is expected to soar. Governments and corporations are investing heavily in EVs and renewable energy, further fueling the need for lithium. 

This growing demand, coupled with the finite supply of lithium, has led to a surge in its value, drawing parallels with the precious metal gold. Therefore, lithium's crucial role in the clean energy revolution and its increasing economic value have earned it the moniker of the "new white gold."

Today, more nations are calling Lithium a matter of national security, raising the specter of lithium wars. It was always debatable whether Lithium was a drawcard to Afghanistan where wars were fought, however a piece of thought leadership from MIT,  The Security-Sustainability Nexus: Lithium makes it abundantly clear that in the future, security could revolve around Lithium. 

On one hand, increased lithium demand has led to geopolitical competition over lithium-rich regions, raising concerns about supply chain vulnerabilities and the potential for resource conflicts. On the other hand, the global push for sustainable development and climate change mitigation presents opportunities for international cooperation, innovation, and the promotion of responsible resource extraction. Yet as we rush towards a multi-polar world and apparent deglobalization, too many nations including the U.S. and its adversaries,  consider it an issue of national security. The problem with that approach is another scary issue I will not venture into today - as Lithium wars are clearly a huge probability. 

As for Gold: Today, some would say that Warren Buffet does make a seemingly valid point when he prefers stocks over gold. Yet I would caution: while it may be tempting for some to dismiss gold's future potential, doing so could be unwise, given the possibility of gold-backed currencies re-emerging as a viable alternative in the global financial system. Such a development could increase gold's demand and value, emphasizing its enduring role as a store of wealth and hedge against economic uncertainty.

Now that we covered the shift which occurred in time for both these metals, I would like to turn to the question of how to invest in them. Although I have previously discussed the ways in which people invest in Gold, today I will dedicate to explaining common ways to invest in Lithium. 

Ways to invest in Lithium:

Investing in lithium can be achieved through various methods, catering to different risk profiles and investment strategies. One option is to invest directly in the physical commodity by purchasing lithium itself, which is typically available in the form of lithium carbonate or lithium hydroxide. This method offers a straightforward exposure to lithium prices but may involve storage, transportation, and insurance costs.

Another way to gain exposure to lithium is by investing in the shares of companies involved in lithium exploration and mining. This approach allows investors to capitalize on the growth potential of individual companies that may benefit from increased lithium demand. When investing in these companies, it's essential to research their financial health, management team, mining projects, and overall market prospects.

Some investors may choose to focus on junior exploration companies, which may offer higher growth potential but also carry higher risks due to the uncertainties surrounding the discovery of new lithium deposits and the feasibility of extraction. On the other hand, established mining companies that already have operational mines or proven reserves may provide a more stable, albeit potentially lower-return, investment opportunity.

In addition to investing in individual companies, investors can consider exchange-traded funds (ETFs) or mutual funds that focus on lithium or the broader battery materials sector. These funds offer a more diversified exposure to the lithium market, spreading the risk across multiple companies and projects.

Stocks with great Lithium exposure:

Although I could not state with great certainty which Lithium stocks will be the best, an interesting list of prospects turned up for closer analysis: 

US Critical Metals Corp. (USCMF) aims to secure the US supply of critical metals and rare earth elements, essential to the new age economy. American Lithium Corp. (LIACF) is a rapidly growing lithium exploration and development company focused on its TLC lithium project in Nevada, USA. Livent Corporation (LTHM) is a global lithium technology company that produces high-performance lithium compounds. Lithium Americas Corp. (LAC) is a resource company advancing lithium projects in the Americas, including the Cauchari-Olaroz lithium project in Argentina and the Thacker Pass lithium project in Nevada. Piedmont Lithium Inc. (PLL) is developing its 100% owned Piedmont Lithium Project in North Carolina to become a key domestic supplier of battery-grade lithium. E3 Metals Corp. (ETMC) is a lithium development company with its Alberta Petro-Lithium Project and proprietary Direct Lithium Extraction (DLE) technology. Albemarle Corporation (ALB) is a global specialty chemicals company and one of the world's largest lithium producers. Century Lithium (CTLY) is an emerging lithium company with an extensive portfolio of lithium projects in North America. Lastly, Noram Lithium (NRM) is a junior exploration company focused on lithium resource development, with its flagship project, Zeus, located in the lithium-rich Clayton Valley of Nevada.

Is Lithium currently offering a “buy the dip” opportunity?

This is one of those trick questions I get asked - because people wonder whether Lithium behaves like “Dr. Copper”. Well I’d be cautious in my response:

Firstly, there is a big chance that the most recent dip in the Lithium prices had to do with the long lockdowns in China and the way that impacted the ability of EV manufacturers to keep up with demand. 

Secondly, many predict that by 2025 there will be a huge demand problem for Lithium. 

Thirdly, I really think Tesla competitors are ready for the onslaught: VW, Toyota, BMW, Mercedes - these are all epic cult brands with a large following, which could drive adoption to levels unseen. Walmart has got their backs since it will take on Tesla in the space of fast charging too. Who knows what similar moves will occur in India and China, which is a logical next question to ask. 

Fourthly, we see overall shortages by region. Japan, a tiny nation with no access to Lithium resources, is dependent on their American and European partners. The EU, with 7% of global Lithium reserves faces opposition to mining, whereas China, which has another 7% of the global reserves, faces demand from both the local and international market. 

Although any commodity can become overbought, the drivers of Lithium are so astronomical on a global scale, that I would not be the first to say “all is not Lithium that glitters”. 

Conclusion:

The new ESG investment trends of our age would obviously favor Lithium over Gold, but that is not to say something dramatic, like gold backed digital currencies are out the question. Relying on outdated trends may indeed lead to misguided investment decisions, as it overlooks the potential impact of disruptive innovations, changing industry dynamics, and emerging market opportunities. I think when it comes to metals like Gold and Lithium, the future of our world is looking rather different than our past - especially for Lithium. That does make this an exciting space to watch, albeit with some concern over human greed and conflicts of interest as we all vie for the position of Lithium King.