This article was updated on Jan. 12, 2018, and originally published on Oct. 14, 2016.
Lithium stocks, particularly lithium mining stocks, have soared along with the price of the metal since early 2016 due to rising demand for rechargeable lithium-ion batteries.
While these batteries are used in many popular electronic devices, it's the growing popularity of electric vehicles (EVs) that has greatly revved up demand. Tesla's increasing production of its more affordable Model 3, which it began manufacturing in small quantities in mid-2017, should further put the pedal to the metal for lithium demand.
So, which are the best lithium mining stocks?
The 3 best lithium mining stocks
|Company||Market Cap||1-Year Return||5-Year Return||5-Yr. Projected Avg. Annual EPS Growth Rate||Forward P/E|
|Albemarle Corporation (NYSE:ALB)||$14.8 billion||44.7%||127%||15%||
|Sociedad Quimica y Minera de Chile (NYSE:SQM)||$16.5 billion||111%||30.8%||32.5%||
|FMC Corp. (NYSE:FMC)||$13.1 billion||68.1%||68.5%||17.2%||18.7|
The three largest players -- Albemarle Corporation, Sociedad Quimica y Minera de Chile (SQM), and FMC Corp. -- are the best way for most investors to invest in the lithium market. There are a good number of smaller lithium miners that are more speculative and unprofitable, and countless tiny and extremely speculative ones, many of which haven't yet even generated any revenue.
Albemarle: The largest lithium supplier
Albemarle is a specialty chemical company with leading positions in lithium, bromine, and refining catalysts. The Charlotte, North Carolina-based company became the world's largest supplier of lithium when it acquired Rockwood Holdings in January 2015. Albemarle is largely considered the world's largest lithium miner, with SQM not far behind in market share, and FMC coming in fourth or fifth, behind China's Tianqi Lithium and perhaps one other Chinese player.
Albemarle's lithium product sales jumped 58.3% to $729.3 million in the first nine months of 2017, accounting for 32.9% of its total sales of $2.21 billion. Its lithium business EBITDA (earnings before interest, taxes, depreciation, and amortization) for this period surged 66.8% to $328 million, or 51.3% of the total EBITDA for its operating units.
Albemarle obtains its lithium from three independent primary sources: Salar de Atacama, Chile; Silver Peak, Nevada; and its 49% share in Talison Lithium (Tianqi Lithium owns the 51% stake). At the Chile and Nevada locations, lithium is extracted from brine, while the Talison operation in Western Australia involves open-pit mining of ore containing the lithium-bearing mineral spodumene. Mined lithium is then refined into various lithium products for sale.
Driven by rising lithium demand, Albemarle has been expanding production capacity. In early 2017, it announced that it had received approval from the Chilean authorities to extract enough lithium to increase its annual Chilean battery-grade lithium carbonate production from 70,000 metric tons (MT) to 90,000 MT over the next four years. And in March 2017, it announced an expansion at its joint venture in Australia, slated to begin in Q2 of 2019, which will more than double lithium carbonate equivalent production capacity to more than 160,000 MT per year.
In September 2016, Albemarle announced that it had entered into an agreement with Bolland Minera S.A. for the exclusive exploration and acquisition rights to a lithium resource in Antofalla, within the Catamarca Province of Argentina. The company said that it believes that this lithium resource will be certified as the largest lithium resource in Argentina.
Analysts expect Albemarle's earnings per share (EPS) to increase at an average annual rate of 15% over the next five years. The company has delivered positive trailing-12-month free cash flow (FCF) for every period going back to 1998 -- a better record than SQM and FMC.
SQM: Has an attractive lithium business, but also a scandalous recent past
Sociedad Quimica y Minera de Chile, also known as SQM, has five business lines: specialty plant nutrition, iodine and derivatives, lithium and derivatives, industrial chemicals, and potassium.
Revenue from SQM's lithium and derivatives business increased 37.7% to $465.2 million during the first nine months of 2017. This business accounted for 29.4% of the company's total revenue of $1.58 billion during this period and an outsize 61% of its consolidated gross profit. (SQM doesn't provide the data to calculate the year-over-year change in profitability for its segments.) As with Albemarle, lithium revenue growth was due to an increase in sales volume combined with a strong rise in price.
Like Albemarle, SQM extracts lithium chloride (and other minerals) from underground brine at the Atacama Salt Desert in Chile. The company is expanding production capacity of lithium carbonate and lithium hydroxide in Chile and has a new brine project under way in Argentina. It also expects to soon move forward with a recently announced hard-rock lithium mining joint venture with Kidman Resources in Australia.
However, the Chilean company has been mired in scandals in recent years. In 2015, SQM was embroiled in a political campaign finance scandal, which revealed that in the process it had allegedly evaded income taxes on a portion of income. This led to three board members representing Canada's Potash Corp., which owns a 32% stake in SQM, resigning in protest, and to SQM firing its CEO. (Potash Corp. is now known as Nutrien, following its merger last month with Agrium.) In 2014, SQM Chairman Julio Ponce, a former son-in-law of late dictator Augusto Pinochet, who essentially controls SQM through a series of holding companies, was fined for insider trading. He was forced to resign in 2015.
Analysts expect SQM's year-over-year EPS to grow at a torrid pace of 32.5% over the next five years. This is the highest projected growth rate of the three big lithium players covered in this article, but the company's scandalous recent past means investors should tread carefully.
FMC Corp.: Highest-purity lithium producer, but very diversified
FMC Corp. formerly operated in three segments -- agricultural solutions, health and nutrition, and lithium -- but is down to two business units after selling its health and nutrition business to DuPont in 2017. (FMC acquired agricultural assets from DuPont in the transaction.)
Compared to Albemarle and SQM, FMC's lithium business accounts for a considerably smaller portion of its total revenue and profit. The Philadelphia-based company's lithium business revenue increased 20.9% to $234 million in the first nine months of 2017, accounting for 12.3% of its total sales of $1.90 billion. Its lithium business operating profit for this period soared 68.9% to $82.6 million, or 21.8% of total segment operating profit of $379.7 million. The company attributes its outsize profit growth to its strategy of converting lithium carbonate into higher-value downstream specialty products.
FMC touts that it's the most vertically integrated company in the lithium industry. It owns its brine lithium source, the Salar del Hombre Muerto in Argentina, and processing and production facilities, where the lithium carbonate that is produced from lithium chloride is further refined into such products as lithium metals and lithium hydroxide, bromide, and hypochloride. The company also claims its proprietary brine extraction technique yields the highest-purity lithium in the industry.
Analysts expect FMC's EPS will grow at an average annual rate of 17.2% over the next five years.
Lithium stock prices have risen significantly since early 2016, as investors (and speculators) have rushed in in a gold-rush-like frenzy. So the group may be in for further pullbacks, though the long-term outlook cointinues to look bright for select higher-quality players.