There have been some truly life-changing returns in the lithium sector over the few years. Over the last two years, stocks like Kidman Resources (+2136%) and Tawana Resources (+1786%) have produced returns of more than 10x. With huge numbers like this, it’s easy to think that the opportunity has passed. However, Todd Guyot from the Regal Australian Small Companies Fund believes the theme is still attractive – you just have to be more selective about your stocks now.
The demand growth for lithium is impressive. While EVs account for just 2% of global production currently, by 2025, Regal expects this number to grow to 16%. Even if this growth in EVs is not fully realised, it still provides a huge boost to lithium demand.
On the supply side, major South American producers such as SQM have promised to increase production. But will this really dampen prices?
“The marginal cost of production for [SQM’s] lithium in South America is going to be higher, which, if anything, will probably put upward pressure on lithium prices.”
- Currently, less than 2% of vehicles produced globally are EVs
- China is targeting 25% of domestic car production to be electric by 2025, and Regal estimates that EVs will account for 16% of car production globally
- South American producers have increased production in response, but this is higher cost
- Lithium producers in Australia are generally trading at less attractive valuations now
- Regal favours companies that are already producing, such as Galaxy Resources, and Orocobre.
For further information on Regal Funds Management, please visit the website.
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Mineral Resources (MIN) are producing from their Wodgina project and have in place plans to ramp up significantly.